AN2 Therapeutics, Inc. 10-K

Item 9A . Controls and Procedures. Evaluation of Disclosure of Controls and Procedures Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-K. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our CEO and CFO have concluded that as of December 31, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in internal control over financial reporting. 95 Notwithstanding the identified material weaknesses, management, including our CEO and CFO, have determined, based on the procedures we have performed, that the financial statements included in this Annual Report on Form 10-K were prepared in accordance with U.S. GAAP. Previously Identified Material Weaknesses in Internal Control Over Financial Reporting During the course of preparing for our IPO, we identified material weaknesses in our internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of its annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses as of December 31, 2022 are as follows: • We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of resources with (i) an appropriate level of accounting knowledge, experience and training to appropriately analyze, record and disclose accounting matters timely and accurately, and (ii) an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, the lack of a sufficient number of professionals resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in our finance and accounting functions. This material weakness contributed to the following additional material weaknesses. • We did not design and maintain effective controls related to the period-end financial reporting process, including designing and maintaining formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures. Additionally, we did not design and maintain controls over the preparation and review of account reconciliations and journal entries, including maintaining appropriate segregation of duties. • We did not design and maintain effective controls related to the accounting for certain non-routine or complex transactions, including the proper application of U.S. GAAP to such transactions. The above material weaknesses resulted in adjustments to the redeemable convertible preferred stock, tranche liability and accrued expenses balances, which were recorded prior to the issuance of the financial statements, as of and for the years ended December 31, 2019 and 2020. Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. • We did not design and maintain effective controls over information technology, or IT, general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain (i) program change management controls to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately, (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel, (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored, and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements. These IT deficiencies did not result in adjustments to the financial statements. However, the IT deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined the IT deficiencies in the aggregate constitute a material weakness. 96 Remediation Plan The Company is committed to remediating the material weakness to our internal control over financial reporting. We have implemented measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including (i) the ongoing hiring of additional accounting personnel; (ii) designed and implemented internal controls in our financial control environment, including the establishment of formal accounting policies and procedures, financial reporting controls and controls to account for and disclose complex transactions; and (iii) implemented an accounting system upgrade with IT controls to insure appropriate and restricted access to our accounting applications, programs, and data, including upgrading of our accounting system. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on the Effectiveness of Controls In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Report of Independent Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report from our independent registered public accounting firm on our internal control over financial reporting due to an exemption established by the JOBS Act for EGCs. Item 9B . Other Information. None. Item 9C. Disclosure Re garding Foreign Jurisdictions that Prevent Inspections. Not applicable. 97 PA RT III Item 10 . Directors, Executive Officers and Corporate Governance. Board Composition Our business affairs are managed under the direction of our board of directors ("Board"), which is currently composed of nine members. Our directors are divided into three classes serving staggered three year terms. Upon expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three year term at the annual meeting of stockholders in the year in which their term expires. As a result of this classification of directors, it generally takes at least two annual meetings of stockholders for stockholders to effect a change in a majority of the members of our Board. The names, ages, principal occupations and certain other information about the director nominees with terms expiring at the Annual Meeting and the additional members of our Board (including the skills and qualifications that led to the conclusion that they should serve as directors) are set forth below. Name  Position(s) Age Nominees:    Kabeer Aziz (1)  Class I Director 33 Gilbert Lynn Marks, M.D. (2)  Class I Director 65 Rob Readnour, Ph.D. (3)  Class I Director 59 Continuing Directors:  Margaret FitzPatrick (3)  Class II Director 57 Patricia Martin (2)  Class II Director 62 Melvin Spigelman, M.D. (2) Class II Director 74 Eric Easom  President, Chief Executive Officer and Class III Director 55 Stephanie Wong (1)(3)  Class III Director 49 Joseph Zakrzewski (1)(3) Class III Director 60 (1) Member of the audit committee. (2) Member of the compensation committee. (3) Member of the nominating and corporate governance committee. Nominees for Election to a Three-Year Term Ending at the 2026 Annual Meeting Kabeer Aziz has served as a member of our Board since November 2019. In October 2018, Mr. Aziz co-founded Adjuvant Capital, a life sciences investment fund focused on global public health, and currently serves as a Principal and is responsible for sourcing, executing, and managing investments primarily focused on vaccines and therapeutics for infectious disease. Mr. Aziz currently serves as a member of the board of directors of MinervaX ApS, Pulmocide Ltd., Quantoom Biosciences S.A. and Frontier Nutrition, Inc. and is a board observer to Yisheng Biopharma Co., Ltd., each a healthcare company. From October 2015 to September 2018, Mr. Aziz was a Senior Associate at the Global Health Investment Fund, a healthcare focused impact fund. Prior to this, Mr. Aziz was an Investment Associate at Metalmark Capital from July 2013 to September 2015 as well as an Analyst at Greenhill & Co. from June 2011 to June 2013. Mr. Aziz received a B.S. in Finance and Economics from the Stern School of Business at New York University. We believe that Mr. Aziz’s work in the infectious disease space and experience in healthcare finance makes him an appropriate member of our Board. 98 Gilbert Lynn Marks, M.D., has served as a member of our Board since February 2020. Dr. Marks has over 30 years of experience in the field of infectious diseases and as a senior executive in the pharmaceutical industry. Most recently, from September 2017 to September 2021, Dr. Marks was employed by Tunnell Government Services, Inc., or TGS, a subsidiary of Tunnell Consulting, Inc. that supports clients in medical product development, and became a Vice President at TGS in January 2020. As a contractor from TGS, Dr. Marks supported the Office of the Director for the Biomedical Advanced Research and Development Authority (BARDA) focusing on emerging infectious disease threats, antimicrobial resistance, and the clinical development of medical countermeasures. Previously, from 1993 to 2017, Dr. Marks led the infectious disease therapy area for GlaxoSmithKline for a decade and later retired as a Senior Vice President in R&D, with accountability as Chief Research Practices Officer across the Pharmaceutical, Vaccines, and Consumer Healthcare R&D organizations, as well as being Senior Clinical Advisor for Infectious Diseases. His extensive experience ranges across antibacterials, antivirals, including HIV/AIDS, and neglected tropical diseases. From 2006 to 2018, he has also served on the Scientific Advisory Board for the TB Alliance, a not-for-profit organization, including as Chair. In addition, from 2016 to 2021, Dr. Marks was a member of the Advisory Committee for the National Center for Advancing Translational Sciences at NIH and Chairs the Cures Acceleration Network Review Board for the National Center for Advancing Translational Sciences (NCATS). Since 2020, he has served on the Scientific Review Board for the Medicines for Malaria Venture (MMV), the leading not-for- profit product development partnership in the field of antimalarial drug research and development. Since 2009, he has served on the Scientific Advisory Committee for the Polio Antiviral Initiative. From 2017 through 2021, Dr. Marks served as a member of the Board of Directors for WOAR, Philadelphia, Pennsylvania’s not for profit rape crisis support center. Dr. Marks’ career began with a faculty position at the University of South Alabama College of Medicine in the Infectious Diseases group where he held teaching and patient care responsibilities, as well as a NIH-funded Physician Scientist Award investigating molecular mechanisms of bacterial pathogenicity. He is Board Certified in Internal Medicine and Infectious Diseases. Dr. Marks received a B.S. in Chemistry from Auburn University and an M.D. from University of South Alabama College of Medicine. We believe that Dr. Marks’ over 30 years of experience in the field of infectious diseases and as a senior executive in the pharmaceutical industry makes him an appropriate member of our Board. Rob Readnour, Ph.D., has served as a member of our Board since November 2019. Since July 2018, Dr. Readnour has served as the Managing Director at Mountain Group Partners, a venture capital firm that invests in early-stage companies in the life science, agricultural technology, and technology sectors. From October 1990 to June 2018, Dr. Readnour served in multiple senior management positions at Elanco Animal Health Incorporated, a publicly traded pharmaceutical company that was previously part of Eli Lilly, including Senior Director of Product Development and Senior Advisor and Chief Scientific Officer at Elanco Alternative Innovation. Dr. Readnour currently serves as a member of the board of or has visitation rights to Targan Inc., a bio-systems company focused on animal health, Advanced Animal Diagnostics, Inc., an animal health device company, Skyline Vet Pharma, Inc., a veterinary pharmaceutical company, Exubrion Therapeutics, Inc., a radiotherapeutic veterinary device company, Appello Pharmaceuticals, Inc., a drug development company, and NuSirt Biopharma, Inc., a drug and nutraceutical compound development company. Dr. Readnour also currently serves as the Executive Chairman of In the Bowl Animal Health, Inc., an animal health company. Dr. Readnour is also the Chief Executive Officer of Borah, Inc., an animal health discovery company. Dr. Readnour received a Ph.D. in Analytical Chemistry from University of Illinois and a B.S. in Chemistry from Southeast Missouri State University. We believe that Dr. Readnour’s more than 30 years of experience moving products from discovery through commercialization makes him an appropriate member of our Board. 99 Directors Continuing in Office Margaret (Maggie) FitzPatrick has served as a member of our Board since May 2022. Ms. FitzPatrick is a recognized leader in the area of corporate affairs, marketing and business operations. She has served in leadership positions in the public, private and non-profit sectors and brings a breadth of experience in healthcare, climate change and global health. Since July 2020, Ms. FitzPatrick has been the Founder and Chief Executive Officer of FitzPatrick & Co., a business advisory services firm providing leadership counseling, brand marketing and corporate affairs and advocacy. From 2016 to 2020, Ms. FitzPatrick served as Chief Corporate Affairs Officer for Exelon, a Fortune 200 clean energy provider. From 2013 to 2016, she served as Chief Communications Officer and VP of Public Affairs at Johnson & Johnson. From 2010 to 2013, Ms. FitzPatrick served as Chief Communications Officer and President of the Foundation at Cigna. Prior to that, Ms. FitzPatrick held multiple positions at APCO Worldwide, a global public affairs and strategic communications consultancy, including Executive Vice President. Ms. FitzPatrick is a member of the board of directors at VistaGen Therapeutics, a NASDAQ listed, late-stage central nervous system-focused biopharmaceutical company. Ms. FitzPatrick holds a B.A. in English and Public Policy from Syracuse University and a M.A. in Public Policy from The George Washington University. She completed the board directorship program at the Harvard Business School and is certified as a corporate director by the National Association of Corporate Directors. Appointed in 2020 by Mayor Muriel Bowser and approved by the Council of the District of Columbia, Ms. FitzPatrick serves as Commissioner and Vice Chairperson of the DC Commission on the Arts and Humanities. We believe that Ms. FitzPatrick is qualified to serve on our Board given her extensive experience in corporate affairs, public relations and marketing communications. Patricia (Patty) Martin has served as a member of our Board since April 2021. From July 2019 through March 2023, Ms. Martin served as the President and Chief Executive Officer of BioCrossroads, a not-for-profit organization that supports and promotes the life sciences industry in the state of Indiana. Since July 2019, Ms. Martin has also served as the Managing Partner of BC Initiative, Inc., a company that supports seed fund investing in life sciences. From June 1991 to June 2017, Ms. Martin held multiple positions at Eli Lilly and Company, a publicly traded pharmaceutical company, or Eli Lilly, including Chief Operations Officer of Lilly Diabetes, Chief Diversity Officer and Chief Alliance Officer. Ms. Martin currently also serves as a member of the board of directors of CareSource, Inc., Flame Biosciences, Inc., Indiana Biosciences Research Institute, Indiana Health Information Exchange, Indiana University Foundation, Indiana University Research and Technology Corporation, Regenstrief Institute, and Christian Theological Seminary. Ms. Martin received a B.S. in Accounting from the Kelley School of Business at Indiana University and an M.B.A. from Harvard Business School. We believe that Ms. Martin’s 25 years of experience as an executive at biopharmaceutical companies makes her an appropriate member of our Board. Melvin Spigelman, M.D., has served as a member of our Board since February 2022. Since January 2009, Dr. Spigelman has served as President and Chief Executive Officer for the Global Alliance for TB Drug Development, a non-profit organization which seeks to accelerate the discovery and development of faster-acting and affordable drugs to fight tuberculosis. From June 2003 to June 2008, Dr. Spigelman served as a Director of Research and Development for the Global Alliance for TB Drug Development. Dr. Spigelman was also President of Hudson-Douglas Ltd, a consulting company, from June 2001 to June 2003. From 2000 to 2001, Dr. Spigelman served as a Vice President, Global Clinical Centers at Knoll Pharmaceuticals, a pharmaceutical unit of BASF Corporation, and from 1992 to 2000, Dr. Spigelman was the Vice President of Research and Development at Knoll Pharmaceuticals. Dr. Spigelman served as a director of The Medicines Company, a pharmaceutical company, from 2005 to 2018 and as director of Synergy Pharmaceuticals Inc., a pharmaceutical company, from 2005 to 2019. Dr. Spigelman received a B.A. in Engineering from Brown University and an M.D. from the Mount Sinai School of Medicine. We believe that Dr. Spigelman’s expertise in drug development and management makes him an appropriate member of our Board. Eric Easom has served as our President and Chief Executive Officer and a member of our Board since November 2019. From February 2009 to June 2017, Mr. Easom served as Vice President, Neglected Diseases at Anacor Pharmaceuticals, Inc., or Anacor, a publicly traded biopharmaceutical company that was acquired by Pfizer Inc. From July 2007 to January 2009, Mr. Easom served as the Senior Director, Business Development and Marketing at InteKrin Therapeutics, Inc., a biopharmaceutical company. From April 2006 to July 2007, he served as the Director of Marketing at MedImmune, a biotechnology company that was acquired by AstraZeneca. Mr. Easom currently serves as a member of the board of directors of the Chagas Disease Foundation and Resilient Biotics and is an advisor for the California Life Sciences Institute. Mr. Easom received a B.S. and M.S. in Electrical Engineering from the University of Louisville and an M.B.A. from Indiana University, Kelley School of Business. We believe that Mr. Easom’s extensive work in high-growth biotechnology and pharmaceutical companies makes him an appropriate member of our Board. 100 Stephanie Wong has served as a member of our Board since April 2021. Ms. Wong has served as the Chief Financial Officer at Calithera Biosciences, Inc., or Calithera, a publicly traded biopharmaceutical company, since January 2021, and as Secretary since January 2017. Ms. Wong previously served in various roles at Calithera, as Senior Vice President, Finance from January 2018 to December 2020 and as Vice President, Finance from April 2014 to December 2017. Since December 2016, she has also served as a member of the board of directors of the Northern California Chapter of The Association of Bioscience Financial Officers, an association for financial executives working in the bioscience industry. From 2009 to 2013, Ms. Wong was at SciClone Pharmaceuticals, Inc., a publicly traded pharmaceutical company, most recently as Vice President, Finance and Controller. Prior to that, Ms. Wong served in senior finance roles at AcelRx Pharmaceuticals, Inc. and Kosan Biosciences, Inc., both biopharmaceutical companies, and as an audit manager at PricewaterhouseCoopers LLP, an independent registered public accounting firm. Ms. Wong received a B.S. in Business Administration from the University of California, Berkeley and is a Certified Public Accountant (inactive) in the state of California. We believe that Ms. Wong’s extensive work in high-growth, publicly traded biopharmaceutical companies makes her an appropriate member of our Board. Joseph Zakrzewski has served as a member of our Board since May 2017. Mr. Zakrzewski currently serves as the Chairman of the board of directors of Cerecin, Inc., a biopharmaceutical company and Cyteir Therapeutics, Inc., a publicly traded biotechnology company. Mr. Zakrzewski also currently serves as a member of the board of directors at Sangamo Therapeutics, Inc., a publicly traded biotechnology company, and Acceleron Pharma, a publicly traded biotechnology company. From January 2010 to June 2022, Mr. Zakrzewski served as a member of the board of directors of Amarin Corporation, a publicly traded biopharmaceutical company, or Amarin. From 2014 to 2020, Mr. Zakrzewski served as a member of the board of directors of SiteOne Therapeutics, Inc., a pharmaceutical company. From December 2009 to December 2013, Mr. Zakrzewski also served as the Chairman and Chief Executive Officer of Amarin. Mr. Zakrzewski received a B.S. in Chemical Engineering from Drexel University, an M.S. in Biochemical Engineering from Drexel University, and an M.B.A. in Finance from Indiana University. We believe that Mr. Zakrzewski’s over 25 years of experience as an executive in the biotechnology and pharmaceutical industry makes him an appropriate member of our Board. Board Committees and Meetings Our Board has established an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our Board. Audit Committee The audit committee consists of Ms. Wong, Mr. Aziz and Mr. Zakrzewski. Ms. Wong is the chairperson of the Audit Committee and is the audit committee financial expert, as that term is defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002, and possesses financial sophistication, as defined under the rules of Nasdaq. Although Mr. Aziz does not fall under the safe harbor provision of Rule 10A-3(e)(1)(ii) of the Exchange Act because Mr. Aziz is a limited partner of a stockholder that owns more than 10% of the Company’s voting power, our Board has determined that each of Mr. Aziz, Mr. Zakrzewski, and Ms. Wong is independent. Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the Board has examined each audit committee member’s scope of experience and the nature of their employment in the corporate finance sector. Compensation Committee The compensation committee consists of Ms. Martin, Dr. Marks, and Dr. Spigelman, each of whom meets the requirements for independence under current Nasdaq listing standards and SEC rules and regulations. Ms. Martin is the chairperson of the compensation committee. Each member of the compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act. The compensation committee oversees our compensation policies, plans and benefits programs. 101 Compensation Committee Interlocks and Insider Participation Our compensation committee consisted of Ms. Martin, Dr. Marks, and Dr. Spigelman for the year ended December 31, 2022. None of the members of the compensation committee is currently, or has been at any time, one of our officers or employees. During 2022, no member of our compensation committee or any of our executive officers has or had a relationship that would constitute an interlocking relationship, as defined under applicable SEC rules, with executive officers or directors of another entity. Please refer to the section of this Annual Report on Form 10-K entitled “Certain Relationships and Related Transactions” for information concerning certain transactions involving members of the compensation committee. Nominating and Corporate Governance Committee The nominating and corporate governance committee consists of Dr. Readnour, Ms. FitzPatrick, Ms. Wong and Mr. Zakrzewski, each of whom meets the requirements for independence under current Nasdaq listing standards and SEC rules and regulations. Dr. Readnour is the chairperson of the nominating and corporate governance committee. The nominating and corporate governance committee oversees and assists our Board in reviewing and recommending nominees for election as directors. Identifying and Evaluating Director Nominees Our Board has delegated to the nominating and corporate governance committee the responsibility of identifying individuals qualified to become board members and recommending to the Board nominees to fill vacancies and newly created directorships and the nominees to stand for election as directors. If the nominating and corporate governance committee determines that an additional or replacement director is required, it may take such measures that it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the committee, the Board or management. In its evaluation of director candidates, including the members of the Board eligible for reelection, the nominating and corporate governance committee will consider the current size and composition of the Board and the needs of the Board and its committees. Some of the factors that our nominating and corporate governance committee considers include, without limitation, character, integrity, judgment, diversity, including diversity in terms of gender, race, ethnicity and experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest, other commitments and similar factors. Nominees must also have the highest personal and professional ethics and integrity, proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment, skills that are complementary to those of the existing Board, the ability to assist and support management and make significant contributions to the Company’s success, and an understanding of the fiduciary responsibilities that are required of a member of the Board and the commitment of time and energy necessary to diligently carry out those responsibilities. A stockholder that wants to recommend a candidate for election to the Board should direct the recommendation in writing by letter to the Company, attention of the Corporate Secretary, at 1800 El Camino Real, Suite D, Menlo Park, California 94027. The recommendation must include the candidate’s name, home and business contact information, detailed biographical data, relevant qualifications, a signed letter from the candidate confirming willingness to serve, information regarding any relationships between the candidate and the Company and evidence of the recommending stockholder’s ownership of Company stock. Such recommendations must also include a statement from the recommending stockholder in support of the candidate, particularly within the context of the criteria for board membership. In addition, a stockholder must meet the deadlines and other requirements set forth in the Company’s bylaws. The nominating and corporate governance committee will consider candidates recommended by stockholders in the same manner as candidates recommended to the committee from other sources. 102 Corporate Governance Guidelines and Code of Business Conduct and Ethics Our Board has adopted Corporate Governance Guidelines. These guidelines address items such as the qualifications and responsibilities of our directors and director candidates and corporate governance policies and standards applicable to us in general. In addition, our Board has adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The full text of our Corporate Governance Guidelines and our Code of Business Conduct and Ethics is posted on our website at https://investor.an2therapeutics.com in the Governance section of our Investors webpage. We intend to satisfy the disclosure requirements under Item 5.05 of the SEC Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on our website at the website address and location specified above. Delinquent Section 16(A) Reports Section 16(a) of the Exchange Act requires that our executive officers, directors and 10% stockholders file reports of ownership and changes of ownership with the SEC. Such directors, executive officers and 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. SEC regulations require us to identify in this Annual Report on Form 10-K anyone who filed a required report late during the most recent fiscal year. Based solely on our review of forms we received and written representations of our executive officers, directors and 10% stockholders, we believe that during our fiscal year ended December 31, 2022, all Section 16(a) filing requirements were satisfied on a timely basis, other than the following exceptions: a late filing for Mr. Eizen was submitted on October 28, 2022, covering his initial grant upon hire. Item 11 . Executive Compensation. Executive Officers Name  Position(s) Age Eric Easom  Chief Executive Officer 55 Lucy Day  Chief Financial Officer 64 Sanjay Chanda, Ph.D.  Chief Development Officer 58 Paul Eckburg, M.D.  Chief Medical Officer 53 Joshua Eizen  Chief Legal Officer 45 Kevin Krause  Chief Strategy Officer 48 Information regarding Mr. Easom, who also serves as a director, is set forth above under “Directors and Corporate Governance.” Lucy Day has served as our Chief Financial Officer since November 2019. From March 2002 to August 2016, Ms. Day served in various financial and administrative roles, including as the initial Chief Financial Officer, Vice President of Finance, and Vice President, Human Resources and Finance at Anacor. Ms. Day has previous experience at Centaur Pharmaceuticals, Inc., a biopharmaceutical company, including as Chief Financial Officer, Bank of America, Sohio Petroleum Company, and Ernst and Young LLP. Ms. Day received a B.A. in Political Economies from the University of California, Berkeley and is a CPA (inactive) in California. Joshua Eizen, J.D., has served as our Chief Legal Officer since September 2022. From May 2021 to September 2022, Mr. Eizen served as Vice President, Associate General Counsel at Jazz Pharmaceuticals. From July 2018 to May 2021, Mr. Eizen served as Vice President, U.S. General Counsel for GW Pharmaceuticals plc. From May 2015 to June 2018, Mr. Eizen served as Senior Counsel, Chief Compliance Officer at Actelion (now Janssen Pulmonary Hypertension). From August 2008 to October 2014, Mr. Eizen served as Associate Chief Counsel at the U.S. Food and Drug Administration. From May 2003 to September 2008, Mr. Eizen was an Associate with the law firm of McKee Nelson (now Morgan Lewis). Mr. Eizen received a J.D. from Georgetown University Law Center and a B.A. and M.A. in Political Science and Government from Case Western Reserve University. 103 Sanjay Chanda, Ph.D., has served as our Chief Development Officer since November 2019. Since October 2017, Dr. Chanda has provided expert advice related to drug development through Sanjay Chanda Consulting Services. Since February 2017, Dr. Chanda has been serving as the Chief Development Officer at Cortene lnc., a biopharmaceutical company. Since January 2014, Dr. Chanda has also served as the Co-Founder and Development Consultant at Auration Biotech, Inc., a pharmaceutical company. From October 2016 to August 2017, he served as the Chief Development Officer of Tioma Therapeutics, Inc., an immune-oncology company. From January 2008 to October 2016, Dr. Chandra served as the Senior Vice President of Drug Development of Anacor. Dr. Chanda received a Ph.D. in Pharmacology and Toxicology from Northeast Louisiana University and an M. Pharmacy and B. Pharmacy from Birla Institute of Technology, Mesra, India. Paul Eckburg, M.D., has served as our Chief Medical Officer since November 2019, initially as a 50% consultant and as a full-time employee as of April 30, 2021. Since 2000, he has been the owner of Eckburg Medical Consulting, a consulting company involved in anti-infective biopharmaceutical development. From August 2019 to May 2021, Dr. Eckburg served as an interim Chief Medical Officer and subsequent expert scientific advisor at SNIPR Biome ApS, a CRISPR microbiome company. From June 2016 to November 2022, he served as an interim Chief Medical Officer and subsequent scientific advisory board member at Bugworks Research Inc., a biopharmaceutical company. From July 2016 to April 2022, he has served as a consultant at Spero Therapeutics, Inc., a biopharmaceutical company. From February 2015 to August 2022, Dr. Eckburg has served as a consultant and Safety Monitoring Board member at Paratek Pharmaceuticals, Inc., a biopharmaceutical company. From February 2015 to September 2021, he has served as a scientific advisory board member for Cūrza Global, Inc., a biopharmaceutical company. From February 2018 to May 2019, he served as acting Chief Medical Officer at UTILITY Therapeutics Ltd., a biotechnology company. From April 2017 to May 2019, Dr. Eckburg served as the acting Vice President of Clinical Development at Recida Therapeutics, Inc., a biopharmaceutical company. From April 2016 to May 2019, he served as the acting Chief Medical Officer at Geom Therapeutics, Inc., a biopharmaceutical company. From March 2016 to July 2018, Dr. Eckburg served as the acting Chief Medical Officer at Zavante Therapeutics, Inc., a biopharmaceutical company, and continued as a consultant at Nabriva Therapeutics plc, a biopharmaceutical company, from June 2018 to June 2019. From September 2015 to January 2018, he served as the acting Chief Medical Officer at Nexgen Biosciences Inc., a biopharmaceutical company. From September 2013 to April 2017, Dr. Eckburg served as a consultant at MicuRx Pharmaceuticals, Inc., a biopharmaceutical company. From November 2012 to April 2016, he served as an ID Consultant at Genentech, Inc., a biotechnology company. Dr. Eckburg received an M.D. from Rush University and a B.S. in Cell and Structural Biology from the University of Illinois at Urbana-Champaign. He completed both an Internal Medicine residency and an Infectious Diseases fellowship at Stanford University School of Medicine, where he continues to teach as an Adjunct Clinical Assistant Professor. Kevin Krause has served as our Chief Strategy Officer since August 2021. He was previously our Vice President of Clinical Sciences and Development Operations since November 2019. From January 2015 to June 2019, Mr. Krause served multiple roles at Achaogen, Inc., a biotechnology company, including the positions of Director of Microbiology, Senior Director, Head of Microbiology, and Senior Director of Corporate Development. From August 2010 to December 2014, Mr. Krause was a member of the Clinical Microbiology team at Cerexa, Inc., a biopharmaceutical company, and played a key role on the Scientific Assessment teams for all antibacterial and antiviral in-licensing opportunities. Prior to that, Mr. Krause worked at Theravance, Inc. from March 1999 to July 2010 in various research and clinical microbiology roles. Mr. Krause received an M.B.A. from the University of California, Berkeley Haas School of Business and a B.S. in Molecular Biology from San Francisco State University. Summary Compensation Table Our named executive officers for fiscal year ended December 31, 2022, which consist of our principal executive officer and the next two most highly compensated executive officers, are: • Eric Easom, our President and Chief Executive Officer; • Joshua Eizen, J.D., our Chief Legal Officer; and • Paul Eckburg, M.D., our Chief Medical Officer. 104 The following table sets forth information regarding the total compensation for services rendered in all capacities that was earned by our named executive officers in the year indicated. Name and Principal Position  Year  Salary ($)  Option Awards ($) (1)  Non-Equity Incentive Plan Compensation ($) (2)  Total ($) Eric Easom  2022  481,185  2,767,815 216,533 3,465,533 President, Chief Executive Officer and Director 2021 377,300 1,190,689 151,000 1,718,989 Paul Eckburg, M.D. (3)  2022  427,399  811,893 153,864 1,393,156 Chief Medical Officer 2021 258,125 567,928 77,000 903,053 Joshua Eizen, J.D. (4) Chief Legal Officer  2022  101,742 1,216,194 36,627 1,354,563 (1) The amounts reported represent the aggregate grant date fair value of the awards, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 — Compensation — Stock Compensation (“ASC 718”), excluding the effect of any estimated forfeitures. Information about the assumptions used in the calculation of these amounts are included in “Note 2. Summary of Significant Accounting Policies — Stock-Based Compensation ” and “Note 10. Equity Incentive Plan and Stock-Based Compensation ” to the Company’s financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for such year. (2) Non-equity incentive plan compensation consists of bonus awards under the Incentive Compensation Plan (as defined below) earned for 2022 and 2021 performance, which compensation was paid in March 2023 and March 2022, respectively. (3) Dr. Eckburg commenced employment with us on April 30, 2021. Prior to his employment, Dr. Eckburg was a consultant for us. (4) Mr. Eizen commenced employment with us on September 29, 2022, and his non-equity incentive plan compensation earned was prorated for his time employed by the Company in 2022. Narrative to Summary Compensation Table Our compensation committee reviews compensation annually for all executive employees, including our named executive officers. In making compensation determinations, we consider compensation for comparable positions in the market, the historical compensation levels of our executives, individual performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short- and long-term results that are in the best interests of our stockholders and a long-term commitment to our Company. For setting our 2022 executive compensation levels, our compensation committee also engaged Aon as compensation consultants to develop a comparative peer group of companies and to perform analyses of our executive compensation practices compared with current market practices and the peer group of companies. Our compensation committee has historically determined our executive officers’ compensation and has typically reviewed and discussed management’s proposed compensation with our Chief Executive Officer for all executives other than our Chief Executive Officer. Based on those discussions and its discretion, our compensation committee then approved the compensation of each executive officer. Annual Base Salaries Base salaries for our executive officers are initially established through arm’s-length negotiations at the time of the executive officer’s hiring, taking into account such executive officer’s qualifications, experience, the scope of his or her responsibilities and competitive market compensation paid by other companies for similar positions within the industry and geography. Base salaries are reviewed periodically, typically in connection with our annual review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. In making decisions regarding salary increases, especially in connection with our initial public offering, we reviewed the analysis conducted by Aon comparing our compensation practices to current market practices and those of our peer group of companies. The 2022 and 2021 base salaries for our named executive officers are reflected in the table above, as adjusted or prorated throughout the year based on respective start dates, except no base salary is reported for Mr. Eizen for 2021 given he joined us in 2022. 105 Non-Equity Incentive Plan Compensation Each of our named executive officers was eligible to receive an annual incentive bonus based on the attainment of corporate objectives for the fiscal year ended December 31, 2022, approved by our Board in February 2023. The target bonus for each of Mr. Easom, Dr. Eckburg and Mr. Eizen was 50%, 40% and 40% of his base salary, respectively. The compensation committee of our Board has the authority, in its sole discretion and at any time, to increase, reduce or eliminate a participant’s actual award, and/or increase, reduce or eliminate the amount allocated to the bonus pool for a particular performance period. In February 2023, the Board assessed our performance against our 2022 corporate goals and, based on such performance, awarded a cash annual incentive bonus to each of Mr. Easom, Dr. Eckburg and Mr. Eizen equal to 90% of his target bonus amount for 2022. For 2021, each of our named executive officers (other than Mr. Eizen who joined us in 2022) was eligible to receive an annual incentive bonus based on the achievement of certain of our 2021 corporate goals. The target bonus for each of Mr. Easom and Dr. Eckburg was 40% and 30% of his base salary, respectively. In February 2022, our Board assessed Company performance against our 2021 corporate goals and based on such performance, awarded a cash annual incentive bonus to each of our named executive officers (other than Mr. Eizen) equal to 100% of his target bonus amount for 2021. These bonuses were paid in early 2022. Equity-Based Incentive Awards Our equity-based incentive awards are designed to align our interests and those of our stockholders with those of our employees and consultants, including our executive officers. Our Board or an authorized committee thereof is responsible for approving equity grants. Historically, we have generally used stock options as an incentive for long-term compensation to our executive officers because stock options allow our executive officers to profit from this form of equity compensation only if our stock price increases relative to the stock option’s exercise price, which exercise price is set at the fair market value of our common stock on the date of grant. We may grant equity awards at such times as our Board or compensation committee determines appropriate. Our executives generally are awarded an initial grant in the form of a stock option in connection with their commencement of employment with us. Additional grants may occur periodically in order to specifically incentivize executives with respect to achieving certain corporate goals or to reward executives for exceptional performance. Prior to our initial public offering, we granted all stock options pursuant to our Amended and Restated 2017 Equity Incentive Plan (the “2017 Plan”). All equity incentive awards granted since our initial public offering have been granted pursuant to our 2022 Equity Incentive Plan (the “2022 Plan”). All stock options are granted with an exercise price per share that is no less than the fair market value of our common stock on the date of grant of such award. Our stock option awards granted to our named executive officers generally vest over a four-year period and may be subject to acceleration of vesting and exercisability under certain termination and change in control events, as described in more detail under the subsections below titled “Employment Arrangements” and “Potential Payments and Benefits upon Termination or Change in Control.” In May 2022, our Board granted to Mr. Easom and Dr. Eckburg an option to purchase 225,000 and 66,000 shares of our common stock, respectively, at an exercise price of $17.28 per share. The shares shall vest in 48 monthly increments commencing on the one-month anniversary of the vesting commencement date of March 25, 2022, subject to continued service to the Company through each such vesting date. In October 2022, our Board granted to Mr. Eizen an option to purchase 92,000 shares of our common stock at an exercise price of $17.88 per share. 