S-1/A

As filed with the Securities and Exchange Commission on November 20, 2018.

Registration No. 333- 227122

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1/A

(Amendment No. 3 )

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

INMUNE BIO INC.

(Exact name of registrant as specified in its charter)

Nevada	2836	47-5205835
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

INMUNE BIO INC.

David Moss

1224 Prospect Street, Suite 150

La Jolla, CA 92037

Phone: (858) 964 3720

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

David Moss

1224 Prospect Street, Suite 150

La Jolla, CA 92037

Phone: (858) 964 3720

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Marc Ross, Esq. Sichenzia Ross Ference LLP 1185 Avenue of the Americas, 37th Floor New York, NY 10036 (212) 930-9700 William Rosenstadt, Esq. Mengyi “Jason” Ye, Esq. Yarona Yieh, Esq. Ortoli Rosenstadt LLP 366 Madison Ave, 3rd Floor New York, NY 10017 (212)588-0022

Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, emerging growth company, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “emerging growth company”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	x
Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ¨

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered		Proposed Maximum Offering Price Per Security		Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee
Common Stock, $0.001 par value being offered by the Company (2)		2,500,000	$	8.00	$	20,000,000	$	2,424.00
Placement Agents’ Common Stock Purchase Warrants (3)
Common Stock underlying Placement Agents’ Common Stock Warrants (2)(4)		100,000	$	9.60	$	960,000	$	116.35
Total		2,600,000			$	20,960,000	$	2,540.35	(5)

(1) Estimated solely for purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act.

(2) Pursuant to Rule 416 under the Securities Act, the shares of Common Stock registered hereby also include an indeterminate number of additional shares of Common Stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.

(3) We have agreed to issue warrants exercisable within five years after the effective date of this registration statement representing an aggregate of 4% of the shares issued in the offering (the “Placement Agents’ Warrants”) to the Placement Agents. Resales of the Placement Agents’ Warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, are registered hereby. Resales of shares issuable upon exercise of the Placement Agents’ Warrants are also being similarly registered on a delayed or continuous basis hereby. See “Plan of Distribution.”

(4) No fee required pursuant to Rule 457(g) under the Securities Act of 1933, as amended.

(5) Previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED November 20, 2018

 

INMUNE BIO INC.

Up to 2,500,000 Shares of Common Stock

 

INmune Bio Inc. is offering a minimum of 1,000,000 shares of our common stock (the “Minimum Shares Offering”) for gross proceeds of $8,000,000 (the “Minimum Offering Amount”) before deduction of commissions and offering expenses and a maximum of up to 2,500,000 shares (“Maximum Shares Offering”) of our common stock for gross proceeds of $20,000,000 before deduction of commissions and offering expenses (“Maximum Offering Amount”).

All funds sent to us by investors to purchase the common stock will be deposited in a non-interest bearing escrow account, maintained at and by Signature Bank (the “Escrow Agent”). Within three business days of receipt of the Minimum Offering Amount in escrow, we will close on the subscription amounts in escrow as of such date subject to the Maximum Offering Amount. Thereafter, from time to time, we will have additional closings until the earlier of the date on which the Maximum Offering Amount has been sold or. If we do not sell and receive payments for the Minimum Offering Amount prior to 120 days from the effective date of the registration statement (unless extended by the Company and the Placement Agents for an additional 60 days), investor subscriptions will be returned without interest or deduction by the noon of the second banking day following such date.

Our common stock is not traded on any national securities exchange and is not quoted on any over-the-counter market. We applied to list our Common Stock on the Nasdaq Capital Market under the symbol “INMB”. We will not conduct this offering unless our shares are quoted on a national exchange. Our application might not be approved.

We have retained Univest Securities, LLC to act as our lead placement agent and WallachBeth Capital, LLC and WestPark Capital, Inc. to act as co-managers (Univest, WallachBeth and WestPark Capital are referred to herein as the “Placement Agents”) in connection with this offering and to use their “best efforts” to solicit offers to purchase all or nothing with respect to the Minimum Shares Offering and “best efforts” with respect to the Maximum Shares Offering. The Placement Agents are not purchasing or selling any securities pursuant to this offering. The closing of the offering will only occur if at least the Minimum Share Offering amount of common stock are being sold. See “Plan of Distribution” beginning on page 98 of this prospectus for more information regarding these arrangements.

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements.

Our business and an investment in our securities involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of information that you should consider before investing in our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Public Offering Price		Placement Agent Fees (1)		Proceeds, before expenses		Proceeds, before expenses
	Per share		Per Share		Per Share		Total
Minimum Share Offering	$	8.00	$	0.56	$	7.44	$	7,440,000
Maximum Share Offering	$	8.00	$	0.56	$	7.44	$	18,600,000

__________  

(1) In addition to the 7% placement agent fees and warrants to purchase a number of shares equal to 4% of the shares sold in the offering as described in the Plan of Distribution, we have advanced Univest $30,000 in expense that we anticipated would be incurred. In the event that the offering is terminated or does not occur, the expense advancement will be refunded to us to the extent not actually incurred. We will reimburse the Placement Agents for their reasonable out-of-pocket expenses in connection with the performance of its services under the placement agent agreement not to exceed $100,000. We have also agreed to pay Univest an advisory fee of $30,000 upon the closing of our Offering.

Univest Securities, LLC		Wallachbeth Capital, LLC
	WestPark Capital, Inc.

The date of this prospectus is         , 2018.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS	1
PROSPECTUS SUMMARY	2
SUMMARY OF THE OFFERING	7
RISK FACTORS	9
USE OF PROCEEDS	33
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	35
DIVIDEND POLICY	35
CAPITALIZATION	36
DILUTION	36
BUSINESS	37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	70
MANAGEMENT	80
EXECUTIVE COMPENSATION	86
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	90
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	91
DESCRIPTION OF SECURITIES	94
LEGAL MATTERS	97
EXPERTS	97
WHERE YOU CAN FIND MORE INFORMATION	98
PLAN OF DISTRIBUTION	98

You should rely only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the Placement Agents have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell our securities. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of securities. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the Placement Agents are not making an offer of these securities in any jurisdiction where the offer is not permitted.

 

For investors outside the United States: We have not and the Placement Agents have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of securities and the distribution of this prospectus outside the United States.

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FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” Forward-looking statements reflect our current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements, include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, our ability to raise capital to fund continuing operations; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize products and services; changes in government regulation; our ability to complete capital raising transactions; and other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations. Actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read the following summary together with the more detailed information regarding us and our common stock being sold in the offering, including the risks of investing in our common stock discussed under “Risk Factors,” beginning on page 9 and our historical and pro forma condensed combined financial statements and the related notes appearing elsewhere in this prospectus, before making an investment decision. For convenience, in this prospectus, unless the context suggests otherwise, the terms “we,” “our,” “our company,” “Company” and “us” and “INmune Bio” refer to INmune Bio Inc., a Nevada corporation.

 

We are a pharmaceutical clinical stage immunotherapy company focused on developing pioneering strategies for oncology that focus on re-engineering and harnessing the innate immune system to treat the patient’s cancer. INmune Bio product candidates (“INMB”) target cells of the innate immune system that include natural killer cells (“NK cells”) and myeloid derived suppressor cells, (“MDSC cells”). We plan to seek FDA approval to develop our two existing drug platforms, INKmune (“INKmune”) and INB03 (“INB03”) that harness the innate immune system to provide a unique set of therapies for patients with cancer.

The immune system has two parts – the adaptive immune system and the innate immune system. Oncology research has focused on leveraging the adaptive immune system (“T-cells”) to attack the cancer. The innate immune system has been less intensively studied. We believe that the innate immune system must be part of the fight along with the adaptive immune system to properly treat cancer and our product platforms may help address these issues.

A primary role of the innate immune system is attacking the cancer to both kill the cancer cells, especially residual disease, and to expand the immune response by recruiting cytotoxic T cells of the adaptive immune system. The cancer causes dysfunction of the innate immune system that allows it to evade the immune system, grow and kill the patient. There are two types of innate immune system dysfunction – “effector dysfunction” and “protector dysfunction”. The ability of the cancer cell to evade NK cell killing is “effector dysfunction”. Without effective NK cell killing the patient’s immune system cannot help the patient eradicate their cancer. The second element of the dysregulated innate immune response to the cancer involves the MDSC. In patients with advanced cancer, especially with chronic inflammation associated with the cancer, part of the dysregulated immune response to that cancer is proliferation of the MDSC cell population that secrete cytokines that provide an “immunosuppressive shield” around the cancer that prevents the patient’s immune system from attacking the tumor. We term this “protector dysfunction.” This complicated two-part dysfunction of the innate immune system results in an immune system that both ignores the tumor and cannot attack the tumor because of the localized immunosuppressive shield that surrounds the cancer. We believe successful immunotherapy for cancer must accomplish two equally important goals: First, the innate immune system must be stimulated to attack the cancer – eliminate “effector dysfunction” by improving NK cell ability to kill tumors and, second, eliminate “protector dysfunction”, by eliminating the MDSC population so the newly energized immune system can better target the tumor cells`. In many patients with cancer, effector and protector function occur simultaneously. Without addressing these immunologic defects, the probability of success is limited and the patient may suffer relapse and progression of their cancer.

 

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 We believe our product candidates, INKmune and INB03 address the dysfunction of innate immune system’s response to cancer and can be used alone or in combination with each other or in combination with other cancer therapies. INKmune is focused on improving effector function. INKmune is designed to convert inert NK cells that ignore the patient’s cancer into NK cells that will attack the patient’s cancer. INB03 is focused on the protector function. INB03 prevents proliferation and function of the patient’s MDSC population to limit the immunosuppressive shield around the cancer and promote interaction between NK cells and dendritic cells (“DC”), called NK/DC crosstalk, a critical step in recruiting the adaptive immune system to the fight the cancer. Each product candidate has a unique mechanism that allows them to be used alone, in combination with each other or in combination with other cancer therapies. Furthermore, because each product candidate targets the patient’s immune system, they can be used to treat a wide variety of cancers; both hematologic malignancies and solid tumors. INmune Bio has focused on re-engineering the patient’s immune system to attack their cancer and not on type of cancer the patient has.

INB03 aims to combat tumor based immunosuppression by preventing soluble tumor necrosis factor (“sTNF”) induced proliferation of the MDSC population and decreasing the immunosuppressive cytokines in the tumor microenvironment that protect the tumor from attack by the patient’s immune system. By inhibiting the immunosuppressive factors, there is an increase in immune regulatory cytokines that promotes NK/DC cross-talk to recruit the cytotoxic T cells of the adaptive immune system to fight the cancer. Finally, because MDSC may cause a patient’s tumor to be resistant or refractory to immunotherapy, combination therapy with INB03 may eliminate MDSC based resistance and improve the response to many immunotherapy drugs including checkpoint inhibitors (“CPI”).

Neither INKmune nor INB03 have been in clinical trials. We will start the clinical development program of each product platform separately. We plan to initiate four clinical trials in the next two years. The first clinical trials with each program will be monotherapy trials where the patient will only receive one therapy. Later in development, we plan to use INB03 as part of combination therapy with an approved checkpoint inhibitor as part of the Phase II program. We anticipate the trials will cost $2,500,000, and we intend to fund them through cash on hand and proceeds received in this offering. If we raise the minimum amount in this offering, we intend to use the proceeds to complete the INB03 Phase I trial and the INKmune Phase I/II trial in ovarian cancer. The INB03 Phase I trial started in the second quarter of 2018. The INKmune Phase I/II trial in women with ovarian cancer is expected to begin by the first quarter of 2019. If we raise the maximum amount in this offering, we intend to use the proceeds to also complete the INB03 Phase II trial and the INKmune Phase I/II trial in patients with high risk MDS.

Currently, there are no active INDs or equivalent applications for any of our product candidates. The following table sets out those clinical trials we plan to initiate in the next two years.

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Product Candidate	Disease. Phase and Design
INKmune for patients with ovarian cancer	We intend to use funds from the offering to conduct a Phase I/II biomarker directed trial of intraperitoneal INKmune in women with relapse/refractory ovarian cancer (PII is randomized with active control). We anticipate that the INKmune ovarian cancer Phase I/II trial will be complete by the first quarter of 2020. We are in the process of submitting regulatory documents to allow the initiation of the clinical trial. A Scientific Advice meeting was held with the Medicines and Healthcare Products Regulatory Authority (“MHRA”) of the UK on September 7, 2017 to discuss our plans for the Phase I/II clinical trial. After receiving comments, we are in the process of submitting a Clinical Trials Authorization (CTA; MHRA equivalent of an IND). We expect to submit the CTA in the [third] quarter of 2018. We plan to perform the Phase I portion of the trial in the United Kingdom. We may conduct the Phase II portion of the trial in the United States. If we expand into the United States for the Phase II portion of the clinical trial, we will apply for an IND from the FDA using data from the Phase I trial.
INKmune for patients with high risk MDS	If we raise the maximum amount, we intend to use funds from the offering to conduct a Phase I/II biomarker directed trial of intravenous INKmune in patients with high risk MDS not eligible for stem cell transplant (PII is randomized with active control). We intend to start this trial in the first half of 2019. We expect that the INKmune Phase I/II patients with high risk MDS will follow a similar path as the INKmune trial in ovarian cancer. We plan a scientific advice meeting with the MHRA to discuss the high-risk MDS program followed by initiation of the Phase I/II trial at sites in the United Kingdom. We may expand the clinical trial to sites in the United States or other jurisdictions. If we conduct any portion of the Phase I/II trial in the United States, an IND will be filled with the FDA using data from the UK sites.
INB03 Phase I	We intend to use funds from the offering to conduct a Phase I open label dose escalation trial in patients with advanced solid tumors and elevated biomarkers of inflammation measurable in their circulation. We expect the INB03 Phase I trial to complete enrollment of patients 12 months after enrollment of the first patient into the trial and to be completed by the third quarter of 2019. We intend to conduct the Phase 1 clinical trial for INB03 in Australia using the Clinical Trial Notification scheme (“CTN”) regulatory pathway. The regulatory approval to begin the Phase I trial was received on May 21, 2018. We expect to enroll the first patient in the Phase I INB03 trial in the third quarter of 2018. We will apply for an IND in the United States to allow us to expand the Phase II program to the United States using data from the Phase I trial.
IBN03 Phase II	If we raise the maximum amount, we intend to use funds from the offering to conduct a Phase II biomarker directed combination therapy trial, INB03+checkpoint inhibitor, cancer patients proven to be refractory/resistant first line therapy who have elevated biomarkers of inflammation measurable in their blood. We can only start this trial once the IBN03 Phase I trial is complete. We intend to start this trial in the first quarter of 2020.

Because the studies are biomarker directed, open label clinical trial, clinical data becomes available 6 months after enrollment of the first patient. These data will be communicated to investor and will be used for interaction with future partners. As the data becomes available, we may decide to alter the order or focus of the development programs. Once we have established safety and efficacy individually, we may choose to combine the product platforms in a single patient or combine the product candidates with other cancer therapies including immunotherapy such as CPI. Each product candidate can be used as a stand-alone anti-cancer therapy. There may be benefits to using each or both product candidates as part of combination therapy. At this time, we cannot predict what combination therapies will be used or most effective.

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We lease office space at 1224 Prospect Street, Suite 150, La Jolla, CA 92037. Our phone number is 1-858-964-3720 and our website address is www.inmunebio.com. The references to our website in this prospectus are inactive textual references only. The information on our website is neither incorporated by reference into this prospectus nor intended to be used in connection with this offering.

Risks Associated With Our Business, the offering and our Common Stock.

Our business is subject to numerous risks described in the section entitled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. Some of these risks include:

· We have no approved products on the market and have generated no product revenues to date.

· We will need additional capital. If additional capital is not available or is available at unattractive terms, we may be forced to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail our operations.

· We have a limited operating history, and expect to incur significant additional operating losses.

· We are currently focused on the development of two product candidates.

· We depend on obtaining certain patents and protecting our proprietary rights.

· Clinical drug development involves a lengthy and expensive process with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete the development and commercialization of our product candidate.

· We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may suffer if we fail to compete effectively.

· There is no public market for our common stock and you may have to hold your shares of our common stock for an indefinite period of time.

· The majority of our common stock is controlled by insiders.

 

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JOBS Act As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (or the “Securities Act”), for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. An emerging growth company may also take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
	·	we may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;

· not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;

· reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

· exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which such fifth anniversary will occur in 2021. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

We have elected to take advantage of certain of the reduced disclosure obligations regarding executive compensation in this prospectus and, as long as we continue to qualify as an emerging growth company, we may elect to take advantage of this and other reduced burdens in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

We are also a “smaller reporting company,” as defined under SEC Regulation S-K. As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and also are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until our public float exceeds $75 million on the last day of our second fiscal quarter in the preceding fiscal year.

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Summary of the Offering
Amount of this Offering	We will not sell any securities pursuant to this offering unless we sell at least 1,000,000 shares of common stock. The Company will not sell more than 2,500,000 shares of common stock.
Minimum Offering Amount	$8,000,000
Maximum Offering Amount	$20,000,000
Common Stock to be Outstanding after this Offering	9,719,441 shares if we sell the Minimum Offering Amount 11,219,441 shares if we sell the Maximum Offering Amount
Use of Proceeds	After deducting the commission payable to the Placement Agents and the estimated offering expenses that are payable by us, we estimate that the net proceeds from the sale of the shares of common stock offered by us pursuant to this prospectus will be $6,898,571  if the Minimum Offering Amount is sold and $18,058,571 if  the Maximum Offering Amount is sold. We expect to use the net proceeds from this offering for the following purposes:

· our Phase I/II clinical trial for our INKmune product candidate for Ovarian Cancer;

· our planned Phase I/II clinical trial for INKmune in high-risk MDS;

· our planned Phase I/II clinical trials for INB03 for MDSC;

· our Phase I/II clinical trials for INB03 combined with an approved checkpoint inhibitor for melanoma; and

· the remaining amounts for manufacturing, research and development activities, working capital and general corporate purposes.

	For additional information on the use of proceeds, please see “Use of Proceeds”.
Placement Agents’ Warrants	We have agreed to issue the Placement Agents warrants to purchase up to the number of shares of our common stock equal to 4% of the aggregate number of shares sold in the offering. The warrants are exercisable at a per share price equal to $120% of the public offering price per share, at any time, and from time to time, in whole or in part, during the five-year period commencing at the effective date of the registration statement.
Escrow	All funds sent to the Company by investors to purchase the common stock after the effectiveness of the registration statement of which this prospectus forms a part will be deposited in a non-interest bearing account, maintained at and by Signature Bank (the “Escrow Agent”). If we do not sell and receive payments for the Minimum Offering Amount by 120 days from the effective date of the registration statement (unless extended by the Company and the Placement Agents for an additional 60 days) (the “Termination Date”), investor subscriptions will be returned without interest or deduction by the noon of the second banking day following such date.

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Subscription Procedures	Investors interested in subscribing for the common stock in this offering must complete and deliver to the Placement Agents a completed subscription agreement to the address provided in the subscription agreement and deliver the purchase price in the amount of $8.00 per share of common stock being purchased by wire transfer or AC H Transfer in immediately available funds using the transfer instructions provided in the subscription agreement. Funds and subscription documents will be held in escrow until the closing of this offering at which time the escrowed funds and subscription documents will be released by the Escrow Agent. Promptly following the closing the common stock purchased by the investor in the offering will issued to the investor. If this offering is not completed for any reason all proceeds deposited into escrow will be returned to the investor without interest or deduction by the noon of the second banking day following such date.
Risk Factors	See “Risk Factors” beginning on page 9 and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our securities.
Determination of Offering Price	There is no established public market for the shares of common stock that we are registering. The offering price has been arbitrarily determined and does not bear any relationship to our assets, results of operations, or book value, or to any other generally accepted criteria of valuation. The fixed price of $8.00 at which our common stock is being offered pursuant to this prospectus was determined based on, inter alia, the estimates of the business potential and earnings prospects of the Company and the consideration of such potential earnings in relation to market valuations of comparable companies, as well as the price of stock in our recent private offering.
Market	Our common stock is not quoted or listed on a quotation or over-the-counter marketer, stock market or exchange. We applied to list our common stock on the Nasdaq Capital Market under the symbol “INMB”. We will not conduct this offering unless our shares are quoted on a national exchange or marketplace. Our application might not be approved.

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RISK FACTORS

You should carefully consider the risks described below as well as other information provided to you in this document, including information in the section of this document entitled “Information Regarding Forward Looking Statements.” If any of the following risks actually occur, the Company’s business, financial condition or results of operations could be materially adversely affected, the value of the Company’s Common Stock could decline, and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

We have no approved products on the market and have generated no product revenues to date.

To date, we have no approved products on the market and have generated no product revenues. Until, and unless, we receive approval from the FDA and other regulatory authorities for our product candidates, we cannot sell our products and will not have product revenues. Therefore, for the foreseeable future, we will have to fund all of our operations and capital expenditures from the net proceeds of the offering, cash on hand, licensing fees and grants and additional financings, to the extent such financings can be obtained.

We will need additional capital. If additional capital is not available or is available at unattractive terms, we may be forced to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail our operations.

In order to develop and bring our product candidates to market, we must commit substantial resources to costly and time-consuming research, preclinical and clinical trials and marketing activities. We anticipate that our existing cash and cash equivalents will enable us to maintain our current operations for at least the next six months. We anticipate that we will need approximately an additional $5 million to continue our operations for the next 12 months, not including any funds raised in this offering. We anticipate using our cash and cash equivalents to fund further research and development with respect to our lead product candidates. We may, however, need to raise additional funding sooner if our business or operations change in a manner that consumes available resources more rapidly than we anticipate. Our requirements for additional capital will depend on many factors, including:

· successful commercialization of our product candidates;

· the time and costs involved in obtaining regulatory approval for our product candidates;

· costs associated with protecting our intellectual property rights;

· development of marketing and sales capabilities;

· payments received under future collaborative agreements, if any; and

· market acceptance of our products, if any.

To the extent we raise additional capital through the sale of equity securities, the issuance of those securities could result in dilution to our shareholders. In addition, if we obtain debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail our operations. In addition, we may be required to obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves or license rights to technologies, product candidates or products on terms that are less favorable to us than might otherwise be available.

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The Company will require substantial additional funds to support its research and development activities, and the anticipated costs of preclinical studies and clinical trials, regulatory approvals and eventual commercialization. Such additional sources of financing may not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to initiate clinical trials or obtain approval of any product candidates from the FDA and other regulatory authorities. In addition, we could be forced to discontinue product development, forego sales and marketing efforts and forego attractive business opportunities. Any additional sources of financing will likely involve the issuance of our equity securities, which will have a dilutive effect on our stockholders.

As of September 30, 2018, the Company had an accumulated deficit of $11,717,933. Losses have principally occurred as a result of the substantial resources required for research and development of the Company’s product candidates which included the general and administrative expenses associated with its organization and product development as well as the lack of sources of revenues until such time as the Company’s products are commercialized. These factors raise substantial doubt about the Company’s ability to continue as a going concern from the issuance date of these financial statements. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management plans to obtain additional funding and implement its strategic plan to allow the opportunity for the Company to continue as a going concern.

There is no assurance that we will be successful in raising the additional funds needed to fund our business plan. If we are not able to raise sufficient capital in the near future, our continued operations will be in jeopardy and we may be forced to cease operations and sell or otherwise transfer all or substantially all of our remaining assets.

We face intense competition in the markets targeted by our lead product candidates. Many of our competitors have substantially greater resources than we do, and we expect that all of our product candidates under development will face intense competition from existing or future drugs.

We expect that all of our product candidates under development, if approved, will face intense competition from existing and future drugs marketed by large companies. These competitors may successfully market products that compete with our products, successfully identify drug candidates or develop products earlier than we do, or develop products that are more effective, have fewer side effects or cost less than our products, if any.

Additionally, if a competitor receives FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for our product candidate may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by the competitor of patents covering its newly-approved drug product. Periods of non-patent exclusivity for new versions of existing drugs such as our current product candidates can extend up to three and one-half years. See “Business — Government Regulation.”

These competitive factors could require us to conduct substantial new research and development activities to establish new product targets, which would be costly and time consuming. These activities would adversely affect our ability to commercialize products and achieve revenue and profits.

Competition and technological change may make our product candidates and technologies less attractive or obsolete.

We compete with established pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the same indications we are pursuing and that have greater financial and other resources. Other companies may succeed in developing products earlier than us, obtaining FDA approval for products more rapidly, or developing products that are more effective than our product candidates. Research and development by others may render our technology or product candidates obsolete or noncompetitive, or result in treatments or cures superior to any therapy we develop. We face competition from companies that internally develop competing technology or acquire competing technology from universities and other research institutions. As these companies develop their technologies, they may develop competitive positions that may prevent, make futile, or limit our product commercialization efforts, which would result in a decrease in the revenue we would be able to derive from the sale of any products.

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There can be no assurance that any of our product candidates will be accepted by the marketplace as readily as these or other competing treatments. Furthermore, if our competitors’ products are approved before ours, it could be more difficult for us to obtain approval from the FDA. Even if our products are successfully developed and approved for use by all governing regulatory bodies, there can be no assurance that physicians and patients will accept our product(s) as a treatment of choice.

Furthermore, the pharmaceutical research industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith are numerous and significant. The effects of competition, intellectual property disputes, market acceptance, and FDA regulations preclude us from forecasting revenues or income with certainty or even confidence.

The clinical and commercial utility of our INKmune therapy is uncertain and may never be realized.

Our INKmune therapy is in an early stage of development. We anticipate initiating clinical trials in the second half of 2018 for INKmune in ovarian cancer and follow with a clinical trial in high risk MDS in 2019. Success in early clinical trials, if achieved, does not ensure that large-scale trials will be successful nor does it predict final results.

We may not ultimately be able to provide the FDA with satisfactory data to support a claim of clinical safety and efficacy sufficient to enable the FDA to approve INKmune for commercialization. This may be because clinical trials may fail to produce favorable data, because the FDA may disagree with how we interpret the data from these clinical trials, or because the FDA may not accept these therapeutic effects as valid endpoints in pivotal trials necessary for market approval. We will also need to demonstrate that INKmune therapy is safe. We do not have data on possible harmful long-term effects of INKmune therapy and will not have any data on long-term effects in the near future. For these and other reasons, the clinical effectiveness and commercialization of INKmune therapy is uncertain and may never be realized.

If we fail to protect our intellectual property rights, our ability to pursue the development of our technologies and products would be negatively affected.

Our success will depend in part on our ability to obtain patents and maintain adequate protection of our technologies and products. If we do not adequately protect our intellectual property, competitors may be able to use our technologies to produce and market drugs in direct competition with us and erode our competitive advantage. Some foreign countries lack rules and methods for defending intellectual property rights and do not protect proprietary rights to the same extent as the United States. Many companies have had difficulty protecting their proprietary rights in these foreign countries. We may not be able to prevent misappropriation of our proprietary rights.

We have received, and are currently seeking, patent protection for numerous compounds and methods of treating diseases. However, the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending patents. These risks and uncertainties include the following: patents that may be issued or licensed may be challenged, invalidated, or circumvented, or otherwise may not provide any competitive advantage; our competitors, many of which have substantially greater resources than us and many of which have made significant investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential products either in the United States or in international markets; there may be significant pressure on the United States government and other international governmental bodies to limit the scope of patent protection both inside and outside the United States for treatments that prove successful as a matter of public policy regarding worldwide health concerns; countries other than the United States may have less restrictive patent laws than those upheld by United States courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products.

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Moreover, any patents issued to us may not provide us with meaningful protection, or others may challenge, circumvent or narrow our patents. Third parties may also independently develop products similar to our products, duplicate our unpatented products or design around any patents on products we develop. Additionally, extensive time is required for development, testing and regulatory review of a potential product. While extensions of patent term due to regulatory delays may be available, it is possible that, before any of our product candidates can be commercialized, any related patent, even with an extension, may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of the patent.

In addition, the United States Patent and Trademark Office (the “USPTO”) and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents may be substantially narrower than anticipated.

Our success depends on patent applications that are licensed exclusively to us and other patents to which we may obtain assignment or licenses. We may not be aware, however, of all patents, published applications or published literature that may affect our business either by blocking our ability to commercialize our product candidates, by preventing the patentability of our product candidates to us or our licensors, or by covering the same or similar technologies that may invalidate our patents, limit the scope of our future patent claims or adversely affect our ability to market our product candidates.

In addition to patents, we rely on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions, and security measures to protect our confidential and proprietary information. These measures may not adequately protect our trade secrets or other proprietary information. If they do not adequately protect our rights, third parties could use our technology, and we could lose any competitive advantage we may have. In addition, others may independently develop similar proprietary information or techniques or otherwise gain access to our trade secrets, which could impair any competitive advantage we may have.

Patent protection and other intellectual property protection is crucial to the success of our business and prospects, and there is a substantial risk that such protections will prove inadequate.

We license our patents, from third party owners. If such owners do not properly maintain or enforce the intellectual property underlying such licenses, our competitive position and business prospects could be harmed. Our licensors may also seek to terminate our license.

We are a party to a number of licenses that give us rights to third-party intellectual property that is necessary or useful to our business. To this end, we are dependent on our licenses with Xencor, Inc., Immune Ventures, LLC and the University of Pittsburgh. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce our licensed intellectual property. Our licensors may not successfully prosecute any applications for or maintain intellectual property to which we have licenses, may determine not to pursue litigation against other companies that are infringing such intellectual property, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer similar products for sale, which could adversely affect our competitive business position and harm our business prospects. If we lose any of our right to use third-party intellectual property, it could adversely affect our ability to commercialize our technologies, products or services, as well as harm our competitive business position and our business prospects.

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We are dependent on our licensing agreement with Xencor and the termination of this agreement could a have an adverse effect on our business.

On October 3, 2017, the Company entered into a license agreement with Xencor, Inc., which has discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor. Pursuant to the license agreement, Xencor granted the Company an exclusive worldwide, royalty-bearing license in licensed patent rights, licensed know-how and licensed materials to make, develop, use, sell and import any pharmaceutical product that comprises, contains, or incorporates Xencor’s proprietary protein known as “XPRO1595” that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants of the licensed protein that specifically bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients, in any dosage or formulation. If we breach this Agreement Xencor may be able to terminate it and as a result of this terminate our business could be negatively impacted.

Our officers and Directors own the company that we license our principal patent from.

On October 29, 2015, we entered into an exclusive license agreement with Immune Ventures, LLC, the owner of all of the rights related to our principal patent. The license agreement relates to our natural killer program, INKmue. Immune Ventures is owned by our President and a member of our Board of Directors, David Moss, our Chief Financial Officer and Treasurer and Mark Lowdell, our Chief Scientific Officer. Because our officers and directors also own Immune Ventures there may be an inherent conflict of interest which could result in unanticipated actions that adversely affect us.

We have a limited operating history, and expect to incur significant additional operating losses.

We are an early stage company formed in September 2015 and have only a limited operating history. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations. We expect to incur substantial additional operating expenses over the next several years as our research, development, and commercial activities increase. The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to generate revenue and achieve profitability will depend on, among other things, successful completion of the preclinical and clinical development of our product candidate; obtaining necessary regulatory approvals from the FDA and international regulatory agencies; implementing successful manufacturing, sales, and marketing arrangements; and raising sufficient funds to finance our activities. If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations may be materially adversely affected.

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INKmune represents a novel approach to cancer treatment that creates significant challenges for us.

We believe INKmune represents a novel approach to cancer treatment. Advancing this novel therapy creates significant challenges for us, including:

· Educating medical personnel regarding the potential side effect profile of INKmune;

· Sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process our product candidates;

· Obtaining regulatory approval, as the FDA and other regulatory authorities have limited experience with commercial development of immunotherapies for cancer; and

· Establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of a novel therapy.

Even if we are able to commercialize any product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives that could harm our business.

 

The commercial success of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities (such as Medicare and Medicaid), private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish and maintain pricing sufficient to realize a meaningful return on our investment.

There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some non-U.S. markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

We depend on obtaining certain patents and protecting our proprietary rights.

 

Our success will depend, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of third parties or having third parties circumvent our rights. We have filed and are actively pursuing a patent application for our product candidates. The patent positions of biotechnology, biopharmaceutical and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions. Thus, there can be no assurance that our patent application will result in the issuance of a patent, that we will develop additional proprietary products that are patentable, that any patents issued to us will provide us with any competitive advantages or will not be challenged by any third parties, that the patents of others will not impede our ability to do business or that third parties will not be able to circumvent our patents. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate any of our products not under patent protection, or, if patents are issued to us, design around the patented products we developed or will develop.

We may be required to obtain licenses from third parties to avoid infringing patents or other proprietary rights. No assurance can be given that any licenses required under any such patents or proprietary rights would be made available, if at all, on terms we find acceptable. If we do not obtain such licenses, we could encounter delays in the introduction of products or could find that the development, manufacture or sale of products requiring such licenses could be prohibited.

 

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A number of pharmaceutical, biopharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to or affect our business. Some of these technologies, applications or patents may conflict with our technologies or patent applications. Such conflict could limit the scope of the patents, if any, that we may be able to obtain or result in the denial of our patent applications. In addition, if patents that cover our activities are issued to other companies, there can be no assurance that we would be able to obtain licenses to these patents at a reasonable cost or be able to develop or obtain alternative technology. If we do not obtain such licenses, we could encounter delays in the introduction of products, or could find that the development, manufacture or sale of products requiring such licenses could be prohibited. In addition, we could incur substantial costs in defending ourselves in suits brought against us on patents it might infringe or in filing suits against others to have such patents declared invalid.

Much of our know-how and technology may not be patentable. To protect our rights, we plan to require employees, consultants, advisors and collaborators to enter into confidentiality agreements. There can be no assurance, however, that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, our business may be adversely affected by competitors who independently develop competing technologies, especially if we obtain no, or only narrow, patent protection.

We are subject to various government regulations.

The manufacture and sale of human therapeutic products in the U.S. and foreign jurisdictions are governed by a variety of statutes and regulations. These laws require approval of manufacturing facilities, controlled research and testing of products and government review and approval of a submission containing manufacturing, preclinical and clinical data in order to obtain marketing approval based on establishing the safety and efficacy of the product for each use sought, including adherence to current cGMP during production and storage, and control of marketing activities, including advertising and labeling.

The products we are currently developing will require significant development, preclinical and clinical testing and investment of substantial funds prior to its commercialization. The process of obtaining required approvals can be costly and time-consuming, and there can be no assurance that we develop successfully this product or any future products, or that this product or any future products we develop will prove to be safe and effective in clinical trials or receive applicable regulatory approvals. Potential investors and shareholders should be aware of the risks, problems, delays, expenses and difficulties which we may encounter in view of the extensive regulatory environment which controls our business.

If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.

We are engaged in a rapidly changing field. Other products and therapies that will compete directly with the product that we are seeking to develop and market currently exist or are being developed. Competition from fully integrated pharmaceutical companies and more established biotechnology companies is intense and is expected to increase. Most of these companies have significantly greater financial resources and expertise in discovery and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing than us. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established biopharmaceutical or biotechnology companies. Many of these competitors have significant products that have been approved or are in development and operate large, well-funded discovery and development programs. Academic institutions, governmental agencies and other public and private research organizations also conduct research, seek patent protection and establish collaborative arrangements for therapeutic products and clinical development and marketing. These companies and institutions compete with us in recruiting and retaining highly qualified scientific and management personnel. In addition to the above factors, we will face competition based on product efficacy and safety, the timing and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, price and patent position. There is no assurance that our competitors will not develop more effective or more affordable products, or achieve earlier patent protection or product commercialization, than our own.

 

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Other companies may succeed in developing products earlier than ourselves, obtaining FDA and European Medicines Agency (“EMA”) approvals for such products more rapidly than we will, or in developing products that are more effective than products we propose to develop. While we will seek to expand our technological capabilities in order to remain competitive, there can be no assurance that research and development by others will not render our technology or products obsolete or non-competitive or result in treatments or cures superior to any therapy we develop, or that any therapy we develop will be preferred to any existing or newly developed technologies.

We may request priority review for our product candidate in the future. The FDA may not grant priority review for our product candidate. Moreover, even if the FDA designates such product for priority review, that designation may not lead to a faster regulatory review or approval process and, in any event, would not assure FDA approval.

We may be eligible for priority review designation for our product candidate if the FDA determines such product candidate offers major advances in treatment or provides a treatment where no adequate therapy exists. A priority review designation means that the goal for the FDA to review an application in six months, rather than the standard review period of ten months. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Thus, while the FDA has granted priority review to other oncology disease products, our product candidate, should we determine to seek priority review, may not receive similar designation. Moreover, even if our product candidate is designated for priority review, such a designation does not necessarily mean a faster regulatory review process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within an accelerated timeline or thereafter.

We believe we may in some instances be able to secure approval from the FDA or comparable non-U.S. regulatory authorities to use accelerated development pathways. If we are unable to obtain such approval, we may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals.

We anticipate that we may seek an accelerated approval pathway for our product candidate. Under the accelerated approval provisions in the Federal Food, Drug, and Cosmetic Act, or FDCA, and the FDA’s implementing regulations, the FDA may grant accelerated approval to a product designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. If such post-approval studies fail to confirm the drug’s clinical benefit, the FDA may withdraw its approval of the drug.

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Prior to seeking such accelerated approval, we will seek feedback from the FDA and will otherwise evaluate our ability to seek and receive such accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit a New Drug Application, or NDA, for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that after subsequent FDA feedback we will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval or under another expedited regulatory designation (e.g., breakthrough therapy designation), there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. The FDA or other non-U.S. authorities could also require us to conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete the development and commercialization of our product candidate.

Our product candidates have not entered into clinical trials and are in development stage. Therefore, the risk of failure of our product candidates is high. It is impossible to predict when or if our product candidates will prove effective or safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidate in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of drug development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of severe or medically or commercially unacceptable adverse events, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable non-U.S. regulatory authority that a drug product is not safe or effective for its intended uses. It is possible that even if our product candidate has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we cannot be certain that we will not face additional setbacks.

The design of a clinical trial can determine whether its results will support approval of a product; however, flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of clinical trials for our product candidate warrant marketing approval, the FDA or comparable non-U.S. regulatory authorities may disagree and may not grant marketing approval of our product candidate.

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In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Any clinical trials that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidate.

If clinical trials of our product candidate fail to demonstrate safety and efficacy to the satisfaction of the FDA and comparable non-U.S. regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidate.

We are not permitted to commercialize market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable non-U.S. regulatory authorities, such as the EMA, impose similar restrictions. We may never receive such approvals. We must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidate in humans before we will be able to obtain these approvals.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted an NDA to the FDA or similar drug approval filings to comparable non-U.S. regulatory authorities for any product candidate.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if (1) we are required to conduct additional clinical trials or other testing of our product candidate beyond the trials and testing that we contemplate, (2) we are unable to successfully complete clinical trials of our product candidate or other testing, (3) the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or (4) there are unacceptable safety concerns associated with our product candidate, we, in addition to incurring additional costs, may:

· be delayed in obtaining marketing approval for our product candidate;

· not obtain marketing approval at all;

· obtain approval for indications or patient populations that are not as broad as we intended or desired;

· obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

· be subject to additional post-marketing testing or other requirements; or

· be required to remove the product from the market after obtaining marketing approval.

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If we experience any of a number of possible unforeseen events in connection with clinical trials of any of our product candidates, potential marketing approval or commercialization of that product candidate could be delayed or prevented.

 

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent marketing approval of any of our product candidates, including:

· clinical trials of our product candidate may produce unfavorable or inconclusive results;

· we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

· the number of patients required for clinical trials of our product candidate may be larger than we anticipate, patient enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

· data safety monitoring committees may recommend suspension, termination or a clinical hold for various reasons, including concerns about patient safety;

· regulators or institutional review boards, or IRBs, may suspend or terminate the trial or impose a clinical hold for various reasons, including noncompliance with regulatory requirements or concerns about patient safety;

· patients with serious, life-threatening diseases included in our clinical trials may die or suffer other adverse medical events for reasons that may not be related to our product candidate;

· participating patients may be subject to unacceptable health risks;

· patients may not complete clinical trials due to safety issues, side effects, or other reasons;

· changes in regulatory requirements and guidance may occur, which require us to amend clinical trial protocols to reflect these changes;

· our third-party contractors, including those manufacturing our product candidate or components or ingredients thereof or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;

· regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

· we may experience delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

· patients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial’s duration;

· we may have to suspend or terminate clinical trials of our product candidate for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of a product candidate;

· the FDA or comparable non-U.S. regulatory authorities may disagree with our clinical trial design or our interpretation of data from preclinical studies and clinical trials;

· the FDA or comparable non-U.S. regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for clinical and commercial supplies;

· the supply or quality of raw materials or manufactured product candidate or other materials necessary to conduct clinical trials of our product candidate may be insufficient, inadequate, delayed, or not available at an acceptable cost, or we may experience interruptions in supply; and

· the approval policies or regulations of the FDA or comparable non-U.S. regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.

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Product development costs for us will increase if we experience delays in testing or pursuing marketing approvals and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of marketing approval of our product candidates.

If we experience delays or difficulties in the enrollment of patients in clinical trials, we may not achieve our clinical development on our anticipated timeline, or at all, and our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for INKmune or any other product candidate if we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:

· the size and nature of the patient population;

· the severity of the disease under investigation;

· the proximity of patients to clinical sites;

· the eligibility criteria for the trial;

· the design of the clinical trial;

· efforts to facilitate timely enrollment;

· competing clinical trials; and

· clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

Our inability to enroll a sufficient number of patients for our clinical trials could result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, delay or halt the development of and approval processes for our product candidates and jeopardize our ability to achieve our clinical development timeline and goals, including the dates by which we will commence, complete and receive results from clinical trials. Enrollment delays may also delay or jeopardize our ability to commence sales and generate revenues from our product candidates. Any of the foregoing could cause the value of the Company to decline and limit our ability to obtain additional financing, if needed.

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We will need to obtain FDA approval of any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.

A pharmaceutical product cannot be marketed in the U.S. or other countries until we have completed rigorous and extensive regulatory review processes, including approval of a brand name. Any brand names we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or the USPTO. The FDA typically conducts a review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA may also object to a product brand name if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product brand names, we may be required to adopt an alternative brand name for our product candidates. If we adopt an alternative brand name, we would lose the benefit of our existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product brand name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.

We expect to rely on orphan drug status to develop and commercialize our product candidates, but our orphan drug designation, if obtained, may not confer marketing exclusivity or other expected commercial benefits as anticipated.

 

Market exclusivity afforded by orphan drug designation is generally offered as an incentive to drug developers to invest in developing and commercializing products for unique diseases that impact a limited number of patients. The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Qualification to maintain orphan drug status is generally monitored by the regulatory authorities during the orphan drug exclusivity period, currently seven years from the date of approval in the United States.

We intend to seek orphan drug designation in the United States for our product candidate for the treatment of AML and ovarian cancer and we expect to rely on orphan drug exclusivity for our product candidate. Even if granted, orphan drug designation, and related market exclusivity, in the United States could be lost. Further, even if we are granted orphan drug status, the FDA can still approve different drugs for use in treating the same indication or disease, which would create a more competitive market for us and our revenues will be diminished.

Further, for our product candidate, it is possible that another company also holding orphan drug designation for the same product candidate will receive marketing approval for the same indication before we do. If that were to happen, our applications for that indication may not be approved until the competing company’s period of exclusivity expires. Even if we are the first to obtain marketing authorization for an orphan drug indication, there are circumstances under which a competing product may be approved for the same indication during the seven-year period of marketing exclusivity, such as if the later product is shown to be clinically superior to the orphan product, or if the later product is deemed a different product than ours. Further, the seven-year marketing exclusivity would not prevent competitors from obtaining approval of the same product candidate as ours for indications other than those in which we have been granted orphan drug designation, or for the use of other types of products in the same indications as our orphan product.

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If the market opportunities for our product candidate are smaller than we believe they are, our revenues may be adversely affected and our business may suffer. Because the target patient populations of our product candidate are small, we must be able to successfully identify patients and capture a significant market share to achieve and maintain profitability.

We focus our research and product development on treatments for certain cancer indications. Our projections of both the number of people who have failed other therapies or have limited medical options for such indications, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence. The number of patients with such diseases in the United States, Europe and elsewhere may turn out to be lower than expected or may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Additionally, because our target patient populations are small, we will be required to capture a significant market share to achieve and maintain profitability.

We may fail to comply with regulatory requirements.

Our success will be dependent upon our ability, and our collaborative partners’ abilities, to maintain compliance with regulatory requirements, including cGMP, and safety reporting obligations. The failure to comply with applicable regulatory requirements can result in, among other things, fines, injunctions, civil penalties, total or partial suspension of regulatory approvals, refusal to approve pending applications, recalls or seizures of products, operating and production restrictions and criminal prosecutions.

Even if our product candidate receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for the product candidate may be smaller than we estimate.

We have never commercialized a product. Even if INKmune, INB03 or any other product candidate we develop is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies.

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Efforts to educate the medical community and third-party payors on the benefits of our product candidate may require significant resources and may not be successful. If our product candidate is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of INmune or any other product candidate we develop, if approved for commercial sale, will depend on a number of factors, including:

· the efficacy and safety of the product;

· the potential advantages of the product compared to alternative treatments;

· the prevalence and severity of any side effects;

· the clinical indications for which the product is approved;

· whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy;

· limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling;

· our ability to offer the product for sale at competitive prices;

· our ability to establish and maintain pricing sufficient to realize a meaningful return on our investment;

· the product’s convenience and ease of administration compared to alternative treatments;

· the willingness of the target patient population to try, and of physicians to prescribe, the product;

· the strength of sales, marketing and distribution support;

· the approval of other new products for the same indications;

· changes in the standard of care for the targeted indications for the product;

· the timing of market introduction of our approved products as well as competitive products and other therapies;

· availability and amount of reimbursement from government payors, managed care plans and other third-party payors;

· adverse publicity about the product or favorable publicity about competitive products; and

· potential product liability claims.

The potential market opportunities for our product candidate are difficult to estimate precisely. Our estimates of the potential market opportunities are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets for our product candidate could be smaller than our estimates of the potential market opportunities.

Even if we obtain regulatory approvals for INKmune and/or INB03, those approvals and ongoing regulation of our products may limit how we manufacture and market our products, which could prevent us from realizing the full benefit of our efforts.

If we obtain regulatory approvals, INKmune and/or INB03 therapy, and the manufacturing facilities used for its production will be subject to continual review, including periodic inspections, by the FDA and other United States and foreign regulatory authorities. In addition, regulatory authorities may impose significant restrictions on the indicated uses or marketing of INKmune or other products that we may develop. These and other factors may significantly restrict our ability to successfully commercialize INKmune.

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We and many of our vendors and suppliers will be required to comply with current Good Manufacturing Practices, or GMP, which include requirements relating to quality control and quality assurance as well as to the corresponding maintenance of records and documentation. Furthermore, any manufacturing facilities will need to be approved by regulatory agencies before these facilities can be used to manufacture INKmune, and they will also be subject to additional regulatory inspections. Any material changes we may make to our manufacturing process may require approval by the FDA and state or foreign regulatory authorities. Failure to comply with FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, partial or total suspension of production or withdrawal of a product from the market.

We must also report adverse events that occur when our products are used. The discovery of previously unknown problems with INKMune, INB03 or manufacturing facilities used to manufacture INKmune or INB03 may result in restrictions or sanctions on our products or manufacturing facilities, including withdrawal of our products from the market. Regulatory agencies may also require us to reformulate our products, conduct additional clinical trials, make changes in the labeling of our product or obtain re-approvals. This may cause our reputation in the market place to suffer or subject us to lawsuits, including class action suits.

If our product candidate receives marketing approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to market the drug could be compromised.

