Inmune Bio, Inc. (INMB)

ITEM 7.
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 Annual Report. 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 Form 10-K, including those set forth under “Risk Factors” and “Forward-Looking Statements.”

Overview

Our objective is to develop
and commercialize our product candidates to treat diseases where the innate immune system is dysfunctional causing or contributing to
the patient’s disease. Innate immune dysfunction can occur for a variety of reasons including genetics, lifestyle, and other factors.
However, age plays a significant role in the development of immune dysfunction. Innate immune dysfunction can be seen in cancer where
Natural Killer (“NK”) cells are impaired and facilitate a tumor’s evasion of the immune system and subsequent disease
progression. Chronic inflammation is implicated in neurologic and metabolic diseases where it impairs the innate immune system. Our primary
focus continues to be treatment of cancer with INKmune and treatment of Alzheimer’s Disease (“AD”) and Treatment Resistant
Depression (“TRD”) with XPro1595. We have added CORDStrom, a pooled, human umbilical cord mesenchymal stem cell product to
treat recessive dystrophic epidermolysis bullosa (RDEB), a pediatric orphan disease caused by mutations in the COL7A1 gene that results
in a debilitating disease of skin blistering, dysphagia and failure to thrive with chronic wound problems that often results in fatal
squamous cell carcinoma.

XPro1595 (“XPro”),
targets Alzheimer’s Disease and TRD. XPro for AD has completed Phase I trials and a Phase II trial has completed enrollment of patients
at clinical sites in the United Kingdom, EU, Australia and Canada. Patients are currently being treated with XPro for Early AD as part
of that clinical trial. TRD is being prepared for Phase II trials. We expect to start a pivotal global registration trial in patients
with AD after the results of the Phase II trial have been analyzed. The INKmune program is in an open label Phase II trial in metastatic
castrate resistant prostate cancer (mCRPC). CORDStrom for the treatment of children with RDEB has completed a pivotal blinded randomized
cross-over trial. The data will be submitted for a marketing authorization by filing a Biologics License Application (BLA) with the FDA
in the US which is anticipated in late 2025 or early 2026. Afterwards, the company intends to file a Marketing Authorization Application
(MAA) in the United Kingdom and EU.

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CORDStrom,
developed by INmune Bio circa 2020, represents a breakthrough in mesenchymal stem cell technology. The CORDStrom platform leverages, among
other things, proprietary screening, pooling and expansion techniques to create off-the-shelf, allogeneic, pooled human umbilical cord
-derived mesenchymal stromal cells (HucMSCs) as medicines to treat complex inflammatory diseases. CORDStrom products are designed to provide
high-quality, off-the-shelf, batch-to-batch consistent, scalable, cGMP manufactured, potent cellular medicines that can be produced at
low cost and with repeatable specification independent of donor characteristics. Initially developed at the INKmune manufacturing facilities
utilizing United Kingdom academic grant funding, CORDStrom is a product platform that shows promise as a therapy for RDEB and many other
debilitating conditions. While the first generation CORDStrom product is agnostic to indication, the platform enables creation of indication-specific
products, which can be tuned for optimization of anti-inflammatory, immunomodulatory, wound healing, and other characteristics.

The
CORDStrom product platform shares many similarities, including starting materials, equipment, and procedures, with the Company’s
INKmune oncology product, enabling the Company to leverage economies of scale, experienced staff, and other resources to strategically
manufacture both products in a rotational campaign with resource and environmental efficiencies.

Children with Recessive Dystrophic Epidermolysis Bullosa (RDEB) have skin
that is damaged by even the smallest amount of friction which causes severe blistering, deep wounds, and scars. It is caused by a fault
in a gene that makes collagen, a protein that holds the skin layers together. There are limited options available for treatment,
none that adequately meet the needs of patients, and the condition gets worse over time with most children reliant on a wheelchair as
they move into their teenage years. Many of those with an RDEB diagnosis will also go on to develop aggressive life-threatening skin cancer
in adulthood caused by the accumulated damage to their skin. The Company estimates roughly 2,000 people suffer from RDEB in the US,
United Kingdom and EU representing a large unmet opportunity to potentially provide routine clinical care to these children.

Since
2020, the Company has supplied CORDStrom HucMSCs as an investigational medical product to the Great Ormond Street Hospital (GOSH),
London, in connection with the MissionEB study, which was primarily funded by a grant from the National Institute for Health and
Care Research (NIHR) in the United Kingdom. INmune Bio was compensated for CORDStrom used in the trial and was not a sponsor of the Mission
EB study. Investigators recently concluded a double blinded, placebo-controlled arm of the study, which evaluated the safety and efficacy
of CORDStrom in 30 pediatric patients (less than 16 years old) in the United Kingdom with intermediate and severe RDEB using a novel cross-over
clinical trial design. Patients were randomized to CORDStrom or placebo arms and received 2, intravenous infusions two weeks apart and
then followed for 9 months. Each child then crossed over to the other arm and received two doses of placebo or CORDStrom two weeks apart
with a further 9-month follow-up.

All patients were treated as day-cases and no CORDStrom related serious
adverse events were reported through the study. Top-line results showed the treatment was easily administered, well tolerated and there
were beneficial effects across all types of patients receiving CORDStrom with respect to Itch Man Scale, iscorEB clinician score and iscorEB
skin involvement.  Most notably, CORDStrom significantly reduced itch scores as measured by the Itch Man Scale. In patients with
the most severe disease activity, CORDStrom reduced itch at 3 months and led to a sustained reduction of over 27% at 6 months. These results
demonstrate a clinically meaningful reduction in itch severity sustained over time. Intermediate group patients showed a broader range
of improvements, including reduced skin involvement and less pain as well as large reduction in itch.  The younger patients (less
than 10 years old) showed improvements in skin score, indicating better skin integrity and reduced disease activity. Interviews with patients
and caregivers on completing follow up strongly support the clinical benefits of the therapy; both caregivers and patients were able to
correctly identify which treatment had been CORDStrom and which had been placebo. Those who completed the study are asking to continue
on therapy, which the Company intends to pursue as an open-label study.

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The Mission EB data form the basis of a license that was entered into
between INmune Bio and GOSH, whereby the Company gains exclusive access to the clinical study data for commercial uses in exchange for
payment of an initiation milestone of £250,000 (approximately $0.3 million at February 6, 2025) and a single development milestone
of approximately £6 million (approximately $7.5 million at February 6, 2025) due on receipt of first marketing authorization from
the FDA, EMA, or MHRA, and an ongoing commitment to supply CORDStrom to patients enrolled in an open label arm of the Mission EB trial,
subject to certain limitations.

After
reviewing results of the Mission EB study, the Company initiated a Type C meeting with the FDA to obtain CMC and regulatory feedback and
submitted information, data and requests for Rare Pediatric Disease and Orphan Drug Designations (RPDD/ODD).

The
FDA granted RPDD to the Company’s CORDStrom product on December 13, 2024, ahead of the sunset period under Section 529(b)(5) of
the Federal Food, Drug, and Cosmetic Act. As such, CORDStrom remains eligible to receive a Priority Review Voucher (PRV) if approved by
the FDA on or prior to September 30, 2026. If granted, a PRV can be redeemed to receive priority review for a different product. Alternatively,
a PRV may be transferred or sold to another sponsor.

The
FDA granted ODD to the Company’s CORDStrom product on January 6, 2025. Benefits of ODD include certain tax credits and eligibility
for select grants, waiver of FDA user fees, including the BLA application fees, access to frequent meetings with the FDA for efficient
drug development, and eligibility for seven (7) years of market exclusivity post approval.

The
company plans to prepare for and hold a pre-BLA meeting to discuss particulars of its planned BLA submission, with intent to submit a
BLA this year seeking approval of CORDStrom for treatment of RDEB. Concurrently, the company will also seek to submit MAAs to the EU and
United Kingdom in 2026.

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We believe our DN-TNF platform
can be used as a CNS (“central nervous system”) therapy to target glial activation to prevent progression of Alzheimer’s
disease (“AD”); to target neuroinflammation in treatment resistant depression (“TRD”). The primary focus of the
company’s development efforts for XPro is AD. The next indication to be developed with XPro will be TRD. In each case, we believe
neutralizing sTNF is a cornerstone to the treatment of these diseases.

We believe the DN-TNF platform
can be used to treat selected neurodegenerative diseases by reducing neuroinflammation without immunosuppression. The Company believes
the core pathology of cognitive decline is a combination of neurodegeneration and synaptic dysfunction. Neurodegeneration is nerve cell
death that may include demyelination. Synaptic dysfunction means the connections between nerve cells stop working efficiently and may
decrease in number. The combination of neurodegeneration and synaptic dysfunction causes cognitive decline and behavioral changes associated
with Alzheimer’s disease (“AD”). XPro completed a Phase I trial treating patients with Alzheimer’s disease that
was partially funded by a Part-the-Clouds Award from the Alzheimer’s Association. We believe XPro targets activated microglia and
astrocytes of the brain that produce sTNF that promotes nerve cell loss, synaptic dysfunction and prevents myelin repair - key elements
in the development of dementia. In animal models, elimination of sTNF prevents nerve cell dysfunction, reverses synaptic pruning and promotes
myelin repair. The Phase I trial in patients with biomarkers of inflammation with AD has been completed. The open label, dose escalation
trial was designed to demonstrate that XPro can safely decrease neuroinflammation in patients with ADi. ADi is the term used to delineate
patients with AD with biomarkers of inflammation. The endpoints of the trial were measures of neuroinflammation and neurodegeneration
in blood and cerebral spinal fluid by measuring changes in inflammatory cytokine levels in the CNS and using MRI-DTI to measure brain
microstructural changes. XPro, at the 1mg/kg/week dose, decreased inflammatory cytokines in the CSF in the brain demonstrating that XPro
can decrease neuroinflammation in patients with AD. We also studied downstream benefits of decreasing neuroinflammation by measuring changes
in the CSF proteome and quantifying changes in novel white matter MRI biomarkers. XPro significantly decreases biomarkers of neurodegeneration as
measured by changes in the CSF proteome including neurofilament light chain, phospho Tau 217 and VILIP-1; decreases of 84%, 46% and 91%
respectively after 3 months of therapy. Three months of XPro therapy improved measures of synaptic function, as measured in the CSF proteome
including a 222% increase in Contactin 2 and a 56% decrease neurogranin, changes that contribute to improved synaptic function.

The successful completion
of the Phase I trial in AD has informed the design of a blinded randomized, placebo-controlled Phase II trial in patients with early ADi.
Early ADi includes patients with AD and MCI who have at least one biomarker of inflammation (ADi and MCI2 respectively). The
early ADi trial is a blinded randomized trial to test if treatment of early AD patients with neuroinflammation with XPro will affect cognitive
decline. The Phase II trial in early ADi has six important elements. Two hundred and one patients are being enrolled in a 2:1 ratio (XPro
vs placebo). The patients will receive 1mg/kg/week as a subcutaneous injection for six months. An enrichment strategy identical to the
successful strategy used in the Phase I trial will be used to ensure patients have neuroinflammation. Patients will need to have one or
more enrichment criteria: elevated blood level of at least one of C-reactive protein, hemoglobin A1c, erythrocyte sedimentation and at
least one allele of ApoE4. The primary end-point will be Early/mild Alzheimer’s Cognitive Composite (“EMACC”), a validated
cognitive measure that is more sensitive than traditional end-points used in many studies of patients with early AD. The AD program is
open in Australia, Canada, the United Kingdom, France, Germany, Spain, Czech Republic and Slovakia.

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Full enrollment in the Phase
II AD trial occurred in late 2024 with 208 patients enrolled. Topline data of EMACC is expected to be reported in June followed by secondary
end-points which include blood biomarker, neuroimaging and additional neuropsychiatric end-points which should be available 2-3 months
after top line data. Finally, several months after all the data are analyzed, the Company plans an end-of-phase II meeting with the FDA
to finalize plans for the pivotal Phase III trial. XPro for treatment of AD may be eligible for one or both accelerated approval pathways.
We expect to be eligible for Break Through status after completion of the Phase II in 2025.