25% of the shares shall vest on the one-year anniversary of the vesting commencement date of September 29, 2022, and the remainder vest on a monthly basis thereafter, subject to continued service to the Company through each such vesting date. The option grants are set forth in the Outstanding Equity Awards at December 31, 2022 in the table below. In April 2021, our Board granted to Mr. Easom and Dr. Eckburg an option to purchase 249,999 and 118,999 shares of our common stock, respectively, at an exercise price of $6.60 per share. Mr. Easom’s shares shall vest in 48 monthly increments commencing on the one-month anniversary of the vesting commencement date, subject to continued service to the Company through each such vesting date. Mr. Eckburg’s shares shall vest 25% on the one-year anniversary of the vesting commencement date, and the remainder vest on a monthly basis thereafter. The option grants are set forth in the Outstanding Equity Awards at December 31, 2022 in the table below. 106 Named Executive Officer Employment Arrangements Eric Easom We entered into an employment offer letter with Eric Easom, our President and Chief Executive Officer, on November 19, 2019. The employment offer letter has no specific term and provides that Mr. Easom is an at-will employee. Mr. Easom’s current base salary is $575,000 and his target annual cash bonus is equal to 50% of his annual base salary. Paul Eckburg, M.D. We entered into an employment offer letter with Paul Eckburg, our Chief Medical Officer, on April 30, 2021. The employment offer letter has no specific term and provides that Dr. Eckburg is an at-will employee. Dr. Eckburg’s current base salary is $465,000 and his target annual cash bonus is equal to 40% of his annual base salary. In connection with the commencement of his employment, Dr. Eckburg was granted an option to purchase 118,999 shares of common stock, 25% of which vest on the one-year anniversary of the vesting commencement date, and the remainder vesting on a monthly basis thereafter, subject to continued service to us through each such vesting date. Joshua Eizen We entered into an employment offer letter with Joshua Eizen, our Chief Legal Officer, on September 19, 2022. The employment offer letter has no specific term and provides that Mr. Eizen is an at-will employee. Mr. Eizen’s current base salary is $410,000 and his target annual cash bonus is equal to 40% of his annual base salary, which amount was pro-rated for his date of hire in respect of the 2022 year. In connection with the commencement of his employment, in September 2022, Mr. Eizen was granted an option to purchase 92,000 shares of common stock, 25% of which vest on the one-year anniversary of the vesting commencement date of September 29, 2022, and the remainder vesting on a monthly basis thereafter, subject to continued service to us through each such vesting date. Each named executive officer is eligible for severance and change of control-related benefits as described below. Potential Payments and Benefits upon Termination or Change in Control Our Board has adopted a Severance and Change in Control Plan (“Severance Plan"), in which our named executive officers, and certain other executives, participate. The benefits provided in the Severance Plan replace any severance for which our named executive officers may be eligible under their existing offer letters or other employment agreements or arrangements, except to the extent such offer letters or other agreements or arrangements provide for greater benefits; provided, that, the defined terms in the Severance Plan supersede the corresponding defined terms or other similar terms in such offer letter or other agreements or arrangements. The Severance Plan provides that upon a termination by us for any reason other than for “cause,” as defined in the Severance Plan, death or “disability,” as defined in the Severance Plan, outside of the change in control period (i.e., the period starting three months before and ending one year after a “change in control,” as defined in the Severance Plan), an eligible participant will be entitled to receive, subject to the execution and delivery of an effective release of claims in favor of our company and continued compliance with all applicable restrictive covenants, (i) a lump sum amount equal to 100% of the annual base salary in effect immediately prior to the date of termination for our Chief Executive Officer and 75% of the annual base salary in effect immediately prior to the date of termination for our other named executive officers, (ii) an additional cash lump sum equal to any earned but unpaid annual bonus for any performance years that were completed as of the date of termination, and (iii) if the named executive officer timely elects, continued group health plan continuation coverage under the Consolidated Omnibus Budget Reconciliation Act, or COBRA, the premiums on behalf of such officer and any eligible dependents for 12 months following termination for our Chief Executive Officer and nine months following termination for our other named executive officers. The payments under (i) and (ii) will be paid within 30 days after the delivery of an effective release of claims by the named executive officers. 107 The Severance Plan also provides that upon a (A) termination by us other than for cause, death or disability or (B) resignation for “good reason,” as defined in the Severance Plan, in each case within the change in control period, an eligible participant will be entitled to receive, in lieu of the payments and benefits above and subject to the execution and delivery of an effective release of claims in favor of our company and continued compliance with all applicable restrictive covenants, (i) a lump sum amount equal to 150% of the base salary and 150% of the target annual bonus in effect immediately prior to the date of termination for our Chief Executive Officer and 100% of the base salary and 100% of the target annual bonus in effect immediately prior to the date of termination for our other named executive officers, (ii) an additional cash lump sum equal to any earned but unpaid annual bonus for any performance years that were completed as of the date of termination, (iii) if the named executive officer timely elects continued group health plan continuation coverage, the COBRA premiums on behalf of such officer and any eligible dependents for 18 months following termination for our Chief Executive Officer and 12 months following termination for our other named executive officers, and (iv) for all outstanding and unvested equity awards of our company that are subject to vesting held by the participant, full accelerated vesting of such awards; provided, that the performance conditions applicable to any outstanding and unvested equity awards subject to performance-based vesting will be deemed satisfied at the target level specified in the terms of the applicable award agreement. The payments and benefits provided under the Severance Plan in connection with a change in control may not be eligible for a federal income tax deduction by us pursuant to Section 280G of the Code. These payments and benefits may also subject an eligible participant, including the named executive officers, to an excise tax under Section 4999 of the Code. If the payments or benefits payable in connection with a change in control would be subject to the excise tax imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to the participant. Outstanding Equity Awards as of December 31, 2022 The following table shows outstanding equity awards held by our named executive officers as of December 31, 2022: Option Awards (1) Named Executive Officer  Grant Date  Vesting Commencement Date  Number of Securities Underlying Unexercised Options Exercisable (#)  Number of Securities Underlying Unexercised Options Unexercisable (#)  Option Exercise Price ($)  Option Expiration Date Eric Easom 04/30/2021 (2) 04/30/2021 104,166 145,833 6.60 04/29/2031 05/12/2022 (3) 03/25/2022 42,187 182,813 17.28 05/11/2032 Joshua Eizen, J.D.  10/14/2022 (4)  09/29/2022  — 92,000 17.88 10/13/2032 Paul Eckburg, M.D.  01/23/2020 (5)  11/21/2019  —  — — — 10/05/2020 (6) 10/05/2020 4,418 — 0.42 09/23/2030 04/30/2021 (7) 04/30/2021 49,582 69,417 6.60 04/29/2031 05/12/2022 (8) 03/25/2022 12,375 53,625 17.28 05/11/2032 (1) All of the option awards granted prior to March 24, 2022 were made under the Amended and Restated 2017 Equity Incentive Plan and all grants made subsequent to March 24, 2022 were made under our 2022 Equity Incentive Plan. (2) The option vests in respect of 1/48th of the underlying shares on each monthly anniversary of the vesting commencement date, subject to Mr. Easom’s continued service with us through each vesting date. As of December 31, 2022, 104,166 shares were vested and 145,833 shares were not vested. The option is subject to the vesting acceleration provision described below under “—Potential Payments and Benefits upon Termination or Change in Control.” (3) The option vests in respect of 1/48th of the underlying shares on each monthly anniversary of the vesting commencement date, subject to Mr. Easom’s continued service with us through each vesting date. As of December 31, 2022, 42,187 shares were vested and 182,813 shares were not vested. The option is subject to the vesting acceleration provision described below under “—Potential Payments and Benefits upon Termination or Change in Control.” 108 (4) The option vests in respect of 25% of the underlying shares on the first anniversary of the vesting commencement date, with the remaining 75% of the underlying shares vesting on a monthly basis thereafter, subject to Mr. Eizen’s continued service with us through each vesting date. As of December 31, 2022, 92,000 shares were not vested. The option is subject to the vesting acceleration provision described below under “—Potential Payments and Benefits upon Termination or Change in Control.” (5) Dr. Eckburg acquired 18,289 shares of our common stock pursuant to a common stock option agreement. As of December 31, 2022, all shares were vested. (6) The option vests in respect of 1/12the of the underlying shares on each monthly anniversary of the vesting commencement date, subject to Dr. Eckburg’s continued service with us through each vesting date. As of December 31, 2022, all shares were vested. (7) The option vests in respect of 25% of the underlying shares on the first anniversary of the vesting commencement date, with the remaining 75% of the underlying shares vesting on a monthly basis thereafter, subject to Dr. Eckburg’s continued service with us through each vesting date. As of December 31, 2022, 49,582 shares were vested and 69,417 shares were not vested. The option is subject to the vesting acceleration provision described below under “—Potential Payments and Benefits upon Termination or Change in Control.” (8) The option vests in respect of 1/48th of the underlying shares on each monthly anniversary of the vesting commencement date, subject to Dr. Eckburg’s continued service with us through each vesting date. As of December 31, 2022, 12,375 shares were vested and 53,625 shares were not vested. The option is subject to the vesting acceleration provision described below under “—Potential Payments and Benefits upon Termination or Change in Control.” Other Compensation and Benefits All of our current named executive officers are eligible to participate in our employee benefit plans, including our medical, dental and vision plans, in each case on the same basis as all of our other employees. We pay the premiums for the medical, disability, and accidental death and dismemberment insurance for all of our employees, including our named executive officers. We generally do not provide perquisites or personal benefits to our named executive officers. 401(k) Plan We maintain a 401(k) retirement savings plan for the benefit of our employees. Under the 401(k) plan, eligible employees may elect to defer a portion of their compensation, within the limits prescribed by the Code, on a pre-tax or after-tax (Roth) basis, through contributions to the 401(k) plan. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, pre-tax contributions to the 401(k) plan and earnings on those pre-tax contributions are not taxable to the employees until distributed from the 401(k) plan, and earnings on Roth contributions are not taxable when distributed from the 401(k) plan. Emerging Growth Company Status We became a public company in March 2022 and we are an “emerging growth company” under applicable federal securities laws and therefore permitted to take advantage of certain reduced public company reporting requirements. As an emerging growth company, we provide in this Annual Report on Form 10-K the scaled disclosure permitted under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, including certain executive compensation disclosures required of a “smaller reporting company,” as that term is defined in Rule 12b-2 promulgated under the Exchange Act. In addition, as an emerging growth company, we are not required to conduct votes seeking approval, on an advisory basis, of the compensation of our named executive officers or the frequency with which such votes must be conducted. We will remain an emerging growth company until the earliest of (i) December 31, 2027, (ii) the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1.235 billion in non-convertible debt securities, or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. 109 Equity Compensation Plan Information The following table provides information as of December 31, 2022 with respect to shares of our common stock that may be issued under our existing equity compensation plans. Plan Category  Number of Securities to be Issued upon Exercise of Outstanding Options  Weighted Average Exercise Price of Outstanding Options  Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) Equity compensation plans approved by security holders  2017 Amended and Restated Equity Incentive Plan (1) 1,354,727 7.25 — 2022 Equity Incentive Plan (2)  1,164,720 15.79 705,280 2022 Employee Stock Purchase Plan (3)  — N/A 187,000 Total 2,519,447 N/A 892,280 (1) As a result of the adoption of the 2022 Plan, we no longer grant awards under the 2017 Plan; however, all outstanding options issued pursuant to the 2017 Plan continue to be governed by their existing terms. To the extent that any such awards are forfeited or lapse unexercised or are repurchased, the shares of common stock subject to such awards will become available for issuance under the 2022 Plan. (2) The 2022 Plan provides that the number of shares available for issuance under the 2022 Plan will be increased on the first day of each fiscal year for a period of ten years beginning with the 2023 fiscal year, in an amount equal to the least of (i) four percent (4%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year or (ii) such other amount as our Board or any of its committees as will be administering the 2022 Plan may determine. Pursuant to these terms, an additional 776,106 shares were added to the number of available shares under the 2022 Plan effective January 1, 2023. (3) The 2022 ESPP provides that the number of shares available for issuance under the 2022 ESPP will be increased on the first day of each fiscal year beginning in 2023 in an amount equal to the least of (i) one percent (1%) of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, (ii) 561,000 shares of common stock or (iii) such other amount as may be determined by our Board or any of its committees as will be administering the 2022 ESPP may determine. Pursuant to these terms, an additional 194,026 shares were added to the number of available shares under the 2022 ESPP effective January 1, 2023. 