Onconetix, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework). Based on our assessment under the framework in Internal Control—Integrated Framework (2013 framework), our management concluded that our internal control over financial reporting was not effective as of December 31, 2022 due to the existence of material weaknesses described below. A material weakness in internal control is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected. Material Weaknesses in Internal Control Over Financial Reporting In connection with the audit of our financial statements for the year ended December 31, 2022 and 2021, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. The material weaknesses identified are as follows: ● We failed to employ a sufficient number of staff to maintain optimal segregation of duties and to provide optimal levels of oversight in order to process financial information in a timely manner, analyze and account for complex, non-routine transactions, and prepare financial statements. ● We do not yet have adequate internal controls in place for the timely identification, approval or reporting of related party transactions. The above material weaknesses did not result in a material misstatement of our previously issued financial statements, however, it could result in a misstatement of our account balances or disclosures that would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected. We have developed a remediation plan for these material weaknesses which is described below in Remediation of Material Weaknesses . 123 Remediation of Material Weaknesses We are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that the material weaknesses are remediated as soon as possible. We believe we have made progress towards remediation and continue to implement our remediation plan for the material weaknesses, which includes steps to increase dedicated qualified personnel including financial consultants, improve reporting processes, and design and implement new controls. We have also implemented a related party transactions approval policy which our Board of Directors approved on June 24, 2022. Further, we have designed certain controls surrounding the identification, approval and reporting of related party transactions, which we expect to implement in 2023. We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively. The process of designing and implementing an effective accounting and financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain an accounting and financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may determine to take additional actions to address control deficiencies or determine to modify certain of the remediation measures described above. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses. Inherent Limitation on the Effectiveness of Internal Control Processes Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Management’s Report on Internal Control over Financial Reporting This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our auditors will not be required to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during the three months ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. 124 PART III Item 10. Directors, Executive Officers and Corporate Governance. Directors and Executive Officers The following table provides information regarding our executive officers and directors as of March 6, 2023: Name Age Position(s) Executive Officers and Directors Joseph Hernandez 50 Chief Executive Officer and Director Jon Garfield 59 Chief Financial Officer Erin Henderson 49 Chief Business Officer and Corporate Secretary Non-Employee Directors James Sapirstein 61 Director Vuk Jeremić 47 Director Simon Tarsh 62 Director Timothy Ramdeen 31 Director Executive Officers and Directors Executive Officers and Directors Joseph Hernandez Joseph Hernandez founded Blue Water Vaccines, Inc. in October 2018 and has been the Chief Executive Officer & Executive Chairman of the Company since inception. He has a background in company creation, early stage technology development, as well as private and public market financing. He brings leadership to the team, backed by a strong educational foundation in biology, medicine, molecular genetics, microbiology, epidemiology, marketing, and finance. Over the course of his career, he has founded or led eight entrepreneurial companies in cutting edge areas of healthcare and pharmaceuticals. After years of building his career at Merck & Co. (NYSE:MRK) from December 1998 to January 2001 and Digene from 2005 to 2009 (acquired by Qiagen (NYSE:QGEN)) from 2005 to 2009, Mr. Hernandez founded and became the President and CEO of Innovative Biosensors from 2004 to 2009. Later, Mr. Hernandez served as the Founder and Chairman of Microlin Bio Inc. from August 2013 to January 2017 and as Chairman of the Board of Ember Therapeutics (OTCMKTS:EMBT) from April 2014 to January 2019. He was also the Chairman of Sydys Corporation from May 2016 to January 2019. In 2018, Mr. Hernandez founded Blue Water Vaccines, an early stage biotechnology company focused on manufacturing a universal influenza vaccine in partnership with the University of Oxford in England. Additionally, in January 2020, he founded and in May 2020 sold Noachis Terra, Inc. (acquired by Oragenics (NYSE:OGEN)), a company developing a vaccine for COVID-19. From May 2020 to September 2021, Mr. Hernandez was also the chairman and chief executive officer of Blue Water Acquisition Corp. (“BWAC”), a special purpose acquisition company which completed its initial public offering in December 2020. On September 9, 2021, BWAC consummated a business combination with Clarus Therapeutics Holdings Inc. (OTCPink:CRXT) (“Clarus”). Mr. Hernandez served as a director of the post-combination entity, Clarus, until August 2022. He completed his undergraduate studies in Neuroscience, M.Sc. in Molecular Genetics and Microbiology, M.B.A. all at the University of Florida and is completing his M.Sc. in Chronic Disease Epidemiology and Biostatistics at Yale University. Jon Garfield Jon Garfield served as our interim Chief Financial Officer since September 2021 until the consummation of our initial public offering, in February 2022, upon which he became our full-time Chief Financial Officer. Mr. Garfield has over 20 years of financial leadership experience, including with healthcare companies. Mr. Garfield regularly provides consulting services to private equity funds and privately held companies. Mr. Garfield served as the CEO of Unity MSK from February 2021 to January 2023. He has served as a consultant of Bay State Physical Therapy from June 2018 to February 2019 and also as a director beginning in February 2019. From 2016 to 2017, Mr. Garfield was the CFO of Pyramid Healthcare, also a private equity based healthcare company. Prior to Pyramid Healthcare, Mr. Garfield joined Monte Nido as CFO in 2012 until 2016. Before Monte Nido, he served as CFO of Clearant, Inc., a publicly-traded medical device company, and Network IP and Simplified Development, where he oversaw the finance and treasury functions, implemented systems upgrades, and pursued a number of growth initiatives. Mr. Garfield was previously a Co-Founder and Vice President of Acquisitions for Coach USA, a consolidator of ground transportation entities throughout North America, and was heavily involved in over 50 acquisitions and the eventual IPO of the company. Earlier in his career, he held positions with PricewaterhouseCoopers and Arthur Andersen. Mr. Garfield was the Chief Financial Officer of BWAC from December 2020 until it completed a business combination with Clarus in September 2021. Mr. Garfield received a B.B.A. in accounting from the University of Texas. 125 Erin Henderson Erin Henderson has been the Chief Business Officer for Blue Water Vaccines, Inc. since September 2020 and has extensive experience in program and project management, business operational management, marketing, fundraising and public-private partnership development and implementation. She joined the company in September 2019. Prior to joining Blue Water Vaccines, since 2010, Ms. Henderson was the Founder and Managing Principal at The Aetos Group, a management consulting company working with public, private, governmental and non-governmental organizations focused on operational efficiency, Lean Six Sigma implementation, revenue development strategy and real estate acquisition strategy. Erin began her career at Lockwood Greene Engineers, followed by The Facility Group. She led local, state and federal governmental relations for the University of West Georgia and was responsible for identifying and securing financial support from both the public and private sector. Erin completed her undergraduate studies in Chemical Engineering from Auburn University. Erin serves on the Board of the Greater Gainesville Chamber of Commerce and the Board of Danscompany of Gainesville. Significant Employees and Consultants Dr. Ali Fattom, Ph.D. Dr. Ali Fattom, Head of Science and Discovery since September 2022, is a vaccinologist and microbiologist with nearly 40 years of experience in vaccine programs ranging from preclinical to late-stage clinical development. Dr. Fattom is an author of over 70 peer-reviewed publications and holds over 20 patents in the field of vaccinology. Currently, since March 2012, Dr. Fattom has been an Adjunct Professor at the University of Michigan and since September 2022, has served as an independent consultant for Blue Water Vaccines, providing expertise to advance BWV’s vaccine pipeline and progress towards clinical development of vaccine candidates. In 2010, Dr. Fattom joined NanoBio Corporation, which was eventually renamed Bluewillow Biologics Inc, and he was ultimately named Chief Scientific Officer, where he led their efforts to develop viral vaccines for various infectious diseases, including HSV, RSV, and influenza. In 1991, he moved to industry and joined Nabi Biopharmaceuticals and ultimately became Vice President for Research and Development in 2007. While at Nabi, he was responsible for advancing vaccine programs from discovery stage to advanced clinical stages, including Staphylococcal pentavalent vaccine and NicVAX, a vaccine to treat nicotine addiction and aid in smoking cessation. During the period of 1982 and 1986 he was an Assistant Professor in microbiology at Beir-Zeit University, West Bank, Palestine. In 1986, he joined the NIH and worked on a conjugate vaccine against bacterial infectious diseases, with a focus on pneumococcal and staphylococcal vaccines, under Dr John Robbins of the Eunice Kennedy Shriver National Institute of Child Health and Human Development. Prior to this, Dr. Fattom spent 5 years at John Robbins lab at the National Institutes of Health (“NIH”) working on polysaccharide conjugate pneumococcal vaccines, providing him with a strong background and expertise in pneumococcal disease Andrew Skibo, Ph.D. Mr. Skibo has been the Head of Biologics Operations for Blue Water Vaccines Inc. since June 2021. Mr. Skibo is a seasoned biopharmaceutical operations executive with deep cross-functional experience in international biopharmaceutical manufacturing, process scale-up, internal and external supply chain network design strategy and major capital project expansions. He has extensive international experience having been responsible for the design and startup of major pharmaceutical manufacturing facilities in USA, UK, Europe, Russia, Singapore and China. He is deeply familiar with all aspects of biotechnology product scale up and launch, having held related roles since the founding days of large-scale biotechnology commercial production. He has a broad understanding of many enterprise operations having held roles in Research and Process Development, Commercial/Business Development, Engineering and Strategic Planning. Mr. Skibo served as EVP Operations at Medimmune, and Head of Biologics Operations at Astra Zeneca for eleven years. He retired from that full time role in April 2019, but continues to serve as Technical Advisor to EVP Operations, AstraZeneca. In his role, he was responsible for the development and improvement of AstraZeneca’s mono-clonal antibody operations and influenza seasonal and pandemic LAIV Flu operations. He developed the network strategy for these operations and implemented them in ten plants across eight sites (including two new sites) in the USA, UK, Europe and China. He transformed a previously challenging regulatory quality environment (warning letter) to best in class status. He oversaw the development of four BLA’s and biologics product launches in 2017 to 2019, and has held related roles for nine product launches in his career. In both his role with MedImmune/AstraZeneca and his role on the Board of ISPE, Mr. Skibo routinely interfaced with leadership levels of major international regulatory agencies, especially the FDA. He was instrumental in resolving a dead-locked product approval/cGMP regulatory issue, involving multiple firms, with the FDA associated with the recent launch of one of AstraZeneca’s most significant oncology products. Mr. Skibo received his B.S. degree in Chemistry and his M.S degree in Chemical Engineering from MIT. He holds patents in polymer film extrusion from his original career at Monsanto. He has served as a member of the Mayor’s Fiscal Advisory Committee in San Francisco and has been a member and chairman of the Board of Supervisors in Birmingham/Chester County, PA. 126 Non-Executive Directors James Sapirstein , one of our directors since February 2022, has over 35 years of experience leading, founding, growing, and selling healthcare companies, specifically in the pharmaceutical space. Mr. Sapirstein is currently the President, CEO and Chairman of First Wave BioPharma, Inc. (Nasdaq: FWBI), where he has been since October 2019. His career began in sales at Eli Lilly, eventually rising to Director of International Marketing at Bristol Myers Squibb from July 1996 to June 2000, and later led the launch of Viread (tenofovir) at Gilead Sciences, Inc. (Nasdaq: GILD), where he served as Global Marketing Lead from June 2020 to June 2002. From November 2006 to January 2011, he served as founding CEO of Tobira Therapeutics (Nasdaq: TBRA), then a private company, and later acquired by Allergan (NYSE: AGN). Since then, he has served as CEO of Alliqua