AN2 Therapeutics, Inc. 10-K

Item 9A . Controls and Procedures. Evaluation of Disclosure 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-K. 93 The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under 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. 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 CEO and CFO, or persons performing similar functions, 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, 2023, our disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting, as described below. 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. Management’s Annual Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Management has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023 using the criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management has concluded that as of December 31, 2023, our internal control over financial reporting was not effective due to material weaknesses in internal control over financial reporting, as described below. During the course of preparing for our March 2022 IPO, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control 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 identified were as follows, and continue to exist as of December 31, 2023: • 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. The above material weaknesses resulted in adjustments to 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. 94 • We did not design and maintain effective controls over information technology (“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 IT 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. Attestation 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. Remediation of Prior Material Weakness Management previously identified a material weakness in the design and operating effectiveness of controls related to the accounting for certain non-routine or complex transactions, including the proper application of U.S. GAAP to such transactions. As of September 30, 2023, we finalized the design and were validating the effectiveness of controls to account for and disclose complex transactions. As of December 31, 2023, we validated the effectiveness of controls to account for and disclose complex transactions. The applicable controls have been in operation for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively. Accordingly, the material weakness associated with the accounting for certain non-routine or complex transactions, including the proper application of U.S. GAAP, was remediated as of December 31, 2023. Remediation Plan for Remaining Material Weaknesses The Company is committed to remediating the material weaknesses in our internal control over financial reporting. We have implemented measures designed to improve our internal control over financial reporting to remediate these material weaknesses, and are refining the design and validating the effectiveness of these controls, including (i) ongoing hiring of additional accounting personnel; (ii) designing and implementing internal controls in our financial control environment, including establishing formal accounting policies and procedures and financial reporting controls; and (iii) implementing an accounting system upgrade with IT controls to ensure appropriate and restricted access to our accounting applications, programs, and data, including upgrading of our accounting system. Other than the material weakness associated with the accounting for certain non-route or complex transactions, including the proper application of U.S. GAAP, which has been remediated, the remaining material weaknesses will not be considered remediated until the design requirements described above have been finalized, and the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Accordingly, the material weaknesses related to lack of sufficient resources, insufficient segregation of duties, lack of designing and maintaining formal accounting policies, procedures and controls and lack of designing and maintaining effective controls over IT, were not remediated as of December 31, 2023. 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. 95 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, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B . Other Information. None of our directors or officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K. Item 9C. Disclosure Re garding Foreign Jurisdictions that Prevent Inspections. Not applicable. 96 PA RT III Item 10 . Directors, Executive Officers and Corporate Governance. The information required by this item is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023. Item 11 . Executive Compensation. The information required by this item is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023. Item 12 . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023. Item 13 . Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023. Item 14 . Principal Accounting Fees and Services. The information required by this item is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023. 97 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, 2023 and 2022 F- 3 Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 F- 4 Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022 F- 5 Statements of Cash Flows for the years ended December 31, 2023 and 2022 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. 98 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-K 001-41331 4.3 March 29, 2023 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. 