Clinical trials of our product candidate will be conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of our product candidate, we, or others, discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:

· regulatory authorities may withdraw their approval of the drug or seize the drug;

· we may be required to recall the drug or change the way the drug is administered;

· additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular drug;

· we may be subject to fines, injunctions or the imposition of civil or criminal penalties;

· regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;

· we may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;

· we could be sued and held liable for harm caused to patients;

· the drug may become less competitive; and

· our reputation may suffer.

Any of these events could have a material and adverse effect on our operations and business.

 

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Any product candidate for which we obtain marketing approval, along with the manufacturing processes, qualification testing, post-approval clinical data, labeling and promotional activities for such product, will be subject to continual and additional requirements of the FDA and other regulatory authorities.

These requirements include submissions of safety and other post-marketing information, reports, registration and listing requirements, good manufacturing practices, or GMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, and recordkeeping. Even if marketing approval of our product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of pharmaceutical products to ensure such products are marketed only for the approved indications and in accordance with the provisions of the approved labeling.

In addition, later discovery of previously unknown problems with our products, manufacturing processes, or failure to comply with regulatory requirements, may lead to various adverse results, including:

· restrictions on such products, manufacturers or manufacturing processes;

· restrictions on the labeling or marketing of a product;

· restrictions on product distribution or use;

· requirements to conduct post-marketing clinical trials;

· requirements to institute a risk evaluation mitigation strategy, or REMS, to monitor safety of the product post-approval;

· warning letters issued by the FDA or other regulatory authorities;

· withdrawal of the products from the market;

· refusal to approve pending applications or supplements to approved applications that we submit;

· recall of products, fines, restitution or disgorgement of profits or revenue;

· suspension, revocation or withdrawal of marketing approvals;

· refusal to permit the import or export of our products; and

· injunctions or the imposition of civil or criminal penalties.

We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.

We currently have no sales, marketing or distribution capabilities and have no experience as a company in marketing products. If we develop internal sales, marketing and distribution organization, this would require significant capital expenditures, management resources and time, and we would have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

 

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If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we expect to pursue collaborative arrangements regarding the sales, marketing and distribution of our products. However, we may not be able to establish or maintain such collaborative arrangements, or if we are able to do so, their sales forces may not be successful in marketing our products. Any revenue we receive would depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the sales, marketing and distribution efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales, marketing and distribution efforts of our product candidates. There can be no assurance that we will be able to develop internal sales, marketing distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.

We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may suffer if we fail to compete effectively.

The development and commercialization of new drug products is highly competitive. We expect that we will face significant competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to INKmune and any other of our product candidates that we may seek to develop or commercialize in the future. Specifically, due to the large unmet medical need, global demographics and relatively attractive reimbursement dynamics, the oncology market is fiercely competitive and there are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of cancer. Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective, have fewer or more tolerable side effects or are less costly than any product candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.

We rely on key personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

We are dependent on certain members of our management, the loss of services of one or more of whom could materially adversely affect us. In particular, our success depends to a significant extent upon the continued services of Dr. Raymond J. Tesi, our President and CEO. Dr. Tesi has overseen INmune Bio since inception and provides leadership for our growth and operations strategy as well as being an inventor of our patents. Although we have entered into an employment agreement with Dr. Tesi, if he were to nevertheless terminate his employment with us, the loss of the services of Dr. Tesi, would have a material adverse effect on our growth, revenues, and prospective business. We are also highly dependent on the other principal members of our management and scientific team. We are not aware of any present intention of any of our key personnel to leave our company or to retire. The loss of any of our key personnel, or the inability to attract and retain qualified personnel, may significantly delay or prevent the achievement of our research, development or business objectives and could materially adversely affect our business, financial condition and results of operations.

Our ability to manage growth effectively will require us to continue to implement and improve our management systems and to recruit and train new employees. There can be no assurance that we will be able to successfully attract and retain skilled and experienced personnel.

Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.

We face an inherent risk of product liability claims as a result of the clinical testing of our product candidate despite obtaining appropriate informed consents from our clinical trial participants. We will face an even greater risk if we commercially sell any product that we may develop. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidate. Regardless of the merits or eventual outcome, liability claims may result in:

· decreased demand for our product candidate or products that we may develop;

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· injury to our reputation and significant negative media attention;

· withdrawal of clinical trial participants;

· significant costs to defend resulting litigation;

· substantial monetary awards to trial participants or patients;

· loss of revenue;

· reduced resources of our management to pursue our business strategy; and

· the inability to commercialize any products that we may develop.

Although we plan to maintain general liability insurance, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidate, which could adversely affect our business, financial condition, results of operations and prospects.

We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.

To execute our business plan, we will need to rapidly add other management, accounting, regulatory, manufacturing and scientific staff. We currently have only 2 full time employees consisting of our executive officers and retain the services of additional personnel on an independent contractor basis. We will need to attract, retain and motivate a significant number of new additional managerial, operational, sales, marketing, financial, and other personnel, as well as highly skilled scientific and medical personnel, and to expand our capabilities to successfully pursue our research, development, manufacturing and commercialization efforts and secure collaborations to market and distribute our products. This growth may strain our existing managerial, operational, financial and other resources. We also intend to add personnel in our research and development and manufacturing departments as we expand our clinical trial and research capabilities. Any inability to attract and retain qualified employees to enable our planned growth and establish additional capabilities or our failure to manage our growth effectively could delay or curtail our product development and commercialization efforts and harm our business.

 

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If we or any of our third-party manufacturers do not maintain high standards of manufacturing, our ability to develop and commercialize our product candidate could be delayed or curtailed.

We and any third parties that we may use in the future to manufacture our products must continuously adhere to cGMP regulations rigorously enforced by the FDA through its facilities inspection program. If our facilities or the facilities of third parties who produce our products do not pass a pre-approval inspection, the FDA will not grant market approval for INKmune. In complying with cGMP, we and any third-party manufacturers will need to expend significant time, money and effort in production, record-keeping and quality control to assure that each component of INKmune meets applicable specifications and other requirements. We or any of these third-party manufacturers may also be subject to comparable or more stringent regulations of foreign regulatory authorities. If we or any of our third-party manufacturers fail to comply with these requirements, we may be subject to regulatory action, which could delay or curtail our ability to develop, obtain regulatory approval of, and commercialize INKmune. If our component part manufacturers and suppliers fail to provide components of sufficient quality, and that meet our required specifications, our clinical trials or commercialization of INKmune could be delayed or halted, and we could face product liability claims.

If we or our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by us and any third-party manufacturers. We and such manufacturers will be subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we will seek to ensure that our procedures for using, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.

We plan to rely on third parties to conduct clinical trials for our product candidate. Any failure by a third party to meet its obligations with respect to the clinical development of our product candidate may delay or impair our ability to obtain regulatory approval for our product candidate.

We plan to rely on academic institutions and private oncology centers to conduct and sponsor clinical trials relating to INKmune. Our reliance on third parties to conduct clinical trials could, depending on the actions of such third parties, jeopardize the validity of the clinical data generated and adversely affect our ability to obtain marketing approval from the FDA or other applicable regulatory authorities.

Such clinical trial arrangements will provide us with information rights with respect to the clinical data, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from the clinical trials. If investigators or institutions breach their obligations with respect to the clinical trials of our product candidate, or if the data proves to be inadequate, then our ability to design and conduct any future clinical trials may be adversely affected.

Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will design our clinical trials and will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control will not relieve us of these responsibilities and requirements. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

 

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Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidate and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidate.

We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidate or commercialization of our products, producing additional losses and depriving us of potential product revenue.

Recent legislative and regulatory activity may exert downward pressure on potential pricing and reimbursement for our products, if approved, could materially affect our opportunity to commercialize such products.

The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell any of our products profitably, if approved. Among policy-makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

· the demand for any of our products, if approved;

· our ability to set a price that we believe is fair for any of our products, if approved;

· our ability to generate revenues and achieve or maintain profitability;

· the level of taxes that we are required to pay; and

· the availability of capital.

In March 2010, the Affordable Care Act, or the ACA, became law in the United States (see “Business — Government Regulation”). The goal of ACA is to reduce the cost of healthcare, broaden access to health insurance, constrain healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the health industry, impose additional health policy reforms, and substantially change the way healthcare is financed by both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business specifically, ACA may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of any of our products, if they are approved.

We cannot predict what healthcare reform initiatives may be adopted in the future. Further federal, state and foreign legislative and regulatory developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

 

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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly on obtaining and enforcing patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity, and therefore, is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.

In September 2011, the Leahy-Smith America Invents Act, or the American Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact the AIA will have on the operation of our business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent application, which could have a material adverse effect on our business and financial condition.

An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (1) file any patent application related to our product candidates or (2) invent any of the inventions claimed in our patents or patent applications.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

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Risks Related to our Common Stock and this Offering

There is no public market for securities and you may have to hold your shares of our common stock for an indefinite period of time.

There is currently no established public trading market for our securities and an active trading market in our securities may not develop or, if developed, may not be sustained. We applied to list our Common Stock on the Nasdaq Capital Market under the symbol "INMB". We will not conduct this offering unless our shares are quoted on a national exchange or marketplace. No assurance can be given that our application will be approved. If for any reason public trading market does not otherwise develop, purchasers of the shares may have difficulty selling their Common Stock should they desire to do so. No market makers have committed to becoming market makers for our Common Stock and none may do so. If an active market for our securities does not develop, it may be difficult for you to sell shares of our common stock without depressing the market price for the shares or at all. As a result of these and other factors, you may not be able to sell your shares of our common stock above the price you paid for such shares or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies by using our shares of common stock as consideration.

The Company’s common stock is controlled by insiders.

The Company’s officers and directors will beneficially own 78.76% of our outstanding common stock. Accordingly, shareholders may have no effective voice in the management of the Company.

We do not intend to pay dividends for the foreseeable future.

We have paid no dividends on our common stock to date, and we do not anticipate paying any dividends to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, we anticipate that we will retain any earnings to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our common stock, and could significantly affect the value of any investment in our Company.

Our articles of incorporation allow for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.

Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors will have the authority to issue up to 10,000,000 shares of our preferred stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our Board of Directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.

If our shares are quoted on an exchange, we will be required to remain current in our filings with the SEC and our securities will not be eligible for quotation if we are not current in our filings with the SEC.

In the event that our shares are quoted on an exchange, we will be required to remain current in our filings with the SEC in order for shares of our Common Stock to continue to be eligible for such quotation. If our shares are not eligible for quotation on the OTCQB or an exchange, investors in our Common Stock may find it difficult to sell their shares.

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We have elected to take advantage of specified reduced disclosure requirements applicable to an “emerging growth company” under the JOBS Act, the information that we provide to stockholders may be different than they might receive from other public companies.

 

As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

· only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

· reduced disclosure about our executive compensation arrangements;

· no non-binding advisory votes on executive compensation or golden parachute arrangements;

· exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting and delaying the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

We have elected to take advantage of the above-referenced exemptions and we may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenues, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not taken advantage of any of these reduced reporting burdens in this prospectus, although we may choose to do so in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies that comply with public company effective dates.

Our management will have broad discretion over the use of the net proceeds from this offering and we may use the net proceeds in ways with which you disagree.

We currently intend to use the net proceeds from this offering to for our clinical trials of INKmune and INB03. We have not allocated specific amounts of the net proceeds from this offering for any of the foregoing purposes. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us or our stockholders. The failure of our management to use such funds effectively could have a material adverse effect on our business, prospects, financial condition, and results of operation.

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If the Company only raises the Minimum Offering Amount, we may not have sufficient capital to execute our business strategy.

If we close on the Minimum Offering Amount, we may not have sufficient capital to execute on our business strategy the way we intended. Our ability to obtain additional financing thereafter may have a materially adverse effect on our ability to execute its overall plan and your investment may be lost.

Investor funds will not accrue interest while in escrow prior to closing.

All funds delivered in connection with subscriptions for the common stock will be held in a non-interest bearing escrow account with the Escrow Agent until the closing of the offering, if any. If we are unable to sell and receive payments for the Minimum Offering Amount prior to the Termination Date, investor subscriptions will be returned without interest or deduction by the noon of the second banking day following such date. Investors in the common stock offered hereby may not have the use of such funds or receive interest thereon pending the completion of the offering.

Additional stock offerings in the future may dilute your percentage ownership of our company.

Given our plans and expectations that we may need additional capital and personnel, we may need to issue additional shares of common stock or securities convertible or exercisable for shares of common stock, including convertible preferred stock, convertible notes, stock options or warrants. The issuance of additional securities in the future will dilute the percentage ownership of then current stockholders.

You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

You will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by us of 1,000,000 shares at an assumed public offering price of $8.00 per share and after deducting the Placement Agent’s commission and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $7.19 per share in the case of the Minimum Shares Offering and after giving effect to the sale by us of 2,500,000 shares offered in this offering at an assumed public offering price of $8.00 per share and after deducting the Placement Agent’s commission and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $6.31 per share in the case of the Maximum Shares Offering. In addition, in the past, we issued options and warrants to acquire shares of common stock. To the extent these options or warrants are ultimately exercised, you will sustain future dilution.

USE OF PROCEEDS

After deducting the commissions payable to the Placement Agent and the estimated offering expenses that are payable by us, we estimate that the net proceeds from the sale of the common stock offered pursuant to this prospectus will be approximately $6,898,571  if only the Minimum Offering Amount is sold and $18,058,571  if the Maximum Offering Amount is sold.

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We currently intend to use the net proceeds from this offering to fund our research and drug development activities. If we raise the Maximum Offering Amount, we expect to complete a Phase I/II trial with INKmune in Ovarian Cancer, a Phase I/II trial with INKmune in high risk MDS (Myelodysplastic Syndromes – a precursor to AML), a Phase 1 trial with INB03 in patients with advanced cancer and elevated MDSC in their blood and after the Phase 1 INB03 trial a Phase II trial with INB03 combined with an approved checkpoint inhibitor for patients that have failed first line therapy and have increased MDSC in their blood. We intend to use:

· approximately $4,000,000 for our Phase I/II clinical trial for our INKmune product candidate for Ovarian Cancer;

· approximately $1,500,000 for our planned Phase I clinical trial with INB03 in patients with advanced cancer and elevated MDSC in their blood;

· approximately $2,500,000 for our Phase II clinical trials for INB03 combined with an approved checkpoint inhibitor for treatment for patients with cancer who have failed first line therapy and have increased MDSC in their blood; and

· approximately $4,000,000 for our Phase I/II clinical trial for our INKmune product candidate for high risk MDS;

· approximately $3,000,000 for manufacturing a new batch of INB03 to support the Phase II trials and further clinical development; and

· the remaining $3,058,571 for research and development activities, working capital and general corporate purposes. Research and development activities include improvements to our two platform therapies INB03 and INKmune, further optimized manufacturing of INB03 and INKmune and pre-clinical testing for additional diseases.

If just the minimum is raised, we will conduct only two clinical trials, the Ovarian Cancer Phase I/II and MDSC INB03 Phase I trials and depend on existing drug supplies to support those clinical trials. The Ovarian Cancer Phase I/II trial for the minimum and maximum offering are identical planned programs.

· approximately $4,000,000 for our Phase I/II clinical trial for our INKmune product candidate for Ovarian Cancer;

· approximately $1,500,000 for our planned Phase I clinical trial with INB03 in patients with advanced cancer and elevated MDSC in their blood;

· the remaining $1,398,571 for working capital and general corporate purposes.

The Company anticipates that the existing cash on hand plus the expected R&D cash credits from the UK and Australian trials and net proceeds from the Minimum Offering Amount will be enough to complete the INKmune Phase I/II trial in women with ovarian cancer and the Phase I trial using INB03 in ovarian cancer patients.

We may also use a portion of the net proceeds from this offering and our existing cash to in-license, acquire or invest in complementary businesses, technologies, products or assets. However, we have no current plans, commitments or obligations to do so. Other than as set forth, we do not anticipate requiring any material amounts of other funds to accomplish the specified purposes.

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We believe that the net proceeds from this offering (whether from the Minimum Offering Amount or the Maximum Offering Amount) and our existing cash will be sufficient to fund our operations through at least the next 12 months. This expected use of the net proceeds from the offering represents our intentions based upon our current plans and business conditions. We cannot specify with certainty all of the particular uses of the net proceeds that we will receive from this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures will depend on numerous factors, including the ongoing status of and results from clinical trials and other studies, the product approval process with the FDA, and the scope of our commercialization efforts, as well as any strategic collaborations that we may enter into with third parties for our product candidates, any unforeseen cash needs, and our investments and acquisitions. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in using these proceeds. Investors will be relying on our judgment regarding the use of the net proceeds from this offering. Pending the use of proceeds as described above, we plan to invest the net proceeds that we receive in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government. We cannot predict whether the invested proceeds will yield a favorable return. 

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no market for our Common Stock. We applied to list our Common Stock on the Nasdaq Capital Market under the symbol “INMB”. We will not conduct this offering unless our shares are quoted on a national exchange or marketplace. No assurance can be given that our application will be approved.

As of September 30, 2018, there were 8,719,441 shares of Common Stock issued and outstanding. As of August 21, 2018, there were approximately 45 holders of record of our Common Stock.

Equity Compensation Plan Information

As of December 31, 2017, all compensation based on our equity was awarded under the INmune Bio, Inc. 2017 Stock Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of stock awards to employees, directors and consultants of the Company and its affiliates covering an aggregate of 1,700,000 shares of common stock, subject to adjustments in the event of certain changes to the Company’s capitalization. The awards made under the plan as of December 31, 2017, are set out below:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		1,632,000	$	7.80		68,000
Equity compensation plans not approved by security holders
Total		1,632,000	$	7.80		68,000

DIVIDEND POLICY

We have not declared any cash dividends on our common stock since inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any decisions as to future payment of cash dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant.

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CAPITALIZATION

The following table sets forth or capitalization, as of September 30, 2018:

· on an actual basis; and

· on a pro forma basis to give effect to the sale of the shares in this offering at the assumed public offering price of $8.00 per share, after deducting commissions payable to the Placement Agents and other estimated offering expenses payable by us.

	September 30, 2018
	(Pro forma)
	(Actual)			Maximum			Minimum
Preferred stock, $0.001 par value, 10,000,000 shares authorized none outstanding;	$	-		$	-		$	-
Common stock; $0.001 par value; 200,000,000 shares authorized, 8,719,441 shares issued and outstanding actual, maximum, and minimum shares issued and outstanding pro forma		8,719			11,219			9,719
Additional paid-in capital		24,491,379			42,547,450			30,409,394
Accumulated deficit		(11,717,933	)		(11,717,933	)		(11,717,933	)
Common stock issuable		4,676,000			4,676,000			4,676,000
Accumulated other comprehensive income		8,809			8,809			8,809
Total stockholder’s equity	$	17,466,974		$	35,525,545		$	23,385,989

DILUTION

If you invest in our securities, your interest will be immediately and substantially diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after giving effect to this offering.

Our net tangible book value as of September 30, 2018 was $952,974 , or approximately $0.11 per share of common stock, based upon 8,719,441 shares outstanding as September 30, 2018.

If the minimum amount is raised, after giving effect to the sale of the shares in this offering at the assumed public offering price of $8.00 per share and after deducting commissions paid to the Placement Agents and other estimated offering expenses payable by us, our pro forma net tangible book value at September 30, 2018 would have been approximately $7,851,545 or $0.80 per share. This represents an immediate increase in pro forma net tangible book value of approximately $0.69 per share to our existing stockholders and an immediate dilution of $7.20 per share to investors purchasing securities in this offering.

If the maximum amount is raised, after giving effect to the sale of the shares in this offering at the assumed public offering price of $8.00 per share and after deducting commissions paid to the Placement Agents and other estimated offering expenses payable by us, our pro forma net tangible book value at September 30, 2018 would have been approximately $19,011,545 or $1.69 per share. This represents an immediate increase in pro forma net tangible book value of approximately $1.59  per share to our existing stockholders and an immediate dilution of $6.31  per share to investors purchasing securities in this offering.

Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of our common stock in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering.

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The following table illustrates the per share dilution to investors purchasing shares in the offering if the minimum and maximum number of shares are sold in this offering:

Assumed public offering price per share	Minimum		Maximum
Net tangible book value per share as of September 30, 2018	$	0.11	$	0.11
Increase in net tangible book value per share attributable to this offering	$	0.69	$	1.59
Pro forma net tangible book value per share after this offering	$	0.80	$	1.69
Amount of dilution in net tangible book value per share to new investors in this offering	$	7.20	$	6.31

   

If we sell the minimum number of shares in the offering, each $0.10 increase (decrease) in the assumed public offering price of $8.00 would increase (decrease) our pro forma as adjusted net tangible book value as of September   30, 2018 by $93,000, or $0.01 per share, and the dilution (benefit) purchase to purchasers in this offering by $0.01 per share.

If we sell the maximum number of shares in the offering, each $0.10 increase (decrease) in the assumed public offering price of $8.00 would increase (decrease) our pro forma as adjusted net tangible book value as of September 30, 2018 by $232,500, or $0.02 per share, and the dilution (benefit) purchase to purchasers in this offering by $0.02 per share.

If any shares are issued upon exercise of outstanding options or warrants, new investors will experience further dilution.

BUSINESS

Our Strategy

Our objective is to develop and commercialize our product candidates to treat diseases where the innate immune system is not functioning normally and contributing to the patient’s disease. This can be in cancer where NK cells are inactive and contribute to a tumor’s evasion of the immune system and/or disease progression while MDSC proliferate to protect the tumor from attack by the patient’s immune system or this can be in chronic infection where similar dysfunction exists or other neurologic and metabolic diseases where chronic inflammation results in innate immune system dysfunction and disease progression. Our initial focus will be the treatment of cancer – both hematologic malignancies and solid tumors. We plan to pursue two parallel development programs. With INKmune, we will initially focus on treating women with relapse refractory ovarian carcinoma. With INB03, we will treat patients with advanced cancers with elevated biomarkers of inflammation including elevated levels of MDSC in their blood. Once resources are available, we intend to expand our development programs with INKmune and INB03 into high risk MDS and a combination trial with approved checkpoint inhibitors in patients with resistant or refractory to checkpoint inhibitors respectively. We expect both programs to expand into the study and treatment of other cancers based on pre-clinical data and resource availability. The principal components of our strategy to achieve this objective are to:

· pursue development strategies and regulatory approval pathways that allow the treatment of oncology patients with our lead product candidates, INKmune and INB03;

· adopt a product development strategy that solidifies our existing IP to prevent competition and expand our IP suite into related immunotherapeutic areas;

· provide clear value propositions to third-party payers, such as managed care companies or government programs like Medicare, to merit reimbursement for our product candidates; and

· enter into collaborations with other pharmaceutical companies with respect to, among other things, our INKmune and INB03 product candidates and other products that will benefit from development or marketing beyond our current resources.

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Pursue development and regulatory approval pathways. We believe INKmune and INB03 may be approvable under pathways that are potentially shorter than those typically available for drug products based on novel active ingredients, including as an orphan drug under the Orphan Drug Act and approval under the FDA Accelerated Approval Program (see “Government Regulation”). We have not yet had a discussion with the Medicines and Healthcare Products Regulatory Agency (“MHRA”) and/or FDA regarding such designation, but plan to do so in 2019. We believe both our high risk MDS and ovarian carcinoma treatment programs fit the criteria used by the FDA to grant these regulatory designations. We believe that it would take a minimum of six months to receive Orphan Drug status once we submit an application and a minimum of 12 months to receive a designation under the A.A.P. once we submit an application. We might never have these discussions, submit applications under the Orphan Drug Act as the FDA Accelerated Approval Program or have these applications approved if we do.

Adopt a two-pronged patent strategy. We are pursuing a two-pronged product development strategy that will seek to solidify our existing IP to prevent competition and expand our IP suite into related immunotherapeutic areas. We are confident that our core in-licensed IP (see “Intellectual Property”) will allow us both freedom-to-operate and provide robust protection from outside competition. We will continue to invest in expanding the patent suite. We will also seek to further to strengthen our IP position by looking to in-license IP related to immunotherapeutic strategies focused on the innate immune system.

Provide clear value propositions to third-party payors to merit reimbursement for our product candidates. We are designing our clinical development programs to demonstrate compelling competitive advantages to patients and prescribers and also to demonstrate value propositions to third-party payors. We believe the use of INKmune and/or INB03 in patients with a high risk of tumor progression and death from tumor should prolong survival, improve the patient’s quality of life and decrease the total cost of care for patients with these lethal malignancies. For example, ovarian cancer patients relapse frequently. Each relapse requires an expensive, hospital-based treatment regimen that has decreasing benefits. Treatment with INKmune as an out-patient may provide a more durable remission and limit the need for treatment-associated hospitalizations. At the patient level, we believe INKmune and INB03 therapy, once approved, should improve survival and quality of life. At the payor level, we believe INKmune, once approved, should provide more predictable costs and outcomes.

Enter into collaborations to maximize the value of our technology. We believe there are two reasons for us to enter into collaborations with other companies. The first is the further development of INKmune and INB03 by either providing additional innovations to the product, including combination therapy strategies, and/or providing resources to improve the speed and breadth of the development process. The second is to optimize the commercialization of our products either globally or regionally. The ideal partner will benefit us in both ways.

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We continue to look for ways to utilize our unique capabilities to optimize clinical application of cell therapies. We believe that we have identified a way to manufacture human mesenchymal stem cells for the medical research and biotech community that offers large volumes of high-quality, low passage human umbilical cord mesenchymal stem cells with minimal batch-to-batch variability. We believe this may solve the problem associated with supplying an adequate supply of human mesenchymal stem cells for clinical applications. The process to produce pooled, human umbilical cord mesenchymal stem cells was developed at University College London. We have established a reliable supply of human umbilical cords based on our agreement with the Anthony Nolan Cord Blood Bank in the United Kingdom. We have developed a validated manufacturing process that reliably produces cGMP quality mesenchymal stem cells. The manufacturing process can be performed at a contract manufacturing site under the direction of Mark Lowdell, the Company’s CSO. We are negotiating an exclusive license to the manufacturing process from University College London Business, the licensing organization of University College London. We will seek academic laboratories and biopharma companies who need a reliable source of high quality pooled human umbilical cord mesenchymal stem cells for research of and development of clinical products. Once identified, we plan to act as a contract manufacturer of the clinical grade (cGMP) cells for the development of therapeutic products by utilizing contract manufacturers. Because the production of the product is not continuous, we do not expect to engage a contract manufacturer until we have a customer identified. We have identified several contract manufacturers in the UK that have the capability to produce cGMP stem cells. To date, the investment in this project has been approximately $50,000 USD plus management time. We expect the commercial arrangement with academic laboratories or biopharma companies to be a combination of fee-for-service and licensing that does not require additional investment by us. We will be opportunistic in pursuing therapeutic opportunities for our own portfolio with this platform in the future if resources become available. We do not intend to use proceeds from this offering to advance the MSC business. The regulatory path for therapeutic applications of the mesenchymal stem cell products is well established and similar to the regulatory approval process for other cell therapies. We will only be responsible for regulatory compliance related to manufacturing of the mesenchymal stem cells when the product is being developed by a third party. When developing a therapeutic product for the Company’s commercial portfolio, the Company will be responsible for all aspects of the regulatory process. The license from University College London Business unit for the manufacturing process to produce large quantities of high quality pooled, human umbilical mesenchymal stem cells is in late stages of negotiation. We cannot guarantee that the negotiations will be successful. If the negotiations are not successful, we will not pursue the mesenchymal stem cell program in the near future. As such, this program is in the very early stages of development and may not continue as a clinical program within the Company.

Overview of Immunotherapy

The immune system has two parts, innate and adaptive. The innate immune system is the body’s first line of defense against an infection, providing immediate, non-specific responses to eliminate harmful cells in the body. Components of the innate immune system include cytokines, chemokines, macrophages, neutrophils and NK cells, among others.

The adaptive immune system is often initially triggered by the innate immune system, mounts a delayed response against diseased cells and plays a role protecting against re-infection. An adaptive immune response is highly specific to a particular pathogen or antigen and is developed or learned from prior exposure. Key components of the adaptive immune system include antibodies which bind to antigens and mark them for destruction by other immune cells, B-cells which produce these antibodies upon exposure to antigens, and T-cells which attack and eliminate the diseased cells.

The biopharmaceutical industry has made significant advances in harnessing specific components of innate and adaptive immune systems for therapeutic use. Some of these approaches are summarized below.

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Cytokines. One of the early applications of immunotherapy is the use of cytokines, including interferons and interleukin-2 (“IL-2”). Interferons are molecules that inhibit the growth and replication of diseased cells and stimulate innate immune cells to attack them. They have been used as standard of care for hepatitis B and C and multiple sclerosis, and to a lesser extent, as treatment for certain cancers, including chronic myeloid leukemia, cutaneous T-cell lymphoma, myeloma and non-Hodgkin’s lymphoma. However, the use of interferons has generally decreased over the years due to serious adverse events (e.g., flu-like symptoms and dramatic weight loss) and introduction of new therapies with higher efficacy, better safety profiles and more convenient administration. IL-2 activates T-cells and NK cells to attack diseased cells. IL-2 is used to treat select cancers, but due to its relatively poor safety profile, physicians often only resort to this therapy for the most advanced settings. Tumor Necrosis Factor alpha (TNF) is the focus of INB03. TNF biology has four elements that include two cytokines, soluble TNF and trans-membrane TNF (sTNF and tmTNF respectively), and two receptors, TNF Receptor 1 and 2 (TNFR1 and TNFR2). The biology of TNF ligation of TNFR varies dramatically based in what elements of the TNF system that are used. sTNF binding to TNFR1 is responsible for inflammation and cell death while sTNF binding to TNFR2 promotes proliferation of regulatory T cells (“Treg”). In patients with advanced cancers, increased sTNF is not favorable to long-term survival. tmTNF can bind either TNFR to improve the immune response, promote cell survival and stimulate remyelination. In brief, sTNF is the “bad” TNF and tmTNF is the “good” TNF. In patients with cancer, infection or neurologic disease, blockade of tmTNF function has negative consequences such as immunosuppression, increased infection and demyelination.

Antibody therapy. Antibodies exist in three formats; monoclonal (mAbs), oligo/polyclonal and antibody-drug conjugates. mAbs represent an effective therapeutic modality and are important to the treatment paradigm of various diseases. Recent insights into the detailed mechanism of mAbs link their strong disease fighting potential to the immune system. Drug manufacturers have leveraged mAbs’ ability to induce an antibody-dependent cell-mediated cytotoxicity, or ADCC effect to develop better treatments that prolong survival and quality of life of patients. In addition, mAbs designed to inhibit specific checkpoints in the immune system have demonstrated strong immune responses and therapeutic benefit in patients. However, the degree of efficacy of these therapies is heavily reliant on the immune system of patients, many of whom are severely immuno-compromised. For example, despite over $1.0 billion of sales generated by recently launched PD-1 and PDL1 checkpoint inhibitors, they are reported to be generally only effective in approximately 10% to 25% of the addressable patient population. In addition, mAbs are manufactured through a complex process that requires purification of cell products created from a cell line. Polyspecific antibodies, for example bi-specific antibodies, are able to target more than one antigen. These are often used to bring and effector T cell in contact with a target cell. Antibody drug conjugates are mAbs attached to a toxin, chemotherapy or radio therapy that delivers the cancer killing payload directly to the cancer.

 

Dendritic Cell Therapies. This approach is designed to indirectly stimulate a patient’s T-cells by leveraging the role of dendritic cells in presenting antigens to T-cells. Cancer vaccines are the most common application of dendritic cells. The only FDA-approved dendritic cell therapy is PROVENGE, which entails collecting monocytes from the patient, maturing them into dendritic cells, “loading” ex vivo with the patient’s cancer antigens, and then re-infusing in the patient. Currently, this process is cumbersome and expensive, and again, relies on an intact and effective immune system of the patient. There are additional ongoing preclinical studies and clinical trials being conducted by our competitors aimed at addressing certain of the limitations associated with this approach. To date, current clinical results of dendritic cell therapies have been mixed.

CAR-T and TCR Therapies. T-cells recognize diseased cells by receptors engaging with antigens that are present on or inside the diseased cells. CAR-T therapy entails genetically engineering T-cells to express synthetic CARs that direct T-cells to antigens on the surface of cancer cells. TCR therapy modifies T-cells to express high-affinity tumor specific TCRs that recognize intra-cellular antigens that must be presented on the surface of target cells. In early clinical trials, CAR-T and TCR therapies have demonstrated impressive anti-tumor activity in a narrow spectrum of hematologic cancers and garnered significant attention by research institutions and biopharmaceutical companies. We believe a key limitation of adaptive autologous immunotherapy is the need to retrieve non-compromised immune cells from a cancer patient which requires a complex and costly manufacturing process to develop the therapy. The complexity of this personalized process is reflected in the price of the two approved therapies. CAR-T therapies - tisagenlecleucel and axicabtagene ciloleucel for advanced leukemia and lymphoma respectively. The cost of a single therapy is many hundreds of thousands of dollars. As a consequence of this need to harvest active T-cells, current Phase I clinical trials for autologous CAR-T cell therapy in large part enroll patients from highly selected, often relatively early-stage disease in a narrow spectrum of cancers, including bulky hematological cancers. In addition, Phase I clinical trials of CAR-T cell immunotherapy have reported severe adverse toxicities of cytokine release syndrome and neurotoxicity, requiring hospitalization, pre-conditioning and, in some instances, intensive care unit admission following side effects associated with cytokine release syndrome. As a result, though our competitors continue to develop their CAR-T and TCR product candidates with the goal of addressing certain of the limitations associated with these approaches, we believe these serious challenges may limit their potential and use in a variety of indications, including solid tumors.

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Checkpoint Inhibitors. Immune cells express proteins that are immune checkpoints that control and down-regulate the immune response. These are best defined in T lymphocytes and include PD-1, CTLA-4, TIM-3 and LAG3. Tumor cells express the ligands to these receptors. When T cells bind the ligand to these proteins on the tumor cells, the T cell is turned off and does not attempt to attack the tumor cell. Thus, checkpoint inhibitors (“CPI”) are part of the complex strategy used by the tumor to evade the patient’s immune system and are responsible for resistance to immunotherapy. Biopharmaceutical companies have successfully developed CPI that block the receptor/ligand interaction to promote the adaptive immune response to the tumor. Six CPI are currently approved, pembrolizumab, nivolumab, atezolizumab, avelumab, durvalumab, and ipilimumab for a wide variety of solid tumors including melanoma, lung, bladder, gastric cancers and others. More CPI are in development and more tumor types will be added to the list of sensitive tumors over the next years. CPI have become the backbone of cancer therapy and are expected to be the best -selling class of drugs by 2027.

NK Cells. NK cells typically represent approximately 2% to 13% of circulating lymphocytes and are a critical component of the immune system responsible for innate immunity. Unlike adaptive immune cells, they are ever present and ready to attack, having the inherent ability to detect and eliminate diseased cells without the need for antigen presentation, which is why they are called “natural killers.”

NK cells bind to stress ligands expressed by the diseased cells and directly eliminate them. This binding induces NK cells to release cytokines, including, interferons and GM-CSF, which are integral in recruiting additional innate and adaptive immune responses by the host. NK cells also represent a critical effector cell for ADCC, whereby target cells bound with human antibodies, whether made by the patient’s body or administered, are selectively destroyed by the NK cells.

 

MDSC Cells: MDSC are present in very low quantities in healthy patients. MDSC develop and proliferate in patients with chronic infection and with cancer. In cancer, MDSC are a unique and well-defined cell population that home to the cancer and secrete immunosuppressive cytokines that provide a protective, immunosuppressive shield to the tumor. This protective immunosuppressive shield prevents the patient’s immune system from attacking the tumor. The presence of MDSC in the tumor microenvironment and/or circulating in the patient’s blood predict for more advanced disease, resistance to immunotherapy and a worse patient survival.

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INKmune: Our NK cell Directed Product Candidate

INKmune is our lead product candidate that converts resting NK cells into primed NK cells, an essential step in them becoming activated cancer-killing NK cells. We have shown this works ex vivo in human tissue cell cultures, and we believe that this will work in vivo which is the purpose of our planned clinical trials.

	·	Cancers grow and relapse because they evade the immune system. NK cells are the most important cell for the elimination of residual disease that causes cancer relapse. NK cells target cells based on a series of complex antigens on the cancer cell surface that signal the NK cells to activate and kill the cancer cell. We call these cancer antigens “priming signals” and “triggering signals” respectively. An NK cell must receive a series of multiple signals through a network of cell surface receptors constituting of both priming and triggering signals. Crucially, we have shown that the priming signals can be delivered independent of the triggering such that one cell, such as INKmune, may deliver priming signals and the patient cancer cell deliver the second set and induce killing. Cancer cells defective in priming signals evade NK killing so the cancer cell survives and grows. Both priming and triggering signals are not a single surface molecule on the NK cell, but a complex combination of signals from multiple cell surface ligands which lead to NK priming and triggering respectively. Cancer cells also express molecules which can inhibit NK cell priming and triggering and the final outcome of the NK-cancer cell conjugation is a balance of all of these signals. In summary, INKmune shifts that balance of stimulating and inhibitory signals to enhance the ability of resting NK cells to kill a wide range of patient cancers. [Sabry Lowdell Frontiers, North et al JI and Sabry et al JI and Tsirogianni et al AmJ Hematol]. This concept is shown in the schematic form in Figure 1 below.

· The main “job” of a cancer cell is to survive and grow. Unfortunately, the “successful” cancer cell ultimately kills the host. The first priority for survival is to evade NK cell killing. The vast majority, >98%, of cancer cells do this by downregulating expression of priming ligands. When an NK cell interrogates a cancer cell lacking sufficient priming signals the NK cell is unable to trigger lysis. This allows the cancer to evade NK cell killing to grow, and, we believe, is one of the causes of cancer relapse.

· We have described the functional biology underlying the interaction of NK cells and cancer cells. We believe that we have learned to counteract the loss of the priming signals by artificially providing these signaling ligands to the resting NK cell by exposure to a proprietary tumor cell line which constitutively expresses them. We call this product candidate INKmune. When we deliver INKmune to a resting NK cell, it provides priming signals to convert the resting NK cell in to a tumor primed NK cell (“TpNK”). TpNK are poised to kill any cancer cell that expresses adequate triggering ligands. Based on our extensive pre-clinical testing, we believe this covers a large and heterogenous array of primary human cancers including hematologic malignancies such as acute myelogenous leukemia, multiple myeloma, lymphoma, and solid tumors such as breast, prostate, renal, lung, and ovarian cancer. The TpNK binds to the cancer cell, becomes an activated NK cell that will kill the cancer cell that was previously resistant to NK cell killing. Based on the pre-clinical data, we believe INKmune will convert the patient’s resting NK cells to primed NK cells will allow the patient’s NK cells to kill their tumor.

· We believe there are advantages of NK cells primed with INKmune (TpNK) compared to cytokine primed NK cells (“LAK”) or monoclonal antibody targeted NK cells (“MabNK”). Both LAK and MabNK require the priming/targeting agent to be present at all times for the NK cell to be a cancer killing cell. As soon as the cytokine or Mab are removed, the NK cell becomes a resting NK cell that cannot kill the cancer cell. INKmune provides a sustained “on” switch even after the INKmune reagent has been removed. Once INKmune causes the resting NK cell to become a TpNK, the NK cell remains primed and ready to kill until its lytic capacity has been exhausted by lysis of tumor cells. The second advantage is that TpNK do not require a specific target compared to MabNK. Trastuzumab (Herceptin™), a Mab targeting HER2 on breast cancer is an illustrative example. Women with HER2 positive breast cancer, 20% of all women with breast cancer, can be treated with and benefit from Herceptin immunotherapy. Unfortunately, the other 80% who are HER2 negative, have a worse survival because they can not avail themselves to immunotherapy. INKmune may benefit the women with HER2 negative breast cancer. We believe the pre-clinical and clinical data using tumor primed NK cells indicates that signals delivered by cancer cells are adequate to provide priming and activation of NK cells to kill the cancer and possibly eliminate the need for MabNK.

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· We have demonstrated TpNK killing of many tumor types in laboratory studies. Tumor priming is effective regardless of the source of the NK cells and in many types of tumors – both cell lines and primary tumors from patients. The principle of TpNK killing has also been demonstrated in two Phase I trials in patient with acute myelogenous leukemia (“AML”). These trials were not supported by us and used a first-generation personalized cell therapy product. In these trials, haplo-identical NK cells obtained from a first degree relative by leukapheresis were primed ex-vivo using a lysate of a tumor cell. Once the TpNK therapy has been produced and passed quality testing, the patient received conditioning therapy with chemotherapy (cyclophosphamide and fludarabine), the primed haplo-identical NK cells were given to patients by intravenous infusion. Two Phase I clinical trials have been performed using the first-generation treatment strategy. An investigator initiated trial performed at the Royal Free Hospital in London 2005 was funded by a UK charity. Fifteen patients with relapsed, high-risk AML were enrolled in the trial. Because of drop-out due to disease progression, delays in product production and complications of conditioning therapy, only 7 of the fifteen patients were treated with the TpNK cell product. Four of seven patients showed clear benefit from the treatment with the TpNK product with prolonged relapse free remission and, in one patient, conversion of a partial remission to full remission. None of the remissions were durable; all patients ultimately died from disease progression. The safety of the product was found to be a combination of toxicity from the chemotherapy conditioning regimen and the TpNK therapy. In general, the complications were well tolerated although did require medical intervention including prolonged periods of aplasia in two heavily pretreated patients that resolved with supportive care. The results of this study have been published in a medical journal (PLoS One. 2015 Jun 10;10(6):e0123416. doi: 10.1371/journal.pone.0123416. eCollection 2015). In 2013, a second open label, multi-center trial was performed in the US using virtually the same product and procedures but targeting a slightly different patient population. In the second trial, 12 patients in first remission with AML were treated with the haplo-identical TpNK product produced using the first generation ex-vivo priming process. After conditioning with chemotherapy, the patients received TpNK in three dosing cohorts – 3x10^5, 1x10^6 or 3X10^6 TpNK per kilogram. Patient were followed for safety and relapse free survival. This trial confirmed the safety of the TpNK treatment in patients with AML and reinforced many of the efficacy findings seen in the first trial. Patients benefited from haplo-identical TpNK therapy with prolonged relapse free survival including two patients that remain in remission more than 42 months after treatment. This trial has been published. (Biol Blood Marrow Transplant. 2018 Mar 26. pii: S1083-8791(18)30132-0. doi: 10.1016/j.bbmt.2018.03.019.) The results of the laboratory and Phase I studies provide evidence that our strategy for treating residual disease is sensible but unproven.

  

· Because INKmune primes NK cells to target naturally occurring antigens, we believe INKmune can be used in to treat a wide variety of cancers including hematologic malignancy (AML, MM, CML, high risk MDS) and solid tumors (renal, prostate, breast, ovarian, pancreas and lung). We expect the list of INKmune sensitive tumors to continue to expand.

· The primary role for INKmune will be an immunotherapy targeting residual disease in patients after debulking cancer therapies such as cytotoxic chemotherapy and surgery. At this time, we plan to give INKmune as monotherapy. We do not rule out the possibility of using INKmune as part of combination therapy in the future. We do not expect to need to modify INKmune to treat these additional types of cancer, because we believe INKmune is a universal cancer therapy where “one size fits all”. We believe for INKmune to receive regulatory approval for each cancer indication, clinical trials will need to be performed which demonstrate its safety and effectiveness as a treatment for each such cancer. We believe the difficulty and cost of achieving these labels extensions will decline with each successive approval, if and when achieved. For example, if INKmune is proven to be effective therapy in patients with ovarian cancer and high-risk MDS, we will need to perform separate pivotal trials for approval in lung, prostate or renal cancer.

Three step process to preparation for INKmune human clinical trials:

INKmune GMP scale-up for Phase I/II clinical material

We have contracted with, Advent Bioservices, a contract manufacturing organization to produce the master cell bank for INKmune using good manufacturing practice, or GMP, clinical material. Advent Bioservices used GMP manufacturing facilities leased from the Centre of Cell, Gene and Tissue Therapeutics (“CCGTT”) at the Royal Free Hospital. The working cell banks and individual INKmune product to be used in the patients for the clinical trial will be produced at the Royal Free Hospital in the CCGTT. All manufacturing has been under the direction of Professor Mark Lowdell. The Company is on target to produce enough INKmune to complete the Phase I/II clinical trials in women with ovarian cancer and in patients with high-risk MDS by the end of the first half of 2018. We may need additional INKmune for future clinical trials. Planning for site of manufacture and the financing for that manufacturing has not been made at this point.

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INKmune Biomarker Development Program

We have discovered two biomarker strategies that we believe can be used to demonstrate: i) who should receive INKmune therapy; ii) if the INKmune therapy is working; and iii) when INKmune therapy should be repeated. For the initial Phase I/II trials in patients with ovarian cancer or high risk MDS, we expect the biomarker testing will be performed in a single laboratory under our direction. In the near future, we will develop assay systems with standard operating procedures to ensure uniform testing of the biomarker across clinical sites. This will facilitate expansion of the clinical programs to multiple sites. We anticipate that, in the future, the biomarker program may be a surrogate marker for both clinical effectiveness and marketing purposes.

Interaction with Regulatory Authorities Regarding INKmune Development

We met with the Medicines and Healthcare Products Regulatory Agency (“MHRA”), the UK version of the FDA as part of a Scientific Advice Meeting in September 2017. The purpose of the meeting was to explain to the MHRA our manufacturing process and clinical plan for the development of INKmune in a Phase I/II trial in relapse/refractory ovarian cancer. The MHRA provided positive feedback on our manufacturing and clinical plans. We expect to submit a CTA in the first quarter of 2019 to support the ovarian cancer Phase I/II trial in the United Kingdom. We expect to meet with the FDA in the first half of 2019 in preparation for expanding the Phase II component of the clinical trial in to the US. We plan a similar two step regulatory process for the high risk MDS trial.