Biomedical (Nasdaq: ALQA) from September 2012 to February 2014 and CEO of Contravir Pharmaceuticals (Nasdaq: CTRV) from March 2014 to October 2018. He has been part of almost two dozen drug product launches and specifically either led or has been a key member of several HIV product launches into different new classes of therapeutics at the time. Additionally, Mr. Sapirstein has held board positions on ZyVersa Therapeitics, Inc. (Nasdaq: ZVSA) since January 2023 and Enochian Biosciences (Nasdaq: ENOB) since April 2018. He previously served as a director of Marizyme (OTCMKTS:MRZM) (Executive Chairman) from December 2018 to June 2021, Leading Biosciences from 2016 to 2021, BioNJ, an association of biopharma industries in New Jersey, from February 2017 to February 2019, RespireRX (OTCBB:RSPI) from April 2014 to January 2020, NanoViricides Inc. (NYSE: NNVC) from November 2018 to January 2020, and BWAC from December 2020 until its business combination with Clarus in September 2021. He is also a Board Director for BIO, the leading Biopharma Industries Organization promoting public policy and networking in the healthcare space, where he sits on both the Health Section and Emerging Companies Section Governing Boards. Mr. Sapirstein received a B.S. in Pharmacy from Rutgers University and his MBA from Fairleigh Dickinson University. He is well qualified to serve on our Board due to his extensive network from decades in the healthcare industry. Mr. Sapirstein brings to our Board a significant depth of experience in the pharmaceutical and biotechnology industries that will be invaluable to the Company as we continue to develop biotechnology assets. Simon Tarsh , one of our directors since August 2022, has more than 40 years of financial experience, working in both the UK and the USA. He has recently retired from Deloitte Consulting LLP, where he was a Senior Managing Director in the Finance and Enterprise Performance Practice, where he had served global clients since 2007. He led a growing global practice focused around Operational Transformation, including supporting Carve Out transactions, joint ventures and hybrid structures, both in the US and in international locations, such as India, China, Eastern Europe and Latin America. He supported high growth companies with their finance operations as they globalized, and was able to advise them on their expansion, while balancing growth with appropriate controls. Prior to moving to the United States in 2007, Mr. Tarsh’s consulting career began with PA Consulting Group, London in 1988, where he was elected as a Partner in 1997, and he built ISG’s business process outsourcing advisory practice in Europe between 2001 and 2006. Mr. Tarsh’s early career was in finance, working with Marathon Oil and Dow Chemical, and during this period, he qualified as a Chartered Accountant. Mr. Tarsh received a Bachelor of Science undergraduate degree in Business and Administration from the University of Salford, Manchester, UK in 1981, and an MBA from City University Business School, London, UK in 1988. He is a Fellow of the Chartered Institute of Management Accountants (1984), which is considered as a CPA equivalent. Mr. Tarsh’s deep financial experience at Deloitte Consulting LLP for fifteen years offers valuable insights to our Board, particularly given the enhanced accounting rules and regulations affecting public companies. Vuk Jeremić , one of our Directors since November 2022, brings decades of experience in operational and strategy advisement on a global scale for both private and public companies. Currently, Mr. Jeremić is the President of the Center for International Relations and Sustainable Development (CIRSD), a global public policy think-tank, and Editor-in-Chief of the quarterly magazine “Horizons – Journal of International Relations and Sustainable Development.” Since 2013, Mr. Jeremić has operated Vuk Jeremić ent Consulting Agency Belgrade, through which he currently serves as a senior advisor to a leading global private equity firm and to one of the largest cryptocurrency exchanges. He also serves on the Advisory Board of the NYSE-listed technology special purpose acquisition company, Adit Edtech Acquisition Corp. (ADEX:U). In addition, he has lectured around the world at major universities, think-tanks, and institutes, as well as published opinion pieces in leading outlets including The New York Times, The Washington Post, The Wall Street Journal, The Financial Times, and Le Monde. Prior to his experience in company advisement, Mr. Jeremić held multiple key positions in global public policy development nationally and internationally. In 2007, he chaired the Council of Europe’s Committee of Ministers and, from 2007 to 2012, he served as Serbia’s Minister of Foreign Affairs. In June 2012, Mr. Jeremić was directly elected by the majority of world’s nations to be the President of the 67th session of the United Nations (UN) General Assembly. During his term in office, he played a leading role in steering the UN towards the establishment of the Sustainable Development Goals (SDGs). Mr. Jeremić was named a Young Global Leader by the World Economic Forum in 2013 and appointed to the Leadership Council of the UN Sustainable Development Solutions Network (UN SDSN) in 2014. Mr. Jeremić served as the President of the Serbian Tennis Federation from 2011 to 2015. Mr. Jeremić holds a bachelor’s degree in Theoretical and Experimental Physics from Cambridge University and a master’s degree in Public Administration in International Development from Harvard University’s John F. Kennedy School of Government. Mr. Jeremić’s impressive resume, operational advisement experience and global public policy development offer a unique prospective to our Board in as we continue to grow the Company and progress our vaccine candidates towards commercialization. 127 Timothy Ramdeen , one of our directors since January 2023 nearly a decade of experience in private equity and hedge fund investing, capital markets, and company formation. Since June 2022, Mr. Ramdeen has been founder and managing partner of Dharma Capital Advisors, an investment and advisory firm focused on early-stage private and public companies. From March 2021 to March 2022, Mr. Ramdeen was co-founder, chief investment officer, and portfolio manager at Sixth Borough Capital Management, a multi-stage, event-driven hedge fund focused on both private and public equities. Since 2022, Mr. Ramdeen has been the co-founder of Amplexd Therapeutics, which is a women’s health/biotechnology company focused on providing low-cost, effective, safe and accessible treatments for early cervical and HPV-related cancers worldwide. Mr. Ramdeen also serves as a corporate advisor/board member to multiple early-stage companies and investment funds. Previously, Mr. Ramdeen was the fifth hire at Altium Capital Management (“Altium”), a healthcare-focused investment firm, where from July 2019 to March 2021 he served as the sole investment analyst on the private capital markets/special situations desk (privately-negotiated financings, direct investments, event-driven long/short, and private to public investments in micro and small-cap companies). During his tenure at Altium, Mr. Ramdeen was instrumental in co-creating the firm’s SPAC and reverse merger investment efforts and establishing extensive relationships with sell-side constituents, buy-side counterparts, and hundreds of private and publicly traded companies across biotechnology, therapeutics, healthcare services, medical devices and medtech. From 2017 to 2018, Mr. Ramdeen worked for Brio Capital Management, an event-driven hedge fund focused on small and micro cap equities. Mr. Ramdeen received his B.S. in Biology from Temple University, where he conducted scientific research across neurology, oncology, and developmental biology. In addition, Mr. Ramdeen earned his MBA in Finance from NYU Stern School of Business. Mr. Ramdeen brings to our Board extensive experience in capital advisement and company development, specifically within the life science industry and for publicly traded companies. Board of Directors and Corporate Governance General Our business and affairs are organized under the direction of our board of directors (“ Board ”), which currently consists of five members. Our Board is divided into three classes, Class I, Class II and Class III, with members of each class serving staggered three-year terms. Our directors are divided among the three classes as follows: ● the Class I directors are Simon Tarsh and Vuk Jeremić, and their terms will expire at our 2023 annual meeting of stockholders; ● the Class II director is James Sapirstein, and his term will expire at our 2024 annual meeting of stockholders; and ● the Class III directors are Joseph Hernandez and Timothy Ramdeen, and their terms will expire at our 2025 annual meeting of stockholders. Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws provide that the authorized number of directors may be changed only by resolution of the Board. Our directors hold office until the earlier of their death, resignation, removal or disqualification, or until their successors have been elected and qualified. Our board of directors does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of our Board should be separate. The primary responsibilities of our Board are to provide oversight, strategic guidance, counselling and direction to our management. We have no formal policy regarding board diversity. Our priority in selection of board members is identification of members who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and understanding of the competitive landscape. Directors and Executive Officers Qualifications We believe that the collective skills, experiences and qualifications of our directors provide our Board with the expertise and experience necessary to advance the interests of our stockholders. In selecting directors, the Board considers candidates that possess qualifications and expertise that will enhance the composition of the Board. Nominees for director will be selected on the basis of, among other things, leadership experience, knowledge, skills, expertise, integrity, diversity, ability to make independent analytical inquiries, understanding of the Company’s business environment and willingness to devote adequate time and effort to Board responsibilities. The Nominating & Corporate Governance Committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. We believe that our directors should have the highest professional and personal ethics and values, consistent with our longstanding values and standards. They should have broad experience at the policy-making level in business, exhibit commitment to enhancing stockholder value and have sufficient time to carry out their duties and to provide insight and practical wisdom based on their past experience. 128 Director Independence The Board has evaluated each of its directors’ independence from the Company based on the definition of “independence” established by Nasdaq and has determined that each of Vuk Jeremić, Simon Tarsh, Timothy Ramdeen and James Sapirstein are independent directors, constituting a majority of the Board. The Board has further determined that each member of our audit committee, compensation committee and nominating and corporate governance committee is “independent” under applicable Nasdaq rules. The Board has also determined that each member of our audit committee is “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”). In its evaluation of each director’s or nominee’s independence from the Company, the Board reviewed whether any transactions or relationships currently exist or existed during the past year between each director or nominee and the Company and its subsidiaries, affiliates, equity investors, or independent registered public accounting firm, and whether there were any transactions or relationships between each director or nominee and members of the senior management of the Company or their affiliates. Committees of the Board Our Board has established three standing committees — audit, compensation and nominating and corporate governance — each of which operates under a charter that has been adopted by our Board. Copies of each committee’s charter are posted on the Investor Relations section of our website, which is located at https://ir.bluewatervaccines.com/corporate-governance/governance-overview . Each committee has the composition and responsibilities described below. Our Board may from time to time establish other committees. Audit Committee Our audit committee (“ Audit Committee ”) consists of Simon Tarsh, who is the chair of the committee, Timothy Ramdeen and James Sapirstein. Our Board has determined that each of the members of our audit committee satisfies the Nasdaq Marketplace Rules and SEC independence requirements. The functions of this committee include, among other things: ● evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors; ● reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services; ● reviewing our annual and quarterly financial statements and reports, including the disclosures contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and discussing the statements and reports with our independent auditors and management; ● reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation and matters concerning the scope, adequacy and effectiveness of our financial controls; ● reviewing and approving, in accordance with the Company’s policies, any related party transaction as defined by applicable rules and regulations ● reviewing our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management is implemented; and ● reviewing and evaluating on an annual basis the performance of the audit committee, including compliance of the audit committee with its charter. The Board has determined that Simon Tarsh qualifies as an “audit committee financial expert” within the meaning of applicable SEC regulations and meets the financial sophistication requirements of the Nasdaq Marketplace Rules. In making this determination, the Board has considered Mr. Tarsh’s extensive financial experience and business background. Both our independent registered public accounting firm and management periodically meet privately with our Audit Committee. 