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#* Form of Restricted Stock Unit Grant Notice and Award Agreement under the AN2 Therapeutics, Inc. 2022 Equity Incentive Plan. 10.6#* AN2 Therapeutics, Inc. 2022 Employee Stock Purchase Plan. 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-K 001-41331 10.17 March 29, 2023 10.18# Offer Letter by and between the Registrant and Paul Eckburg, dated April 30, 2021. 10-K 001-41331 10.18 March 29, 2023 99 Incorporated by Reference Exhibit Number Description Form File No. Exhibit Filing Date 23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. 24.1* Power of Attorney (incorporated by reference to the signature page to this Annual Report on Form 10-K.) 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. 97.1* Compensation Recovery Policy. 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, 2023 and 2022; (iii) the Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022; (iv) the Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022; (vi) the Statements of Cash Flows for the years ended December 31, 2023 and 2022; (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. 100 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, 2024 . AN2 Therapeutics, Inc. By: /s/ Eric Easom Eric Easom Chief Executive Officer and Director (Principal Executive Officer) By: /s/ Lucy O. Day Lucy O. Day Chief Financial Officer (Principal Financial and Accounting 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. 101 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, 2024 Eric Easom /s/ Lucy O. Day Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 29, 2024 Lucy O. Day /s/ Joseph Zakrzewski Chair and Director March 29, 2024 Joseph Zakrzewski /s/ Kabeer Aziz Director March 29, 2024 Kabeer Aziz /s/ Maggie FitzPatrick Director March 29, 2024 Maggie FItzPatrick /s/ Gilbert L. Marks Director March 29, 2024 Gilbert L. Marks /s/ Patricia (Patty) Martin Director March 29, 2024 Patricia (Patty) Martin /s/ Rob Readnour Director March 29, 2024 Rob Readnour /s/ Melvin Spigelman Director March 29, 2024 Melvin Spigelman /s/ Stephanie Wong Director March 29, 2024 Stephanie Wong 102 INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) F- 2 Balance Sheets as of December 31, 2023 and 2022 F- 3 Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 F- 4 Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2023 and 2022 F- 5 Statements of Cash Flows for the years ended December 31, 2023 and 2022 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023 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, 2024 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, 2023 2022 Assets Current assets: Cash and cash equivalents $ 15,647 $ 27,219 Short-term investments 91,648 68,840 Prepaid expenses and other current assets 3,212 2,509 Right-of-use asset, net — 53 Total current assets 110,507 98,621 Long-term investments 27,194 3,219 Other assets, long-term 1,043 720 Total assets $ 138,744 $ 102,560 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 2,676 $ 2,122 Accrued compensation 4,018 2,168 Accrued liabilities 6,681 2,837 Other current liabilities 666 — Operating lease liabilities — 53 Options subject to repurchase, short-term 2 6 Total current liabilities 14,043 7,186 Options subject to repurchase, long-term — 2 Total liabilities 14,043 7,188 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock, $ 0.00001 par value; 10,000,000 shares authorized December 31, 2023 and 2022; no shares issued and outstanding at December 31, 2023 and 2022 — — Common stock, $ 0.00001 par value; 500,000,000 shares authorized at December 31, 2023 and 2022; 29,741,445 and 19,402,658 shares issued and outstanding at December 31, 2023 and 2022, respectively — — Additional paid-in capital 278,881 185,469 Accumulated other comprehensive gain (loss) 275 ( 374 ) Accumulated deficit ( 154,455 ) ( 89,723 ) Total stockholders’ equity 124,701 95,372 Total liabilities and stockholders’ equity $ 138,744 $ 102,560 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, 2023 2022 Operating expenses: Research and development $ 54,871 $ 28,511 Research and development—related party — 1,000 General and administrative 14,764 12,751 Total operating expenses 69,635 42,262 Loss from operations ( 69,635 ) ( 42,262 ) Other income, net 4,903 1,306 Net loss ( 64,732 ) ( 40,956 ) Accretion to redemption value and cumulative dividends on preferred stock — ( 1,820 ) Net loss attributable to common stockholders $ ( 64,732 ) $ ( 42,776 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 2.74 ) $ ( 2.79 ) Weighted-average number of shares used in computing net loss per share, basic and diluted 23,600,107 15,340,134 Other comprehensive loss: Unrealized gain (loss) on investments 649 ( 347 ) Comprehensive loss $ ( 64,083 ) $ ( 41,303 ) 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, 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 $ 8.9 million — — 5,290,000 — 70,366 — — 70,366 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 Issuances of common stock in the “at the market” offering, net of underwriter’s commission and offering costs of $ 0.9 million — — 2,502,000 — 19,050 — — 19,050 Issuances of common stock in the Underwritten Offering, net of underwriter’s commission and offering costs of $ 4.5 million — — 7,777,778 — 65,479 — — 65,479 Issuance of common stock under the ESPP — — 44,009 — 366 — — 366 Issuance of common stock upon exercise of stock options — — 15,000 — 99 — — 99 Vesting of early exercised stock options — — — — 6 — — 6 Stock-based compensation — — — — 8,412 — — 8,412 Unrealized gain on available-for-sale investments — — — — — 649 — 649 Net loss — — — — — — ( 64,732 ) ( 64,732 ) Balances at December 31, 2023 — $ — 29,741,445 $ — $ 278,881 $ 275 $ ( 154,455 ) $ 124,701 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, 2023 2022 Cash flows from operating activities Net loss $ ( 64,732 ) $ ( 40,956 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 8,412 4,391 Non-cash operating lease expense 53 77 Net accretion of discount on investments ( 2,855 ) ( 692 ) Changes in operating assets and liabilities: Prepaid expenses and other assets ( 1,026 ) ( 1,678 ) Accounts payable 553 2,497 Accrued compensation 1,850 1,252 Accrued liabilities 3,844 1,724 Operating lease liabilities ( 53 ) ( 77 ) Other current liabilities 666 — Net cash used in operating activities ( 53,288 ) ( 33,462 ) Cash flows from investing activities Purchases of investments ( 132,178 ) ( 93,836 ) Maturities of investments 88,900 72,065 Net cash used in investing activities ( 43,278 ) ( 21,771 ) Cash flows from financing activities Proceeds from issuance of common stock from the Underwritten Offering, net of commissions and offering expenses 65,479 — Proceeds from issuance of common stock from the “at-the-market” offering, net of commissions and offering expenses 19,050 — Proceeds from issuance of common stock under the ESPP 366 — Proceeds from exercise of stock options 99 — Proceeds from issuance of common stock from the initial public offering, net of underwriting discounts, commissions and offering expenses — 70,366 Repurchase of early exercised stock options — ( 11 ) Net cash provided by financing activities 84,994 70,355 Net (decrease) increase in cash and cash equivalents ( 11,572 ) 15,122 Cash and cash equivalents at the beginning of the period 27,219 12,097 Cash and cash equivalents at the end of the period $ 15,647 $ 27,219 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 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 as a once-daily, oral treatment for patients with non-tuberculous mycobacterial (NTM) 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, and other product candidates, 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. At-The-Market Offering On April 6, 2023, the Company entered into a sales agreement ("Sales Agreement") with Cowen and Company, LLC as the Company’s sales agent (“Agent”) to issue and sell up to an aggregate gross sales of $ 100.0 million in shares (“Shares”) of the Company’s common stock through an “at-the-market” equity offering program (“ATM Offering”). The Company will pay commissions to the Agent of up to 3.0 % of the gross proceeds of the sale of the Shares sold under the Sales Agreement and reimburse the Agent for certain expenses. During the year ended December 31, 2023, the Company issued and sold 2,502,000 shares of common stock und er the ATM Offering, resulting in net proceeds of $ 19.1 million, after deducting commissions and other offering costs . Underwritten Offering On August 15, 2023, the Company entered into an underwriting agreement (the "Underwriting Agreement") with Cowen and Company, LLC, Leerink Partners LLC and Evercore Group L.L.C. as representatives of several underwriters to issue and sell 7,777,778 shares of common stock at an offering price of $ 9.00 per share, resulting in net proceeds of $ 65.5 million, after deducting commissions and other offering costs (the "Underwritten Offering"). F- 7 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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”). Certain reclassifications have been made to the prior year presentation to conform to the current year presentation. The prior year presentation of "interest income" and "other expense" on the statements of operations and comprehensive loss has been condensed into "other income, net" and conformed to reflect the current year's presentation. The prior year presentation of issuance of common stock upon initial public offering has been condensed within the statements of redeemable convertible preferred stock and stockholders’ equity (deficit). 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, 2023 and 2022, the Company incurred a net loss of $ 64.7 million and $ 41.0 million, respectively, and had cash flows used in operating activities of $ 53.3 million and $ 33.5 million, respectively. The Company has an accumulated deficit of $ 154.5 million and $ 89.7 million as of December 31, 2023 and 2022, 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. As of December 31, 2023, the Company had cash, cash equivalents, short-term investments and long-term investments of $ 134.5 million. Management believes that its cash, cash equivalents and investments as of December 31, 2023 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 and 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. 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. 