Effective therapy for TRD
is a large unmet need. Twenty percent of patients with a Major Depressive Disorder have TRD. Once third of TRD patients have peripheral
biomarkers to inflammation (elevated CRP). This is a large patient population. The role of TNF and anti-TNF therapeutics was explored
in a small open label clinical trial by Prof. Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels
and treatment with infliximab treated their depression (Miller, 2011). The Company has a $2.0M USD award from the National Institute of
Mental Health (“NIMH”) to treat TRD with XPro. The blinded, randomized Phase II trial will use biomarkers of peripheral inflammation
to select patients with TRD for enrollment. Patients will be treated for 6 weeks. Primary end-points include both clinical and neuroimaging
measures. The TRD trial is expected to start enrollment during 2025.

We believe that INKmune improves
the ability of the patient’s own NK cells to attack their tumor. INKmune interacts with the patient’s NK cells to convert
them from inert resting NK cells into memory-like NK cells that kill the patient’s cancer cells. INKmune is a replication incompetent
proprietary cell line 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 that remains after treatment with cytotoxic therapy. We believe
INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung,
ovary, breast, renal and prostate cancer. The Company had a Phase I trial using INKmune to treat patients with high risk MDS/AML, a form
of leukemia. Two patients were treated in the Phase I trial for MDS, three patients have been treated compassionately in AML and another
MDS patient is expected to be treated shortly. During March 2024, the Company decided to terminate further enrollment in the MDS/AML trial.
In the patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, and promotes development of cancer
killing memory-like NK cells that can be found in the patient’s circulation of 4 months. The Company initiated a separate Phase
I/2 trial of INKmune in a metastatic castrate resistant prostate cancer. The open label trial enrolled the first patient in December 2023.

The Phase I/II trial using
INKmune to treat patients with metastatic castrate resistant prostate cancer (mCPRC) is an open label trial. Biomarker data from the patients
will be visible as patients are treated. The Company will report data from each cohort as it becomes available. Because of the modified
Bayesian design, the Company estimates the trial will be completely enrolled 1H25 with top-line data available 6 months later. Topline
data is divided into immunologic and tumor response variables. The most important immunologic response variable is related to memory like
NK cell persistence. This is how long are the number of mlNK cells in patients blood compared to baseline. There are 3 important variables
to tumor response: i) blood PSA changes; ii) change in PMSA scan and iii) change in circulating tumor DNA (ctDNA). Ideally, the levels
of all three variables decrease with treatment. We do not expect this 6 month trial to provide survival data.

We continue to incur significant
development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred
losses in each period since our inception, resulting in substantial doubt in our ability to continue as a going concern. We reported a
net loss of $42.1 million and $30.0 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and
2023, we had cash and cash equivalents of $20.9 million and $35.8 million, respectively. We expect to continue to incur significant losses
for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory
approvals for, our product candidates. The size of our future net losses will depend, in part, on the rate of future growth of our expenses
and our ability to generate revenues, if any.

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Our recurring net losses and
negative cash flows from operations raise substantial doubt regarding our ability to continue as a going concern within one year after
the issuance of our consolidated financial statements for the year ended December 31, 2024. Until we can generate sufficient revenue from
the commercialization of our product candidates, we expect to finance our operations through the public or private sale of equity, debt
financings or other capital sources, such as government funding, collaborations, strategic alliances, divestment of non-core assets, or
licensing arrangements with third parties. To date, the Company has relied on equity and debt financing to fund its operations.

Components of Operating Results

Operating Expenses

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:

The following table summarizes
our research and development expenses by product candidate for the periods indicated (in thousands):

We
typically use our employee resources across our development programs. We track outsourced development costs by product candidate or development
program, but we do not allocate internal costs personnel costs including salaries and stock-based compensation to specific product candidates
or development programs.

We
participate, through our wholly owned subsidiary in Australia, in the Australian research and development tax incentive program, such
that a percentage of our qualifying research and development expenditures are reimbursed by the Australian government, and such incentives
are reflected as a reduction of research and development expense. The Australian research and development tax incentive is recognized
when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the
consideration can be reliably measured.

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Substantially all of our research
and development expenses to date have been incurred in connection with our current and future 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 and manufacturing drug to be used in those 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.

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

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:

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General and Administrative Expenses

General and administrative
expenses consist principally of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting,
accounting and tax services; insurance, overhead, including rent and utilities; and other general operating expenses not otherwise classified
as research and development expenses.

Other income, net

Other expense consists primarily
of interest expense incurred on debt, partially offset by interest income from a money market investment.

Critical Accounting 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.

In-Process Research and Development

The Company evaluates the
carrying value of indefinite-lived intangible assets, which consists of in-process research and development (“IPR&D”),
on an annual basis or more frequently when indicators of impairment exist. An impairment of indefinite-lived intangible assets would occur
if the fair value of the intangible asset is less than the carrying value. Intangible assets with finite lives are tested for impairment
when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If these facts and circumstances
exist, the Company assesses for recovery by comparing the carrying values of the assets with their future undiscounted net cash flows.
Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected undiscounted
cash flows.

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IPR&D assets are considered
to be indefinite-lived until the completion or abandonment of the associated research and development projects. During the period the
assets are considered indefinite-lived, they are tested for impairment. If the related project is terminated or abandoned, the Company
may have a full or partial impairment related to the IPR&D assets, calculated as the excess of their carrying value over fair value.
The valuation process is very complex and requires significant input and judgment using internal and external sources with respect to
the Company’s future revenue and expense growth rates, changes in working capital use, the selection of an appropriate discount
rate, and other assumptions and estimates.

Stock-Based Compensation

We measure and recognize compensation
expense for all stock-based awards granted to service providers, employees, and directors based on the estimated fair value of the award
on the grant date. We calculate the estimated fair value of stock options on the date of grant using the Black-Scholes option-pricing
model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number of highly complex
and subjective variables. These variables include, but are not limited to, the market value of common stock on the grant date, the expected
dividend yield, the expected term of the awards, the risk-free interest rates and the expected common stock price volatility over the
term of the option awards. The expected volatility is based on the historical volatility of a few unrelated public companies within our
industry over the most recent period commensurate with the estimated expected term of our stock options as we have insufficient historical
information regarding the volatility of the share price of our common stock. We use the simplified approach to determine the expected
term as we do not have sufficient data related to stock option exercises. The risk-free interest rate for periods within the contractual
life of the option is based on the U.S. Treasury yield in effect at the time of grant. We have never declared or paid dividends and
have no plans to do so in the foreseeable future.

We recognize the fair value
of stock options on a straight-line basis over the period during which a service provider is required to provide services in exchange
for the award (generally the vesting period). We account for forfeitures as they occur.

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 XPro) 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 using this asset in a neurological indication.
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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Results of Operations

Comparison of the Years Ended December 31,
2024 and December 31, 2023

Revenues

During 2024 and 2023, the
Company sold MSC’s to one customer in the United Kingdom and recognized $14,000 and $155,000 of revenues, respectively.

General and Administrative

General and administrative
expenses were $9.5 million for the year ended December 31, 2024, compared to $9.6 million for the year ended December 31, 2023. The decrease
in general and administrative expenses is due to lower travel expense.

Research and Development

Research and development expenses
increased to $33.2 million for the year ended December 31, 2024 from $20.3 million for the year ended December 31, 2023. The increase
in research and development expenses during the year ended December 31, 2024 compared to 2023 is mainly due to the Company incurring $9.9
million higher costs with our Alzheimer’s clinical trial, $1.3 million of higher costs in connection with our INKmune/CORDStrom
clinical trials, $0.7 million higher internal costs and $1.2 million lower accrued R&D rebate, partially offset by $0.3 million lower
of preclinical and other expenses.

Other Expense, net

The Company generated other
income of $553,000 in 2024 compared to other expense of $267,000 in 2023. The change is due to the Company incurring $1.5 million lower
interest expense in 2024 as a result of the Company paying off its debt in full in 2024, partially offset by earning $0.7 million lower
interest income from money market investments in 2024 as a result of lower amounts invested in money markets investments in 2024.

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.

We incurred a net loss of
$42,082,000 and $30,008,000 for the years ended December 31, 2024 and 2023, respectively. Net cash used in operating activities was $33,361,000
and $11,980,000 for the years ended December 31, 2024 and 2023, respectively. Since inception, we have funded our operations primarily
with proceeds from the sales of our common stock. As of December 31, 2024, we had cash and cash equivalents of $20,922,000. We anticipate
that operating losses and net cash used in operating activities will increase over the next few years as we advance our products under
development.

Our primary uses of capital
are, and we expect will continue to be, third-party clinical and preclinical research and development services, costs incurred to manufacture
our drugs under development, compensation and related expenses, legal, patent and other regulatory expenses and general overhead costs.
We believe our use of CROs provides us with flexibility in managing our spending.

The Company incurs significant
research and development expenses in Australia and the United Kingdom. Fluctuations in the rate of exchange between the United States
dollar and the pound sterling as well as the Australian dollar could adversely affect our financial results, including our expenses
as well as assets and liabilities. We currently do not hedge foreign currencies but will continue to assess whether that strategy is appropriate.
As of December 31, 2024, the cash balance held by our foreign subsidiaries with currencies other than the United States dollar was approximately
$0.1 million.

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Our recurring net losses and
negative cash flows from operations, as well as forecast of continued losses and negative cash flows from operations, raised substantial
doubt regarding our ability to continue as a going concern within one year after the issuance of our consolidated financial statements
for the year ended December 31, 2024. Until we can generate sufficient revenue from the commercialization of our product candidates, we
expect to finance our operations through the public or private sale of equity, debt financing or other capital sources, such as government
funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third parties. Our cash and
cash equivalents were $20.9 million and total current assets were $22.7 million at December 31, 2024, which the Company is projecting
will be insufficient to sustain its operations through one year following the date that the financial statements are issued.

Additional capital may not
be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable
to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates or cease
operations. If we raise additional funds through the issuance of additional debt or equity securities it could result in dilution to our
existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our common stock and
could contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business,
financial condition and prospects.

Financing strategies we may
pursue include, but are not limited to, the public or private sale of equity, debt financing or funds from other capital sources, such
as government or grant funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third
parties. There can be no assurances additional capital will be available to secure additional financing, or if available, that it will
be sufficient to meet our needs on favorable terms. If we are unable to raise additional capital in sufficient amounts or on terms acceptable
to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates. If we raise
additional funds through the public or private sale of equity or debt financings, it could result in dilution to our existing stockholders
or increased fixed payment obligations and these securities may have rights senior to those of our common stock and could contain covenants
that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and
prospects.

ATM Sales Agreement

During the year ending
December 31, 2024, the Company sold 247,126 shares of common stock at an average price of $9.85 for gross proceeds of approximately $2.4
million under the at the market offerings.

During the period from January 1, 2025 through March 27, 2025, the
Company sold 649,860 shares of its common stock through its ATM program for net proceeds of $5.3 million.

Registered Direct Offerings

During September 2024, the
Company entered into securities purchase agreements with investors whereby the Company sold 2,341,260 shares of the Company’s common
stock and warrants to purchase an additional 2,341,260 shares of the Company’s common stock exercisable six months from the issuance
date in a registered direct offering in exchange for gross proceeds of $13.0 million (net proceeds of approximately $12.0 million). Directors and
officers that participated in the offering paid a combined offering price of $6.50 per share and warrant, and other investors paid $5.50
per share and warrant. The exercise price of the warrants is $6.40, and are exercisable beginning on March 16, 2025 and will terminate
on March 16, 2030 unless accelerated pursuant to the terms of the warrant agreements.

On April 24, 2024, the Company
entered into a securities purchase agreement with an investor in which the Company sold 986,000 shares of common stock and warrants to
purchase 986,000 shares of common stock for gross proceeds of approximately $9.7 million (net proceeds of approximately $8.9 million).
The exercise price of the warrants is $9.84, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program.