129 Compensation Committee Our compensation committee (“ Compensation Committee ”) consists of James Sapirstein, who is the chair of the committee, Simon Tarsh, Vuk Jeremić and Timothy Ramdeen. Our board of directors has determined that each of the members of our Compensation Committee is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and satisfies the Nasdaq Marketplace Rules independence requirements. The functions of this committee include, among other things: ● reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) our overall compensation strategy and policies; ● reviewing and approving the compensation, the performance goals and objectives relevant to the compensation, and other terms of employment of our executive officers; ● reviewing and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs; ● reviewing and approving the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers; ● reviewing with management and approving our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reports or proxy statements to be filed with the SEC; and ● preparing the report that the SEC requires in our annual proxy statement. Nominating and Corporate Governance Committee Our nominating and corporate governance committee (“ Nominating Committee ”) consists of Timothy Ramdeen, who is the chair of the committee, James Sapirstein, Simon Tarsh and Vuk Jeremić. Our Board has determined that each of the members of this committee satisfies the Nasdaq Marketplace Rules independence requirements. The functions of this committee include, among other things: ● identifying, reviewing and evaluating candidates to serve on our board of directors consistent with criteria approved by our board of directors; ● evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate; ● evaluating, nominating and recommending individuals for membership on our board of directors; and ● evaluating nominations by stockholders of candidates for election to our board of directors. Board Leadership Structure Our board of directors is free to select the Chairman of the board of directors and the Chief Executive Officer in a manner that it considers to be in the best interests of our company at the time of selection. Currently, Mr. Joseph Hernandez serves as our Chief Executive Officer and executive chairman. Four of our five members of our board of directors have been deemed to be “independent” by the board of directors, which we believe provides sufficient independent oversight of our management. Our board of directors, as a whole and also at the committee level, plays an active role overseeing the overall management of our risks. Our Audit Committee reviews risks related to financial and operational items with our management and our independent registered public accounting firm. Our board of directors is in regular contact with our Chief Executive Officer, who reports directly to the board of directors and who supervise day-to-day risk management. 130 Role of Board in Risk Oversight Process We face a number of risks, including those described under the caption “Risk Factors” contained elsewhere in this Report. Our board of directors believes that risk management is an important part of establishing, updating and executing on our business strategy. Our board of directors has oversight responsibility relating to risks that could affect the corporate strategy, business objectives, compliance, operations, and the financial condition and performance of our company. Our board of directors focuses its oversight on the most significant risks facing us and on our processes to identify, prioritize, assess, manage and mitigate those risks. Our board of directors receives regular reports from members of our senior management on areas of material risk to us, including strategic, operational, financial, legal and regulatory risks. While our board of directors has an oversight role, management is principally tasked with direct responsibility for management and assessment of risks and the implementation of processes and controls to mitigate their effects on us. Our board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into two categories, financial and product commercialization. Our Audit Committee oversees management of financial risks; our board regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The board regularly reviews plans, results and potential risks related to our product offerings, growth, and strategies. Our Compensation Committee oversees risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on our company. Scientific Advisory Board In January 2020, we formally established a Scientific Advisory Board to advise our management regarding our clinical and regulatory development programs and other customary matters. Our scientific advisors are experts in various areas of medicine including theoretical epidemiology, vaccine research and development, and biotechnology. Our Scientific Advisory Board is comprised of the following individuals: ● Sunetra Gupta, Ph.D. Professor of Theoretical Epidemiology at The University of Oxford, a leading voice in infectious disease globally; and ● John Rice, Ph.D., Managing Director at CincyTech with more than 30 years of biotechnology advising experience. Code of Business Conduct and Ethics We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of business conduct and ethics is posted on our website at www.bluewatervaccines.com . We expect that any amendments or waivers to the code that are required by law or Nasdaq Marketplace Rules will be disclosed on our website. Meetings Attended by Directors During the fiscal year ended December 31, 2022, the Board held a total of 10 meetings, our Audit Committee held a total of 6 meetings, our Compensation Committee held a total of 7 meetings and our Nominating Committee held a total of 6 meeting. Each of our incumbent directors attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings held by the committees of the Board on which such director served during the period in which such director served. Although we do not maintain a formal policy regarding director attendance at the annual meeting of stockholders, director attendance at stockholder meetings is encouraged, and in 2022, all directors and Simon Tarsh, director nominee, attended the 2022 annual meeting of stockholders in person or via teleconference. 131 Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC reports of beneficial ownership and reports of changes in beneficial ownership in the Company’s securities. Based solely upon a review of Forms 3, 4 and 5, and amendments thereto, filed electronically with the SEC during the year ended December 31, 2022, the Company believes that all Section 16(a) filings applicable to its directors, officers, and 10% stockholders were filed on a timely basis during the year ended December 31, 2022, except that James Sapirstein, Jon Garfield, Joseph Hernandez, Erin Henderson, Allan Shaw, Michael Venerable and Kimberly Murphy each filed one late Form 4. Item 11. Executive Compensation. Summary Compensation Table The following table sets forth total compensation paid to our named executive officers for the years ended December 31, 2022 and 2021. Individuals we refer to as our “named executive officers” include our Chief Executive Officer and our two additional most highly compensated executive officers whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2022 and our one additional most highly compensated executive officer whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2021. Name and Principal Position Year Salary ($) Bonus ($) Option Awards ($) (1) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Joseph Hernandez 2022 569,138 437,500 696,738 — — — 1,703,376 Chief Executive Officer 2021 420,000 210,000 — — — — 630,000 Jon Garfield 2022 369,750 174,000 359,309 — — — 903,059 Chief Financial Officer 2021 — — — — — — — Erin Henderson 2022 296,905 230,000 706,449 — — — 1,233,354 Chief Business Officer and Corporate Secretary 2021 120,000 51,173 — — — — 171,173 (1) This figure represents the aggregate grant date fair value of stock options granted in the fiscal year, computed in accordance with the provisions of FASB ASC 718. Assumptions used in the calculation of these amounts are included in the notes to our financial statements included elsewhere in this Report. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Employment Agreements of Executive Officers We have entered into various employment agreements with certain of our executive officers. Set forth below is a summary of many of the material provisions of such agreements, which summaries do not purport to contain all of the material terms and conditions of each such agreement. Joseph Hernandez Effective upon the closing of our initial public offering, we entered into an employment agreement with Mr. Hernandez, pursuant to which he is employed as the Chief Executive Officer of the Company, which superseded Mr. Hernandez’s prior consulting agreement with the Company. The employment agreement provides for an annual base salary, subject to annual increases in the discretion of our compensation committee, the Company, and an annual performance bonus. Pursuant to the employment agreement, following the completion of our initial public offering, Mr. Hernandez’s base salary is $595,000. The annual performance bonus will be up to 50% of annual base salary (the “Target Annual Bonus”), with the actual bonus being based upon the level of achievement of annual Company and individual performance objectives for such fiscal year, as determined by our compensation committee. 132 In the event that Mr. Hernandez’s employment is terminated by the Company without cause (as defined in the employment agreement), or if Mr. Hernandez terminates his employment for “Good Reason” (as defined in the employment agreement), in addition to accrued unpaid salary, reimbursements and vacation days, he will be entitled to certain severance payments and benefits, including: (i) any unpaid annual bonus in respect of any completed fiscal year that has ended prior to the date of such termination; (ii) subject to certain conditions set forth in the employment agreement, an amount equal to (A) the Target Annual Bonus otherwise for the fiscal year in which such termination occurred, assuming Mr. Hernandez had remained employed through the applicable payment date, multiplied by (B) a fraction, the numerator of which is the number of days elapsed from the commencement of such fiscal year through the date of such termination and the denominator of which is 365 (or 366, as applicable); (iii) a payment equal to twelve (12) months of his base salary; and (iv) payment of an amount equal to the difference between the monthly COBRA premium cost and the monthly contribution paid by active employees for the same coverage for eighteen months following his termination. The employment agreement also provides that if a change in control (as defined in the employment agreement) occurs, and during the period commencing three months prior to a change in control and ending on the eighteen (18)-month anniversary of the change in control, Mr. Hernandez is terminated without cause or he resigns for good reason, Mr. Hernandez will be entitled to (i) any unpaid annual bonus in respect of any completed fiscal year that has ended prior to the date of such termination; (ii) subject to certain conditions set forth in the employment agreement, an amount equal to (A) the Target Annual Bonus otherwise for the fiscal year in which such termination occurred, assuming Mr. Hernandez had remained employed through the applicable payment date, multiplied by (B) a fraction, the numerator of which is the number of days elapsed from the commencement of such fiscal year through the date of such termination and the denominator of which is 365 (or 366, as applicable); (iii) severance of 18 months’ salary; and (iv) payment of an amount equal to the difference between the monthly COBRA premium cost and the monthly contribution paid by active employees for the same coverage for eighteen months following his termination. Additionally, any unvested portion of the equity awards held subject to time-vesting held by Mr. Hernandez will automatically vest. The employment agreement is governed by the laws of the State of Ohio and contains non-solicitation and non-competition covenants (each of which remains in effect during the term of employment and for six months following termination of employment) and confidentiality, trade secrets and assignment of intellectual property clauses. Pursuant to the non-solicitation and non-competition covenants, Mr. Hernandez has agreed to not directly or indirectly solicit any comparable business from a broad category of customers, request or advise customers to curtail, cancel, or withdraw its business from Blue Water Vaccines Inc., aid any other entity in obtaining business from customers that is comparable or similar to any products or services provided by Blue Water Vaccines or otherwise interfere with any transaction, agreement, business relationship, and/or business opportunity between Blue Water Vaccines and any customer or potential customer of the Company. During the term of employment and for a period of six months after termination (“the Post-Termination Restricted Period”), Mr. Hernandez is prohibited from recruiting, encouraging, soliciting, or inducing, or in any manner attempting to recruit, encourage, solicit, or induce, any person employed by or engaged by Blue Water Vaccines Inc. or its subsidiaries to terminate such Person’s employment or services (or in the case of a consultant, materially reducing such services) with Blue Water Vaccines Inc. or its subsidiaries, hiring, or engaging any individual who was employed by or providing services to Blue Water Vaccines Inc. or its subsidiaries within the six (6) month period prior to the date of such hiring or engagement, or encouraging, soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any current or prospective client, customer, licensee, supplier, or other business relation of Blue Water Vaccines Inc. or its subsidiaries, or any such relation that was a client, customer, licensee or other business relationship within the prior six (6) month period to cease doing business with or reduce the amount of business conducted with Blue Water Vaccines Inc. or its subsidiaries, or in any way interfering with the relationship between any such party and Blue Water Vaccines Inc. or its subsidiaries. Jon Garfield Effective upon the closing of our initial public offering, we entered into an employment agreement with Mr. Garfield, pursuant to which he is employed as the Chief Financial Officer of the Company. The employment agreement provides for an annual base salary, subject to annual increases in the discretion of our compensation committee, the Company, and an annual performance bonus. Pursuant to the employment agreement, following the completion of our initial public offering, Mr. Garfield’s base salary is $435,000. The annual performance bonus will be up to 50% of annual base salary (the “Target Annual Bonus”), with the actual bonus being based upon the level of achievement of annual Company and individual performance objectives for such fiscal year, as determined by our compensation committee. 