NeuroBo Pharmaceuticals Inc

**1.**Business, basis of presentation, new accounting standards and summary of significant accounting policies

General

NeuroBo Pharmaceuticals, Inc. (the “Company), a Delaware corporation, and its subsidiaries are referred to collectively in these notes to the financial statements of the Company as “NeuroBo,” “we,” “our” and “us.”We are a clinical-stage biotechnology company focused primarily ondeveloping and commercializing novel pharmaceuticals to treat cardiometabolic diseases. NeuroBo has two programs currently focused on treatment of metabolic dysfunction-associated steatohepatitis (“MASH”) and obesity. MASH was formerly known as non-alcoholic steatohepatitis (“NASH”). The American Association for the Study of Liver Diseases and its European and Latin American counterparts changed the name to metabolic dysfunction-associated steatohepatitis to reflect the complexity of the disease.

While we primarily focus our financial resources and management’s attention on the development of DA-1241 and DA-1726, we also have four legacy therapeutic programs designed to impact a range of indications in viral, neurodegenerative and cardiometabolic diseases which we continue to consider for out-licensing and divestiture opportunities.

Our operations have consisted principally of performing research and development (“R&D”) activities, preclinical developments, clinical trials, and raising capital. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before sustainable revenues and profit from operations are achieved.

Common stock reverse stock splits

In December 2023, we completed aone-for-eight reverse stock split of our common stock (the “2023 Reverse Stock Split”). As a result, every eight shares of our issued and outstanding common stock were combined, converted and changed into one share of our common stock. Any fraction of a share of our common stock that was created as a result of the reverse stock split was rounded down to the next whole share and our stockholders received cash equal to the market value of the fractional share, determined by multiplying such fraction by the closing sales price of our common stock as reported on Nasdaq Capital Market LLC (“Nasdaq”)on the last trading day before the reverse stock split. The 2023 Reverse Stock Split was initially approved by our stockholders at the annual meeting of stockholders in June 2023. At the annual meeting, the stockholders approved a proposal to amend our certificate of incorporation to affect a reverse split of our outstanding common stock at a ratio in the range of one-for-five to one-for-eight to be determined at the discretion of our Board of Directors (“Board”). Following the annual meeting, our Board approved a one-for-eight reverse stock split of our issued and outstanding shares of common stock.

The 2023 Reverse Stock Split did not impact the number of authorized shares of common stock of 100,000,000 shares. For the reverse stock split, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, and warrants to purchase shares of our common stock, the number of shares issuable upon vesting of restricted stock units (“RSUs”) and the number of shares reserved for issuance pursuant to our equity incentive compensation plans. Specifically, for the Series A and B warrants issued in November 2022 that were outstanding on the effective date of the 2023 Reverse Stock Split, the number of outstanding warrants did

not change; instead, the warrants have anexchange ratio ofeight warrants for one share of our common stock.

In the accompanying condensed consolidated financial statements and these notes to the condensed consolidated financial statements, all historical numbers of shares of common stock and per share data have been adjusted to give effect to the 2023 Reverse Stock Split. Additionally, since the common stock par value was unchanged, historical amounts for common stock and additional paid-in capital have been adjusted to give effect to the 2023 Reverse Stock Split.

Going concern

The determination as to whether we can continue as a going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of our assets and the satisfaction of our liabilities in the normal course of business.

As reflected in the condensed consolidated financial statements, we had$16.0 million in cash as of March 31, 2024. We have experienced net losses and negative cash flows from operating activities since our inception and had an accumulated deficit of$115.0 million as of March 31, 2024. We have incurred a net loss of$6.7 million and used cash of$6.4 million for operating activities for the three months ended March 31, 2024. Due in large part to the ongoing Phase 2a clinical trial for DA-1241 and Phase 1 clinical trial for DA-1726, we expect to continue to incur net losses and negative cash flows from operating activities for the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern.

We believe that our existing cash will be sufficient to fund our operations into the fourth quarter of 2024. We plan to continue to fund our operations through a combination of equity offerings, debt financings, or other sources, potentially including collaborations, out-licensing and other similar arrangements. There can be no assurance that we will be able to obtain any sources of financing on acceptable terms, or at all. To the extent that we can raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital, we may slow down or stop our ongoing and planned clinical trials until such time as additional capital is raised and this may have a material adverse effect on us.

**A.**Basis of presentation

We prepared the condensed consolidated financial statements included in this Report following the requirements of the United States (“U.S.”) Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the U.S. (“GAAP”) for complete financial statements can be condensed or omitted. However, except as disclosed herein, there has been no material change in the information disclosed in the notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 ("2023 Form 10-K").

Revenues, expenses, assets, liabilities, and equities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year. In our opinion, all adjustments necessary for a fair statement of the financial statements, which are of a normal and recurring nature, have been made for the interim periods reported. The information included in this Report should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2023 Form 10-K. Certain amounts in the condensed consolidated financial statements and accompanying notes may not add due to rounding, and all percentages have been calculated using unrounded amounts.