INKmune Product Development Path Proposed Phase I/II Study in patients with cancer

By the first quarter of 2019, we plan to initiate an open label Phase I/II cancer study in patients with ovarian carcinoma. Patients will be enrolled who have a low burden of relapse refractory disease and have peripheral blood or ascites NK cells which can respond to INKmune in a laboratory test on NK function. The study design agreed upon after discussion with the MHRA on September 12, 2017 will be a two-step Phase I/II study. In the Phase I to be performed under a CTA issued on at the University College of London Hospital in London and one or two other clinical sites in the UK. We expect to submit the CTA and receive permission from the MHRA to initiate trial by the first quarter of 2019. In the Phase I trial, women with relapse refractory ovarian cancer will be treated with INKmune, given as an intra-peritoneal infusion through an indwelling peritoneal catheter in a traditional open label study to demonstrate safety and determine the dose of INKmune to be carried into the larger Phase II portion of the study. Based on pre-clinical studies that indicate that women with relapsed/refractory ovarian cancer have NK cells in their peritoneal cavity that response to INKmune to kill SKOV3, an ovarian cell line, we believe intra-peritoneal delivery of INKmune will be therapeutically effective. Three clinical trials support this observation. Two clinical trials have been performed using the first generation haplo-identical TpNK product in patients with AML. Both of those studies have been published (PLoS One. 2015 Jun 10;10(6):e0123416. doi: 10.1371/journal.pone.0123416. eCollection 2015) and (Biol Blood Marrow Transplant. 2018 Mar 26. pii: S1083-8791(18)30132-0. doi: 10.1016/j.bbmt.2018.03.019.). In summary, the studies showed that TpNK therapy, when delivered by intravenous infusion after conditioning therapy was effective in providing prolong remissions with a toxicity profile that was manageable. TpNK therapy has not been delivered via intraperitoneal infusion, but a similar treatment strategy is used for the delivery of TALL-104 cells. TALL-104 is a replication incompetent human MHC non-restricted cytotoxic T-cell leukemic cell line that has been extensively studied and used to treat a number of cancers. Currently, Galileo Research, an Italian biotech company, has used TALL-104 in a Phase II clinical trial to treat women with ovarian cancer (http://www.galileoresearch.it/en/pipeline/TALL-104.html). In that study, TALL-104 is delivered via intraperitoneal infusion. Although the efficacy of the therapy is not yet known, the therapy is well tolerated with toxicities mainly related to the infusion catheter, not related to the TALL-104 infusion. The primary end points of the INKmune Phase I trial are safety and determining the dose of INKmune to take into the Phase II portion of the clinical trial. The key secondary efficacy end-points to be studied are i) increased NK cell priming as determined by multicolor flow cytometry of NK cells from the patient; ii) increased NK cell killing of SKOV3 tumor in a bioassay as shown in Figure 2 below; and iii) a decrease in tumor burden as measured by CA125 levels in the blood. Once safety and the optimal INKmune dose have been determined, a randomized study of women treated with INKmune will be compared to a group of control patients who receive only standard of care treatment with letrozole. We expect to treat six patients in the Phase I portion of the trial, but this number can increase by to as many as 18. The Phase II portion of the protocol will enroll 30 patients in a 2:1 randomization (20 active: 10 control). In both trials, in addition to immunologic monitoring of NK activation status and ability to kill tumors, CA125, a serologic biomarker of tumor burden and medical imaging studies of tumor burden will be used to determine the effect of INKmune therapy on the patient’s ovarian cancer. The primary end-point in the Phase II portion of the study will be improved relapse free survival in INKmune patients compared to control patients. Secondary end-points will evidence of improve immunologic function, improved NK medicated killing of tumor cells in a bioassay and a decrease in tumor burden by both imaging and measurement of CA125 in blood. The Phase II proof-of-concept study should allow us to accurately design future studies for regulatory approval. The dose and frequency of intraperitoneal INKmune therapy will be finalized during the Phase I portion of the trial. We are planning three cycles of INKmune therapy IP. Each cycle involves three IP infusions of INKmune. Overall, patients will receive at least nine doses of INKmune IP. If patients are responding, the attending physician may decide to extend the therapy beyond the three cycles of therapy. We are prepared to support these patients with INKmune therapy as dictated by their response to therapy. The Phase II portion of the study will be expanded to other clinical sites in the United Kingdom. We may choose to open Phase II clinical sites in the US. This will require us to submit an IND to the FDA using the Phase I data.

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If resources permit, we plan to initiate a Phase I/II clinical trial treating patients with high-risk myeloid dysplastic syndrome (“MDS”) with INKmune delivered via intravenous infusion (“IV”). MDS is a disease of the elderly with few effective therapies. Patients with high risk MDS have measurable leukemic blasts (>5%) in their bone marrow and will most likely die of their disease due to progression to AML or bone marrow failure. Current therapies do not effectively treat a majority of these patients. The only known cure for patients with high risk MDS is allogenic bone marrow transplant, a therapy that is often contraindicated in older patients. INKmune may be an effective immunotherapy for this disease by priming the patient’s NK cells to eradicate the blasts in their marrow. We expect the Phase I/II trial will occur in the United Kingdom and US, although delivery, end-points and safety will be different from the ovarian cancer trial. The dosing strategy should be the same with INKmune infusions given on days 1, 7 and 15 of each 28 days cycle of therapy. Patients will receive three cycles of therapy as part of the clinical trial. As with the ovarian cancer trial, the Phase I trial will focus on safety and determining what dose to carry in to the Phase II portion of the trial. The efficacy end-points in the Phase I trial will be NK cell activation and NK killing of SKOV3 tumor cells in the bioassay. The risk of safety signals is greater in this trial because INKmune is being delivered intravenously. Based on pre-clinical biodistribution studies, we will focus the safety monitoring on pulmonary function, liver function and hematologic variables. The risk of immunologic complications such as the cytokine release syndrome (“CRS”) seen after CAR-T therapy is very low. INKmune cells do not produce cytokines and NK cells do not produce levels of cytokines necessary for the CRS. The site for the Phase I clinical trial has not been identified. The Phase II trial will be an open label, controlled trial of patients with high risk MDS. The control arm will receive current standard of care. The primary end-point will be disease progression measured by increased AML blasts in the bone marrow or conversion to AML. Secondary end-points will be immunologic parameters of NK priming and killing as measured by FACS and SKOV3 killing assay respectively. We expect the Phase II portion of the trial will occur at clinical sites in the United Kingdom and United States. These sites have not been selected. Although we have not presented the trial design to the regulatory authorities.  

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INKmune Registration Studies and/or Partnering

After completion of proof-of-concept Phase II studies with INKmune, we will decide whether to continue to develop INKmune as a treatment for high risk MDS and ovarian carcinoma indication and/or expand into other tumor types. We expect to have biopharma partners participate in this decision. We may also seek to be acquired at this stage or partner INKmune. Although our development strategy is focused on North America and Europe, we believe INKmune will also be attractive for markets on the Pacific Rim, South Asia and South America, but will wait for partners to help with the development in those regions, however, at this time, we are not negotiating with any potential partners.

INKmune Regulatory Strategy

INKmune is a new therapy for the treatment of cancer that will need to be proven safe and effective by well-designed clinical trials that show a meaningful clinical benefit to patients. We believe that registration trials will need to be designed as randomized trials in patients with cancer where one group of patients received INKmune and another receive best available care. We received advice from the MHRA (Medicines and Health Products Regulatory Agency) on September 12, 2017 on the design clinical trial for ovarian cancer. We plan to perform the Phase I trial with INKmune in the United Kingdom under a clinical trials authorization (“CTA”). We plan to expand the Phase II program to additional sites in the United Kingdom and the US. We will meet with the FDA once we have data from the Phase I trial. We plan to file an IND with the FDA to allow us to expand the Phase II clinical trial in to the US. Because there are no therapies similar to INKmune approved in any market, we plan to take advantage of the regulatory opportunities afforded to therapies that treat small markets with a high unmet need. In the U.S., this includes Orphan Drug Designation and expedited programs for approval including Accelerated Approval, Breakthrough Therapy Designation, Fast Track Designation, and priority review (see “Government Regulation”). We cannot predict which of these programs we will benefit from, if any at all, without further discussions with the FDA. Similar programs exist in the EU with the European Medicines Agencies (“EMA”).

Emerging Market Opportunity

The cancer therapy market is large, diverse and competitive. Although the concept of immunotherapy with monoclonal antibodies has been around for more than 20 years, the concept that patient derived immunosuppressive factors was a barrier to effective cancer treatment was recently recognized and had its first therapy approved just four years ago (ipilimumab, Yervoy, BMS, March 2011). Since then, five additional “check point” inhibitors have been approved, but the market is in its infancy. Most of the focus on strategies for modulating tumor-based immunosuppression focus is on the adaptive immune system (“T-cells”). The role of, and the importance of manipulating the innate immune system has more recently become a target of therapeutic development. NK cells are part of the innate immune system and are critical in both tumor surveillance (prevention) and treatment (killing). Myeloid Derived Suppressor Cells (“MDSC”) are part of the innate immune system that only appear once the patient has chronic inflammation, a common occurrence in patients with cancer. The main role of the MDSC is to protect the tumor from attack by the patient’s immune system. Because T-cell focused strategies do not have an effect on the innate immune system, patient’s receiving such treatments may fail to recruit half of the patient’s immune system, the innate immune system, to attack the patient’s cancer. Clinicians increasingly recognize that durable responses to cancer requires a coordinated attack by the patient’s adaptive and innate immune system. Normalizing the response of the innate immune system requires eliminating the dysregulated innate immune response that decreases the patient’s ability to see and attack the cancer as well as mechanisms the protect the cancer from immunologic attack (effector and protector function respectively). INKmune primes NK cells to enable them to attack the tumor. INB03, by decreasing the proliferation and function of MDSC, will lessen the immunosuppressive shield that protects the tumor from immunologic attack and, through NK/DC crosstalk, recruit the adaptive immune system to the fight.

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Challenges in the Market for Our Product Candidates

 

The market for new oncology therapies is busy, complicated and rapidly evolving. We will be competing with companies that are older, larger, better financed and have greater experience. There are two types of drug companies – development companies and commercial companies. Development companies take the risk of developing new products to proof-of-concept. Once proof-of-concept has been achieved, if the drug provides clinical benefit, the product is usually acquired by a commercial company, which completes the drug’s clinical development and markets the product. We are a development company which will seek to develop products such as INKmune from the bench to the bedside to demonstrate proof-of-concept. The goal for us is to successfully develop such products to the point where they are attractive targets for potential partners/acquirers.

According to a recent Markets and Markets report, the immunotherapy market is growing rapidly at an annual rate of over 13%. Recently, the market is biased towards T cell-based immunotherapies including bi-specific antibody therapies, checkpoint inhibitors and CAR-T cell-based therapies. There are substantial numbers of clinical trials that are focused on the adaptive immune system innate immune system than those focused on for the treatment of cancer. Our challenge will be to educate partners on the value of NK cell-based therapeutic strategies. The need to educate people of the importance of INB03 is equally challenging. At the academic level, there is a recognition that therapies targeting MDSC are needed to improve the results of immunotherapies. Investors and potential partners are only learning about MDSC. We will be responsible for educating them on the importance of MDSC and why INB03 may be an important addition to the oncologist’s armamentarium. We believe educating investors and partners about new therapeutic opportunities is an easier task than trying to differentiate our company from the many other cancer immunotherapy companies. We plan to use a combination of publication, presentation and investor relations to promote INKmune and INB03 and to educate the clinical, biopharma and investor community on the value of these novel therapeutic approaches.

INKmune Competition

Our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. We believe that key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, price and reimbursement level. Many of our potential competitors, including many of the organizations named below, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than us in obtaining FDA approval for and achieving widespread market acceptance of their drugs. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our product candidates. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Further, the development of new treatment methods for the conditions we are targeting could render our drugs non-competitive or obsolete.

 

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INKmune is an immunotherapy that harnesses the biology of NK cells for the treatment of cancer. There is a long list of immunotherapy strategies for the treatment of cancer and the immunotherapy for cancer market is growing rapidly. There are at least three ways to classify immunotherapy for cancer. The list below classifies immunotherapy strategies beginning with those that are most closely related to INKmune:

1.	Companies in the NK cell therapy business;
2.	Companies in the personalized immune-oncology business; and
3.	Companies in the precision immuno-oncology business.

We are not aware of any approved treatments that are classified as NK cell therapies. We are aware of three public companies in the NK cell therapy business: NantKwest, Fate Therapeutics and Fortress Biotech. These companies are developing products that involve replacing or supplementing NK cells of the patient for the treatment cancer. Their product requires extensive ex-vivo cell manipulations which, with respect to NantKwest and Fate Therapeutics, may include gene therapy. The next larger group of companies are in the personalized immuno-oncology business with products focused on T cell activation strategies. The most popular are the CAR-T cell therapies which are a patient specific ex-vivo gene therapy approach to a single disease (for example: pediatric ALL). CAR-T therapy has become wildly popular of late and includes many private companies, newer public companies such as Bluebird, Juno Therapeutics and Mustang Bio as well as established companies such as Novartis and Gilead. For many of the companies, CAR-T cell therapies is their only business. For the latter two, CAR-T cell therapies is a newly in-licensed programs with marketing authorization in the US. Finally, the precision immune-oncology category also includes companies with anti-cancer antibody products and the newer “check-point” inhibitors. Antibody therapies are all about “illuminating” the cancer to the innate immune system (NK cells). Monoclonal antibodies were the original immunotherapy that drove the growth of well-known biopharma companies including Genentech/Roche, Amgen, Merck and others. Each of these products is disease specific (ie: treat only HER2+ breast cancer). Modern therapeutic antibodies are much more complicated bi-specific and tri-specific antibodies that attempt to connect the cancer with activated T-cells of the adaptive immune system. Check-point inhibitors are currently the most rapidly expanding product category in immuno-oncology. These CTLA-4 (ipilimumab) and PD-1 inhibitors (pembrolizumab and nivolumab) specifically block a mechanism that shields cancers from T-cell killing. The two companies in this business are Merck (pembrolizumab) and GSK (ipilimumab and nivolumab). There are many others trying to join this promising therapeutic area including large companies such as BMS and Roche.

There are a number of FDA approved drugs that improve the ability of the innate immune system (NK-cells) to treat cancer including mono-clonal antibody therapies (for example: Rituximab®; Avastin® and Herceptin® marketed by Roche/Genentech); and “check-point” inhibitors (Yervoy® and Opdivo®, BMS, Keytruda®, Merck and others). There is a large amount of development activity in the immune checkpoint inhibitor field from both pharmaceutical giants including AstraZeneca, Merck & Co, Pfizer, Merck KGaA, Roche, GSK, Novartis and Amgen and many start-ups, small companies and university spin-offs which have emerged in the past two years. Examples (in alphabetical order) include Agenus, Alligator Bioscience, Ambrx, AnaptysBio, argenx, Bioceros, BioNovion, Cellerant Therapeutics, Checkpoint Therapeutics, Compugen, CureTech, Enumeral, Five Prime Therapeutics, Genmab, GITR, ImmuNext, IOmet Pharma, iTeos Therapeutics, Jounce Therapeutics, KAHR Medical, Multimeric Biotherapeutics, Nativis, Orega Biotech, Pelican Therapeutics, Pieris Pharmaceuticals, Prima BioMed, Redx Pharma, Sorrento Therapeutics, Tesaro, TG Therapeutics, Theravectys and ToleroTech active in the field. The list of companies with poly-specific antibodies that attempt to link the cancer with a cytotoxic T cell is long, includes both private and public companies (Amgen, Xencor, F-Star, Merus and many others). Finally, two CAR-T cell therapies were just approved for the treatment of ALL – Kymriah™ (Novartis) and Yescarta™ (Gilead). We expect additional drugs to gain marketing authorization in the immune-oncology space.

According to the BioProcess Technology Consultants, Inc. (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4622599/pdf/kmab-07-01-989042.pdf), World Preview 2017, Outlook to 2022, the monoclonal antibody total market size in 2013 was nearly $75 Billion USD and is expected to grow to $125 Billion by 2020. According to Evaluate Pharma, the check-point inhibitor market is in its infancy, but is expected to be valued at more than $7B USD by 2023. To our knowledge, there are two companies with NK cell immunotherapies in development. The first is Fortress Biotech (NASDAQ:FBIO) which is developing CNDO109 for the treatment of AML. CNDO109 is an allogeneic ex-vivo NK cell activation program that utilizes live cancer cells to prime the related donor’s NK cells. The primed NK cells are then given to the patient with AML. This program has entered a Phase I clinical trial in the US; the results of the trial highlighted in a previous section have recently been published. Prof. Mark Lowdell, a founder of this Company, performed a single center trial in the United Kingdom using almost identical technology as CNDO109. We believe that the results of the trial were promising with several patients having a prolonged remission after a single treatment (Kottaridis et al. (2015). PLoS ONE 10(6):1-19). NantKwest, (NASDAQ Global Select Market) is an early stage biotech company that is using a genetically engineering strategy of a NK cell line to produce a live, off-the-shelf NK cell product to treat a variety of cancers. The clinical data for this product is sparse at this time. Fate-NK 100 and Engineered hnCD16iNK from Fate Therapeutics are product candidates designed to replace or supplement NK cells in patients with cancer. For the practice reports that this enrolling a trial with Fate-NK 100 in women with relapsed/refractory ovarian cancer.

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To our knowledge, there are no innate immune check-point inhibitors in development that have the unique characteristics of INB03 that neutralize sTNF to: i) decreases the proliferation of MDSC; ii) decreasing local and systemic immunosuppression caused by MDSC by stopping production of immunosuppressive cytokines and; iii) improving NK/DC cross-talk to recruit the adaptive immune system to fight the cancer.

INB03 Competition

To our knowledge, there are no other innate immune system check-point inhibitors in development that combine the characteristics of decreasing the population and function of MDSC while promoting NK/DC crosstalk that expands and recruits the adaptive immune response to attack the patient’s tumor. Lilly is developing LY3022855, a human IgG1 monoclonal antibody designed to target the CSF1R that should inhibit MDSC from receiving CSF1 signals, decreasing their survival and relieving the effect of MDSC in the tumor. Daiichi Sankyo Inc., in collaboration with Bristol Myers Squibb, is testing DS-8273a, a TRIAL-R2 agonistic antibody in combination with a PDL1 inhibitor to decrease the number of MDSC in patients with colorectal cancer. Rgenix Inc., is developing RGX-104, an orally bioavailable small molecule immunotherapy that targets LXR (liver X Receptor). RGX-104 reportedly depletes MDSC. Syntrix Biosystems is developing SX-682. SX-682 is a small-molecule dual-inhibitor of CXCR1 and CXCR2, the chemokine receptors pivotal to tumor metastasis, therapy-resistance, and myeloid cell suppression of cancer surveillance by the adaptive immune system. By blocking the CXCR1/2 pathway, SX-682 may prevent recruitment of MDSC to the tumor microenvironment. The University of Minnesota has a trivalent antibody program aimed at treating patients with advanced hematologic malignancies. This CD16/IL-15/CD33 (161533) Tri-Specific Killer Engagers (TriKes) product may target CD33+ MDSC. Siamab Therapeutics is developing an anti-sialyl-Tn monoclonal antibody that targets MDSC in some tumor types. Clathera Biosciences, in collaboration with Incyte, a US based biotech, is developing CB-1158 (INCB01158), an arginase inhibitor to decreases MDSC. A Phase II clinical trial is open that combines CB-1158 with nivolumab, an anti-PD1 CPI marketed by Bristol Myers Squib. Reata Pharmaceuticals is testing omaveloxolone (RTA 408) in the phase Ib/II REVEAL trial in combination with either ipilimumab (Yervoy) or nivolumab (Opdivoo) in patients with advanced unresectable or metastatic melanoma. Currently approved non-selective TNF inhibitors, infliximab, etanercept, adalimumab and others, are not considered direct competitors of INB03 in the treatment of cancer because of their mechanism of action and safety side effects. Non- selective TNF inhibitors block the function of both sTNF and tmTNF. Blockade of tmTNF is immunosuppressive increasing the risk of infection and cancer in patients. This is shown in Figure 3 below where maintaining function to tmTNF by genetic or pharmacologic means results in an immunocompetent animal that can protect itself against infection. Blockade or knock-out of both sTNF and tmTNF results in death from infection. 

 

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Intellectual Property

Proprietary protection for our product candidates, technology and processes is important to our business and we seek patent protection in the U.S. and internationally when we deem appropriate. We also rely on trade secrets, know-how and continuing technological advances to protect various aspects of our core technology. We require our employees, consultants and scientific collaborators to execute confidentiality and invention assignment agreements with us.

The INKmune product candidate is protected by a family of patents pending in the United States Patent & Trademark Office (USPTO) and in the International Bureau of the World Intellectual Property Organization (WIPO) under the Patent Cooperation Treaty (PCT). We expect to enter national stage under the PCT in Australia, Canada, Europe, and Japan. The following table summarizes our patent positions at the time of preparing this document:

Patent/ Application	Number	Name	Jurisdiction	Ownership	Type	Expiration Date
Application	15/268,399	“IN VIVO PRIMING OF NATURAL KILLER CELLS”	USA	Licensed	Method	TBD
Application	PCT/US2016/061835	“IN VIVO PRIMING OF NATURAL KILLER CELLS”	PCT-GLOBAL	Licensed	Method	N/A
Application	PCT/US2018/022722	“IN VIVO PRIMING OF NATURAL KILLER CELLS”	PCT-GLOBAL	Licensed	Method	N/A

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The patent suite for INB03 covers patents related to DN-TNF technology including XPRO1595. This patent suite continues to expand with active prosecution on use of INB03 in cancer and neurologic diseases. We will continue to expand the use of this therapy to other areas.

Patent/ Application	Number	Name	Jurisdiction	Ownership	Type	Expiration Date
Patent	US 7662367	PHARMACEUTICAL COMPOSITIONS FOR THE TREATMENT OF TNF-ALPHA RELATED DISORDERS	USA	Licensed	Composition	12/19/2026
Patent	US 7446174	PROTEIN BASED TNF-ALPHA VARIANTS FOR THE TREATMENT OF TNF-ALPHA RELATED DISORDERS	USA	Licensed	Composition	8/9/2026
Patent	EP 1578988	PROTEIN BASED TNF-ALPHA VARIANTS FOR THE TREATMENT OF TNF-ALPHA RELATED DISORDERS	EPO	Licensed	Composition	4/14/2025
Patent	JP 4353802	PROTEIN BASED TNF-ALPHA VARIANTS FOR THE TREATMENT OF TNF-ALPHA RELATED DISORDERS	JPO	Licensed	Composition	4/14/2025
Patent	US 7687461	TREATMENT OF TNF-ALPHA RELATED DISORDERS WITH TNF-ALPHA VARIANT PROTEINS	USA	Licensed	Composition	11/17/2026
Patent	US 7244823	TNF-ALPHA VARIANTS PROTEINS FOR THE TREATMENT OF TNF-ALPHA RELATED DISORDERS	USA	Licensed	Composition	3/31/2024
Patent	US 7056695	NOVEL TNF-a VARIANTS	USA	Licensed	Composition	3/2/2021
Application	WO2017106278A1	“CANCER PREVENTION AND THERAPY BY INHIBITING SOLUBLE TUMOR NECROSIS FACTOR”	PCT-GLOBAL	Licensed	Method	N/A
Application	US 2015/0239951 A1	METHODS OF TREATING NEUROLOGICAL DISEASES	USA	Licensed	Method	TBD
Application	EP2892547	METHODS OF TREATING NEUROLOGICAL DISEASES	EUROPE	Licensed	Method	TBD
Application	62/564,232	TREATMENT OF COMPLICATIONS RELATED TO ACUTE OR CHRONIC HYPERGLYCEMIA	USA	Owned	Method	N/A
Application	62/633,030	COMPOSITION AND METHOD FOR CANCER THERAPY	USA	Owned	Composition	N/A
Application	62/520,514	METHODS FOR TREATING NEURODEGENERATIVE DISEASES USING A COMBINATION OF A SELECTIVE INHIBITOR OF SOLUBLE TNF WITH A CB2 AGONIST	USA	Licensed	Method	N/A

Our commercial success depends in part on obtaining and maintaining patent protection and trade secret protection of our current and future product candidates and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot assure you that our pending patent applications will result in issued patents.

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· “N/A” is used above with respect to provisional patent applications and international PCT patent applications, each of which is only temporary in nature, and does not mature into a valid enforceable patent by itself, but instead serves to establish a chain of priority rights for subsequently filed patent applications.

· “TBD” is used above with respect to pending patent applications which are undergoing ordinary patent prosecution and may eventually issue as a valid enforceable patent.

International PCT patent applications cover all 152 nations which are signatories of the Patent Cooperation Treaty (PCT). However, our IP strategy generally recognizes the United States, United Kingdom, European Union, Canada, Japan, Australia and China as targets for extending patent protection under the PCT. Decisions regarding which countries to extend patent coverage under the PCT is taken on a case by case basis, subject to normal business considerations such as value and return on investment

On July 04, 2017, the USPTO allowed U.S. Trademark Serial No. 87/124,324 for the mark “INB16” in I.C. 001 & 005. We intend to complete registration upon use of the mark in commerce.

On March 08, 2017, the USPTO allowed U.S. Trademark Serial No. 87/124,304 for the mark “INMUNE” in I.C. 042. We intend to complete registration upon use of the mark in commerce.

On February 21, 2017, the USPTO allowed U.S. Trademark Serial No. 87/124,324 for the mark “INKMUNE” in I.C. 001 & 005. We intend to complete registration upon use of the mark in commerce.

Immune Ventures, LLC License Agreement

On October 29, 2015, we entered into an exclusive license agreement with Immune Ventures, LLC, the owner of all of the rights related to our principal patent (the “Immune Ventures Agreement”). Pursuant to the Immune Ventures Agreement, we were granted exclusive worldwide, sub-licensable, royalty-bearing licenses (collectively “Patent Rights”) as well as all applications (the Field) of the Patent Rights, including rights to incorporate any improvements or additions to the patents that may be developed in the future to the following patents and patent applications:

Patent Applications:

Property No.	Patent Application Serial No.	Filing Date:	Title:
(1)	62/219,652	09/16/2015	IN VIVO ACTIVATION OF NATURAL KILLER CELLS
(2)	62/263,951	12/07/2015	IN VIVO ACTIVATION OF NATURAL KILLER CELLS
(3)	15/268,399	09/16/2016	IN VIVO PRIMING OF NATURAL KILLER CELLS
(4)	PCT/US2016/061835	11/14/2016	IN VIVO PRIMING OF NATURAL KILLER CELLS
(5)	62/471,953	03/15/2017	IN VIVO PRIMING OF NATURAL KILLER CELLS
(6)	PCT/US2018/022722	03/15/2018	IN VIVO PRIMING OF NATURAL KILLER CELLS

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Patents:

Property No.	Patent No.	Issue Date:	Title:
(N/A)	N/A	N/A	N/A

In consideration for the Patent Rights, we agreed to the following milestone payments:

Each Phase I initiation	$	25,000
Each Phase II initiation	$	250,000
Each Phase III initiation	$	350,000
Each NDA/EMA filing	$	1,000,000
Each NDA/EMA awarded	$	9,000,000

In addition, we agreed to pay the licensor a royalty of 1% of net sales during the life of each patent granted to us. The Licensor is owned by Raymond J. Tesi, our President and a member of our Board of Directors, David Moss, our Chief Financial Officer and Treasurer and Mark Lowdell, our Chief Scientific Officer. In countries where a claim of an issued and unexpired patent or a pending claim in a pending patent application within the Patent Rights exists a royalty of nine percent of net sales of each of each licensed product shall be paid for the remaining life of each patent on a country by country basis.

The term of the Immune Ventures Agreement began on October 29, 2015 and, if not terminated sooner pursuant to the agreement, ends on a country by country basis on the date of the expiration of the last to expire patent rights where patent rights exists. Subject to granting, prosecution-related patent term adjustments, and requirements for maintenance and renewals, the latest to expire patent is scheduled to expire on March 15, 2038 (“Natural Expiration”). Upon Natural Expiration of the Immune Ventures Agreement, we shall have a fully paid up, perpetual, royalty-free license without further obligation to Immune Ventures. The Immune Ventures Agreement can be terminated by Immune Ventures if, after 60 days from our receipt of notice that we have not made a payment under the Immune Ventures Agreement we still do not make this payment. Under the agreement and an amendment to the agreement dated July 20, 2018, we are required achieve the following events:

Filing of IND or equivalent, by October 29, 2019;

Initiation of Phase 1 clinical or equivalent trials by October 29, 2020;

Initiation of Phase II clinical trials or equivalent by October 29, 2022;

Initiation of Phase III clinical trials or equivalent by October 29, 2024; and

Filing of NDA or equivalent by October 29, 2025 or equivalent.

If we don’t achieve the above events, we are required to negotiate in good faith with Immune Ventures to determine how we can either remedy the failure or achieve an alternate development. If we fail to make any required efforts or if the efforts do not remedy the situation within 60 days of written notice by Immune Ventures then Immune Ventures may provide notice to terminate the license or convert it to a non-exclusive license.

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University of Pittsburg License Agreement

On October 3, 2017, the Company entered into an Assignment and Assumption Agreement with Immune Ventures related to intellectual property licensed from the University of Pittsburgh. Pursuant to the Assignment and Assumption Agreement (“Assignment Agreement”), Immune Ventures assigned all of its rights, obligations and liabilities under an Exclusive License Agreement between the University of Pittsburgh – Of the Commonwealth System of Higher Education (“Licensor”) and Immune Ventures to INmune Bio (“Licensee”), (the “PITT Agreement”). Pursuant to the Assignment Agreement, the Company agreed to convert the amount Immune Ventures paid of $162,634 into shares of the Company’s common stock at $7.71 per share, based on the per share value of the shares issued to Xencor, for 21,094 shares for the reimbursement of amounts paid by the Assignor to the University of Pittsburgh, which the Company recorded as stock-based compensation within research and development expense. These shares were issued on December 31, 2017. The PITT Agreement expires upon the earlier of: (i) expiration of the last claim of the Patent Rights forming the subject matter of the PITT Agreement; or (ii) the date that is 20 years from the effective date of the agreement (June 26, 2037). Consideration under the PITT Agreement includes: (i) annual maintenance fees of $5,000 due June 26 of each year 2018-2022; $10,000 due on June 26 of each year 2023-2024; and $25,000 due on June 26 of each year 2025 and annually thereafter until first commercial sale. In addition to annual maintenance Fees, the Licensee is required to pay royalties equal to 2.5% of Net Sales each calendar quarter. Moreover, the Licensee is required to make milestone payments as follows: (i) $50,000 upon dosing of the first patient in a clinical trial under an IND or foreign equivalent on the licensed technology; (ii) $500,000 upon dosing of the first patient in a Phase III or foreign equivalent clinical trial using the licensed technology; and $1,250,000 upon first commercial sale of the licensed technology. Licensee may terminate the PITT Agreement upon 3 months prior written notice provided all payments under the license are current. Licensor may terminate the PITT Agreement upon written notice if: (i) Licensee defaults as to performance of material obligations which have not been cured within 60 days after receiving written notice; or (ii) Licensee ceases to carry out its business, becomes bankrupt or insolvent, applies for or consents to the appointment of a trustee, receiver or liquidator of its assets or seeks relief under any law for the aid of debtors.

Xencor License Agreement

On October 3, 2017, the Company entered into a license agreement with Xencor, Inc., which has discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor (the “Xencor Agreement”). Pursuant to the Xencor Agreement, Xencor granted the Company an exclusive worldwide, royalty-bearing license in licensed patent rights, licensed know-how and licensed materials (as defined in the Xencor Agreement) to make, develop, use, sell and import any pharmaceutical product that comprises, contains, or incorporates Xencor’s proprietary protein known as “XPRO1595” that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants of the licensed protein that specifically bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients, in any dosage or formulation. In connection with the Xencor Agreement, we paid Xencor a one-time non-creditable and non-refundable fee of $100,000 and agreed to issue Xencor 1,585,000 shares of our common stock. We also issued warrants to Xencor which are discussed below.

We also agreed to pay Xencor a royalty of 5% on net sales of all Licensed Products in a given calendar year, which are payable on a country-by- country and licensed product by licensed product basis until the date that is the later of (a) the expiration of the last to expire valid claim covering any pharmaceutical product that contains, comprises, or incorporates Xencor’s proprietary protein known as XPRO1595 alone or in combination with one or more active ingredients, in any dosage or formulation. (“Licensed Product”) in such country or (b) ten years following the first sale to a third party of the licensed product in such country. Net Sales with respect to any Licensed Product is the gross amounts invoiced by us for sales of the Licensed Products less deductions actually incurred.

Under the Xencor Agreement, we also agreed to pay Xencor a percentage of any sublicensing revenue that it receives equal to (i) 60% of sublicensing revenue received in respect of any sublicense granted prior to initiation of a Phase 1 Clinical Trial of a Licensed Product in the applications for the treatment of disease in humans (the “Field”); (ii) 30% of Sublicensing Revenue received in respect of any sublicense granted on or after initiation of a Phase 1 Clinical Trial of a Licensed Product in the Field and prior to initiation of a Phase 2 Clinical Trial of a Licensed Product in the Field; (iii) 15% of Sublicensing Revenue received in respect of any sublicense granted on or after initiation of a Phase 2 Clinical Trial of a Licensed Product in the Field and prior to initiation of a Phase 3 Clinical Trial of a Licensed Product in the Field; (iv) 10% of Sublicensing Revenue received in respect of any sublicense granted on or after initiation of a Phase 3 Clinical Trial of a Licensed Product in the Field and prior filing of the first NDA application for any Licensed Product in the Field; and (v) 5% of Sublicensing Revenue received in respect of any sublicense granted on or after the approval of the first NDA application for any Licensed Product in the Field. For clarity, initiation of a clinical trial shall mean dosing of a first patient in said clinical trial.

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A valid claim is an issued, unexpired or pending claim with the patent rights that Xencor controls as of October 3, 2017 which patent rights are necessary to make, develop, use, sell, have sold, offer for sale and import a Licensed Product in the Field (the Field means all applications for the treatment of diseases in humans) or the Product Patent Rights, which claim has not lapsed, been abandoned, been revoked or been held to be unpatentable, invalid or unenforceable by a final judgment of a court or other governmental agency or competent jurisdiction from which no appeal can be or is taken within the time allowed for appeal and which has not been admitted to be invalid or unenforceable through reissue, re-examination, disclaimer or otherwise. Product Patent Rights shall mean any and all our patent rights that are necessary to make, develop, use, sell, have sold, offer for sale and import a Licensed Product in the Field, including any improvements or patent rights directed to the Licensed Product. Either party may terminate the Xencor Agreement upon 60 days’ (10 days for any payment default) prior written notice to the other party after the breach of any material provision of the agreement by the other party if the breaching party has not cured the breach within the 60-day period (10-day period for any payment default) following written notice of termination by the non-breaching party. We can terminate the Xencor Agreement upon 180 days prior written notice to Xencor. Xencor may terminate the Xencor Agreement in its entirety or with respect to any specific Licensed Product upon written notice in the event that we contest, oppose or challenge or assist any party in contesting, opposing or challenging, Xencor’s ownership of, or the enforceability or validity of the Patent Rights that Xencor controls as of October 3, 2017 which Patent Rights are necessary to make develop, use, sell, have sold, offered for sale and import a Licensed Product in the Field. Either party may terminate the Xencor Agreement upon written notice to the other party upon or after the insolvency, bankruptcy, dissolution or winding up of such other party or the making or seeking to make or arrange an assignment for the benefit of creditors of such other party or the initiation of proceedings in voluntary or involuntary bankruptcy which proceeding or action remains undismissed or unstayed for a period of more than 60 days.

In connection with the Xencor Agreement, we entered into a stock issuance agreement with Xencor pursuant to which it agreed to issue Xencor 1,585,000 shares of its common stock with a fair value of $12,221,000 based on the discounted cash flow method of the income approach as set forth in an independent valuation report from HSSK LLC dated November 17, 2017, and fully vested warrants to purchase an additional number of shares of common stock equal to 10% our the fully diluted company shares immediately following such purchase with a fair value of $4,193,000 based on the Black-Scholes Option Pricing model. In August 2018, we entered into a First Amendment to Stock Issuance Agreement. Pursuant to the amendment, the purchase price for the additional shares may only be paid by cash.

In connection with the stock issuance agreement, we, Xencor and more than 90% of shareholders as of September 30, 2017 (“Key Holders”) entered into a voting agreement. Pursuant to the voting agreement, Xencor and the Key Holders agreed to vote their respective shares to vote one individual designated by the holder of a majority of Xencor’s shares of our common stock to our board of directors. The voting agreement shall continue in full force and effect until the earliest of: (a) the date of a qualified offering, as defined in the issuance agreement; (b) ten (10) years from the date of this Agreement; (c) the date of the closing of a qualified sale, as defined in the issuance agreement; or (d) the date as of which the parties hereto terminate this agreement by written consent of the holders of a majority of the Investor Shares.

INKmune Research and Development

We expect to use third parties to conduct our preclinical and clinical trials under the direct supervision of management.

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Joint Development Agreement

On September 3, 2016, we entered into a joint development agreement with Novamune, Inc. (“Novamune”) (the “Development Agreement”). Novamune had previously developed and licensed technology relating to ex-vivo activation of NK cells for the treatment of cancer and other diseases. The parties agreed to exclusively collaborate on the further development of technologies related to NK cells for therapeutic applications. We will share equally in the costs related to such joint development projects and will jointly own any intellectual property developed by the joint projects, provided that Novamune shall have an exclusive royalty free license to use any such intellectual property relating to ex-vivo applications, and we shall have an exclusive royalty free license to use any such intellectual property relating to in-vivo applications. The Development Agreement is subject to Novamune investing a total of $1,250,000 in our Company, of which $350,000 has previously been advanced through a convertible note payable. The balance of $900,000 was invested on February 9, 2018 in exchange for 400,000 shares of common stock. The Development Agreement ends on September 3, 2023 unless terminated sooner. The term of the Development Agreement may be extended for one year upon the written consent of both parties. The Development Agreement may be terminated prior to the end of the term by either party in the event of a material breach by the other party of the terms of the Development Agreement, provided that the terminating party is not in breach and has first given the defaulting party written notice of termination specifying the grounds for the terminating and if after giving the defaulting party 30 days to cure the breach, the breach was not cured.

INKmune Manufacturing

We intend to contract with third parties for the manufacture of our compounds for investigational purposes, for preclinical and clinical testing and for any FDA approved products for commercial sale. Pre-clinical and clinical material for the early clinical trials with INKmune has been manufactured under the direction of Mark Lowdell and Advent Bioservices International, our strategic partner, at a licensed GMP facility. The master cell bank, working cell bank and individual product doses were completed in July 2018. This clinical material is planned for use in the Phase I/II clinical trials in ovarian cancer. If we raise adequate capital to initiate the high-risk MDS Phase I/II trials, additional working cell banks and therapeutic product will be produced from the existing master cell bank. This process takes approximately 6 months and is not anticipated to delay the initiation of the high-risk MDS Phase I/II trials. We may transfer the manufacturing to a different commercial contract manufacturing organization after completion of these Phase II studies.

Human Mesenchymal Stem Cells

In November 2017, we entered into a Material Transfer and License Agreement with the Anthony Nolan Cord Blood Bank (“AN”), the oldest and largest non-directed cord blood bank in the United Kingdom for the supply the starting material for the mesenchymal stem cells - umbilical cords not used after cord blood harvest. Mark Lowdell's research group developed and validated a methodology for producing large numbers of clinical-grade pooled human umbilical cord derived mesenchymal stem cells (“HucMSC”). We believe the reproducible and reliable supply of large quantities of high-quality a may solve one of the major problems associated with the development of mesenchymal stem cell therapies for medicine. Under this agreement we were granted a license to produce and sell these cells for medical research, including clinical trials. The agreement provides that Immune Bio Internal shall pay to AN £200 plus VAT (if applicable) for each umbilical cord tissue sample (and any intellectual property, developed, or conceived by Immune Bio International in exercising its rights under the agreement (“Licensed Product”)) Immune Bio International receives pursuant to the agreement. Additionally, during the entire term of the agreement, Immune Bio International shall pay AN a royalty of 2% of the net sales of the Licensed Product. We believe we are well positioned to become a preferred manufacturing partner for companies who need MSC for clinical programs. Manufacture of HucMSC is performed under the direction of Mark Lowdell in a licensed Good Manufacturing Practice (“GMP”) facility that is contracted to the Company as part of existing research and development agreements. The starting material for the HucMSC product is provided by the AN. The HucMSC product produced in this facility are fully qualified to be used for either research or clinical trials. Currently, we plan to supply HucMSC to third parties for their research use and in clinical trials as part of the development process for commercial pro/ducts. We may decide to expand this agreement in the future if the commercial and/or development opportunities warrant such expansion. At the current time, we expect this program to be funded by revenues from commercial sales. The agreement with AN terminates on November 29, 2027. AN may terminate the license on written notice to us, if a donor withdraws consent to the continued use of umbilical cord tissue samples that were obtained by AN. Additionally, either party may terminate the agreement on 30 days prior written notice to the other if that other party materially breach any term of the agreement and such breaches (to the extent it is remediable) is not remedied within 30 days of the written request to the other party to do so.

 

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Our Innate Immune System Check-point inhibitor product candidate

We renamed XPRO1595 that we license from Xencor to INB03. INB03 is a novel innate immune system check-point inhibitor that we believe prevents proliferation of MDSC and decreases the secretion of immunosuppressive cytokines that protect the tumor from the patient’s immunologic attack and help make the tumor resistant to immunotherapy. INB03, by inhibiting soluble TNF without inhibiting trans-membrane TNF or TNF receptors (“tmTNF” and “TNFR” respectively), alters the immunoregulatory cell and cytokine profile of the tumor microenvironment to decrease the population of MDSC, decrease immunosuppressive cytokines and increase immunoregulatory cytokines that changes the patient’s immune response to their tumor with improved NK/DC crosstalk that causes expansion of the immune response including recruitment of the adaptive immune system with an increase in effector and cytotoxic T cells that attack the cancer. After treatment with INB03, we believe the patient’s dysregulated immune response, a hallmark of cancer progression, to be converted to a coordinated immune response that can attack the cancer alone or in combination with immunotherapy. These immune responses have been studied in animal models of an inflammatory cancer, where 3-methylcholanthrese is given to mice in a subcutaneous injection that causes the development of multiple cutaneous fibrosarcoma. This model was developed by Y Akamatsu in 1967 while working at the National Cancer Institute of the NIH. In research published by Professor Nikola Vujanovic in Cancer Immunology Research in 2016, treatment with INB03 resulted in smaller and fewer cancers with increased survival. INB03 is an engineered PEGylated protein that neutralizes human soluble TNF, a human inflammatory cytokine that is increased in patients with advanced cancer. By specifically neutralizing the cytokine, there is decreased phosphorylation of STAT3, an essential step required for the proliferation of the MDSC population, and secretion of the immunosuppressive cytokines. The combination of decreased MDSC proliferation and decreased immunosuppressive cytokines allows the immune system to respond to the tumor. This data was published in an article entitled Inhibition of Soluble Tumor Necrosis Factor Prevents Chemically Induced Carcinogenesis in Mice in Cancer Immunology Research in Cancer Immunology Research 2016. In summary, INB03 functions as an innate immune system checkpoint inhibitor by eliminating the population of MDSC that provides an immunosuppressive shield protecting the tumor, the patient’s immune system is able to function normally to the benefit of the patient – it can attack the tumor.

Because INB03 targets the patient’s immune system and not the tumor, we believe INB03 is an immunotherapy that can be used to treat many types of hematologic malignancies and solid tumors. The decision to use INB03 in a patient will be based on biomarkers that should predict that a patient will benefit from treatment with the drug. MDSC rarely exist in patients without cancer or chronic inflammation. Because MDSC can be measured in the tumor and/or blood of patients with immune dysregulation and chronic inflammation caused by their cancer, MDSC blood levels i) have prognostic value predicting cancer stage and risk of dying from cancer; ii) may be used as a biomarker to target patients who will benefit from INB03 therapy and iii) should be biomarkers demonstrating a pharmacodynamic effect of INB03 therapy. We believe, if MDSC are present in significant numbers, the patient should benefit from INB03 therapy. The corollary is also true, we do not expect cancer patients with normal levels of MDSC in their blood and/or tumor microenvironment to benefit from INB03. Basing treatment decisions on the presence of MDSC is a precision medicine, biomarker directed immunotherapy strategy that should improve the probability of benefiting a patient and improve the value of INB03 therapy and decrease the risk of the clinical development process. Although, INB03 can be used as part of combination of anti-cancer therapy including, but not limited to, cytotoxic chemotherapy, immunotherapy, radiation therapy and/or surgery, our Phase I clinical trial will focus on using INB03 as monotherapy. We expect to use INB03 as part of combination therapy with approved checkpoint inhibitors as part of Phase II development. We do not expect to need to modify INB03 therapy to treat each different type of cancer, because INB03 therapy targets the immune system, not the cancer. We do expect to develop the INB03 beyond Phase II to target a specific type of cancer to meet the current system of regulatory approval. For instance, INB03 may be approved to treat patients with elevated MDSC who have lung cancer. To get subsequent approval for the treatment of patients with breast cancer who have increased MDSC, we will need to perform a pivotal trial in women with breast cancer. After the first regulatory approval, if and when achieved, we believe the difficulty and cost of achieving these labels extensions will decline with each successive approval. At this time, we cannot rule out if patients with biomarkers of inflammation without elevated MDSC in blood, or patients without biomarkers of inflammation or MDSC in their blood will benefit from treatment with INB03. Those studies may be performed in the future, but they are not a priority.

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INB03 as a subcutaneous injection, similar to an insulin treatment, given one to three times per week. Because this is a simple subcutaneous injection similar to an insulin injection (the therapy patients give themselves for treatment of Type 1 diabetes mellitus), we expect patients to administer the therapy to themselves and not require expensive or logistically challenging clinic visits to receive the therapy

Three step process to preparation for INB03 human clinical trials:

Release of INB03 drug supply

GMP INB03 is available for clinical development after completion of release testing. The process for release testing was completed in February 2018. The process started in November 2017. The supply of INB03 is limited, but enough to complete the planned Phase I and Phase II studies in oncology. The re-release dossier has been submitted to the regulatory authorities in Australia. We received notification on May 21, 2018 that the INB03 can be used for clinical trials in AUS. For future trials, new batches INB03 will need to be produced. We plan a two-step approach to production of the new drug supply. We hope to improve the yield of INB03 using the existing E.coli based system. Once the new process is validated and functional, we will perform a manufacturing campaign when resources are available. We do not expect the drug supply to limit the clinical development program in oncology. We expect to start the process of manufacturing improvements and scale-up after results of the Phase I trial are known and have a validated and more efficient manufacturing process in place before the initiation of pivotal trials. We have begun discussion with contract manufacturers to make new batches of INB03. We expect this process to begin in within 12 months of completing the fully subscribed public offering.

Interaction with Regulatory Authorities Regarding INB03 Development

We plan to perform the Phase I and Phase II trials with INB03 in Australia under the regulatory authority of the TGA using the CTX scheme (Clinical Trials Exemption). Our first interaction with the regulatory body occurred in March 2018. The Company received approval to initiate the Phase I trial with INB03 in patients with advanced solid tumors on May 21, 2018. We have not started the regulatory process for the Phase II trial. We expect this to begin in 2019 once the Phase I trial has completed patient enrollment.

 

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INB03 Product Development Path: Proposed Phase I and Phase II Studies in patients with cancer

Phase I study: We plan an open label, biomarker directed, dose escalation study in patients with metastatic epithelial cancer and elevated biomarkers of systemic inflammation including MDSC in their blood. We expect these patients to have Stage III or Stage IV cancer. Most, if not all patients will have received and failed or progressed after several lines of therapy that may have included immunotherapy. A minimum of nine patients will be treated in three dosing cohorts for three months. Patients will receive INB03 by subcutaneous injection once a week during the duration of the study. We cannot rule out longer treatment of the patients at the discretion of the treating physician. We are prepared to support the patient’s treatment with INB03 until disease progression. The goal of the Phase I trial is to assess safety, determine a dose to carry in to the Phase II trial, and verify the utility of our biomarker strategy. Although it is difficult to predict safety and toxicity in Phase 1 studies, based on pre-clinical studies in rodents and non-human primates, a dose-limiting toxicity has not been identified. Immunosuppression and demyelination, the primary complications of currently available non-selective TNF inhibitors do not occur with INB03 because it does not inhibit trans-membrane TNF, the cause of immunosuppression and demyelination. Secondary end-points for the Phase I trial will include a decrease of inflammatory cytokines and MDSC in the blood. Although we will follow the stage and degree of tumor burden via imaging studies, we do not expect patients to have a significant survival benefit from this study. The most probable tumor types with be patients with breast, lung, GI cancer and melanoma. The dosing cohorts are expected to be 0.3 mg/kg, 1.0 mg/kg and 3.0mg/kg once a week. The Phase I trial will be performed at two or three private Phase I units in AUS. We have contracted with the AUS subsidiary of a multinational clinical research organization, CTI Inc., of Cincinnati, OH, to manage this study and negotiate these agreements. We started enrolling patients in the August 2018.