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. F- 8 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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 Underwritten Offering in August 2023, ATM Offering filed in April 2023 and its IPO in 2022, 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 Underwritten Offering, ATM Offering and 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. After the completion of the ATM Offering in June 2023, the total deferred offering costs of $ 0.9 million were offset against the proceeds from the ATM Offering and reclassified to additional paid-in capital in the accompanying balance sheets. After the completion of the Underwritten Offering in August 2023, the total deferred offering costs of $ 4.5 million were offset against the proceeds from the Underwritten Offering and reclassified to additional paid-in capital in the accompanying balance sheets. At December 31, 2023 and 2022 , no deferred offering costs were included as non-current assets in the accompanying balance sheets. 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, including 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 the 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, 2023 and 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 judgment 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 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, 2023 and 2022, the Company had cash and cash equivalents of $ 15.6 million and $ 27.2 million, respectively. F- 10 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued Investments Investments consist of U.S. Treasury securities, commercial paper, and U.S. Government agency securities. 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. The cost of investments sold, if any, is based on the specific identification method. 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). For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value and recognized in other income (expense) in the statements of operations and comprehensive loss. If neither criterion is met, the Company evaluates whether the decline in fair value is related to credit-related factors or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. Credit-related impairment losses, limited by the amount that the fair value is less than the amortized cost basis, are recorded through an allowance for credit losses in other income, net. Any unrealized losses from declines in fair value below the amortized cost basis as a result of non-credit factors are recognized in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity, along with unrealized gains. Realized gains and losses and declines in fair value, if any, on available-for-sale securities are included in other income, net in the statements of operations and comprehensive loss. For purposes of identifying and measuring credit-related impairments, the Company’s policy is to exclude applicable accrued interest from both the fair value and amortized cost basis of the related security. The Company has elected to write-off uncollectible accrued interest receivable balances in a timely manner, which is defined by the Company as when interest due becomes 90 days delinquent. The accrued interest write-off will be recorded by reversing interest income. Accrued interest receivable is recorded to prepaid expenses and other current assets. As of December 31, 2023 and 2022, the Company had investments of $ 118.8 million and $ 72.1 million, respectively. 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 institutions 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, 2023 , the Company has no off-balance sheet concentrations of credit risk. F- 11 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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). Grant Agreements In September 2022, the Company entered into a subcontract agreement with the University of Georgia Research Foundation (“UGARF”) to receive up to $ 1.4 million from UGARF to support preclinical development of a boron-containing small molecule for Chagas disease. In September 2023, the Company entered into a grant agreement with the Bill and Melinda Gates Foundation (“BMGF”) to fund up to $ 1.8 million to generate new boron-based lead compounds with the potential to be developed into drugs that treat tuberculosis and malaria. The Company recognizes grant proceeds in accordance with ASC 958-605, Revenue Recognition Not-for-Profit Entities, when qualifying costs are incurred and the conditions of the grant agreement have been met. When receipt of grant proceeds is reasonably assured, the Company records a reduction to the research and development expenses incurred and a corresponding grant receivable. Cash received from grants in advance of incurring qualifying costs is recorded as a liability and recognized as a reduction to the qualifying research and development expenses incurred (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, 2023 and 2022 , the Company had $ 0.6 million of net unrealized gain and $ 0.3 million of net unrealized loss on available-for-sale investments, respectively. F- 12 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. 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. 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 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 adopted this standard beginning January 1, 2023 . Adoption of this standard did not have a material impact on the Company's financial statements. 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. F- 13 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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 $ 50 thousand and $ 50 thousand of operating lease liabilities, within the balance sheets upon adoption. 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 From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise noted, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial statements and disclosures. 