On April 19, 2024, the Company
entered into securities purchase agreements with purchasers in which the Company sold 571,592 shares of common stock and warrants to purchase
571,592 shares of common stock for aggregate gross proceeds of approximately $4.8 million (net proceeds of approximately $4.5 million).
The exercise price of the warrants is $9.152, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program, provided that directors and officers of the Company
that are subject to a blackout with respect to trading in the Company’s stock will have an additional 60 days from the termination
of the blackout date to exercise the warrant. Directors and officers that participated in the offering paid a combined offering price
of $8.445 per share and warrant, and other investors paid $8.32 per share and warrant.

Term Loan

During the year ending December
31, 2024, the Company made $10 million of principal payments and paid off its term loan in full. During
February 2025, the Company entered into a letter agreement with its lenders whereby its term loan was terminated.

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Cash Flows

The following table provides
information regarding our cash flows for the years ended December 31, 2024 and 2023:

Net Cash Used in Operating Activities

Our cash used in operating
activities was primarily driven by our net loss.

Operating activities used
$33.4 million of cash for the year ended December 31, 2024, primarily resulting from our net loss of $42.1 million, partially offset by
a net cash inflow of $1.0 million for changes in our net operating assets and liabilities, and non-cash stock-based compensation charges
of $7.6 million. The change in our net operating assets and liabilities was primarily due to a decrease in prepaid expenses of $1.2 million,
a decrease in research and development tax rebate receivable of $0.7 million and a decrease in other tax receivable of $0.3 million, partially
offset by a decrease of $1.4 in accounts payable and accrued liabilities.

Operating activities used
$12.0 million of cash for the year ended December 31, 2023, primarily resulting from our net loss of $30.0 million, partially offset by
a net cash inflow of $10.4 million for changes in our net operating assets and liabilities, and non-cash stock-based compensation charges
of $7.4 million. The change in our net operating assets and liabilities was primarily due to a decrease in research and development tax
credit receivable of $6.2 million, a decrease in prepaid expenses and other current assets of $2.5 million and an increase in accounts
payable and accrued liabilities of $2.7 million, partially offset by a decrease in accrued liability – long term of $0.6 million.

Net Cash Provided by Financing Activities

During
the years ended December 31, 2024 and 2023, the Company paid off $10.0 million and $5.0 million, respectively, of its debt.

During
the year ended December 31, 2024, the Company sold 247,126 shares of its common stock for net proceeds of $2.4 million under the Company’s
ATM program.

During
the year ended December 31, 2023, the Company sold 75,697 shares of its common stock for net proceeds of $0.8 million under the Company’s
ATM program.

During September 2024, the
Company entered into securities purchase agreements with investors whereby the Company sold 2,341,260 shares of the Company’s common
stock and warrants to purchase an additional 2,341,260 shares of the Company’s common stock exercisable six months from the issuance
date in a registered direct offering in exchange for gross proceeds of $13.0 million (net proceeds of approximately $12.0 million). Directors and
officers that participated in the offering paid a combined offering price of $6.50 per share and warrant, and other investors paid $5.50
per share and warrant. The exercise price of the warrants is $6.40, and are exercisable beginning on March 16, 2025, and will terminate
on March 16, 2030 unless accelerated pursuant to the terms of the warrant agreements.

On April 24, 2024, the Company
entered into a securities purchase agreement with an investor in which the Company sold 986,000 shares of common stock and warrants to
purchase 986,000 shares of common stock for gross proceeds of approximately $9.7 million (net proceeds of approximately $8.9 million).
The exercise price of the warrants is $9.84, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program.

On April 19, 2024, the Company
entered into securities purchase agreements with purchasers in which the Company sold 571,592 shares of common stock and warrants to purchase
571,592 shares of common stock for aggregate gross proceeds of approximately $4.8 million (net proceeds of approximately $4.5 million).
The exercise price of the warrants is $9.152, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program, provided that directors and officers of the Company
that are subject to a blackout with respect to trading in the Company’s stock will have an additional 60 days from the termination
of the blackout date to exercise the warrant. Directors and officers that participated in the offering paid a combined offering price
of $8.445 per share and warrant, and other investors paid $8.32 per share and warrant.

During the year ended December
31, 2024, the Company received $0.4 million in exchange for the exercise of 108,000 stock options.

ITEM
7. 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 Annual Report. 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 Form 10-K, including those set forth under “Risk
Factors” and “Forward-Looking Statements.”

Overview

We
are a clinical-stage immunology company focused on developing drugs that may reprogram the patient’s innate immune system to treat
disease. We believe this may be done by targeting cells of the innate immune system that cause acute and chronic inflammation and are
involved in immune dysfunction associated with chronic diseases such as cancer and neurodegenerative diseases. The Company’s drugs
are in clinical trials and have not been approved by a regulatory authority. The Company has two therapeutic platforms – a dominant-negative
TNF platform (“DN-TNF”, “XPro™”, “XPro1595™” or “pegipanermin”) and
a Natural Killer (“NK”, or “INKmune™”) platform. The DN-TNF platform neutralizes soluble TNF (“sTNF”)
without affecting trans-membrane TNF (“tmTNF”) or TNF receptors -TNFR1 and TNFR2. This unique biologic mechanism differentiates
the DN-TNF drugs from currently approved non-selective TNF inhibitors that inhibit both sTNF and tmTNF. Protecting the function of tmTNF
and TNF receptors while neutralizing the function of sTNF is a potent anti-inflammatory strategy that does not cause immunosuppression
or demyelination which occur in the currently approved non-selective TNF inhibitors. Currently approved non-selective TNF inhibitors
treat autoimmune disease, but are contraindicated in patients with infection, cancer and neurologic diseases because they increase the
risk of infection, cancer and demyelinating neurologic diseases, respectively; these safety problems are due to off-target effects on
inhibiting tmTNF. The NK platform targets the dysfunctional natural killer cells in patients with cancer. NK cells are part of the normal
immunologic response to cancer with important roles in immunosurveillance to prevent cancer and in preventing relapse by eliminating
residual disease. Residual disease is the cancer left behind after therapy is finished. Residual disease can grow to cause relapse. The
mechanism by which INKmune improves the ability of the patient’s NK cells to kill their cancer is complex. The NK cells of cancer
patients lose the ability to bind and kill cancer cells. A measure of NK cell binding to cancer cells is avidity. The higher the avidity,
the greater the bond between the NK cell to cancer cell and thus the greater NK killing of cancer cells. INKmune increases NK avidity
and further improves mitochondrial function and upregulates nutrient receptors. These metabolic changes may help the INKmune primed NK
cell to function in the hostile tumor microenvironment and persist much longer. These mechanisms improve the ability of INKmune primed
NK cells to overcome the immune evasion of the patient’s cancer cells. We believe INKmune is best used to eliminate residual disease
after the patient has completed other cancer therapies. Both the DN-TNF platform and the INKmune platform can be used to treat multiple
diseases. The DN-TNF platform will be used as an immunotherapy for the treatment of cancer and neurodegenerative disease. INKmune is
being developed to treat NK sensitive hematologic malignancies and solid tumors.

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We believe our DN-TNF platform
can be used as a CNS (“central nervous system”) therapy to target glial activation to prevent progression of Alzheimer’s
disease (“AD”); to target neuroinflammation in treatment resistant depression (“TRD”); as a drug to prevent muscle
degeneration, prevent fibrosis and promote muscle regeneration in Duchene muscular dystrophy (“DMD”); and as a cancer therapy
to reduce resistance in immunotherapy. The primary focus of the company’s development efforts for XPro is AD. The next indication
to be developed with XPro will be TRD. Treatment of DMD and cancer will occur when partners for the programs are found. The drug is named
differently for the oncology and CNS indications; INB03™ or XPro, respectively, but it is the same drug product. For DMD, the company
is exploring DN-TNF compounds that is optimized for the treatment of DMD. This novel compound has the same mechanism of action but has
novel IP protection. In each case, we believe neutralizing sTNF is a cornerstone to the treatment of these diseases. As an immunotherapy
for cancer, we are using INB03 to neutralize sTNF produced by HER2+ trastuzumab resistant breast cancers to reverse resistance to targeted
therapy. sTNF produced by the tumor causes an up-regulation of MUC4 express causing steric hindrance of trastuzumab binding to the HER
receptor on HER2+ breast cancer cells. Without binding, trastuzumab based therapies are not effective. Neutralizing sTNF reverses MUC4
expression converting a trastuzumab resistant breast cancer cell into a trastuzumab sensitive breast cancer cell. In addition, INB03 may
change the immunobiology of the tumor microenvironment by decreasing the number of immunosuppressive myeloid cells, both myeloid derived
suppressor cells and tumor active macrophages, and increasing the number of cytotoxic lymphocytes and phagocytic macrophages in the TME.
The Company has completed an open label dose escalation trial in cancer patients with metastatic solid tumors that have failed multiple
lines of therapy. The pre-clinical data in MUC4+ expressing tumors and the clinical trial informs the design of a future Phase II trial
by demonstrating that INB03 was safe and well tolerated, defined the dose of INB03 to carry into Phase II trials, and demonstrated a pharmacodynamic
end-point. The company does not plan to commence a Phase II trial in patients with advanced MUC4+ expressing cancer until a partner can
be found.

Likewise, we believe the DN-TNF
platform can be used to treat selected neurodegenerative diseases by modifying the brain microenvironment (“BME”). The Company
believes the core pathology of cognitive decline is a combination of neurodegeneration and synaptic dysfunction. Neurodegeneration is
nerve cell death that may include demyelination. Synaptic dysfunction means the connections between nerve cells stop working efficiently
and may decrease in number. The combination of neurodegeneration and synaptic dysfunction causes cognitive decline and behavioral changes
associated with Alzheimer’s disease (“AD”). XPro completed a Phase I trial treating patients with Alzheimer’s
disease that was partially funded by a Part-the-Clouds Award from the Alzheimer’s Association. We believe XPro targets activated
microglia and astrocytes of the brain that produce sTNF that promotes nerve cell loss, synaptic dysfunction and prevents myelin repair
- key elements in the development of dementia. In animal models, elimination of sTNF prevents nerve cell dysfunction, reverses synaptic
pruning and promotes myelin repair. The Phase I trial in patients with biomarkers of inflammation with AD has been completed. The open
label, dose escalation trial was designed to demonstrate that XPro can safely decrease neuroinflammation in patients with ADi. ADi is
the term used to delineate patients with AD with biomarkers of inflammation. The endpoints of the trial were measures of neuroinflammation
and neurodegeneration in blood and cerebral spinal fluid by measuring changes in inflammatory cytokine levels in the CNS and using MRI-DTI
to measure brain microstructural changes. XPro, at the 1mg/kg/week dose, decreased inflammatory cytokines in the CSF in the brain demonstrating
that XPro can decrease neuroinflammation in patients with AD. We also studied downstream benefits of decreasing neuroinflammation by measuring
changes in the CSF proteome and quantifying changes in novel white matter MRI biomarkers. XPro significantly decreases biomarkers of neurodegeneration as
measured by changes in the CSF proteome including neurofilament light chain, phospho Tau 217 and VILIP-1; decreases of 84%, 46% and 91%
respectively after 3 months of therapy. Three months of XPro therapy improved measures of synaptic function, as measured in the CSF proteome
including a 222% increase in Contactin 2 and a 56% decrease neurogranin, changes that contribute to improved synaptic function.

The successful completion
of the Phase I trial in AD has informed the design of a blinded randomized, placebo-controlled Phase II trial in patients with early ADi.
Early ADi includes patients with AD and MCI who have at least one biomarker of inflammation (ADi and MCI2 respectively). The
early ADi trial is a blinded randomized trial to test if treatment of early AD patients with neuroinflammation with XPro will affect cognitive
decline. The Phase II trial in early ADi has six important elements. Two hundred and one patients are being enrolled in a 2:1 ratio (XPro
vs placebo). The patients will receive 1mg/kg/week as a subcutaneous injection for six months. An enrichment strategy identical to the
successful strategy used in the Phase I trial will be used to ensure patients have neuroinflammation. Patients will need to have one or
more enrichment criteria: elevated blood level of at least one of C-reactive protein, hemoglobin A1c, erythrocyte sedimentation and at
least one allele of ApoE4. The primary end-point will be Early/mild Alzheimer’s Cognitive Composite (“EMACC”), a validated
cognitive measure that is more sensitive than traditional end-points used in many studies of patients with early AD. The AD program is
open in the United States, Australia, Canada, the United Kingdom, France, Germany, Spain, Czech Republic and Slovakia. All patients will
be offered to stay on therapy for at least 12 months in an extension trial. Clinical and biomarker data will be collected during the extension
trial.