Phase II study: We are planning a combination study of INB03 in combination with currently approved checkpoint inhibitors (CPI) for the Phase II trial. Elevated levels of inflammatory biomarkers including MDSC in the blood is a predictor of treatment failure in patients with melanoma and lung cancer treated with checkpoint inhibitors. It is now recognized the myeloid cells of the tumor microenvironment including MDSC are a barrier to the efficacy of most immunotherapies because of the production of immunosuppressive cytokines that suppress the patient’s immune response to the tumor. Because the best anti-tumor response requires participation of both the innate and adaptive immune system, we believe combination therapy where INB03 decreases the levels of MDSC and improves NK/DC cross-talk to recruit the adaptive immune system in combination with CPI to prevent resistance of the tumor to T cell attack will be an effective treatment of patients who have been resistant to CPI because of elevated levels of MDSC. The design of the planned biomarker directed Phase II trial is tentative. At this time, we plan to treat patients with advanced lung cancer or melanoma who have failed previous therapy that included a checkpoint inhibitor and have increased biomarkers of inflammation including increased inflammatory cytokines and elevated levels of MDSC in their blood. The Phase II will be an open label randomized trial where patients receive combination therapy with both INB03 and a check-point inhibitor (“CPI”) or receive sequential therapy with INB03 followed by CPI. INB03 will be given once a week by subcutaneous injection. Therapy will occur for at least six months – probably longer. Based on the mechanism of action of INB03 and the biology of the safety problems associated with CPI use, the safety profile of combination therapy with INB03 and CPI is expected to be manageable. The primary end-point of the Phase II trial will be progression free survival as determined validated measures of tumor progression such as imaging studies of tumor size. Immunologic parameters including levels of inflammatory cytokines and MDSC in blood will also be followed closely. Both the Phase I and II trials will be performed in Australia using the Clinical Trial Notification (“CTN”) regulatory process that is administered by the TGA. The exact design of the Phase II development program may be changed by results obtained in the Phase I trial and/or by a development partner. If resources permit, we may open Phase II clinical trial sites in the US under the regulatory authority of the FDA.

INB03 Registration Studies and/or Partnering

We plan to aggressively pursue an efficient registration strategy using INB03 to improve the lives of patients with cancer and biomarkers of inflammation and elevated MDSC. We believe that this is not the only cancer indication INB03 can be used for. We plan to pursue those other indications as resources become available. We have an active partnering position as it relates to INB03 development in cancer, although no partnering discussion are underway at this time. There are two partnering opportunities with this novel innate immune system check-point inhibitor. The first is a traditional partnership focused on the developing the drug for all oncology applications. The second is a more focused partnership developing INB03 as part of a combination therapy for a company’s existing therapy, most probably an approved CPI. For example, CTLA4 targeted checkpoint inhibitors do not work well when given to melanoma patients with increased MDSC in their blood. A company with a CPI may want to combine INB03 with their product in a clinical development program. After completion of proof-of-concept Phase II studies, we will decide what the most efficient registration strategy is available to the company with INB03. We may to have biopharma partners participate in this decision making. We may also seek to be acquired at this stage.

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Our INB03 platform can be used in cancer patients in many ways. It can be used alone or in combination with, but not limited to, other cancer therapies including cytotoxic chemotherapy, immunotherapy, radiation and surgery. We expect INB03 will be used most commonly as part of combination therapy. We believe that INB03 can also be used to treat many types of hematologic and epithelial cancers. Patients with increased MDSC can be identified by examining the tumor specimen and/or blood. Patients with increased MDSC in the tumor or blood have more advanced disease, more resistance to immunotherapy and worse survival.

INB03 Regulatory Strategy

INB03 is a new therapy for the treatment of cancer that will need to be proven safe and effective by well-designed clinical trials that show a meaningful clinical benefit to patients. This means that registration trials will need to be randomized trials in patients with cancer. The Phase I is designed as an open label dose escalation trial in patients with metastatic solid tumors. We will not limit the tumor type until we understand the best type of patient to treat with. Once we understand these important issues, we plan to seek advice from the competent regulatory authorities and clinical thought leaders to allow the Company to design clinical trials that meet the needs for registration. After completing the Phase I trial, we will perform a Phase II trial in patients with advanced melanoma or lung cancer who have biomarkers of inflammation in their blood. The Phase II trial will include patients who have failed first line therapy. The study will be an open label randomized trial comparing INB03 in combination with CPI compared to INB03. Both trials will be performed in Australia using the Clinical Trials Notification (“CTN”) system under the authority of the Therapeutic Goods Administration (“TGA”). We will meet with the FDA after completion of the Phase I trial. We hope to expand the Phase II trial to the US under the authority of the FDA. Studies will be expanded to Europe and beyond as resources permit. Because there are no therapies similar to INB03 approved in any market, we plan to take advantage of the regulatory opportunities afforded to therapies that treat small markets with a high unmet need. In the U.S., this includes Orphan Drug Designation and expedited programs for approval including Accelerated Approval, Breakthrough Therapy Designation, Fast Track Designation, and priority review (see “Government Regulation”). We cannot predict which, if any, of these programs we will benefit from without further discussions with the FDA. Similar programs exist in the EU with the EMA. We will engage the EMA once we have initiated Phase II trials in the United States and Australia.

Challenges in the Market for Innate Immune System Check-Point inhibitor

Government Regulation

The FDA and other federal, state, local and foreign regulatory agencies impose substantial requirements upon the clinical development, approval, labeling, manufacture, marketing and distribution of drug products. These agencies regulate, among other things, research and development activities and the testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, advertising and promotion of our product candidates. The regulatory approval process is generally lengthy and expensive, with no guarantee of a positive result. Moreover, failure to comply with applicable FDA or other requirements may result in civil or criminal penalties, recall or seizure of products, injunctive relief including partial or total suspension of production, or withdrawal of a product from the market.

 

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Various regulatory authorities regulate, among other things, the research, manufacture, promotion and distribution of drugs in the United States under the FDA and other statutes and implementing regulations. The process required by the FDA before prescription drug product candidates may be marketed in the United States generally involves the following:

· completion of extensive nonclinical laboratory tests, animal studies and formulation studies, all performed in accordance with the FDA’s Good Laboratory Practice regulations;

· submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;

· for some products, performance of adequate and well-controlled human clinical trials in accordance with the FDA’s regulations, including Good Clinical Practices, to establish the safety and efficacy of the product candidate for each proposed indication;

· submission to the FDA of a new drug application or NDA;

· satisfactory completion of an FDA preapproval inspection of the manufacturing facilities at which the product is produced to assess compliance with current Good Manufacturing Practice, or cGMP, regulations; and

· FDA review and approval of the NDA prior to any commercial marketing, sale or shipment of the drug.

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.

Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animals and other animal studies. The results of preclinical tests, together with manufacturing information and analytical data, are submitted as part of an IND to the FDA. Some preclinical testing may continue even after an IND is submitted. The IND also includes one or more protocols for the initial clinical trial or trials and an investigator’s brochure. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to the proposed clinical trials as outlined in the IND and places the clinical trial on a clinical hold. In such cases, the IND sponsor and the FDA must resolve any outstanding concerns or questions before any clinical trials can begin. Clinical trial holds also may be imposed at any time before or during studies due to safety concerns or non-compliance with regulatory requirements. An independent institutional review board, or IRB, at each of the clinical centers proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the consent form signed by the trial participants and must monitor the study until completed.

The FDA offers a number of regulatory mechanisms that provide expedited or accelerated approval procedures for selected drugs in the indications on which we are focusing our efforts. These include accelerated approval under Subpart H of the agency’s NDA approval regulations, fast track drug development procedures and priority review.

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We plan to seek orphan drug designation for INKmune for the treatment of ovarian carcinoma. The United States, European Union and other jurisdictions may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which, in the United States, is generally a disease or condition that affects no more than 200,000 individuals. In the European Union, orphan drug designation can be granted if: the disease is life threatening or chronically debilitating and affects no more than 50 in 100,000 persons in the European Union; without incentive it is unlikely that the drug would generate sufficient return to justify the necessary investment; and no satisfactory method of treatment for the condition exists or, if it does, the new drug will provide a significant benefit to those affected by the condition. If a product that has an orphan drug designation subsequently receives the first regulatory approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the applicable regulatory authority may not approve any other applications to market the same drug for the same indication, except in limited circumstances, for a period of seven years in the United States and 10 years in the European Union Orphan drug designation does not prevent competitors from developing or marketing different drugs for the same indication or the same drug for different indications. Orphan drug designation must be requested before submitting an NDA. After orphan drug designation is granted, the identity of the therapeutic agent and its potential orphan use are publicly disclosed. Orphan drug designation does not convey an advantage in, or shorten the duration of, the review and approval process. However, this designation provides an exemption from marketing and authorization (NDA) fees. We plan to follow a similar path with INB03, although the precise indication cannot be determined until we are farther along in the development process.

Clinical Trials

· Phase 1 clinical trials typically involve the initial introduction of the product candidate into healthy human volunteers. In Phase 1 clinical trials, the product candidate is typically tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.

· Phase 2 clinical trials are conducted in a limited patient population to gather evidence about the efficacy of the product candidate for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible adverse effects and safety risks.

· Phase 3 clinical trials are undertaken to evaluate clinical efficacy and to test for safety in an expanded patient population at geographically dispersed clinical trial sites. The size of Phase 3 clinical trials depends upon clinical and statistical considerations for the product candidate and disease, but sometimes can include several thousand patients. Phase 3 clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling.

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Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified medical investigators according to approved protocols that detail the objectives of the study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor participant safety. Regulatory procedures differ in each country we will be working in., For example, in the US, each protocol is submitted, to the FDA as part of the IND for their review and consent before enrolling patients in the clinical trial. The US is not the only place to perform clinical trials. Most countries have systems in place to allow academics and companies to sponsor clinical trials of novel therapies in patients. For financial and technical reasons, the Company will perform the Phase I clinical trials of our programs in the United Kingdom and Australia. The US will be included in the Phase II programs. Other venues such as Europe, Canada, Japan and other Pacific Rim countries may be included in the development program in the future. The first clinical trial with INKmune will be initiated in the United Kingdom. In the United Kingdom, the regulatory submission is made to the MHRA for a CTA (clinical trials authorization). This is a multistep process. The Company had a Scientific Advice meeting with the MHRA in September 2017 to discuss the INKmune Phase I/II trial in women with relapse/refractory ovarian cancer including trial design, manufacturing processes and clinical trial execution. The MHRA gave recommendations on trial design, manufacturing controls and the regulatory procedures needed to initiate the clinical trial. We expect to file at CTA for the INKmune trial in ovarian cancer by the third quarter of 2018. The CTA will allow execution of the Phase I/II INKmune clinical trial in the United Kingdom. We plan to have two cancer clinics referring the 6 patients needed for the Phase I portion of the trial. The patients will be treated at the Phase I unit a university hospital. We expect all of the Phase I sites to be in London, United Kingdom. If the Phase I trial proceeds as planned, we expect to open the Phase II portion of the trial in early 2020. The Phase II trial will include at least 3 other clinical sites in the United Kingdom and may include clinical sites in the US. Because 30 patients will be required to complete the Phase II portion of the trial, we expect to need sites in both the US and United Kingdom. The additional clinical sites in the United Kingdom or US have not been identified at this time. No additional regulatory procedures will be needed to add sites in the United Kingdom. To add sites in the US, we will need to file an IND with the FDA. Once the FDA approves the IND, clinical sites can be opened. We have chosen relapsed/refractory ovarian cancer as the anticipated Phase 1 study for INKmune for a number of reasons. Relapsed refractory is a disease with poor treatment options. Our pre-clinical data suggests INKmune may have advantages over other immunotherapies in the treatment of ovarian cancer. Ovarian cancer has a sensitive and validated biomarker to measure disease burden – CA125. This allows the Company to accurately select patients for the clinical trial and determine if INKmune therapy is effective. We believe that intraperitoneal delivery of INKmune is a low-risk delivery strategy for a phase 1 study. The patients we plan to enroll in the trial have their disease concentrated in the peritoneal cavity further supporting the use of intra-peritoneal delivery. Finally, relapsed refractory ovarian cancer is an Orphan indication in the US. This provides regulatory advantages for registration of INKmune. After safety data from the Phase I INKmune trial in ovarian cancer becomes available, the Company may choose to open a second, biomarker directed Phase I/II trial of patients with high risk Myelodysplastic Syndrome (“MDS”). INKmune may be ideal therapy for patients with high-risk MDS. High-risk MDS is slowly progressive, lethal pre-leukemia that usually occurs in elderly patients who are not candidates for aggressive chemotherapy or bone marrow transplant. Current therapies rarely reverse the course of the disease. We believe INKmune therapy will be well tolerated in this group of patients and allow them to avoid cytotoxic chemotherapy. This may make INKmune an ideal treatment for this group of patients. Pre-clinical data demonstrates the INKmune therapy can kill the AML blasts that cause the disease and because the AML blasts are in the bone marrow, bone marrow aspiration can be used as a biomarker to select patients confirm efficacy of INKmune therapy. The Company will not initiate any efforts on the MDS trial until after the Phase I portion of the ovarian cancer trial is complete. Thus, the INKmune MDS trial will not begin until 2019. We expect the regulatory process with the INKmune high-risk MDS trial to mirror the ovarian cancer trial. We plan a Scientific Advice meeting with the MHRA followed by a United Kingdom Phase I and a Phase II trial in the United Kingdom and US. INB03 will follow a similar development strategy, but will use Australia for the Phase I programs. In Australia, clinical trials for INB03 are performed under the clinical trials notification (“CTN”) scheme authorized by the Therapeutic Good Administration (“TGA”). The TGA is the equivalent agency to the FDA in the US and the MHRA in the United Kingdom. We anticipate filing an Australian Clinical Trial Notification, or CTN, for INB03 during the second quarter of 2018, the approval of which will allow us to commence the Phase I clinical trial in Australia. We plan a Phase 1 open label dose escalation trial in patients with advanced solid tumors and biomarkers of inflammation in their blood. We have identified this group of patients as ideal for the INB03 Phase I trial because they will allow the Company to assess safety of INB03 in a relevant patient group and they provide inflammatory biomarkers that allows us to test downstream biologic effects of INB03 therapy. The Phase I trial will provide the evidence of safety and a pharmacodynamic drug affect, decrease of inflammatory biomarkers, needed to move the program to a Phase II clinical trial. If successful, the Phase II clinical trial that will combine INB03 with currently approved checkpoint inhibitor in patients with elevated biomarkers of inflammation in their blood. This is a combination trial where the addition of INB03 to checkpoint inhibitor therapy may improve the efficacy and safety of checkpoint inhibitor therapy alone. Checkpoint inhibitors are immunotherapy drugs that target proteins in the tumor and immune cells to improve the adaptive immune response to the tumor by reversing immunologic strategies the cancer uses to evade the immune system. These drugs target PD1, PDL-1 or CTLA-4. As of April 2018, there are six checkpoint inhibitors approved in the US (Ipilimumab, Atezolizumab, Avelumab, Durvalumab, Pembrolizumab, and Nivolumab). Additional checkpoint inhibitors to new and existing targets are in development and will be approved in the coming years. Checkpoint inhibitors are having a significant impact on the treatment of cancer and are expected to be the largest selling class of cancer therapies by 2027. Only 25-30% of patients treated with currently approved checkpoint inhibitors respond to therapy and many of these become refractory after a period of treatment. This means at least 70% of patients are resistant to, or refractory to, checkpoint inhibitors. Experts agree that combination therapy is needed and necessary to improve the response to checkpoint inhibitor therapy in resistant and refractory patients. To that end, companies with approved checkpoint inhibitors are looking for companion drugs improve patient response and expand market opportunities. The INB03 development program in cancer is designed to take advantage of our pre-clinical data and the needs to the cancer community to improve the safety and efficacy of checkpoint inhibitors. At this time, the combination trial is our lead registration strategy for INB03 for three reasons. The most common biomarker of checkpoint inhibitor failure is increased MDSC in the patient’s blood. Pre-clinical data suggests, and experts agree, that decreasing MDSC may improve the response rate to checkpoint inhibitors. Because INB03 decreases number and function of MDSC, we believe combination therapy with INB03 and a checkpoint inhibitor will improve patient responses and allow some refractory or resistant patients to respond to checkpoint inhibitor therapy. Using INB03 in combination with currently approved checkpoint inhibitors is a partnering strategy. We call the class of drugs to be combined with checkpoint inhibitors to improve response in resistant/refractory patients checkpoint inhibitor potentiators. We believe INB03 is an ideal checkpoint inhibitor potentiator and have designed our development program to showcase this characteristic. Checkpoint inhibitor companies announced large partnering deal with companies producing checkpoint inhibitor potentiators – BMS/Nektar; BMS/IFM and Merck/Incyte. Experts agree that partnering in this arena will continue. The registration and development strategy for INB03 is multinational. The Phase II program may enroll patients in other countries, including the United States after submitting an Investigational New Drug application, or IND, to the U.S. Food and Drug Administration, or FDA. If partnering is successful at any stage of INB03 development, we expect the partner to influence the development and regulatory decisions needed with moving the drug to commercialization. Finally, combination therapy with checkpoint inhibitors is not the only oncology application for INB03. INB03 can be combined with other immune-oncology therapy to improve efficacy, safety or both. INB03 as monotherapy or as an immuno-oncology drug paired with tradition therapies such as chemotherapy or radiation are attractive in certain tumor types. The company is pursuing pre-clinical data in both of these areas. When and if positive developments occur, we will communicate them to our shareholders. There are other regulatory venues that will be important for both our products – the largest and most important is Europe. In Europe, the European Medicines Agencies (“EMA”) is responsible for authorization of clinical trials in member states. In EU, there may be a requirement to get individual country authorization at the same time as EMA authorization. The development of INB03 will primarily in AUS followed by trials in the US. The development of INKmune will occur primarily in the United Kingdom followed by trials in the US.

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Clinical testing must satisfy extensive FDA regulations. Reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted for serious and unexpected adverse events. Success in early stage clinical trials does not assure success in later stage clinical trials. The FDA, an IRB or we may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.

New Drug Applications

Assuming successful completion of the required clinical trials, the results of product development, preclinical studies and clinical trials are submitted to the FDA as part of an NDA. An NDA also must contain extensive manufacturing information, as well as proposed labeling for the finished product. An NDA applicant must develop information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP. The manufacturing process must be capable of consistently producing quality product within specifications approved by the FDA. The manufacturer must develop methods for testing the quality, purity and potency of the final product. In addition, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf life. Prior to approval, the FDA will conduct an inspection of the manufacturing facilities to assess compliance with cGMP.

The FDA reviews all NDAs submitted before it accepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information and is subject to review before the FDA accepts it for filing. After an application is filed, the FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it considers them carefully when making decisions. The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA may issue a complete response letter, which may require additional clinical or other data or impose other conditions that must be met in order to secure final approval of the NDA. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase 4 testing which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require surveillance programs to monitor the safety of approved products which have been commercialized. Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety or efficacy questions are raised after the product reaches the market.

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Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data. Pharmaceutical manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with GMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. If our future suppliers are not able to comply with these requirements, the FDA may, among other things, halt our clinical trials, require us to recall a product from distribution, or withdraw approval of the product.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program.

The FDA closely regulates the marketing, labeling, advertising and promotion of pharmaceutical products. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

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Other Healthcare Laws and Compliance Requirements

Our sales, promotion, medical education, clinical research and other activities following product approval will be subject to regulation by numerous regulatory and law enforcement authorities in the United States in addition to FDA, including potentially the Federal Trade Commission, the Department of Justice, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services and state and local governments. Our promotional and scientific/educational programs must comply with the federal Anti-Kickback Statute, the civil False Claims Act, physician payment transparency laws, privacy laws, security laws, and additional federal and state laws similar to the foregoing.

The federal Anti-Kickback Statute prohibits, among other things, the knowing and willing, direct or indirect offer, receipt, solicitation or payment of remuneration in exchange for or to induce the referral of patients, including the purchase, order or lease of any good, facility, item or service that would be paid for in whole or part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary managers, and beneficiaries on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the federal Anti-Kickback Statute has been violated. The government has enforced the federal Anti-Kickback Statute to reach large settlements with healthcare companies based on sham research or consulting and other financial arrangements with physicians. Further, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. Many states have similar laws that apply to their state health care programs as well as private payors.

Federal false claims and false statement laws, including the federal civil False Claims Act, or FCA, imposes liability on persons or entities that, among other things, knowingly present or cause to be presented claims that are false or fraudulent or not provided as claimed for payment or approval by a federal health care program. The FCA has been used to prosecute persons or entities that “cause” the submission of claims for payment that are inaccurate or fraudulent, by, for example, providing inaccurate billing or coding information to customers, promoting a product off-label, submitting claims for services not provided as claimed, or submitting claims for services that were provided but not medically necessary. Actions under the FCA may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the FCA can result in significant monetary penalties and treble damages. The federal government is using the FCA, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other illegal sales and marketing practices. The government has obtained multi-million and multibillion dollar settlements under the FCA in addition to individual criminal convictions under applicable criminal statutes. In addition, certain companies that were found to be in violation of the FCA have been forced to implement extensive corrective action plans, and have often become subject to consent decrees or corporate integrity agreements, restricting the manner in which they conduct their business.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors; knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services; and willfully obstructing a criminal investigation of a healthcare offense. Like the federal Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

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Given the significant size of actual and potential settlements, we expect that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws. Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. Additionally, to the extent that our products, once commercialized, are sold in a foreign country, we may be subject to similar foreign laws.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, among other things, imposed new reporting requirements on certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, for payments or other transfers of value made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Covered manufacturers are required to collect and report detailed payment data and submit legal attestation to the accuracy of such data to the government each year. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Additionally, entities that do not comply with mandatory reporting requirements may be subject to a corporate integrity agreement. Certain states also mandate implementation of commercial compliance programs, impose restrictions on covered manufacturers’ marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians and other healthcare professionals.

We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and their respective implementing regulations, imposes specified requirements on certain health care providers, plans and clearinghouses (collectively, “covered entities”) and their “business associates,” relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, certain states have their own laws that govern the privacy and security of health information in certain circumstances, many of which differ from each other and/or HIPAA in significant ways and may not have the same effect, thus complicating compliance efforts.

Coverage and Reimbursement

Sales of pharmaceutical products depend significantly on the extent to which coverage and adequate reimbursement are provided by third-party payors. Third-party payors include state and federal government health care programs, managed care providers, private health insurers and other organizations. Although we currently believe that third-party payors will provide coverage and reimbursement for our product candidates, if approved, we cannot be certain of this. Third-party payors are increasingly challenging the price, examining the cost-effectiveness, and reducing reimbursement for medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. The U.S. government, state legislatures and foreign governments have continued implementing cost containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Adoption of price controls and cost containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. We may need to conduct expensive clinical studies to demonstrate the comparative cost-effectiveness of our products. The product candidates that we develop may not be considered cost-effective and thus may not be covered or sufficiently reimbursed. It is time consuming and expensive for us to seek coverage and reimbursement from third-party payors, as each payor will make its own determination as to whether to cover a product and at what level of reimbursement. Thus, one payor’s decision to provide coverage and adequate reimbursement for a product does not assure that another payor will provide coverage or that the reimbursement levels will be adequate. Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.

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Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

By way of example, in March 2010, the Affordable Care Act was signed into law, intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the Affordable Care Act of importance to our potential drug candidates are:

· an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

· an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;

· a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

· a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;

· extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

· expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

· expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and

· a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

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In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include, among others, the Budget Control Act of 2011, which mandates aggregate reductions to Medicare payments to providers of up to 2% per fiscal year effective April 1, 2013, and, due to subsequent legislative amendments, will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for our product candidates, if approved, and, accordingly, our financial operations.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products to the extent we choose to develop or sell any products outside of the United States. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Employees

We have two full-time employees, consisting of our executive officers, and retain the services of additional personnel on an independent contractor basis. We do not have any part-time employees but work with several consultants.

Facilities

We currently lease office space at 1024 Prospect Street, Suite 150, La Jolla, CA 92037. Our rent is $675 per month and we rent on a month-to-month basis.

Legal Proceedings

We are not a party to any legal proceedings. In November 2016, an individual filed an action in Cook County, Illinois, against the Company, David J. Moss, its Chief Financial Officer, Treasurer and and Raymond J. Tesi, its president and Chief Executive Officer (the Company, Mr. Moss and Mr. Tesi are referred to collectively as the “Company Parties”). The action alleged claims against the Company Parties concerning payment of monies and/or securities allegedly owed. In April 2017, the Company Parties and the Claimant entered into a Settlement Agreement and Mutual General Release agreement with that individual (the “Settlement Agreement”). Pursuant to the settlement agreement, the Company agreed to issue 33,335 shares of the Company’s common stock valued at $50,000, based on the value of the stock of the last round of financing of $1.50 per share. These shares are held by the Company subject to a restriction on transfer for a period of two years from the date the Company completes an initial public offering or otherwise becomes a public company after which the Company will deliver the shares to the Claimant. The agreement to issue the shares was a full and complete settlement of all claims that the Claimant may have had against the Company Parties, and the Cook County action was dismissed with prejudice. The obligation was recorded as common stock issuable as a component of stockholders’ equity as of December 31, 2017 and 2016, respectively, pending delivery of the shares to the Claimant after the restriction period expires.

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During 2017, the Company received notice that another company had filed the trademark application with the United States Patent and Trademark Office to register a certain trademark. The Company filed an opposition in the United States Trademark Trial and Appeal Board. Subsequently, INmune and this company entered into a settlement agreement pursuant to which the Company agreed not to oppose the company’s trademark and the company paid INmune cash proceeds of $150,000 in full consideration for the settlement agreement.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and notes thereto appearing elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this prospectus, including those set forth under “Risk Factors” and “Forward-Looking Statements.”

Overview

We are a pioneering clinical-stage immunotherapy company focused on reprograming the patient’s innate immune system to treat cancer. We do this by targeting two key cells of the innate immune system, natural killer, or NK cells, and myeloid derived suppressor cells, or MDSC. NK cells are the body’s first line of defense due to their innate ability to rapidly seek and destroy abnormal cells, such as cancer or virally-infected cells, without prior exposure or activation by other support molecules required to activate adaptive immune cells such as T-cells. NK cells play a key role in the immune-surveillance that prevents people from getting cancer and in eliminating residual disease which may cause people to relapse after cytotoxic therapy. MDSC are myeloid cells that develop secondary to the chronic inflammatory environment found in many cancers. MDSC, produced in the bone marrow, take up residence in the tumor microenvironment, the tissue associated with the cancerous cells, to protect to the tumor from immunological attack by the patient’s immune system. MDSC play a critical role in making the cancer resistant to immunotherapy such as currently approved checkpoint inhibitors.

We believe INKmune, our NK cell directed therapy, and INB03, our MDSC directed therapy offer unique strategies to improve the response of patient’s the innate immune system to their cancer. Both therapies will use a precision medicine approach to select patients who will benefit from the therapy and monitor the response to the therapy. Neither therapy is cancer specific. The decision to use either INKmune or INB03 alone or in combination other cancer therapies or with each other depends on immunologic parameters that can be tested in patients before treatment. The type of cancer is not important. This means that both therapies can be used to treat patients wide varied to hematologic malignancies and solid tumors that have the immunologic profile needed to respond. Put simply, we are treating the immune system to attack the patients the cancer, not targeting the patient’s cancer directly.

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We believe that INKmune improves the ability of the patient’s own NK cells to attack their tumor. INKmune itself will not kill cancer cells. INKmune interacts with the patient’s NK cells to convert them from an inert resting NK cells that ignores the cancer into a primed NK cells that kills the cancer cell. INKmune is a replication incompetent proprietary cell line we have named INB16 that is given to the patient after determining that i) the patient has adequate NK cells in their circulation and ii) those NK cells are functional when exposed to INKmune in vitro. INKmune is designed to be given to patients after their immune system has recovered after cytotoxic chemotherapy to target the residual disease the remains after treatment with cytotoxic therapy.  

INB03, shown in Figure 4 above, is an engineered protein therapeutic that neutralizes soluble TNF using Dominant-Negative technology. Dominant-Negative TNF biology is possible because of the unique properties of TNF. TNF is comprised of 3 identical proteins that form a homotrimer that bind the TNF receptor. INB03, a mutated form of the monomer, can displace one or more of the monomers for the sTNF homotrimer to form a heterotrimer. The heterotrimer is unable to bind TNFR. Without sTNF/TNFR interaction, there is not biologic affect. This is shown in Figure 5 below.

The unique mechanism of action allows INB03 to be the only selective TNF inhibitor that affects only sTNF. All currently available TNF inhibitors are non-selective TNF inhibitors that block both sTNF and tmTNF. This functional difference shown in Figure 6 below translates into therapeutic differences. The most obvious in the use of a TNF inhibitor in the treatment of cancer patients is related to safety. Non-selective TNF inhibitors are immunosuppressive because they inhibit both sTNF and tmTNF. INB03 is not immunosuppressive because it inhibits only sTNF and allows tmTNF to function normally (please refer to Figure 3). In animal models of cancer, the combination of no sTNF with functional tmTNF after treatment with INB03 improved the immune response against the tumor compared to animals treated with the non-selective TNF inhibitor etanercept (Vujanovic 2016). In summary, sTNF, by binding to TNFR1, is essential for MDSC proliferation by causing phosphorylation of STAT3. Without the binding of sTNF to TNFR1, the proliferation of the MDSC stops and the MDSC population collapses. Without the immunosuppressive shield provided by the MDSC population, the patient’s immune system, without concomitant immunotherapy, can attack the tumor. A secondary effect of INB03 is to improve NK cells-dendritic cell (NK/DC) cross-talk to help expand patient’s anti-tumor immune response by recruiting cytotoxic T cells of the adaptive immune system. tmTNF is essential to NK/DC cross-talk.

We believe our innate immune system reprogram platforms provides unique strategies to repair the immunologic dysfunction that characterizes the innate immune system of patients with cancer. The products can be used alone, in combination with other anti-tumor or immunotherapy treatments or with each other. In the near term, we are developing the products separately. After completion of proof-of-concept Phase II trials, we will consider developing them as a combination therapy. Until we complete clinical trials, we cannot predict if either product will be successful when use alone, in combination with other therapies or in combination with each other.

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Mesenchymal Stem Cells (“MSC”) are pluripotent cells with potent immunologic effects which can be used alone as an anti-inflammatory treatment strategy or a vector to deliver gene therapy. INmune Bio has access to a large quantity of human, GMP-grade MSC that can be repurposed for use in medical research or clinical trials. We plan to sell these cells to third parties. We may expand this activity in the future to include positioning the company as a contract manufacturer for companies developing MSC products or developing our own MSC based products. At this time, the program will be self-sustaining and growing on reinvestment of revenues from the sale of the MSC products.

Our Integrated Discovery and Development Process. Our focus on reprograming the patient’s immune system to better attack their cancer allows for synergies between the development and discovery process. A majority of our effort is focused on the development process that includes improving the manufacturing systems for INKmune and INB03 and optimizing bioassays to be used during the clinical trials. These manufacturing and monitoring programs may produce discoveries that the company can capitalize on as product improvements or new products. INB03 has uses beyond oncology including the treatment of neurodegenerative and neuropsychiatric diseases, cardiovascular diseases including congestive heart failure and metabolic diseases including nonalcoholic fatty liver disease (“NAFLD”) and nonalcoholic steatohepatitis (“NASH”). Although the Company will focus on the immuno-oncology uses of INB03 in the near term, the Company plans to expand the development into these other indications as resources become available. All attempts will be made to fund new research and development with non-dilutive resources that come from grants or revenue from sales of the MSC products.

Since our inception in 2015, we have devoted substantially all of our resources to the discovery and development of our product candidates, including preparing for clinical trials, drug manufacturing and funding general and administrative support for these operations. To date, we have generated no revenue. We have incurred net losses in each year since our inception and, as of December 31, 2017, we had an accumulated deficit of $1,157,845. Our net losses were $831,496 and $277,491 for the years ended December 31, 2017 and 2016, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We classify our operating expenses into three categories: royalties and cost of licensing, research and development, and selling, general and administrative expenses. Personnel costs including salaries, benefits, bonuses and stock-based compensation expense comprise a significant component of our research and development and selling, general and administrative expense categories. We allocate expenses associated with our facilities and information technology costs between these two categories based on the nature of each cost.

As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

· only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

· reduced disclosure about our executive compensation arrangements;

· no non-binding advisory votes on executive compensation or golden parachute arrangements;

· exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting and

· delaying the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

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We have elected to take advantage of the above-referenced exemptions and we may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenues, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not taken advantage of any of these reduced reporting burdens in this prospectus, although we may choose to do so in future filings. If we do, the information that we provide stockholders may be different than you might get from other public companies that comply with public company effective dates.

Royalties and Cost of Licensing

Royalties and cost of licensing primarily consists of our expenses related to the generation of revenue from our license agreements. These expenses primarily consist of royalty payments made pursuant to our in-licensing agreements and patent amortization expense. We have in-licensing agreements with various parties for the right to use their products and / or intellectual property. We expect our royalty payments to be small until we advance our products through the clinic and generate sales.

Research and Development

Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily consist of:

· clinical trial and regulatory-related costs;

· expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials;

· manufacturing and testing costs and related supplies and materials;

· employee-related expenses, including salaries, benefits, travel and stock-based compensation; and

· facility expenses dedicated to research and development.

We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs.

Substantially all of our research and development expenses to date have been incurred in connection with our product candidates. We expect our research and development expenses to increase significantly for the foreseeable future as we advance an increased number of our product candidates through clinical development, including the conduct of our planned clinical trials. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates.

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The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

· per patient trial costs;

· the number of sites included in the clinical trials;

· the countries in which the clinical trials are conducted;

· the length of time required to enroll eligible patients;

· the number of patients that participate in the clinical trials;

· the number of doses that patients receive;

· the cost of comparative agents used in clinical trials;

· the drop-out or discontinuation rates of patients;

· potential additional safety monitoring or other studies requested by regulatory agencies;

· the duration of patient follow-up; and

· the efficacy and safety profile of the product candidate.

We do not expect any of our product candidates to be commercially available for at least the next several years, if ever. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will increase substantially as we:

· continue research and development, including preclinical and clinical development of our existing product candidates;

· potentially seek regulatory approval for our product candidates;

· seek to discover and develop additional product candidates;

· establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval;

· seek to comply with regulatory standards and laws;

· maintain, leverage and expand our intellectual property portfolio;

· hire clinical, manufacturing, scientific and other personnel to support our product candidates development and future commercialization efforts;

· add operational, financial and management information systems and personnel; and

· incur additional legal, accounting and other expenses in operating as a public company.

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We may generate a small amount of revenue from MSC product sales in the near future. We do not plan to put a significant commercial infrastructure in place to support the sale of the MSC products. We may partner with specialty groups to help with distribution and sales. We will be opportunistic in sales of the MSC for clinical trials. We do not expect to generate revenue from product sales of INKmune or INB03 until we successfully complete development and obtain marketing approval for one or more of our product candidates. We do not expect to happen for at least the next several years, if ever. Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our research and development programs or commercialization efforts. Failure to receive additional funding could cause the company to fail.

Critical Accounting Policies and Significant Judgments and Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Intangible Assets

The Company capitalizes costs incurred in connection with in-process research and development purchased from others if the asset has alternative uses and such uses are not restricted under applicable license agreements. Amortization is initiated for acquired in-process research and development intangible assets when their useful lives have been determined. Acquired in-process research and development intangible assets which are determined to have had a drop in their fair value are adjusted downward and an expense recognized in research and development expenses. These acquired in-process research and development intangible assets are tested at least annually or when a triggering event occurs that could indicate a potential impairment.

Stock-Based Compensation

We record the fair value of stock options issued to our employees as of the grant date as compensation expense. We recognize compensation expense, net of forfeitures, on a straight-line basis over the requisite service period, which is equal to the applicable vesting period.

We account for equity instruments issued to non-employees using a fair value approach under ASC Subtopic 505-50, Equity-Based Payments to Non-Employees. We value equity instruments and stock options granted using the Black-Scholes option-pricing model. The value of non-employee stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the term of the related financing or the period over which services are received.

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On October 3, 2017, the Company entered into an Assignment and Assumption Agreement with Immune Ventures. Pursuant to the Assignment and Assumption Agreement, Immune Ventures assigned all of its rights, obligations and liabilities under the Exclusive License Agreement between the University of Pittsburgh – Of the Commonwealth System of Higher Education and Immune Ventures. Pursuant to the Assignment and Assumption Agreement, the Company agreed to convert the amount Immune Ventures paid of $162,634 into shares of the Company’s common stock valued at $7.71 per share, based on the per share value of the shares issued to Xencor, for 21,094 shares for the reimbursement of amounts paid by the Assignor to the University of Pittsburgh, which the Company recorded as stock-based compensation within research and development expense. These shares were issued on December 31, 2017.

During 2017, the Company issued fully vested warrants to purchase 31,667 shares of the Company’s common stock to a third party in conjunction with the common stock sold for cash, with an exercise price of $1.50 per share, maturity date of June 30, 2022, and fair value of $36,922 using the Black-Scholes option-pricing model, which were recorded as stock-based compensation.

During March 2018, the CEO and CFO were each granted an option to purchase 400,000 shares of the Company’s common stock with a $7.80 exercise price. One third of the options vested on January 1, 2018 and the remainder shall vest on a monthly basis over a 24 month term. The grant date fair value of these stock options was $5,136,894 based on the Black-Scholes Option Pricing model.

During March 2018, a board member was granted 400,000 shares of the Company’s common stock with a $7.80 exercise price. These options vest over a 24 month term. The grant date fair value of these stock options was $2,568,447 based on the Black-Scholes Option Pricing model.

During April 2018, the Company granted options to purchase 108,000 shares of the Company’s common stock to each of four Board members, of which 3,000 options shall vest monthly. The options have a 10-year term and a $7.80 exercise price. The grant date fair value of these stock options was $2,765,108 based on the Black-Scholes Option Pricing model.

On May 16, 2018, the Company entered into a consulting agreement with Pacific Seaboard Investments Ltd. for corporate governance, compliance services regarding the filing of a listing application and assist with activities related to its initial public offering. The term of the consulting agreement is from April 24, 2018 to May 1, 2021. In consideration of the consultant’s services, the Company agreed to issue 600,000 shares of its restricted common stock, of which 200,000 shares were to be issued on May 16, 2018, 200,000 shares shall be locked up for six months after the effective date of the Company’s registration statement and 200,000 shares shall be locked up for 10 months after the date of the Company’s offering.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any off-balance sheet arrangements as defined under SEC rules.

Licensing and Collaboration Agreements

We anticipate that in-licensing, out-licensing and strategic collaborations will become an integral part of our operations, providing the company with opportunities to leverage our partners’ expertise and capabilities to further expand the potential of our technologies, product candidates and revenue streams.

Xencor

In October 2017, we licensed INB03, also known as XPro1595, from Xencor. This exclusive, global, unrestricted license came with considerable know-how, intellectual property, pre-clinical data, regulatory documentation and product stocks. Currently, we are focused on the immune-oncology uses of this unique asset. In the future, we may develop the asset in a wide variety of therapeutic areas, with a variety of delivery techniques by ourselves or in conjunction with partners.

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Unit Offering

In June 2017, the Company completed a private placement in which we sold 1,393,335 of units to accredited investors at a per unit price of $10,000 with each unit consisting of 6,667 shares of our common stock, and received net proceeds of approximately $2,056,000, net of issuance costs of $34,000. Pursuant to the subscription agreement between the Company and the investors of the offering for a period of two years from June 30, 2017, if the Company sells shares of common stock or the right to receive common stock at a price per share which values the Company at less than $10,000,000, the Company will issue additional shares of common stock to each investor in the offering such that the investor will receive the same effective price per share as the investors in any such future offering. Pursuant to the subscription agreement, the Company agreed to file a registration statement to register the share of common stock sold in the offering within five months after the final closing and seek to have the registration statement declared effective by the Securities and Exchange Commission within six months of the filing. If the Company fails to meet either of the registration deadlines, each investor will be entitled to receive a cash payment in the amount of 1% of the amount of the investment for each month that a registration deadline is not met, up to a maximum of 12%. Except for one investor all of the holders have waived their registration rights. We expect to pay the one investor who did not waive its registration rights approximately $1,500 in penalties. The offer and sale of the units were made in reliance on the exemption from registration afforded under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D under the Securities Act. The unit offering was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by the investors in connection with the unit offering.

In connection with the offering we paid a registered broker dealer a commission of $47,500, and we issued warrants to purchase 31,667 shares of our common stock with a strike price of $1.50 per share for 5 years from June 30, 2017, with a fair value of $36,922.

Results of Operations

Comparison of the Nine Months Ended September 30, 2018 and September 30, 2017

	Nine Months Ended
	September 30, 2018			September 30, 2017			Change		Change
	$			$			$		%
General and Administrative	$	9,969,985		$	386,245		$	9,583,740		2,481	%
Research and Development		590,103			167,006			423,097		253	%
Other (Income) Expense		-			(150,000	)		150,000		(100	)%
Net loss	$	(10,560,088	)	$	(403,251	)	$	10,156,837		2,519	%

General and Administrative

Operating expenses were $9,969,985 for the nine months ended September 30, 2018, compared to $386,245 for the nine months ended September 30, 2017. The increase was primarily attributable to stock-based compensation and professional fees associated with preparing for clinical trials and the public offering. The Company recorded stock-based compensation expense of $9,046,542 and $36,922 during the nine months ended September 30 2018 and 2017, respectively. The Company recorded professional fees of $538,258 and $104,573 during the nine months ended September 30, 2018 and 2017, respectively.

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Research and Development

Research and development expenses increased to $590,103 for the nine months ended September 30, 2018 from $167,006 for the nine months ended September 30, 2017. This increase was due to the start of our research program in preparation for clinical trials.

Other Income

Other income decreased from $150,000 for the nine months ended September 30, 2017 to $0 for the nine months ended September 30, 2018. Other income during the nine months ended September 30, 2017 related to the settlement of a trademark dispute.

Comparison of the Three Months Ended September 30, 2018 and September 30, 2017

  

	Three Months Ended
	September 30, 2018			September 30, 2017			Change			Change
	$			$			$			%
General and Administrative	$	1,341,065		$	261,207		$	1,079,858			413	%
Research and Development		198,776			46,320			152,456			329	%
Net loss	$	(1,539,841	)	$	(307,527	)	$	(1,232,314	)

General and Administrative

Operating expenses were $1,341,065 for the three months ended September 30, 2018, compared to $261,207 for the three months ended September 30, 2017. The increase was primarily attributable to stock-based compensation. The Company recorded stock-based compensation expense of $979,556 and $0 during the three months ended September 30 2018 and 2017, respectively. 

Research and Development

Research and development expenses increased to $198,776 for the three months ended September 30, 2018 from $46,320 for the three months ended September 30, 2017. This increase was due to the start of our research program in preparation for clinical trials.

 

Comparison of the Years Ended December 31, 2017 and December 31, 2016

	Year Ended
	December 31, 2017			December 31, 2016			Change			Change
	$			$			$			%
General and Administrative	$	546,118		$	125,966		$	420,152			334	%
Research and Development		435,362			101,495			333,867			329	%
Other (Income) Expense		(149,994	)		50,000			(199,994	)		(400	)%
Net loss	$	(831,486	)	$	(277,461	)	$	(554,025	)

General and Administrative

Operating expenses were $546,118 for the year ended December 31, 2017, compared to $125,966 for the year ended December 31, 2016. The increase was primarily attributable to legal, accounting and operational costs associated with preparing for clinical trials and the public offering that began in 2017 which included $199,556 of stock-based compensation expense incurred in 2017 and $211,805 of professional fees incurred in 2017.

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Research and Development

Research and development expenses increased to $435,362 for the year ended December 31, 2017 from $101,495 for the year ended December 31, 2016. This increase was due to the start of our research program in preparation for clinical trials.

Other Income

Other income increased to $149,994 for the year ended December 31, 2017, from other expense of $50,000 for the year ended December 31, 2016. Other income in 2017 related to the settlement of a trademark dispute. Other expense in 2016 pertained to a legal settlement.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.

At December 31, 2017, we had a cash balance of $1,370,711, and $141,659 as of December 31, 2016. The Company had working capital of $1,589,753 as of December 31, 2017 and a working capital deficiency of $149,203 as of December 31, 2016. The increase in our working capital was primarily related to the proceeds from the sale of common stock of $2,056,000.

At September 30, 2018 and December 31, 2017, we had a cash balance of $650,861 and $1,370,711, respectively. The Company had working capital of $952,974 and $1,589,753 as of September 30, 2018 and December   31, 2017, respectively. The increase in our working capital was primarily related to the proceeds from the sale of common stock of $900,000, partially offset by the use of cash in operations.

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2017 and 2016 and the nine months ended September 30, 2018 and 2017:

	Year Ended December 31,						Nine Months Ended September 30,
	2017			2016			2018			2017
Net cash used in operating activities	$	(761,834	)	$	(317,379	)	$	(1,596,617	)	$	(386,474	)
Net cash used in investing activities		(100,000	)		—			—			—
Net cash provided by financing activities		2,056,000			450,000			900,000			2,056,000
Impact on cash from foreign currency translation		34,886			(2,844	)		(23,233	)		32,314
Net increase (decrease) in cash and cash equivalents	$	1,229,052		$	129,777		$	(719,850	)	$	1,701,840

Net Cash Used in Operating Activities

The Company used cash of $761,834 and $317,379 in operating activities for the years ended December 31, 2017 and 2016, respectively. The increase in cash used from activities in 2017 compared to 2016 was principally due to the Company incurring additional general and administration expenses and research and development expenses associated with the ongoing operations of the Company during 2017.

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The Company used cash of $1,596,617 and $403,251 in operating activities for the nine months ended September 30, 2018 and 2017, respectively. The increase in cash used from activities in 2018 compared to 2017 was principally due to the Company incurring additional general and administration expenses and research and development expenses associated with the ongoing operations of the Company during 2018.

Net Cash Used in Investing Activities

The Company used cash of $100,000 in investing activities for the year ended December 31, 2017 in connection with acquisition of in-process research and development intangible assets.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2017 was $2,056,000, from the proceeds from the sale of common stock.

Net cash provided by financing activities for the year ended December 31, 2016 was $450,000, of which $100,000 was cash proceeds from the sale of common stock and $350,000 was cash proceeds from issuance of short-term debt – related party.

Net cash provided by financing activities for the nine months ended September 30, 2018 was $900,000, from the proceeds from the sale of common stock. Net cash provided by financing activities for the nine months ended September 30, 2017 was $2,056,000 from the sale of common stock.

MANAGEMENT

The following table sets forth our executive officers and directors, their ages and position(s) with the Company.

Name	Age	Position
Raymond J. Tesi, MD	61	President and CEO, and Director
David J. Moss	48	Chief Financial Officer, Treasurer and Secretary
Mark Lowdell, PhD	56	Chief Scientific Officer
J. Kelly Ganjei	45	Director
Tim Schroeder	60	Director
David Szymkowski, PhD	55	Director
Scott Juda, JD	48	Director

Directors are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their successors are elected. Officers are elected annually and serve at the discretion of the Board of Directors.

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Raymond J. Tesi, M.D. has been our President, Chief Executive Officer and a member of the board of directors of the Company since the formation of the Company in September 2015. From November 2011 until May 2015, Dr. Tesi was CEO, President and Acting Chief Medical Officer of FPRT Bio Inc., a development stage biotech formed to develop XPro1595 for the treatment of neurodegenerative disease and other inflammatory diseases. From November 2010 to October 2011, Dr. Tesi was Chief Medical Officer of Adienne SRL, an emerging biotech in Bergamo, Italy focused on products to treat patients with hematologic malignancy. From June 2007 to September 2010, Dr. Tesi was founder, CEO and President of Coronado Biosciences. Dr. Tesi received his MD degree from Washington University School of Medicine in 1982. Dr. Tesi has been a licensed physician since 1982 and Fellow of the American College of Surgery since 1991. Dr. Tesi’s significant experience with our licensed technology and his experience as a transplant surgeon, entrepreneur, investor and director of start-up biopharmaceutical companies were instrumental in his selection as a member of the board of directors.

