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 condensed consolidated 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. 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, which includes preclinical developments and 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 a one-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 2023 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 the Nasdaq Capital Market LLC (“Nasdaq”)on the last trading day before the 2023 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 2023 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 Warrants and Series 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 of eight 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 $27.9 million in cash as of June 30, 2024. We have experienced net losses and negative cash flows from operating activities since our inception and had an accumulated deficit of $125.0 million as of June 30, 2024. We have incurred a net loss of $16.8 million and net cash used of $13.7 million for operating activities for the six months ended June 30, 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 second quarter of 2025. Our existing cash includes gross proceeds of $20.0 million, of which $10.0 million was received from Dong-A ST Co., Ltd., a related party (“Dong-A”), in connection with the closing of the Offering (as defined below) in June 2024. We plan to continue to fund our operations through a combination of proceeds of (i) up to $20.0 million from the potential future exercise of Series A Warrants issued in the Offering before deducting for certain issuance costs, such as placement agent fees and expenses and (ii) from equity offerings, debt financings, or other sources, potentially including collaborations, out-licensing and other similar arrangements. If the Series A Warrants issued in the June 2024 Offering are exercised, we believe that the additional gross proceeds to us from such exercises would be sufficient to fund our operations into 2026. There can be no assurance that we will be able to obtain any sources of financing on acceptable terms, or at all, or that the Series A Warrants will be exercised. To the extent that we can raise additional funds by issuing equity securities or in the event our existing warrants are exercised, 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 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 condensed consolidated financial statements may not be representative of those for the full year. In our opinion, all adjustments necessary for a fair statement of the condensed consolidated financial statements, which are of a normal and recurring nature, have been made for the interim periods reported. The information included in the condensed

consolidated financial statements should be read in conjunction with the audited 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 Financial Accounting Standards Board issued Accounting Standard Update (“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.

E.Reclassification of prior year presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. Adjustments have been made to the condensed consolidated balance sheets to reclassify the presentation of certain current liabilities related to clinical trial accrued liabilities of $3.0 million and related party payable of $0.8 million from accrued expenses and other current liabilities. These reclassifications had no effect on the reported total current liabilities in the condensed consolidated balance sheets.

**2.**Prepaid expenses and other current assets

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

**3.**Property and equipment, net

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

**4.**Accrued expenses and other current liabilities

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

**5.**Warrant liabilities

Changes to our warrant liabilities are summarized as follows (in thousands):

Our warrant liabilities relate to the 2022 Series A Warrants and 2022 Series B Warrants, which were issued in November 2022. These warrants 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 a cashless exercise provision of these warrants 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.

6**.**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) for 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$3.4 million and$3.6 million for the three and six months ended June 30, 2024, respectively, and$1.5 million and$1.8 million for the three and six months ended June 30, 2023, respectively, under the Shared Services Agreement, which are included in operating expenses: research and development in the accompanying condensed consolidated statements of operations. We have anaggregate payable to Dong-A of$3.6 million and$0.8 million as of June 30, 2024 and December 31, 2023, respectively, under the Shared Services Agreement, which are included in related party payable 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.

**7.**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 and$44 thousand for the three and six months ended June 30, 2024, respectively, and we made cash lease payments of$21 thousand and$43 thousand during the three and six months ended June 30, 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 and six months ended June 30, 2024, and we recorded rental expense of $6 thousand and $11 thousand for the three and six months ended June 30, 2023, respectively.

**8.**Stockholders’ equity

June 2024 offering

Securities purchase agreements

In June 2024, we entered into and closed ontwo securities purchase agreements (the “Offering”)with an institutional accredited investor and Dong-A, andreceived aggregate gross proceeds of $20.0 million, of which $10.0 million was received from Dong-A. The Offering was comprised of (i)3,307,889 shares of common stock at a purchase price of $3.93 per share, (ii) pre-funded warrants to purchase up to 1,781,171 shares of common(the “Pre-Funded Warr ants”) at a purchase price of $3.929 per warrant, (iii) Series A warrants to purchase 5,089,060 shares of common stock (the “Series A Warrants”), and (iv) Series B warrants to purchase up to 7,633,591 shares of common stock (the “Series B Warrants”). Collec tively, the Series A Warrants and the Series B Warrants are referred to as “PIPE Common Warrants.” Of the total shares of common stock issued in the Offering,763,359 shares were sold to an institutional investor pursuant to our

effective shelf registration statement on Form S-3 (Registration No. 333-278646), initially filed with and declared effective by the SEC in April 2024, and a prospectus supplement filed with the SEC in June 2024.