110 Compensation of Non-Employee Directors The following table sets forth information concerning compensation earned by the non-employee members of our Board in fiscal year 2022. Mr. Easom, our President and Chief Executive Officer, is also a director but does not receive any additional compensation for his services as a director. Information concerning the compensation earned by Mr. Easom is set forth in the section titled “Executive Compensation.” Name  Fees Earned ($)  Option Awards ($)(1)(2) Total ($) Kabeer Aziz  31,875 252,207 284,082 Margaret FitzPatrick (3) 26,000 123,030 149,030 Gilbert Lynn Marks, M.D.  38,125 122,734 160,859 Patricia Martin  43,750 122,734 166,484 Rob Readnour, Ph.D. 32,250 252,207 284,457 Melvin Spigelman, M.D. 38,125 122,734 160,859 Stephanie Wong 46,750 122,734 169,484 Joseph Zakrzewski (4) 77,576 122,734 200,310 (1) The amounts reported represent the aggregate grant date fair value of the awards, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718—Compensation—Stock Compensation (“ASC 718”), excluding the effect of any estimated forfeitures. Information about the assumptions used in the calculation of these amounts are included in “ Note 2. Summary of Significant Accounting Policies—Stock-Based Compensation ” and “ Note 10. Equity Incentive Plan and Stock-Based Compensation ” to the Company’s financial statements for the year ended December 31, 2022 included in this Annual Report on Form 10-K for such year. (2) The following table lists all outstanding option awards held by our non-employee directors as of December 31, 2022: Name  Option Awards Kabeer Aziz  20,724 Margaret FitzPatrick (3) 10,362 Gilbert Lynn Marks, M.D.  21,027 Patricia Martin  35,361 Rob Readnour, Ph.D. 20,724 Melvin Spigelman, M.D. 27,303 Stephanie Wong 35,361 Joseph Zakrzewski (4) 110,361 (3) Ms. FitzPatrick joined the Board effective May 5, 2022. (4) In the first quarter of 2022, Mr. Zakrzewski was paid according to his Board Chair Letter agreement. In the remaining quarters of 2022 his fee was adjusted to conform to the Non-Employee Director Compensation Policy. We also reimburse our non-employee directors for their reasonable out-of-pocket costs and travel expenses in connection with their attendance at Board and committee meetings. Non-Employee Director Compensation Policy Our Board adopted a non-employee director compensation policy (the “Director Compensation Policy”), effective as of March 24, 2022. Under the Director Compensation policy, each non-employee director is eligible to receive compensation for his or her service consisting of the following annual cash retainers and equity awards. Our Board has the discretion to revise non-employee director compensation as it deems necessary or appropriate. Cash Compensation All non-employee directors are entitled to receive the following cash compensation for their services: • $35,000 per year for services as a Board member; • $30,000 per year additionally for service as chairman of the Board; 111 • $15,000 per year additionally for service as chairman of the audit committee or $7,500 per year additionally for service as an audit committee member; • $15,000 per year additionally for service as chairman of the compensation committee or $7,500 per year additionally for service as a compensation committee member; and • $8,000 per year additionally for service as chairman of the nominating and corporate governance committee or $4,000 per year additionally for service as a nominating and corporate governance committee member. For clarity, each non-employee director who serves as the chair of a committee will receive only the annual fee for services as the chair of the committee and not the additional annual fee for services as a member of the committee, provided that the non-employee director who serves as the chairman of the Board will receive the annual fee for services as the chairman of the Board and the annual fee for services as a Board member. Equity Compensation All non-employee directors are entitled to receive all types of awards (except incentive stock options) under the 2022 Plan including discretionary awards not covered under the Director Compensation Policy. Automatic grants of stock options are made to our non-employee directors as follows: • Initial Award . Upon joining the Board, each newly-elected non-employee director will be granted a one-time grant (the “Director Initial Grant”) of a non-statutory stock option with a grant-date value of $209,093 on the date of such director’s election or appointment to the Board. The Director Initial Grant will vest in substantially equal monthly installments over three years, subject to continued service as a Service Provider through each vesting date. • Annual Award . Each non-employee director (including the chairman of the Board) will be granted an annual award (the “Director Annual Grant”) of a non-statutory stock award with a grant-date value of $104,546; provided however, that any director who receives a Director Initial Grant at least three months, but less than six months, prior to the annual meeting stockholders of our company will be granted an award of a non-statutory stock option with a grant-date value of $52,273. The Director Annual Grant will vest in full on the earlier of the one-year anniversary of the grant date or on the date of our next annual meeting of stockholders, subject to continued service as a Service Provider through each vesting date. The Director Initial Grant and Director Annual Grant are subject to full acceleration vesting upon the sale of our company. Pursuant to the Director Compensation Policy, no non-employee director may be issued, in any fiscal year, cash compensation and equity awards with an aggregate value greater than $750,000. Any cash compensation paid or equity awards granted to an individual for his or her services as an employee, for his or her services as a consultant (other than as a non-employee director), will not count for purposes of this limitation. Item 12 . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Beneficial Ownership of Shares of Common Stock The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 15, 2023 for: • each beneficial owner of 5% or more of the outstanding shares of our common stock; • each of our directors; • each of our named executive officers; and • all directors and executive officers as a group. The number of shares of common stock beneficially owned by each person or entity is determined in accordance with the applicable rules of the SEC and includes voting or investment power with respect to shares of our common stock. The information is not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under community property laws. The inclusion herein of any shares as beneficially owned does not constitute an admission of beneficial ownership. 112 Applicable percentage ownership is based on 19,402,658 shares of common stock outstanding at March 15, 2023. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares subject to options held by the person that are currently exercisable within 60 days of March 15, 2023. However, we did not deem such shares outstanding for the purpose of computing the percentage ownership of any other person. Name of Beneficial Owner  Number of Shares Beneficially Owned  Percent of Shares Outstanding Five Percent Stockholders:  Entities affiliated with RA Capital Healthcare Fund (1) 3,773,517 19.45% Entities affiliated with Adjuvant Global Health Technology Fund (2)  2,597,380 13.39% Entities affiliated with Biotechnology Value Fund (3) 1,563,963 8.06% Anacor Pharmaceuticals, LLC (4)  1,362,499 7.02% Entities affiliated with Citadel Advisors (5) 1,336,993 6.89% Brii Biosciences Limited (6) 1,048,479 5.40% Directors and Named Executive Officers: Eric Easom (7) 1,390,725 7.17% Paul Eckburg, M.D. (8) 100,081 * Joshua Eizen, J.D. — — Kabeer Aziz (9) 7,483 * Margaret FitzPatrick (10) 10,362 * Gilbert Lynn Marks, M.D. (11) 40,302 * Patricia Martin (12) 27,028 * Melvin Spigelman, M.D. (13) 17,420 * Rob Readnour, Ph.D. (14) 912,438 4.70% Stephanie Wong (15) 27,028 * Joseph Zakrzewski (16) 681,107 3.51% All executive officers and directors (14 persons) (17) 3,595,254 18.53% * Represents beneficial ownership of less than 1%. (1) Based solely on information set forth in a Schedule 13G filed with the SEC on February 14, 2023 by RA Capital Management, L.P. (“RA Capital”) and RA Capital Healthcare Fund, L.P. (the “Fund”). Consists of (i) 3,357,905 shares of common stock held by the Fund and (ii) 415,612 shares of common stock held by RA Capital Nexus Fund, L.P. (the “Nexus Fund”). RA Capital Healthcare Fund GP, LLC is the general partner of the Fund and RA Capital Nexus Fund GP, LLC is the general partner of the Nexus Fund. The general partner of RA Capital is RA Capital Management GP, LLC, of which Peter Kolchinsky and Rajeev Shah are the controlling persons. RA Capital serves as investment adviser for the Fund and the Nexus Fund and may be deemed a beneficial owner of any securities of the Company held by the Fund and the Nexus Fund. As managers of RA Capital, Peter Kolchinsky and Rajeev Shah have the power to vote or dispose of the shares held by the Fund and Nexus Fund. The Schedule 13G filed by RA Capital, Peter Kolchinsky, Rajeev Shah, and the Fund provides information as of December 31, 2022 and, consequently, the beneficial ownership of the reporting entities may have changed between December 31, 2023 and March 15, 2023. The address of the persons and entities listed above is 200 Berkeley Street, 18th Floor, Boston, Massachusetts 02116. 113 (2) Consists of (i) 2,184,224 shares of common stock held by Adjuvant Global Health Technology Fund L.P. and (ii) 413,156 shares of common stock held by Adjuvant Global Health Technology Fund DE, L.P. Adjuvant Capital GP, L.P. has shared voting and shared dispositive power over the shares held by Adjuvant Global Health Technology Fund DE L.P. Adjuvant Capital GP, L.P. is the sole general partner of Adjuvant Global Health Technology Fund L.P. and Adjuvant Global Health Technology Fund DE, L.P. and may be deemed to beneficially own the shares of Common Stock beneficially owned by Adjuvant Global Health Technology Fund L.P. and Adjuvant Global Health Technology Fund DE, L.P. Adjuvant Capital Management, L.L.C. is the sole general partner of Adjuvant Capital GP, L.P. and may be deemed to beneficially own the shares of Common Stock beneficially owned by Adjuvant Global Health Technology Fund L.P. and Adjuvant Global Health Technology Fund DE, L.P. Adjuvant Capital GP, L.P. has shared voting and shared dispositive power over the shares held by Adjuvant Global Health Technology Fund L.P. and Adjuvant Global Health Technology Fund DE L.P. Kabeer Aziz is a limited partner of Adjuvant Capital GP, L.P. and shares voting and dispositive power over the shares held by Adjuvant Global Health Technology Fund, L.P. and Adjuvant Global Health Technology Fund DE, L.P. Mr. Aziz, however, disclaims beneficial ownership of such shares of common stock, except to the extent of any pecuniary interest therein. The address of the persons and entities listed above is 500 Fifth Avenue, Suite 5120, New York, New York 10110. (3) Based solely on information set forth in a Schedule 13G filed with the SEC on February 14, 2023 by Biotechnology Value Fund, L.P. (“BVF”), BVF I GP LLC (“BVF GP”), Biotechnology Value Fund II, L.P. (“BVF2”), BVF II GP LLC (“BVF2 GP”), BVF Partners OS Ltd. (“Partners OS”), Biotechnology Value Trading Fund OS LP (“Trading Fund OS”), BVF GP Holdings LLC (“BVF GPH”), BVF Partners L.P. (“Partners”), BVF Inc., and Mark N. Lampert (collectively, the “BVF entities”). Consists of (i) 846,993 shares of common stock held by BVF, (ii) 616,777 shares of common stock held by BVF2, (iii) 89,084 shares of common stock held by Trading Fund OS, and (iv) 11,109 shares of common stock held by in a certain account managed by BVF Partners OS Ltd. (“Partners OS”). BVF I GP LLC (“BVF GP”) is the general partner of BVF. BVF II GP LLC (“BVF2 GP”) is the general partner of BVF2. Partners OS is the general partner of Trading Fund OS. BVF GP Holdings LLC (“BVF GPH”) is the sole member of each of BVF GP and BVF2 GP and may be deemed to beneficially own all shares beneficially owned in the aggregate by BVF and BVF2. BVF Partners L.P. (“Partners”), as the investment manager of BVF, BVF2 and Trading Fund OS, and the sole member of Partners OS, may be deemed to beneficially own the 1,563,963 Shares beneficially owned in the aggregate by BVF, BVF2 and Trading Fund OS and held in a certain Partners managed account (the “Partners Managed Account. BVF Partners L.P. (“Partners”), as the investment manager of BVF, BF2, and Trading Fund OS, and the sole member of Partners OS, may be deemed to beneficially own all shares beneficially owned in the aggregate by BVF, BVF2, Trading Fund OS, and Partners OS. BVF Inc., as the general partner of Partners, may be deemed to beneficially own all shares of common stock beneficially owned by the Partners. Mark N. Lampert, as a director and officer of BVF Inc., may be deemed to beneficially own all shares of common stock beneficially owned by BVF Inc.The Schedule 13G filed by the BVF entities provides information as of December 31, 2022 and, consequently, the beneficial ownership of the reporting entities may have changed between December 31, 2022 and March 15, 2023. The business address of BVF, BVF GP, BVF2, BVF2 GP, BVF GPH, Partners, BVF Inc., and Mr. Lampert is 44 Montgomery St., 40th Floor, San Francisco, California 94104. The business address of Trading Fund OS and Partners OS is PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands. (4) Based solely on information set forth in a Schedule 13G filed with the SEC on February 13, 2023 by Pfizer Inc. and Anacor Pharmaceuticals, LLC. Consists of shares of common stock held by Anacor Pharmaceuticals, LLC. Pfizer Inc. may be deemed to have beneficial ownership over shares of common stock held by Anacor Pharmaceuticals, LLC since Anacor Pharmaceuticals, LLC is a wholly-owned subsidiary of Pfizer Inc. The Schedule 13G filed by Anacor Pharmaceuticals, LLC provides information as of December 31, 2022 and, consequently, the beneficial ownership of Anacor Pharmaceuticals, LLC may have changed between December 31, 2022 and March 15, 2023. The principal business address for Anacor Pharmaceuticals, LLC is c/o Pfizer Inc. 235 East 42nd Street, New York, New York 10017. 114 (5) Based solely on information set forth in a Schedule 13G filed with the SEC on February 14, 2023 by Citadel Advisors LLC, Citadel Advisors Holdings LP, Citadel GP LLC, Citadel Securities LLC, Citadel Securities Group LP, Citadel Securities GP LLC, and Kenneth Griffin (collectively, “Citadel”). Consists of (i) 1,336,983 shares of common stock beneficially owned by Citadel Multi-Strategy Equities Master Fund Ltd., a Cayman Islands company (“CM”) and (ii) 10 shares of common stock beneficially owned by Citadel Securities LLC. Citadel Advisors LLC is the portfolio manager for CM. Citadel Advisors Holdings LP is the sole member of Citadel Advisors LLC. Citadel GP LLC is the general partner of Citadel Advisors Holdings LP. Citadel Securities Group LP is the non-member manager of Citadel Securities LLC. Citadel Securities GP LLC is the general partner of Citadel Securities Group LP. Mr. Griffin is the President and Chief Executive Officer of Citadel GP LLC, and owns a controlling interest in Citadel GP LLC and Citadel Securities GP LLC. The Schedule 13G filed by Citadel provides information as of December 31, 2022 and, consequently, the beneficial ownership of the reporting entities may have changed between December 31, 2022 and March 15, 2023. The business address of Citadel is Southeast Financial Center, 200 S. Biscayne Blvd., Suite 3300, Miami, Florida 33131. (6) Based solely on information set forth in a Schedule 13G filed with the SEC on February 13, 2023 by Brii Biosciences Limited. Consists of shares of common stock held by Brii Biosciences Limited. The Schedule 13G filed by Brii Biosciences Limited provides information as of December 31, 2022 and, consequently, the beneficial ownership of Brii Biosciences Limited may have changed between December 31, 2022 and March 15, 2023. The principal business address for Brii Biosciences Limited is One City Center, 110 Corcoran Street, Durham, North Carolina 27701. (7) Consists of (i) 1,005,766 shares of common stock held by the Easom Living Trust dated August 21, 2019 of which Mr. Easom is a trustee, (ii) 97,058 shares of common stock held by the C. Easom Irrevocable Trust dated October 8, 2021 of which Mr. Easom is a trustee, (iii) 97,058 shares of common stock held by the Jude Easom Irrevocable Trust dated October 8, 2021 of which Mr. Easom is a trustee, (iv) 4,907 shares of common stock held by Mr. Easom, and (v) 185,936 shares of common stock that may be acquired by Mr. Easom pursuant to the exercise of stock options within 60 days of March 15, 2023. (8) Consists of (i) 18,289 shares of common stock and (ii) 81,792 shares of common stock that may be acquired by Dr. Eckburg pursuant to the exercise of stock options within 60 days of March 15, 2023. (9) Consists of 7,483 shares of common stock that may be acquired by Mr. Aziz pursuant to the exercise of stock options within 60 days of March 15, 2023. and consists of the shares described in footnote (2) above, of which Mr. Aziz disclaims beneficial ownership of all such shares except to the extent of his pecuniary interests therein. (10) Consists of 10,362 shares of common stock that may be acquired by Ms. FitzPatrick pursuant to the exercise of stock options within 60 days of March 15, 2023. (11) Consists of (i) 22,830 shares of common stock and (ii) 17,472 of which shares of common stock that may be acquired by Dr. Marks pursuant to the exercise of stock options within 60 days of March 15, 2023, and 5,990 of which shares will continue to be subject to our repurchase right. (12) Consists of 27,028 shares of common stock that may be acquired by Ms. Martin pursuant to the exercise of stock options within 60 days of March 15, 2023. (13) Consists of 17,420 shares of common stock that may be acquired by Dr. Spigelman pursuant to the exercise of stock options within 60 days of March 15, 2023. (14) Consists of (i) 7,483 shares of common stock that may be acquired by Dr. Readnour pursuant to the exercise of stock options within 60 days of March 15, 2023, and (ii) 487,592 shares of common stock held by MGC Venture Partners QP 2018, LP (“MGC 2018 QP”) and 417,363 shares of common stock held by MGC Venture Partners 2018, LP (“MGC 2018 LP”). MGC Venture Partners 2018 GP, LLC (“MGC 2018 GP”) is the general partner of MGC 2018 LP and MGC 2018 QP. MGC 2018 GP has shared voting and shared dispositive power over the shares held by MGC 2018 LP and MGC 2018 QP. Dr. Readnour is a member of MGC 2018 QP and MGC 2018 LP and a managing partner of MGC 2018 GP and has shared voting power and shared dispositive power over the shares of common stock held by MGC 2018 LP and MGC 2018 QP. Mr. Readnour, however, disclaims beneficial ownership of such shares of common stock, except to the extent of any pecuniary interest therein. The address of each of the foregoing entities and Dr. Readnour is 3835 Cleghorn Avenue, Suite 300 Nashville, Tennessee 37215. (15) Consists of 27,028 shares of common stock that may be acquired by Ms. Wong pursuant to the exercise of stock options within 60 days of March 15, 2023. (16) Consists of (i) 505,880 shares of common stock held by Z3 Trust, of which Mr. Zakrzewski is an affiliate, (ii) 98,199 shares of common stock, and (iii) 77,028 shares of common stock that may be acquired by Mr. Zakrzewski pursuant to the exercise of stock options within 60 days of March 15, 2023. 115 (17) See footnotes (7) through (16) above; also includes Lucy Day, Kevin Krause and Sanjay Chanda, Ph.D., who are executive officers but not named executive officers. Ms. Day may acquire 122,710 shares of common stock pursuant to the exercise of stock options within 60 days of March 15, 2023. Mr. Krause may acquire 119,947 shares of common stock pursuant to the exercise of stock options within 60 days of March 15, 2023. Dr. Chanda may acquire 138,623 shares of common stock pursuant to the exercise of stock options within 60 days of March 15, 2023. Item 13 . Certain Relationships and Related Transactions, and Director Independence. Transactions with Related Persons Other than compensation arrangements, including employment, termination of employment and change in control arrangements, with our directors and executive officers, the following is a description of each transaction since January 1, 2021, to which we were a party, in which: • the amounts involved exceeded or will exceed $120,000; and • any of our directors, nominees for director, executive officers or beneficial holders of more than 5% of any class of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. Lucy Day is our Chief Financial Officer. Ms. Day’s spouse is Senior Director, IT and Operations of the Company. Ms. Day’s spouse received compensation of approximately $300,000 in 2022, including an annual salary and incentive award commensurate with his qualifications, responsibilities, and other employees holding similar positions. He does not report directly or indirectly to Ms. Day. This relationship was ratified by the audit committee. License Agreements Anacor Pharmaceuticals In November 2019, we entered into an exclusive worldwide license agreement with Anacor for certain compounds and other intellectual property controlled by Anacor for the treatment, diagnosis, or prevention of disease. In exchange for the worldwide, sublicensable, exclusive right and licenses to develop, manufacture, and commercialize the specified compounds, we paid Anacor a $2.0 million upfront payment in November 2019 and issued Anacor shares of Series A Preferred Stock in November 2019, and additional shares in October 2020 in conjunction with the first and second closings of our Series A redeemable convertible preferred stock financing, respectively. We agreed to make further payments to Anacor upon achievement of various development milestones for an aggregate maximum payment of $2.0 million, various commercial and sales threshold milestones for an aggregate maximum payment of $125.0 million, and up to 50% of royalties received under certain sublicensing arrangements. Royalties are subject to certain customary reductions, including lack of patent coverage and generic product entry. We also agreed to pay Anacor sales royalties as a percentage of net sales ranging from single to mid-teens. Brii Biosciences In November 2019, we entered into a license agreement granting Brii Biosciences Limited the exclusive development and commercialization rights of certain compounds in China, Hong Kong, Taiwan, and Macau for the treatment of human diseases. The Company did not receive an upfront payment but is eligible to receive up to $15.0 million in the aggregate for development and regulatory milestones and up to $150 million in commercial milestones upon achieving sales thresholds. The Company is also entitled to tiered mid-single digits to high-first decile percentage sales-based royalties. The sales royalties are required to be paid on a product-by-product and region-by-region basis, until the latest to occur of 15 years following the date of first commercial sale of a product, the expiration of all regulatory or data exclusivity, or the date upon the expiration of the last to expire claim of a licensed patent covering the composition of matter or approved use of such product in such region. The last to expire valid claim of a licensed patent covering the composition of matter or approved use of such product in the licensed territory is June 2028. 