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. F- 14 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The amendments in ASU 2023-07 are intended to improve reportable segment disclosure, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is evaluating the impact of this guidance on its financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its financial statements and related disclosures. Note 3. Fair Value Measurements The Company adopted ASU 2016-13 beginning January 1, 2023. 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-term investments 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, 2023 Level Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents: Money market funds Level 1 $ 4,478 $ — $ — $ 4,478 Short-term investments: U.S. Treasury securities Level 1 15,649 31 — 15,680 U.S. Treasury securities Level 2 1,247 — ( 1 ) 1,246 Commercial paper Level 2 41,472 47 ( 2 ) 41,517 U.S. Government agency securities Level 2 19,479 30 ( 5 ) 19,504 Asset Backed Securities Level 2 8,770 12 ( 3 ) 8,779 Corporate Debt Securities Level 2 4,914 8 — 4,922 Long-term investments: U.S. Treasury securities Level 1 23,542 131 — 23,673 U.S. Government agency securities Level 2 3,494 28 ( 1 ) 3,521 Total $ 123,045 $ 287 $ ( 12 ) $ 123,320 F- 15 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued  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 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, 2023. As of December 31, 2023 , 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, 2023 and 2022 , 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. The Company does not intend to sell the securities in an unrealized loss position and does not expect they will be required to sell the securities before recovery of the unamortized cost basis. Additionally, the Company evaluated its securities for credit losses and considered the decline in market value to be primarily attributable to current economic and market conditions and not credit related. Accordingly, no allowance for credit losses has been recognized as of December 31, 2023 and 2022. During the years ended December 31, 2023 and 2022, the Company did no t recognize any impairment losses related to investments. As of December 31, 2023 and 2022, the Company had accrued interest receivable of $ 0.4 million and $ 0.2 million, respectively, which was included in prepaid expenses and other current assets on the balance sheets. 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. In July 2023, the NIAID exercised one of seven available options under the NIAID contract (No: 75N93022C00059), resulting in an increase in committed contract funding of $ 0.7 million, for a total of $ 5.0 million. Funding for this option extends the estimated completion of the contract by 13 months beyond the base period of 18 months (April 2025). As of December 31, 2023 , a total of $ 5.0 million of funding for the 18 -month base period plus an additional 13 months for a total of 31 months has been committed. F- 16 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued During the year ended December 31, 2023 , the Company recorded income of $ 0.9 million as reduction in research and development operating expenses under the NIAID contract, of which $ 0.5 million was received during the year. As of December 31, 2023, the Company had recorded a receivable of $ 0.4 million which was included in prepaid expenses and other current assets on the balance sheets. The Company did no t recognize any income under this agreement during the year ended December 31, 2022. UGARF Grant In September 2022, the Company entered into a subcontract agreement with the UGARF to conduct preclinical activities on behalf of UGARF (“UGARF Agreement”). UGARF reimburses the Company under an award from The Wellcome Trust. The Company is eligible to receive up to $ 1.4 million from UGARF to support preclinical development of a boron-containing small molecule for Chagas disease. As of December 31, 2023 , the Company had recorded a grant receivable of $ 0.6 million which was included in prepaid expenses and other current assets on the balance sheets. During the year ended December 31, 2023 , the Company recorded income of $ 1.3 million as a reduction in research and development operating expenses under the UGARF agreement. The Company did no t recognize any income under this agreement during the year ended December 31, 2022. BMGF Grant In September 2023, the Company received a cost-reimbursement contract award from the Bill and Melinda Gates Foundation (“BMGF Agreement”) under which the Company was awarded $ 1.8 million to support the discovery of novel, boron containing small molecules for the treatment of tuberculosis and malaria. The Company is required to apply the funds it receives under the BMGF Agreement solely toward direct costs related to this research program. The Company received $ 1.0 million of funding in advance and tracks and reports eligible expenses incurred to the BMGF. Any unspent funds and any funds spent that have not yet been incurred are recorded as part of other current liabilities on the balance sheets. As of December 31, 2023 , the Company had recorded $ 0.7 million to other current liabilities. During the year ended December 31, 2023, the Company recorded income of $ 0.3 million as a reduction in research and development operating expenses under the BMGF agreement. 