The Pre-Funded Warrant has an exercise price of $0.001 per share and is immediately exercisable and will expire when exercised in full and the PIPE Common Warrants have an exercise price of $3.93 per share and will be exercisable beginning on the effective date of stockholder approval of the issuance of the shares upon exercise of the warrants (the “Stockholder Approval”). We are currently planning to hold a Special Meeting of Stockholders in September 2024 to seek Stockholder Approval for certain warrants issued in connection with the Offering. Additionally, prior to the closing of the Offering in June 2024, we received a letter agreement from Dong-A whereby Dong-A irrevocably agreed to vote all of the shares of Company’s voting stock over which Dong-A have voting control in favor of any resolution presented to the stockholders of the Company related to the Stockholder Approval.

The Series A Warrants will expire on the earlier of thetwelve month anniversary of the Stockholder Approval and within 60 days following the public announcement of the Company receiving positive Phase 1 multiple ascending dose (“MAD”) data readout for DA-1726, and the Series B Warrants will expire on the earlier of thefive years anniversary of the Stockholder Approval and withinsix months following the public announcement of the Company receiving positive Phase 1 Part 3 data readout for DA-1726. Based on the terms of the PIPE Common Warrants, we have concluded that the accounting classification of the PIPE Common Warrants is to be stockholders’ equity

Under the terms of the Pre-Funded Warrants and the PIPE Common Warrants issued to the institutional accredited investor, we may not affect the exercise of any such Pre-Funded Warrant or PIPE Common Warrants, and the holder will not be entitled to exercise any portion of any Pre-Funded Warrant or PIPE Common Warrants, if, upon giving effect to such exercise, the aggregate number of shares of common stock beneficially owned by the holder (together with its affiliates, other persons acting or who could be deemed to be acting as a group together with the holder or any of the holder’s affiliates, and any other persons whose beneficial ownership of common stock would or could be aggregated with the holder’s or any of the holder’s affiliates) would exceed 9.99% (in the case of the Pre-Funded Warrants) or 4.99% (in the case of the PIPE Common Warrants) of the number of shares of the Company’s outstanding common stock immediately after giving effect to the exercise (the “Beneficial Ownership Limitation”), as such percentage ownership is calculated in accordance with Section 13(d) of the Exchange Act and the applicable regulations of the SEC. A holder of the Pre-Funded Warrant or PIPE Common Warrants that were issued to the institutional accredited investor may increase or decrease the Beneficial Ownership Limitation to a higher or lower percentage (not to exceed 9.99%), effective 61 days after written notice to us. Any such increase or decrease will apply only to that holder and not to any other holder of the Pre-Funded Warrants or PIPE Common Warrants.

Placement agent

We paid to the placement agent a cash fee equal to 7.0% of the gross proceeds of the Offering received from a certain institutional investor and$0.1 million for non-accountable expenses and clearing costs. In addition, we issued warrants to the placement agent’s designees (“Placement Agent Warrants”) to purchase up to 127,227 shares of common stock (which represents 5% of the sum of the shares of common stock and Pre-Funded Warrants sold to the institutional investor in the Offering) at an exercise price of$4.9125 per share (which represents a premium of 25% of the offering price per share of common stock in the Offering). The Placement Agent Warrants will be exercisable beginning on the effective date of the Stockholder Approval and will expire on the earlier of (i)two years after the date that the shares of common stock underlying the Placement Agent Warrants are registered pursuant to an effective registration statement filed pursuant to the Securities Act of 1933, as amended, which occurred on July 24, 2024, and (ii) June 23, 2029. The fair value of the Placement Agent Warrants was$0.3 million, which represents a non-cash issuance cost. The weighted average fair value per share of these Placement Agent Warrants was$2.73, and was determined using the Black-Scholes option pricing model with the following assumptions: expected stock price volatility of 140.0%, expected term of 2.1 years, expected dividend yield of 0%, and risk-free interest rate of 4.63%. Based on the terms of the Placement Agreement Warrants, we have concluded that the accounting classification of the Placement Agent Warrants is stockholders’ equity in the accompanying condensed consolidated balance sheets.