David J. Moss, M.B.A. has been the Chief Financial Officer since our formation in September 2015. From September 15, 2015 until April 2018, Mr. Moss was also a member of our board of directors. Mr. Moss is a director of CareSpan International, Inc. and served as a director of Pegasi Energy Resources Corporation from May 2007 to January 2014 and was a founding investor in Reliant Service Group LLC which recently sold in 2015 to a leading private equity firm. From 1996 until 2001 he served as Managing Partner at a Seattle based venture capital firm, The Phoenix Partners. From November 2010 until October 2011, Mr. Moss was the Chief Executive Officer, sole director and a majority shareholder of Tamandare Explorations Inc. a private specialty pharmaceutical company. In October 2011 Tamandare Explorations engaged in a merger transaction pursuant to with Tonix Pharmaceuticals Holding Corp., which at the time had its common stock listed on the OTC Bulletin Board and is currently listed on Nasdaq Capital Market. In connection with the merger transaction Mr. Moss resigned as Tamandare Explorations Chief Executive Officer and a member of its board of directors. From 2001 until the formation of INmune Bio in 2015, Mr. Moss has invested in healthcare technology companies. Mr. Moss holds an MBA from Rice University and a BA in Economics from the University of California, San Diego.

Mark Lowdell, Ph.D. was a member of the board of directors of the Company from its formation in September 2015 until July 2018 and has been our Chief Scientific Officer since October 2015. Prof. Lowdell is Professor of Cell and Tissue Therapy at University College London where he has led a translational immunotherapy group since 1994. Since February 2009, Prof. Lowdell has also been Director of Cellular Therapy at the Royal Free London NHS Foundation Trust. He received his PhD in clinical immunology from London Hospital Medical College, University of London in 1992 and is a qualified immunopathologist. Prof. Lowdell’s education and significant academic and clinical experience with cellular therapies were instrumental in his selection as Chief Scientific Officer.

Timothy Schroeder has been one of our directors since December 2016. Timothy Schroeder, CEO and Founder of CTI Clinical Trial & Consulting Services (CTI), has over 35 years of clinical, academic, and industry experience in global drug and device development programs. CTI, founded in 1999, is a multi-national research firm with associates in North America, Europe, Latin America and Asia-Pacific. The firm has supported more than 100 drug and device approvals, and currently works on behalf of approximately 120 global pharmaceutical and biotechnology companies. Prior to founding CTI, Mr. Schroeder held numerous faculty positions with the University of Cincinnati College of Medicine. He was also the founding Executive Vice President of Clinical Development at SangStat Medical Corporation, which went public in 1995. Mr. Schroeder is currently a board member for over a dozen corporate and non-profit organizations, including Xavier University, which he attended. Mr. Schroeder was named as an EY Entrepreneur of the Year in 2015 and was recognized as Top Leader by the Enquirer Media in 2016. Mr. Schroder has significant clinical trial and drug development experience which is why he was selected as a member of the board of directors

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David Szymkowski, Ph.D has been one of our directors since August 2018. Dr. Szymkowski has been the vice president of Cellular biology at Xencor, Inc. since 2016. Xencor whose common stock is listed on NASDAQ is a clinical-stage biopharmaceutical company developing engineered monoclonal antibodies for treatment of autoimmune diseases, asthma and allergic diseases and cancer. David E. Szymkowski leads the immunology group as Vice President of Cell Biology at Xencor Inc. where he is focused on translational development of Fc-engineered and bispecific antibodies for the treatment of autoimmune diseases, allergic diseases, and cancer. Prior to joining Xencor in 2002, Dr. Szymkowski was a principal scientist in the respiratory group at Roche Bioscience in Palo Alto, CA. Previously, he was a virology program leader at Roche Pharmaceuticals in the U.K. With 25 years of big pharma and biotech R&D experience at Roche and at Xencor, Dr. Szymkowski has been instrumental in 10 IND submissions, coauthored over forty papers and reviews, is an inventor on over a dozen patents, and speaks frequently on the development of antibody therapeutics and other biologics. Dr. Szymkowski has contributed to the advancement of numerous antibody drugs into clinical trials for lupus, asthma, allergy, and hematological and solid tumors. He received his B.A. at Johns Hopkins University and his Ph.D. in molecular and cell biology from Penn State, and completed a postdoc at the Imperial Cancer Research Fund (U.K.). Dr. Szymkowski serves on the board as the Xencor representative pursuant to a voting agreement with other shareholders of the Company, and has significant experience in pharmaceutical business development.

J. Kelly Ganjei, has been one of our directors since September 2016. Mr. Ganjei joined Cognate BioServices, Inc. in 2011 as the Chief Executive Officer. Mr. Ganjei has over 20 years of experience within the life science, venture capital and IT sectors and has lead companies through various stages of development, ranging from the virtual start-up, to the mid-cap restart, through the exponential growth phase, and into a public exit. Prior to joining Cognate, Mr. Ganjei was the principal at an SBA venture capital firm where he was brought on to support deal flow into and out of the fund, with a specific focus on regenerative medicine, immunotherapy and cell therapy investment opportunities. While in this role, he helped the venture capital firm exit the SBA program and was the key driver of several other strategic deals for various portfolio companies. Previously, Mr. Ganjei was the CEO and Co-founder of Remegenix, Inc. Prior to Remegenix, Inc., was a Vice President of Business Development at TissueGene, Inc., Mr. Ganjei helped close several tranches of TissueGene’s Series A and B funding and was responsible for developing the global informatics infrastructure for the company and its affiliates. Prior to TissueGene, Inc., Mr. Ganjei served as a Product Marketing Manager for LabVantage where he was the key technical sales and marketing lead for LabVantage’s life science software product offering globally and was responsible for the design of all life science product initiatives. Mr. Ganjei has published numerous scientific, peer-reviewed papers in a number of journals and has been an invited guest speaker and presenter at various business forums. Mr. Ganjei received his B.S. in Microbiology from the University of Maryland College Park in 1995 and began his career at NIH in May of the same year. Mr. Ganjei has significant biotechnology start-up experience along with drug manufacturing knowledge which is why he was selected as a member of the board.

Scott Juda, has been one of our directors since March 2018. He is the Manager and Co-Founder of Fossick Capital, a technology focused hedge fund. From 2012 to 2016, Scott was the Chief Executive Officer and Co-Founder of The Juda Group, Inc., a division of CCM, an institutional capital markets focused broker-dealer. Scott was at SMH Capital from 2002 until 2011, serving as a Managing Director in the Investment Banking Group as well Chief Operating Officer of The Juda Group subsidiary. From 2000 to 2002, Mr. Juda was an institutional sales-trader for Sutro & Co. From 1997 to 2000, Scott practiced corporate and securities law at Buchalter Nemer LLP. Mr. Juda received his bachelor’s degree from the University of Southern California and his juris doctor from the University of Pepperdine School of Law. Mr. Juda is a member of the State Bar of California.

Family Relationships

None.

Corporate Governance

We are committed to maintaining strong corporate governance practices that benefit the long-term interests of our Shareholders by providing for effective oversight and management of the Company. Our governance policies, including our Corporate Communications Policy, Insider Trading Policy, Code of Conduct, and Committee Charters can be found on our website at http://www.inmunebio.com/.

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The Nominating and Corporate Governance Committee regularly reviews our corporate governance policies, Code of Conduct, and Committee Charters to ensure that they take into account developments at the Company, changes in regulations and listing requirements, and the continuing evolution of best practices in the area of corporate governance.

The Board conducts an annual self-evaluation in order to assess whether the directors, the committees, and the Board are functioning effectively.

The Board has granted Mark Lowdell and David Moss rights to observe board meetings as long as they each owns at least 750,000 shares of the Company’s common stock.

Code of Ethics

We have recently adopted a Code of Ethics that applies to our principal executive officers and principal financial officer, principal accounting officer or controller, or persons performing similar functions and also to other employees. Our Code of Ethics can be found on our website at www.inmunebio.com.

Involvement in Certain Legal Proceedings

Except as disclosed in the bios above, our Directors and Executive Officers have not been involved in any of the following events during the past ten years:

1.	any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.	any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

3.	being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
4.	being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5.	being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6.	being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

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Board Committees

Our Board of Directors has established three standing committees: an audit committee, a nominating and corporate governance committee and a compensation committee, which are described below. Members of these committees are elected annually at the regular board meeting held in conjunction with the annual stockholders’ meeting. The charter of each committee is available on our website at www.inmunebio.com.

Audit Committee

The Audit Committee, among other things, is responsible for:

· Appointing, approving the compensation of, overseeing the work of, and assessing the independence, qualifications, and performance of the independent auditor;

· reviewing the internal audit function, including its independence, plans, and budget;

· approving, in advance, audit and any permissible non-audit services performed by our independent auditor;

· reviewing our internal controls with the independent auditor, the internal auditor, and management;

· reviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management;

· overseeing our financial compliance system; and

· overseeing our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal audit function, and information technology.

The Board has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable to audit committee members under SEC rules and the NASDAQ Stock Market. The Board of Directors has adopted a written charter setting forth the authority and responsibilities of the Audit Committee. The Board has affirmatively determined that each member of the Audit Committee is financially literate, and that all members meet the qualifications of an Audit Committee financial expert. The Audit Committee consists of Tim Schroeder, Scott Juda and Kelly Ganjei. Scott Juda is the chairman of the Audit Committee.

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Compensation Committee

The Compensation Committee is responsible for establishing and administering our executive compensation policies. The role of the Compensation Committee is to (i) formulate, evaluate and approve compensation of the Company’s directors, executive officers and key employees, (ii) oversee all compensation programs involving the use of the Company’s stock, and (iii) produce, if required under the securities laws, a report on executive compensation for inclusion in the Company’s proxy statement for its annual meeting of shareholders. The duties and responsibilities of the Compensation Committee under its charter include:

· Annually reviewing and setting compensation of executive officers;

· Periodically reviewing and making recommendations to the Board with respect to compensation of non-employee directors;

· Reviewing and approving corporate goals and objectives relevant to Chief Executive Officer compensation, evaluating the Chief Executive Officer’s performance in light of those goals and objectives, and setting the Chief Executive Officer’s compensation levels based on this evaluation;

· Reviewing competitive practices and trends to determine the adequacy of the executive compensation program;

· Approving and overseeing incentive compensation and equity-based plans for executive officers that are subject to Board approval;

· Making recommendations to the Board as to the Company’s compensation philosophy and overseeing the development and implementation of compensation programs;

· Periodically reviewing and making recommendations to the Board with respect to compensation of non-employee directors;

· Reviewing and approving corporate goals and objectives relevant to Chief Executive Officer compensation, evaluating the Chief Executive Officer’s performance in light of those goals and objectives, and setting the Chief Executive Officer’s compensation levels based on this evaluation;

When appropriate, the Compensation Committee may, in carrying out its responsibilities, form and delegate authority to subcommittees. The Chief Executive Officer plays a role in determining the compensation of our other executive officers by evaluating the performance of those executive officers. The Chief Executive Officer’s evaluations are then reviewed by the Compensation Committee. This process leads to a recommendation for any changes in salary, bonus terms and equity awards, if any, based on performance, which recommendations are then reviewed and approved by the Compensation Committee.

The Compensation Committee has the authority, at the Company’s expense, to select, retain, terminate and set the fees and other terms of the Company’s relationship with any outside advisors who assist it in carrying out its responsibilities, including compensation consultants or independent legal counsel.

The Board has adopted a written charter setting forth the authority and responsibilities of the Compensation Committee. The Compensation Committee consists of Scott Juda, Tim Schroeder and Kelly Ganjei. Tim Schroeder is the chairman of the Compensation Committee. The Board has affirmatively determined that each member of the Compensation Committee meets the additional independence criteria applicable to compensation committee members under SEC rules and the NASDAQ Stock Market.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee, among other things, is responsible for:

· reviewing and assessing the development of the executive officers, and considering and making recommendations to the Board regarding promotion and succession issues;

· evaluating and reporting to the Board on the performance and effectiveness of the directors, committees, and the Board as a whole;

· working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise, and experience, including diversity considerations, for the full Board and each committee;

· annually presenting to the Board a list of individuals recommended to be nominated for election to the Board;

· reviewing, evaluating, and recommending changes to the Company’s Corporate Governance Policies and Committee Charters;

· recommending to the Board individuals to be elected to fill vacancies and newly created directorships;

· overseeing the Company’s compliance program, including the Code of Conduct; and

· overseeing and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, may affect the Company’s major risk exposures.

 

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The Board of Directors has adopted a written charter setting forth the authority and responsibilities of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee consists of Tim Schroeder, Scott Juda and Kelly Ganjei. Kelly Ganjei is the chairman of the Nominating and Corporate Governance Committee.

EXECUTIVE COMPENSATION

The following table sets forth the compensation for our fiscal years ended December 31, 2017 and 2016 earned by or awarded to, as applicable, our principal executive officer, principal financial officer and our other most highly compensated executive officers as of December 31, 2017. In this prospectus, we refer to such officers as our “Named Executive Officers.”

Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)(4)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Raymond J. Tesi	2017		0		0		0		0		0		0		0		0
CEO/President	2016		0		0		0		0		0		0		0		0
David J. Moss	2017		0		0		0		0		0		0		0		0
CFO	2016		0		0		0		0		0		0		0		0
Mark Lowdell	2017		0		0		0		0		0		0		0		0
CSO	2016		0		0		0		0		0		0		0		0

Employment Agreements

The Company and David Moss have entered into an employment agreement, dated January 1, 2018, pursuant to which Mr. Moss is serving as our Chief Financial Officer. Pursuant to the employment agreement, Mr. Moss is paid a salary of $120,000 per annum provided that if we raise gross proceeds of at least $5,000,000 from an offering then his salary shall increase to $250,000 per annum and if we receive gross proceeds of at least $12,000,000 then Mr. Moss’ salary will increase to $350,000. Pursuant to the employment agreement if Mr. Moss is terminated without cause, or if he terminates his employment for good reason, (as those terms are defined in the employment agreement) we will be required to pay him a lump sum payment equal to one times the period of time Mr. Moss worked for us without compensation. This period began on September 1, 2015 and runs until the first compensation received under an employment agreement with we after completion of the public offering. In accordance with his employment agreement. Mr. Moss has been issued options to purchase 400,000 shares of our common stock at an exercise price of $7.80 per share, of which options to 133,333 shares of Common Stock shall vested immediately and the option to purchase the remaining 266,667 shares shall vest at the rate of 11,111 share per month over twenty-four months, subject to the conditions set forth in the option agreement.

The options were granted from our 2017 Stock Incentive Plan.

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The Company and Raymond Tesi, MD, have entered into an employment agreement, dated January 1, 2018, pursuant to which Dr. Tesi is serving as our Chief Executive Officer and President. Pursuant to the employment agreement, Dr. Tesi is paid a salary of $120,000 per annum provided that we raise gross proceeds of at least $5,000,000 from an offering then his salary shall increase to $250,000 per annum and if we receive gross proceeds of at least $12,000,000 then Dr. Tesi’s salary will increase to $350,000. Pursuant to the employment agreement if Dr. Tesi is terminated without cause, or if he terminates his employment for good reason, (as those terms are defined in the employment agreement) we will be required to pay him a lump sum payment equal to one times the period of time Dr. Tesi worked for the Company without compensation. This period began on September 1, 2015 and runs until the first compensation received under an employment agreement with we after completion of the public offering. Dr. Tesi has been issued options to purchase 400,000 shares of our common stock at an exercise price of $7.08 per share 133,333 shares of Common Stock shall vested immediately and the option to purchase the remaining 266,667 shares shall vest at the rate of 11,111 share per month over twenty-four months, subject to the conditions set forth in the option agreement.

The options were granted from our 2017 Stock Incentive Plan 133,333 shares of Common Stock shall vested immediately and the option to purchase the remaining 266,667 shares shall vest at the rate of 11,111 share per month over twenty-four months, subject to the conditions set forth in the option agreement. The options were granted from our 2017 Stock Incentive Plan. The options were granted from our2017 Stock Incentive Plan.

Consulting Agreement

The Company and Mark Lowdell, PhD, have entered into a consulting agreement, dated January 1, 2018, pursuant to which Dr. Lowdell is serving as our Chief Scientific Officer. Pursuant to the consulting agreement, Dr. Lowdell is paid a salary of $120,000 per annum provided that we raise gross proceeds of at least $5,000,000 from an offering then his salary shall increase to $250,000 per annum and if we receive gross proceeds of at least $12,000,000 then Dr. Lowdell’s salary will increase to $350,000. Pursuant to the consulting agreement if Dr. Lowdell is terminated without cause, or if he terminates his consulting agreement for good reason, (as those terms are defined in the consulting agreement) we will be required to pay him a lump sum payment equal to one times the period of time Dr. Lowdell worked for us without compensation. This period began on September 1, 2015 and runs until the first compensation received under the consulting agreement with us after completion of the public offering. Dr. Lowdell has been issued options to purchase 400,000 shares of our common stock at an exercise price of $7.80 per share 133,333 shares of Common Stock shall vested immediately and the option to purchase the remaining 266,667 shares shall vest at the rate of 11,111 share per month over twenty-four months, subject to the conditions set forth in the option agreement. The options were granted from our 2017 Stock Incentive Plan. The options were granted from our 2017 Stock Incentive Plan. The Consulting Agreement was amended in July 2018 to remove the reference that Dr. Lowdell would serve as the Chair of the Company’s Scientific Advisory Board as the Company does not have a Scientific Advisory Board.

It is currently contemplated that Dr. Lowdell will devote approximately 60% of his business time to our business and as result and pursuant to his consulting agreement, during this time Dr. Lowdell’s salary will be prorated so that it is consummate with the time that he is devoting to the Company.

   

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Outstanding Equity Awards at Fiscal Year End

The following table summarizes the total outstanding equity awards as of December 31, 2017, for each Named Executive Officer:

Outstanding Equity Awards at Fiscal Year End

	Option awards										Stock awards
Name	Number of securities underlying unexercised options (#) exercisable		Number of securities underlying unexercised options (#) unexercisable		Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date		Number of shares or units of stock that have not vested (#)		Market value of shares of units of stock that have not vested ($)		Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)		Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
Raymond J. Tesi		0		0		0		0		0		0		0		0		0
David Moss		0		0		0		0		0		0		0		0		0
Mark Lowdell		0		0		0		0		0		0		0		0		0

Director Compensation

The following table shows the compensation earned by persons who served on our Board of Directors during the fiscal year ended December 31, 2017, who are not one of our Named Executive Officers.

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Tim Schroeder		0		0		0		0		0		0		0
J. Kelly Ganjei		0		0		0		0		0		0		0
Edgardo Baracchini		0		0		0		0		0		0		0
Scott Juda		0		0		0		0		0		0		0

During 2018, Mr. Juda has been granted options to purchase 108,000 shares of our common stock at an exercise price of $7.80 per share, of which 3,000 options a month vest until the 108,000 options have vested subject to the conditions set forth in the option agreement between the Corporation and Mr. Juda. The options were granted from our 2017 Stock Incentive Plan.

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During 2018, Mr. Schroeder has been granted options to purchase 108,000 shares of the Company’s common stock at an exercise price of $7.80 per share, of which 3,000 options a month vest until the 108,000 options have vested subject to the conditions set forth in the option agreement between the Corporation and Mr. Schroeder. The Options were granted from the Company’s 2017 Stock Incentive Plan.

During 2018, Mr. Ganjei has been granted options to purchase 108,000 shares of the Company’s common stock at an exercise price of $7.80 per share, of which 3,000 options a month vest until the 108,000 options have vested subject to the conditions set forth in the option agreement between the Corporation and Mr. Ganjei. The Options were granted from the Company’s 2017 Stock Incentive Plan.

During 2018, Dr. Baracchini has been granted options to purchase 108,000 shares of the Company’s common stock at an exercise price of $7.80 per share, of which 3,000 options a month vest until the 108,000 options have vested subject to the conditions set forth in the option agreement between the Corporation and Mr. Baracchini. The Options were granted from the Company’s 2017 Stock Incentive Plan. Dr. Baracchini resigned from our board in August 2018.

Equity Compensation Plan Information

Adoption of INmune Bio, Inc. 2017 Stock Incentive Plan

On November 15, 2017, the Board approved the INmune Bio, Inc. 2017 Stock Incentive Plan (the “2017 Plan”). The purpose of the 2017 Plan is to promote the interests of the Company and its stockholders by providing (i) officers and employees, (ii) advisors, and (iii) non-employee directors with appropriate incentives and rewards.

The 2017 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards. The 2017 Plan also provides for the granting of performance stock awards so that the Board may use performance criteria in establishing specific targets to be attained as a condition to the grant or vesting of awards under the 2017 Plan.

The 2017 Plan provides for the grant of stock awards to employees, directors and consultants of the Company and its affiliates covering an aggregate of 1,700,000 shares of common stock, subject to adjustments in the event of certain changes to the Company’s capitalization.

The common stock subject to the 2017 Plan may be unissued shares or reacquired shares, including shares purchased on the open market. If a stock award granted under the 2017 Plan is forfeited, expires or is canceled or settled without issuance of common stock it shall not count against the maximum number of shares that may be issued under the 2017 Plan.

The Board has broad discretion in making grants under the 2017 Plan and may make grants subject to such terms and conditions as determined by the Board or a duly appointed committee thereof. Grants under the 2017 Plan will be subject to the terms and conditions set forth in the document making the award, including, without limitation any applicable purchase price and provisions pursuant to which the grant may be forfeited.

The Board may terminate or amend the 2017 Plan at any time, except for certain actions that may not be taken without stockholder approval. The 2017 Plan is scheduled to terminate on November 15, 2027.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of October 31, 2018, and as adjusted to reflect the sale of common stock in this offering, for:

· each of our current directors and executive officers;

· all of our current directors and executive officers as a group; and

· each person, or group of affiliated persons, who beneficially owned more than 5% of our common stock.

Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws.

Our calculation of the percentage of beneficial ownership prior to this offering is based on 8,719,441 shares of common stock outstanding as of October 31, 2018. We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under Rule 13d-3 of the Exchange Act of 1934, as amended (the “Exchange Act”), a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares: (i) voting power, which includes the power to vote or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person or persons, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person or persons (and only such person or persons) by reason of these acquisition rights.

Name and Address(1)	Common Stock Owned		Number of Shares Exercisable Within 60 Days				Percentage of Common Stock
Executive Officers and Directors
Raymond J. Tesi		1,503,333		277,776	(1)(2)		20.43	%
David J. Moss		1,186,667		277,776	(1)(3)		16.80	%
Mark Lowdell		1,503,333		216,658	(1)(4)		19.73	%
Tim Schroeder		166,667		30,000	(5)		2.26	%
J. Kelly Ganjei		-		30,000	(6)	*		%
David Szymkowski		1,585,000		30,000	(7)		18.52	%
Scott Juda, JD		-		30,000	(10)	*		%
Officers and Directors as a group (7 individuals)		5,945,000		892,210			78.41	%
Beneficial owners of more than 5%
Toucan Capital Fund III (8)		700,000					8	%
Xencor Inc. (9)		1,585,000					18.18	%

____________

*	Less than 1%.
1	Except as otherwise indicated, the address of each beneficial owner is INmune Bio Inc., 1224 Prospect Street, Suite 150, La Jolla, CA 92037.

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2	Consists of (i) 1,503,333 shares of common stock, and (ii) 277,776  shares that may be acquired pursuant to the exercise of stock options within 60 days of October 31, 2018.
3	Consists of (i) 1,186,667 shares of common stock, and (ii) 277,776  shares that may be acquired pursuant to the exercise of stock options within 60 days of October 31, 2018.
4	Consists of (i) 1,503,333 shares of common stock, and (ii) 216,658 shares that may be acquired pursuant to the exercise of stock options within 60 days of October 31, 2018.
5	The shares of the Company’s common stock are held by CTI Holdings, a company of which Mr. Schroeder is the majority shareholder. Consists of (i) 166,667 shares of common stock, and (ii) 30,000 shares that may be acquired pursuant to the exercise of stock options within 60 days of October 31, 2018.
6	Consists of 30,000 shares that may be acquired pursuant to the exercise of stock options within 60 days of October 31, 2018.
7	The shares of the Company’s common stock are held by Xencor, Inc. Consists of (i) 1,585,000 shares of common stock held by Xencor, Inc., and (ii) 30,000 shares that may be acquired pursuant to the exercise of stock options within 60 days of October 31, 2018.
8	Linda Powers of Toucan Capital Fund III and has voting and investment control of the shares of the Company’s held by Toucan Capital Fund III, 4800 Montgomery Lane, Suite 801, Bethesda, MD 20814.
9	David Szymkowski of Xencor, Inc. and has voting and investment control of the shares common stock held by Xencor Inc. 111 W Lemon Avenue, Monrovia, CA 91016.
10	Consists of 30,000 shares that may be acquired pursuant to the exercise of stock options within 60 days of October 31, 2018.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a description of the transactions and series of similar transactions, since January 1, 2016, that we were a participant or will be a participant, in which:

● transactions in which the amount involved exceeds the lesser of $120,000 or one percent of the average of the smaller reporting company’s total assets at year-end for the last two completed fiscal years; and

● any of our directors, executive officers, holders of more than 5% of our capital stock (which we refer to as “5% stockholders”) or any member of their immediate family had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers.

License Agreement with Immune Ventures, LLC

 

On October 29, 2015, we entered into an exclusive license agreement with Immune Ventures, LLC, owner of all of the rights related to our principal patent (the “License Agreement”). Pursuant to the License Agreement, we were granted exclusive worldwide rights to the patents, including rights to incorporate any improvements or additions to the patents that may be developed in the future. In consideration for the patent rights, we agreed to the following milestone payments:

Each Phase I initiation	$	25,000
Each Phase II initiation	$	250,000
Each Phase III initiation	$	350,000
Each NDA/EMA filing	$	1,000,000
Each NDA/EMA awarded	$	9,000,000

If we sell the Maximum Offering Amount in this offering and we use the net proceeds as set out in this prospectus under the Section “Use of Proceeds”, approximately $25,000 of the net proceeds will be used to pay milestones under this license agreement when INKmune enters Phase I.

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If we sell the Minimum Offering Amount in this offering and we use the net proceeds as set out in this prospectus under the Section “Use of Proceeds”, approximately $25,000 of the net proceeds will be used to pay milestones under this license agreement when INKmune enters Phase I.

In addition, we agreed to pay the licensor a royalty of 1% of net sales during the life of each patent granted to us derived from the license. Immune Ventures, LLC is owned by Raymond J Tesi, our President and a member of our Board of Directors, David Moss, our Chief Financial Officer, Treasurer and Secretory, and Mark Lowdell our Chief Scientific Officer.

License Agreement with Xencor, Inc.

On October 3, 2017, we entered into a license agreement with Xencor, Inc., which has discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor.

Pursuant to the license agreement, Xencor granted us an exclusive worldwide, royalty-bearing license in licensed patent rights, licensed know-how and licensed materials (as defined in the license agreement) to make, develop, use, sell and import any pharmaceutical product that comprises, contains, or incorporates Xencor’s proprietary protein known as “XPRO1595” that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants of the licensed protein that specifically bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients, in any dosage or formulation. In connection with the license agreement, we paid Xencor a one-time non-creditable and non-refundable fee of $100,000 and agreed to issue Xencor 1,585,000 shares of our common stock equal to 19% of our fully-diluted shares at that time. We also issued warrants to Xencor which are discussed below.

We also agreed to pay Xencor a royalty of 5% of all Licensed Products in a given calendar year, which are payable on a country-by-country and Licensed Product by Licensed Product basis until the date that is the later of (a) the expiration of the last to expire valid claim covering any pharmaceutical product that contains, comprises, or incorporates Xencor’s proprietary protein known as XPRO1595 alone or in combination with one or more active ingredients, in any dosage or formulation (“Licensed Product”) in such country or (b) ten years following the first sale to a third party of the Licensed Product in such country.

Under the license agreement, the Company also agreed to pay Xencor a percentage of any sublicensing revenue that it receives equal to (i) 60% of sublicensing revenue received in respect of any sublicense granted prior to initiation of a Phase 1 clinical trial of a Licensed Product in the applications for the treatment of disease in humans (the “Field”); (ii) 30% of sublicensing revenue received in respect of any sublicense granted on or after initiation of a Phase 1 clinical trial of a Licensed Product in the Field and prior to initiation of a Phase 2 clinical trial of a Licensed Product in the Field; (iii) 15% of sublicensing revenue received in respect of any sublicense granted on or after initiation of a Phase 2 clinical trial of a Licensed Product in the Field and prior to initiation of a Phase 3 clinical trial of a Licensed Product in the Field; (iv) 10% of sublicensing revenue received in respect of any sublicense granted on or after initiation of a Phase 3 clinical trial of a Licensed Product in the Field and prior filing of the first NDA application for any Licensed Product in the Field; and (v) 5% of sublicensing revenue received in respect of any sublicense granted on or after the approval of the first NDA application for any Licensed Product in the Field. Initiation of a clinical trial means dosing of a first patient in said clinical trial.

A valid claim is an issued, unexpired or pending claim with the patent rights that Xencor controls as of October 3, 2017 which patent rights are necessary to make, develop, use, sell, have sold, offer for sale and import a Licensed Product in the Field or the Product Patent Rights, which claim has not lapsed, been abandoned, been revoked or been held to be unpatentable, invalid or unenforceable by a final judgment of a court or other governmental agency or competent jurisdiction from which no appeal can be or is taken within the time allowed for appeal and which has not been admitted to be invalid or unenforceable through reissue, re-examination, disclaimer or otherwise. Product Patent Rights shall mean any and all our patent rights that are necessary to make, develop, use, sell, have sold, offer for sale and import a Licensed Product in the Field, including any improvements or patent rights directed to the Licensed Product. Either party may terminate the license agreement upon 60 days’ (10 days for any payment default) prior written notice to the other party after the breach of any material provision of the agreement by the other party if the breaching party has not cured the breach within the 60-day period (10-day period for any payment default) following written notice of termination by the non-breaching party. We can terminate the agreement upon 180 days prior written notice to Xencor. Xencor may terminate the agreement in its entirety or with respect to any specific Licensed Product upon written notice in the event that we contest, oppose or challenge or assist any party in contesting, opposing or challenging, Xencor’s ownership of, or the enforceability or validity of the patent rights that Xencor controls as of October 3, 2017 which Patent Rights are necessary to make develop, use, sell, have sold, offered for sale and import a Licensed Product in the Field. Either party may terminate the Agreement upon written notice to the other party upon or after the insolvency, bankruptcy, dissolution or winding up of such other party or the making or seeking to make or arrange an assignment for the benefit of creditors of such other party or the initiation of proceedings in voluntary or involuntary bankruptcy which proceeding or action remains undismissed or unstayed for a period of more than 60 days.

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In connection with the License Agreement, we entered into a stock issuance agreement with Xencor pursuant to which we agreed to issue Xencor 1,585,000 shares of our common stock, and an option to purchase up to an additional number of shares of common stock that shall equal 10% of the fully diluted company shares. The fully diluted company shares includes the aggregate number of (a) shares of common stock outstanding, plus (b) the number of shares of common stock issuable upon the conversion of all shares of outstanding preferred stock and convertible debt of the Company plus (c) the number of shares of Common Stock issuable upon conversion or exercise, as the case may be, of all issued and outstanding securities of the Company convertible into, exercisable for, or exchangeable for, directly or indirectly, shares of Common Stock outstanding at such time, including but not limited to, issued and outstanding options and warrants to purchase Common Stock and disregarding any vesting restrictions or similar provisions. The aggregate purchase price for the full exercise of the option is $10,000,000 which purchase price shall be pro-rated for any partial exercise of the Option. In August 2018, we entered into a First Amendment to Stock Issuance Agreement. Pursuant to the amendment, the purchase price for the additional shares may only be paid by cash.

In connection with the stock issuance agreement, the Company, Xencor and more than 90% of shareholders as of September 30, 2017 (“Key Holders”) entered into a voting agreement. Pursuant to the voting agreement, Xencor and the Key Holders agreed to vote their respective shares to vote one individual designated by the holder of a majority of Xencor’s shares of the Company’s common stock to our board of directors. The voting agreement shall continue in full force and effect through the earliest of the following dates, on which date it shall terminate in its entirety: (a) the date that the company has of a qualified offering, as defined in the issuance agreement; (b) ten (10) years from the date of this Agreement; (c) the date that we have received gross cash proceeds of not less than $40,000,000 and we become subject to the reporting requirements of the Securities Exchange Act of 1934 or the sale of all or substantially all our business to which the License Agreement relates whether by merger, sale of stock, sale of assets or otherwise; or (d) the date as of which the parties hereto terminate the voting agreement by written consent of the us and Xencor.

Consulting Agreement with Unrelated Third Party Consultant

On May 16, 2018 we entered into a consulting agreement with an unrelated third party consultant. Pursuant to the consultant agreement, the consultant will assist us with our corporate governance and assist us in complying with securities and exchange regulations regarding the filing of a listing application. The consultant will also assist us with activities related to its initial public offering including road show execution and will also assist us with our investor relations strategy development. The term of the consulting agreement is from April 24, 2018 to May 1, 2021 (the “Consulting Period”). In consideration of the consultant’s services, we have a contractual obligation to the consultant over the time of the Consulting Period in the amount of $1,500,000. The aggregate fair value of these shares issues is $4,626,000 at their fair value of $7.71 per share. The consultant has agreed to take this compensation in the form of restricted shares of our common stock. We have agreed to convert the compensation of the services provided by the Consultant at a price of $2.50 per share and we will issue 600,000 restricted shares (“Compensation”) of our common stock as of the date hereof, of which 200,000 shares were vested on the execution of the agreement, 200,000 shares shall be locked up for six months after the effective date of the registration statement that this prospectus forms a part of and 200,000 shares shall be locked up for 10 months after the date of this offering.

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Short-term debt – related party

On May 9, 2016, the Company received cash proceeds of $350,000 from the issuance of a convertible note to Novamune that matured on August 1, 2016, with a conversion rate of $1.50 per share, and an annual interest rate of 8%. On September 3, 2016, the maturity date was extended to March 3, 2017. During the nine months ended Septe m ber 30, 2017, the convertible note was converted into 233,345 shares of common stock of the Company. Novamune is owned by a significant shareholder of the Company.

Prepaid expense – related party

At September 30, 2018 and December 31, 2017, the Company had prepaid expense of $0 and $158,504, respectively, paid to UCL Consultants Limited, a wholly owned subsidiary of the University of London, in connection with medical research performed on behalf of the Company. The Company’s Chief Scientific and Manufacturing Officer is a professor at the University of London.

Accounts payable and accrued liabilities – related parties

At September 30, 2018 and December 31, 2017, the Company owed Advent Bioservices $0 and $173,314, respectively, for medical research provided on behalf of the Company. Advent Bioservices is owned by a significant shareholder of the Company. At September 30, 2018 and December 31, 2017, the Company owed UCL Consultants Limited $9,210 and $0, respectively, in connection with medical research performed on behalf of the Company.

DESCRIPTION OF SECURITIES

The following is a summary of the material provisions of our common stock, and our certificate of incorporation, and bylaws, all as in effect upon the date of this prospectus. You should also refer to our certificate of incorporation, and bylaws, which have been filed with the SEC as exhibits to the registration statement of which this prospectus is a part.

Common Stock

We are authorized to issue up to 200,000,000 shares of common stock, par value $0.001 per share. As of the date of this prospectus, there are 8,719,441 of common stock issued and outstanding. The outstanding shares of common stock are validly issued, fully paid and nonassessable.

Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of common stock representing a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of the Company’s outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to the Company’s certificate of incorporation.

Holders of common stock are entitled to share in all dividends that our Board of Directors, in its discretion, declares from legally available funds. In the event of a liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. The common stock has no pre-emptive, subscription or conversion rights and there are no redemption provisions applicable to the common stock.

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Preferred Stock

We are authorized to issue up to 10,000,000 shares of preferred stock, par value $0.001 per share, with such rights and preferences as may be determined from time to time by our board of directors, of which no shares of preferred stock are issued and outstanding as of the date of this prospectus. Our board of directors may, without stockholder approval, issue preferred stock with dividends, liquidation, conversion, voting or other rights or preferences as it may determine.

Options and Warrants

On June 30, 2017, we issued fully vested warrants for investment banking services to purchase 31,667 shares of the Company’s common stock with an exercise price of $1.50 per share, a maturity date of June 30, 2022 and a fair value of $36,922 based on the Black-Scholes Option Pricing model.

Pursuant to a stock issuance agreement with Xencor pursuant to which we agreed to issue Xencor 1,585,000 shares of our common stock, and an option to purchase up to an additional number of shares of common stock that shall equal 10% of the fully diluted company shares. The fully diluted company shares includes the aggregate number of (a) shares of common stock outstanding, plus (b) the number of shares of common stock issuable upon the conversion of all shares of outstanding preferred stock and convertible debt of the Company plus (c) the number of shares of Common Stock issuable upon conversion or exercise, as the case may be, of all issued and outstanding securities of the Company convertible into, exercisable for, or exchangeable for, directly or indirectly, shares of Common Stock outstanding at such time, including but not limited to, issued and outstanding options and warrants to purchase Common Stock and disregarding any vesting restrictions or similar provisions. The aggregate purchase price for the full exercise of the option is $10,000,000 which purchase price shall be pro-rated for any partial exercise of the Option. In August 2018, we entered into a First Amendment to Stock Issuance Agreement. Pursuant to the amendment, the purchase price for the additional shares may only be paid by cash.

During the nine months ended September 30, 2018, our Chief Executive Officer and Chief Financial Officer were each granted an option to purchase 400,000 shares of the Company’s common stock with a $7.80 per share exercise price. One third of the options vested on January 1, 2018 and the remainder shall vest on a monthly basis over a 24 month term. The grant date fair value of these stock options was $5,136,894 based on the Black-Scholes Option Pricing model.

During the nine months ended September 30, 2018, a board member was granted 400,000 shares of the Company’s common stock with a $7.80 per share exercise price. These options vest over a 24 month term. The grant date fair value of these stock options was $2,568,447 based on the Black-Scholes Option Pricing model.

During April 2018, the Company granted options to purchase 108,000 shares of the Company’s common stock to each of four non-employee directors, of which 3,000 options shall vest monthly per grant. The options have a 10-year term and a $7.80 per share exercise price.

Listing

Our common stock is not quoted or listed on a quotation or over-the-counter marketer, stock market or exchange. We applied to list our common stock on the Nasdaq Capital Market under the symbol “INMB”. We will not conduct this offering unless our shares are quoted on a national exchange or marketplace. Our application might not be approved.

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Transfer Agent and Registrar

VStock Transfer, LLC will serve as our transfer agent and registrar. They are located at 18 Lafayette Place, Woodmere, NY 11598, phone number (212) 828-8436.

Disclosure of Commission Position on Indemnification for Securities Act Liabilities

Neither our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statute ("NRS"). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with any the defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

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LEGAL MATTERS

The validity of our common stock offered by this prospectus will be passed upon by Sichenzia Ross Ference LLP. Ortoli Rosenstadt LLP, New York, New York is acting as counsel for the Placement Agents.

EXPERTS

The consolidated financial statements of INmune Bio Inc. as of and for the years ended December 31, 2017 and 2016 have been included herein and in the registration statement have been so included in reliance on the report of GBH CPAs, PC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

On August 5, 2018, we accepted the resignation of GBH CPAs, PC (“GBH”) and engaged Marcum LLP as its independent registered public accountants. This change occurred in connection with GBH, the Company’s prior independent public accountants, resigning as a result of GBH combining its practice with Marcum effective July 1, 2018. The engagement of Marcum has been approved by the Audit Committee of the Company's Board of Directors.

GBH’s reports on the consolidated financial statements of the Company as at and for the fiscal years ended December 31, 2017 and 2016 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that such reports contained explanatory paragraphs in respect to uncertainty as to the Registrant’s ability to continue as a going concern.

During the fiscal years ended December 31, 2017 and 2016 and through August 27, 2018, there were no disagreements with GBH on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which if not resolved to GBH' satisfaction would have caused it to make reference thereto in connection with its reports on the financial statements for such years. During the fiscal years ended December 31, 2017 and 2016 and through August 27, 2018, there were no “reportable events” of the type described in Item 304(a)(1)(v) of Regulation S-K.

On August 5, 2018, the Company engaged Marcum as the Company’s new independent registered public accounting firm effective immediately. The retention of Marcum was approved by the Audit Committee. During the fiscal years ended December 31, 2017 and 2016 and through August 27, 2018, the Company did not consult with Marcum with respect to any matter whatsoever including without limitation with respect to any of (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company's financial statements; or (iii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or an event of the type described in Item 304(a)(1)(v) of Regulation S-K.

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WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including the exhibits, schedules and amendments thereto) under the Securities Act, with respect to the shares of our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or other documents are summaries of the material terms of that contract, agreement or other document. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference room facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of these materials can be obtained from the Public Reference Room of the SEC at prescribed rates, or accessed at the SEC’s website at www.sec.gov. Please call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC’s website is http://www.sec.gov.

As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, we will file periodic reports, proxy statements, and other information with the SEC. These periodic reports, proxy statements, and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above. We also maintain a website at www.inmunebio.com. After the closing of this offering, you may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website (www.inmunebio.com) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference into this prospectus.

PLAN OF DISTRIBUTION

Univest Securities, LLC, has agreed to act as the lead placement agent and WallachBeth Capital, LLC and WestPark Capital, Inc. have agreed to act placement agents (we refer to Univest, WallachBeth and WestPark Capital as the as the Placement Agents), in connection with this offering subject to the terms and conditions of the placement agent agreement. The Placements Agents are not purchasing or selling any securities offered by this prospectus, nor is it required to arrange the purchase or sale of any specific number or dollar amount of securities, but has agreed to use its best efforts to arrange for the sale of all of the securities offered hereby. Therefore, we will enter into a subscription agreement directly with investors in connection with this offering, and we may not sell the entire amount of securities offered pursuant to this prospectus. The Placement Agents may retain other brokers or dealers to act as sub-agents or selected-dealers on its behalf in connection with the offering.

The Placement Agents are required to use only their best efforts to sell the securities offered. Provided that we have sold the minimum offering amount in this offering, the offering will close on a date mutually acceptable to us and the Placement Agents. On the closing date, the following will occur:

● we will receive funds in the amount of the aggregate purchase price of the shares being sold by us on such closing date;

● we will cause to be delivered the common stock being sold on such closing date; and

● we will pay the Placement Agents their commissions.

If the offering has not closed 120 days from the effective date (the “Effective Date”) of the registration statement that this prospectus forms a part of (or, if extended by agreement of the Company and the Placement Agent, for a period of up to 60 additional days, the offering will terminate (the “Termination Date”).

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Pursuant to an escrow deposit agreement among us, Univest and Signature Bank (the “Escrow Agent”), as escrow agent, until at least 1,000,000 shares of common stock are sold, all funds received in payment for securities sold in this offering will be required to be submitted by subscribers to a non-interest bearing escrow account with the Escrow Agent and will be held by the Escrow Agent for such account. The Company and the Placement Agents shall require all investors to wire transfer the payment to Signature Bank, 950 Third Avenue, New York, New York 10022 for credit to “credit to Signature Bank, as Escrow Agent for INmune Bio Inc.” The investors will have sole claim to the proceeds held in trust prior to the receipt of the minimum offering proceeds. The funds are held for the benefit of the investors until the minimum is reached. Prior to reaching the minimum claims may not be reached by creditors of the Company. If the Placement Agents do not sell at least 1,000,000 shares of common stock by the Termination Date, all funds will be returned to the investors in this offering by noon of the second banking day (as further described in the escrow agreement) after the termination of the offering without charge, interest or deduction. If this Offering is completed, then on the closing date, net proceeds will be delivered to us and we will issue the common stocks to purchasers. Unless purchasers instruct us otherwise, we will deliver the common stocks electronically upon receipt of purchaser funds to the accounts of those purchasers who hold accounts at the Placement Agents, or elsewhere, as specified by the purchaser, as soon as practical upon the closing of the Offering. Alternately, purchasers who do not carry an account at the Placement Agents may request that the shares be held in book-entry at the Company’s transfer agent, or may be issued in book-entry at the Company’s transfer agent and subsequently delivered electronically to the purchasers’ respective brokerage account upon request of the purchasers.

We have agreed to pay the Placement Agents a fee of (i) cash equal to seven percent (7.0%) of the aggregate purchase price of the shares of common stock sold in this offering and (ii) warrants to purchase a number of Shares of our common stock equal to 4% of the shares sold in this offering at a purchase price per share equal to 120% of the public offering price.

We may sell shares in one or more closings, provided that we sell a minimum of 1,000,000 shares at our initial closing and do not sell more than an aggregate of 2,500,000 shares in this offering. Effectiveness of the registration statement of which this prospectus forms a part will not be requested and no investor funds will be accepted until indications of interest have been received for at least the Minimum Offering Amount. Confirmations and final prospectuses will be distributed to all investors at the time of pricing, informing investors of the closing date. No investor funds will be accepted prior to effectiveness of the registration statement. After the registration statement is declared effective and prior to the closing date, all investor funds will be placed promptly, and in any event no later than noon Eastern Standard Time of the next business day following receipt, in escrow with the Escrow Agent in an escrow account established for the benefit of the investors. Prior to the initial closing date, the Escrow Agent will advise us whether the investors have deposited the Minimum Offering Amount in the escrow account with the Escrow Agent. If the Minimum Offering Amount has been deposited and the other closing conditions have been not, the Company’s transfer agent will deposit with The Depository Trust Company the securities to be credited to the respective accounts of the investors. Investor funds will be collected by the Company through the facilities of the Escrow Agent on the scheduled closing date. In the event that Minimum Offering Amount is not received by 120 days after the effective date of the registration statement, unless extended by 60 days by the Placement Agents and us, or the other closing conditions have not been satisfied, all funds deposited in the escrow account will promptly be returned in full without interest or deduction by the noon of the second banking day following such date. Any investors in such additional closings will need to place their funds with the Escrow Agent prior to such Closings.

We will reimburse the Placement Agents for their reasonable out-of-pocket expenses in connection with the performance of its services under the placement agent agreement not to exceed $100,000. Of this amount, we advanced Univest $30,000 for out-of-pocket expenses that we anticipated to be incurred. In the event that Company’s proposed IPO is terminated or does not occur, the expense advancement will be refunded to us to the extent not actually incurred. We have also agreed to pay Univest an advisory fee of $30,000 upon the closing of our offering.

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The following table shows the public offering price, placement agent cash fees, maximum expense allowance and proceeds before expenses to us.

	Per Common Share		Minimum Offering Amount		Maximum Offering Amount
Public offering price	$	8.00	$	8,000,000	$	20,000,000
Placement Agent cash fee	$	0.56	$	560,000	$	1,400,000
Proceeds, before expenses, to us	$	7.44	$	7,440,000	$	18,600,000

Because there cannot be any assurance that Maximum Offering Amount will be sold in this offering, the actual total offering commissions, if any, are not presently determinable and may be substantially less than the maximum amount set forth above.

Our obligations to issue and sell the shares of common stock to the purchasers is subject to the conditions set forth in the subscription agreement, which may be waived by us at our discretion. A purchaser’s obligation to purchase the shares of common stock is subject to the conditions set forth in the subscription agreement as well, which may also be waived.

We estimate the total offering expenses in this offering that will be payable by us, excluding the Placement Agent’s fees and commissions, will be approximately $541,429 which include legal, accounting and printing costs, various other fees and reimbursement of the placement agents’ expenses.