133 In the event that Mr. Garfield’s employment is terminated by the Company without cause (as defined in the employment agreement), or if Mr. Garfield terminates his employment for “Good Reason” (as defined in the employment agreement), in addition to accrued unpaid salary, reimbursements and vacation days, he will be entitled to certain severance payments and benefits, including: (i) any unpaid annual bonus in respect of any completed fiscal year that has ended prior to the date of such termination; (ii) subject to certain conditions set forth in the employment agreement, an amount equal to (A) the Target Annual Bonus otherwise for the fiscal year in which such termination occurred, assuming Mr. Garfield had remained employed through the applicable payment date, multiplied by (B) a fraction, the numerator of which is the number of days elapsed from the commencement of such fiscal year through the date of such termination and the denominator of which is 365 (or 366, as applicable); (iii) a payment equal to twelve (12) months of his base salary; and (iv) payment of an amount equal to the difference between the monthly COBRA premium cost and the monthly contribution paid by active employees for the same coverage for eighteen months following his termination. The employment agreement also provides that if a change in control (as defined in the employment agreement) occurs, and during the period commencing three months prior to a change in control and ending on the eighteen (18)-month anniversary of the change in control, Mr. Garfield is terminated without cause or he resigns for good reason, Mr. Garfield will be entitled to (i) any unpaid annual bonus in respect of any completed fiscal year that has ended prior to the date of such termination; (ii) subject to certain conditions set forth in the employment agreement, an amount equal to (A) the Target Annual Bonus otherwise for the fiscal year in which such termination occurred, assuming Mr. Garfield had remained employed through the applicable payment date, multiplied by (B) a fraction, the numerator of which is the number of days elapsed from the commencement of such fiscal year through the date of such termination and the denominator of which is 365 (or 366, as applicable); (iii) severance of 18 months’ salary; and (iv) payment of an amount equal to the difference between the monthly COBRA premium cost and the monthly contribution paid by active employees for the same coverage for eighteen months following his termination. Additionally, any unvested portion of the equity awards held subject to time-vesting held by Mr. Garfield will automatically vest. The employment agreement is governed by the laws of the State of Ohio and contains non-solicitation and non-competition covenants (each of which remains in effect during the term of employment and for six months following termination of employment) and confidentiality, trade secrets and assignment of intellectual property clauses. Pursuant to the non-solicitation and non-competition covenants, Mr. Garfield has agreed to not directly or indirectly solicit any comparable business from a broad category of customers, request or advise customers to curtail, cancel, or withdraw its business from Blue Water Vaccines Inc., aid any other entity in obtaining business from customers that is comparable or similar to any products or services provided by Blue Water Vaccines Inc. or otherwise interfere with any transaction, agreement, business relationship, and/or business opportunity between Blue Water Vaccines Inc. and any customer or potential customer of the Company. During the term of employment and for a period of six months after termination (“the Post-Termination Restricted Period”), Mr. Garfield is prohibited from recruiting, encouraging, soliciting, or inducing, or in any manner attempting to recruit, encourage, solicit, or induce, any person employed by or engaged by Blue Water Vaccines Inc. or its subsidiaries to terminate such Person’s employment or services (or in the case of a consultant, materially reducing such services) with Blue Water Vaccines Inc. or its subsidiaries, hiring, or engaging any individual who was employed by or providing services to Blue Water Vaccines Inc. or its subsidiaries within the six (6) month period prior to the date of such hiring or engagement, or encouraging, soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any current or prospective client, customer, licensee, supplier, or other business relation of Blue Water Vaccines Inc. or its subsidiaries, or any such relation that was a client, customer, licensee or other business relationship within the prior six (6) month period to cease doing business with or reduce the amount of business conducted with Blue Water Vaccines Inc. or its subsidiaries, or in any way interfering with the relationship between any such party and Blue Water Vaccines Inc. or its subsidiaries. Erin Henderson Effective upon the closing of our initial public offering, we entered into an employment agreement with Ms. Henderson, pursuant to which she is employed as the Chief Business Officer of the Company. The employment agreement provides for an annual base salary, subject to annual increases in the discretion of our compensation committee, the Company, and an annual performance bonus. Pursuant to the employment agreement, following the completion of our initial public offering, Ms. Henderson’s base salary is $325,000. The annual performance bonus will be up to 40% of annual base salary (the “Target Annual Bonus”), with the actual bonus being based upon the level of achievement of annual Company and individual performance objectives for such fiscal year, as determined by our compensation committee. 134 In the event that Ms. Henderson’s employment is terminated by the Company without cause (as defined in the employment agreement), or if Ms. Henderson’s terminates her employment for “Good Reason” (as defined in the employment agreement), in addition to accrued unpaid salary, reimbursements and vacation days, she will be entitled to certain severance payments and benefits, including: (i) any unpaid annual bonus in respect of any completed fiscal year that has ended prior to the date of such termination; (ii) subject to certain conditions set forth in the employment agreement, an amount equal to (A) the Target Annual Bonus otherwise for the fiscal year in which such termination occurred, assuming Ms. Henderson had remained employed through the applicable payment date, multiplied by (B) a fraction, the numerator of which is the number of days elapsed from the commencement of such fiscal year through the date of such termination and the denominator of which is 365 (or 366, as applicable); (iii) a payment equal to nine (9) months of her base salary; and (iv) payment of an amount equal to the difference between the monthly COBRA premium cost and the monthly contribution paid by active employees for the same coverage for eighteen months following her termination. The employment agreement also provides that if a change in control (as defined in the employment agreement) occurs, and during the period commencing three months prior to a change in control and ending on the eighteen (18)-month anniversary of the change in control, Ms. Henderson is terminated without cause or resigns for good reason, Ms. Henderson will be entitled to (i) any unpaid annual bonus in respect of any completed fiscal year that has ended prior to the date of such termination; (ii) subject to certain conditions set forth in the employment agreement, an amount equal to (A) the Target Annual Bonus otherwise for the fiscal year in which such termination occurred, assuming Ms. Henderson had remained employed through the applicable payment date, multiplied by (B) a fraction, the numerator of which is the number of days elapsed from the commencement of such fiscal year through the date of such termination and the denominator of which is 365 (or 366, as applicable); (iii) severance of 12 months’ salary; and (iv) payment of an amount equal to the difference between the monthly COBRA premium cost and the monthly contribution paid by active employees for the same coverage for nine months following her termination. Additionally, any unvested portion of the equity awards held subject to time-vesting held by Ms. Henderson will automatically vest. The employment agreement is governed by the laws of the State of Ohio and contains non-solicitation and non-competition covenants (each of which remains in effect during the term of employment and for six months following termination of employment) and confidentiality, trade secrets and assignment of intellectual property clauses. Pursuant to the non-solicitation and non-competition covenants, Ms. Henderson has agreed to not directly or indirectly solicit any comparable business from a broad category of customers, request or advise customers to curtail, cancel, or withdraw its business from Blue Water Vaccines Inc., aid any other entity in obtaining business from customers that is comparable or similar to any products or services provided by Blue Water Vaccines Inc. or otherwise interfere with any transaction, agreement, business relationship, and/or business opportunity between Blue Water Vaccines Inc. and any customer or potential customer of the Company. During the term of employment and for a period of six months after termination (“the Post-Termination Restricted Period”), Ms. Henderson is prohibited from recruiting, encouraging, soliciting, or inducing, or in any manner attempting to recruit, encourage, solicit, or induce, any person employed by or engaged by Blue Water Vaccines Inc. or its subsidiaries to terminate such Person’s employment or services (or in the case of a consultant, materially reducing such services) with Blue Water Vaccines Inc. or its subsidiaries, hiring, or engaging any individual who was employed by or providing services to Blue Water Vaccines Inc. or its subsidiaries within the six (6) month period prior to the date of such hiring or engagement, or encouraging, soliciting, or inducing, or in any manner attempting to encourage, solicit, or induce, any current or prospective client, customer, licensee, supplier, or other business relation of Blue Water Vaccines Inc. or its subsidiaries, or any such relation that was a client, customer, licensee or other business relationship within the prior six (6) month period to cease doing business with or reduce the amount of business conducted with Blue Water Vaccines Inc. or its subsidiaries, or in any way interfering with the relationship between any such party and Blue Water Vaccines Inc. or its subsidiaries. Potential Payments Upon Termination or Change-in-Control See “Employment Agreements of Named Executive Officers” above. 135 Outstanding Equity Awards at Fiscal Year-End The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2022. Each of the awards set forth in the table below was granted under our 2019 Equity Incentive Plan or our 2022 Equity Incentive Plan. Name Grant Date Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Joseph Hernandez 5/4/2022 (1) 200,000 - 6.45 5/4/2032 Jon Garfield 5/4/2022 (2) 23,041 64,832 6.45 5/4/2032 5/4/2022 (3) 8,209 3,918 6.45 5/4/2032 Erin Henderson 4/2/2020 (4) 4,780 11,496 0.01 3/2/2030 5/4/2022 (5) 15,693 61,752 6.45 5/4/2032 5/4/2022 (6) 122,555 0 6.45 5/4/2032 (1) These options vested and became exercisable as follows (i) 174,972 options vested immediately upon grant; (ii) 4,171 options vested at the end of each calendar month from the date of issuance through September 30, 2022 and (iii) the remaining 4,173 options vested on October 31, 2022. (2) These incentive and non-qualified options vest and become exercisable as follows: 23,041 of the options vested on September 15, 2022 and the remainder of the options vest in equal monthly installments commencing on January 15, 2023 through September 15, 2025, subject to continued service through each such vesting date. (3) These non-qualified options vest and become exercisable as follows: 1,959 on September 15, 2022, 2,083 on October 15, 2022, 2,083 on November 15, 2022, 2,084 on December 15, 2022, 1,959 on December 15, 2023, and 1,959 on December 15, 2024, subject to continued service through each such vesting date. (4) These incentive options vests and become exercisable as follows: 14,267 of the options vested on December 31, 2020, and the remainder vest monthly thereafter in equal monthly installments through December 31, 2023, subject to continued service through each such vesting date. (5) These incentive and non-qualified options vest and become exercisable as follows: (i) 15,693 options vested immediately upon grant; (ii) 1,306 options vest at the end of each calendar month from January 1, 2023 through December 31, 2023 and (iii) 1,920 options vest at the end of each calendar month thereafter through December 31, 2025. (6) These non-qualified options vest and become exercisable as follows: 112,107 options vested immediately upon grant and 1,306 options vest at the end of each calendar month commencing on May 31, 2022 through December 31, 2022. 