116 Adjuvant Global Health In conjunction with Adjuvant Global Health Technology Fund L.P.’s (“Adjuvant”) investment in the Company’s Series A redeemable convertible preferred stock financing in November 2019, the Company entered into a Global Health Agreement with Adjuvant (the “Adjuvant Agreement”), pursuant to which the Company agreed to support the creation of innovative and affordable drugs to treat disease, through public health programs and private purchasers in Low and Low-Middle-Income Countries (as such terms are defined by the World Bank and in the agreement). Adjuvant purchased shares of the Company’s Series A redeemable convertible preferred stock in 2019 and 2020 for a total investment of $5.0 million. In conjunction with Adjuvant’s investment in the Company’s Series B redeemable convertible preferred stock financing in March 2021, the Company entered into an Amended and Restated Global Health Agreement (the “Adjuvant Amendment”). The Adjuvant Amendment expands Adjuvant’s investment support to include the development of the Company’s product candidate, epetraborole, for use in tuberculosis-endemic and tuberculosis-at-risk countries as defined in the agreement. Adjuvant purchased shares of the Company’s Series B redeemable convertible preferred stock in 2021 for a total investment of $7.0 million. If we do not maintain compliance with the investment commitments under the Adjuvant Agreement and the Adjuvant Amendment (together, the “Adjuvant Agreements”), Adjuvant may be entitled to repayment for any portion of its investment that is not used for the purposes outlined in the Adjuvant Agreements. Risk of repayment under the Global Health Agreement is limited to Adjuvant’s aggregate investment of $12.0 million in our Series A and Series B redeemable convertible preferred stock in 2019, 2020 and March 2021. Adjuvant’s aggregate investment of $12.0 million has been fully utilized toward development of epetraborole, including toxicology studies, clinical trials, and manufacturing activities to the extent development of epetraborole for NTM lung disease overlaps with development of epetraborole for melioidosis, tuberculosis, and any other mutually agreed-upon products. IPO Participation Adjuvant purchased 166,666 shares in our IPO for an aggregate purchase price of approximately $2.5 million. In connection with Adjuvant’s investment in the Company’s common stock as part of the IPO, the Company entered into an Amended and Restated Global Health Agreement dated March 24, 2022. Kabeer Aziz, a member of our board of directors, is a limited partner of Adjuvant Capital GP, L.P., which is the sole general partner of Adjuvant Global Health Technology Fund L.P. and Adjuvant Global Health Technology Fund DE, L.P. MGC 2018 LP and MGC 2018 QP purchased 70,716 shares and 82,618 shares, respectively, in our IPO for an aggregate purchase price of approximately $2.3 million. Rob Readnour, a member of our board of directors, is a member of MGC 2018 QP and MGC 2018 LP and a managing partner of MGC 2018 GP, which is the general partner of MGC 2018 LP and MGC 2018 QP. Investors’ Rights Agreement We are party to an amended and restated investors’ rights agreement with certain holders of our capital stock, including entities affiliated with Adjuvant, entities affiliated with Biotechnology Value Fund, entities affiliated with MGC Venture Partners, entities affiliated with RA Capital, Anacor, and Brii Biosciences. Under our investor rights agreement, certain holders of our capital stock have the right to demand that we file a registration statement or request that their shares of our capital stock be covered by a registration statement that we are otherwise filing. Indemnification Agreements We have entered into separate indemnification agreements with each of our directors and executive officers, in addition to the indemnification provided for in our amended and restated certificate of incorporation and amended and restated bylaws. The indemnification agreements and our amended restated certificate of incorporation and amended and restated bylaws require us to indemnify our directors, executive officers and certain controlling persons to the fullest extent permitted by Delaware law. 117 Related Person Transaction Policy Our audit committee maintains the primary responsibility for reviewing and approving or disapproving “related person transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. The charter of our audit committee will provide that our audit committee shall review and approve in advance any related person transaction. Our related person transaction policy provides that we are not permitted to enter into any transaction that exceeds $120,000 and in which any related person has a direct or indirect material interest without the consent of our audit committee. In approving or rejecting any such transaction, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to our audit committee, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. Director Independence Our common stock is listed on The Nasdaq Stock Market (“Nasdaq”). Under the rules of Nasdaq, independent directors must comprise a majority of a listed company’s board of directors. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To be considered to be independent for purposes of Rule 10A-3 and under the rules of Nasdaq, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries or (2) be an affiliated person of the listed company or any of its subsidiaries. To be considered independent for purposes of Rule 10C-1 and under the rules of Nasdaq, the board of directors must affirmatively determine that each member of the compensation committee is independent, including a consideration of all factors specifically relevant to determining whether the director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director and (ii) whether such director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company. Our Board undertook a review of its composition, the composition of its committees and the independence of our directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our Board has determined that none of our directors, other than Mr. Easom, have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the rules of Nasdaq. Our Board has determined that Mr. Easom, by virtue of his position as our Chief Executive Officer, is not independent under applicable rules and regulations of the SEC and the Nasdaq Listing Rules. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them. There are no family relationships among any of our directors or executive officers. 118 Item 14 . Principal Accounting Fees and Services. Audit and Non-Audit Fees The following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP for the audit of the Company’s annual financial statements and internal control over financial reporting for the fiscal years ended December 31, 2022 and 2021 and fees billed for audit-related, tax, and other services rendered by PricewaterhouseCoopers LLP during those periods. 2022 2021 Audit fees (1) $ 1,025,000 $ 1,320,000 All other fees (2) 4,150 — Total fees $ 1,029,150 $ 1,320,000 (1) Audit fees consist of fees billed for professional services performed by PricewaterhouseCoopers LLP for the audit of our annual financial statements, the review of interim financial statements, and related services that are normally provided in connection with registration statements. (2) All other fees include any fees billed that are not audit, audit related, or tax fees. These fees related to accounting research software. All fees described above were pre-approved by our audit committee. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Pursuant to the audit committee charter and policy, the audit committee pre-approves all audit and permissible non-audit services to be provided by our independent registered public accounting firm. As part of its review, the audit committee also considers whether the categories of pre-approved services are consistent with the rules on accountant independence of the SEC and the Public Company Accounting Oversight Board. 119 PART IV Item 15 . Exhibits, Financial Statement Schedules. (a) The following documents are filed as a part of this Annual Report: (1) Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID: 238) F- 2 Balance Sheets as of December 31, 2022 and 2021 F- 3 Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021 F- 4 Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021 F- 5 Statements of Cash Flows for the years ended December 31, 2022 and 2021 F- 6 Notes to the Financial Statements F- 7 (2) Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. (3) Exhibits: The list of exhibits filed with this Annual Report on Form 10-K is set forth in the Exhibit Index preceding the signature page and is incorporated herein by reference or filed with this Annual Report, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K). Item 16 . Form 10-K Summary. None. 120 Exhibit Index Incorporated by Reference Exhibit Number Description Form File No. Exhibit Filing Date 3.1  Amended and Restated Certificate of Incorporation. S-1 333-263295 3.2 March 4 2022 3.2  Amended and Restated Bylaws. S-1 333-263295 3.4 March 4, 2022 4.1 Form of Common Stock Certificate. S-1 333-263295 4.1 March 21, 2022 4.2 Amended and Restated Investors’ Rights Agreement, by and among the Registrant and certain of its stockholders, dated March 5, 2021. S-1 333-263295 4.2 March 4, 2022 4.3* Description of Securities 10.1# AN2 Therapeutics, Inc. 2017 Equity Incentive Plan, as amended. S-1 333-263295 10.1 March 4, 2022 10.2# Forms of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise and Early Exercise Stock Purchase Agreement under the AN2 Therapeutics, Inc. 2017 Equity Incentive Plan. S-1 333-263295 10.2 March 4, 2022 10.3# AN2 Therapeutics, Inc. 2022 Equity Incentive Plan. S-1 333-263295 10.3 March 4, 2022 10.4# Forms of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the AN2 Therapeutics, Inc. 2022 Equity Incentive Plan. S-1 333-263295 10.4 March 4, 2022 10.5# Forms of Restricted Stock Unit Grant Notice and Award Agreement under the AN2 Therapeutics, Inc. 2022 Equity Incentive Plan. S-1 333-263295 10.5 March 4, 2022 10.6# AN2 Therapeutics, Inc. 2022 Employee Stock Purchase Plan. S-1 333-263295 10.6 March 4, 2022 10.7# AN2 Therapeutics, Inc. 2022 Non-Employee Director Compensation Policy. S-1 333-263295 10.7 March 4, 2022 10.8# AN2 Therapeutics, Inc. Officer Severance Plan. S-1 333-263295 10.8 March 4, 2022 10.9# Form of Indemnity Agreement by and between the Registrant and its directors and executive officers. S-1 333-263295 10.9 March 4, 2022 10.10# Offer Letter by and between the Registrant and Eric Easom, dated November 19, 2019. S-1 333-263295 10.10 March 4, 2022 10.11# Offer Letter by and between the Registrant and Lucy Day, dated November 19, 2019. S-1 333-263295 10.11 March 4, 2022 10.12# Offer Letter by and between the Registrant and Sanjay Chanda, dated November 19, 2019. S-1 333-263295 10.12 March 4, 2022 10.13‡ License Agreement by and between the Registrant and Anacor Pharmaceuticals, Inc., dated November 20, 2019, as amended on December 3, 2021. S-1 333-263295 10.13 March 4, 2022 10.14‡ License Agreement by and between the Registrant and Brii Biosciences Limited, dated November 20, 2019. S-1 333-263295 10.14 March 4, 2022 10.15 Amended and Restated Global Health Agreement by and among the Registrant, Adjuvant Global Health Technology Fund L.P., and Adjuvant Global Health Technology Fund DE L.P., dated March 5, 2021. S-1 333-263295 10.15 March 4, 2022 10.16# Offer Letter by and between the Registrant and Joshua Eizen, dated September 19, 2022. 10-Q 001-41331 10.1 November 9, 2022 10.17#* Offer Letter by and between the Registrant and Kevin Krause, dated November 19, 2019. 10.18#* Offer Letter by and between the Registrant and Paul Eckburg, dated April 30, 2021. 121 Incorporated by Reference Exhibit Number Description Form File No. Exhibit Filing Date 23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. 31.1*  Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2*  Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1*†  Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2*†  Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document** 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document** 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document** 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document** 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document** 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. # Indicates management contract or compensatory plan. ‡ Portions of this exhibit (indicated by [*]) have been omitted because the registrant has determined that the information is both not material and is the type that the registrant treats as private or confidential. ** The following materials are formatted in Inline XBRL (Extensible Business Reporting Language): (i) the cover page; (ii) the Balance Sheets as of December 31, 2022 and 2021; (iii) the Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021; (iv) the Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2022 and 2021; (vi) the Statements of Cash Flows for the years ended December 31, 2022 and 2021; (vii) Notes to Financial Statements tagged as blocks of text. † The certification attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Annual Report is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report, irrespective of any general incorporation language contained in such filing. 122 SIGNATU RES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 29, 2023 . AN2 Therapeutics, Inc. By: /s/ Eric Easom Eric Easom Chief Executive Officer and Director By: /s/ Lucy O. Day Lucy O. Day Chief Financial Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Eric Easom and Lucy O. Day, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 123 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /s/ Eric Easom Chief Executive Officer and Director (Principal Executive Officer) March 29, 2023 Eric Easom /s/ Lucy O. Day Chief Financial Officer (Principal Financial Officer) March 29, 2023 Lucy O. Day /s/ Michael A. Nazak Vice President and Controller (Principal Accounting Officer) March 29, 2023 Michael A. Nazak /s/ Joseph Zakrzewski Chair and Director March 29, 2023 Joseph Zakrzewski /s/ Kabeer Aziz Director March 29, 2023 Kabeer Aziz /s/ Maggie FitzPatrick Director March 29, 2023 Maggie FItzPatrick /s/ Gilbert L. Marks Director March 29, 2023 Gilbert L. Marks /s/ Patricia (Patty) Martin Director March 29, 2023 Patricia (Patty) Martin /s/ Rob Readnour Director March 29, 2023 Rob Readnour /s/ Melvin Spigelman Director March 29, 2023 Melvin Spigelman /s/ Stephanie Wong Director March 29, 2023 Stephanie Wong 124 INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) F- 2 Balance Sheets as of December 31, 2022 and 2021 F- 3 Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021 F- 4 Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021 F- 5 Statements of Cash Flows for the years ended December 31, 2022 and 2021 F- 6 Notes to the Financial Statements F- 7 F- 1 Report of Independent Re gistered Public Accounting Firm To the Board of Directors and Stockholders of AN2 Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of AN2 Therapeutics, Inc. (the “Company”) as of December 31, 2022 and 2021, and the related statements of Operations and Comprehensive Loss, of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) and of cash flows for each of the two years in the period ended December 31, 2022, including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of Matter As discussed in Note 2 to the financial statements, the Company will require additional financing to fund future operations. Management’s plans in regard to this matter are also described in Note 2. /s/ PricewaterhouseCoopers LLP San Jose, California March 29, 2023 We have served as the Company’s auditor since 2021, which includes periods before the Company became subject to SEC reporting requirements. F- 2 AN2 THERAPEUTICS, INC. BALAN CE SHEETS (in thousands, except share and per share amounts) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 27,219 $ 12,097 Short-term investments 68,840 46,458 Prepaid expenses and other current assets 2,509 1,551 Right-of-use asset, net 53 — Total current assets 98,621 60,106 Deferred offering costs — 1,724 Long-term investments 3,219 3,486 Other assets, long-term 720 — Total assets $ 102,560 $ 65,316 Liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit) Current liabilities: Accounts payable $ 2,122 $ 1,063 Accrued compensation 2,168 916 Accrued liabilities 2,837 1,399 Operating lease liabilities 53 — Options subject to repurchase, short-term 6 17 Total current liabilities 7,186 3,395 Options subject to repurchase, long-term 2 13 Total liabilities 7,188 3,408 Commitments and contingencies (Note 8) Redeemable convertible preferred stock: $ 0.00001 par value; 0 and 11,409,536 shares authorized at December 31, 2022 and 2021, respectively, 0 and 11,409,488 shares issued and outstanding at December 31, 2022 and 2021, respectively; aggregate liquidation preference $ 0 and $ 103,064 at December 31, 2022 and 2021, respectively — 109,319 Stockholders' equity (deficit): Preferred stock, $ 0.00001 par value; 10,000,000 and 0 shares authorized December 31, 2022 and 2021, respectively; no shares issued and outstanding at December 31, 2022 and 2021 — — Common stock, $ 0.00001 par value; 500,000,000 and 17,166,642 shares authorized at December 31, 2022 and 2021, respectively; 19,402,658 and 2,730,298 shares issued and outstanding at December 31, 2022 and 2021, respectively — — Additional paid-in capital 185,469 — Accumulated other comprehensive loss ( 374 ) ( 27 ) Accumulated deficit ( 89,723 ) ( 47,384 ) Total stockholders’ equity (deficit) 95,372 ( 47,411 ) Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit) $ 102,560 $ 65,316 The accompanying notes are an integral part of these financial statements. F- 3 AN2 THERAPEUTICS, INC. STATEMENTS OF OPER ATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share amounts) Years ended December 31, 2022 2021 Operating expenses: Research and development $ 28,511 $ 16,156 Research and development—related party 1,000 750 General and administrative 12,751 4,668 Total operating expenses 42,262 21,574 Loss from operations ( 42,262 ) ( 21,574 ) Interest income 1,351 69 Other expense ( 45 ) ( 38 ) Net loss ( 40,956 ) ( 21,543 ) Accretion to redemption value and cumulative dividends on preferred stock ( 1,820 ) ( 6,515 ) Net loss attributable to common stockholders $ ( 42,776 ) $ ( 28,058 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 2.79 ) $ ( 10.64 ) Weighted-average number of shares used in computing net loss per share, basic and diluted 15,340,134 2,638,197 Other comprehensive loss: Unrealized loss on investments ( 347 ) ( 27 ) Comprehensive loss $ ( 41,303 ) $ ( 21,570 ) The accompanying notes are an integral part of these financial statements. F- 4 AN2 THERAPEUTICS, INC. STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOL DERS’ EQUITY (DEFICIT) (in thousands, except share and per share amounts) Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Loss Deficit Equity (Deficit) Balances at December 