The foregoing does not purport to be a complete statement of the terms and conditions of the placement agent agreement and the subscription agreement. A copy of the placement agent agreement and the form of subscription agreement with investors are included as exhibits to the Registration Statement of which this prospectus forms a part.

The Placement Agents may be deemed to be underwriters within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profit realized on the resale of the securities sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the Placement Agents would be required to comply with the Securities Act and the Securities Exchange Act of 1934, as amended, including without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of our securities by the Placement Agents acting as principal. Under these rules and regulations, the Placement Agents:

· may not engage in any stabilization activity in connection with our securities; and

· may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.

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Placement Agents’ Warrants

 

We have agreed to issue to the Placement Agents warrants, to purchase up to a total of up to  4% of the shares of common stock sold in this offering ( 40,000 shares assuming the sale of the Minimum Offering Amount, and  100,000 shares assuming the sale of the Maximum Offering Amount). The warrants are exercisable at a per share price equal to $9.60, at any time, and from time to time, in whole or in part, during the five-year period commencing six months from the effective date of the registration statement, which period shall not extend further than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G). The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Placement Agents (or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the effective date of the offering. We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.

Lock-Up Agreements

We and each of our officers, directors, and all existing stockholders agree not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our common stock or other securities convertible into or exercisable or exchangeable for our common stock for a period of 12 months after the effective date of the registration statement of which this prospectus is a part without the prior written consent of the Placement Agents.

The Placement Agents may in its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the lock-up period. When determining whether or not to release shares from the lock-up agreements, the Placement Agents will consider, among other factors, the security holder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.

Price Stabilization

The Placement Agents will be required to comply with the Securities Act and the Exchange Act, including without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of capital stock by the Placement Agents acting as principal. Under these rules and regulations, the Placement Agents:

● may not engage in any stabilization activity in connection with our securities; and

● may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.

Determination of Offering Price

The public offering price of the shares we are offering was determined by us in consultation with the Placement Agents based on discussions with potential investors in light of the history and prospects of our company, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, an assessment of our management, the public stock price for similar companies, general conditions of the securities markets at the time of the Offering and such other factors as were deemed relevant.

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Electronic Offer, Sale and Distribution of Securities.

A prospectus in electronic format may be delivered to potential investors by the Placement Agents. The prospectus in electronic format will be identical to the paper version of such prospectus. Other than the prospectus in electronic format, the information on the Placement Agents website and any information contained in any other website maintained by the Placement Agents is not part of the prospectus or the registration statement of which this Prospectus forms a part.

Indemnification

We have agreed to indemnify the underwriter against liabilities relating to the Offering arising under the Securities Act and the Exchange Act and to contribute to payments that the Placement Agents may be required to make for these liabilities.

Offer restrictions outside the United States

Other than in the United States, no action has been taken by us or the Placement Agents that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Australia. This prospectus is not a product disclosure statement, prospectus or other type of disclosure document for the purposes of Corporations Act 2001 (Commonwealth of Australia) (the “Act”) and does not purport to include the information required of a product disclosure statement, prospectus or other disclosure document under Chapter 6D.2 of the Act. No product disclosure statement, prospectus, disclosure document, offering material or advertisement in relation to the offer of the shares has been or will be lodged with the Australian Securities and Investments Commission or the Australian Securities Exchange.

 

Accordingly, (1) the offer of the shares under this prospectus may only be made to persons: (i) to whom it is lawful to offer the shares without disclosure to investors under Chapter 6D.2 of the Act under one or more exemptions set out in Section 708 of the Act, and (ii) who are “wholesale clients” as that term is defined in section 761G of the Act, (2) this prospectus may only be made available in Australia to persons as set forth in clause (1) above, and (3) by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (1) above, and the offeree agrees not to sell or offer for sale any of the shares sold to the offeree within 12 months after their issue except as otherwise permitted under the Act.

Canada. The shares may not be offered, sold or distributed, directly or indirectly, in any province or territory of Canada other than the provinces of Ontario and Quebec or to or for the benefit of any resident of any province or territory of Canada other than the provinces of Ontario and Quebec, and only on a basis that is pursuant to an exemption from the requirement to file a prospectus in such province, and only through a dealer duly registered under the applicable securities laws of such province or in accordance with an exemption from the applicable registered dealer requirements.

Cayman Islands. This prospectus does not constitute a public offer of the shares, whether by way of sale or subscription, in the Cayman Islands. Each underwriter has represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any shares to any member of the public in the Cayman Islands.

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European Economic Area. In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive, or a Relevant Member State, from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, an offer of the shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and the competent authority in that Relevant Member State has been notified, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of the Ordinary Share to the public in that Relevant Member State at any time, 

· a project capital fund (defined as an entity primarily involved in investments in companies which, at the time of investment, (i) are primarily engaged in research and development or manufacture of new technological products or processes and (ii) involve above-average risk);

· an entity primarily engaged in capital markets activities in which all of the equity owners meet one or more of the above criteria; and

· an entity, other than an entity formed for the purpose of purchasing the shares in this offering, in which the shareholders equity (including pursuant to foreign accounting rules, international accounting regulations and U.S. generally accepted accounting rules, as defined in the Securities Law Regulations (Preparation of Annual Financial Statements), 1993) is in excess of NIS 250 million.

provided that no such offer of shares shall result in a requirement for the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive.

For purposes of the above provision, the expression “an offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Hong Kong. The shares may not be offered or sold by means of this document or any other document other than (i) in circumstances that do not constitute an offer or invitation to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong) or the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances that do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), that is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to the shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.

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Israel. In the State of Israel, the shares offered hereby may not be offered to any person or entity other than the following:

· a fund for joint investments in trust (i.e., mutual fund), as such term is defined in the Law for Joint Investments in Trust, 5754-1994, or a management company of such a fund;

· a provident fund as defined in Section 47(a)(2) of the Income Tax Ordinance of the State of Israel, or a management company of such a fund;

· an insurer, as defined in the Law for Oversight of Insurance Transactions, 5741-1981, a banking entity or satellite entity, as such terms are defined in the Banking Law (Licensing), 5741-1981, other than a joint services company, acting for their own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968;

· a company that is licensed as a portfolio manager, as such term is defined in Section 8(b) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968;

· a company that is licensed as an investment advisor, as such term is defined in Section 7(c) of the Law for the Regulation of Investment Advisors and Portfolio Managers, 5755-1995, acting on its own account;

· a company that is a member of the Tel Aviv Stock Exchange, acting on its own account or for the account of investors of the type listed in Section 15A(b) of the Securities Law 1968;

· an underwriter fulfilling the conditions of Section 56(c) of the Securities Law, 5728-1968;

· a project capital fund (defined as an entity primarily involved in investments in companies which, at the time of investment, (i) are primarily engaged in research and development or manufacture of new technological products or processes and (ii) involve above-average risk);

· an entity primarily engaged in capital markets activities in which all of the equity owners meet one or more of the above criteria; and

· an entity, other than an entity formed for the purpose of purchasing the shares in this offering, in which the shareholders equity (including pursuant to foreign accounting rules, international accounting regulations and U.S. generally accepted accounting rules, as defined in the Securities Law Regulations (Preparation of Annual Financial Statements), 1993) is in excess of NIS 250 million.

Japan. The underwriter will not offer or sell any of the shares directly or indirectly in Japan or to, or for the benefit of any Japanese person or to others, for re-offering or re-sale directly or indirectly in Japan or to any Japanese person, except, in each case, pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law of Japan and any other applicable laws and regulations of Japan. For purposes of this paragraph, “Japanese person” means any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

People’s Republic of China. This prospectus may not be circulated or distributed in the PRC and the shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws and regulations of the PRC. For the purpose of this paragraph, PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.

Singapore. This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

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Where the shares are subscribed or purchased under Section 275 by a relevant person that is: (a) a corporation (that is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor (for corporations, under 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, (2) debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; (3) where no consideration is or will be given for the transfer; or (4) where the transfer is by operation of law.

South Korea. The shares of common stock may not be offered, sold and delivered directly or indirectly, or offered or sold to any person for re-offering or resale, directly or indirectly, in South Korea or to any resident of South Korea except pursuant to the applicable laws and regulations of South Korea, including the Financial Investment Services and Capital Markets Act and the Foreign Exchange Transaction Law and the decrees and regulations thereunder. The shares of common stock have not been registered with the Financial Services Commission of South Korea for public offering in South Korea. Furthermore, the shares of common stock may not be re-sold to South Korean residents unless the purchaser of the shares complies with all applicable regulatory requirements (including but not limited to government approval requirements under the Foreign Exchange Transaction Law and its subordinate decrees and regulations) in connection with their purchase.

Taiwan. The shares have not been and will not be registered or filed with, or approved by, the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in circumstances which constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or relevant laws and regulations that require a registration, filing or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer or sell the shares in Taiwan.

Switzerland. The shares will not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland.

Neither this prospectus nor any other offering or marketing material relating to our company or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this prospectus will not be filed with, and the offer of the shares will not be supervised by, the Swiss Financial Market Supervisory Authority, and the offer of the shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or the CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the shares.

United Arab Emirates and Dubai International Financial Centre. This offering of the shares has not been approved or licensed by the Central Bank of the United Arab Emirates, or the UAE, the Emirates Securities and Commodities Authority or any other relevant licensing authority in the UAE, including any licensing authority incorporated under the laws and regulations of any of the free zones established and operating in the territory of the UAE, in particular the Dubai Financial Services Authority, or the DFSA, a regulatory authority of the Dubai International Financial Centre, or the DIFC. This offering does not constitute a public offer of securities in the UAE, DIFC and/or any other free zone in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended), DFSA Offered Securities Rules and the Dubai International Financial Exchange Listing Rules, respectively, or otherwise.

105

The shares may not be offered to the public in the UAE and/or any of the free zones. The shares may be offered and this prospectus may be issued, only to a limited number of investors in the UAE or any of its free zones who qualify as sophisticated investors under the relevant laws and regulations of the UAE or the free zone concerned. The shares will not be offered, sold, transferred or delivered to the public in the UAE or any of its free zones.

United Kingdom. An offer of the shares may not be made to the public in the United Kingdom within the meaning of Section 102B of the Financial Services and Markets Act 2000, as amended, or the FSMA, except to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances that do not require the publication by the company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority, or the FSA.

An invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) may only be communicated to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which Section 21 of FSMA does not apply to the company.

All applicable provisions of the FSMA with respect to anything done by the underwriter in relation to the shares must be complied with in, from or otherwise involving the United Kingdom.

 

106

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
AUDITED FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-1
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016		F-2
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016		F-3
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016		F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016		F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-6
UNAUDTIED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017		F-14
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED  SEPTEMBER 30, 2018 AND  SEPTEMBER 30, 2017		F-15
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE  NINE MONTHS ENDED  SEPTEMBER 30, 2018 AND 2017		F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		F-17

i

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the board of directors of

INmune Bio, Inc.

La Jolla, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of INmune Bio, Inc. (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive loss, and cash flows for each of the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Other Matters 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has not yet generated any revenue from operations since inception that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ GBH CPAs, PC

We have served as the Company's auditor since 2017.

GBH CPAs, PC

www.gbhcpas.com
Houston, Texas
May 25, 2018

F-1

INMUNE BIO, INC.

CONSOLIDATED BALANCE SHEETS

	December 31, 2017			December 31, 2016
ASSETS
CURRENT ASSETS
Cash	$	1,370,711		$	141,659
Research and development tax credit receivable		106,866			68,866
VAT receivable		111,618			35,239
Joint development cost receivable		109,124			156,381
Prepaid expenses		42,647			3,000
Prepaid expenses – related party		158,504			46,462
TOTAL CURRENT ASSETS		1,899,470			451,607
Acquired in-process research and development intangible assets		16,514,000			-
TOTAL ASSETS	$	18,413,470		$	451,607
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	126,257		$	207,709
Accounts payable and accrued liabilities – related parties		183,460			13,101
Short-term debt – related party		-			350,000
Stock payable		-			30,000
TOTAL LIABILITIES		309,717			600,810
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, $0.001 par value, 210,000,000 shares authorized, 8,319,441 and 5,066,667 shares issued and outstanding, respectively		8,319			5,067
Additional paid-in capital		19,171,237			124,933
Common stock issuable		50,000			50,000
Accumulated other comprehensive income (loss)		32,042			(2,844	)
Accumulated deficit		(1,157,845	)		(326,359	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		18,103,753			(149,203	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	18,413,470		$	451,607

See accompanying notes to these consolidated financial statements.

F-2

INMUNE BIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016

 

	2017			2016
REVENUE	$	-		$	-
OPERATING EXPENSES
General and administrative		546,118			125,996
Research and development		435,362			101,495
Total operating expenses		981,480			227,491
LOSS FROM OPERATIONS		(981,480	)		(227,491	)
OTHER INCOME (EXPENSE)
Other expense		(6	)		-
Gain (loss) on legal settlements		150,000			(50,000	)
Total other income (expense)		149,994			(50,000	)
NET LOSS	$	(831,486	)	$	(277,491	)
Net loss per common share – basic and diluted	$	(0.13	)	$	(0.06	)
Weighted average number of common shares outstanding – basic and diluted		6,564,326			5,000,182
COMPREHENSIVE INCOME (LOSS)
Net loss	$	(831,486	)	$	(277,491	)
Other comprehensive income (loss) – gain (loss) on foreign currency translation		34,886			(2,844	)
Total comprehensive loss	$	(796,600	)	$	(280,335	)

See accompanying notes to these consolidated financial statements.

F-3

INMUNE BIO, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

	Common Stock				Additional Paid-In		Common Stock		Accumulated Other Comprehensive Income			Accumulated			Total Stockholders’ Equity
	Shares		Par Value		Capital		Issuable		(Loss)			Deficit			(Deficit)
Balance, December 31, 2015		5,000,000	$	5,000	$	25,000	$	-	$	-		$	(48,868	)	$	(18,868	)
Proceeds from issuance of common stock for cash		66,667		67		99,933		-		-			-			100,000
Legal settlement		-		-		-		50,000		-			-			50,000
Loss on foreign currency translation		-		-		-		-		(2,844	)		-			(2,844	)
Net loss		-		-		-		-		-			(277,491	)		(277,491	)
Balance, December 31, 2016		5,066,667		5,067		124,933		50,000		(2,844	)		(326,359	)		(149,203	)
Issuance of common stock and warrants in exchange for intangible assets		1,585,000		1,585		16,412,415		-		-			-			16,414,000
Issuance of common stock for conversion of short term debt – related party		233,345		233		349,767		-		-			-			350,000
Issuance of common stock for cash		1,393,335		1,393		2,054,607		-		-			-			2,056,000
Issuance of common stock for settlement of stock payable		20,000		20		29,980		-		-			-			30,000
Stock-based compensation		21,094		21		199,535		-		-			-			199,556
Gain on foreign currency translation		-		-		-		-		34,886			-			34,886
Net loss		-		-		-		-		-			(831,486	)		(831,486	)
Balance, December 31, 2017		8,319,441	$	8,319	$	19,171,237	$	50,000	$	32,042		$	(1,157,845	)	$	18,103,753

See accompanying notes to these consolidated financial statements.

F-4

INMUNE BIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016

	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(831,486	)	$	(277,491	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		199,556			-
(Gain) loss on lawsuit settlements		(150,000	)		50,000
Changes in operating assets and liabilities:
Research and development tax credit receivable		(38,000	)		(68,866	)
VAT receivable		(76,379	)		(35,239	)
Joint development cost receivable		47,257			(156,381	)
Prepaid expenses		(39,647	)		(3,000	)
Prepaid expenses – related party		(112,042	)		(46,462	)
Accounts payable and accrued liabilities		68,548			206,959
Accounts payable and accrued liabilities – related parties		170,359			13,101
Net cash used in operating activities		(761,834	)		(317,379	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquired in-process research and development intangible assets		(100,000	)		-
Net cash used in investing activities		(100,000	)		-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt – related party		-			350,000
Net proceeds from sale of common stock		2,056,000			100,000
Net cash provided by financing activities		2,056,000			450,000
Impact on cash from foreign currency translation		34,886			(2,844	)
NET INCREASE IN CASH		1,229,052			129,777
CASH AT BEGINNING OF YEAR		141,659			11,882
CASH AT END OF YEAR	$	1,370,711		$	141,659
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes	$	-		$	-
Cash paid for interest expense	$	-		$	-
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and warrants for acquired in-process research and development intangible asset	$	16,414,000		$	-
Conversion of related party debt to common stock	$	350,000		$	-
Issuance of common stock for settlement of accounts payable	$	30,000		$	-

See accompanying notes to these consolidated financial statements.

F-5

INMUNE BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

INmune Bio, Inc. (the “Company” and/or “INmune”) was originally organized in the State of Nevada on September 25, 2015 and is an early stage specialty pharmaceutical company focused on developing pioneering strategies for oncology that focus on engineering and harnessing the innate immune system to treat the patient’s cancer. INmune’s proprietary is to focus on the innate immune system that include natural killer cells (“NK cells”), myeloid derived suppressor cells (“MDSC cells”) and dendritic cells (“DC cells”), which are believed to offer unique therapeutic opportunities. INmune plans to develop their two existing drug platforms: INKmune (“INKmune”) which primes NK cells and INB03 (“INB03”) which down regulates MDSC cells. Together or individually, the Company expects that these therapies will harness the innate immune system to provide a unique set of therapies for patients with cancer.

INmune Bio International Ltd (England) (“INmune UK”) is a wholly owned subsidiary of INmune that was formed on April 6, 2016 in the United Kingdom (“UK”). INmune UK was duly organized under the laws of England and has

1,000 shares owned by INmune. The Company will perform its drug manufacturing and currently performs its drug research and development in the UK and will continue to perform research and development activities in this region. The UK has a research and development (“R&D”) rebate program that allows the Company to recover some of its R&D expenses (see further discussion in Note 4).

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America and the rules of the Securities and Exchange Commission (“SEC”).

The consolidated financial statements herein have been prepared in accordance with GAAP and include the accounts of the Company and those of its wholly-owned subsidiary, INmune UK. All significant intercompany accounts and transactions have been eliminated.

Foreign Currency Translation

The Company’s financial statements are presented in the U.S. dollar (“$”), which is the Company’s reporting currency, while its functional currencies are the U.S. Dollar for its U.S. based operations and British Pound (“GBP”) for its United Kingdom-based operations. All assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statement of operations and comprehensive income (loss). The following table details the exchange rates used for the respective periods:

	December 31, 2017		December 31, 2016
Period end: GBP to USD exchange rate	$	0.7399	$	0.8127
Average period: GBP to USD exchange rate	$	0.7765	$	0.7402

NOTE 2 – GOING CONCERN

As of December 31, 2017, the Company had an accumulated deficit of $1,157,845. Losses have principally occurred as a result of the substantial resources required for research and development of the Company’s products which included the general and administrative expenses associated with its organization and product development as well as the lack of sources of revenues until such time as the Company’s products are commercialized. These factors raise substantial doubt about the Company’s ability to continue as a going concern from the issuance date of these financial statements. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management plans to obtain additional funding through the issuance of common stock for cash and by implementing its strategic plan to allow the opportunity for the Company to continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions.

F-6

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

The Company may carry cash balances at financial institutions in excess of the federally insured limit of $250,000. At December 31, 2017, the Company’s cash in excess of the federally insured limit was $1,000,150.

Receivables, Net

Receivables currently consist of an R&D tax credit receivable, valued added tax (“VAT”) receivable and joint development cost receivable. The R&D tax credit receivable is recorded when R&D is incurred. At that time, the Company records a receivable for the amount of the credit it expects to receive based on the expenses incurred. The VAT receivable is recorded when the Company receives an invoice with VAT related to it. The receivable is recorded for the amount expected to be returned when the VAT tax return is filed. The joint development cost receivable is recorded when the Company incurs R&D expenses based on the amount it expects to receive as a reimbursement per the Novamune agreement (see Note 4 for detailed explanation of the agreement). The collectability of these receivables are evaluated periodically based on the actual R&D credit returns submitted, the VAT returns submitted and the amounts received from Novamune. As of December 31, 2017 and 2016, there were no trade receivables.

Intangible Assets

The Company capitalizes costs incurred in connection with in-process research and development purchased from others if the asset has alternative uses and such uses are not restricted under applicable license agreements; patent applications (principally legal fees), patent purchases, and trademarks related to its cell line as intangible assets. Acquired in-process research and development costs that do not have alternative uses are expensed as incurred. Amortization is initiated for acquired in-process research and development intangible assets when their useful lives have been determined. These acquired in-process research and development intangible assets are tested at least annually or when a triggering event occurs that could indicate a potential impairment.

Basic and Diluted Loss per Share

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position. At December 31, 2017, the Company had 864,668 potentially issuable shares of common stock upon the exercise of warrants. There were no potentially dilutive shares at December 31, 2016.

Stock-Based Compensation

The Company recognizes compensation expense, net of forfeitures, on a straight-line basis over the requisite service period, which is equal to the applicable vesting period.

The Company accounts for equity instruments issued to non-employees using a fair value approach under ASC Subtopic 505-50, Equity-Based Payments to Non-Employees. The Company values equity instruments and stock options granted to non-employees at fair value using the Black-Scholes option-pricing model. The value of non-employee stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the term of the related financing or the period over which services are received.

Research and Development

Research and development costs are expensed as incurred. Research and development credits are recorded by the Company as a reduction of research and development costs. Major components of research and development costs include cash compensation, stock-based compensation, depreciation and amortization expense on research and development property and equipment, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf.

F-7

Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Reclassifications

Certain amounts for prior periods have been reclassified to conform to the current presentation.

New and Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle (issued as Accounting Standards Update (“ASU”) 2014-09 by the FASB), is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning after December 15, 2017 The Company does not expect the new standard to have a material effect on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (Topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross verses Net)” (Topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity's promise to grant a license provides a customer with either a right to use an entity's intellectual property or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity's adoption of ASU 2014-09, which we intend to adopt for interim and annual reporting periods beginning after December 15, 2017. The Company does not expect the new standard to have a material effect on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation” (Topic 718). The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company has adopted this standard effective January 1, 2017.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.

F-8

The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.

Subsequent Events

The Company has evaluated all transactions from December 31, 2017 through June 11, 2018, the financial statement issuance date for subsequent disclosure consideration.

NOTE 4 – RESEARCH AND DEVELOPMENT ACTIVITY

The Company incurred $435,362 and $101,495 of research and development costs for the years ended December 31, 2017 and 2016, respectively.

According to United Kingdom tax law, the Company is allowed an R&D tax credit that reduces a company’s tax bill in the UK for expenses incurred in R&D. According to the United Kingdom Government, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology. A company has to have staff headcount of less than 500 and either revenue of less than €100m or a balance sheet total of less than €86m. INmune UK submitted R&D tax credit requests for research and development expenses incurred, and recorded a related receivable in the amount of $106,866 and $68,866 as of December 31, 2017 and 2016, respectively.

The Company is also eligible to recover all VAT for all R&D expenses paid. INmune UK recorded a VAT receivable of $111,618 and $35,239 as of December 31, 2017 and 2016, respectively.

During 2017 and 2016, the Company received $150,031 and $0 of VAT and R&D tax credit reimbursements, respectively.

Xencor, Inc. License Agreement

On October 3, 2017, the Company entered into a license agreement (“Xencor License Agreement”) with Xencor, Inc. (“Xencor”), which has discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor. Pursuant to the license agreement, Xencor granted the Company an exclusive worldwide, royalty-bearing license in licensed patent rights, licensed know-how and licensed materials (as defined in the license agreement) to make, develop, use, sell and import any pharmaceutical product that comprises, contains, or incorporates Xencor’s proprietary protein known as “XPRO1595” that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants of the licensed protein that specifically bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients, in any dosage or formulation (“Licensed Products”). The Company believes the protein has numerous medical applications. Such additional alternative applications of the technology are available under the license agreement. In connection with the license agreement, the Company paid Xencor a one-time non-creditable and non-refundable fee of $100,000 and agreed to issue Xencor shares of the Company’s common stock equal to 19% of our fully diluted company shares the value of which are discussed below. The Company also issued warrants to Xencor which is discussed below.

The Company also agreed to pay Xencor a royalty of 5% of all Licensed Products in a given calendar year, which are payable on a country-by- country and licensed product by licensed product basis until the date that is the later of (a) the expiration of the last to expire valid claim covering any pharmaceutical product that contains, comprises, or incorporates Xencor’s proprietary protein known as XPro1595 alone or in combination with one or more active ingredients, in any dosage or formulation. (“Licensed Product”) in such country or (b) ten years following the first sale to a third party of the licensed product in such country.

Under the Xencor License Agreement, the Company also agreed to pay Xencor a percentage of any sublicensing revenue that it receives.

In connection with the Xencor License Agreement, the Company entered into a stock issuance agreement with Xencor pursuant to which it issued Xencor 1,585,000 shares of its common stock with a fair value of $12,221,000 based on the discounted cash flow method of the income approach as set forth in an independent valuation report dated November 17, 2017, and fully vested warrants to purchase an additional number of shares of common stock equal to 10% of the fully diluted company shares immediately following such purchase with a fair value of $4,193,000 based on the Black-Scholes Option Pricing Model

The warrants have a total exercise price of $10,000,000 per share and expire on October 3, 2023. The aggregate purchase price for the full exercise of the option to Acquire Additional Shares is $10,000,000, which shall be pro-rated for any partial exercise of the option for less than 10% of the fully diluted shares immediately following such purchase. The purchase price for the additional shares may be paid by cash or by way of a cashless exercise. In connection with the stock issuance agreement, the Company, Xencor and more than 90% of shareholders as of September 30, 2017 (“Key Holders”) entered into a voting agreement. Pursuant to the voting agreement, Xencor and the Key Holders agreed to vote their respective shares to vote one individual designated by the holder of a majority of Xencor’s shares of the Company’s common stock to the Company’s board of directors. The voting agreement shall continue from the date hereof through the earliest of the following dates, on which date it shall terminate in its entirety: (a) the date of a qualified offering, as defined in the issuance agreement; (b) ten years from the date of the voting agreement; (c) the date of the closing of a qualified sale, as defined in the issuance agreement; or (d) the date as of which the parties listed above terminate this agreement by written consent of the holders of a majority of the Investor Shares.

The Company recorded $16,514,000 for the acquisition of intangible assets for the in-process research and development in 2017 as the fair value of the cash, stock and warrants on the date of the License Agreement acquisition in accordance with Accounting Standards Codification 730 – Research and Development. The Company has the license rights to pursue alternative applications of the technology as part of its future development plans.

F-9

Novamune Joint Development Agreement

On September 3, 2016, the Company entered into a joint development agreement with Novamune, Inc. (“Novamune”) (the “Development Agreement”). Novamune is owned by a significant shareholder of the Company. Novamune had previously developed and licensed technology relating to ex-vivo activation of NK cells for the treatment of cancer and other diseases. The parties agreed to exclusively collaborate on the further development of technologies related to NK cells for therapeutic applications. The Company and Novamune agreed to share equally in the costs related to such joint development projects and agreed to jointly own any intellectual property developed by the joint projects, provided that Novamune shall have an exclusive royalty free license to use any such intellectual property relating to ex-vivo applications and the Company shall have an exclusive royalty free license to use any such intellectual property relating to in-vivo applications. The Development Agreement is subject to Novamune investing a total of $1,250,000 in the Company, of which $350,000 was advanced through a convertible note payable in 2016 (see further discussion in Note 5). As of December 31, 2017 and 2016, the Company had a joint development receivable outstanding related to Novamune’s portion of R&D costs incurred through year-end of $109,124 and $156,381, respectively.

INKmune License Agreement

On October 29, 2015, the Company entered into an exclusive license agreement with Immune Ventures, LLC (“Immune Ventures”), owner of all of the rights related to our principal patent (the “INKmune License Agreement”). Pursuant to the INKmune License Agreement, the Company was granted exclusive worldwide rights to the patents, including rights to incorporate any improvements or additions to the patents that may be developed in the future. In consideration for the patent rights, the Company agreed to the following milestone payments:

Each Phase I initiation	$	25,000
Each Phase II initiation	$	250,000
Each Phase III initiation	$	350,000
Each NDA/EMA filing	$	1,000,000
Each NDA/EMA awarded	$	9,000,000

In addition, the Company agreed to pay the licensor a royalty of 1% of net sales during the life of each patent granted to the Company. The Licensor is owned by RJ Tesi, our President and a member of our Board of Directors, David Moss, our Chief Financial Officer, and Treasurer and Mark Lowdell, our Chief Scientific Officer. As of December 31, 2017 and 2016, no sales had occurred under this license.

NOTE 5 – RELATED PARTY TRANSACTIONS

A significant shareholder of the Company is also the owner of various companies that conduct business with the Company, including Luminus Holdings, Inc. (“Luminus”), Novamune, and Advent Bioservices, Inc. (“Advent Bioservices”) as follows:

Short-term debt – related party

On May 9, 2016, the Company received cash proceeds of $350,000 from the issuance of a convertible note to Novamune that matured on August 1, 2016, with a conversion rate of $1.50 per share, and an annual interest rate of 8%. On September 3, 2016, the maturity date was extended to March 3, 2017. The convertible note was converted into 233,345 shares of common stock of the Company during 2017. Novamune is owned by a significant shareholder of the Company.

Prepaid expense – related party

At December 31, 2017 and 2016, the Company had prepaid expense of $158,504 and $46,462, respectively, paid to UCL Consultants Limited, a wholly owned subsidiary of the University of London, in connection with medical research performed on behalf of the Company. The Company’s Chief Scientific and Manufacturing Officer is a professor at the University of London.

Accounts payable and accrued liabilities – related parties

At December 31, 2017, the Company owed Advent Bioservices $173,314 for medical research provided on behalf of the Company. Advent Bioservices is owned by a significant shareholder of the Company.

F-10

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Litigation settlement

In November 2016, an individual filed an action in Cook County, Illinois, against the Company; David J. Moss, its Chief Financial Officer, Treasurer and Secretary ; and Raymond J. Tesi, its president and Chief Executive Officer (the Company, Mr. Moss and Mr. Tesi are referred to collectively as the “Company Parties”). The action alleged claims against the Company Parties concerning payment of monies and/or securities allegedly owed. In April 2017, the Company Parties and the Claimant entered into a Settlement Agreement and Mutual General Release agreement with that individual (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to issue 33,335 shares of the Company’s common stock valued at $50,000, based on the value of the stock of the last round of financing of $1.50 per share. The Company assessed the value of the common stock owed as of December 31, 2017, and determined that the $1.50 per share value form the most recent round of financing was still the most readily determinable value of the shares of the Company’s common stock issuable as a part of this settlement. These shares have not been issued and are subject to a restriction on transfer for a period of two years from the date the Company completes an initial public offering or otherwise becomes a public company after which the Company will deliver the shares to the Claimant. The agreement to issue the shares following the two-year restriction period was a full and complete settlement of all claims that the Claimant may have had against the Company Parties and the Cook County action was dismissed with prejudice. The obligation was recorded as common stock issuable of $50,000 as of December 31, 2017 and 2016, respectively, pending delivery of the shares to the Claimant after the restriction period expires.

Trademark settlement

During 2017, the Company received notice that another company had filed a trademark application with the United States Patent and Trademark Office to register a certain trademark. The Company filed an opposition in the United States Trademark Trial and Appeal Board. Subsequently, INmune and the other company entered into a settlement agreement pursuant to which the Company agreed not to oppose the other company’s trademark and the other company paid INmune cash proceeds of $150,000 in full consideration for the settlement agreement, which the Company recorded as other income in the consolidated statement of operations for the year ended December 31, 2017.

F-11

NOTE 7 – STOCKHOLDERS’ EQUITY

The Company is authorized to issue up to 210,000,000 shares of common stock at par value $0.001 per share. As of December 31, 2017 and 2016, the Company had 8,319,441 and 5,066,667, respectively, of the Company’s common stock issued and outstanding.

During 2016, the Company issued 66,667 shares of the Company’s common stock for cash proceeds of $100,000.

As of December 31, 2016, the Company had $30,000 of outstanding stock payable due to its law firm for 20,000 shares of the Company’s common stock valued at $1.50 per share based on the value of the services provided, that the Company agreed to issue as a part of its original agreement in 2015 with its law firm. These shares were issued during 2017.

During 2017, in connection with the Xencor License Agreement, the Company entered into a stock issuance agreement with Xencor pursuant to which it issued Xencor 1,585,000 shares of its common stock valued in total at $12,221,000 (see Note 4).

During 2017, the Company issued 1,393,335 shares of the Company’s common stock for cash proceeds of $2,056,000 valued at approximately $1.50 per share.

During 2017, the Company issued 233,345 shares of its common stock for the conversion of the full value of the Company’s outstanding convertible debt (converted at no interest) of $350,000 valued at approximately $1.50 per share.

As of December 31, 2017 and 2016, the Company recorded common stock issuable of $50,000 for 33,335 common shares related to a legal settlement valued at approximately $1.50 per share (see Note 6).

On October 3, 2017, the Company entered into an Assignment and Assumption Agreement with Immune Ventures. Pursuant to the Assignment and Assumption Agreement, Immune Ventures assigned all of its rights, obligations and liabilities under the Exclusive License Agreement between the University of Pittsburgh – Of the Commonwealth System of Higher Education and Immune Ventures. Pursuant to the Assignment and Assumption Agreement, the Company agreed to convert the amount Immune Ventures paid of $162,634 into shares of the Company’s common stock at $7.71 per share, based on the per share value of the shares issued to Xencor, for 21,094 shares for the reimbursement of amounts paid by the Assignor to the University of Pittsburgh, which the Company recorded as stock-based compensation within research and development expense. These shares were issued on December 31, 2017.

Warrants

On June 30, 2017, the Company issued fully vested warrants to purchase 31,667 shares of the Company’s common stock to a third party in conjunction with the common stock sold for cash, with an exercise price of $1.50, maturity date of June 30, 2022, and fair value of $36,922 using the Black-Scholes option-pricing model, which were recorded as stock-based compensation. The assumptions use for these warrants consisted of an exercise price of $1.50, expected dividends of 0%, expected volatility of 106.55%, a risk free rate of 1.89% an expected life of 5 years.

In connection with the Xencor License Agreement, the Company issued fully vested warrants to purchase an additional number of shares of common stock equal to 10% of the fully diluted Company shares immediately following such purchase. The fair value of these warrants was valued at $4,193,000 based on the Black-Scholes Option Pricing Model. The assumptions use for these warrants consist of an exercise price of $10,000,000, expected dividends of 0%, expected volatility of 84.9%, a risk free rate of 2.04% an expected life of 6 years.

F-12

NOTE 8 – INCOME TAXES

As of December 31, 2017, the Company had a cumulative U.S. tax net operating loss of $814,648 that can be carried forward to reduce future years’ taxable income. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. The Company’s net operating loss carrying forwards, if not utilized, will begin to expire, beginning in 2035.

On December 22, 2017, new federal tax reform legislation was enacted in the United States (the “2017 Tax Act”), resulting in significant changes from previous tax law. The 2017 Tax Act reduces the federal corporate income tax rate to 21% from 34% effective January 1, 2018. The rate change, along with certain immaterial changes in tax basis resulting from the 2017 Tax Act, resulted in a reduction of the Company’s deferred tax assets of $47,035 and a corresponding reduction in the valuation allowance.

The Company filed its UK tax return for the period from April 6, 2016 to December 31, 2016 and it had no tax liability. The Company’s UK subsidiary incurred a loss in 2017 and expects no tax liability for 2017.

NOTE 9 – SUBSEQUENT EVENTS

 

Issuance of common stock for cash

On February 9, 2018, to complete a series of funding provided for in the Company’s joint development agreement dated September 3, 2016, the Company received $900,000 in cash from Luminus in exchange for 400,000 shares of the Company’s common stock. Luminus is owned by a significant shareholder of the Company.

Employment agreements

On January 1, 2018, the Company entered into 3-year employment agreements with its CEO and CFO. Pursuant to the employment agreements, the annual salary of each of the CEO and CFO shall be $120,000 per annum, respectively. In the event the Company raises $5,000,000 from an offering then the CEO’s and CFO’s salaries shall increase to $250,000 per annum, respectively, and if the Company raises $12,000,000 from an offering then the CEO’s and CFO’s salaries shall increase to $350,000 per annum.

Consulting agreement

On May 16, 2018, the Company entered into a consulting agreement with Pacific Seaboard Investments Ltd. for corporate governance, compliance services regarding the filing of a listing application and assist with activities related to its initial public offering. The term of the consulting agreement is from April 24, 2018 to May 1, 2021. In consideration of the consultant’s services, the Company agreed to issue 600,000 shares of its restricted common stock, of which 200,000 shares shall be released as of the date hereof, 200,000 shares shall be locked up for six months after the effective date of the registration statement that this prospectus forms a part of and 200,000 shares shall be locked up for 10 months after the date of this offering.

Stock option grants

During March 2018, the CEO and CFO were each granted an option to purchase 400,000 shares of the Company’s common stock with an exercise price of $7.80 and a 10-year term. One third of the options vested on January 1, 2018 and the remainder vest on a monthly basis over 24 months.

During March 2018, a board member was granted 400,000 shares of the Company’s common stock with a $7.80 exercise price and a 10-year term. These options vest over 24 months.

During April 2018, the Company granted options to purchase 108,000 shares of the Company’s common stock to each of four Board members, of which 3,000 options shall vest monthly. The options have a 10-year term and a $7.80 exercise price.

F-13

INMUNE BIO, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30,			December 31,
	2018			2017
ASSETS
CURRENT ASSETS
Cash	$	650,861		$	1,370,711
Research and development tax credit receivable		324,500			106,866
VAT receivable		27,449			111,618
Joint development cost receivable		2,246			109,124
Prepaid expenses and other current assets		159,349			42,647
Prepaid expenses – related party		-			158,504
TOTAL CURRENT ASSETS		1,164,405			1,899,470
Acquired in-process research and development intangible assets		16,514,000			16,514,000
TOTAL ASSETS	$	17,678,405		$	18,413,470
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	202,221		$	126,257
Accounts payable and accrued liabilities – related party		9,210			183,460
TOTAL LIABILITIES		211,431			309,717
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value, 210,000,000 shares authorized 8,719,441 and 8,319,441 shares issued and outstanding, respectively		8,719			8,319
Additional paid-in capital		24,491,379			19,171,237
Common stock issuable		4,676,000			50,000
Accumulated other comprehensive income		8,809			32,042
Accumulated deficit		(11,717,933	)		(1,157,845	)
TOTAL STOCKHOLDERS' EQUITY		17,466,974			18,103,753
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	17,678,405		$	18,413,470

See accompanying notes to these consolidated financial statements.

F-14

INMUNE BIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUE	$	-		$	-		$	-		$	-
OPERATING EXPENSES
General and administrative		(1,341,065	)		(261,207	)		(9,969,985	)		(386,245	)
Research and development		(198,776	)		(46,320	)		(590,103	)		(167,006	)
Total operating expenses		(1,539,841	)		(307,527	)		(10,560,088	)		(553,251	)
LOSS FROM OPERATIONS
OTHER INCOME
Gain on settlement of lawsuit		-			-			-			150,000
Total other income		-			-			-			150,000
NET LOSS	$	(1,539,841	)	$	(307,527	)	$	(10,560,088	)	$	(403,251	)
Net loss per common share – basic and diluted	$	(0.18	)	$	(0.05	)	$	(1.22	)	$	(0.07	)
Weighted average number of common shares outstanding – basic and diluted		8,719,441			6,625,883			8,662,298			5,813,698
COMPREHENSIVEINCOME(LOSS)
Net loss	$	(1,539,841	)	$	(307,527	)	$	(10,560,088	)	$	(403,251	)
Other comprehensive income (loss) – gain (loss) on foreign currency translation		(7,623	)		15,496			(23,233	)		32,314
Total comprehensive loss	$	(1,547,464	)	$	(292,031	)	$	(10,583,321	)	$	(370,937	)

See accompanying notes to these consolidated financial statements.

F-15

INMUNE BIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED)

	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,560,088	)	$	(403,251	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		9,046,542			36,922
Gain on settlement of lawsuit		-			(150,000	)
Changes in operating assets and liabilities:
Research and development tax credit receivable		(217,634	)		28,379
VAT receivable		84,169			(96,582	)
Joint development cost receivable		106,878			71,648
Prepaid expenses and other current assets		(116,702	)		(10,779	)
Prepaid expenses – related party		158,504			46,462
Accounts payable and accrued liabilities		75,964			43,186
Accounts payable and accrued liabilities – related party		(174,250	)		47,541
Net cash used in operating activities		(1,596,617	)		(386,474	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock		900,000			2,056,000
Net cash provided by financing activities		900,000			2,056,000
Impact on cash from foreign currency translation		(23,233	)		32,314
NET (DECREASE) INCREASE IN CASH		(719,850	)		1,701,840
CASH AT BEGINNING OF PERIOD		1,370,711			141,659
CASH AT END OF PERIOD	$	650,861		$	1,843,499
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes	$	-		$	-
Cash paid for interest expense	$	-		$	-
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for conversion of short-term debt – related party	$	-		$	350,000

See accompanying notes to these consolidated financial statements.

F-16

INMUNE BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

INmune Bio, Inc. (the “Company” and/or “INmune”) was originally organized in the State of Nevada on September 25, 2015 and is an early stage specialty pharmaceutical company focused on developing pioneering strategies for oncology that focus on engineering and harnessing the innate immune system to treat the patient’s cancer. INmune’s proprietary is to focus on the innate immune system that include natural killer cells (“NK cells”), myeloid derived suppressor cells (“MDSC cells”) and dendritic cells (“DC cells”), which are believed to offer unique therapeutic opportunities. INmune plans to develop their two existing drug platforms: INKmune (“INKmune”) which primes NK cells and INB03 (“INB03”) which down regulates MDSC cells. Together or individually, the Company expects that these therapies will harness the innate immune system to provide a unique set of therapies for patients with cancer.  

INmune Bio International Ltd (England) (“INmune UK”) is a wholly owned subsidiary of INmune that was formed on April 6, 2016 in the United Kingdom (“UK”). INmune UK was duly organized under the laws of England and has 1,000 shares owned by INmune. The Company will perform its drug manufacturing and currently performs its drug research and development in the UK and will continue to perform research and development activities in this region. The UK has a research and development (“R&D”) rebate program that allows the Company to recover some of its R&D expenses (see further discussion in Note 4).

On March 28, 2018, the Company acquired 100% of INmune Bio Australia Pty Ltd (Australia) (“INMune Australia”). INmune Australia had no assets or liabilities on the acquisition date and was acquired for approximately $2,000.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America and the rules of the Securities and Exchange Commission (“SEC”).

The consolidated financial statements herein have been prepared in accordance with GAAP and include the accounts of the Company and those of its wholly-owned subsidiaries, INmune UK and INmune Australia. All significant intercompany accounts and transactions have been eliminated.

Interim Financial Statements

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information under Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the nine -month period ended September 30, 2018 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2018. These unaudited interim financial statements should be read in conjunction with the audited financial statements of the Company for the years ended December 31, 2017 and 2016, and notes thereto contained in this prospectus.

NOTE 2 – GOING CONCERN

As of September 30, 2018, the Company had an accumulated deficit of $11,717,933. Losses have principally occurred as a result of the substantial resources required for research and development of the Company’s products which included the general and administrative expenses associated with its organization and product development as well as the lack of sources of revenues until such time as the Company’s products are commercialized. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the issuance date of these financial statements. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management plans to obtain additional funding and implement its strategic plan to allow the opportunity for the Company to continue as a going concern, though there is no guarantee that management will be successful in obtaining this additional funding.

F-17

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

The Company may carry cash balances at financial institutions in excess of the federally insured limit of $250,000. At September 30, 2018, the Company’s cash in excess of the federally insured limit was $400,861.

Receivables, Net

Receivables currently consist of an R&D tax credit receivable, valued added tax (“VAT”) receivable and joint development cost receivable. The R&D tax credit receivable is recorded when R&D is incurred. At that time, the Company records a receivable for the amount of the credit it expects to receive based on the expenses incurred. The VAT receivable is recorded when the Company receives an invoice with VAT related to it. The receivable is recorded for the amount expected to be returned when the VAT tax return is filed. The joint development cost receivable is recorded when the Company incurs R&D expenses based on the amount it expects to receive as a reimbursement per the Novamune agreement (see Note 4 for detailed explanation of the agreement). The collectability of these receivables are evaluated periodically based on the actual R&D credit returns submitted, the VAT returns submitted and the amounts received from Novamune. As of September 30, 2018 and December 31, 2017, there were no trade receivables.

Intangible Assets 

The Company capitalizes costs incurred in connection with in-process research and development purchased from others if the asset has alternative uses and such uses are not restricted under applicable license agreements. Amortization is initiated for acquired in-process research and development intangible assets when their useful lives have been determined. Acquired in-process research and development intangible assets which are determined to have had a drop in their fair value are adjusted downward and an expense recognized in research and development in the consolidated statements of operations. These acquired in-process research and development intangible assets are tested at least annually or when a triggering event occurs that could indicate a potential impairment.

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings (loss) per share excludes all potential common shares if their effect is anti-dilutive. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding.

For the three and nine months ended September 30, 2018, the following potentially dilutive securities were excluded from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive:

	Three and Nine Months Ended September  30, 2018
Stock options		1,632,000
Common stock warrants		903,611
Total		2,535,611

For the three and nine months ended September 30, 2017, the following potentially dilutive securities were excluded from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive: 

	Three and Nine Months Ended September   30, 2017
Common stock warrants		31,667

F-18

Stock-Based Compensation

The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.

The Company accounts for equity instruments issued to non-employees using a fair value approach under ASC Subtopic 505-50, Equity-Based Payments to Non-Employees. The Company values equity instruments and stock options granted to non-employees at fair value using the Black-Scholes option-pricing model. The value of non-employee stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the term of the related financing or the period over which services are received.

The Company recognizes compensation expense, on a straight-line basis over the requisite service period, which is equal to the applicable vesting period.

Research and Development

Research and development costs are expensed as incurred. Research and development credits are recorded by the Company as a reduction of research and development costs. Major components of research and development costs include cash compensation, stock-based compensation, depreciation and amortization expense on research and development property and equipment, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf.

Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Foreign Currency Translation

The Company’s financial statements are presented in the U.S. dollar (“$”), which is the Company’s reporting currency, while its functional currencies are the U.S. Dollar for its U.S. based operations and British Pound (“GBP”) for its United Kingdom-based operations and Australian Dollars (“AUD”) for its Australian-based operations. All assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at historical rates and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statement of operations and comprehensive income (loss).

New and Recently Issued Accounting Pronouncements

The Company does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations, or cash flows.

F-19

Subsequent Events

The Company has evaluated all transactions from September 30, 2018 through  November 20, 2018, the financial statement issuance date for subsequent disclosure consideration.

NOTE 4 – RESEARCH AND DEVELOPMENT ACTIVITY

According to UK tax law, the Company is allowed an R&D tax credit that reduces a company’s tax bill in the UK for expenses incurred in R&D. According to the UK Government, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology. A company has to have staff headcount of less than 500 and either revenue of less than €100m or balance sheet assets of less than €86m. INmune UK submitted R&D tax credit requests annually  for research and development expenses incurred, and recorded a related receivable in the amount of $324,500 and $106,866 as of September 30, 2018 and December 31, 2017, respectively.

During the nine months ended September 30, 2018 and 2017, the Company received $0 and $106,096 of R&D tax credit reimbursements , respectively.

The Company is also eligible to recover all VAT for all R&D expenses paid. INmune UK recorded a VAT receivable of $27,449 and $111,618 as of September 30, 2018 and December 31, 2017, respectively.

During the nine months ended September 30, 2018 and 2017, the Company received $169,144 and $36,890 of VAT reimbursements, respectively.