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There are at least 4 clinical
milestones associated with the Phase II trial in AD. Enrollment of 201 patients in the Phase II AD trial should be complete by mid-year.
Six months after the last patient is enrolled, top line cognition data with EMACC will be available. Secondary end-points which include
blood biomarker, neuroimaging and additional neuropsychiatric end-points will be available after data base lock 2-3 months after top line
data. Finally, several months after all the data are analyzed, the Company plans an end-of-phase II meeting with the FDA to finalize plans
for the pivotal Phase III trial. The Company plans to apply for an accelerated pathway during 2024. XPro for treatment of AD may be eligible
for one or both accelerated approval pathways. The Company plans to submit of Fast Track status in 2024. We expect to be eligible for
Break Through status after completion of the Phase II in 2025.

Effective therapy for TRD
is a large unmet need. Twenty percent of patients with a Major Depressive Disorder have TRD. Once third of TRD patients have peripheral
biomarkers to inflammation (elevated CRP). This is a large patient population. The role of TNF and anti-TNF therapeutics was explored
in a small open label clinical trial by Prof. Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels
and treatment with infliximab treated their depression (Miller, 2011). The Company received a $2.9M USD award from the National Institute
of Mental Health (“NIMH”) to treat TRD with XPro. The blinded, randomized Phase II trial will use biomarkers of peripheral
inflammation to select patients with TRD for enrollment. Patients will be treated for 6 weeks. Primary end-points include both clinical
and neuroimaging measures. The final trial design is ongoing and discussions with the FDA are not complete. The Company received authorization
to initiate a clinical trial in AD in the US during January 2024. The TRD trial is expected to start enrollment after the AD Phase II
trial finishes patient enrollment.

We believe that INKmune improves
the ability of the patient’s own NK cells to attack their tumor. INKmune interacts with the patient’s NK cells to convert
them from inert resting NK cells into memory-like NK cells that kill the patient’s cancer cells. INKmune is a replication incompetent
proprietary cell line 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 that remains after treatment with cytotoxic therapy. We believe
INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung,
ovary, breast, renal and prostate cancer. The Company had a Phase I trial using INKmune to treat patients with high risk MDS/AML, a form
of leukemia. Two patients were treated in the Phase I trial for MDS, three patients have been treated compassionately in AML and another
MDS patient is expected to be treated shortly. During March 2024, the Company decided to terminate further enrollment in the MDS/AML trial.
In the patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, and promotes development of cancer
killing memory-like NK cells that can be found in the patient’s circulation of 4 months. The Company initiated a separate Phase
I/2 trial of INKmune in a metastatic castrate resistant prostate cancer. The open label trial enrolled the first patient in December 2023.

The Phase I/II trial using
INKmune to treat patients with metastatic castrate resistant prostate cancer (mCPRC) is an open label trial. Biomarker data from the patients
will be visible as patients are treated. The Company will report data from each cohort as it becomes available. In addition to clinical
data, the Company will communicate when the Phase I portion of the trial has completely enrolled. This is expected in September 2024.
Because of the modified Bayesian design, the Company estimates the trial will be completely enrolled 1H25 with top-line data available
6 months later. Topline data is divided into immunologic and tumor response variables. The most important immunologic response variable
is related to memory like NK cell persistence. This is how long are the number of mlNK cells in patients blood compared to baseline. There
are 3 important variables to tumor response: i) blood PSA changes; ii) change in PMSA scan and iii) change in circulating tumor DNA (ctDNA).
Ideally, the levels of all three variables decrease with treatment. We do not expect this 6 month trial to provide survival data.

We continue to incur significant
development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred
losses in each period since our inception, resulting in substantial doubt in our ability to continue as a going concern. We reported a
net loss of $30.0 million and $27.3 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and
2022, we had cash and cash equivalents of $35.8 million and $52.2 million, respectively. We expect to continue to incur significant losses
for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory
approvals for, our product candidates. The size of our future net losses will depend, in part, on the rate of future growth of our expenses
and our ability to generate revenues, if any.

Our recurring net losses
and negative cash flows from operations raised substantial doubt regarding our ability to continue as a going concern within one year
after the issuance of our consolidated financial statements for the year ended December 31, 2023. Until we can generate sufficient revenue
from the commercialization of our product candidates, we expect to finance our operations through the public or private sale of equity,
debt financings or other capital sources, such as government funding, collaborations, strategic alliances, divestment of non-core assets,
or licensing arrangements with third parties. To date, the Company has relied on equity and debt financing to fund its operations.

As
a company with less than $1.235 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:

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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 $1.235 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.

Components
of Operating Results

Operating
Expenses

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:

The
following table summarizes our research and development expenses by product candidate for the periods indicated (in thousands):

We
typically use our employee resources across our development programs. We track outsourced development costs by product candidate or development
program, but we do not allocate internal costs personnel costs including salaries and stock-based compensation to specific product candidates
or development programs.

We
participate, through our wholly owned subsidiary in Australia, in the Australian research and development tax incentive program, such
that a percentage of our qualifying research and development expenditures are reimbursed by the Australian government, and such incentives
are reflected as a reduction of research and development expense. The Australian research and development tax incentive is recognized
when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of
the consideration can be reliably measured.

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Substantially
all of our research and development expenses to date have been incurred in connection with our current and future 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 and manufacturing drug to
be used in those 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.

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

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:

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General
and Administrative Expenses

General
and administrative expenses consist principally of payroll and personnel expenses, including stock-based compensation; professional fees
for legal, consulting, accounting and tax services; insurance, overhead, including rent and utilities; and other general operating expenses
not otherwise classified as research and development expenses.

Other
income, net

Other
expense consists primarily of interest expense incurred on debt, partially offset by interest income from a money market investment.

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.

In-Process
Research and Development

The
Company evaluates the carrying value of indefinite-lived intangible assets, which consists of in-process research and development (“IPR&D”),
on an annual basis or more frequently when indicators of impairment exist. An impairment of indefinite-lived intangible assets would
occur if the fair value of the intangible asset is less than the carrying value. Intangible assets with finite lives are tested for impairment
when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If these facts and circumstances
exist, the Company assesses for recovery by comparing the carrying values of the assets with their future undiscounted net cash flows.
Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected
undiscounted cash flows.

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IPR&D
assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects.
During the period the assets are considered indefinite-lived, they are tested for impairment. If the related project is terminated or
abandoned, the Company may have a full or partial impairment related to the IPR&D assets, calculated as the excess of their carrying
value over fair value. The valuation process is very complex and requires significant input and judgment using internal and external
sources with respect to the Company’s future revenue and expense growth rates, changes in working capital use, the selection of
an appropriate discount rate, and other assumptions and estimates.

Research
and Development (“R&D”)

R&D
expenses consist primarily of costs related to clinical studies and outside services, personnel expenses, and other R&D expenses.
Clinical studies and outside services costs relate primarily to services performed by clinical research organizations and related clinical
or development manufacturing costs, materials and supplies, filing fees, regulatory support, and other third-party fees. Personnel expenses
relate primarily to salaries, benefits and share-based compensation. R&D expenditures are charged to operations as incurred.

We
recognize R&D tax credits receivable from the Australian government for spending on R&D as a reduction of R&D expenses.

Stock-Based
Compensation

We
measure and recognize compensation expense for all stock-based awards granted to service providers, employees, and directors based on
the estimated fair value of the award on the grant date. We calculate the estimated fair value of stock options on the date of grant
using the Black-Scholes option-pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions
regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the market value of common
stock on the grant date, the expected dividend yield, the expected term of the awards, the risk-free interest rates and the expected
common stock price volatility over the term of the option awards. The expected volatility is based on the historical volatility of a
few unrelated public companies within our industry over the most recent period commensurate with the estimated expected term of our stock
options as we have insufficient historical information regarding the volatility of the share price of our common stock. We use the simplified
approach to determine the expected term as we do not have sufficient data related to stock option exercises. The risk-free interest rate
for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. We have
never declared or paid dividends and have no plans to do so in the foreseeable future.

We
recognize the fair value of stock options on a straight-line basis over the period during which a service provider is required to provide
services in exchange for the award (generally the vesting period). We account for forfeitures as they occur.

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 XPro) 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 using this asset in a neurological indication.
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.

65

Results
of Operations

Comparison
of the Years Ended December 31, 2023 and December 31, 2022

Revenues

During
2023 and 2022, the Company sold MSC’s to one customer and recognized $155,000 and $374,000 of revenues, respectively.

General
and Administrative

General
and administrative expenses were $9.6 million for the year ended December 31, 2023, compared to $9.3 million for the year ended December
31, 2022. The increase in general and administrative expenses is due to higher stock-based compensation ($0.1 million higher during the
year ended December 31, 2023), higher travel expense ($0.1 million higher during the year ended December 31, 2023) and higher professional
fees ($0.1 million higher during the year ended December 31, 2023).

Research
and Development

Research and development expenses increased to $20.3 million for the
year ended December 31, 2023 from $17.1 million for the year ended December 31, 2022. The increase in research and development expenses
during the year ended December 31, 2023 compared to 2022 is mainly due to the Company incurring $1.8 million of higher costs in connection
with our INKmune clinical trials, $1.2 million higher costs with our Alzheimer’s clinical trial, $0.7 million higher internal costs
and $0.5 million lower accrued R&D rebate, partially offset by $1.0 million lower of preclinical and other expenses.

Other
Expense, net

Other
expense, net decreased to $0.3 million during the year ending December 31, 2023, compared to $1.3 million during the year ending December
31, 2022. The decrease in other expense is due to the Company earning higher interest income from money market investments in 2023 ($1.3
million higher) partially offset by higher interest expense on the Company’s debt in 2023 ($0.3 million higher).

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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.

We incurred a net loss of $30,008,000 and $27,299,000 for the years
ended December 31, 2023 and 2022, respectively. Net cash used in operating activities was $11,980,000 and $22,686,000 for the years ended
December 31, 2023 and 2022, respectively. Since inception, we have funded our operations primarily with proceeds from the sales of our
common stock. As of December 31, 2023, we had cash and cash equivalents of $35,848,000. We anticipate that operating losses and net cash
used in operating activities will increase over the next few years as we advance our products under development.

Our
primary uses of capital are, and we expect will continue to be, third-party clinical and preclinical research and development services,
costs incurred to manufacture our drugs under development, compensation and related expenses, legal, patent and other regulatory expenses
and general overhead costs. We believe our use of CROs provides us with flexibility in managing our spending.

The Company incurs significant
research and development expenses in Australia and the United Kingdom. Fluctuations in the rate of exchange between the United States
dollar and the pound sterling as well as the Australian dollar could adversely affect our financial results, including our expenses
as well as assets and liabilities. We currently do not hedge foreign currencies but will continue to assess whether that strategy is appropriate.
As of December 31, 2023, the cash balance held by our foreign subsidiaries with currencies other than the United States dollar was approximately
$0.5 million.

Our recurring net losses and
negative cash flows from operations, as well as forecast of continued losses and negative cash flows from operations, raised substantial
doubt regarding our ability to continue as a going concern within one year after the issuance of our consolidated financial statements
for the year ended December 31, 2023. Until we can generate sufficient revenue from the commercialization of our product candidates,
we expect to finance our operations through the public or private sale of equity, debt financing or other capital sources, such as government
funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third parties. Our cash and
cash equivalents were $35.8 million and total current assets were $21.5 million at December 31, 2023, which the Company is projecting
will be insufficient to sustain its operations through one year following the date that the financial statements are issued.

Additional capital may not
be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable
to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates or cease
operations. If we raise additional funds through the issuance of additional debt or equity securities it could result in dilution to our
existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our common stock and
could contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business,
financial condition and prospects.