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- 17 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. None of the development, regulatory, commercial or sales milestones or royalty payments were recognized during the year ended December 31, 2023 . As a result, the Company did no t record any research and development expense—related party in the statements of operations for the year ended December 31, 2023. During the year ended December 31, 2022 , the Company recorded $ 1.0 million in research and development expense—related party 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 amended to exercise a renewal option and extend the term to expire in August 2023 . In July 2023, the lease was further amended to exercise a renewal option and extend the term to expire in August 2024 . At the time of amendment, the Company determined that this lease meets the criteria for a short-term lease. Under the lease agreement, the Company has one additional 12-month renewal option through August 2025 . The Company has not entered into any finance lease agreements as of December 31, 2023. F- 18 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued The following table summarizes total lease expense during the year ended December 31, 2023 (in thousands):  Statements of Operations and Comprehensive Loss Classification Year Ended December 31, 2023 Operating lease expense Operating expenses $ 54 Short-term lease expense Operating expenses 107 Total lease expense  $ 161 The Company paid $ 50 thousand and $ 80 thousand in operating cash flows from operating leases for amounts included in the measurement of liabilities during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 , all leases were determined to be short-term leases. 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, 2023 2022 Accrued research and development-related expenses $ 6,555 $ 2,517 Accrued professional services expenses 24 198 Other 102 122 Total accrued liabilities $ 6,681 $ 2,837 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, 2023 and 2022, and the Company is not currently a party to any legal proceeding that, if determined adversely to the Company, in management’s opinion, is currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, financial condition or results of operations taken as a whole. 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. F- 19 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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 2019 and 2020, 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 Lower-Middle-Income Countries (as such terms are defined by the World Bank and in the agreement). 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. In conjunction with Adjuvant’s investment in the Company’s Series B redeemable convertible preferred stock financing in 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. 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 Adjuvant IPO 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, 2023. As of December 31, 2023 , the $ 2.5 million of proceeds from Adjuvant’s IPO investment, as well as the proceeds from Adjuvant’s Series A and B redeemable convertible preferred stock investments, were fully utilized to support the epetraborole development program, which overlaps with the melioidosis and other global health development programs. 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. On April 6, 2023, the Company entered into a Sales Agreement with Cowen and Company, LLC as the Company’s Agent, to issue and sell up to an aggregate gross sales of $ 100.0 million in Shares of the Company’s common stock through the ATM Offering. During the year ended December 31, 2023, the Company issued and sold 2,502,000 shares of common stock under the ATM program, resulting in net proceeds of $ 19.1 million, after deducting commissions and other offering costs. F- 20 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued On August 15, 2023, the Company entered into an Underwriting Agreement with Cowen and Company, LLC, Leerink Partners LLC and Evercore Group L.L.C. as representatives of several underwriters to issue and sell 7,777,778 shares of common stock at an offering price of $ 9.00 per share through the Underwritten Offering, resulting in net proceeds of $ 65.5 million, after deducting commissions and other offering costs. Shares of common stock reserved for future issuance, on an as-if-converted basis, as of December 31, 2023 and 2022, consists of the following: December 31, 2023 2022 Stock options, issued and outstanding 3,930,306 2,796,241 Stock options, authorized for future issuance 1,254,721 1,627,680 ESPP, authorized for future issuance 337,017 187,000 Total 5,522,044 4,610,921 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, 2023 and 2022 . 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, 2023 , no stock appreciation rights, restricted stock awards, restricted stock unit awards or performance awards were issued. 