31, 2020 6,076,196 23,070 2,707,468 — — — ( 20,319 ) ( 20,319 ) Issuance of Series B redeemable convertible preferred stock at $ 15.00 per share for cash, net of issuance costs of $ 266 5,333,292 79,734 — — — — — — Issuance of common stock upon exercise of stock options — — 22,830 — — — — — Vesting of early exercised stock options — — — — 19 — — 19 Stock-based compensation — — — — 974 — — 974 Accretion to redemption value and cumulative dividends on preferred stock — 6,515 — — ( 993 ) — ( 5,522 ) ( 6,515 ) Unrealized loss on available-for-sale investments ( 27 ) ( 27 ) Net loss — — — — — ( 21,543 ) ( 21,543 ) Balances at December 31, 2021 11,409,488 $ 109,319 2,730,298 $ — $ — $ ( 27 ) $ ( 47,384 ) $ ( 47,411 ) Conversion of convertible preferred stock into common stock ( 11,409,488 ) ( 111,139 ) 11,409,488 — 111,139 — — 111,139 Issuance of common stock upon initial public offering, net of underwriters' commission and offering costs of $ 8.1 million — — 4,600,000 — 60,836 — — 60,836 Issuance of common stock upon exercise of the underwriter's option to purchase common stock in connection with the initial public offering, net of underwriters' commission and offering costs of $ 0.8 million — — 690,000 — 9,530 — — 9,530 Vesting of early exercised stock options — — — — 21 — — 21 Repurchase of early exercised stock options — — ( 27,128 ) — ( 11 ) — — ( 11 ) Stock-based compensation — — — — 4,391 — — 4,391 Accretion to redemption value and cumulative dividends on preferred stock — 1,820 — — ( 437 ) — ( 1,383 ) ( 1,820 ) Unrealized loss on available-for-sale investments — — — — — ( 347 ) — ( 347 ) Net loss — — — — — — ( 40,956 ) ( 40,956 ) Balances at December 31, 2022 — $ — 19,402,658 $ — $ 185,469 $ ( 374 ) $ ( 89,723 ) $ 95,372 The accompanying notes are an integral part of these financial statements. F- 5 AN2 THERAPEUTICS, INC. STATEMENTS OF CASH F LOWS (in thousands) Year ended December 31, 2022 2021 Cash flows from operating activities Net loss $ ( 40,956 ) $ ( 21,543 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 4,391 974 Non-cash operating lease expense 77 — Net amortization (accretion) of premium (discount) on investments ( 692 ) 53 Changes in operating assets and liabilities: Increase in prepaid expenses and other current assets ( 958 ) ( 1,387 ) Increase in other assets ( 720 ) — Increase in accounts payable 2,497 417 Increase in accrued compensation 1,252 490 Increase in accrued liabilities 1,724 512 Decrease in operating lease liabilities ( 77 ) — Net cash used in operating activities ( 33,462 ) ( 20,484 ) Cash flows from investing activities Purchases of investments ( 93,836 ) ( 77,274 ) Maturities of investments 72,065 27,250 Net cash used in investing activities ( 21,771 ) ( 50,024 ) Cash flows from financing activities Proceeds from issuance of common stock from the initial public offering, net of underwriting discounts, commissions and offering expenses 70,366 — Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs — 79,734 Payments of issuance costs for initial public offering — ( 1,210 ) Proceeds from exercise of stock options — 11 Repurchase of early exercised stock options ( 11 ) — Net cash provided by financing activities 70,355 78,535 Net increase in cash 15,122 8,027 Cash at beginning of period 12,097 4,070 Cash at end of period $ 27,219 $ 12,097 Supplemental disclosure of noncash financing items Conversion of redeemable convertible preferred stock into common stock $ 111,139 $ — Accretion to redemption value and cumulative dividends on preferred stock 1,820 6,515 Issuance costs for initial public offering included in accounts payable and accrued liabilities — 514 The accompanying notes are an integral part of these financial statements. F- 6 AN2 Therapeutics, Inc. Not es to Financial Statements Note 1. Organization and Description of the Business Description of Business AN2 Therapeutics, Inc. (the “Company”) is a clinical-stage biopharmaceutical company focused on developing treatments for rare, chronic, and serious infectious diseases with high unmet needs. The Company’s initial product candidate, epetraborole, is under development in a pivotal Phase 2/3 clinical trial as a once-daily, oral treatment for patients with non-tuberculous mycobacterial (NTM) lung disease with an initial focus on treatment-refractory Mycobacterium avium complex (MAC) lung disease. The Company was incorporated in the state of Delaware in February 2017, began operations in November 2019, began trading on the Nasdaq Global Select Market on March 25, 2022 under the symbol “ANTX”, and is based in Menlo Park, California. Since launching operations in November 2019, the Company has devoted substantially all of its resources to performing research and development activities, including with respect to its initial product candidate, epetraborole, business planning, hiring personnel, raising capital and providing general and administrative support for these operations. Initial Public Offering On March 24, 2022, the Company’s registration statement on Form S-1 (File No. 333-263295) relating to its initial public offering (“IPO”) of common stock became effective. The IPO closed on March 29, 2022, at which time the Company issued an aggregate of 4,600,000 shares of its common stock at a price to the public of $ 15.00 per share. In addition, immediately prior to the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock automatically converted into 11,409,488 shares of common stock. The aggregate offering proceeds for shares sold in the IPO was $ 69.0 million. After deducting underwriting discounts and commissions of $ 4.8 million and offering costs paid or payable by the Company of $ 3.3 million, the net proceeds from the offering were approximately $ 60.9 million. On April 8, 2022, the underwriters from the IPO exercised an option to purchase 690,000 additional shares of the Company's common stock at a public offering price of $ 15.00 per share, resulting in additional gross proceeds to the Company of $ 10.4 million, and additional net proceeds of approximately $ 9.5 million. After giving effect to this exercise of the overallotment option, the total number of shares sold by the Company in the IPO increased to 5,290,000 shares with total net proceeds to the Company of approximately $ 70.4 million. Note 2. Summary of Significant Accounting Policies Basis of Presentation The Company’s financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). For all periods presented, shares of common stock and then existing redeemable convertible preferred stock and per share amounts have been adjusted on a retroactive basis to reflect our 2.352936 -for-1 forward stock split , which was effected on March 18, 2022. The stock split did not change the par value of the common stock and redeemable convertible preferred stock or the authorized number of shares of common stock and redeemable convertible preferred stock. Risks and Uncertainties Liquidity Prior to the Company’s IPO in March 2022, the Company’s operations had historically been financed through the issuance of redeemable convertible preferred stock. Since inception, the Company has incurred significant losses and negative net cash flows from operations. During the years ended December 31, 2022 and 2021, the Company incurred a net loss of $ 41.0 million and $ 21.5 million, respectively, and had cash flows used in operating activities of $ 33.5 million and $ 20.5 million, respectively. The Company has an accumulated deficit of $ 89.7 million and $ 47.4 million as of December 31, 2022 and 2021, respectively, and will require substantial additional capital for research and development activities. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidate currently in development. F- 7 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued As of December 31, 2022, the Company had cash, cash equivalents and investments of $ 99.3 million. Management believes that its cash, cash equivalents and investments as of December 31, 2022 will be sufficient to fund its current operating plan through at least 12 months from the issuance date of these financial statements. Future capital requirements will depend on many factors, including the timing and extent of spending on research and development, including costs for preclinical and nonclinical studies, clinical trials and clinical trial, registration and pre-registration material manufacturing. There can be no assurance that, in the event the Company requires additional financing, such financing will be available at terms acceptable to the Company if at all. Failure to generate sufficient cash flows from operations, raise additional capital, and reduce discretionary spending should additional capital not become available could have a material adverse effect on the Company’s ability to achieve its intended business objectives. Other Risks and Uncertainties The Company is subject to a number of risks similar to those of other clinical-stage biopharmaceutical companies, including, but not limited to: ability to timely enroll and complete clinical trials, ability to replicate preclinical trial results in later-stage clinical trials, dependence on key individuals, the need to develop commercially viable therapeutics, competition from other companies, many of which are larger and better capitalized, protection of intellectual property rights, litigation or claims against the Company based on intellectual property rights, regulatory clearance, market acceptance of the Company’s products and the need to obtain adequate additional financing to fund the development of its products. In March 2020, the World Health Organization declared the global novel coronavirus disease (“COVID-19”) outbreak a pandemic. To date, the Company’s business has not been materially impacted by the COVID-19 pandemic. However, the Company has experienced certain slowing of its preclinical and clinical trials and cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition and operations, including ongoing and planned preclinical and nonclinical studies, clinical trials and clinical trial material manufacturing. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected. In February 2022, Russia commenced a military invasion of Ukraine. The ongoing geopolitical turmoil and continuing military action in the region, together with widening sanctions imposed on Russia, have caused disruptions in the global economy, related to trade and shipping, and increased costs of transportation. The duration and impact of the conflict between Russia and Ukraine is highly unpredictable and the extent to which the conflict may impact certain of the Company's clinical development and regulatory efforts remains uncertain. While the Company does not currently conduct any trials in Russia or Ukraine, any disruptions or increased costs related to the shipping of supplies and drug product necessary to conduct the Company's trials could negatively impact the Company's liquidity and cash flows. In addition, global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages and supply chain disruptions, bank failures, inflation and monetary supply shifts, as well as recession risks, which may continue for an extended period, and which could result in additional costs and delays in the Company's clinical development and regulatory efforts. Segments The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on a company-wide basis for purposes of allocating resources and assessing financial performance. F- 8 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to research and development accruals, fair value of assets and liabilities and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Deferred Offering Costs The Company capitalizes certain legal, accounting and other third-party fees that are directly related to the Company’s equity financings, including its IPO, until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds received as a result of the financing. The Company capitalized certain legal, accounting and other third-party fees that were directly related to the Company’s IPO. After the completion of the IPO in March 2022, the total deferred offering costs of $ 3.3 million were offset against the proceeds from the IPO and reclassified to additional paid-in capital in the accompanying balance sheets. At December 31, 2022 and 2021 , deferred offering costs totaling $ 0 and $ 1.7 million, respectively, were included as non-current assets in the accompanying balance sheet. Research and Development Expenses All research and development costs, including work performed by third parties, are expensed as incurred. Research and development costs consist of salaries and other personnel-related expenses, and includes associated stock-based compensation, consulting fees, and facility costs, as well as fees paid to other entities that conduct certain research and development activities on behalf of the Company. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods are received or services are rendered. As part of the process of preparing its financial statements, the Company estimates its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of services performed and the associated cost incurred for services for which the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses at the end of each reporting period based on the facts and circumstances known to the Company at that time. The significant estimates in the Company’s accrued research and development expenses relate to expenses incurred with respect to contract manufacturing and clinical and other research organizations, academic research centers and other vendors in connection with research and development activities for which the Company has not yet been invoiced. Redeemable Convertible Preferred Stock The Company recorded redeemable convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The carrying value of the redeemable convertible preferred stock was accreted to its redemption value. Immediately prior to the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock were converted into shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. There were no shares of redeemable convertible preferred stock outstanding as of December 31, 2022 . Stock-Based Compensation The Company measures and recognizes compensation expense for equity-classified stock-based awards made to employees, directors and non-employees based on the grant date estimated fair value of each award. Compensation expense for employee and director awards is recognized on a straight-line basis over the requisite service period which is generally the vesting period for the entire award. Expense is adjusted for forfeitures as they occur. Compensation expense for non-employee awards is recognized in the same period and manner as if the Company had paid cash for the goods or services provided. F- 9 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued The valuation model used for calculating the fair value of stock options for stock compensation expense is the Black-Scholes option-pricing model (the Black-Scholes model). The Black-Scholes model requires management to make assumptions and judgments about the variables used in the calculation, including the expected term, the expected volatility of common stock, an assumed risk-free interest rate, and expected dividends the Company may pay. Management elected to apply the practical expedient for private companies and used the simplified method to determine the awards’ expected term. Volatility is based on an average of the historical volatilities of the common stock of entities with characteristics similar to the Company’s. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company uses an assumed dividend yield of zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. For option awards that contain performance conditions, compensation cost is recognized in the period in which it becomes probable that the performance condition will be satisfied. For option awards that vest upon a liquidity event or a change in control, the performance condition is not probable of being achieved until the event occurs. As a result, no compensation expense would be recognized until the performance-based vesting condition is achieved. Fair Value of Common Stock Prior to the Company's IPO, the absence of an active market for the Company’s common stock required the Company’s board of directors ("Board") to determine the fair value of its common stock for purposes of granting stock options. The fair value of the Company’s common stock was determined by the Company’s Board with assistance from management and an independent third-party valuation firm. Management’s approach to estimating the fair value of the Company’s common stock was consistent with the methods outlined in the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately-Held- Company Equity Securities Issued as Compensation . Determining the best estimated fair value of the Company’s common stock requires significant judgement and management considers several factors, including the Company’s stage of development, equity market conditions affecting comparable public companies, significant milestones and progress in research and development efforts. Since the completion of its IPO, the Company uses its stock price as traded on the Nasdaq Global Select Market to determine the fair value of its common stock. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, which consist of money market funds, corporate debt securities and corporate commercial paper, are stated at fair value. As of December 31, 2022 and 2021, the Company had cash and cash equivalents of $ 27.2 million and $ 12.1 million, respectively. Investments Investments consist of U.S. Treasuries, asset-backed securities, corporate debt securities and corporate commercial paper. All of the Company’s investments are classified as available-for-sale and are carried at estimated fair values and reported in cash equivalents, short-term investments or long- term investments. Management determines the appropriate classification of the investments at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. Investments with contractual maturities greater than 12 months are considered long-term investments. Unrealized gains and losses on available-for-sale investments are reported in accumulated other comprehensive gain (loss) as a separate component of stockholders’ equity (deficit). Investments are regularly reviewed for other-than-temporary declines in fair value. The review includes consideration of the cause of impairment, including the creditworthiness of the security issuers, the number of investments in an unrealized loss position, the severity and duration of the unrealized losses, and whether it is more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis. The cost of investments sold, if any, is based on the specific identification method. To date, the Company has not recorded any impairment charges on its investments related to other-than-temporary declines in market value. As of December 31, 2022 and 2021, the Company had investments of $ 72.1 million and $ 49.9 million, respectively. F- 10 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Cloud Computing Arrangements The Company incurs costs to implement cloud computing arrangements (“CCA”) that are hosted by third-party vendors. Implementation costs incurred during the application development stage are considered for capitalization until the software is ready for its intended use. Once capitalized, these costs are then amortized on a straight-line basis over the term of the associated hosting arrangement and are recognized as an operating expense within the statements of operations and comprehensive income (loss). As of December 31, 2022 , the Company has no t capitalized any CCA implementation costs or amortized any such costs. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and investments. The Company’s cash is invested through financial institutions in the United States. The Company’s investments consist of debt securities, issued by highly rated corporate entities or the U.S. government, and asset-backed securities. The Company’s exposure to any individual corporate entity is limited by its investment policy. Deposits may at times exceed federally insured limits, but minimal credit risk exists. The Company invests its cash equivalents in highly rated money market funds. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company is exposed to credit risk in the event of a default by the financial institution holding its cash to the extent recorded on the balance sheets. In March 2023, one of the financial institutions utilized by the Company was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. Through December 31, 2022 , the Company has no off-balance sheet concentrations of credit risk. Government Contract In September 2022, the Company received a cost-reimbursement contract award under which the Company is eligible to receive up to $ 17.8 million from the U.S. National Institute of Allergy and Infection Diseases (“NIAID”) to support preclinical, Phase 1 studies and other activities to enable advancement of epetraborole into late-stage development for acute systemic melioidosis and other biothreat pathogens. This project will be funded in whole or in part with Federal funds from the NIAID, National Institutes of Health, Department of Health and Human Services, under Contract No. 75N93022C00059. Accounting for this contract does not fall under ASC 606, Revenue from Contracts with Customers, as NIAID will not benefit directly from the advancement of epetraborole. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the Company applied International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy when accounting for the NIAID contract payments to the Company. Under IAS 20, government contract proceeds are recognized when there is reasonable assurance the conditions of the contract will be met and the contract funding will be received. For the NIAID contract, this occurs after the qualifying expenses related to the contract have been incurred, or the Company concludes the conditions of the contract have been substantially met. The income related to the reimbursement of operating expenses is then recorded as a reduction of those expenses (see Note 4—Funding Arrangements). Comprehensive Loss Comprehensive loss includes net loss and certain changes in stockholders’ equity (deficit) that are excluded from net loss. The Company’s other comprehensive loss consists of net changes in unrealized gains and losses on its available-for-sale investments. For the years ended December 31, 2022 and 2021 , the Company had $ 0.3 million and $ 0.03 million of net unrealized loss on available-for-sale investments, respectively. F- 11 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Net Loss Per Share Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, redeemable convertible preferred stock, stock options, common stock subject to repurchase related to unvested early exercise of stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security because it participates in dividends with common stock, and is accreted to redemption. The Company also considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of all series of redeemable convertible preferred stock and the holders of early exercised shares subject to repurchase do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share for those periods because the impact of potentially dilutive securities would be anti-dilutive. JOBS Act Accounting Election The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Recently Adopted Accounting Pronouncements In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provided an alternative method in addition to the modified retrospective transition method for ASU No. 2016-02, Leases: Amendments to the FASB Accounting Standards Codification (“ASU 2016-02”), issued in February 2016. Under ASU 2018-11, an entity may elect to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under ASU 2016-02, a lease is required to recognize assets and liabilities with lease terms of more than twelve months. ASU 2016-02 is effective for nonpublic business entities and public entities eligible to be Smaller Reporting Companies for fiscal years beginning after December 15, 2021. The Company adopted the new standard on January 1, 2022 using the modified retrospective approach. The Company has elected to apply the transition method that allows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in the financial statements and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit on the date of adoption. The Company has elected to combine lease components (e.g., fixed rent payments) with non-lease components (e.g., common-area maintenance costs) on its facility and clinical research organization (“CRO”) embedded lease asset classes. The Company also elected the “package of practical expedients”, which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease practical expedients allowed under the standard. Lastly, the Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date. Results for reporting periods beginning after January 1, 2022 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Upon adoption of the new lease standard, on January 1, 2022, the Company capitalized operating lease right-of-use (ROU) assets of $ 0.05 million and $ 0.05 million of operating lease liabilities, within the balance sheets upon adoption. F- 12 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance. Current U.S. GAAP has no specific authoritative guidance on the accounting for, or the disclosure of, government assistance received by business entities. The amendments in this update improve financial reporting by requiring disclosures that increase the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including the types of transactions, the accounting for those transactions, and the effect of those transactions on an entity’s financial statements. The amendments in this update require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy, including: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions; (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (3) the significant terms and conditions of the transactions, including commitments and contingencies. The amendments in this update are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. The Company adopted this update during the year ended December 31, 2022 and accounted for the NIAID contract in accordance with this update, which did not have a material impact on the Company's financial statements. In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”. This update is intended to guide entities in evaluating the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. This standard was effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019, and effective for financial statements issued by non-public entities for annual periods beginning after December 15, 2020. The Company adopted this standard beginning July 1, 2022 , noting that this standard was applied prospectively. Adoption of this standard did not have a material impact on the Company's financial statements. Recent Accounting Pronouncements Not Yet Adopted As an “emerging growth" company, it has been the Company’s intention to take advantage of certain temporary exemptions from various reporting requirements, as well as taking advantage of additional transitional relief. The Company may take advantage of these provisions for up to five years (which is through March 2027), unless the Company ceases to be an emerging growth company at an earlier date. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial assets and certain other instruments, including but not limited to available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for SEC reporting companies that are smaller reporting companies such as the Company. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its financial statements, and will consider the extended transition period available to “emerging growth" companies. F- 13 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Note 3. Fair Value Measurements The Company records certain financial assets and liabilities at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows: • Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities. • Level 2: Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company’s primary financial instruments include cash, cash equivalents, short- and long-term investments, prepaid expenses, accounts payable, and accrued liabilities. The carrying amounts of the Company’s financial instruments, other than cash equivalents, short- and long-term investments, approximate fair value due to their relatively short maturities. The following table presents the Company’s financial assets, which consist of cash equivalents and investments classified as available-for-sale investments, that are measured at fair value on a recurring basis (in thousands):  December 31, 2022  Level Amortized Cost Unrealized Gain Unrealized Loss  Estimated Fair Value Cash equivalents:       Money market funds Level 1 $ 10,152 $ — $ —  $ 10,152 Short-term investments:       U.S. Treasury securities Level 1 29,381 — ( 213 ) 29,168 Commercial paper Level 2 27,701 2 ( 82 ) 27,621 U.S. Government agency securities Level 2 12,126 4 ( 79 ) 12,051 Long-term investments:       U.S. Treasury securities Level 1 1,224 — ( 1 ) 1,223 U.S. Government agency securities Level 2 2,001 — ( 5 ) 1,996 Total  $ 82,585 $ 6 $ ( 380 ) $ 82,211  December 31, 2021  Level Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents:      Money market funds Level 1 $ 3,567 $ — $ — $ 3,567 Commercial paper Level 2 2,999 — — 2,999 Corporate debt securities Level 2 1,501 — — 1,501 Short-term investments:      U.S. Treasury securities Level 1 4,500 — ( 11 ) 4,489 Commercial paper Level 2 33,716 4 ( 5 ) 33,715 Asset-backed securities Level 2 8,261 — ( 7 ) 8,254 Long-term investments:      U.S. Treasury securities Level 1 3,494 — ( 8 ) 3,486 Total  $ 58,038 $ 4 $ ( 31 ) $ 58,011 For the years ended December 31, 2022 and 2021 , there were no other-than-temporary impairment charges recognized in accumulated other comprehensive income. F- 14 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued The Company classifies its money market funds and U.S. Treasury securities, which are valued based on quoted market prices in active markets with no valuation adjustment, as Level 1 assets within the fair value hierarchy. The Company classifies its investments in commercial paper, corporate debt securities, U.S. government agency securities and asset-backed securities as Level 2 within the fair value hierarchy. The fair values of these investments are estimated by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs. There were no transfers of financial instruments between valuation levels during the year ended December 31, 2022. As of December 31, 2022 , no ne of the Company’s available-for-sale investments that were in an unrealized loss position had been in an unrealized loss position for more than 12 months. During the years ended December 31, 2022 and 2021 , the Company did no t sell any available-for-sale investments. The Company’s short-term investments had maturities of less than one year from the balance sheet date. The Company’s long-term investments had maturities of between one and two years from the balance sheet date. Note 4. Funding Arrangements NIAID Contract In September 2022, the Company received a cost-reimbursed contract award from the NIAID to support preclinical, Phase 1 studies and other activities to enable the advancement of epetraborole into late-stage development for acute systemic melioidosis and other biothreat pathogens. The Company can receive up to $ 17.8 million in funding over a total term of 48 months , consisting of a base period and seven option periods. As of December 31, 2022 , funding for an 18 -month base period totaling $ 4.3 million has been committed. The Company did no t recognize any income under this agreement during the year ended December 31, 2022 . Note 5. Collaboration and License Agreements Anacor Licensing Agreement In November 2019, the Company entered into an exclusive worldwide license agreement with Anacor Pharmaceuticals, Inc. (“Anacor”) for certain compounds and other intellectual property controlled by Anacor for the treatment, diagnosis, or prevention of all human diseases (the “Anacor License”). The Anacor License will expire upon expiration of the last to expire royalty term. Either party may terminate the Anacor License for the other party’s material breach following a cure period or immediately upon certain insolvency events relating to the other party. The Company has the right to terminate the agreement at its convenience upon 90-day written notice until the first regulatory approval or one-year notice thereafter. Furthermore, upon termination of the Anacor License for any of the foregoing reasons, the rights and licenses within will terminate. In exchange for the worldwide, sublicensable, exclusive right and licenses to develop, manufacture, and commercialize the specified compounds, the Company paid Anacor a non-refundable $ 2.0 million upfront payment and granted Anacor shares of Series A redeemable convertible preferred stock. F- 15 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued The Company agreed to make further payments to Anacor upon achievement of various development milestones for an aggregate maximum of $ 2.0 million, upon achievement of various commercial and sales threshold milestones for an aggregate maximum payment of $ 125.0 million, and up to 50 % of royalties received under certain sublicensing arrangements. Royalties are subject to certain customary reductions, including lack of patent coverage and generic product entry. The Company also agreed to pay Anacor non-refundable, non-creditable sales royalties on a tiered marginal royalty rate based on the country’s status as a developing or developed country as defined in the license agreement. Sales royalties are a percentage of net sales, as specified in the Anacor License, and range from mid-single digits for developing countries (as classified by the World Bank) and single to mid-teens for all other countries or the China, Hong Kong, Taiwan and Macau territories, upon reaching a minimum of net sales in the low-teen millions. The sales royalties are required to be paid on a product-by-product and country-by-country basis, until the latest to occur of 15 years following the date of first commercial sale of a product, the expiration of all regulatory or data exclusivity, or the date upon of the expiration of the last to expire valid claim of a licensed patent covering such product in such country. Currently, the date of the expiration of the last to expire valid claim of a licensed patent covering epetraborole in the licensed territory is June 2028. In addition, Anacor is entitled to certain milestone payments upon a change of control of the Company. In December 2021, the Company entered into an amendment to the Anacor License for certain compounds and other intellectual property controlled by Anacor for the treatment, diagnosis, or prevention of certain bacterial pathogens (the “Anacor License Amendment”). The Anacor License Amendment has no impact on the Anacor License financial terms. During the years ended December 31, 2022 and 2021 , the Company recorded $ 1.0 million and $ 0.8 million in research and development expense—related party, respectively, to Anacor upon the achievement of development milestones. Brii Biosciences Agreement In November 2019, the Company entered into a license agreement granting Brii Biosciences Limited the exclusive development and commercialization rights of certain compounds in China, Hong Kong, Taiwan, and Macau for the treatment of human diseases. The Company did no t receive an upfront payment but is eligible to receive up to $ 15.0 million in the aggregate for development and regulatory milestones and up to $ 150.0 million in commercial milestones upon achieving sales thresholds. The Company is also entitled to tiered mid-single digits to high-first decile percentage sales-based royalties. The sales royalties are required to be paid on a product-by-product and region- by-region basis, until the latest to occur of 15 years following the date of first commercial sale of a product, the expiration of all regulatory or data exclusivity, or the date upon the expiration of the last to expire claim of a licensed patent covering the composition of matter or approved use of such product in such region. The last to expire valid claim of a licensed patent covering the composition of matter or approved use of such product in the licensed territory is June 2028. Future milestone payments and royalties will be accounted for under ASC 606. Note 6. Leases In May 2021, the Company entered into an operating lease agreement for its principal office in Menlo Park, California. In September 2021, the lease was amended to extend the term to expire in August 2022 . In July 2022, the lease was further amended to exercise a renewal option and extend the term to expire in August 2023 . Under the lease agreement, the Company has two additional 12-month renewal options through August 2025 . The Company has not entered into any finance lease agreements as of December 31, 2022. F- 16 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued The following table summarizes maturities of lease liabilities and the reconciliation of lease liabilities as of December 31, 2022 (in thousands):  Operating Leases 2023 $ 54 2024 and thereafter — Total future undiscounted lease payments 54 Less: imputed interest ( 1 ) Total lease liabilities $ 53 The following table summarizes total lease expense during the year ended December 31, 2022 (in thousands):  Statements of Operations and Comprehensive Loss Classification Year Ended December 31, 2022 Operating lease expense Operating expenses $ 80 Short-term lease expense Operating expenses 72 Total lease expense  $ 152 Rent expense was insignificant during the year ended December 31, 2021. The Company paid $ 0.08 million in operating cash flows from operating leases for amounts included in the measurement of liabilities during the year ended December 31, 2022. As of December 31, 2022 , the weighted-average remaining lease term and discount rate for operating leases was 0.67 years and 5.1 %, respectively. Note 7. Balance Sheet Components Accrued Liabilities Accrued liabilities consist of the following (in thousands): December 31, 2022 2021 Accrued research and development-related expenses $ 2,517 $ 495 Accrued research and development-related expenses—related party — 500 Accrued professional services expenses 198 50 Accrued offering costs — 313 Other 122 41 Total accrued liabilities $ 2,837 $ 1,399 Note 8. Commitments and Contingencies Contingencies From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company was not subject to any material legal proceedings as of December 31, 2022 and 2021, and no material legal proceedings are currently pending or threatened. F- 17 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Guarantees and Indemnifications The Company, as permitted under Delaware law and in accordance with its certification of incorporation, as amended, and bylaws, and pursuant to indemnification agreements with certain of its officers and directors, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, which the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period lasts as long as an officer or director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented. Adjuvant Global Health Agreement In conjunction with Adjuvant Global Health Technology Fund L.P.’s (“Adjuvant”) investment in the Company’s Series A redeemable convertible preferred stock financing in November 2019, the Company entered into a Global Health Agreement with Adjuvant, pursuant to which the Company agreed to support the creation of innovative and affordable drugs to treat disease, through public health programs and private purchasers in Low and Low-Middle-Income Countries (as such terms are defined by the World Bank and in the agreement). In 2019 and 2020, Adjuvant purchased Series A redeemable convertible preferred stock for a total of $ 5.0 million. Adjuvant’s