Financing strategies we
may pursue include, but are not limited to, the public or private sale of equity, debt financing or funds from other capital sources,
such as government or grant funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with
third parties. There can be no assurances additional capital will be available to secure additional financing, or if available, that it
will be sufficient to meet our needs on favorable terms. If we are unable to raise additional capital in sufficient amounts or on terms
acceptable to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates.
If we raise additional funds through the public or private sale of equity or debt financings, it could result in dilution to our existing
stockholders or increased fixed payment obligations and these securities may have rights senior to those of our common stock and could
contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to
incur additional debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial
condition and prospects.

ATM
Sales Agreement

During
July 2023, the Company sold 75,697 shares
of its common stock at an average price of $10.56 per share under the ATM program.
The aggregate net proceeds were approximately $775,000 after offering expenses.

Term
Loan

On
June 10, 2021, we entered into a Loan and Security Agreement with SVB and an affiliate of SVB, providing for a $15.0 million term loan.
The Term Loan provides for an annual interest rate equal to the greater of (i) the prime rate then in effect as reported in The Wall
Street Journal plus 4.50% and (ii) 7.75% and also includes a final payment fee equal to 6.5% of the original principal
amount borrowed payable on the earlier of the repayment of the loan in full and the maturity date. The Term loan is payable in 2024.

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Cash
Flows

The
following table provides information regarding our cash flows for the years ended December 31, 2023 and 2022:

Net
Cash Used in Operating Activities

Our
cash used in operating activities was primarily driven by our net loss.

Operating activities used $12.0 million of cash for the year ended
December 31, 2023, primarily resulting from our net loss of $30.0 million, partially offset by a net cash inflow of $10.4 million for
changes in our net operating assets and liabilities, and non-cash stock-based compensation charges of $7.4 million. The change in our
net operating assets and liabilities was primarily due to a decrease in research and development tax credit receivable of $6.2 million,
a decrease in prepaid expenses and other current assets of $2.5 million and an increase in accounts payable and accrued liabilities of
$2.7 million, partially offset by a decrease in accrued liability – long term of $0.6 million.

Operating
activities used $22.7 million of cash for the year ended December 31, 2022, primarily resulting from our net loss of $27.3 million, a
net cash outflow of $2.9 million for changes in our net operating assets and liabilities, and non-cash stock-based compensation charges
of $7.1 million. The change in our net operating assets and liabilities was primarily due to an increase in research and development
tax credit receivable of $3.2 million and an increase in prepaid expenses and other current assets of $1.7 million, partially offset
by an increase in accounts payable and accrued liabilities of $1.5 million.

Net
Cash Provided by Financing Activities

During
the year ended December 31, 2023, the Company sold 75,697 shares of its common stock for net proceeds of $0.8 million under the Company’s
ATM program with BTIG.

During
the year ended December 31, 2023, the Company repaid $5 million of its debt.

During
the year ended December 31, 2022, the Company sold 82,900 shares of its common stock to certain officers and directors for approximately
$0.7 million.

ITEM 7. 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 Annual Report. 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 Form 10-K, including those set forth under “Risk Factors” and “Forward-Looking
Statements.”

Overview

We are a clinical-stage immunology
company focused on developing drugs that may reprogram the patient’s innate immune system to treat disease. We believe this may
be done by targeting cells of the innate immune system that cause acute and chronic inflammation and are involved in immune dysfunction
associated with chronic diseases such as cancer and neurodegenerative diseases. The Company’s drugs are in clinical trials and have
not been approved by a regulatory authority. The Company has two therapeutic platforms – a dominant-negative TNF platform (“DN-TNF”,
“XPro™”, “XPro1595™” or “pegipanermin”) and a Natural Killer (“NK”,
or “INKmune™”) platform. The DN-TNF platform neutralizes soluble TNF (“sTNF”) without affecting trans-membrane
TNF (“tmTNF”) or TNF receptors -TNFR1 and TNFR2. This unique biologic mechanism differentiates the DN-TNF drugs from currently
approved non-selective TNF inhibitors that inhibit both sTNF and tmTNF. Protecting the function of tmTNF and TNF receptors while neutralizing
the function of sTNF is a potent anti-inflammatory strategy that does not cause immunosuppression or demyelination which occur in the
currently approved non-selective TNF inhibitors. Currently approved non-selective TNF inhibitors treat autoimmune disease, but are contraindicated
in patients with infection, cancer and neurologic diseases because they increase the risk of infection, cancer and demyelinating neurologic
diseases, respectively; all the safety problems are due to off-target effects on inhibiting tmTNF. The NK platform targets the dysfunctional
natural killer cells in patients with cancer. NK cells are part of the normal immunologic response to cancer with important roles in immunosurveillance
to prevent cancer and in preventing relapse by eliminating residual disease. Residual disease is the cancer left behind after therapy
is finished. Residual disease can grow to cause relapse. The mechanism by which INKmune improves the ability of the patient’s NK
cells to kill their cancer is complex. The NK cells of cancer patients lose the ability to bind and kill cancer cells. A measure of NK
cell binding to cancer cells is avidity. The higher the avidity, the greater the bond between the NK cell to cancer cell and thus the
greater NK killing of cancer cells. INKmune increase NK avidity and further improves mitochondrial function and upregulates nutrient receptors.
These metabolic changes may help the INKmune primed NK cell to function in the hostile tumor microenvironment and persist much longer.
These mechanisms improve the ability of INKmune primed NK cells to overcome the immune evasion of the patient’s cancer cells. We
believe INKmune is best used to eliminate residual disease after the patient has completed other cancer therapies. Both the DN-TNF platform
and the INKmune platform can be used to treat multiple diseases. The DN-TNF platform will be used as an immunotherapy for the treatment
of cancer and neurodegenerative disease. INKmune is being developed to treat NK sensitive hematologic malignancies and solid tumors.

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We believe our DN-TNF platform
can be used as a cancer therapy to reduce resistance in immunotherapy and as a CNS (“central nervous system”) therapy to target
glial activation to prevent progression of Alzheimer’s disease (“AD”), and to target neuroinflammation in treatment
resistant depression (“TRD”) and as a drug to prevent muscle degeneration, prevent fibrosis and promote muscle regeneration
in Duchene muscular dystrophy (DMD). The drug is named differently for the oncology and CNS indications; INB03™ or XPro™,
respectively, but it is the same drug product. For DMD, the company is exploring DN-TNF compounds that is optimized for the treatment
of DMD. This novel compound has the same mechanism of action but has novel IP protection. In each case, we believe neutralizing sTNF is
a cornerstone to the treatment of these diseases. As an immunotherapy for cancer, we are using INB03 to neutralize sTNF produced by HER2+
trastuzumab resistant breast cancers to reverse resistance to targeted therapy. sTNF produced by the tumor causes an up-regulation of
MUC4 express causing steric hindrance of trastuzumab binding to the HER receptor on HER2+ breast cancer cells. Without binding, trastuzumab
based therapies are not effective. Neutralizing sTNF reverses MUC4 expression converting a trastuzumab resistant breast cancer cell into
a trastuzumab sensitive breast cancer cell. In addition, INB03 changes the immunobiology of the tumor microenvironment by decreasing the
number of immunosuppressive myeloid cells, both myeloid derived suppressor cells and tumor active macrophages, and increasing the number
of cytotoxic lymphocytes and phagocytic macrophages in the TME. The Company has completed an open label dose escalation trial in cancer
patients with metastatic solid tumors that have failed multiple lines of therapy. The trial informs the design of the Phase II trial by
demonstrating that INB03 was safe and well tolerated, defined the dose of INB03 to carry into Phase II trials, and demonstrated a pharmacodynamic
end-point. A Phase II trial is planned in patients with advanced MUC4+ expressing cancer.

Likewise, we believe the DN-TNF
platform can be used to treat selected neurodegenerative diseases by modifying the brain microenvironment (“BME”). The Company
believes the core pathology of cognitive decline is a combination of neurodegeneration and synaptic dysfunction. Neurodegeneration is
nerve cell death that may include demyelination. Synaptic dysfunction means the connections between nerve cells stop working efficiently
and may decrease in number. The combination of neurodegeneration and synaptic dysfunction causes cognitive decline and behavioral changes
associated with Alzheimer’s disease (AD. XPro completed a Phase I trial treating patients with Alzheimer’s disease that was
partially funded by a Part-the-Clouds Award from the Alzheimer’s Association. We believe XPro targets activated microglia and astrocytes
of the brain that produce sTNF that promotes nerve cell loss and synaptic dysfunction, key elements in the development of dementia. In
animal models, elimination of sTNF prevents nerve cell dysfunction and reverses synaptic pruning. The Phase I trial in patients with biomarkers
of inflammation with AD has been completed. The open label, dose escalation trial was designed to demonstrate that XPro can safely decrease
neuroinflammation in patients with ADi. The endpoints of the trial are measures of neuroinflammation and neurodegeneration in blood and
cerebral spinal fluid by measuring changes in inflammatory cytokine levels in the CNS and using MRI-DTI to measure white matter free water.
White matter free water; a validated measure of neuroinflammation in the brain. XPro, at the 1mg/kg/week dose decreased inflammatory cytokines
in the CSF and decreased white matter free water in the brain demonstrating that XPro can decrease neuroinflammation in patients with
AD. We also studied downstream benefits of decreasing neuroinflammation by measuring changes in the CSF proteome and quantifying changes
in novel white matter MRI biomarkers. XPro significantly decreases biomarkers of neurodegeneration as measured by changes in the
CSF proteome including neurofilament light chain, phospho Tau 217 and VILIP-1; decreases of 84%, 46% and 91% respectively after 3 months
of therapy. Three months of XPro therapy improved measures of synaptic function, as measured in the CSF proteome including a 222% increase
in Contactin 2 and a 56% decrease neurogranin, changes that contribute to improved synaptic function.

The successful completion
of the Phase I trial in AD has informed the design of a blinded randomized, placebo controlled Phase II trials in patients with early
ADi. Early ADi includes patients with AD and MCI who have at least one biomarker of inflammation (ADi and MCI2 respectively).
The early ADi trial is a blinded randomized trial to test if treatment of early AD patients with neuroinflammation with XPro will affect
cognitive decline. The Phase II trial in early ADi has six important elements. Two hundred patients are being enrolled in a 2:1 ratio
(XPro vs placebo). The patients will receive 1mg/kg/week as a subcutaneous injection for six months. An enrichment strategy identical
to the successful strategy used in the Phase I trial will be used to ensure patients have neuroinflammation. Patients will need to have
one or more enrichment criteria: elevated blood level of at least one of C-reactive protein, hemoglobin A1c, erythrocyte sedimentation
and at least one allele of ApoE4. The primary end-point will be Early/mild Alzheimer’s Cognitive Composite (“EMACC”),
a validated cognitive measure that is more sensitive than traditional end-points used in many studies of patients with early AD. The
trial is open in Australia and Canada and will open in the US pending the lift of a clinical hold by the US FDA. All patients will be
offered to stay on therapy for at least 12 months in an extension trial. Clinical and biomarker data will be collected during the extension
trial.

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Effective therapy for TRD
is a large unmet need. Twenty percent of patients with a Major Depressive Disorder have TRD. Once third of TRD patients have peripheral
biomarkers to inflammation (elevated CRP). This is a large patient population. The role of TNF and anti-TNF therapeutics was explored
in a small open label clinical trial by Prof. Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels
and treatment with infliximab treated their depression (Miller, 2011). The Company received a $2.9M USD award from the National Institute
of Mental Health (“NIMH”) to treat TRD with XPro. The blinded, randomized Phase II trial will use biomarkers of peripheral
inflammation to select patients with TRD for enrollment. Patients will be treated for 6 weeks. Primary end-points include both clinical
and neuroimaging measures. The final trial design is ongoing and discussions with the FDA are not complete. The Company anticipates receiving
authorization to initiate the clinical trial once the pending clinical hold is lifted.