Xencor, Inc. License Agreement

On October 3, 2017, the Company entered into a license agreement (“Xencor License Agreement”) with Xencor, Inc. (“Xencor”), which has discovered and developed a proprietary biological molecule that inhibits soluble tumor necrosis factor. Pursuant to the license agreement, Xencor granted the Company an exclusive worldwide, royalty-bearing license in licensed patent rights, licensed know-how and licensed materials (as defined in the license agreement) to make, develop, use, sell and import any pharmaceutical product that comprises, contains, or incorporates Xencor’s proprietary protein known as “XPRO1595” that inhibits soluble tumor necrosis factor (or all modifications, formulations and variants of the licensed protein that specifically bind soluble tumor necrosis factor) alone or in combination with one or more active ingredients, in any dosage or formulation (“Licensed Products”). The Company believes the protein has numerous medical applications. Such additional alternative applications of the technology are available under the license agreement. In connection with the license agreement, the Company paid Xencor a one-time non-creditable and non-refundable fee of $100,000 and agreed to issue Xencor shares of the Company’s common stock equal to 19% of our fully diluted company shares the value of which are discussed below. The Company also issued warrants to Xencor which is discussed below.

The Company also agreed to pay Xencor a royalty on Net Sales of all Licensed Products in a given calendar year, which are payable on a country-by- country and licensed product by licensed product basis until the date that is the later of (a) the expiration of the last to expire valid claim covering such Licensed Product in such country or (b) ten years following the first sale to a third party of the licensed product in such country.

Under the Xencor License Agreement, the Company also agreed to pay Xencor a percentage of any sublicensing revenue that it receives.

In connection with the Xencor License Agreement, the Company entered into a stock issuance agreement with Xencor pursuant to which it issued Xencor 1,585,000 shares of its common stock with a fair value of $12,221,000 based on the discounted cash flow method of the income approach as set forth in an independent valuation report dated November 17, 2017, and fully vested warrants to purchase an additional number of shares of common stock equal to 10% of the fully diluted company shares immediately following such purchase with a fair value of $4,193,000 based on the Black-Scholes Option Pricing Model.

The warrants have an exercise price based on a valuation of the Company at $100,000,000 and expire on October 3, 2023. The aggregate purchase price for the full exercise of the option is $10,000,000 which purchase price shall be pro-rated for any partial exercise of the Option. In August 2018, we entered into a First Amendment to Stock Issuance Agreement. Pursuant to the amendment, the purchase price for the additional shares may only be paid by cash. In connection with the stock issuance agreement, the Company, Xencor and more than 90% of shareholders as of September 30, 2017 (“Key Holders”) entered into a voting agreement. Pursuant to the voting agreement, Xencor and the Key Holders agreed to vote their respective shares to vote one individual designated by the holder of a majority of Xencor’s shares of the Company’s common stock to the Company’s board of directors. The voting agreement shall continue in full force and effect from the date hereof through the earliest of the following dates, on which date it shall terminate in its entirety: (a) the date of a qualified offering, as defined in the issuance agreement; (b) ten (10) years from the date of this Agreement; (c) the date of the closing of a qualified sale, as defined in the issuance agreement; or (d) the date as of which the parties hereto terminate this agreement by written consent of the holders of a majority of the Investor Shares.

F-20

The Company recorded $16,514,000 for the acquisition of intangible assets for the in-process research and development in 2017 as the fair value of the cash, stock and warrants on the date of the License Agreement acquisition in accordance with Accounting Standards Codification 730 – Research and Development. The Company has the license rights to pursue alternative applications of the technology as part of its future development plans.

Novamune Joint Development Agreement

On September 3, 2016, the Company entered into a joint development agreement with Novamune, Inc. (“Novamune”) (the “Development Agreement”). Novamune is owned by a significant shareholder of the Company. Novamune had previously developed and licensed technology relating to ex-vivo activation of NK cells for the treatment of cancer and other diseases. The parties agreed to exclusively collaborate on the further development of technologies related to NK cells for therapeutic applications. The Company and Novamune agreed to share equally in the costs related to such joint development projects and agreed to jointly own any intellectual property developed by the joint projects, provided that Novamune shall have an exclusive royalty free license to use any such intellectual property relating to ex-vivo applications and the Company shall have an exclusive royalty free license to use any such intellectual property relating to in-vivo applications. The Development Agreement is subject to Novamune investing a total of $1,250,000 in the Company, of which $350,000 was advanced through a convertible note payable in 2016 (see further discussion in Note 5) and $900,000 was received during the nine months ended September 30, 2018 in exchange for the issuance of 400,000 shares of the Company’s common stock. As of September 30, 2018 and December 31, 2017, the Company had a joint development receivable outstanding related to Novamune’s portion of R&D costs incurred of $2,246 and $109,124, respectively.

INKmune License Agreement

On October 29, 2015, the Company entered into an exclusive license agreement with Immune Ventures LLC (“Immune Ventures”), owner of all of the rights related to our principal patent (the “INKmune License Agreement”). Pursuant to the INKmune License Agreement, the Company was granted exclusive worldwide rights to the patents, including rights to incorporate any improvements or additions to the patents that may be developed in the future. In consideration for the patent rights, the Company agreed to the following milestone payments:

Each Phase I initiation	$	25,000
Each Phase II initiation	$	250,000
Each Phase III initiation	$	350,000
Each NDA/EMA filing	$	1,000,000
Each NDA/EMA awarded	$	9,000,000

In addition, the Company agreed to pay the licensor a royalty of 1% of net sales during the life of each patent granted to the Company. The License is owned by RJ Tesi, our President and a member of our Board of Directors, David Moss, our Chief Financial Officer and Treasurer and Mark Lowdell, our Chief Scientific Officer. As of September 30, 2018 and December 31, 2017, no sales had occurred under this license.

The term of the agreement began on October 29, 2015 and, if not terminated sooner pursuant to the agreement, ends on a country by country basis on the date of the expiration of the last to expire patent rights where patent rights exists. Upon the termination of the agreement we shall have a fully paid up, perpetual, royalty-free license without further obligation to Immune Ventures. The agreement can be terminated by Immune Ventures if, after 60 days from our receipt of notice that we have not made a payment under the agreement we still do not make this payment. Under the agreement and an amendment to the agreement dated July 20, 2018 we are required achieve the following events:

Filing of IND or equivalent, by October 29, 2019

Initiation of Phase 1 clinical or equivalent trials by October 29, 2020

Initiation of Phase II clinical trials or equivalent by October 29, 2022

Initiation of Phase III clinical trials or equivalent by October 29, 2024

Filing of NDA or equivalent by October 29, 2025 or equivalent

If we don’t achieve the above events, we are required to negotiate in good faith with Immune Ventures to determine how we can either remedy the failure or achieve an alternate development. If we fail to make any required efforts or if the efforts do not remedy the situation within 60 days of written notice by Immune Ventures then Immune Ventures may provide notice to terminate the license or convert it to a non-exclusive license.

NOTE 5 – RELATED PARTY TRANSACTIONS

A significant shareholder of the Company is also the owner of various companies that conduct business with the Company, principally research and development activities, including Luminus Holdings, Inc. (“Luminus”), Novamune, and Advent Bioservices, Inc. (“Advent Bioservices”).

 

F-21

Short-term debt – related party

On May 9, 2016, the Company received cash proceeds of $350,000 from the issuance of a convertible note to Novamune that matured on August 1, 2016, with a conversion rate of $1.50 per share, and an annual interest rate of 8%. On September 3, 2016, the maturity date was extended to March 3, 2017. During the nine months ended September 30, 2017, the convertible note was converted into 233,345 shares of common stock of the Company. Novamune is owned by a significant shareholder of the Company.

Prepaid expense – related party

At September 30, 2018 and December 31, 2017, the Company had prepaid expense of $0 and $158,504, respectively, paid to UCL Consultants Limited, a wholly owned subsidiary of the University of London, in connection with medical research performed on behalf of the Company. The Company’s Chief Scientific and Manufacturing Officer is a professor at the University of London.

Accounts payable and accrued liabilities – related parties

At September 30, 2018 and December 31, 2017, the Company owed Advent Bioservices $0 and $173,314, respectively, for medical research provided on behalf of the Company. Advent Bioservices is owned by a significant shareholder of the Company. At September 30, 2018 and December 31, 2017, the Company owed UCL Consultants Limited $9,210 and $0, respectively, in connection with medical research performed on behalf of the Company.

NOTE 6 – STOCKHOLDERS’ EQUITY

The Company is authorized to issue up to 210,000,000 shares of common stock at par value $0.001 per share.

During the nine months ended September 30, 2018, to complete a series of funding provided for in the Company’s joint development agreement dated September 3, 2016, the Company received $900,000 in cash from Luminus in exchange for 400,000 shares of the Company’s common stock. Luminus is owned by a significant shareholder of the Company.

During the nine months ended September 30, 2017, the Company issued 1,393,335 shares of the Company’s common stock for cash proceeds of $2,056,000.

During the nine months ended September 30, 2017, the Company issued 233,345 shares of its common stock for the conversion of the full value of the Company’s outstanding convertible debt of $350,000 valued at approximately $1.50 per share.

As of September 30, 2018 and December 31, 2017, the Company recorded common stock issuable of $50,000 for 33,335 common shares related to a legal settlement valued at approximately $1.50 per share (see Note 7).

On May 16, 2018, the Company entered into a consulting agreement with Pacific Seaboard Investments Ltd. for corporate governance, compliance services regarding the filing of a listing application and assist with activities related to its initial public offering. The term of the consulting agreement is from April 24, 2018 to May 1, 2021. In consideration of the consultant’s services, the Company agreed to issue 600,000 shares of its restricted common stock, of which 200,000 shares were to be issued on May 16, 2018, 200,000 shares shall be locked up for six months after the effective date of the Company’s registration statement and 200,000 shares shall be locked up for 10 months after the date of the Company’s offering. Pursuant to this agreement, the Company recorded $4,626,000 of stock-based compensation expense during the nine months ended September 30, 2018 for the 600,000 shares of common stock to be issued.

Stock options

During the nine months ended September 30, 2018, the CEO and CFO were each granted an option to purchase 400,000 shares of the Company’s common stock with a $7.80 exercise price. One third of the options vested on January 1, 2018 and the remainder shall vest on a monthly basis over a 24-month term. The grant date fair value of these stock options was $5,136,894 based on the Black-Scholes Option Pricing model.

During the nine months ended September 30, 2018, a board member was granted 400,000 shares of the Company’s common stock with a $7.80 exercise price. These options vest over a 24-month term. The grant date fair value of these stock options was $2,568,447 based on the Black-Scholes Option Pricing model.

During April 2018, the Company granted options to purchase 108,000 shares of the Company’s common stock to each of four Board members, of which 3,000 options shall vest monthly per grant. The options have a 10-year term and a $7.80 per share exercise price and vest over 36-months. The grant date fair value of these stock options was $2,765,108 based on the Black-Scholes Option Pricing model.

 

F-22

A summary of stock option activity is presented in the table below:

					Weighted-average
			average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Shares		Price		Term (years)		Value
Outstanding at December 31, 2017		-		-		-		-
Granted		1,632,000		7.80		10.0		-
Exercised		-		-		-		-
Expired/Forfeited		-		-		-		-
Outstanding at September 30, 2018		1,632,000	$	7.80		9.32	$	-
Exercisable at September 30, 2018		688,667	$	7.80		9.28	$	-

During the nine months ended September 30, 2018, the 1,632,000 options that were granted had a weighted average grant-date fair value of $6.42 per share. During the nine months ended September 30, 2018, the Company recognized stock-based compensation expense of $4,420,542 related to stock options. As of September 30, 2018, there was approximately $6,049,909 of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of approximately 1.73 years.

The fair values of the options granted during the nine months ended September 30, 2018 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

Market value of common stock on grant date	$	7.71
Risk free interest rate (1)	2.40% - 2.56		%
Dividend yield	None
Volatility factor		110	%
Weighted average expected life in years (2)		6.0
Expected forfeiture rate		0	%

(1) The risk-free interest rate was determined by management using the U.S. Treasury zero-coupon yield over the contractual term of the option on date of grant.

(2) Due to a lack of stock option exercise history, the Company uses the simplified method under SAB 107 to estimate expected term.

Warrants

On June 30, 2017, the Company issued fully vested warrants to purchase 31,667 shares of the Company’s common stock to a third party in conjunction with the common stock sold for cash, with an exercise price of $1.50, maturity date of June 30, 2022. At September 30, 2018, the remaining contractual term for these warrants is 3.75 years.

In connection with the Xencor License Agreement, the Company issued fully vested warrants to purchase an additional number of shares of common stock equal to 10% of the fully diluted Company shares immediately following such purchase. The fair value of these warrants was valued at $4,193,000 based on the Black-Scholes Option Pricing Model. The assumptions use for these warrants consist of an exercise price of $10,000,000, expected dividends of 0%, expected volatility of 84.9%, a risk free rate of 2.04% an expected life of 6 years. At September 30, 2018, the remaining contractual term of these warrants is 5.0 years and the intrinsic value is $5,000,000.

 

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NOTE 7 – COMMITMENTS AND CONTINGENCIES

Litigation settlement

In November 2016, an individual filed an action in Cook County, Illinois, against the Company; David J. Moss, its Chief Financial Officer, Treasurer and Secretary and Raymond J. Tesi, its president and Chief Executive Officer (the Company, Mr. Moss and Mr. Tesi are referred to collectively as the “Company Parties”). The action alleged claims against the Company Parties concerning payment of monies and/or securities allegedly owed. In April 2017, the Company Parties and the Claimant entered into a Settlement Agreement and Mutual General Release agreement with that individual (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to issue 33,335 shares of the Company’s common stock valued at $50,000, based on the value of the stock of the last round of financing of $1.50 per share. These shares have not been issued and are subject to a restriction on transfer for a period of two years from the date the Company completes an initial public offering or otherwise becomes a public company after which the Company will deliver the shares to the Claimant. The agreement to issue the shares following the two-year restriction period was a full and complete settlement of all claims that the Claimant may have had against the Company Parties and the Cook County action was dismissed with prejudice. The obligation was recorded as common stock issuable of $50,000 as of September 30, 2018 and December 31, 2017, respectively, pending delivery of the shares to the Claimant after the restriction period expires.

Trademark settlement

During the nine months ended September 30, 2017, the Company received notice that another company had filed a trademark application with the United States Patent and Trademark Office to register a certain trademark. The Company filed an opposition in the United States Trademark Trial and Appeal Board. Subsequently, INmune and the other company entered into a settlement agreement pursuant to which the Company agreed not to oppose the other company’s trademark and the other company paid INmune cash proceeds of $150,000 in full consideration for the settlement agreement, which the Company recorded as other income in the consolidated statement of operations for the nine months ended September 30, 2017.

Employment agreements

On January 1, 2018, the Company entered into 3-year employment agreements with its CEO and CFO. Pursuant to the employment agreements, the annual salary of each of the CEO and CFO shall be $120,000 per annum, respectively. In the event the Company raises $5,000,000 from an offering then the CEO’s and CFO’s salaries shall increase to $250,000 per annum, respectively, and if the Company raises $12,000,000 from an offering then the CEO’s and CFO’s salaries shall increase to $350,000 per annum, respectively. 

F-24

INMUNE BIO INC.

 

Up to 2,500,000 SHARES OF COMMON STOCK

 

PROSPECTUS

                                        , 2018

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses (other than placement agent fees) payable in connection with the sale of the shares of common stock being registered. The registrant will pay all expenses of the registration and sale of the shares of common stock, other than selling commissions and fees, stock transfer taxes and fees and expenses, if any, of counsel or other advisors to the selling stockholders. All of the amounts shown are estimates except the SEC registration fee.

The following table sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:

Nature of Expense:	Amount
SEC Registration Fee	$	2,689.20
FINRA filing fee	$	3,740.00
Accounting fees and expenses	$	150,000	*
Legal fees and expenses	$	200,000	*
Transfer agent’s fees and expenses	$	15,000	*
Printing and related fees	$	15,000	*
Miscellaneous	$	25,000	*
Total	$	411,429.20

___________

* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Neither our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statute ("NRS"). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with any the defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

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NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

From March 2017 through June 30, 2017, we sold an aggregate 1,693,333 shares of common stock to accredited investors at a per unit price of $10,000 with each unit consisting of 6,667 shares of our common stock and received gross proceeds 2,540,000. Investors participating in the unit offering met the accredited investor definition of Rule 501 of the Securities Act. The offer and sale of the units were made in reliance on the exemption from registration afforded under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D under the Securities Act. The unit offering was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by the investors in connection with the Unit Offering. In April 2017, the Company agreed to issue 33,335 shares of its restricted common stock pursuant to a Settlement Agreement and Mutual Release Agreement. The Shares were issued in reliance on the exemption from registration afforded under Section 4(a)(2) of the Securities Act.

On May 16, 2018, we entered into a consulting agreement with an unrelated third party consultant. Pursuant to the consultant agreement, the consultant will assist us with our corporate governance and assist us in complying with securities and exchange regulations regarding the filing of a listing application. The consultant will also assist us with activities related to its initial public offering including road show execution and will also assist us with our investor relations strategy development. The term of the consulting agreement is from April 24, 2018 to May 1, 2021 (the “Consulting Period”). In consideration of the consultant’s services, we have a contractual obligation to the consultant over the time of the Consulting Period in the amount of $1,500,000. The aggregate fair value of these issuances is $4,626,000 at their fair value of $7.71 per share. The consultant has agreed to take this compensation in the form of restricted shares of our common stock. We have agreed to convert the compensation of the services provided by the Consultant at a price of $2.50 and we will issue 600,000 restricted shares (“Compensation”) of our common stock as of the date of the Agreement, of which 200,000 shares were l be released on May 16, 2018, 200,000 shares shall be locked up for six months after the effective date of the registration statement that this prospectus forms a part of and 200,000 shares shall be locked up for 10 months after the date of this offering.

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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

A list of exhibits filed herewith is contained in the exhibit index that immediately precedes such exhibits and is incorporated herein by reference.

(b) Financial Statement Schedules

See page F-1 for an index of the financial statements and financial statement schedules included in this Registration Statement.

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i)	To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)	To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price, set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii)	To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

provided, however, that the information required to be included in a post-effective amendment by paragraphs (a)(1)(i), (a)(1) (ii) and (a)(1) (iii) above may be contained in periodic reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or 15(d) of the Exchange Act that are incorporated by reference in the registration statement.

(2)	That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)	To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)	That, for the purpose of determining liability under the Securities Act to any purchaser:

(i) each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

II-3

(ii) each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§230.415(a)(1)(i), (vii), or (x)) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in this registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of this registration statement relating to the securities in this registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; provided, however, that no statement made in a registration statement or prospectus that is part of this registration statement or made in a document incorporated or deemed incorporated by reference into this registration statement or prospectus that is part of this registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in this registration statement or prospectus that was part of this registration statement or made in any such document immediately prior to such effective date;

(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described above, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of La Jolla, State of California, on this  20th day of November , 2018.

INMUNE BIO INC.

/s/ David Moss 

David Moss

Chief Financial Officer

Signature	Title	Date
*
Raymond J. Tesi, M.D.	President, Chief Executive Officer and Director (Principal Executive Officer)	November 20, 2018
/s/ David J. Moss
David J. Moss	Chief Financial Officer, Treasurer, Secretary (Principal Financial and Accounting Officer)	November 20, 2018
*
Mark Lowdell, Ph.D.	Chief Scientific Officer	November 20, 2018
*
Timothy Schroder	Director	November 20, 2018
*
David Szymkowski	Director	November 20, 2018
*
J. Kelly Ganjei	Director	November 20, 2018
*
Scott Juda, JD	Director	November 20, 2018

* By: David J. Moss  

Attorney- in-fact

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
1.1	Form of Placement Agent Agreement
3.1	Certificate of Incorporation**
3.2	Bylaws **
4.1	Form of Registrant’s common stock certificate**
4.2	Form of Placement Agent Common Stock Warrant
5.1	Opinion of Sichenzia Ross Ference , LLP as to the legality of the securities being offered
10.1	Form of Subscription Agreement**
10.2	License Agreement between INmune Bio, Inc. and Immune Ventures LLC **
10.3	Assignment and Assumption Agreement with Immune Ventures LLC **
10.4	Exclusive License Agreement by the University of Pittsburgh of the Common Wealth system of Higher Education and Immune Ventures LLC**
10.5	First Amendment to Exclusive License Agreement by and between the University of Pittsburgh of the Commonwealth system of Higher Education and Immune Ventures, LLC**
10.6	Joint Development Agreement between INmune Bio, Inc. and Novamune**

10.7	Material Transfer and License Agreement between Anthony Nolan Cord Blood Bank and Immune Bio International LTD. **
10.8	Employment Agreement between INmune Bio Inc. and Raymond Tesi**
10.9	Employment Agreement between INmune Bio Inc. and David Moss**
10.10	Consulting Agreement between INmune Bio Inc. and Mark Lowdell**
10.11	INmune Bio, Inc. 2017 Stock Incentive Plan**
10.12	Form of Incentive Option Agreement with employees**
10.13	Form of Incentive Option Agreement with non-employee directors**
10.14	Consultant Agreement between INmune Bio Inc. and Pacific Seaboard Investments Ltd.**
10.15	License Agreement between INMune Bio Inc. and Xencor, Inc.**
10.16	Voting Agreement between INmune Bio Inc. and Xencor, Inc.**
10.17	Amendment to the Consultancy Agreement between INMune Bio Inc. and Mark Lowdell**
10.18	Form of Lock-up Agreement **
10.19	First Amendment to Stock Issuance Agreement**
10.20	Form of Waiver of Registration Rights.**

10.21	Form of Subscription Agreement to be used in connection with the Best Efforts Offering.
21.1	Subsidiaries**
23.1	Consent of Sichenzia Ross Ference LLP (contained in Exhibit 5.1)
23.2	Consent of GBH CPAs, PC
24.1	Power of Attorney (included in signature pages)**

_______

 ** Previously filed.

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EX-1.1

EXHIBIT 1.1

INMUNE BIO INC.

PLACEMENT AGENT AGREEMENT

__________, 2018

Univest Securities, LLC

256 W 36^th Street, 3^rd Floor

New York, NY 10018

Ladies and Gentlemen:

Subject to the terms and conditions herein (this “Agreement”), Inmune Bio Inc., a Nevada corporation (the “Company”), hereby proposes to issue and sell up to an aggregate of 2,500,000 shares (the “Shares”) of common stock, $0.001 par value per share, of the Company (the “Common Stock”), to investors (each, an “Investor” and, collectively, the “Investors”) in a public offering (the “Offering”). The Offering will be conducted on a “best-efforts” 1,000,000 shares ($8,000,000) minimum basis (the “Minimum Amount”); and on a 2,500,000 shares ($20,000,000) maximum basis (the “Maximum Amount”). The purchase price to the Investors for each Share is $8.00 (the “Purchase Price”). The Company desires to engage Univest Securities, LLC as its exclusive placement agent (the “Placement Agent”). The documents executed and delivered by the Company and the Investors in connection with the Offering, including, without limitation, a subscription agreement (the “Subscription Agreement”) shall be collectively referred to herein as the “Transaction Documents.” The Placement Agent may retain other brokers or dealers to act as sub-agents or selected-dealers on its behalf in connection with the Offering.

The Company hereby confirms its agreement with the Placement Agent as follows:

Section 1. Agreement to Act as Placement Agent.

(a) On the basis of the representations, warranties and agreements of the Company herein contained, and subject to all the terms and conditions of this Agreement, the Placement Agent shall be the exclusive Placement Agent in connection with the offering and sale by the Company of the Shares pursuant to the Company’s registration statement on Form S-1 (File No. 333-227122) (as amended or supplemented from time to time and including the exhibits thereto at any given time, the “Registration Statement”), with the terms of such offering (the “Offering”) to be subject to market conditions and negotiations between the Company, the Placement Agent and the prospective Investors. The Placement Agent will act on a reasonable best efforts basis, of a minimum of 1,000,000 shares and a maximum of 2,500,000 shares of Common Stock of the Company. Subject to the terms and conditions hereof, payment of the purchase price for, and delivery of, the Shares shall be made at one or more closings (each a “Closing” and the date on which each Closing occurs, a “Closing Date”). The Placement Agent makes no commitment to purchase or to arrange for the purchase of all or any of the Shares. It is understood and agreed that the Placement Agent shall not and is under no obligation to purchase any Shares for its own account and that this Agreement does not create any partnership, joint venture or other similar relationship between the Placement Agent and the Company. The Placement Agent shall act solely as the Company’s agent and not as principal. The Placement Agent shall have no authority to bind the Company with respect to any prospective offer to purchase Shares and the Company shall have the sole right to accept offers to purchase Shares and may reject any such offer, in whole or in part. The Placement Agent shall not be entitled to any compensation for any subscription that is not accepted or is rejected by the Company.

(b) On the Closing Date, the Company shall pay to the Placement Agent the fees and expenses set forth below:

(i) The Company hereby agrees to pay to the Placement Agent a commission in cash, by wire transfer of immediately available funds on each Closing Date, equal to seven percent (7.0%) of the aggregate purchase price of the shares of Common Stock sold in this Offering. The foregoing fee shall be paid to the Placement Agent and split among selected dealers and the Placement Agent in such amounts as agreed to among them pursuant to a selected dealers’ agreement. The foregoing fee in no way limits or impairs the indemnification and contribution provisions of this Agreement. The Placement Agent shall furnish the Company with wire instructions and amounts to payable to each participating broker-dealer.

1

(ii) The Company hereby agrees to issue to the Placement Agent on each Closing Date warrants to purchase such number of shares of the Company’s Common Stock equal to four percent (4.0%) of the shares of Common Stock sold in the Offering (the “Placement Agent’s Warrants”). The warrant agreement, in the form attached hereto as Exhibit A (the “Placement Agent’s Warrant Agreement”), shall be exercisable, in whole or in part, commencing six (6) months after the effective date of the Registration Statement and expiring on the five-year anniversary of the effective date of the Registration Statement at a purchase price per share equal to 120% of the public offering price of the shares of the Company’s Common Stock in the Offering. The Placement Agent’s Warrant shall include a “cashless” exercise feature, and shall contain provisions for registration rights as set forth in the Placement Agent’s Warrant Agreement. The Placement Agent’s Warrant and shares issuable upon exercise thereof are hereinafter referred to together as the “Placement Agent’s Warrant Shares.” The Placement Agent understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Placement Agent’s Warrant Agreement and the underlying shares during the one hundred eighty (180) days immediately following the commencement of sales of the offering and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Placement Agent’s Warrant Agreement, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days immediately following the commencement of sales of the offering to anyone other than (i) a sub-agent or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Placement Agent or of any such sub-agent or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.

Delivery of the Underwriter’s Warrant Agreement shall be made on each Closing Date and shall be issued in the name or names and in such authorized denominations as the Placement Agent may request.

(iii) The Company also agrees to reimburse Placement Agent’s reasonable out of pocket expenses payable up to $100,000 immediately upon the Closing of the Offering, provided that any expense over $1,000 shall require prior written or email approval by the Company. As of the date hereof, the Company has paid the Placement Agent an advanced expense of $30,000 against out-of-pocket accountable expenses that the Company and Placement Agent anticipate will be incurred (the “Advance”). The Advance will be refunded to the extent reasonable expenses related to the Offering are not actually incurred, whether or not the Offering is terminated, in accordance with FINRA Rule 5110(f)(2)(C).

(iv) The Company also agrees to pay the Placement Agent an advisory fee of $30,000 immediately upon the Closing of this Offering..

(c) Nothing in this Agreement shall be construed to limit the ability of the Placement Agent or its Affiliates to pursue, investigate, analyze, invest in, or engage in investment banking, financial advisory or any other business relationship with Persons (as defined below) other than the Company. As used herein (i) “Persons” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind and (ii) “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”).

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Section 2. Representations, Warranties and Covenants of the Company. The Company hereby represents, warrants and covenants to the Placement Agent as of the date hereof, and as of each Closing Date, other than as set forth in the Registration Statement as follows:

(a) Securities Law Filings. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-227122), including any related prospectus or prospectuses, for the registration of the Shares and the Placement Agent’s Warrants under the Securities Act, which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.

Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriter for use in the Offering is hereinafter called the “Final Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.

“Applicable Time” means 5:00 p.m., Eastern time, on the date of this Agreement.

“ Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Placement Shares that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Shares or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”), as evidenced by its being specified in Schedule 1-B hereto.

“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on Schedule 1-A hereto, all considered together.

Any reference in this Agreement to the Registration Statement, the Preliminary Prospectus or the Final Prospectus shall be deemed to refer to and include the documents incorporated by reference therein (the “Incorporated Documents”), if any, which were or are filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), at any given time, as the case may be; and any reference in this Agreement to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement, the Preliminary Prospectus or the Final Prospectus shall be deemed to refer to and include the filing of any document under the Exchange Act after the date of this Agreement, or the issue date of the Preliminary Prospectus or the Final Prospectus, as the case may be, deemed to be incorporated therein by reference. All references in this Agreement to financial statements and schedules and other information which is “contained,” “included,” “described,” “referenced,” “set forth” or “stated” in the Registration Statement, the Preliminary Prospectus or the Final Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement, the Preliminary Prospectus or the Final Prospectus, as the case may be. The Company has not received any notice that the Commission has issued or intends to issue a stop order suspending the effectiveness of the Registration Statement, the Preliminary Prospectus or the Final Prospectus or intends to commence a proceeding for any such purpose.

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The Company will file with the Commission a Form 8-A providing for the registration pursuant to Section 12(b) under the Exchange Act of the shares of Common Stock. The registration of the shares of Common Stock under the Exchange Act will be declared effective by the Commission prior to the initial Closing Date. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the shares of Common Stock under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.

(b) 10b-5 Representation. The Registration Statement, as amended (and any further documents to be filed with the Commission), contains all exhibits and schedules as required by the Securities Act. Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the Securities Act and the applicable Rules and Regulations and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Registration Statement and the Final Prospectus, each as of its respective date, comply or will comply in all material respects with the Securities Act and the applicable Rules and Regulations. Each of the Registration Statement and the Final Prospectus, as amended or supplemented, did not and will not contain as of the date thereof any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Incorporated Documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the applicable rules and regulations promulgated thereunder, and none of such documents, when they were filed with the Commission, contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein (with respect to Incorporated Documents incorporated by reference in the Final Prospectus), in light of the circumstances under which they were made not misleading. No post-effective amendment to the Registration Statement reflecting any facts or events arising after the date thereof which represent, individually or in the aggregate, a fundamental change in the information set forth therein is required to be filed with the Commission. There are no documents required to be filed with the Commission in connection with the transaction contemplated hereby that (x) have not been filed as required pursuant to the Securities Act or (y) will not be filed within the requisite time period. There are no contracts or other documents required to be described in the Prospectus, or to be filed as exhibits or schedules to the Registration Statement, which have not been described or filed as required.

(c) Offering Materials. Neither the Company nor any of its directors and officers has distributed and none of them will distribute, prior to each Closing Date, any offering material in connection with the offering and sale of the Shares other than the Preliminary Prospectus, the Final Prospectus, the Registration Statement, copies of the documents incorporated by reference therein and any other materials permitted by the Securities Act.

(d) Subsidiaries. All of the direct and indirect subsidiaries of the Company (the “Subsidiaries”) are set forth in the Incorporated Documents. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any liens, charges, security interests, encumbrances, rights of first refusal, preemptive rights or other restrictions (collectively, “Liens”), and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(e) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted, and as described in the Registration Statement and Prospectus. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect (as defined below), and no an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened (“Proceeding”) has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on (i) the business, properties, assets, liabilities, operations (including results thereof), condition (financial or otherwise) or prospects of the Company or any Subsidiary, individually or taken as a whole, (ii) the transactions contemplated hereby or in any of the other Transaction Documents or any other agreements or instruments to be entered into in connection herewith or therewith, or the legality, validity or enforceability of any such agreement, or (iii) the authority or ability of the Company or any of its Subsidiaries to perform any of their respective obligations under this Agreement or any of the Transaction Documents.

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(f) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement, the Transaction Documents, and the Prospectus and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of this Agreement and the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby and under the Prospectus have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Company’s Board of Directors (the “Board of Directors”) or the Company’s stockholders in connection therewith other than in connection with the Required Approvals (as defined below). This Agreement has been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(g) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the Transaction Documents, and the transactions contemplated pursuant to the Prospectus, the issuance and sale of the Shares and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(h) Corporate Power; Licenses; Consents. Except as described in the Incorporated Documents, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No other consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Shares and the Placement Agent’s Warrant Shares and the consummation of the transactions and agreements contemplated by this Agreement and the Placement Agent’s Warrant Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except with respect to applicable securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

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(i) Valid Issuance of the Securities; Registration. The Shares and the Placement Agent’s Warrant Shares have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued and fully paid; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Shares and the Placement Agent’s Warrant Shares are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Shares and the Placement Agent’s Warrant Shares has been duly and validly taken. The Shares and the Placement Agent’s Warrant Shares conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required to be taken for the authorization, issuance and sale of the Placement Agent’s Warrant has been duly and validly taken; the shares issuable upon exercise of the Placement Agent’s Warrant have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance with the Placement Agent’s Warrant and the Placement Agent’s Warrant Agreement, such shares of Common Stock will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; and such shares are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company.

(j) Capitalization. The capitalization of the Company, including the authorized and outstanding securities, including any securities exercising or convertible into shares of Common Stock, is as set forth in the Prospectus. The Company has not issued any capital stock or other securities since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock and options to purchase shares of Common Stock to employees and consultants pursuant to the Company’s employee stock purchase plans, pursuant to the conversion and/or exercise of securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock (“Common Stock Equivalents”) outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement, the Transaction Documents and the Prospectus. Except as a result of the purchase and sale of the Shares, and as set forth in the Registration Statement, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock of the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Shares will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no outstanding securities or instruments of the Company of any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation rights of “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Shares. Other than as set forth in the Registration Statement, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or between or among any of the Company’s stockholders. The Incorporated Documents contain correct and complete copies of the Company’s certificate of incorporation, as amended and as in effect on the date hereof, and the Company’s bylaws, as amended and as in effect on the date hereof, and the terms of all Common Stock Equivalents, and the material rights of the holders thereof in respect thereto.

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(k) Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) neither the Company nor any of its direct and indirect subsidiaries (including, for this purpose, any variable interest entities), including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company, has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or any of its Subsidiaries, or, other than in the course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company’s long-term or short-term debt.

(l) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited Financial Statements included within the Incorporated Documents, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Financial Statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Shares contemplated by the Transaction Documents and Prospectus or disclosed in the Prospectus, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition, including any transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 trading day of the Common Stock on the Trading Market prior to the date that this representation is made.

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(m) Litigation. Other than as set forth in the Registration Statement, there is no action, suit, inquiry, arbitration, notice of violation, proceeding or investigation pending or threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement, the Transaction Documents and the transactions contemplated pursuant to the Prospectus or the Shares or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. No director, officer or employee of the Company or any of its Subsidiaries has willfully violated 18 U.S.C. §1519 or engaged in spoliation in reasonable anticipation of litigation. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been and there is not pending or contemplated, any investigation by the Commission or any other U.S. or foreign securities regulator involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. After reasonable inquiry of its employees, the Company is not aware of any fact which might result in or form the basis for any such Action, suit, arbitration, investigation, inquiry or other proceeding. Neither the Company nor any of its Subsidiaries is subject to any order, writ, judgment, injunction, decree, determination or award of any governmental agency or regulatory authority.

(n) Labor Relations. No material labor dispute exists or is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer of the Company or any Subsidiary is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(o) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, its certificate of incorporation, bylaws or other governing documents, or any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case (under this clause (iii)) as could not have or reasonably be expected to result in a Material Adverse Effect. Except as set forth in the Incorporated Documents, without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of the Trading Market and has no knowledge of any facts or circumstances that could reasonably lead to delisting, loss of quotation, or suspension of the Common Stock by the Trading Market in the foreseeable future. Except as set forth in the Incorporated Documents, during the two years prior to the date hereof, (i) the Common Stock has been listed or designated for quotation on the Trading Market, (ii) trading in or quotation of the Common Stock has not been suspended by the Commission or the Trading Market and (iii) the Company has received no communication, written or oral, from the Commission or the Trading Market regarding the suspension, loss of quotation, or delisting of the Common Stock from the Trading Market. There is no agreement, commitment, judgment, injunction, order or decree binding upon the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries is a party which has or would reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company or any of its Subsidiaries, any acquisition of property by the Company or any of its Subsidiaries or the conduct of business by the Company or any of its Subsidiaries as currently conducted other than such effects, individually or in the aggregate, which have not had and would not reasonably be expected to have a Material Adverse Effect on the Company or any of its Subsidiaries.

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(p) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“Environmental Laws”); (ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

(q) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the Incorporated Documents, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit, or any notice of adverse finding, warning letter, or other correspondence or notice from any governmental authority alleging or asserting noncompliance with any Material Permits.

(r) Title to Assets. The Company does not own any real property. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

(s) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights (collectively, the “Intellectual Property Rights”) necessary or material to conduct their respective businesses as now conducted and presently proposed to be conducted. None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement, except as would not have a Material Adverse Effect. Neither the Company nor any Subsidiary has received, since the date of the latest audited Financial Statements included within the Incorporated Documents, a notice (written or otherwise) of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as would not have a Material Adverse Effect. All such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

(t) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(u) Transactions With Affiliates and Employees. Except as set forth in the Incorporated Documents, none of the officers or directors of the Company or any Subsidiary and none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

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(v) D&O Questionnaires. All information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers immediately prior to the offering and sale of Shares, as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Registration Statement and Prospectus as well as in the Lock-Up Agreements (as defined below), provided to the Placement Agent, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become inaccurate or incorrect in any material respect.

(w) Sarbanes-Oxley Compliance and Accounting Controls. (i) The Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents; (ii) The Company has been, and at the Applicable Time and on the Closing Date, will be, in compliance with the provisions of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act; and (iii) The Company and its Subsidiaries maintain systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) to the extent require by the Exchange Act that have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

(x) Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the Exchange Act Regulations and the Sarbanes-Oxley Act applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.

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(y) Changes After Dates in Registration Statement. (i) Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (1) there has been no material adverse change in the financial position or results of operations of the Company, nor any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company (a “Material Adverse Change”); (2) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; and (3) no officer or director of the Company has resigned from any position with the Company. (ii) Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.

(z) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Shares, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

(aa) Registration Rights. Except as disclosed in the Incorporated Documents, no Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.

(bb) Stock Exchange Listing; No Stop Orders, etc. The Company’s shares of Common Stock have been preliminarily approved for listing on the NASDAQ Capital Market (the “Exchange”), and the Company has taken no action designed to, or likely to have the effect of, delisting the shares of Common Stock from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information. .

(cc) Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Investors as a result of the Investors and the Company fulfilling their obligations or exercising their rights under this Agreement and the Transaction Documents and the transactions contemplated pursuant to the Prospectus, including without limitation as a result of the Company’s issuance of the Shares and the Investors’ ownership of the Shares.

(dd) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by this Agreement, the Transaction Documents and the Prospectus, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Investors or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the Registration Statement and Prospectus. The Company understands and confirms that the Investors will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Investors regarding the Company and, its Subsidiaries, their respective businesses and the transactions contemplated hereby and in the Transaction Documents, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.

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(ee) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this Offering to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

(ff) Solvency. Based on the consolidated financial condition of the Company as of each Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Shares hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from each Closing Date. The SEC Reports sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, including any debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound or have any commitments. For purposes of this Agreement: (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with GAAP) (other than trade payables entered into in the ordinary course of business consistent with past practice), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; and (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto. Neither the Company nor any Subsidiary is in violation under the terms of, or in default with respect to any Indebtedness.

(gg) Tax Status. The Company and its Subsidiaries (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim. The provisions for taxes payable, if any, shown on the Financial Statements are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated Financial Statements. No issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the Internal Revenue Code of 1986, as amended (the “Code”). The net operating loss carryforwards (“NOLs”) for United States federal income tax purposes of the consolidated group of which the Company is the common parent, if any, shall not be adversely affected by the transactions contemplated hereby. The transactions contemplated hereby do not constitute an “ownership change” within the meaning of Section 382 of the Code, thereby preserving the Company’s ability to utilize such NOLs.

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(hh) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(ii) Independent Accountants. To the knowledge of the Company, GBH CPAs, PC (“GBH”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is a registered independent public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. GBH has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act. On August 5, 2018, the Company accepted the resignation of GBH and engaged Marcum LLP as the Company’s new independent registered public accounting firm effective immediately.

(jj) Regulation M Compliance. The Company has not, and no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Shares, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Shares, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Placement Agent in connection with the placement of the Shares.

(kk) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance, sale and transfer of the Shares to be sold to each Investor will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

(ll) Office of Foreign Assets Control. Neither the Company nor any Subsidiary, any director, officer, agent, employee or Affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department.

(mm) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Investor’s request.

(nn) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

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(oo) Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its Subsidiaries nor any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any Person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.

(pp) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the USA Patriot Act of 2001, the Currency and Foreign Transactions Reporting Act of 1970, as amended, and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations, including, without limitation, the laws, regulations and Executive Orders and sanctions programs administered by the U.S. Office of Foreign Assets Control, including, but not limited, to (i) Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or threatened.

(qq) Stock Option Plans. Each stock option granted by the Company was granted (i) in accordance with the terms of the applicable stock option plan of the Company and (ii) with an exercise price at least equal to the fair market value of the Common Stock on the date such stock option would be considered granted under GAAP and applicable law. No stock option granted under the Company’s stock option plan has been backdated. The Company has not knowingly granted, and there is no and has been no policy or practice of the Company to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding the Company or its Subsidiaries or their financial results or prospects.

(rr) No Disagreements with Accountants and Lawyers. There are no material disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents. In addition, on or prior to the date hereof, the Company had discussions with its accountants about its Financial Statements previously filed with the Commission. Based on those discussions, the Company has no reason to believe that it will need to restate any such Financial Statements or any part thereof.

(ss) Certificates. Any certificate signed by an officer of the Company and delivered to the Placement Agent or to counsel for the Placement Agent shall be deemed to be a representation and warranty by the Company to the Placement Agent as to the matters set forth therein.

(tt) Reliance. The Company acknowledges that the Placement Agent will rely upon the accuracy and truthfulness of the foregoing representations and warranties and hereby consents to such reliance.

(uu) Transactions Affecting Disclosure to FINRA. (i) Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any insider with respect to the sale of the Shares and the Placement Agent’s Warrant Shares hereunder or any other arrangements, agreements or understandings of the Company or any of its shareholders that may affect the Placement Agent’s compensation, as determined by FINRA. (ii) Payments Within Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (1) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (2) any FINRA member; or (3) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriter as provided hereunder in connection with the Offering. (iii) Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein. (iv) FINRA Affiliation. There is no (1) officer or director of the Company, (2) beneficial owner of 5% or more of any class of the Company’s securities or (3) beneficial owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA). (v) Information. All information provided by the Company in its FINRA questionnaire to Underwriter Counsel specifically for use by Underwriter Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.

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Section 3. Delivery and Payment.

(a) The Shares will be delivered by the Company to the Investors against payment of the Purchase Price therefor at the offices of Ortoli Rosenstadt LLP, 366 Madison Avenue, 3^rd Floor, New York, NY 10017 (the “Placement Agent Counsel”), on or before 5:00 p.m. Eastern time, on the second (2nd) Business Day after each Closing Date on which notice (each, a “Closing Notice”) requesting that the Offering be closed has been delivered by the Company and by the Placement Agent to China Merchants Bank Co., Ltd. pursuant to the Escrow Deposit Agreement (the “Escrow Agreement”). The Closing Notice may be delivered at any time pursuant to the Escrow Agreement. The Closing Date shall be no later than 120 days from the effective date (the “Effective Date”) of the Registration Statement (as defined below) (the “Initial Termination Date”), unless extended by the Company and the Placement Agent for an additional 60 days (the “Final Termination Date,” and collectively with the Initial Termination Date, the “Termination Date”). One or more closings may be conducted prior to the Termination Date.

(b) Payment for the Shares shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Placement Agent) representing the Shares (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Investors. The Shares shall be registered in such name or names of the Investors and in such authorized denominations as the Placement Agent may request in writing prior to the Closing Date. The Company shall not be obligated to sell or deliver the Shares except upon tender of payment by the Investors for all of the Shares.

Section 4. Covenants and Agreements of the Company. The Company further covenants and agrees with the Placement Agent as follows:

(a) Registration Statement Matters. The Company will advise the Placement Agent promptly after it receives notice thereof of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to any Prospectus has been filed and will furnish the Placement Agent with copies thereof. The Company will file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 14 or 15(d) of the Exchange Act subsequent to the date of any Prospectus and for so long as the delivery of a prospectus is required in connection with the Offering. The Company will advise the Placement Agent, promptly after it receives notice thereof (i) of any receipt of comments of, or any request by the Commission to amend the Registration Statement or to amend or supplement any Prospectus or for additional information, and (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or any order directed at any Incorporated Document, if any, or any amendment or supplement thereto or any order preventing or suspending the use of any Prospectus or any amendment or supplement thereto or any post-effective amendment to the Registration Statement, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the institution or threatened institution of any Proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or a Prospectus or for additional information. The Company shall use its best efforts to prevent the issuance of any such stop order or prevention or suspension of such use. If the Commission shall enter any such stop order or order or notice of prevention or suspension at any time, the Company will use its best efforts to obtain the lifting of such order at the earliest possible moment, or will file a new registration statement and use its best efforts to have such new registration statement declared effective as soon as practicable. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A, 430B and 430C, as applicable, under the Securities Act, including with respect to the timely filing of documents thereunder, and will use its reasonable efforts to confirm that any filings made by the Company under such Rule 424(b) are received in a timely manner by the Commission.

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(b) Blue Sky Compliance. The Company will cooperate with the Placement Agent and the Investors in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions (United States and foreign) as the Placement Agent or the Investors may reasonably request and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports and other documents as are or may be required to continue such qualifications in effect for so long a period as the Placement Agent may reasonably request for distribution of the Shares. The Company will advise the Placement Agent promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any Proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment.

(c) Amendments and Supplements to the Prospectus and Other Matters. The Company will comply with the Securities Act and the Exchange Act, and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement, the Transaction Documents, the Incorporated Documents and any Prospectus. If during the period in which a prospectus is required by law to be delivered in connection with the distribution of Shares contemplated by the Transaction Documents or the Prospectus (the “Prospectus Delivery Period”), any event shall occur as a result of which, in the judgment of the Company or in the opinion of the Placement Agent or counsel for the Placement Agent, it becomes necessary to amend or supplement the Incorporated Documents or any Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, as the case may be, not misleading, or if it is necessary at any time to amend or supplement the Incorporated Documents or any Prospectus or to file under the Exchange Act any Incorporated Document to comply with any law, the Company will promptly prepare and file with the Commission, and furnish at its own expense to the Placement Agent and to dealers, an appropriate amendment to the Registration Statement or supplement to the Registration Statement, the Incorporated Documents or any Prospectus that is necessary in order to make the statements in the Incorporated Documents and any Prospectus as so amended or supplemented, in the light of the circumstances under which they were made, as the case may be, not misleading, or so that the Registration Statement, the Incorporated Documents or any Prospectus, as so amended or supplemented, will comply with law. Before amending the Registration Statement or supplementing the Incorporated Documents or any Prospectus in connection with the Offering, the Company will furnish the Placement Agent with a copy of such proposed amendment or supplement and will not file any such amendment or supplement to which the Placement Agent reasonably objects.

(d) Copies of any Amendments and Supplements to a Prospectus. The Company will furnish the Placement Agent, without charge, during the period beginning on the date hereof and ending on the later of the last Closing Date of the Offering, as many copies of the Incorporated Documents and any Prospectus and Free Writing Prospectus (as defined below), and any amendments and supplements thereto (including any Incorporated Documents, if any) as the Placement Agent may reasonably request.