**B.**New accounting standards

Adoption of new accounting standards

New accounting standards or accounting standards updates were assessed and determined to be either not applicable or did

not have a material impact on our condensed consolidated financial statements or processes.

Accounting standards issued but not yet adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU amends the guidance in Accounting Standards Codification (“ASC’) 740, Income Taxes, to improve the transparency of income tax disclosures by amending the required rate reconciliation disclosures as well as requiring disclosure of income taxes paid disaggregated by jurisdiction. As amended, the rate reconciliation disclosure will be required to be presented in both percentages and reporting currency amounts, with consistent categories and greater disaggregation of information. This ASU also includes amendments intended to improve the effectiveness of income tax disclosures and eliminate certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The amendments are effective for fiscal years beginning after December 15, 2024 and should be applied prospectively. Early adoption is permitted. We are currently evaluating the amendments to identify potential impacts to our notes to the consolidated financial statements and processes.

Other recently issued accounting standards not yet adopted by us are not expected, upon adoption, to have a material impact on our condensed consolidated financial statements.

**C.**Estimates and assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in our consolidated financial statements relate to accrued expenses and the fair value of stock-based compensation and warrants. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

**D.**Significant accounting policies

Our significant accounting policies are described in “Note 1. Business, basis of presentation, new accounting standards and summary of significant accounting policies” in the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which is included in our 2023 Form 10-K.

**2.**Prepaid and other current assets

Prepaid and other current assets consist of the following (in thousands):

**3.**Property and equipment

Property and equipment consist of the following(in thousands):

**4.**Accrued liabilities

Accrued liabilities consist of the following(in thousands):

5**.**Related party

We entered into a license agreement with Dong-A pursuant to which we received an exclusive global license (except for the territory of the Republic of Korea and certain other jurisdictions) to two proprietary compounds for specified indications (the “2022 License Agreement”) upon meeting certain financing milestones. The 2022 License Agreement covers the rights to DA-1241 for treatment of MASH and DA-1726 for treatment of obesity and MASH. The 2022 License Agreement also provides that we may develop DA-1241 for the treatment oftype 2 diabetes mellitus.

In connection with the 2022 License Agreement, we entered into a shared services agreement with Dong-A (the “Shared Services Agreement”), relating to DA-1241 and DA-1726, pursuant to which Dong-A may provide technical support, preclinical development, and clinical trial support services on terms and conditions acceptable to both parties. In addition, the Shared Services Agreement provides that Dong-A will manufacture all of our clinical requirements of DA-1241 and DA-1726 under the terms provided in the Shared Services Agreement.

We incurred R&D expenses of$175 thousand and$326 thousand for the three months ended March 31, 2024 and 2023, respectively under the Shared Services Agreement, which are included in operating expenses in the accompanying condensed consolidated statements of operations. As of March 31, 2024, we have an aggregate payable to Dong-A of$969 thousand under the Shared Services Agreement, of which$794 thousand is included in accounts payable and$175 thousand is included in accrued liabilities in the accompanying condensed consolidated balance sheets. As of December 31, 2023 we have a payable to Dong-A of$789 thousand under the Shared Services Agreement. which is included in accrued liabilities in the accompanying condensed consolidated balance sheets.

For additional information on the 2022 License Agreement, the Shared Service Agreement and other agreements with Dong-A, refer to “Note 5. Related party” in the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which is included in our 2023 Form 10-K.

**6.**Commitments and contingencies

Operating lease

In August 2023, we entered into a non-cancelable operating lease for our new corporate headquarters in Cambridge, Massachusetts. The initial lease term is forthree years with an option to renew for an additionaltwo-year term. The lease commenced in September 2023 and expires in August 2026. We recorded lease rental expense of$22 thousand for the three months ended March 31, 2024 and made cash lease payments of$21 thousand during the three months ended March 31, 2024.

Our lease liability, which represents the net present value of future lease payments, was calculated utilizing a discount rate of 11%, which corresponds to our estimated incremental borrowing rate.

Additionally, we had short-term operating leases for our former corporate headquarters located in Boston, Massachusetts and such lease was terminated in January 2024. For our former corporate headquarters, no rental expenses were recorded for the three months ended March 31, 2024 and rental expense of $5 thousand was recorded for the three months ended March 31, 2023.

**7.**Stockholders’ equity

Warrants

The following tables summarize our outstanding warrants:

The outstanding warrants are all exercisable as of March 31, 2024 and December 31, 2023. Additionally, the November 2022 Series B warrants have a cashless exercise provision whereby eight warrants can be exchanged for one share of common stock forno additional consideration, which results in an effective per warrant exercise price ofzero rather than the $3.00 as stated in the warrants.