We believe that INKmune improves
the ability of the patient’s own NK cells to attack their tumor. INKmune interacts with the patient’s NK cells to convert
them from inert resting NK cells into memory-like NK cells that kill the patient’s cancer cells. INKmune is a replication incompetent
proprietary cell line 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. We believe
INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung,
ovary, breast, renal and prostate cancer. The Company has initiated a Phase I trial using INKmune to treat patients with high risk MDS/AML,
a form of leukemia. One patient has been treated in the Phase I trial for MDS and three patients have been treated compassionately in
AML. In the four patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, promotes development of cancer
killing memory-like NK cells that can be found in the patient’s circulation of 4 months. The Company will continue to enroll patients
in the Phase I trial. The Company intends to initiate a separate Phase I/2 trial of INKmune in a solid tumor during 2023.

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We believe that INKmune improves
the ability of the patient’s own NK cells to attack their tumor. INKmune interacts with the patient’s NK cells to convert
them from inert resting NK cells into memory-like NK cells that kill the patient’s cancer cells. INKmune is a replication incompetent
proprietary cell line 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. We believe
INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung,
ovary, breast, renal and prostate cancer. The Company has initiated a Phase I trial using INKmune to treat patients with high risk MDS/AML,
a form of leukemia. One patient has been treated in the Phase I trial for MDS and three patients have been treated compassionately in
AML. In the four patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, promotes development of cancer
killing memory-like NK cells that can be found in the patient’s circulation of 4 months. The Company will continue to enroll patients
in the Phase I trial.

Since
our inception in 2015, we have devoted substantially all of our resources to the discovery and development of our product candidates,
including clinical trials and preclinical studies as well as general and administrative support for these operations. To date, we have
generated no significant revenue. We have incurred net losses in each year since our inception and, as of December 31, 2022, we had an
accumulated deficit of approximately $91.0 million. Our net losses were $27,299,000 and $30,340,000 for the years ended December 31,
2022 and 2021, 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, including stock-based compensation.

The
Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic
on the Company’s business is highly uncertain and difficult to predict. Also, economies worldwide have also been negatively impacted
by the COVID-19 pandemic, however policymakers around the globe have responded with fiscal policy actions to support the healthcare industry
and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.

In addition, the Company’s clinical trials have been affected
by and may continue to be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment have and may continue to
be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients have not, and others may not be able
to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, the ability
to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to
COVID-19, may adversely impact the Company’s clinical trial operations.

The
severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not
limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s service providers,
suppliers, contract research organizations (“CROs”) and the Company’s clinical trials, all of which are uncertain and
cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may
materially impact the Company’s financial condition, liquidity or results of operations is uncertain.

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As a company with less than $1.07 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:

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 $1.07 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.

Components of Operating Results

Operating Expenses

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:

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.

We participate, through our wholly-owned subsidiary
in Australia, in the Australian research and development tax incentive program, such that a percentage of our qualifying research and
development expenditures are reimbursed by the Australian government, and such incentives are reflected as a reduction of research and
development expense. The Australian research and development tax incentive is recognized when there is reasonable assurance that the incentive
will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured.

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We participate, through our wholly-owned subsidiary in the United Kingdom,
in the research and development program provided by the United Kingdom tax relief program, such that a percentage of our qualifying research
and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected as a reduction of research
and development expense. The United Kingdom has recently enacted certain changes to the research and development program which will limit
the research and development tax incentive available to the Company. The United Kingdom research and development tax incentive is recognized
when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the
consideration can be reliably measured.

Substantially all of our research and development
expenses to date have been incurred in connection with our current and future 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 and manufacturing drug to be used in those 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.

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

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:

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General and Administrative Expenses

General and administrative expenses consist principally
of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting, accounting and tax services;
insurance, overhead, including rent and utilities; and other general operating expenses not otherwise classified as research and development
expenses.

Other income, net

Other expense consists primarily of interest expense incurred on debt,
partially offset by interest income from a money market investment.

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.

In-Process Research and Development

The Company evaluates the carrying value of indefinite-lived
intangible assets, which consists of in-process research and development (“IPR&D”), on an annual basis or more frequently
when indicators of impairment exist. An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible
asset is less than the carrying value. Intangible assets with finite lives are tested for impairment when events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. If these facts and circumstances exist, the Company assesses
for recovery by comparing the carrying values of the assets with their future undiscounted net cash flows. Significant management judgment
is required in the forecast of future operating results that are used in the preparation of expected undiscounted cash flows.

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IPR&D assets are considered to be indefinite-lived
until the completion or abandonment of the associated research and development projects. During the period the assets are considered indefinite-lived,
they are tested for impairment. If the related project is terminated or abandoned, the Company may have a full or partial impairment related
to the IPR&D assets, calculated as the excess of their carrying value over fair value. The valuation process is very complex and requires
significant input and judgment using internal and external sources with respect to the Company’s future revenue and expense growth
rates, changes in working capital use, the selection of an appropriate discount rate, and other assumptions and estimates.

Research and Development (“R&D”)

R&D expenses consist primarily of costs related
to clinical studies and outside services, personnel expenses, and other R&D expenses. Clinical studies and outside services costs
relate primarily to services performed by clinical research organizations and related clinical or development manufacturing costs, materials
and supplies, filing fees, regulatory support, and other third-party fees. Personnel expenses relate primarily to salaries, benefits and
share-based compensation. R&D expenditures are charged to operations as incurred.

We recognize R&D tax credits receivable from the United Kingdom
and Australian government for spending on R&D as a reduction of R&D expenses.

Stock-Based Compensation

We measure and recognize compensation
expense for all stock-based awards granted to service providers, employees, and directors based on the estimated fair value of the
award on the grant date. We calculate the estimated fair value of stock options on the date of grant using the Black-Scholes
option-pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number
of highly complex and subjective variables. These variables include, but are not limited to, the market value of common stock on the
grant date, the expected dividend yield, the expected term of the awards, the risk-free interest rates and the expected common stock
price volatility over the term of the option awards. The expected volatility is based on the historical volatility of a few
unrelated public companies within our industry over the most recent period commensurate with the estimated expected term of our
stock options as we have insufficient historical information regarding the volatility of the share price of our common stock. The
risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at
the time of grant. We have never declared or paid dividends and have no plans to do so in the foreseeable future.

We recognize the fair value of stock options on
a straight-line basis over the period during which a service provider is required to provide services in exchange for the award (generally
the vesting period). We account for forfeitures as they occur.

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 XPro) 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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Results of Operations

Comparison of the Years Ended December 31,
2022 and December 31, 2021

Revenues

During 2022 and 2021, the Company sold MSC’s to one and three
customers, respectively, and recognized $374,000 and $181,000 of revenues, respectively.

General and Administrative

General and administrative expenses were $9.3 million for the year
ended December 31, 2022, compared to $8.8 million for the year ended December 31, 2021. The increase in general and administrative expenses
is largely due to higher compensation, including stock-based compensation ($1.5 million higher during the year ended December 31, 2022)
and higher rent expense and right of use asset impairment ($0.2 million higher during the year ended December 31, 2022), partially offset
by lower consulting expense ($1.5 million lower during the year ended December 31, 2022).

Research and Development

Research and development expenses decreased to
$17.1 million for the year ended December 31, 2022 from $20.5 million for the year ended December 31, 2021. The decrease in research
and development expenses during the year ended December 31, 2022 compared to 2021 is mainly due to the Company incurring $4.6 million
of lower manufacturing costs in connection with producing its DN-TNF product and also due to incurring $2.6 million of lower expenses
on the COVID-19 clinical trial, partially offset by the Company’s compensation (including stock-based compensation) which
was $1.8 million higher in 2022 compared to 2021.

Other Expense, net

Other expense, net increased
to $1.3 million during the year ending December 31, 2022, compared to $1.2 million during the year ending December 31, 2021. The increase
in other expense is due to higher interest expense on the Company’s debt ($1.0 million higher), partially offset by $0.7 million
higher interest income from money market investments.

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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.

We incurred a net loss
of $27,299,000 and $30,340,000 for the years ended December 31, 2022 and 2021, respectively. Net cash used in operating activities
was $22,686,000 and $28,504,000 for the years ended December 31, 2022 and 2021, respectively. Since inception, we have funded our
operations primarily with proceeds from the sales of our common stock and from the receipts of grants. As of December 31, 2022, we
had cash and cash equivalents of $52,153,000. We anticipate that operating losses and net cash used in operating activities will
increase over the next few years as we advance our products under development.

Our primary uses of capital are, and we expect
will continue to be, third-party clinical and preclinical research and development services, costs incurred to manufacture our drugs under
development, compensation and related expenses, legal, patent and other regulatory expenses and general overhead costs. We believe our
use of CROs provides us with flexibility in managing our spending.

The Company incurs the majority of its research and development expenses
in Australia and the United Kingdom. Fluctuations in the rate of exchange between the United States dollar and the pound sterling
as well as the Australian dollar could adversely affect our financial results, including our expenses as well as assets and liabilities.
We currently do not hedge foreign currencies but will continue to assess whether that strategy is appropriate. As of December 31, 2022,
the cash balance held by our foreign subsidiaries with currencies other than the United States dollar was approximately $0.1 million.

As of December 31, 2022, the Company had an accumulated deficit of
$91.0 million and working capital of $53.8 million. 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 material revenues until such time as the Company’s products
are commercialized. As of December 31, 2022, we had cash and cash equivalents of $52.2 million. We believe our cash and cash equivalents
will be sufficient to fund our operations for at least the next 12 months following the filing date of this Annual Report on Form 10-K.

Registered Direct
Offering

During
July 2021, the Company completed a registered direct offering whereby the Company sold 1,818,182 shares of its common stock to investors
for net proceeds of $36.9 million.

ATM Sales Agreements

During the year ended
December 31, 2021, we issued and sold 1,439,480 shares of common stock at an average price of $20.17 per share under the 2020 ATM agreement.
The aggregate net proceeds were approximately $28.4 million after BTIG’s commission and other offering expenses. As of December
31, 2021, sales of our common stock pursuant to the 2020 ATM have been completed.

During March 2021, the Company entered into the 2021 ATM agreement
with BTIG, as sales agent, to establish an ATM offering of up to $45 million of common stock. During the year ended December 31, 2021,
the Company sold 713,192 shares at an average price per share of $21.73 for net proceeds of approximately $14.9 million under the 2021
ATM agreement.

Term Loan

On
June 10, 2021, we entered into a Loan and Security Agreement with SVB and an affiliate of SVB, providing for a $15.0 million term loan.
The Term Loan also provides for us to request an additional $5.0 million term loan from the Lenders, which may be granted or denied at
the sole discretion of the Lenders. The Term Loan provides for an annual interest rate equal to the greater of (i) the prime rate then
in effect as reported in The Wall Street Journal plus 4.50% and (ii) 7.75% and also includes a final payment fee equal to 6.5%
of the original principal amount borrowed payable on the earlier of the repayment of the loan in full and the maturity date. The Company
used the proceeds of the term loan to fund the cash consideration for the Option Cancellation Agreement with Xencor.

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Cash Flows

The following table provides information regarding our cash flows for
the years ended December 31, 2022 and 2021:

Net Cash Used in Operating Activities

Our cash used in operating activities was primarily
driven by our net loss.

Operating activities
used $22.7 million of cash for the year ended December 31, 2022, primarily resulting from our net loss of $27.3 million, a net cash
outflow of $2.9 million for changes in our net operating assets and liabilities, and non-cash stock-based compensation charges of
$7.1 million. The change in our net operating assets and liabilities was primarily due to an increase in research and development
tax credit receivable of $3.2 million and an increase in prepaid expenses and other current assets of $1.7 million, partially offset
by an increase in accounts payable and accrued liabilities of $1.5 million.

Operating activities
used $28.5 million of cash for the year ended December 31, 2021, primarily resulting from our net loss of $30.3 million, a net cash
outflow of $3.1 million for changes in our net operating assets and liabilities, and non-cash stock-based compensation charges of
$4.8 million. The change in our net operating assets and liabilities was primarily due to an increase in research and development
tax credit receivable of $3.2 million and an increase in prepaid expenses and other current assets of $2.1 million, partially offset
by an increase in accounts payable and accrued liabilities of $2.2 million.