(e) Free Writing Prospectus. The Company covenants that it will not, unless it obtains the prior written consent of the Placement Agent, make any offer relating to the Shares that would constitute a “free writing prospectus” (as defined in Rule 405 of the Securities Act) required to be filed by the Company with the Commission or retained by the Company under Rule 433 of the Securities Act (a “Free Writing Prospectus”). In the event that the Placement Agent expressly consents in writing to any Free Writing Prospectus (a “Permitted Free Writing Prospectus”), the Company covenants that it shall comply with the requirements of Rule 164 and 433 of the Securities Act applicable to such Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and record keeping. If at any time during the Prospectus Delivery Period there occurred or occurs an event or development the result of which a Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or any Prospectus or included or would include, when taken together with the Final Prospectus and Incorporated Documents, an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, the Company will promptly notify the Placement Agent and will promptly amend or supplement, at its own expense, such Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

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(f) Lock-Up. The Company hereby agrees that, without the prior written consent of the Placement Agent, it will not, during the period from the date hereof until the date that is twelve (12) months after the date of the Final Prospectus (the “Lock-Up Period”), (i) offer, pledge, issue, sell, contract to sell, purchase, contract to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any Common Stock Equivalents; or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise; or (iii) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any Common Stock Equivalents (other than a registration statement for Common Stock and/or Common Stock Equivalents of the Company that will not be declared effective by the Commission prior to the expiration of the Lock-Up Period (each, a “Subsequent Offering Registration Statement”, and any such offering pursuant thereto, each, a “Subsequent Offering”)). The restrictions contained in the preceding sentence shall not apply to (1) the Shares to be sold hereunder, (2) the issuance of Common Stock upon the exercise of options or warrants or the conversion or exercise of Common Stock Equivalents disclosed as outstanding in the Registration Statement (excluding exhibits thereto) or Prospectus, (3) the issuance of employee stock options not exercisable during the Lock-Up Period and the grant of restricted stock awards or restricted stock units or shares of Common Stock pursuant to equity incentive plans described in the Registration Statement (excluding exhibits thereto) or the Final Prospectus or (4) any Subsequent Offering of shares of Common Stock and/or Common Stock Equivalents that is consummated pursuant to a Subsequent Offering Registration Statement after the expiration of the Lock-Up Period. The Company agrees not to accelerate the vesting of any option or warrant or the lapse of any repurchase right prior to the expiration of the Lock-Up Period except with respect to any employees, officers or directors of the Company that have executed a Lock-Up Agreement. As used herein “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed.

(g) Transfer Agent. For a period of two years from the final Closing Date, the Company will maintain, at its expense, a registrar and transfer agent for the Common Stock.

(h) Emerging Growth Company Status. The Company shall promptly notify the Placement Agent if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Shares within the meaning of the Securities Act and (ii) fifteen (15) days following the completion of the Lock-Up Period..

(i) Earnings Statement. As soon as practicable and in accordance with applicable requirements under the Securities Act, but in any event not later than 18 months after the last Closing Date, the Company will make generally available to its security holders and to the Placement Agent an earnings statement, covering a period of at least 12 consecutive months beginning after the last Closing Date, that satisfies the provisions of Section 11(a) and Rule 158 under the Securities Act.

(j) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Shares to be sold by it hereunder for the purposes set forth in the Registration Statement and the Final Prospectus under the heading “Use of Proceeds”.

(k) Reporting Requirements. The Company, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, the Company shall report the use of proceeds from the issuance of the Securities as may be required under Rule 463 under the Securities Act Regulations.

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(l) Additional Documents. The Company will enter into any subscription, purchase or other customary agreements as the Placement Agent or the Investors deem necessary or appropriate to consummate the Offering, all of which will be in form and substance reasonably acceptable to the Placement Agent and the Investors. The Company agrees that the Placement Agent may rely upon, and each is a third-party beneficiary of, the representations and warranties, and applicable covenants, set forth in the Transaction Documents and any other such purchase, subscription or other agreement with Investors in the Offering.

(m) No Manipulation of Price. The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.

(n) Acknowledgment. The Company acknowledges that any advice given by the Placement Agent to the Company is solely for the benefit and use of the Board of Directors of the Company and may not be used, reproduced, disseminated, quoted or referred to, without the Placement Agent’s prior written consent.

Section 5. Conditions of the Obligations of the Placement Agent. The obligations of the Placement Agent hereunder shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in Section 2 hereof as well as any representations of the Company in the Transaction Documents, in each case as of the date hereof and as of each Closing Date as though then made, to the timely performance by each of the Company of its covenants and other obligations hereunder and under the Transaction Documents on and as of such dates, and to each of the following additional conditions:

(a) Accountants’ Comfort Letter. On the date hereof, the Placement Agent shall have received, and the Company shall have caused to be delivered to the Placement Agent, a letter from Marcum LLP (the independent registered public accounting firm of the Company), addressed to the Placement Agent, dated as of the date hereof, in form and substance satisfactory to the Placement Agent. The letter shall not disclose any change in the condition (financial or other), earnings, operations, business or prospects of the Company from that set forth in the Incorporated Documents or the applicable Prospectus, which, in the Placement Agent’s sole judgment, is material and adverse and that makes it, in the Placement Agent’s sole judgment, impracticable or inadvisable to proceed with the Offering of the Shares as contemplated by such Prospectus.

(b) Transaction Documents. The Company and each Subsidiary (as the case may be) shall have duly executed and delivered to the Investors each of the Transaction Documents to which it is a party, including the Subscription Agreement pursuant to the terms thereunder.

(c) Compliance with Registration Requirements; No Stop Order; No Objection from the FINRA. The Final Prospectus (in accordance with Rule 424(b)) and any Permitted Free Writing Prospectus, if any, shall have been duly filed with the Commission, as appropriate; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no Proceeding for that purpose shall have been initiated or threatened by the Commission; no order preventing or suspending the use of any Prospectus or Permitted Free Writing Prospectus shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; no order having the effect of ceasing or suspending the distribution of the Shares or any other securities of the Company shall have been issued by any securities commission, securities regulatory authority or stock exchange and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by any securities commission, securities regulatory authority or stock exchange; all requests for additional information on the part of the Commission shall have been complied with; and FINRA shall have raised no objection to the fairness and reasonableness of the placement terms and arrangements.

(d) Corporate Proceedings. All corporate proceedings and other legal matters in connection with this Agreement, the Registration Statement and each Prospectus, and the registration, sale and delivery of the Shares, shall have been completed or resolved in a manner reasonably satisfactory to the Placement Agent’s counsel, and such counsel shall have been furnished with such papers and information as it may reasonably have requested to enable such counsel to pass upon the matters referred to in this Section 5.

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(e) No Material Adverse Effect. Subsequent to the execution and delivery of this Agreement and prior to each Closing Date, in the Placement Agent’s sole reasonable judgment after consultation with the Company, there shall not have occurred any Material Adverse Effect.

(f) No Materially Misleading Fact. The Placement Agent shall not have reasonably determined, and advised the Company, that the Registration Statement, any Prospectus, or any amendment thereof or supplement thereto, or any Free Writing Prospectus, contains an untrue statement of fact which, in the reasonable opinion of the Placement Agent, is material, or omits to state a fact which, in the reasonable opinion of the Placement Agent, is material and is required to be stated therein or necessary to make the statements therein not misleading.

(g) Opinion of Counsel. The Placement Agent shall have received on each Closing Date the favorable opinion of Sichenzia Ross Ference LLP, US legal counsel to the Company, dated as of such Closing Date, including, without limitation, a negative assurance letter addressed to the Placement Agent, and in form and substance satisfactory to the Placement Agent. On or before each Closing Date there shall have been furnished to the Placement Agent the negative assurance letter of Placement Agent Counsel, dated the Closing Date and addressed to the Placement Agent, in form and substance reasonably satisfactory to Placement Agent.

(h) Good Standing. The Placement Agent shall have received a certificate evidencing the formation and good standing of the Company from the Secretary of State of Nevada as of a date within five (5) days of each Closing Date.

(i) Certified Charter. The Placement Agent shall have received a certified copy of the Certificate of Incorporation of the Company as certified by the Nevada Secretary of State within ten (10) days of each Closing Date.

(j) Secretary’s Certificate. The Placement Agent shall have received on each Closing Date a certificate of the Company, dated as of such Closing Date, signed by the Secretary of the Company or such other officer of the Company serving in such capacity, as to (i) the resolutions of the Board of Directors approving the Offering and issuance and pricing of the Shares, in a form reasonable acceptable to the Placement Agent, (ii) the incumbency of the officers of the Company executing this Agreement and the Transaction Documents, (iii) the Certificate of Incorporation of the Company, and (iv) the Bylaws of the Company, each as in effect at the Closing.

(k) Officers’ Certificate. The Placement Agent shall have received on each Closing Date a certificate of the Company, dated as of such Closing Date, signed by the Chief Executive Officer and Chief Financial Officer of the Company, to the effect that, and the Placement Agent shall be satisfied that, the signers of such certificate have reviewed the Registration Statement, the Incorporated Documents, the Prospectus, and this Agreement and to the further effect that:

(i) The representations and warranties of the Company in this Agreement and in the Transaction Documents are true and correct, as if made on and as of such Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date;

(ii) No stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the Securities Act; no order having the effect of ceasing or suspending the distribution of the Shares or any other securities of the Company has been issued by any securities commission, securities regulatory authority or stock exchange in the United States and no proceedings for that purpose have been instituted or are pending or contemplated by any securities commission, securities regulatory authority or stock exchange in the United States;

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(iii) When the Registration Statement became effective, at the time of sale, and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement and the Incorporated Documents, if any, when such documents became effective or were filed with the Commission, contained all material information required to be included therein by the Securities Act and the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Securities Act and the Exchange Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and the Registration Statement and the Incorporated Documents, if any, did not and do not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided, however, that the preceding representations and warranties contained in this paragraph (iii) shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Placement Agent expressly for use therein) and, since the effective date of the Registration Statement, there has occurred no event required by the Securities Act and the rules and regulations of the Commission thereunder to be set forth in the Incorporated Documents which has not been so set forth; and

(iv) Subsequent to the respective dates as of which information is given in the Registration Statement, the Incorporated Documents and any Prospectus, there has not been: (a) any Material Adverse Effect; (b) any transaction that is material to the Company and the Subsidiaries taken as a whole, except transactions entered into in the ordinary course of business; (c) any obligation, direct or contingent, that is material to the Company and the Subsidiaries taken as a whole, incurred by the Company or any Subsidiary, except obligations incurred in the ordinary course of business; (d) any material change in the capital stock (except changes thereto resulting from the exercise of outstanding stock options or warrants) or outstanding indebtedness of the Company or any Subsidiary; (e) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company; or (f) any loss or damage (whether or not insured) to the property of the Company or any Subsidiary which has been sustained or will have been sustained which has a Material Adverse Effect.

(l) Outstanding Shares. The Placement Agent shall have received a letter from the Company’s transfer agent certifying the number of shares of Common Stock outstanding on the trading day immediately prior to each Closing Date.

(m) Bring-down Comfort Letter. On each Closing Date, the Placement Agent shall have received from Marcum LLP a letter dated as of such Closing Date, in form and substance satisfactory to the Placement Agent, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than three Business Days prior to such Closing Date.

(n) Stock Exchange Listing. The Common Stock shall be registered under the Exchange Act and shall be listed on the Trading Market, and the Company shall not have taken any action designed to terminate, or likely to have the effect of terminating, the registration of the Common Stock under the Exchange Act or delisting or suspending from trading the Common Stock from the Trading Market, nor, except as disclosed in the SEC Reports as of the date hereof, shall the Company have received any information suggesting that the Commission or the Trading Market is contemplating terminating such registration or listing. The Shares shall be approved for listing on the Trading Market, subject to official notice of issuance.

(o) Lock-Ups. On or before the date hereof, the Placement Agent shall have received duly executed lock-up agreement, substantially in the form of Exhibit B hereto (each a “Lock-Up Agreement”), from each of the parties specified in Schedule 2.

(p) Transfer Agent Issuance Instructions. The Company shall have issued irrevocable instructions to its transfer agent with respect to the issuance of the Shares to the Investors on such Closing Date, in a form reasonable acceptable to the Placement Agent, in accordance with the terms of the Subscription Agreement.

(q) Transfer Agent Lock-Up Instructions. On or before the first Closing Date, the Company shall have issued irrevocable instructions to its transfer agent, in a form reasonable acceptable to the Placement Agent, to stop transfer of any shares of equity securities of the Company in accordance with the various Lock-Up Agreements.

(r) Placement Agent’s Warrant Agreement. On each Closing Date, the Company shall have delivered to the Placement Agent executed copies of the Placement Agent’s Warrant Agreement.

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(s) Additional Documents. On or before each Closing Date, the Placement Agent and counsel for the Placement Agent shall have received such information and documents as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Shares as contemplated herein and in the Transaction Documents, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained, including, without limitation, any and all Required Approvals.

Section 6. Payment of Expenses. The Company agrees to pay all costs, fees and expenses incurred by the Company in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby and in the Transaction Documents, including, without limitation: (i) all expenses incident to the issuance, delivery and qualification of the Shares (including all printing and engraving costs); (ii) all fees and expenses of the registrar and transfer agent of the Common Stock; (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Shares; (iv) all fees and expenses of the Company’s counsel, independent public or certified public accountants and other advisors; (v) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), the Preliminary Prospectus and Final Prospectus, and all amendments and supplements thereto, and this Agreement; (vi) all filing fees, reasonable attorneys’ fees and expenses incurred by the Company or the Placement Agent (up to $70,000 with respect to the fees and expenses of Placement Agent’s counsel) in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Shares for offer and sale under the state securities or blue sky laws or the securities laws of any other country, and, if requested by the Placement Agent, preparing and printing a “Blue Sky Survey,” an “International Blue Sky Survey” or other memorandum, and any supplements thereto, advising the Placement Agent of such qualifications, registrations and exemptions; (vii) the filing fees incident to the review and approval by FINRA of the Placement Agent’s participation in the offering and distribution of the Shares; (viii) the fees and expenses associated with including the Shares on the Trading Market; (ix) all costs and expenses incident to the travel and accommodation of the Company’s and the Placement Agent’s employees on the “roadshow,” if any; and (x) all other fees, costs and expenses referred to in Part II of the Registration Statement, provided however and notwithstanding anything to the contrary herein, the Placement Agent shall not incur any fees or expenses in excess of $1,000 without the prior written authorization of the Company.

Section 7. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold harmless the Placement Agent, its Affiliates and each person controlling the Placement Agent (within the meaning of Section 15 of the Securities Act), and the directors, officers, agents and employees of the Placement Agent, its Affiliates and each such controlling person (the Placement Agent, and each such entity or person, an “Indemnified Person”) from and against any losses, claims, damages, judgments, assessments, costs and other liabilities (collectively, the “Liabilities”), and shall reimburse each Indemnified Person for all fees and expenses (including the reasonable fees and expenses of one counsel for all Indemnified Persons, except as otherwise expressly provided herein) (collectively, the “Expenses”) as they are incurred by an Indemnified Person in investigating, preparing, pursuing or defending any Actions, whether or not any Indemnified Person is a party thereto, (i) caused by, or arising out of or in connection with, any untrue statement or alleged untrue statement of a material fact contained in any Incorporated Document or by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (other than untrue statements or alleged untrue statements in, or omissions or alleged omissions from, information relating to an Indemnified Person furnished in writing by or on behalf of such Indemnified Person expressly for use in the Incorporated Documents) or (ii) otherwise arising out of or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to this Agreement and the Transaction Documents, the transactions contemplated thereby or any Indemnified Person’s actions or inactions in connection with any such advice, services or transactions; provided, however, that, in the case of clause (ii) only, the Company shall not be responsible for any Liabilities or Expenses of any Indemnified Person that are finally judicially determined to have resulted solely from such Indemnified Person’s (x) gross negligence or willful misconduct in connection with any of the advice, actions, inactions or services referred to above or (y) use of any offering materials or information concerning the Company in connection with the offer or sale of the Shares in the Offering which were not authorized for such use by the Company and which use constitutes gross negligence or willful misconduct. The Company also agrees to reimburse each Indemnified Person for all Expenses as they are incurred in connection with enforcing such Indemnified Person’s rights under this Agreement.

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(b) Upon receipt by an Indemnified Person of actual notice of an Action against such Indemnified Person with respect to which indemnity may be sought under this Agreement, such Indemnified Person shall promptly notify the Company in writing; provided that failure by any Indemnified Person so to notify the Company shall not relieve the Company from any liability which the Company may have on account of this indemnity or otherwise to such Indemnified Person, except to the extent the Company shall have been prejudiced by such failure. The Company shall, if requested by the Placement Agent, assume the defense of any such Action including the employment of counsel reasonably satisfactory to the Placement Agent, which counsel may also be counsel to the Company. Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company has failed promptly to assume the defense and employ counsel or (ii) the named parties to any such Action (including any impeded parties) include such Indemnified Person and the Company, and such Indemnified Person shall have been advised in the reasonable opinion of counsel that there is an actual conflict of interest that prevents the counsel selected by the Company from representing both the Company (or another client of such counsel) and any Indemnified Person; provided that the Company shall not in such event be responsible hereunder for the fees and expenses of more than one firm of separate counsel for all Indemnified Persons in connection with any Action or related Actions, in addition to any local counsel. The Company shall not be liable for any settlement of any Action effected without its written consent (which shall not be unreasonably withheld). In addition, the Company shall not, without the prior written consent of the Placement Agent (which shall not be unreasonably withheld), settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened Action in respect of which indemnification or contribution may be sought hereunder (whether or not such Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Person from all Liabilities arising out of such Action for which indemnification or contribution may be sought hereunder. The indemnification required hereby shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

(c) In the event that the foregoing indemnity is unavailable to an Indemnified Person other than in accordance with this Agreement, the Company shall contribute to the Liabilities and Expenses paid or payable by such Indemnified Person in such proportion as is appropriate to reflect (i) the relative benefits to the Company, on the one hand, and to the Placement Agent and any other Indemnified Person, on the other hand, of the matters contemplated by this Agreement and the Transaction Documents, or (ii) if the allocation provided by the immediately preceding clause is not permitted by applicable law, not only such relative benefits but also the relative fault of the Company, on the one hand, and the Placement Agent and any other Indemnified Person, on the other hand, in connection with the matters as to which such Liabilities or Expenses relate, as well as any other relevant equitable considerations; provided that in no event shall the Company contribute less than the amount necessary to ensure that all Indemnified Persons, in the aggregate, are not liable for any Liabilities and Expenses in excess of the amount of fees actually received by the Placement Agent pursuant to this Agreement. For purposes of this paragraph, the relative benefits to the Company, on the one hand, and to the Placement Agent on the other hand, of the matters contemplated by this Agreement and in the Transaction Documents shall be deemed to be in the same proportion as (a) the total value paid or contemplated to be paid to or received or contemplated to be received by the Company in the transaction or transactions that are within the scope of this Agreement and the Transaction Documents, whether or not any such transaction is consummated, bears to (b) the fees paid to the Placement Agent under this Agreement. Notwithstanding the above, no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act, as amended, shall be entitled to contribution from a party who was not guilty of fraudulent misrepresentation.

(d) The Company also agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to this Agreement and the Transaction Documents, the transactions contemplated thereby or any Indemnified Person’s actions or inactions in connection with any such advice, services or transactions except for Liabilities (and related Expenses) of the Company that are finally judicially determined to have resulted solely from such Indemnified Person’s gross negligence or willful misconduct in connection with any such advice, actions, inactions or services.

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(e) The reimbursement, indemnity and contribution obligations of the Company set forth herein shall apply to any modification of this Agreement and shall remain in full force and effect regardless of any termination of, or the completion of any Indemnified Person’s services under or in connection with, this Agreement.

Section 8. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company or any person controlling the Company, of its officers, and of the Placement Agent set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Placement Agent, the Company, or any of its or their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Shares sold hereunder and any termination of this Agreement for a period of three years from the date of this Agreement. A successor to a Placement Agent, or to the Company, its directors or officers or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Agreement.

Section 9. Termination of this Agreement.

(a) The Placement Agent shall have the right to terminate this Agreement by giving notice to the Company as hereinafter specified at any time at or prior to the Closing Date, if in the discretion of the Placement Agent, (i) there has occurred any material adverse change in the securities markets or any event, act or occurrence that has materially disrupted, or in the opinion of the Placement Agent, will in the future materially disrupt, the securities markets or there shall be such a material adverse change in general financial, political or economic conditions or the effect of international conditions on the financial markets in the United States is such as to make it, in the judgment of the Placement Agent, inadvisable or impracticable to market the Shares or enforce contracts for the sale of the Shares, (ii) trading in the Common Stock shall have been suspended by the Commission or the Trading Market, or trading in securities generally on the OTC Markets, the Nasdaq Stock Market, the NYSE or the NYSE American shall have been suspended, (iii) minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the OTC Markets, the Nasdaq Stock Market, the NYSE or NYSE American, by such exchange or by order of the Commission or any other governmental authority having jurisdiction, (iv) a banking moratorium shall have been declared by federal or state authorities, (v) there shall have occurred any attack on, outbreak or escalation of hostilities or act of terrorism involving the United States, any declaration by the United States of a national emergency or war, any substantial change or development involving a prospective substantial change in United States or international political, financial or economic conditions or any other calamity or crisis, (vi) the Company suffers any loss by strike, fire, flood, earthquake, accident or other calamity, whether or not covered by insurance, (vii) the Company is in material breach of any of its representations, warranties or covenants under this Agreement, including if any condition specified in Section 5 is not satisfied when and as required to be satisfied, or (viii) in the judgment of the Placement Agent, there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement or the Prospectus, any material adverse change in the assets, properties, condition, financial or otherwise, or in the results of operations, business affairs or business prospects of the Company and its Subsidiaries considered as a whole, whether or not arising in the ordinary course of business. If the Placement Agent elects to terminate this Agreement as provided in this Section, the Company shall be notified promptly by the Placement Agent by telephone, confirmed by letter.

(b) Notwithstanding anything to the contrary contained herein, the provisions concerning confidentiality, indemnification and contribution contained herein and the Company’s obligations contained in the indemnification provisions, including any obligations under Section 6 (Payment of Expenses), Section 7 (Indemnification and Contribution) and Section 8 (Representations and Indemnities to Survive Delivery), will survive any expiration or termination of this Agreement for three years from the date of this Agreement, and the Company’s obligation to pay fees actually earned and payable and to reimburse expenses actually incurred and reimbursable pursuant to Section 1 hereof and which are permitted to be reimbursed under FINRA Rule 5110(f)(2)(D), will survive any expiration or termination of this Agreement for three years from the date of this Agreement.

(c) The terms of the Right of First Refusal shall survive the termination of this Agreement unless this Agreement is terminated by the Company for cause in compliance with FINRA Rule 5110(f)(2)(D)(ii), which includes the Placement Agent’s material failure to provide the services contemplated in this Agreement, and the Company’s exercise of this right for termination for cause eliminates any obligations with respect to the Right of First Refusal.

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Section 10. Notices. All communications hereunder shall be in writing and shall be mailed, hand or electronically delivered and confirmed to the parties hereto as follows. Any party hereto may change the address for receipt of communications by giving written notice to the others.

If to the Placement Agent:

Univest Securities, LLC

256 W 36^th Street, 3^rd Floor

New York, NY 10018

Attention: Edric Guo

With a copy to:

Ortoli Rosenstadt LLP

366 Madison Avenue, 3^rd Floor

New York, NY 10017

Facsimile: (212) 826-9307

Attention: William S. Rosenstadt

Jason “Mengyi” Ye

If to the Company:

Inmune Bio Inc.

1224 Prospect Street, Suite 150

La Jolla, CA 92037

Attention: David Moss

With a copy to:

Inmune Bio Inc.

c/o Sichenzia Ross Ference LLP

1185 Avenue of the Americas, 37th Floor

New York, NY 10036

Facsimile: (212) 930-9725

Attention: Thomas Rose

Section 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, and to the benefit of the employees, officers and directors and controlling persons referred to in Section 7 hereof, and to their respective successors, and personal representative, and no other person will have any right or obligation hereunder.

Section 12. Partial Unenforceability. The invalidity or unenforceability of any section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph or provision hereof. If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

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Section 13. Governing Law Provisions. This Agreement shall be deemed to have been made and delivered in New York City and both this Agreement and the transactions contemplated hereby shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal laws of the State of New York, without regard to the conflict of laws principles thereof. Each of the Placement Agent and the Company: (i) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement and/or the transactions contemplated hereby shall be instituted exclusively in New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, (ii) waives any objection which it may have or hereafter to the venue of any such suit, action or proceeding, and (iii) irrevocably consents to the jurisdiction of the New York Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding. Each of the Placement Agent and the Company further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and agrees that service of process upon the Company mailed by certified mail to the Company’s address shall be deemed in every respect effective service of process upon the Company, in any such suit, action or proceeding, and service of process upon the Placement Agent mailed by certified mail to the Placement Agent’s address shall be deemed in every respect effective service process upon the Placement Agent, in any such suit, action or proceeding. If either party shall commence an action or proceeding to enforce any provision of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

Section 14. Absence of Fiduciary Relationship. The Company acknowledges and agrees that: (a) the Placement Agent has been retained solely to act as the placement agent in connection with the sale of the Shares and that no fiduciary, advisory or agency relationship between the Company and the Placement Agent has been created in respect of any of the transactions contemplated by this Agreement, irrespective of whether the Placement Agent has advised or is advising the Company on other matters; (b) the price and other terms of the Shares set forth in this Agreement, the Final Prospectus, and the Transaction Documents were established by the Placement Agent and the Investors following discussions and arm’s-length negotiations and the Company is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated by this Agreement; (c) it has been advised that the Placement Agent and its Affiliates are engaged in a broad range of transactions that may involve interests that differ from those of the Company and that the Placement Agent does not have any obligation to disclose such interest and transactions to the Company by virtue of any fiduciary, advisory or agency relationship; and (d) it has been advised that the Placement Agent is acting, in respect of the transactions contemplated by this Agreement, solely for the benefit of the Placement Agent, and not on behalf of the Company.

Section 15. General Provisions. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless of whether similar), nor shall any such waiver be deemed or constitute a continuing waiver unless otherwise expressly provided. Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement.

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If the foregoing is in accordance with your understanding of our agreement, please sign below whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.

Very truly yours,

INMUNE BIO INC.,

a Nevada corporation

By:

Name:

Title:

The foregoing Placement Agency Agreement is hereby confirmed and accepted as of the date first above written.

UNIVEST SECURITIES, LLC
By:
	Name:
	Title:

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SCHEDULE 1-A

Pricing Disclosure Package

Number of Shares for Minimum Offering : 1,000,000

Number of Shares for Maximum Offering : 2,500,000

Public Offering Price per Share: $8.00

Underwriting Discount per Share: $0.56

Underwriting Non-accountable expense allowance per Share: $0.08

Proceeds to Company per Share (before expenses): $7.36

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SCHEDULE 1-B

Issuer General Use Free Writing Prospectuses

28

SCHEDULE 2

List of Lock-Up Parties

Name # of Shares

29

EXHIBIT A

Placement Agent’s Warrants Agreement

As attached.

30

Exhibit B

Form of Lock-Up Agreement

As attached.

31

EX-4.2

  EXHIBIT 4.2

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) UNIVEST SECURITIES, LLC OR A SUB-AGENT OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF UNIVEST SECURITIES, LLC, OR OF ANY SUCH PLACEMENT AGENT OR SELECTED DEALER.

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [●], 20[__] [DATE THAT IS 180 DAYS FROM THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT]. VOID AFTER 5:00 P.M., EASTERN TIME, [●], 20[__] [DATE THAT IS FIVE YEARS AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT].

COMMON STOCK PURCHASE WARRANT

For the Purchase of [●] Shares of Common Stock

of

INMUNE BIO INC.

1. Purchase Warrant. THIS CERTIFIES THAT, pursuant to that certain Placement Agent Agreement by and between., Inmune Bio Inc., a Nevada company (the “Company”) and Univest Securities, LLC, as the placement agent of the Company (the “Placement Agent”), dated [●], 20[__] (the “Placement Agent Agreement”), the Placement Agent (in such capacity with its permitted successors or assigns, the “Holder”), as registered owner of this Purchase Warrant, is entitled, at any time or from time to time from [●], 20[__] (the “Exercise Date”) [THE DATE THAT IS 180 DAYS AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT], and at or before 5:00 p.m., Eastern time, [●], 20[__] [DATE THAT IS FIVE YEARS AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT] (the “Expiration Date”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [●] shares of common stock of the Company, par value $0.001 per share (the “Shares”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law or executive order to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period commencing on the date hereof and ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $_____ per Share (120% of the price of the Shares sold in the Offering); provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price or the adjusted exercise price, depending on the context. Any term not defined herein shall have the meaning ascribed thereto in the Placement Agent Agreement.

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2. Exercise.

2.1 Exercise Form. In order to exercise this Purchase Warrant, the exercise form attached hereto as Exhibit A (the “Exercise Form”) must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check to the order of the Company. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

2.2 Cashless Exercise. If at any time after the Exercise Date, there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Shares then, in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the Exercise Form, in which event the Company shall issue to Holder, Shares in accordance with the following formula:

X = Y(A – B)

A

Where,

X = The number of Shares to be issued to Holder;

Y = The number of Shares for which the Purchase Warrant is being exercised;

A = The fair market value of one Share; and

B = The Exercise Price.

For purposes of this Section 2.2, the fair market value of a Share is defined as follows:

(i) if the Company’s shares of common stock are traded on a securities exchange, the value shall be deemed to be the closing price on such exchange on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of this Purchase Warrant; or

(ii) if the Company’s shares of common stock are actively traded over-the-counter, the value shall be deemed to be the closing bid price on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors.

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3. Transfer.

3.1 General Restrictions. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not for a period of one hundred eighty (180) days following the Effective Date of the Registration Statement: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant to anyone other than: (i) the Placement Agent or a selected dealer participating in the offering (the “Offering”) contemplated by the Placement Agent Agreement, or (ii) officers or partners of the Placement Agent, each of whom shall have agreed to the restrictions contained herein, in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). On and after that date that is one hundred eighty (180) days after the Effective Date of the Registration Statement, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto as Exhibit B duly executed and completed, together with this Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) Business Days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

3.2 Restrictions Imposed by the Act. The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company, (ii) a Registration Statement relating to the offer and sale of such securities that includes a current prospectus with respect to which the Holder has exercised its registration rights pursuant to Section 4.2 herein, has been filed and declared effective by the Securities and Exchange Commission (the “Commission”) and compliance with applicable state securities law has been established.

4. New Purchase Warrants to be Issued.

4.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereof, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

4.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

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5. Adjustments.

5.1 Adjustments to Exercise Price and Number of Shares. The Exercise Price and the number of Shares underlying this Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

5.1.1 Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding shares, and the Exercise Price shall be proportionately decreased.

5.1.2 Aggregation of Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding shares, and the Exercise Price shall be proportionately increased.

5.1.3 Replacement of Shares upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 5.1.1 or Section 5.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 5.1.1 or Section 5.1.2, then such adjustment shall be made pursuant to Section 5.1.1, Section 5.1.2 and this Section 5.1.3. The provisions of this Section 5.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

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5.1.4 Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 5.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the date hereof or the computation thereof.

5.2 Substitute Purchase Warrant. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 5. The above provision of this Section 5 shall similarly apply to successive consolidations or share reconstructions or amalgamations.

5.3 Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

6. Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of this Purchase Warrant, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of this Purchase Warrant and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise of this Purchase Warrant and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as this Purchase Warrant shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of this Purchase Warrant to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.

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7. Certain Notice Requirements.

7.1 Holder’s Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 7.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen days prior to the date fixed as a record date or the date of closing the transfer books (the “Notice Date”) for the determination of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company at the same time and in the same manner that such notice is given to the shareholders.

7.2 Events Requiring Notice. The Company shall be required to give the notice described in this Section 7 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

7.3 Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change (“Price Notice”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.

7.4 Transmittal of Notices. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made (1) when hand delivered, (2) when mailed by express mail or private courier service or (3) when the event requiring notice is disclosed in all material respects and filed in a current report on Form 8-K or in a definitive proxy statement on Schedule 14A prior to the Notice Date: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:

If to the Holder:

Univest Securities, LLC

256 W 36th Street, 3rd Floor

New York, NY 10018

Attention: Edric Guo

6

with a copy (which shall not constitute notice) to:

Ortoli Rosenstadt LLP

366 Madison Avenue, 3rd Floor

New York, NY 10017

Facsimile: (212) 826-9307

Attention: William S. Rosenstadt

Jason “Mengyi” Ye

If to the Company:

Inmune Bio Inc.

1224 Prospect Street, Suite 150

La Jolla, CA 92037

Attention: David Moss

with a copy (which shall not constitute notice) to:

Inmune Bio Inc.

c/o Sichenzia Ross Ference LLP

1185 Avenue of the Americas, 37th Floor

New York, NY 10036

Facsimile: (212) 930-9725

Attention: Thomas Rose

8. Miscellaneous.

8.1 Amendments. The Company and the Placement Agent may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and the Placement Agent may deem necessary or desirable and that the Company and the Placement Agent deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

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8.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

8.3 Entire Agreement. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

8.4 Binding Effect. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees and respective successors and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

8.5 Governing Law; Submission to Jurisdiction. This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 7 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor.

8.6 Waiver, etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

8.7 Exchange Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and the Placement Agent enter into an agreement (“Exchange Agreement”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement. 

8.8 Execution in Counterparts. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

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IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 2018.

INMUNE BIO INC.
By:
	Name:
	Title:

9

EXHIBIT A

Form to be used to exercise Purchase Warrant:

Date: __________, 20___

The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ Shares of common stock of Inmune Bio Inc., a Nevada company (the “Company”) and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

or

The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:

X	=	Y(A-B)
		A

Where, X = The number of Shares to be issued to Holder; Y = The number of Shares for which the Purchase Warrant is being exercised; A = The fair market value of one Share which is equal to $_____; and B = The Exercise Price which is equal to $______ per share

The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.

Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

Signature

Signature Guaranteed

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

Name:

(Print in Block Letters)

Address:

NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

EXHIBIT B

Form to be used to assign Purchase Warrant:

(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):

FOR VALUE RECEIVED, does hereby sell, assign and transfer unto the right to purchase shares of Inmune Bio Inc., a Nevada company (the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.

Dated: ____________, 20__

Signature

NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever.

EX-5.1

EXHIBIT 5.1 

	November 20, 2018 INmune Bio Inc. 1224 Prospect Street, Suite 150 La Jolla, CA 92037 Ladies and Gentlemen: We have acted as counsel to INMUNE BIO INC., a Nevada company (the “Company”), in connection with the Registration Statement on Form S-1, Registration No. 333-227122 (the “Registration Statement”) filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Act”), with respect to the registration of (i) an aggregate of 2,500,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), (ii) placement agent’s warrants representing six point five percent (6.5%) of the aggregate number of Shares included in the Registration Statement, exercisable at a per share price equal to $8.00 (the “Placement Agent’s Warrants”), and (iv) all shares of Common Stock issuable upon exercise of the Placement Agent’s Warrants. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such corporate records of the Company and other certificates and documents of officials of the Company, public officials and others as we have deemed appropriate for purposes of this letter. We have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all copies submitted to us as conformed and certified or reproduced copies. With respect to the Placement Agent Warrants, when issued and delivered in accordance with the placement agent agreement between the Company and the placement agent, and as contemplated by the Registration Statement, the Placement Agent Warrant will be validly issued, fully paid and nonassessable and will be valid and binding obligations of the Company enforceable against the Company in accordance with its terms. With respect to the Shares, when such shares have been issued and delivered against payment of the purchase price therefor in accordance with the placement agent agreement between the Company and the placement agent and as contemplated by the Registration Statement, and with respect to the shares issuable upon exercise of the Placement Agent’s Warrants, when such shares have been duly issued and delivered against payment of the exercise price therefor as contemplated by the terms of the warrant agreement, such shares of Common Stock will be validly issued, fully paid and nonassessable. The information set forth herein is as of the date hereof. We assume no obligation to advise you of changes that may hereafter be brought to our attention. We do not express any opinion concerning the laws of any jurisdiction other than (i) the State of New York, (ii) the Federal laws of the United States, and (iii) the Nevada Private Corporations Chapter of the Nevada Revised Statutes. Our opinion is based on statutory laws and judicial decisions that are in effect on the date hereof, and we do not opine with respect to any law, regulation, rule or governmental policy that may be enacted or adopted after the date hereof, nor do we assume any responsibility to advise you of future changes in our opinion. We do not express an opinion on any matters other than those expressly set forth in this letter. We hereby consent to the use and filing of this opinion as an exhibit to the Registration Statement as filed with the Securities and Exchange Commission and to the reference to our firm under the heading “Legal Matters” in the Prospectus and the Registration Statement.
		Very truly yours,
		/s/ Sichenzia Ross Ference LLP
		Sichenzia Ross Ference LLP
	1185 Avenue of the Americas | 37th Floor | New York, NY | 10036 T (212) 930 9700 | F (212) 930 9725 | WWW.SRF.LAW.COM

EX-10.1

  EXHIBIT 10.1

SUBSCRIPTION AGREEMENT

Common Stock

of

Inmune Bio Inc.

This subscription agreement (this “Subscription”) is dated , 2018, by and between the investor identified on the signature page hereto (the “Investor”) and Inmune Bio Inc., a Nevada corporation (the “Company”). The parties agree as follows:

1. Subscription

Investor agrees to buy and the Company agrees to sell and issue to Investor such number of Company’s common stock (the “Shares”), par value $0.001 per share, as set forth on the signature page hereto, for an aggregate purchase price (the “Purchase Price”) equal to the product of (x) the aggregate number of Shares the Investor has agreed to purchase and (y) the Purchase Price per Share as set forth on the signature page hereto.

The Shares are being offered pursuant to a registration statement on Form S-1, File No. 333-27122 (the “Registration Statement”). The Registration Statement was declared effective by the Securities and Exchange Commission (the “Commission”) prior to issuance of any Shares and acceptance of Investor’s subscription. The prospectus (the “Prospectus”) which forms a part of the Registration Statement, however, is subject to change. A final prospectus and/or prospectus supplement will be delivered to the Investor as required by law.

The Shares are being offered by Univest Securities, LLC (the “Placement Agent”) as Placement Agent on a “best efforts, minimum/maximum” basis pursuant to an underwriting agreement (the “Placement Agent Agreement”). The completion of the purchase and sale of the Shares (the “Closing”) shall take place at a place and time (the “Closing Date”) to be specified by the Company and Placement Agents in accordance with Rule 15c6-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Upon satisfaction or waiver of all the conditions to closing set forth in the Placement Agent Agreement and the Registration Statement declared effective by the Commission, at the Closing (i) the Purchase Price deposited by the Investor subsequent to the declaration of effectiveness of the Registration Statement by wire transfer or ACH transfer of immediately available funds to the Company’s escrow accounts shall be released to the Company, and (ii) the Company shall cause the Shares to be delivered to the Investor (A) through the facilities of The Depository Trust Company’s DWAC system in accordance with the instructions set forth on the signature page attached hereto under the heading “DWAC Instructions,” or (B) if requested by the Investor on the signature page hereto or if the Company is unable to make the delivery through the facilities of The Depository Trust Company’s DWAC system, through the DRS or book-entry delivery of Shares on the books and records of the transfer agent. If delivery is made by book entry on the books and records of the transfer agent, the Company shall send written confirmation of such delivery to the Investor at the address indicated on the Signature Page hereof.

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The Placement Agent and any participating broker dealers (the “Members”) shall confirm, via the Placement Agent Agreement, selected dealer agreement or master selected dealer agreement, as applicable, that it will comply with Exchange Act Rule 15c2-4. Payments may only be made by wire transfer or ACH transfer, and no payments may be made by check. With regards to monies being wired or sent via ACH transfer from an investor’s bank account, the Members shall request the investors send their wires or ACH transfers by the business day immediately following the receipt of a completed subscription document. In regards to monies being sent from an investor’s account held at the participating broker, the funds will be “promptly transmitted” to the escrow agent following the receipt of a completed subscription document and completed instructions by the investor to send funds to the escrow accounts. Absent unusual circumstances, funds in customer accounts will be transmitted by noon of the next business day. In the event that the offering does not close for any reason prior to the termination date set forth in the Registration Statement, all funds deposited in the escrow accounts will be returned to investors by noon of the second Banking Day following termination in accordance with the terms of the escrow agreements and applicable law. A “Banking Day” is any day other than a Saturday, Sunday or a day that a New York State chartered bank is not legally obligated to be open.

2. Subscription Process.

To purchase our Shares in this offering, investors must complete and sign a subscription agreement. Investors will be required to pay for their Shares by wire or ACH transfer for the full purchase price of the Shares. Signature Bank shall serve as escrow agent for any payments made via wire or ACH transfer.

Subscriptions will be effective only upon our acceptance of the subscriptions, and we reserve the right to reject any subscriptions in whole or in part. In compliance with Rule 15c2-4 under the Exchange Act, we and the Placement Agent will instruct investors to deliver all monies in the form of wire transfers or ACH transfers to the escrow agent. Upon the escrow agent’s receipt of such monies, they shall be credited to the escrow accounts. Pursuant to escrow agreements among us, Placement Agent and Signature Bank, as escrow agent, the funds received in payment for the Shares purchased in this offering will be wired to a non-interest bearing escrow account at Signature Bank, and held until the escrow agent determines that the amount in the escrow account is equal to at least the minimum amount required to close this offering. Upon confirmation of receipt of the requested minimum subscription amount, the escrow agent will release the funds in accordance with the written instructions provided by us and Placement Agent, indicating the date on which the Shares purchased in this offering are to be delivered to the investors and the date the net proceeds are to be delivered to us.

3. Investor Representations.

a. Investor represents that it has received (or otherwise had access to the electronic filing on the SEC website) the Prospectus prior to or in connection with receipt of this Agreement.

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b. Investor represents that it understands and acknowledges that Investor’s subscription for the Shares indicated on the Signature Page hereto may be accepted or rejected in whole or in part by the Company, for any reason and in their sole and absolute discretion.

4. FINRA Rules 5130 and 5131

This rule states that “restricted persons” are prohibited from participating in Syndicate or new issue offerings. Please review the following definition of a “restricted person” on Schedule A prior to signing this form acknowledging you do not fall into ‘“restricted person” status.

The undersigned hereby represents and warrants as of the date set forth below that:

i. The undersigned is the holder of the account identified below or is authorized to represent the beneficial holders of the account;

ii. Neither the undersigned nor any beneficial holder of the account is a “restricted person” as that term is described in FINRA Rule 5130 (described in Schedule A); and

iii. The undersigned understands FINRA. Rule 5130 and the account is eligible to purchase new issues in compliance with such rule.

5. Miscellaneous

This Subscription Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile or via electronic format.

This Subscription Agreement will be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the principles of conflicts of law that would require the application of the laws of any other jurisdiction.

All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and shall be mailed, hand delivered, sent by a recognized overnight courier service such as FedEx, or sent via facsimile and confirmed by letter, to the party to whom it is addressed at the following addresses or such other address as such party may advise the other in writing:

To the Company: as set forth on the signature page hereto.

To the Investor: as set forth on the signature page hereto.

All notices hereunder shall be effective upon receipt by the party to which it is addressed.

If the foregoing correctly sets forth the parties’ agreement, please confirm this by signing and returning to the Company the duplicate copy of this Subscription Agreement.

Please email back the completed Subscription Agreement to Edric Guo at yguo@univest.us.

[Signature Page to Investor Subscription Agreement for Inmune Bio Inc.]

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If the foregoing correctly sets forth the parties agreement, please confirm this by signing and returning to us the duplicate copy of this Subscription Agreement.

	Inmune Bio Inc.
Number of Shares:________________________	By:
Purchase Price per Share: $8.00 per share__________	Name:
Aggregate Purchase Price: $____________________	Title:
	Address Notice:
INVESTOR NAME:__________________________	1224 Prospect Street, Suite 150 La Jolla, CA 92037

Signature:	Address:
Signor Name:
Title:	Phone:
Date:	SSN or EIN:

¨ Please wire $____________________from my account held at:________________________

Account Title:_______________________________; Account Number:_____________________

To the following instructions:

ABA Routing No:

SWIFT Code:

Bank Name: Signature Bank

Bank Address:

Beneficiary Account Name:

Beneficiary Account No:

Beneficiary Address:

By:	Date:_______________ , 201__
Name:
Title:

Select method of delivery of Shares:

¨ DWAC DELIVERY

DWAC Instructions:

1.
	Name of DTC Participant (broker dealer at which the account or accounts to be credited with the Shares are maintained)
2.
	DTC Participant Number
3.
	Name of Account at DTC Participant being credited with the Shares
4.
	Account Number of DTC Participant being credited with the Shares

¨ DRS Electronic Book Entry Delivery Instructions:

Name in which Shares should be issued:_______________________________________

Address: Telephone No.:

Please email back the completed Subscription Agreement to

Edric Guo at yguo@univest.us.

SCHEDULE A

a) FINRA Member Firms or other Broker/Dealers

b) Broker-Dealer Personnel

· Any officer, director, General partner, associated person or employee of a member firm or any other Broker/dealer.

· Any agent of a member firm or any other Broker/dealer that is engaged in the investment banking or securities business

· Any immediate family member of a person specified above. Immediate family members include a person’s parents, mother-in-law or father-in-law, spouse, brother or sister, brother-in-law or sister-in-law, son-in-law or daughter-in law, and children.

i. Person that materially supports or receives material support from the immediate family member.

ii. Person employed by or associated with the member, or an affiliate of the member, selling the new issue to the immediate family member.

iii. Person that has an ability to control the allocation of the new issue.

c) Finders and Fiduciaries. With respect to the security being offered, a finder or any person acting in a fiduciary capacity to the managing Placement Agent, including, but not limited to, attorneys, accountants, and financial consultants; and any immediate family members (or person(s) receiving material support or receives material support from the family member) of a person identified as a Finder or Fiduciary.

d) Portfolio Managers

a. Any person who has authority to buy or sell securities for a bank, savings and loan institution, insurance company, investment company, investment advisor, or collective investment account.

b. Any immediate family member of a person specified under portfolio Managers that materially supports, or receives material support from such person.

e) Persons Owning a Broker/Dealer

a. Any person listed, or required to be listed, in Schedule A of a Form BD, except persons identified by ownership of less than 10%.

b. Any person listed, or required to be listed, in Schedule B of a Form BD, except persons identified by ownership of less than 10%.

c. Any person listed, or required to be listed, in Schedule C of a Form BD that meets the criteria of (e)(bullet point 1) or (e) (bullet point 2) above.

d. Any person that directly or indirectly owns 10% or more of a public reporting company listed, or required to be listed, in Schedule B of a Form BD.

e. Any person that directly or indirectly owns 25% or more of a public reporting company listed, or required to be listed, in Schedule B of a Form BD.

f. Any immediate family member of a person specified in (5) (bullet points 1-5) unless the person owning the Broker/dealer:

i. Does not materially support, or receive material support from the immediate family member.

ii. Is not an owner of the member, or an affiliate of the member, selling the new issue to the immediate family member.

iii. Has no ability to control the allocation of the new issue.

EX-23.2

EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the inclusion in this Registration Statement on Form S-1 (Amendment No.3) of our report dated May 25, 2018 relating to INmune Bio, Inc.’s consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017 and 2016. We also consent to the reference to our firm under the heading "Experts" appearing therein.

/s/ GBH CPAs, PC

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas

November 20, 2018

CORRESP

inmune_corresp.htm