Upon the exercise for cash of any PIPE Common Warrants issued to a certain institutional investor, we shall pay the placement agent (i) a cash fee of 7.0% of the aggregate gross exercise price paid in cash with respect thereto and (ii) a non-cash fee in the form of additional warrants to purchase the number of shares of common stock equal to 5.0% of the aggregate number of such shares of common stock underlying such warrants. The cash fee payable to the placement agent for any PIPE Common Warrants exercised by the institutional investor is accounted for as a contingent commitment and will be recorded as an offset to any gross proceeds received from any future exercises of PIPE Common Warrants by the institutional investor. The non-cash fee payable to the placement agent for any PIPE Common Warrants exercised by the institutional investor is accounted for as contingent warrants (“Placement Agent Contingent Warrants”) to purchase up to 318,067 shares of common stock, which is subject to performance criteria of the institutional investor regarding any exercise for cash of any PIPE Common Warrants with an assumed grant date of the Offering closing date, and an exercise price of $4.9125 per share. The weighted average fair value per share of these Placement Agent Contingent Warrants was $3.43 and was determined using the Black-Scholes option pricing model with the following assumptions: expected stock price volatility of 127.0%, expected term of 5.7 years, expected dividend yield of 0%, and risk-free interest rate of 4.31%. Based on the terms of the placement agent engagement letter, we have concluded that the accounting classification of the Placement Agent Contingent Warrants is to be stockholders’ equity. On each balance sheet reporting date, we will need to assess whether it is probable for us to issue warrants to the placement agent based on whether it is probable for any PIPE Common Warrants to be exercised by the institutional investor. As of June 30, 2024, we determined that the issuance of additional warrants to the placement agent is not yet probable; accordingly, the Placement Agent Contingent Warrants had no impact on the condensed consolidated balance sheets.

Warrants

The following tables summarize our outstanding warrants:

with the SEC. In July 2024, a resale registration statement was filed with the SEC and became effective.

Additionally, during the six months ended June 30, 2023,6,345,333 Series A warrants issued in November 2022 were exchanged for 793,167 shares of our common stock. Furthermore, as of December 31, 2023, the Series A warrants issued in November 2022 were fully exchanged for shares of our common stock.

**9.**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 “2019 Plan”), the 2021 Inducement Plan and (the “Inducement Plan”) the 2022 Equity Incentive Plan, as amended (the “2022 Plan”), as of June 30, 2024, unrecognized stock-based compensation cost totaled $0.8 million. The unrecognized stock-based expense is expected to be recognized over a weighted average period of 1.8 years.

Stock-based award plans

In June 2024, in connection with the 2024 Annual Meeting of Stockholders, our stockholders approved an amendment to our 2022 Plan (the “Amendment”). Pursuant to the terms and conditions of the Amendment, the 2022 Plan was amended to:

described above, but in no event more than 15 million shares of the common stock issued as incentive stock options.

As of June 30, 2024, there were (i)1,575 outstanding stock options under the 2019 Plan, and (ii)3,125 outstanding stock options and 218,113 outstanding RSUs under the 2022 Plan. As of June 30, 2024, we had an aggregate of 385,921 shares available for future issuance, of which 4,166 shares were available under the Inducement Plan and 381,755 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):

During the six months ended June 30 2023, we granted 3,125 stock options and the weighted average fair value per share of these stock options 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. The assumptions used in the Black-Scholes option-pricing model were as follows: expected stock price volatility of 82.9%, expected term of 5.0 year, expected dividend yield of 0%, and risk-free interest rate of 3.54%.

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.

**10.**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 and six months ended June 30, 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 and six months ended June 30, 2024 and 2023. Accordingly, there wereno benefits for income taxes recorded for the three and six months ended June 30, 2024 and 2023. Additionally, as of June 30, 2024 and December 31, 2023, we maintain a full valuation allowance for all deferred tax assets.

**11.**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):

For each of the periods presented in the above table, our basic weighted average shares of common stock include any outstanding (i) November 2022 Series A warrants and Series B warrants, (ii) June 2024 Pre-Funded Warrants and (iii) vested RSUs in which their release was deferred in accordance with the respective award agreement during the respective period.

Since we reported a net loss for the three and six months ended June 30, 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 and six months ended June 30, 2024 and 2023. The following table sets forth the potentially dilutive securities which were not included in the calculation of diluted earnings per share of common stock for three and six months ended June 30, 2024 and 2023:

**12.**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):

**13.**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. Except for the following events, there were no other events that require adjustment to or disclosure in the condensed consolidated financial statements.

In August 2024, we issued 229,171 shares of common stock in connection with an exercise of Pre-Funded Warrants.