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Investing
Activities

Investing activities used $15.0 million of cash for the year ended
December 31, 2021. During the year ended December 31, 2021, the Company paid Xencor $15.0 million to settle an option to acquire 10%
of the Company’s common stock on a fully diluted basis which was issued to acquire the Company’s acquired in-process research
and development intangible asset.

Net Cash Provided by Financing Activities

During the year ended December
31, 2022, the Company sold 82,900 shares of its common stock to certain officers and directors for approximately $0.7 million.

During the year ended
December 31, 2021, the Company sold 1,439,480 shares of its common stock under its 2020 ATM agreement for net proceeds of approximately
$28.4 million.

During the year ended
December 31, 2021, the Company sold 713,192 shares of its common stock under the 2021 ATM agreement for net proceeds of approximately
$14.9 million.

During July 2021, the
Company completed a registered direct offering whereby the Company sold 1,818,182 shares of its common stock to investors for net proceeds
of $36.9 million.

During June 2021, we
entered into a Loan and Security Agreement with SVB and an affiliate of SVB, providing for a $15.0 million term loan.

During the year ended December 31, 2021, the Company received approximately
1.2 million in connection with the exercise of stock options and warrants.

ITEM 7. 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 Annual Report. 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 Form 10-K, including those set forth under “Risk Factors” and “Forward-Looking
Statements.”

Overview

We are a clinical-stage immunotherapy
company focused on developing drugs that may reprogram the patient’s innate immune system to treat disease. We believe this may
be done by targeting cells of the innate immune system that cause acute and chronic inflammation and are involved in the immune dysfunction
associated with chronic diseases such as cancer and neurodegenerative diseases. The Company has two therapeutic platforms – dominant-negative
TNF platform (“DN-TNF”) and the Natural Killer (“NK”) platform. The DN-TNF platform neutralizes soluble TNF (“sTNF”)
without affecting trans-membrane TNF (“tmTNF”) or TNF receptors -TNFR1 and TNFR2. This unique biologic mechanism differentiates
the DN-TNF drugs from currently approved non-selective TNF inhibitors that inhibit both sTNF and tmTNF. Protecting the function of tmTNF
while neutralizing the function of sTNF is a potent anti-inflammatory strategy that does not cause immunosuppression or demyelination
which occur in the currently approved non-selective TNF inhibitors. Currently approved non-selective TNF inhibitors are approved to treat
autoimmune disease, but are contraindicated in patients with infection, cancer and neurologic diseases because they increase the risk
of infection, cancer and demyelinating neurologic diseases, respectively; all the safety problems are due to off-target effects on inhibiting
tmTNF. The NK platform targets the dysfunctional natural killer cells (“NK cells”) in patients with cancer. NK cells are part
of the normal immunologic response to cancer with important roles in immunosurveillance to prevent cancer and in preventing relapse by
eliminating residual disease. Residual disease is the cancer left behind after therapy is finished. Residual disease, can grow to cause
relapse. The NK cells of cancer patients loses the ability to bind and kill cancer cells. The strength of the bond of binding to cancer
cells, called avidity, is a necessary step NK killing of cancer cells. INKmune improves avidity of the patients NK cells to overcome the
immune evasion of the patient’s cancer cells. We believe INKmune is best used to eliminate residual disease after the patient has
completed other cancer therapies. Both the DN-TNF platform and the INKmune platform can be used to treat multiple diseases. The DN-TNF
platform will be used as an immunotherapy for the treatment of cancer and neurodegenerative disease. INKmune is being developed to treat
NK sensitive hematologic malignancies and solid tumors.

We believe our DN-TNF
platform can be used as a cancer therapy to reverse resistance in immunotherapy and as a CNS therapy to target glial activation to prevent
progression of Alzheimer’s disease (“AD”), and to target neuroinflammation in treatment resistant depression (“TRD”).
The drug is named differently for the oncology and CNS indications; INB03 or XPro, respectively, but it is the same drug product. In each
case, we believe neutralizing sTNF is a cornerstone to the treatment of these diseases. As an immunotherapy for cancer, we are using INB03
to neutralize sTNF produced by HER2+ trastuzumab resistant breast cancers to reverse resistance to therapy. sTNF causes an up-regulation
of MUC4 expression that causes steric hindrance of trastuzumab binding to the HER2/Neu receptor on HER2+ breast cancer cells. Without
binding, trastuzumab is not effective. In addition, INB03 changes the immunobiology of the tumor microenvironment by decreasing the number
of immunosuppressive myeloid cells, both myeloid derived suppressor cells and tumor active macrophages, and increasing the number of cytotoxic
lymphocytes in the TME. The Company has completed an open label dose escalation trial in cancer patients with metastatic solid tumors
that have failed multiple lines of therapy. The trial informs the design of the Phase II trial by demonstrating that INB03 was safe and
well tolerated, defined the dose of INB03 to carry into Phase II trials, and demonstrated a pharmacodynamic end-point. A Phase II trial
is planned in women with advanced MUC4+ breast cancer with advanced disease.

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Likewise, we believe
the DN-TNF platform can be used to treat selected neurodegenerative diseases by modifying the brain microenvironment (BME). The Company
believes the core pathology of cognitive decline is a combination of neurodegeneration and synaptic dysfunction. XPro completed a Phase
I trial treating patients with Alzheimer’s disease that was partially funded by a Part-the-Clouds Award from the Alzheimer’s
Association. We believe XPro targets activated microglia and astrocytes of the brain that produce sTNF that promotes nerve cell loss and
synaptic dysfunction, key elements in the development of dementia. In animal models, elimination of sTNF prevents nerve cell dysfunction
and reverses synaptic pruning. The Phase I trial in patients with biomarkers of inflammation with AD has been completed. The open label,
dose escalation trial is designed to demonstrate that XPro can safely decrease neuroinflammation in patients with AD. The endpoints of
the trial are measures of neuroinflammation and neurodegeneration in blood and cerebral spinal fluid, measures of neuroinflammation by
measuring cytokines in the CSF and MRI by measuring white matter free water. XPro, at the 1mg/kg/week dose decreased inflammatory cytokines
in the CSF and white matter free water in the brain demonstrating that XPro can decrease neuroinflammation in patients with AD. We also
studied downstream benefits of decreasing neuroinflammation by measuring changes in the CSF proteome and quantifying changes in novel
white matter MRI biomarkers. XPro significantly decreases biomarkers of neurodegeneration as measured by changes in the CSF proteome
including neurofilament light chain, phospho Tau 217 and VILIP-1; decreases of 84%, 46% and 91% respectively after 3 months of therapy.
Three months of XPro therapy improved measures of synaptic function, as measured in the CSF proteome including a 222% increase in Contactin
2 and a 56% decrease neurogranin, proteins that contribute to improved synaptic function.

The successful completion
of the Phase I trial in AD has informed the design of two Phase II trials in patients with AD; one in mild AD and the other in MCI. The
mild AD trial will be a blinded randomized trial to test if treatment of mild AD patients with neuroinflammation will affect cognitive
decline. The Phase II trial has six important elements. Two hundred patients will be enrolled in a 2:1 ratio (XPro vs placebo). The patients
will receive 1mg/kg/week as a subcutaneous injection for six months. An enrichment strategy identical to the successful strategy used
in the Phase I trial will be used to ensure patients have neuroinflammation. Patients will need to have some combination of elevated C-reactive
protein, hemoglobin A1c, erythrocyte sedimentation rated in the blood and at least one allele of ApoE4. The primary end-point will be
Early/mild Alzheimer’s Cognitive Composite (“EMACC”), a validated cognitive measure that is more sensitive than traditional
end-points used in many studies of patients with early AD. The trial will be performed in North America and Australia, is expected to
start enrolling patients in early 2022. We expect top-line clinical data to be available late-2023. All patients will be offered to stay
on therapy for at least 12 months in an extension trial. Clinical and biomarker data will be collected during the extension trial.

The second Phase II trial will be a blinded randomized
trial in patients with MCI in which the Company plans to enroll 60 patients in two arms in a 2:1 ratio (1mg/kg/week XPro, placebo). Patients
will be treated for 3 months. Patients must have at least one ApoE4 allele to qualify for the trial. The primary end-point is EMACC, a
sensitive cognitive end-point validated for use in patients with early AD. Secondary clinical endpoints include the CDR-SB, Cogstate Battery,
E-Cog, NPI, and ADCS-ADL. Imaging endpoints of neuroinflammation (White matter free water), white matter integrity (apparent fiber density,
radial diffusivity), and gray matter quality (cortical disarray measurement) will be assessed via MRI. Changes in brain metabolism will
be assessed via FDG-PET. Additional secondary measures of function include EEG, and speech and language. All patients will be eligible
to continue on XPro for at least 9 additional months. Clinical and MRI metrics will be followed during the extension trial.  The
Company may amend the clinical trial design from time-to-time to improve the quality of the data or the probability of success.

Effective therapy for
TRD is a large unmet need. Twenty percent of patients with a Major Depressive Disorder have TRD. Once third of TRD patients have peripheral
biomarkers to inflammation (elevated CRP). This is a large patient population. The role of TNF and anti-TNF therapeutics was explored
in a small open label clinical trial by Prof. Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels
and treatment with infliximab treated their depression (Miller, 2011). The Company received a $2.9M USD award from the National Institute
of Mental Health (“NIMH”) to treat TRD with XPro. The blinded, randomized Phase II trial will use a biomarkers of peripheral
inflammation to select patients with TRD for enrollment. Patients will be treated for 6 weeks. Primary end-points include both clinical
and neuroimaging measures. The final trial design has is ongoing and discussions with the FDA are not complete. The Company anticipates
receiving authorization to initiate the clinical trial in the second half of 2022.

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We believe that INKmune
improves the ability of the patient’s own NK cells to attack their tumor. INKmune interacts with the patient’s NK cells to
convert them from inert resting NK cells into memory-like NK cells that kill the patient’s cancer cells. INKmune is a replication
incompetent proprietary cell line 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.
We believe INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma,
lung, ovary, breast, renal and prostate cancer. The Company has initiated a Phase I trial using INKmune to treat patients with high risk
MDS, a form of leukemia. One patient has been treated in the Phase I trial. In the single patient, INKmune therapy is safe, produces
memory-like NK cells that kill cancer in vitro, promotes development of cancer killing memory-like NK cells that can be found in the
patient’s circulation of 4 months. The Company will continue to enroll patients in the Phase I trial with a goal of completing
patient enrollment in 2022. The Company intends to treat women with relapsed refractory ovarian in separate Phase I trial beginning during
2022.

The Company has presented pre-clinical data on the use of DN-TNF to
treat non-alcoholic steatohepatitis (“NASH”). The Company has decided to defer the NASH program for the near future due to
the complex and evolving clinical and regulatory environment. The Company may choose to reactivate the program or abandon the program
in the future.

Since our inception in 2015, we have devoted substantially all of our
resources to the discovery and development of our product candidates, including clinical trials and preclinical studies as well as general
and administrative support for these operations. To date, we have generated no significant revenue. We have incurred net losses in each
year since our inception and, as of December 31, 2021, we had an accumulated deficit of approximately $63.7 million. Our net losses were
$30,340,000 and $12,099,000 for the year ended December 31, 2021 and 2020, 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, including stock-based compensation.

The
Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic
on the Company’s business is highly uncertain and difficult to predict. Also, economies worldwide have also been negatively impacted
by the COVID-19 pandemic, however policymakers around the globe have responded with fiscal policy actions to support the healthcare industry
and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.

In
addition, the Company’s clinical trials have been affected by and may continue to be affected by the COVID-19 pandemic. Clinical
site initiation and patient enrollment have and may continue to be delayed due to prioritization of hospital resources toward the COVID-19
pandemic. Some patients have not and others may not be able to comply with clinical trial protocols if quarantines impede patient movement
or interrupt healthcare services. Similarly, the ability to recruit and retain patients and principal investigators and site staff who,
as healthcare providers, may have heightened exposure to COVID-19, may adversely impact the Company’s clinical trial operations.

The
severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not
limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s service providers,
suppliers, contract research organizations (“CROs”) and the Company’s clinical trials, all of which are uncertain and
cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic may
materially impact the Company’s financial condition, liquidity or results of operations is uncertain.