During the three months ended March 31, 2023,345,333 Series A warrants issued in November 2022 and 1,395,333 Series B warrants issued in November 2022 were exchanged for 43,167 shares and 174,417 shares of our common stock, respectively. Additionally, as of December 31, 2023, the Series A warrants issued in November 2022 were fully exchanged for shares of our common stock.

8. Stock-based compensation

Stock-based compensation expense was included in general and administrative and research and development as follows(in thousands):

For stock options and RSUs granted under the 2019 Equity Incentive Plan, the 2021 Inducement Plan and the 2022 Equity Incentive Plan (the “2022 Plan”), as of March 31, 2024, unrecognized stock-based compensation cost totaled $786 thousand. The unrecognized stock-based expense is expected to be recognized over a weighted average period of 1.3 years.

Stock-based award plans

As of March 31, 2024, there were (i)2,569 outstanding stock options under the 2019 Plan, and (ii)3,125 outstanding stock options and 194,954 outstanding RSUs under the 2022 Plan. As of March 31, 2024, we had an aggregate of 416,227 shares available for future issuance, of which 4,166 shares were available under the 2021 Inducement Plan and 412,061 shares were available under the 2022 Plan.

Stock options

The following table summarizes the status of our outstanding and exercisable options and related transactions for the period presented (in thousands, except share and per share amounts):

The weighted average fair value per share of stock options granted for three months ended March 31, 2023 was $3.63. We estimated the grant date fair value of stock options granted to employees, consultants, and directors using the Black-Scholes option pricing model. We do not have history to support a calculation of volatility and expected term; as such, we have used a weighted-average volatility considering the volatilities of several guideline companies. In identifying similar entities, we considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on our expectation of not paying dividends in the foreseeable future. The average expected life of the stock options was determined based on the mid-point between the vesting date and the end of the contractual term, known as the “simplified method,” or the contractual term in cases where the “simplified method” was precluded. The risk-free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant.

The assumptions used in the Black-Scholes option-pricing model are as follows:

Restricted Stock Units

The following table summarizes the status of our RSUs and related transactions for the period presented (in thousands, except share and per share amounts):

We estimated the grant date fair value of restricted stock units granted to employees, consultants, and directors based onthe closing sales price of our common stock as reported on Nasdaq on the date of grant.

**9.**Income taxes

We do not expect to pay any significant federal or state income taxes as a result of (i) the losses recorded during the three months ended March 31, 2024 and 2023, (ii) additional losses expected for the remainder of 2024 or losses recorded in 2023, or (iii) net operating loss carry forwards from prior years.

We recorded a full valuation allowance of the net operating losses for the three months ended March 31, 2024 and 2023. Accordingly, there wereno benefits for income taxes recorded for the three months ended March 31, 2024 and 2023. Additionally, as of March 31, 2024 and December 31, 2023, we maintain a full valuation allowance for all deferred tax assets.

10. Loss per share of common stock

The following table sets forth the computation of basic and diluted loss per share of common stock(in thousands, except share and per share amounts):

Our basic weighted average shares of common stock for the three months ended March 31, 2024 include the (i) November 2022 Series B warrants since these warrants are exchangeable into common stock for which no additional consideration is required from the holder and (ii) vested RSUs in which their release was deferred in accordance with the respective award agreement. Our basic weighted average shares of common stock for the three months ended March 31, 2023 include both the November 2022 Series A and Series B warrants since these warrants were exchangeable into common stock for which no additional consideration is required from the holder.

Since we reported a net loss for the three months ended March 31, 2024 and 2023, our potentially dilutive securities are deemed to be anti-dilutive, accordingly, there was no effect of dilutive securities. Therefore, our basic and diluted loss per share of common stock and our basic and diluted weighted average shares of common stock are the same for three months ended March 31, 2024 and 2023.

The following table sets forth the outstanding securities which were not included in the calculation of diluted earnings per share of common stock for three months ended March 31, 2024 and 2023:

11. Fair value of financial instruments

Fair value is a market-based measurement, not an entity specific measurement and is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements are defined on a three-level hierarchy:

Level 3: Unobservable inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

The following table sets forth our financial assets and liabilities, subject to fair value measurements on a recurring basis, by level within the fair value hierarchy(in thousands):

The Series A and Series B warrants, issued in November 2022, are considered to be derivative instruments; accordingly, we recorded their estimated fair value as warrant liabilities. We estimated the fair value of these warrants using the trading market price of our common stock due to the cashless exercise provision of these warrants, which results in an effective per warrant exercise price ofzero rather than $3.00 as stated in the warrants.

12. Subsequent events

Management has evaluated subsequent events to determine if events or transactions occurring through the filing date of this Report require adjustment to or disclosure in the condensed consolidated financial statements. There were no events that require adjustment to or disclosure in the condensed consolidated financial statements.