investment supports the development of the Company’s product candidate, epetraborole, for use in melioidosis-endemic and melioidosis-at-risk countries as defined in the agreement. These global access commitments became effective as of the Series A redeemable convertible preferred stock financing closing date and will remain in effect until the latter of either that Adjuvant ceases to be a shareholder of the Company, or ten years following epetraborole approval for the treatment of melioidosis by a regulatory authority. The Global Health Agreement contains various affirmative and negative covenants agreed to by the Company, including its use of reasonably diligent endeavors to develop the agreed-upon products using non-dilutive funding and make accessible to people in need in the target countries so long as the Company does not sell products at a loss. Other covenants include prohibition of use of investment for propaganda, attempt to influence legislation, influence of any public election or voter registration drive or promotion of terrorist activities, as well as compliance with certain environmental, social and governance requirements and anti-corruption requirements. If the Company does not maintain compliance with these non-financial covenants, Adjuvant may be entitled to repayment for any portion of its investment that is not used for the purposes outlined in the Global Health Agreement. As of December 31, 2020, the $ 5.0 million aggregate proceeds from Adjuvant’s Series A investment have been fully utilized to support the epetraborole development program, which overlaps with the melioidosis development activities for the global health programs. In conjunction with Adjuvant’s investment in the Company’s Series B redeemable convertible preferred stock financing in March 2021, the Company entered into an Amended and Restated Global Health Agreement (the “Adjuvant Amendment”). The Adjuvant Amendment expands Adjuvant’s investment support to include the development of the Company’s product candidate, epetraborole, for use in tuberculosis-endemic and tuberculosis-at-risk countries as defined in the agreement. Adjuvant purchased the Company’s Series B redeemable convertible preferred stock in 2021 for a total investment of $ 7.0 million, which is subject to Adjuvant’s right of repayment should the Company not utilize the proceeds from Adjuvant’s investment towards the agreed-upon purpose. As of December 31, 2021, the $ 7.0 million proceeds from Adjuvant’s Series B investment were fully utilized to support the epetraborole development program, which overlaps with the melioidosis and other global health development programs. In connection with Adjuvant’s investment in the Company’s common stock as part of the IPO, the Company entered into an Amended and Restated Global Health Agreement dated March 24, 2022 (the “Adjuvant IPO Amendment”). As part of the 2022 Adjuvant Amendment, Adjuvant purchased 166,666 shares of the Company's common stock in March 2022 for a total additional investment of $ 2.5 million, which is subject to Adjuvant’s right of repayment should the Company not utilize the proceeds from Adjuvant’s investment towards the agreed-upon purpose. The Company has complied with all applicable covenants as of December 31, 2022. As of December 31, 2022 , the $ 2.5 million of proceeds from Adjuvant’s IPO investment have been fully utilized to support the epetraborole development program, which overlaps with the melioidosis and other global health development programs. F- 18 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Note 9. Equity Common Stock The Company’s certificate of incorporation, as amended, authorizes the Company to issue up to 500,000,000 shares of $ 0.00001 par value common stock. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of the Company. Subject to the preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board. No dividends have been declared to date. Shares of common stock reserved for future issuance, on an as-if-converted basis, as of December 31, 2022 and 2021, consists of the following: December 31, 2022 2021 Series A redeemable convertible preferred stock — 6,076,196 Series B redeemable convertible preferred stock — 5,333,292 Stock options, issued and outstanding 2,796,241 1,589,120 Stock options, authorized for future issuance 1,627,680 937,673 ESPP, authorized for future issuance 187,000 — Total 4,610,921 13,936,281 Preferred Stock The Company’s certificate of incorporation, as amended, authorizes the Company to issue up to 10,000,000 shares of $ 0.00001 par value preferred stock. The preferred stock is not convertible. No shares of preferred stock were issued and outstanding at December 31, 2022 and 2021. Redeemable Convertible Preferred Stock Immediately prior to the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock converted into 11,409,488 shares of common stock and the related carrying value was reclassified to common stock and additional paid-in capital. There were no shares of redeemable convertible preferred stock outstanding as of December 31, 2022. At December 31, 2021, redeemable convertible preferred stock consisted of the following (in thousands, except share and per share amounts):  Shares Authorized Shares Issued and Outstanding Issuance Price Per Share Carrying Value Liquidation Preference Series A 6,076,228 6,076,196 $ 2.55 $ 24,308 $ 17,787 Series B 5,333,308 5,333,292 $ 15.00 85,011 85,277 11,409,536 11,409,488 $ 109,319 $ 103,064 Note 10. Equity Incentive Plan and Stock-Based Compensation 2022 Equity Incentive Plan The Company adopted the 2022 Equity Incentive Plan (the “2022 Plan”) effective upon the closing of the IPO, which provides for the granting of incentive stock options (“ISOs”) to the Company's employees, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other forms of awards to employees, directors, and consultants. As of December 31, 2022 , no stock appreciation rights, restricted stock awards, restricted stock unit awards or performance awards were issued under the 2022 Plan. F- 19 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued The Company initially reserved for issuance 1,870,000 new shares of common stock pursuant to the 2022 Plan. The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) was terminated in 2022; however, shares underlying outstanding stock awards granted under the 2017 Plan will continue to be governed by the 2017 Plan. Shares underlying outstanding stock awards granted under the 2017 Plan were added to the available shares in the 2022 plan. Shares underlying outstanding stock awards granted under the 2017 Plan that expire or are repurchased by, forfeited to, cancelled or withheld by the Company will also be reserved for issuance under the 2022 Plan. The maximum number of shares of the Company’s common stock that may be issued under the 2022 Plan will not exceed 4,423,920 shares of the Company's common stock, which is the sum of (i) 1,870,000 new shares, plus (ii) 2,553,920 shares related to the 2017 Plan. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2022 Plan will automatically increase on January 1 of each year for a period of ten years , beginning on January 1, 2023 and continuing through January 1, 2032, in an amount equal to (1) 4 % of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Board no later than December 31 of the immediately preceding year. The number of shares of the Company's common stock that are available to be issued on the exercise of stock options under the 2022 Plan is 13,271,760 shares. Since the date of incorporation and through December 31, 2022, the Company issued stock options to its employees, directors and consultants. As of December 31, 2022 , 1,627,680 shares of common stock remained available for future issuance under the 2022 Plan. ISOs granted to newly hired employees under the 2022 Plan generally vest 25 % after the completion of 12 months of service, and the balance vests in equal monthly installments over the next 36 months of service and expire ten years from the grant date, unless subject to provisions regarding 10% stockholders. ISOs granted to existing employees generally vest ratably over a 48 -month period of service and expire ten years from the grant date. NSOs vest in accordance with the terms of the specific agreement under which the options were provided and expire ten years from the date of grant. Stock-Based Compensation Expense The following table summarizes the components of stock-based compensation expense recognized in the Company’s statements of operations and comprehensive loss during the years ended December 31, 2022 and 2021 (in thousands):  Year Ended December 31,  2022 2021 Research and development expenses $ 1,688 $ 429 General and administrative expenses 2,703 545 Total $ 4,391 $ 974 Valuation of Stock Options The Company estimated the fair value of stock options using the Black-Scholes option pricing model. The fair value of employee and non-employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The Black-Scholes option pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include: • Expected Term— The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual term of the stock-based awards. F- 20 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued • Expected Volatility—since the Company recently became a public company and has only a limited trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle and area of specialty. • Risk-Free Interest Rate— The risk-free interest rate is based on the U.S. Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of option. • Expected Dividend Rate— The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero . For options granted to non-employee consultants, the fair value of these options is also remeasured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected term, which is assumed to be the remaining contractual term of the option. The following weighted average assumptions were used to value options granted during the periods indicated: Year Ended December 31, 2022 Year Ended December 31, 2021 Expected term 5.94 years 5.99 years Expected volatility 83.4 % 85.8 % Risk-free interest rate 3.07 % 1.08 % Expected dividend yield — — Stock Option Plan Activity A summary of the stock plan activity is as follows:  Total Options Outstanding Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2021 1,589,120 $ 5.95 9.27 $ 5,482 Granted 1,238,953 15.40   Exercised — —   Forfeited ( 31,832 ) 6.60   Outstanding at December 31, 2022 2,796,241 $ 10.13 8.81 $ 5,793 Exercisable as of December 31, 2022 987,857 $ 7.04 8.30 $ 3,865 As of December 31, 2022 , there was unrecognized stock-based compensation expense of $ 15.0 million related to unvested stock options which the Company expects to recognize over a weighted-average period of 2.8 years. Weighted-average grant-date fair value of the options granted during the year ended December 31, 2022 was $ 11.03 per share. No options were exercised during the year ended December 31, 2022. Liability for Early Exercise of Stock Options The Company's 2017 Plan permitted early exercise of certain stock options prior to vesting to certain directors, officers, and employees. Any shares issued pursuant to unvested options are restricted and subject to repurchase by the Company until the conditions for vesting are met. The amounts paid for shares purchased under an early exercise of stock options and subject to repurchase by the Company are reported as options subject to repurchase, short and long-term on the balance sheet and is reclassified to common stock and additional paid-in capital as such shares vest. Upon termination of employment of an option-holder, the Company has the right to repurchase, at the original purchase price, any unvested options. F- 21 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued As of December 31, 2022 , there were 19,778 unvested common shares outstanding that were issued upon the early exercise of stock options prior to the vesting of the underlying shares which are subject to repurchase by the Company at the original issuance price upon termination of the stockholders’ services. The right to repurchase these shares generally lapses with respect to 25 % of the shares underlying the option after one year of service to the Company and 1/48 th of the shares underlying the original grant per month for 36 months thereafter. The shares purchased by the option-holders pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be issued until those shares vest. As of December 31, 2022, the Company recorded an insignificant amount of liabilities associated with the cash received for shares issued subject to repurchase rights, recorded within the options subject to repurchase, short-term, and options subject to repurchase, long-term on the Company's balance sheets. 2022 Employee Stock Purchase Plan The Company’s 2022 Employee Stock Purchase Plan (“ESPP”) has two components: a component that is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code (the 423 Component) and a component that is not intended to qualify (the Non-423 Component). The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 % of their eligible compensation. At the end of each offering period, employees are able to purchase shares at 85 % of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period. Subject to adjustment in the case of certain capitalization events, 187,000 shares of the Company’s common stock were available for purchase at the adoption of the ESPP. Pursuant to the ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i) 1 % of the Company’s common stock outstanding as of December 31 of the immediately preceding year, (ii) 561,000 shares, or (iii) such number of shares as determined by the Board. As of December 31, 2022 , 187,000 shares of common stock remained available for issuance under the ESPP. The Company began recording stock-based compensation expense for its ESPP on October 1, 2022. During the year ended December 31, 2022 , the Company recognized $ 0.1 million in stock-based compensation expense related to the ESPP. Note 11. Income Taxes The Company is liable for income taxes in the United States. For the years ended December 31, 2022 and 2021 , the Company did not have any income for income tax purposes and therefore, no tax liability or expense has been recorded in these financial statements. The provision for income taxes differs from the tax expense that would result by applying the statutory federal income tax rate to loss before taxes due to the following (in thousands): December 31, 2022 2021 Federal tax benefit at statutory rate $ ( 8,601 ) $ ( 4,524 ) State tax benefit at statutory rate, net of federal tax benefit ( 3,053 ) ( 1,377 ) Change in valuation allowance 12,347 5,942 Research and development tax credits ( 988 ) ( 360 ) Other 295 319 Provision for income taxes $ — $ — Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available positive and negative evidence, which includes the Company’s historical operating performance and the U.S. cumulative net losses in all prior periods, the Company has provided a valuation allowance against its U.S. deferred tax assets. The valuation allowance increased by $ 12.3 million from December 31, 2021 to December 31, 2022 due to generation of current year net operating losses and research and development credits claimed. F- 22 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred tax assets are as follow (in thousands): December 31, 2022 2021 Deferred tax assets Net operating loss carryforwards $ 13,709 $ 8,811 Intangible assets 5,337 — Tax credit carryforwards 1,836 561 Other 889 52 Gross deferred tax assets 21,771 9,424 Valuation allowance ( 21,771 ) ( 9,424 ) Net deferred tax assets $ — $ — As of December 31, 2022 , the Company had $ 43.2 million of federal and $ 66.3 million of state net operating loss available to offset future taxable income. The federal net operating loss carryforwards do not expire. The state net operating loss carryforwards begin to expire in 2037 . The Company also has federal and California state research and development credits of $ 1.3 million and $ 0.6 million, respectively. The federal tax credit carryforwards will begin to expire in 2041 if not utilized. The state tax credit carryforwards do not expire. Utilization of the net operating loss carryforwards is subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. The Company is not currently in a taxable position and no net operating loss carryforwards or credits have been used to date. As of December 31, 2022 and 2021 , the Company has unrecognized tax benefits of $ 0.8 million and $ 0.4 million, respectively. As of December 31, 2022 , the total amount of unrecognized tax benefits would not affect the effective tax rate, if recognized, due to the valuation allowance that currently offsets deferred tax assets. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2022 and 2021 was as follows (in thousands): Year Ended December 31, 2022 2021 Balance at beginning of year $ 445 $ — Additions related to prior year positions — 314 Additions related to current year positions 338 131 Balance at end of year $ 783 $ 445 The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the statements of operations. Accrued interest and penalties are included within the related tax liability line in the balance sheet. No accrued interest and penalties have been recorded through December 31, 2022. The Company files income tax returns in the U.S. federal jurisdiction and California state jurisdiction. The Company is not currently under audit by the Internal Revenue Service or other similar state or local authorities. All tax years of the Company remain open to examination by major taxing jurisdictions to which the Company is subject. F- 23 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Note 12. Net Loss Per Share The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except for per share amounts): Year Ended December 31, 2022 2021 Numerator: Net loss $ ( 40,956 ) $ ( 21,543 ) Add accretion to redemption value and cumulative dividends on preferred stock ( 1,820 ) ( 6,515 ) Net loss attributable to common stockholders $ ( 42,776 ) $ ( 28,058 ) Denominator: Weighted-average common shares outstanding used to calculate net loss per share attributable to common stockholders, basic and diluted 15,340,134 2,638,197 Net loss per share attributable to common stockholders, basic and diluted $ ( 2.79 ) $ ( 10.64 ) Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows: December 31, 2022 2021 Series A redeemable convertible preferred stock — 6,076,196 Series B redeemable convertible preferred stock — 5,333,292 Options issued and outstanding 2,796,241 1,589,120 Early exercised common stock subject to future vesting 19,778 71,340 Total 2,816,019 13,069,948 Note 13. Related Party Transactions In the year ended December 31, 2022 , the Company paid $ 1.5 million for two development milestones to Anacor. Of this amount, a $ 0.5 million payment was recognized as expense in 2021 and was included as accrued expenses in the accompanying balance sheet at December 31, 2021. In connection with Adjuvant’s investment in the Company’s common stock as part of the IPO, the Company entered into the 2022 Adjuvant Amendment. As part of the 2022 Adjuvant Amendment, Adjuvant purchased 166,666 shares of the Company's common stock in 2022 for a total additional investment of $ 2.5 million, which is subject to Adjuvant’s right of repayment should the Company not utilize the proceeds from Adjuvant’s investment towards the agreed-upon purpose. As of December 31, 2022, the $ 2.5 million of proceeds from Adjuvant’s IPO investment have been fully utilized to support the epetraborole development program, which overlaps with the melioidosis and other global health development programs (see Note 8—Commitments and Contingencies). Note 14. Defined Contribution Plan The Company began sponsoring a 401(k) Plan in 2019 that stipulates that eligible employees can elect to contribute to the 401(k) Plan, subject to certain limitations, on a pretax basis. During the years ended December 31, 2022 and 2021 , the Company did no t make a matching contribution. F- 24