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As a company with less than $1.07 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:

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 $1.07 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.

Components of Operating Results

Operating Expenses

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:

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.

We participate, through our wholly-owned subsidiary
in Australia, in the Australian research and development tax incentive program, such that a percentage of our qualifying research and
development expenditures are reimbursed by the Australian government, and such incentives are reflected as a reduction of research and
development expense. The Australian research and development tax incentive is recognized when there is reasonable assurance that the incentive
will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured.

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We participate, through our wholly-owned subsidiary
in the United Kingdom, in the research and development program provided by the United Kingdom tax relief program, such that a percentage
of our qualifying research and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected
as a reduction of research and development expense. The United Kingdom research and development tax incentive is recognized when there
is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the consideration
can be reliably measured. During 2022, the Company expects to receive a research and development tax rebate for eligible expenditures
incurred in 2021, however the Company will be ineligible for research and development tax incentives for expenditures incurred after 2021
as a result of changes in the United Kingdom tax relief program.

Substantially all of our research and development
expenses to date have been incurred in connection with our current and future 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 and manufacturing drug to be used in those 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.

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

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:

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General and Administrative Expenses

General and administrative expenses consist principally
of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting, accounting and tax services;
insurance, overhead, including rent and utilities; and other general operating expenses not otherwise classified as research and development
expenses.

Other income (expense)

Other expense consists primarily of interest expense
incurred on debt in 2021. Other income primarily consists of income from a settlement in 2020.

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.

In-Process Research and Development

The Company evaluates the carrying value of indefinite-lived
intangible assets, which consists of in-process research and development (“IPR&D”), on an annual basis or more frequently
when indicators of impairment exist. An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible
asset is less than the carrying value. Intangible assets with finite lives are tested for impairment when events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. If these facts and circumstances exist, the Company assesses
for recovery by comparing the carrying values of the assets with their future undiscounted net cash flows. Significant management judgment
is required in the forecast of future operating results that are used in the preparation of expected undiscounted cash flows.

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IPR&D assets are considered to be indefinite-lived
until the completion or abandonment of the associated research and development projects. During the period the assets are considered indefinite-lived,
they are tested for impairment. If the related project is terminated or abandoned, the Company may have a full or partial impairment related
to the IPR&D assets, calculated as the excess of their carrying value over fair value. The valuation process is very complex and requires
significant input and judgment using internal and external sources with respect to the Company’s future revenue and expense growth
rates, changes in working capital use, the selection of an appropriate discount rate, and other assumptions and estimates.

Research and Development (“R&D”)

R&D expenses consist primarily of costs related
to clinical studies and outside services, personnel expenses, and other R&D expenses. Clinical studies and outside services costs
relate primarily to services performed by clinical research organizations and related clinical or development manufacturing costs, materials
and supplies, filing fees, regulatory support, and other third-party fees. Personnel expenses relate primarily to salaries, benefits and
share-based compensation. R&D expenditures are charged to operations as incurred.

We recognize R&D tax credits receivable from
the United Kingdom and Australian government for spending on R&D as an offset of R&D expenses.

Stock-Based Compensation

We measure and recognize compensation
expense for all stock-based awards granted to service providers, employees, and directors based on the estimated fair value of the
award on the grant date. We calculate the estimated fair value of stock options on the date of grant using the Black-Scholes
option-pricing model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number
of highly complex and subjective variables. These variables include, but are not limited to, the market value of common stock on the
grant date, the expected dividend yield, the expected term of the awards, the risk-free interest rates and the expected common stock
price volatility over the term of the option awards. The expected volatility is based on the historical volatility of a few
unrelated public companies within our industry over the most recent period commensurate with the estimated expected term of our
stock options as we have insufficient historical information regarding the volatility of the share price of our common stock. The
risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at
the time of grant. We have never declared or paid dividends and have no plans to do so in the foreseeable future.

We recognize the fair value of stock options on
a straight-line basis over the period during which a service provider is required to provide services in exchange for the award (generally
the vesting period). We account for forfeitures as they occur.

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 XPro) 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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Results of Operations

Comparison of the Years Ended December 31,
2021 and December 31, 2020

Revenues

During 2021, the Company sold MSC’s to three
customers and recognized $181,000 of revenues. We recorded $11,000 of revenues in 2020 as a result of selling MSC’s to one customer.

General and Administrative

General and administrative expenses were $8.8 million for the year
ended December 31, 2021, compared to $6.3 million for the year ended December 31, 2020. The increase was primarily attributable to higher
professional fees ($1.0 million higher in 2021), higher stock-based compensation expense ($0.6 million higher in 2021), and higher salary
expense ($0.5 million higher in 2021).

Research and Development

Research and development expenses increased to $20.5 million for the
year ended December 31, 2021 from $5.9 million for the year ended December 31, 2020. The increase in research and development expenses
during the year ended December 31, 2021 compared to 2020 is due to $5.4 million of higher expenses for the Alzheimer’s clinical
program, $1.9 million of higher expenses on the COVID-19 clinical trial, and due to the Company incurring $5.5 million of higher manufacturing
costs in connection with producing its DN-TNF product. In addition, the Company’s stock-based compensation was $1.1 million higher
in 2021 compared to 2020.

Other Expense (Income)

Other expense increased during the year ended
December 31, 2021 compared to 2020 as a result of the incurring $1.0 million of interest expense
from a loan the Company obtained in June 2021. During 2020, the Company received a refund from a third-party vendor pursuant to
a release and settlement agreement of approximately $0.1 million for services provided in a previous year.

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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.

We incurred a net loss of $30,340,000 and $12,099,000 for the years
ended December 31, 2021 and 2020, respectively. Net cash used in operating activities was $28,504,000 and $8,943,000 for the years ended
December 31, 2021 and 2020, respectively. Since inception, we have funded our operations primarily with proceeds from the sales of our
common stock and from the receipts of grants. As of December 31, 2021, we had cash and cash equivalents of $74.8 million. We anticipate
that operating losses and net cash used in operating activities will increase over the next few years as we advance our products under
development.

Our primary uses of capital are, and we expect
will continue to be, third-party clinical and preclinical research and development services, costs incurred to manufacture our drugs under
development, compensation and related expenses, legal, patent and other regulatory expenses and general overhead costs. We believe our
use of CROs provides us with flexibility in managing our spending.

The Company incurs the majority of its research
and development expenses in Australia and the United Kingdom. Fluctuations in the rate of exchange between the United States dollar and
the pound sterling as well as the Australian dollar could adversely affect our financial results, including our expenses as well
as assets and liabilities. We currently do not hedge foreign currencies but will continue to assess whether that strategy is appropriate.
As of December 31, 2021, the cash balance held by our foreign subsidiaries with currencies other than the United States dollar was approximately
$0.2 million. We do not have any material financial exposure to one customer or one country that would significantly hinder our liquidity.

As of December 31, 2021, the Company had an accumulated deficit of
$63.7 million and working capital of $78.2 million. 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 material revenues until such time as the Company’s products
are commercialized. As of December 31, 2021, we had cash and cash equivalents of $74.8 million. We believe our cash and cash equivalents
will be sufficient to fund our operations for at least the next 12 months following the filing date of this Annual Report on Form 10-K.

Registered Direct
Offering

During
July 2021, the Company completed a registered direct offering whereby the Company sold 1,818,182 shares of its common stock to investors
for net proceeds of $36.9 million.

ATM Sales Agreements

During the year ended
December 31, 2020, we issued and sold 178,600 shares of common stock at an average price of $5.45 per share under the 2020 ATM agreement.
The aggregate net proceeds were approximately $0.8 million after BTIG’s commission and other offering expenses.

During the year ended
December 31, 2021, we issued and sold 1,439,480 shares of common stock at an average price of $20.17 per share under the 2020 ATM agreement.
The aggregate net proceeds were approximately $28.4 million after BTIG’s commission and other offering expenses. As of December
31, 2021, sales of our common stock pursuant to the 2020 ATM have been completed.

During March 2021, the Company entered into the 2021 ATM agreement
with BTIG, as sales agent, to establish an ATM offering of up to $45 million of common stock. During the year ended December 31, 2021,
the Company sold 713,192 shares at an average price per share of $21.73 for net proceeds of approximately $14.9 million under the 2021
ATM agreement.

Term Loan

On
June 10, 2021, we entered into a Loan and Security Agreement with SVB and an affiliate of SVB, providing for a $15.0 million term loan.
The Term Loan also provides for us to request an additional $5.0 million term loan from the Lenders, which may be granted or denied at
the sole discretion of the Lenders. The Term Loan provides for an annual interest rate equal to the greater of (i) the prime rate then
in effect as reported in The Wall Street Journal plus 4.50% and (ii) 7.75% and also includes a final payment fee equal to 6.5%
of the original principal amount borrowed payable on the earlier of the repayment of the loan in full and the maturity date. The Company
used the proceeds of the term loan to fund the cash consideration for the Option Cancellation Agreement with Xencor.

The Lincoln Park Transaction

On May 15, 2019, the Company and Lincoln Park entered into a purchase
agreement (the “Purchase Agreement”) pursuant to which the Company had the right to sell to Lincoln Park up to $20.0 million
in shares of the Company’s common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. During
the year ended December 31, 2020, the Company issued 196,000 shares of the Company’s common stock to Lincoln Park for gross proceeds
of $1,003,000. During April 2021, the Company terminated the Purchase Agreement.

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Cash Flows

The following table provides information regarding
our cash flows for the years ended December 31, 2021 and 2020:

Net Cash Used in Operating Activities

Our cash used in operating activities was primarily
driven by our net loss.

Operating activities used $28.5 million of cash for the year ended
December 31, 2021, primarily resulting from our net loss of $30.3 million, a net cash outflow of $3.1 million for changes in our net operating
assets and liabilities, and non-cash stock-based compensation charges of $4.8 million. The change in our net operating assets and liabilities
was primarily due to an increase in research and development tax credit receivable of $3.2 million and an increase in prepaid expenses
of $2.1 million, partially offset by an increase in accounts payable and accrued liabilities of $2.2 million.

Operating activities used $8.9 million of cash
for the year ended December 31, 2020, primarily resulting from our net loss of $12.1 million, partially offset by non-cash stock-based
compensation charges of $3.1 million.

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Investing
Activities

Investing activities used $15.0 million of cash for the year ended
December 31, 2021 compared to $0 for the year ended December 31, 2020. During the year ended December 31, 2021, the Company paid Xencor
$15.0 million to settle an option to acquire 10% of the Company’s common stock on a fully diluted basis which was issued to acquire
the Company’s acquired in-process research and development intangible asset.

Net Cash Provided by Financing Activities

During the year ended
December 31, 2021, the Company sold 1,439,480 shares of its common stock under its 2020 ATM agreement for net proceeds of approximately
$28.4 million.

During the year ended
December 31, 2021, the Company sold 713,192 shares of its common stock under the 2021 ATM agreement for net proceeds of approximately
$14.9 million.

During July 2021, the
Company completed a registered direct offering whereby the Company sold 1,818,182 shares of its common stock to investors for net proceeds
of $36.9 million.

During June 2021, we
entered into a Loan and Security Agreement with SVB and an affiliate of SVB, providing for a $15.0 million term loan.

During the year ended December 31, 2021, the Company received approximately
1.2 million in connection with the exercise of stock options and warrants.

During July 2020, the Company completed an underwritten
public offering in which it sold 2,500,000 shares of common stock at a public offering price of $10.00 per share. Aggregate net proceeds
from the underwritten public offering were approximately $23.1 million, net of approximately $1.9 million in underwriting discounts and
commissions and offering expenses.

During the year ended December 31, 2020, the Company
purchased 220,000 shares from an investor for approximately $1.0 million. In addition, the Company sold 196,000 shares of its common stock
to Lincoln Park for cash proceeds of approximately $1.0 million.

During the year ended December 31, 2020, the Company issued and sold
178,600 shares of common stock at an average price of $5.45 per share under the ATM agreement for net cash proceeds of approximately $0.8
million.