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 available 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 maximum number of shares of the Company's common stock that may 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, 2023, the Company issued stock options to its employees, directors and consultants. As of December 31, 2023 , 1,254,721 shares of common stock remained available for future issuance under the 2022 Plan. F- 21 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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, 2023 and 2022 (in thousands):  Year Ended December 31,  2023 2022 Research and development expenses $ 4,236 $ 1,688 General and administrative expenses 4,176 2,703 Total $ 8,412 $ 4,391 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. • Expected Volatility—Since the Company has limited trading history for its common stock, the expected volatility is 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, 2023 Year Ended December 31, 2022 Expected term 5.98 years 5.94 years Expected volatility 90.8 % 83.4 % Risk-free interest rate 4.04 % 3.07 % Expected dividend yield — — F- 22 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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, 2022 2,796,241 $ 10.13 8.81 $ 5,793 Granted 1,224,932 12.48 Exercised ( 15,000 ) 6.60 Forfeited ( 75,867 ) 11.08 Outstanding at December 31, 2023 3,930,306 $ 10.86 8.14 $ 37,853 Exercisable as of December 31, 2023 1,847,955 $ 9.34 7.53 $ 20,612 As of December 31, 2023 , there was unrecognized stock-based compensation expense of $ 18.0 million related to unvested stock options which the Company expects to recognize over a weighted-average period of 2.2 years. Weighted-average grant-date fair value of the options granted during the year ended December 31, 2023 was $ 9.53 per share. 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. As of December 31, 2023 , there were 5,040 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, 2023, 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. F- 23 AN2 Therapeutics, Inc. Notes to Financial Statements — Continued 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. Accordingly, effective January 1, 2023, the number of shares in the ESPP increased by 194,026 shares, representing 1 % of the prior year end’s common stock outstanding . As of December 31, 2023 , 337,017 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 years ended December 31, 2023 and 2022 , the Company recognized $ 0.2 million and $ 0.1 million, respectively, 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, 2023 and 2022 , 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, 2023 2022 Federal tax benefit at statutory rate $ ( 13,593 ) $ ( 8,601 ) State tax benefit at statutory rate, net of federal tax benefit ( 4,917 ) ( 3,053 ) Change in valuation allowance 20,047 12,347 Research and development tax credits ( 2,030 ) ( 988 ) Other 493 295 Provision for income taxes $ — $ — The following table reflects the effective income tax rate reconciliation for the ended December 31, 2023 and 2022 (in thousands): December 31, 2023 2022 Statutory rate 21.0 % 21.0 % Stock-based compensation - 0.7 % - 0.7 % State taxes, net of the federal tax benefit 7.6 % 7.4 % R&D credit benefit 3.1 % 2.4 % Change in valuation allowance - 31.0 % - 30.1 % Total 0.0 % 0.0 % 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 $ 20.0 million from December 31, 2022 to December 31, 2023 due to generation of current year net operating losses, capitalization of research and development costs, and research and development credits claimed. F- 24 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, 2023 2022 Deferred tax assets Net operating loss carryforwards $ 20,778 $ 13,709 Capital research expenditures 14,014 5,337 Tax credit carryforwards 4,406 1,836 Stock-based compensation 2,568 887 Other 52 2 Gross deferred tax assets 41,818 21,771 Valuation allowance ( 41,818 ) ( 21,771 ) Net deferred tax assets $ — $ — As of December 31, 2023 , the Company had $ 58.2 million of federal and $ 122.6 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 $ 3.4 million and $ 1.3 million, respectively. The federal tax credit carryforwards will 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, 2023 and 2022 , the Company has unrecognized tax benefits of $ 1.5 million and $ 0.8 million, respectively. As of December 31, 2023 , 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, 2023 and 2022 was as follows (in thousands): Year Ended December 31, 2023 2022 Balance at beginning of year $ 783 $ 445 Additions related to current year positions 678 338 Balance at end of year $ 1,461 $ 783 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, 2023. The Company files income tax returns in the U.S. federal jurisdiction and California, Illinois, New York, South Carolina, Virginia and New York City state and city jurisdictions. The Company is not currently under audit by the Internal Revenue Service or other similar state or local authorities. Carryover attributes beginning December 31, 2020 and December 31, 2019, respectively, remain open to adjustment by the U.S. and state taxing authorities to which the Company is subject. F- 25 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, 2023 2022 Numerator: Net loss $ ( 64,732 ) $ ( 40,956 ) Add accretion to redemption value and cumulative dividends on preferred stock — ( 1,820 ) Net loss attributable to common stockholders $ ( 64,732 ) $ ( 42,776 ) Denominator: Weighted-average common shares outstanding used to calculate net loss per share attributable to common stockholders, basic and diluted 23,600,107 15,340,134 Net loss per share attributable to common stockholders, basic and diluted $ ( 2.74 ) $ ( 2.79 ) 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, 2023 2022 Options issued and outstanding 3,930,306 2,796,241 Early exercised common stock subject to future vesting 5,040 19,778 Total 3,935,346 2,816,019 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). F- 26