136 Director Compensation Prior to April 2022, our directors have not received cash compensation for their service except for option grants. However, in April 2022, after a review of non-employee director compensation at comparable companies, the Board approved cash and equity compensation of directors, such that we will pay each of our non-employee directors an annual cash retainer for service on the Board and for service on each committee on which the director is a member. The chair of each committee receive an additional annual retainer for such service. All retainers are payable in arrears in four equal quarterly installments. The retainers paid to non-employee directors for service on the Board and for service on each committee of the Board on which the director is a member are as follows: Annual Board Service Retainer All non-employee directors $ 45,000 Annual Committee Member Service Retainer Member of the Audit Committee $ 10,000 Member of the Compensation Committee $ 7,500 Member of the Nominating and Corporate Governance Committee $ 5,000 Annual Committee Chair Service Retainer (in addition to Committee Member Service Retainer above): Chair of the Audit Committee $ 10,000 Chair of the Compensation Committee $ 7,500 Chair of the Nominating and Corporate Governance Committee $ 5,000 Additionally, each non-director will receive an annual grant of nonqualified stock options to purchase 0.04% of the shares of Common Stock outstanding as of the date of the Company’s annual meeting, such options vesting monthly over a one-year period and fully vesting upon the director’s death or disability or upon a change of control of the Company. Our Nominating Committee will continue to review and make recommendations to the Board regarding compensation of directors, including equity-based plans. We will reimburse our non-employee directors for reasonable travel expenses incurred in attending board and committee meetings. 137 Director Compensation Table The following table sets forth information concerning the compensation of our directors for the fiscal year ended December 31, 2022: Fees Earned or Paid In Cash Stock Awards Option Awards All Other Compensation Total Name ($) ($) ($) (1) ($) ($) Simon Tarsh 38,750 (2) — 11,928 (3) — 50,678 James Sapirstein 65,625 (4) — 182,318 (5) 247,943 Vuk Jeremić 14,375 (6) — 3,212 (7) 17,587 Timothy Ramdeen (14) — — — — Kimberly Murphy 63,437.50 (8) — 16,372 (9) 79,809.50 Allan Shaw 67,812.50 (10) — 16,372 (11) $ 38,750 (15) 122,934.50 Michael Venerable 39,375 (12) — 16,372 (13) 55,747 (1) This figure represents the aggregate grant date fair value of stock options granted in the fiscal year, computed in accordance with the provisions of FASB ASC 718. Assumptions used in the calculation of these amounts are included in the notes to our financial statements included elsewhere in this Report. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. (2) Represents fees earned by Mr. Tarsh since his addition to the Board on August 22, 2022. Such pro-rated fees consist of $22,500 for serving on the Board, $5,000 for serving on the Audit Committee (and an additional $5,000 for serving as chair of the Audit Committee), $3,750 for serving on the Compensation Committee and $2,500 for serving on the Nominating Committee. (3) Mr. Tarsh was granted 4,073 stock options in fiscal year ended December 31, 2022, all of which were outstanding as of December 31, 2022, and of which 1,810 have vested as of such date and the remainder of which will vest in equal monthly installments through May 2023. (4) Represents pro-rated fees earned by Mr. Sapirstein, consisting of $39,375 for serving on the Board, $8,750 for serving on the Audit Committee, $6,562.50 for serving on the for serving on the Compensation Committee (and an additional $6,562.50 for serving as chair of the Compensation Committee) and $4,375 for serving on the Nominating Committee. (5) Mr. Sapirstein was granted 4,655 ($16,372 fair value) in fiscal year ended December 31, 2022 along with the other directors and 45,372 ($165,946 fair value)) in fiscal year ended December 31, 2022 as a joining bonus equal to the options the other independent directors received pre-IPO. All 50,575 stock options were outstanding as of December 31, 2022. 3,590 of the 4,655 options have vested as December 31, 2022, and the remainder of which will vest in equal monthly installments through March 2023. 9,560 of the 45,372 options have vested as December 31, 2022 and the remainder of which will vest in equal monthly installments through February 2026. (6) Represents pro-rated fees earned by Mr. Jeremić since his addition to the Board on November 22, 2022. Such fees consist of $11,250 for serving on the Board, $1,875 for serving on the Compensation Committee and $1,250 for serving on the Nominating Committee. (7) Mr. Jeremić was granted 3,610 stock options in fiscal year ended December 31, 2022, all of which were outstanding as of December 31, 2022, and of which 516 have vested as of such date and the remainder of which will vest in equal monthly installments through May 2023. (8) Represents pro-rated fees earned by Ms. Murphy, consisting of $39,375 for serving on the Board, $8,750 for serving on the Audit Committee, $6,562.50 for serving on the for serving on the Compensation Committee and $4,375 for serving on the Nominating Committee (and an additional $4,375 for serving as chair of the Nominating Committee). Ms. Murphy resigned from the Board of Directors effective January 13, 2023. 138 (9) Ms. Murphy was granted 4,655 stock options in fiscal year ended December 31, 2022. Ms. Murphy had 50,575 outstanding stock options as of December 31, 2022, of which 38,006 have vested as of such date. The vesting of 11,505 options were accelerated as of January 13, 2023 and 1,065 unvested options were terminated on January 13, 2023, Ms. Murphy’s date of resignation from Board. (10) Represents pro-rated fees earned by Mr. Shaw, consisting of $39,375 for serving on the Board, $8,750 for serving on the Audit Committee (and an additional $8,750 for serving as chair of the Audit Committee), $6,562.50 for serving on the for serving on the Compensation Committee and $4,375 for serving on the Nominating Committee. Mr. Shaw did not stand for reelection at the Company’s 2022 annual meeting of stockholders and as such ceased to be a director as of August 22, 2022. (11) Mr. Shaw was granted 4,655 stock option in fiscal year ended December 31, 2022. Mr. Shaw had no outstanding stock options as of December 31, 2022. (12) Represents pro-rated fees earned by Mr. Venerable, consisting of $39,375 for serving on the Board. Mr. Venerable resigned from the Board of Directors effective November 4, 2022. (13) Mr. Venerable was granted 4,655 stock options in fiscal year ended December 31, 2022. Mr. Venerable had 2,886 outstanding stock options as of December 31, 2022, of which all were vested as of such date. 1,769 unvested options were terminated on November 4, 2022, the date of Mr. Venerable’s resignation from the Board, (14) Mr. Ramdeen joined the Board on January 13, 2023 and as such, did not earn any fees in the fiscal year ended December 31, 2022. (15) Represents transitional fees in connection with Mr. Shaw’s departure as a director. Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2022, regarding our common stock that may be issued under the Company’s 2019 equity incentive plan (the “2019 Plan”) and the Company’s 2022 Equity Incentive Plan (the “2022 Plan”). Plan category: Number of Securities to be issued Upon Exercise of Outstanding Options, Warrants, and Rights (a) Weighted Average Exercise Price of Outstanding Options (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in column (a)) (c) Equity compensation plans approved by stockholders 2019 Plan (1) 615,188 $ 0.01 0 (1)(2) 2022 Plan (3) 777,466 $ 5.91 1,041,894 Total 1,392,654 $ 3.30 1,041,894 (1) The 2019 Plan permits grants of equity awards to employees, directors, consultants and other independent contractors. Our board of directors and stockholders have approved a total reserve of 1,400,000 shares for issuance under the 2019 Plan. (2) Once the 2022 Plan became effective, no further grants were made under the 2019 Plan and all shares that remained available for the issuance of awards under our 2019 Plan as of immediately prior to the time our 2022 Plan became effective were rolled over into the 2022 Plan. (3) The 2022 Plan permits grants of equity awards to employees, directors, consultants and other independent contractors. Our board of directors and stockholders have approved a total reserve of 2,600,000 shares for issuance under the 2022 Plan. 139 2022 Equity Incentive Plan Our board of directors adopted, and our stockholders approved, our 2022 Plan effective upon the completion of our initial public offering. Our 2022 Plan is a successor to and continuation of our 2019 Plan. Our 2022 Plan became effective on the date of the completion of our initial public offering. Once the 2022 Plan became effective, no further grants will be made under the 2019 Plan. Awards. Our 2022 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Internal Revenue Code, or the Code, to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors and consultants, including employees and consultants of our affiliates. Authorized Shares. Initially, the maximum number of shares of our common stock that may be issued under our 2022 Plan was 1,600,000 shares of our common stock, which is the sum of (i) 200,000 new shares, plus (ii) an additional number of shares not to exceed 1,400,000 (calculated after giving effect to the Pre-IPO Stock Split), consisting of (A) shares that remain available for the issuance of awards under our 2019 Plan as of immediately prior to the time our 2022 Plan becomes effective and (B) shares of our common stock subject to outstanding stock options or other stock awards granted under our 2019 Plan that, on or after the 2022 Plan becomes effective, terminate or expire prior to exercise or settlement; are not issued because the award is settled in cash; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, as such shares become available from time to time. On August 22, 2022, at the Company’s 2022 annual meeting of stockholders, the Company’s stockholders approved an additional 1,000,000 shares of common stock that may be issued under the 2022 Plan. The number of shares of common stock available for issuance under our 2022 Plan will be reduced by: one share for each share of common stock issued pursuant to a stock option or stock appreciation right with respect to which the exercise or strike price is at least 100% of the Fair Market Value of the Common Stock subject to the stock option or appreciation right on the grant date; and (ii) 1.20 shares for each share of common stock issued pursuant to any restricted stock unit or other “full value award.” The maximum number of shares of our common stock that may be issued on the exercise of ISOs under our 2022 Plan is equal to the number of shares reserved under the 2022 Plan at any time. Shares subject to stock awards granted under our 2022 Plan that expire or terminate without being exercised in full or that are paid out in cash rather than in shares do not reduce the number of shares available for issuance under our 2022 Plan. Shares withheld under a stock award to satisfy the exercise, strike or purchase price of a stock award or to satisfy a tax withholding obligation do not reduce the number of shares available for issuance under our 2022 Plan. If any shares of our common stock issued pursuant to a stock award are forfeited back to or repurchased or reacquired by us (i) because of a failure to meet a contingency or condition required for the vesting of such shares, (ii) to satisfy the exercise, strike or purchase price of an award or (iii) to satisfy a tax withholding obligation in connection with an award, the shares that are forfeited or repurchased or reacquired will revert to and again become available for issuance under the 2022 Plan. Any shares previously issued which are reacquired in satisfaction of tax withholding obligations or as consideration for the exercise or purchase price of a stock award will again become available for issuance under the 2022 Plan. The number of shares available for issuance under our 2022 Plan will increase by 1.20 shares for each share subject to restricted stock units or other full value awards (not including stock options or stock appreciation rights) which are forfeited or reacquired for the reasons described in the preceding two sentences. Plan Administration. Our Board of Directors has assigned the authority to administer the 2022 Plan to our Compensation Committee, but may, at any time, re-vest in itself some or all of the power delegated to our Compensation Committee. The Compensation Committee may delegate to one or more of our officers the authority to (i) designate employees (other than officers) to receive specified stock awards and (ii) determine the number of shares subject to such stock awards. Under our 2022 Plan, our Compensation Committee has the authority to determine award recipients, grant dates, the numbers and types of stock awards to be granted, the applicable fair market value, and the provisions of each stock award, including the period of exercisability and the vesting schedule applicable to a stock award. 140 Stock Options. ISOs and NSOs are granted under stock option agreements in a form approved by the Compensation Committee. The Compensation Committee determines the exercise price for stock options, within the terms and conditions of the 2022 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2022 Plan vest at the rate specified in the stock option agreement as determined by the Compensation Committee. The Compensation Committee determines the term of stock options granted under the 2022 Plan, up to a maximum of 10 years. Unless the terms of an option holder’s stock option agreement, or other written agreement between us and the recipient approved by the Compensation Committee, provide otherwise, if an option holder’s service relationship with us or any of our affiliates ceases for any reason other than disability, death or cause, the option holder may generally exercise any vested options for a period of three months following the cessation of service. This period may be extended in the event that exercise of the option is prohibited by applicable securities laws. If an option holder’s service relationship with us or any of our affiliates ceases due to death, or an option holder dies within a certain period following cessation of service, the option holder or a beneficiary may generally exercise any vested options for a period of 18 months following the date of death. If an option holder’s service relationship with us or any of our affiliates ceases due to disability, the option holder may generally exercise any vested options for a period of 12 months following the cessation of service. In the event of a termination for cause, options generally terminate upon the termination date. In no event may an option be exercised beyond the expiration of its term. Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the Compensation Committee and may include (i) cash, check, bank draft or money order, (ii) a broker-assisted cashless exercise, (iii) the tender of shares of our common stock previously owned by the option holder, (iv) a net exercise of the option if it is an NSO or (v) other legal consideration approved by the Board of Directors. Unless the Compensation Committee provides otherwise, options or stock appreciation rights generally are not transferable except by will or the laws of descent and distribution. Subject to approval of the Compensation Committee or a duly authorized officer, an option may be transferred pursuant to a domestic relations order, official marital settlement agreement or other divorce or separation instrument. Tax Limitations on ISOs. The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an award holder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our parent or subsidiary corporations unless (i) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and (ii) the term of the ISO does not exceed five years from the date of grant. Restricted Stock Unit Awards. Restricted stock unit awards are granted under restricted stock unit award agreements in a form approved by the Compensation Committee. Restricted stock unit awards may be granted in consideration for any form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the Compensation Committee or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, or other written agreement between us and the recipient approved by the Compensation Committee, restricted stock unit awards that have not vested will be forfeited once the participant’s continuous service ends for any reason. 141 Restricted Stock Awards. Restricted stock awards are granted under restricted stock award agreements in a form approved by the Compensation Committee. A restricted stock award may be awarded in consideration for cash, check, bank draft or money order, past or future services to us or any other form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. The Compensation Committee determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms. If a participant’s service relationship with us ends for any reason, we may receive any or all of the shares of common stock held by the participant that have not vested as of the date the participant terminates service with us through a forfeiture condition or a repurchase right. Stock Appreciation Rights. Stock appreciation rights are granted under stock appreciation right agreements in a form approved by the Compensation Committee. The Compensation Committee determines the strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. A stock appreciation right granted under the 2022 Plan vests at the rate specified in the stock appreciation right agreement as determined by the Compensation Committee. Stock appreciation rights may be settled in cash or shares of common stock or in any other form of payment as determined by the Board and specified in the stock appreciation right agreement. The Compensation Committee determines the term of stock appreciation rights granted under the 2022 Plan, up to a maximum of 10 years. If a participant’s service relationship with us or any of our affiliates ceases for any reason other than cause, disability or death, the participant may generally exercise any vested stock appreciation right for a period of three months following the cessation of service. This period may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws. If a participant’s service relationship with us, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessation of service, the participant or a beneficiary may generally exercise any vested stock appreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stock appreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term. Performance Awards. The 2022 Plan permits the grant of performance awards that may be settled in stock, cash or other property. Performance awards may be structured so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance goals during a designated performance period. Performance awards that are settled in cash or other property are not required to be valued in whole or in part by reference to, or otherwise based on, the common stock. The performance goals may be based on any measure of performance selected by the board of directors or the Compensation Committee. The performance goals may be based on company-wide performance or performance of one or more business units, divisions, affiliates or business segments, and may be either absolute or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise by the board of directors at the time the performance award is granted, the board or Compensation Committee will appropriately make adjustments in the method of calculating the attainment of performance goals as follows: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects; (iii) to exclude the effects of changes to generally accepted accounting principles; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; (v) to exclude the effects of items that are “unusual” in nature or occur “infrequently” as determined under generally accepted accounting principles; (vi) to exclude the dilutive effects of acquisitions or joint ventures; (vii) to assume that any portion of our business which is divested achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (viii) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change or any distributions to common stockholders other than regular cash dividends; (ix) to exclude the effects of stock based compensation and the award of bonuses under our bonus plans; (x) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; (xi) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles; and (xi) to exclude the effects of the timing of acceptance for review and/or approval of submissions to the U.S. Food and Drug Administration or any other regulatory body. 142 Other Stock Awards. The Compensation Committee may grant other awards based in whole or in part by reference to our common stock. The Compensation Committee will set the number of shares under the stock award (or cash equivalent) and all other terms and conditions of such awards. Non-Employee Director Compensation Limit. The aggregate value of all compensation granted or paid to any non-employee director with respect to any calendar year, including awards granted and cash fees paid by us to such non-employee director, will not exceed $150,000 in total value; provided that such amount will increase to $200,000 for the first year for newly appointed or elected non-employee directors. Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a stock split, reverse stock split or recapitalization, appropriate adjustments will be made to (i) the class and maximum number of shares reserved for issuance under the 2022 Plan, (ii) the class and maximum number of shares by which the share reserve may increase automatically each year, (iii) the class and maximum number of shares that may be issued on the exercise of ISOs and (iv) the class and number of shares and exercise price, strike price or purchase price, if applicable, of all outstanding stock awards. Corporate Transactions. The following applies to stock awards under the 2022 Plan in the event of a corporate transaction (as defined in the 2022 Plan), unless otherwise provided in a participant’s stock award agreement or other written agreement with us or one of our affiliates or unless otherwise expressly provided by the Board of Directors or Compensation Committee at the time of grant. In the event of a corporate transaction, any stock awards outstanding under the 2022 Plan may be assumed, continued or substituted for by any surviving or acquiring corporation (or its parent company), and any reacquisition or repurchase rights held by us with respect to the stock award may be assigned to the successor (or its parent company). If the surviving or acquiring corporation (or its parent company) does not assume, continue or substitute for such stock awards, then (i) with respect to any such stock awards that are held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction, or current participants, the vesting (and exercisability, if applicable) of such stock awards will be accelerated in full to a date prior to the effective time of the corporate transaction (contingent upon the effectiveness of the corporate transaction), and such stock awards will terminate if not exercised (if applicable) at or prior to the effective time of the corporate transaction, and any reacquisition or repurchase rights held by us with respect to such stock awards will lapse (contingent upon the effectiveness of the corporate transaction), and (ii) any such stock awards that are held by persons other than current participants will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction, except that any reacquisition or repurchase rights held by us with respect to such stock awards will not terminate and may continue to be exercised notwithstanding the corporate transaction. In the event a stock award will terminate if not exercised prior to the effective time of a corporate transaction, the board of directors may provide, in its sole discretion, that the holder of such stock award may not exercise such stock award but instead will receive a payment equal in value to the excess (if any) of (i) the per share amount payable to holders of common stock in connection with the corporate transaction over (ii) any per share exercise price payable by such holder, if applicable. In addition, any escrow, holdback, earn out or similar provisions in the definitive agreement for the corporate transaction may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of common stock. Plan Amendment or Termination. Our board of directors has the authority to amend, suspend or terminate our 2022 Plan, provided that such action does not materially impair the existing rights of any participant without such participant’s written consent. Certain material amendments also require the approval of our stockholders. No ISOs may be granted after the tenth anniversary of the date our board of directors adopts our 2022 Plan. No stock awards may be granted under our 2022 Plan while it is suspended or after it is terminated. 143 2019 Equity Incentive Plan Our board of directors adopted and our stockholders approved our 2019 Equity Incentive Plan (the “2019 Plan”) in July 2019 for grants of awards to employees, directors, officers and consultants of us or any of our subsidiaries. Once the 2022 Plan became effective, no further grants will be made under the 2019 Plan. However, the 2019 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2019 Plan. Awards. Our 2019 Plan provides for the grant of stock awards (collectively, “Stock Awards”) to employees, directors, officers and consultants of us or any of our subsidiaries, consisting of (i) incentive stock options, (“ISOs”), within the meaning of Section 422 of the Internal Revenue Code (the “Code”); (ii) nonstatutory stock options (“NSOs”); (iii) stock appreciation rights; (iv) restricted stock awards; (v) restricted stock unit awards, and (vi) other forms of awards. Authorized Shares. As of March 6, 2023, stock options covering 615,188 shares, each with an exercise price of $0.01 per share were the only outstanding Stock Awards outstanding under our 2019 Plan, and 619,360 shares of our common stock remained available for the future grant of awards under our 2019 Plan, which upon the adoption of the 2022 Plan, became issuable under the 2022 Plan. Plan Administration. The 2019 Plan may be administered by our board of directors, and our board of directors may delegate such administration to a committee of the board of directors (as applicable, the “Administrator”). The Administrator, in its discretion, selects the individuals to whom awards may be granted, the time or times at which such awards are granted and the terms and conditions of such awards. Stock Options. Stock options entitle the holder to purchase a specified number of shares of common stock at a specified price (the exercise price), subject to the terms and conditions of the stock option grant. Our board of directors may grant either incentive stock options, which must comply with Code Section 422, or nonqualified stock options. ISO’s may only be granted to employees of the Company or a “parent corporation” or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Our Administrator sets exercise prices and terms and conditions, except that stock options must be granted with an exercise price not less than 100% of the fair market value of our common stock on the date of grant. Unless our Administrator determines otherwise, fair market value means, as of a given date, the closing price of our common stock. At the time of grant, our board of directors determines the terms and conditions of stock options, including the quantity, exercise price, vesting periods, term (which may not exceed 10 years) and other conditions on exercise. Pursuant to the 2019 Plan, we may only issue 1,400,000 ISO’s. Eligibility. Awards may be granted under the 2019 Plan to officers, employees, directors, officers and of us and our subsidiaries. Incentive stock options may be granted only to employees of us or our subsidiaries. Restricted Stock, Restricted Stock Units and Other Stock-Based Awards. Our board of directors may grant awards of restricted stock, which are shares of common stock subject to specified restrictions, and restricted stock units, or RSUs, which represent the right to receive shares of our common stock in the future. These awards may be made subject to repurchase, forfeiture or vesting restrictions at the discretion of our board of directors discretion. The restrictions may be based on continuous service with us or the attainment of specified performance goals, as determined by the board of directors. Stock units may be paid in stock or cash or a combination of stock and cash, as determined by the board of directors. Other stock awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than one hundred percent (100%) of the fair market value of the common stock at the time of grant) may be granted either alone or in addition to stock awards provided for under the 2019 Plan. 144 Stock Appreciation Rights. Upon exercise, SARs entitle the holder to receive payment per share in stock or cash, or in a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over the aggregate strike price of the number of Common Stock equivalents with respect to which the Participant is exercising the SAR on such date (the “grant price”. Exercise of a SAR issued in tandem with a stock option will reduce the number of shares underlying the related stock option to the extent of the SAR exercised. The term of a SAR cannot exceed 10 years. Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a stock split, reverse stock split or recapitalization, appropriate adjustments will be made to (i) the class and maximum number of shares subject to the 2019 Plan, (ii) the class and maximum number of shares that may be issued on the exercise of ISOs and (iii) the class and number of shares and exercise price, strike price or purchase price, if applicable, of all outstanding stock awards. Corporate Transactions. The following applies to Stock Awards under the 2019 Plan in the event of a corporate transaction (as defined in the 2019 Plan), unless otherwise provided in a participant’s stock award agreement or other written agreement with us or one of our affiliates or unless otherwise expressly provided by the Board of Directors at the time of grant. In the event of a corporate transaction, the board of directors may take one of the following actions, contingent on the completion of the corporate transaction: (i) arrange for the surviving or acquiring corporation (or its parent company) to assume, continue or substitute the Stock Award for a similar stock award; (ii) arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of common stock issued pursuant to the Stock Award to the surviving or acquiring corporation (or its parent company); (iii) accelerate the vesting (in whole or in part) of the Stock Award; (iv) arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Stock Award; (v) cancel or arrange for the cancellation of the Stock Award, to the extent not vested or not exercised prior to the effective time of the corporate transaction, in exchange for such cash consideration that the Board of Directors; and (vi) make a payment equal to the excess, if any, of (A) the value of the property the participant would have received upon the exercise of the Stock Award immediately prior to the effective time of the corporate transaction, over (B) any exercise price payable by such holder in connection with such exercise The Board of Directors need not take the same action or actions with respect to all Stock Awards or portions thereof or with respect to all participants. The Board of Directors may also take different actions with respect to the vested and unvested portions of a Stock Award. Additionally, under the 2019 Plan, a Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control (as defined in the 2019 Plan) as may be provided in the Grant Agreement for such Stock Award or as may be provided in any other written agreement between the participant and the Company or any of its subsidiaries which may employ the participant, but in the absence of such provision, no such acceleration will occur. Plan Amendment or Termination. Our board of directors has the authority to amend, suspend or terminate our 2019 Plan, subject to certain conditions, including that such action does not materially impair the existing rights of any participant without such participant’s written consent. Certain material amendments also require the approval of our stockholders. No ISOs may be granted after the tenth anniversary of the date our board of directors adopted our 2019 Plan. 145 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth certain information concerning the ownership of our common stock, with respect to: (i) each person, or group of affiliated persons, known to us to be the beneficial owner of more than five percent of our common stock; (ii) each of our directors; (iii) each of our named executive officers; and (iv) all of our current directors and executive officers as a group. Applicable percentage ownership is based on 15,911,868 shares of common stock outstanding as of March 6, 2023. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to such securities. In addition, pursuant to such rules, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 6, 2023. We did not deem such shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the beneficial owners named in the table below have sole voting and investment power with respect to all shares of our common stock that they beneficially own, subject to applicable community property laws. Shares of Common Stock Owned Name and Address of Beneficial Owner (1) Number of Shares Percentage Named Executive Officers and Directors Joseph Hernandez 2,850,351 13.4 % Vuc Jeremić 2,580 (2) * Simon Tarsh 3,620 (3) * Timothy Ramdeen 1,790 (4) * James Sapirstein 18,039 (5) * Erin Henderson 176,828 (6) * Jon Garfield 39,585 (7) * All directors and named executive officers as a group (7 persons) 14.4 % 5% Stockholders Cincinnati Cornerstone Investors BWV I, LLC 2,361,201 (8) 9.9 % CincyTech Fund IV, LLC 844,308 (9) 3.5 % American Financial Group, Inc. 940,762 (10) 5.9 % Sabby Parties 1,210,686 (11) 7.4 % * Represents beneficial ownership of less than 1%. (1) Unless otherwise noted, the business address of each of the following entities or individuals is c/o Blue Water Vaccines, 201 E. Fifth Street, Suite 1900, Cincinnati, Ohio 45202. (2) Consists of 2,580 shares of common stock underlying options that are currently exercisable within 60 days of March 6, 2023. (3) Consists of 3,620 shares of common stock underlying options that are currently exercisable within 60 days of March 6, 2023. (4) Consists of 1,790 shares of common stock underlying options that are currently exercisable within 60 days of March 6, 2023. (5) Consists of 18,039 shares of common stock underlying options that are currently exercisable within 60 days of March 6, 2023. (6) Consists of (i) 24,752 shares of common stock and (ii) 152,076 shares of common stock underlying options that are currently exercisable within 60 days of March 6, 2023. (7) Consists of 39,585 shares of common stock underlying options that are currently exercisable within 60 days of March 6, 2023. 146 (8) Based on a Schedule 13G/A filed with the SEC on November 21, 2022, consists of 2,361,201 held of record by Cincinnati Cornerstone Investors BWV I. Cincinnati Cornerstone Capital, LLC holds voting and dispositive power with respect to the shares of common stock held by Cincinnati Cornerstone Investors BWV I. The address for these entities is 2900 Reading Rd., Suite 410, Cincinnati, OH 45206. (9) Based on a Schedule 13G/A filed with the SEC on November 21, 2022, consists of (i) 806,068 shares of common stock (following the conversion of preferred stock) held of record by CincyTech Fund IV, LLC and (ii) 38,240 shares of common stock underlying options that are currently exercisable within 60 days of March 6, 2023. CincyTech, LLC holds voting and dispositive power with respect to the shares of common stock held by CincyTech Fund IV, LLC. The address for these entities is 2900 Reading Rd., Suite 410, Cincinnati, OH 45206. (10) Based on a Schedule 13G/A filed with the SEC on January 31, 2023, filed by American Financial Group, Inc. (“AFG”), with respect to 940,762 shares owned by AFG. The principal business address for AFG is 301 East Fourth Street, Cincinnati, Ohio 45202. (11) Based on a Schedule 13G filed with the SEC on January 4, 2023, Sabby Volatility Warrant Master Fund, Ltd., Sabby Management, LLC and Hal Mintz (collectively, the “Sabby Parties”), share dispositive power over 1,210,686 shares: (i) Sabby Volatility Warrant Master Fund, Ltd. beneficially owns 1,210,686 shares and (ii) Sabby Management, LLC and Hal Mintz each beneficially own 1,210,686 shares. Sabby Management, LLC and Hal Mintz do not directly own any shares, but each indirectly owns 1,210,686 shares. Sabby Management, LLC, a Delaware limited liability company, indirectly owns 1,210,686 shares of Common Stock because it serves as the investment manager of Sabby Volatility Warrant Master Fund, Ltd. Mr. Mintz indirectly owns 1,210,686 shares of Common Stock in his capacity as manager of Sabby Management, LLC. The principal business address for the Sabby Parties is 2041 Courtland Avenue, Cincinnati, Ohio 45212. Item 13. Certain Relationships and Related Transactions, and Director Independence. The following is a description of transactions since January 1, 2021 to which we were a party in which (i) the amount involved exceeded or will exceed the lesser of $120,000 of one percent (1%) of our average total assets at year-end for the last two completed fiscal years and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, any of the foregoing persons, who had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other similar arrangements, which are described under “Executive and Director Compensation.” Agreement with Blue Water Real Estate Holdings We leased office space in November 28, 2018 from an affiliate of our chief executive officer, Blue Water Real Estate Holdings, Inc. Rental expense recorded for the year ended December 31, 2021 was approximately $26,000. This lease was terminated on March 31, 2021; however, the Company did not vacate the premises until May 26, 2021. As of the date hereof, we have no outstanding obligations under this agreement. Consulting Agreement with Joseph Hernandez On October 22, 2018, we entered into a Consulting Agreement with Joseph Hernandez, the Chief Executive Officer of Blue Water Vaccines Inc. Consulting expense recorded for the year ended December 31, 2021 was $420,000. Pursuant to the Consulting Agreement, Joseph Hernandez provides us with consulting services, and we are required to pay him an aggregate amount of $1.68 million during the term of the agreement, in monthly payments of $35,000. The Consulting Agreement was to be effective through November 1, 2022 and cancellable by either party with 90 days written notice. As of December 31, 2021, we had prepaid $140,000 on this Consulting Agreement. The Consulting Agreement became null and void upon the consummation of our initial public offering. Lease Agreement On February 28, 2022, the Company entered into a short-term lease in Palm Beach, Florida with an unrelated party, with a commencement date of May 1, 2022, for approximately $14,000 per month. The lease term ends on April 30, 2023 and is personally guaranteed by Joe Hernandez, the Company’s Chief Executive Officer. During the year ended December 31, 2022, the Company incurred rent expense on this lease of approximately $129,000, and variable lease expense of approximately $12,000. 147 Indemnification of Officers and Directors Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the DGCL. Further, we have entered into indemnification agreements with each of our directors and officers, and we have purchased a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. For further information, see “Executive and Director Compensation — Limitations of Liability and Indemnification Matters.” Policies and Procedures for Related Party Transactions All transactions since our initial public offering between us and our officers, directors or five percent stockholders, and respective affiliates have been and will be on terms no less favorable than could be obtained from unaffiliated third parties and have been and will be approved by a majority of our independent directors who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel. To the best of our knowledge, during the past two fiscal years, other than as set forth above, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest (other than compensation to our officers and directors in the ordinary course of business). Anti-Takeover Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws Section 203 of the Delaware General Corporation Law We are subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions: ● before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; ● upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or ● on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2 / 3 % of the outstanding voting stock that is not owned by the interested stockholder. 148 Section 203 defines a “business combination” to include the following: ● any merger or consolidation involving the corporation and the interested stockholder; ● any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; ● subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; ● any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; and ● the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through the corporation. In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price. Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws Among other things, our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws: ● permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in control; ● provide that the authorized number of directors may be changed only by resolution of our board of directors; ● provide that our board of directors will be classified into three classes of directors; ● provide that, subject to the rights of any series of preferred stock to elect directors, directors may only be removed for cause, which removal may be effected, subject to any limitation imposed by law, by the holders of at least 66 2 / 3 % of the voting power of all of our then-outstanding shares of the capital stock entitled to vote generally at an election of directors; ● provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; ● require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent or electronic transmission; 149 ● provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder’s notice; ● provide that special meetings of our stockholders may be called only by the chairman of our board of directors, our chief executive officer or president or by our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors, and not by our stockholders; and ● not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose. The amendment of any of these provisions would require approval by the holders of at least 66 2 / 3 % of the voting power of all of our then-outstanding common stock entitled to vote generally in the election of directors, voting together as a single class. The combination of these provisions will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Because our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control. These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of delaying changes in our control or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. We believe that the benefits of these provisions, including increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company, outweigh the disadvantages of discouraging takeover proposals, because negotiation of takeover proposals could result in an improvement of their terms. Choice of Forum Our Amended and Restated Certificate of Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and certain other actions may be brought only in the Court of Chancery in the State of Delaware, except any action (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or (C) for which the Court of Chancery does not have subject matter jurisdiction. If an action is brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Although we believe this provision benefits us by providing increased consistency in the application of law in the types of lawsuits to which it applies, a court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against our directors and officers. Our Amended and Restated Certificate of Incorporation provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, our Amended and Restated Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or the rules and regulations promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. 150 Limitation on Liability and Indemnification See the section titled “Management — Limitation on Liability and Indemnification Matters.” Listing Our common stock is listed on The Nasdaq Capital Market under the trading symbol “BWV.” Transfer Agent and Registrar The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company. The Transfer Agent’s address is 1 State Street, 30 th Floor, New York, New York 10004. Item 14. Principal Accounting Fees and Services. Audit and Non-Audit Fees Mayer Hoffman McCann P.C. (“MHM”) served as the independent registered public accounting firm to audit our books and accounts for the fiscal years ending December 31, 2022 and 2021. Substantially all of MHM’s personnel, who work under the control of MHM shareholders, are employees of wholly-owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure. The table below presents the aggregate fees billed for professional services rendered by MHM for the years ended December 31, 2022 and 2021. 2022 2021 Audit fees $ 562,666 $ 460,673 Audit-related fees — — Tax fees 9,975 — All other fees — — Total fees $ 572,641 $ 460,673 In the above table, “audit fees” are fees billed for services provided related to the audit of our annual financial statements, quarterly reviews of our interim financial statements, and services normally provided by the independent accountant in connection with regulatory filings or engagements for those fiscal periods. “Audit-related fees” are fees not included in audit fees that are billed by the independent accountant for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. “Tax fees” consist of amounts billed by an associated entity of our independent auditors for services in connection with the preparation of our federal and state tax returns. “All other fees” are fees billed by the independent accountant for products and services not included in the foregoing categories. For the years ended December 31, 2022 and 2021, the audit fees included professional services rendered related to our initial public offering. Pre-Approval Policy It is the Audit Committee’s policy to approve in advance the types and amounts of audit, audit-related, tax, and any other services to be provided by our independent registered public accounting firm. In situations where it is not practicable to obtain full Audit Committee approval, the Audit Committee has delegated authority to the Chair of the Audit Committee to grant pre-approval of audit and permissible non-audit services and any associated fees. Any pre-approved decisions by the Chair are required to be reviewed with the Audit Committee at its next scheduled meeting. Our Audit Committee was formed upon the consummation of our initial public offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our Audit Committee, and on a going-forward basis, the Audit Committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). 151 PART IV Item 15. Exhibit and Financial Statement Schedules. 152 BLUE WATER VACCINES INC. INDEX TO FINANCIAL STATEMENTS Page Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID 199 ) F-2 Balance Sheets as of December 31, 2022 and 2021 F-3 Statements of Operations for the years ended December 31, 2022 and 2021 F-4 Statements of Stockholders’ Equity for the years ended December 31, 2022 and 2021 F-5 Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-6 Notes to Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Blue Water Vaccines Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Blue Water Vaccines Inc. (“Company”) as of December 31, 2022 and 2021, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2021. /s/ Mayer Hoffman McCann P.C. Los Angeles, California March 8, 2023 F- 2 BLUE WATER VACCINES INC. Balance Sheets December 31, 2022 December 31, 2021 ASSETS Current assets Cash $ 25,752,659 $ 1,928,474 Prepaid expenses and other current assets 469,232 234,551 Deferred offering costs — 757,646 Receivable from related parties 35,850 152,524 Total current assets 26,257,741 3,073,195 Prepaid expenses, long-term 38,617 — Property and equipment, net 14,089 11,502 Total assets $ 26,310,447 $ 3,084,697 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 1,499,296 $ 582,605 Accrued expenses 2,409,128 1,055,515 Contingent warrant liability 14,021 — Total current liabilities 3,922,445 1,638,120 Total liabilities 3,922,445 1,638,120 Commitments and Contingencies (see Note 7) Stockholders’ equity Preferred stock, $ 0.00001 par value, 10,000,000 shares authorized at December 31, 2022 and 2021 Series Seed: 0 and 1,150,000 shares designated at December 31, 2022 and 2021, respectively; 0 and 1,146,138 shares issued and outstanding at December 31, 2022 and 2021, respectively; $0 and $15.4 million aggregate liquidation preference at December 31, 2022 and 2021, respectively — 11 Common stock, $ 0.00001 par value, 250,000,000 shares authorized at December 31, 2022 and 2021; 15,724,957 and 3,200,000 shares issued at December 31, 2022 and 2021, respectively; 15,265,228 and 3,200,000 shares outstanding at December 31, 2022 and 2021, respectively 157 32 Additional paid-in-capital 42,331,155 7,403,204 Treasury stock, at cost; 459,729 and 0 shares of common stock at December 31, 2022 and 2021, respectively ( 566,810 ) — Accumulated deficit ( 19,376,500 ) ( 5,956,670 ) Total stockholders’ equity 22,388,002 1,446,577 Total liabilities and stockholders’ equity $ 26,310,447 $ 3,084,697 The accompanying notes are an integral part of these financial statements. F- 3 BLUE WATER VACCINES INC. Statements of Operations Year Ended December 31, 2022 Year Ended December 31, 2021 Operating expenses General and administrative $ 9,351,552 $ 2,092,304 Research and development 4,129,688 1,325,030 Total operating expenses 13,481,240 3,417,334 Loss from operations ( 13,481,240 ) ( 3,417,334 ) Other income Change in fair value of contingent warrant liability ( 61,410 ) — Total other income ( 61,410 ) — Net loss $ ( 13,419,830 ) $ ( 3,417,334 ) Cumulative preferred stock dividends 96,359 627,391 Net loss applicable to common stockholders $ ( 13,516,189 ) $ ( 4,044,725 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 1.10 ) $ ( 1.26 ) Weighted average number of common shares outstanding, basic and diluted 12,271,449 3,200,000 The accompanying notes are an integral part of these financial statements. F- 4 BLUE WATER VACCINES INC. Statements of Stockholders’ Equity For the Years Ended December 31, 2022 and 2021 Additional Total Preferred Stock Common Stock Paid-in Treasury Stock Accumulated Stockholders’ Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance at December 31, 2020 1,146,138 $ 11 3,200,000 $ 32 $ 7,273,063 — $ — $ ( 2,539,336 ) $ 4,733,770 Stock-based compensation — — — — 130,141 — — 130,141 Net loss — — — — — — — ( 3,417,334 ) ( 3,417,334 ) Balance at December 31, 2021 1,146,138 $ 11 3,200,000 $ 32 $ 7,403,204 — $ — $ ( 5,956,670 ) $ 1,446,577 Issuance of common stock in initial public offering, net of $ 2.9 million of offering costs — — 2,222,222 22 17,138,818 — — — 17,138,840 Conversion of convertible preferred stock to common stock upon initial public offering ( 1,146,138 ) ( 11 ) 5,626,365 56 ( 45 ) — — — — Issuance of common stock and warrants in April private placement, net of $ 1.1 million of offering costs — — 590,406 6 6,858,322 — — — 6,858,328 Issuance of common stock and warrants in August private placement, net of $ 2.2 million of offering costs — — 1,350,000 14 8,689,302 — — — 8,689,316 Exercise of stock options — — 165,452 2 1,653 — — — 1,655 Exercise of pre-funded warrants — — 2,277,046 22 1,414 — — — 1,436 Issuance of restricted common stock — — 293,466 3 263,921 — — — 263,924 Stock-based compensation — — — — 1,974,566 — — — 1,974,566 Purchase of treasury shares — — — — — ( 459,729 ) ( 566,810 ) ( 566,810 ) Net loss — — — — — — — ( 13,419,830 ) ( 13,419,830 ) Balance at December 31, 2022 — $ — 15,724,957 $ 157 $ 42,331,155 ( 459,729 ) $ ( 566,810 ) $ ( 19,376,500 ) $ 22,388,002 The accompanying notes are an integral part of these financial statements. F- 5 BLUE WATER VACCINES INC. Statements of Cash Flows Year Ended December 31, 2022 Year Ended December 31, 2021 Cash flows from operating activities Net loss $ ( 13,419,830 ) $ ( 3,417,334 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 1,974,566 130,141 Issuance of restricted common stock 263,924 — Change in fair value of contingent warrant liability ( 61,410 ) — Depreciation expense 6,752 4,890 Write off of receivable from related party — 22,242 Loss on disposal of property and equipment — 1,199 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 234,681 ) 8,302 Receivable from related parties ( 23,326 ) ( 114,961 ) Prepaid expenses, long-term ( 38,617 ) 184,934 Accounts payable 1,093,913 336,715 Accrued expenses 1,739,849 809,279 Deferred rent — ( 9,642 ) Net cash used in operating activities ( 8,698,860 ) ( 2,044,235 ) Cash flows from investing activities Purchase of property and equipment ( 9,339 ) ( 1,924 ) Net cash used in investing activities ( 9,339 ) ( 1,924 ) Cash flows from financing activities Payment of deferred offering costs — ( 334,188 ) Proceeds from issuance of common stock in initial public offering, net of underwriting discount 18,400,000 — Payments of initial public offering costs ( 926,972 ) — Proceeds from issuance of common stock and warrants in private placements, net of placement agent discount 16,468,123 — Payments of private placement issuance costs ( 845,048 ) — Purchase of treasury shares ( 566,810 ) — Proceeds from exercise of stock options 1,655 — Proceeds from exercise of pre-funded warrants 1,436 — Net cash provided by (used in) financing activities 32,532,384 ( 334,188 ) Net increase (decrease) in cash 23,824,185 ( 2,380,347 ) Cash, beginning of period 1,928,474 4,308,821 Cash, end of period $ 25,752,659 $ 1,928,474 Noncash investing and financing activities: Deferred offering costs included in accounts payable and accrued expenses $ — $ 423,458 Conversion of convertible preferred stock to common stock upon initial public offering $ 45 $ — Recognition of contingent warrant liability upon issuance of common stock in private placements $ 75,431 $ — Incremental fair value of preferred investment options exchanged in connection with August private placement $ 860,204 $ — Payment of accrued bonus through related party receivable $ 140,000 $ — Exercise of pre-funded warrants $ 6 $ — The accompanying notes are an integral part of these financial statements. F- 6 BLUE WATER VACCINES INC. Notes to Financial Statements Note 1 — Organization and Basis of Presentation Organization and Nature of Operations Blue Water Vaccines Inc. (the “Company”) was formed on October 26, 2018, to focus on the research and development of transformational vaccines to prevent infectious diseases worldwide. The Company’s lead vaccine candidate, BWV-201, is a live attenuated, intranasally delivered, serotype independent Streptococcus pneumoniae vaccine targeting S. pneumo-induced acute otitis media and pneumococcal pneumonia. BWV’s influenza vaccine candidates, BWV-101 and BWV-102, are being investigated as a universal influenza vaccine with the potential to protect against all influenza strains and a pre-pandemic H1 influenza vaccine, respectively. In addition to exploratory analysis for applications in flu vaccines, the Company’s virus-like particle platform is being utilized to investigate and develop vaccine candidates against norovirus, rotavirus, malaria, monkeypox, and Marburg virus disease. Finally, the Company is developing a live attenuated, orally delivered Chlamydia vaccine. All of the Company’s vaccine candidates are in the pre-clinical developmental stage. Stock Split On November 24, 2021, the Company effected a 4-for-1 (4:1) stock split (the “Stock Split”) of the Company’s common stock without any change to its par value, which became effective on November 24, 2021. All references to share and per share amounts for all periods presented in these financial statements have been retrospectively restated to reflect the Stock Split and proportional adjustment of the preferred stock conversion ratio. Initial Public Offering On February 23, 2022, the Company completed its initial public offering (“IPO”) in which the Company issued and sold 2,222,222 shares of its common stock, at a price to the public of $ 9.00 per share. Proceeds from the IPO, net of underwriting discounts, commissions, and offering costs of $2.9 million, were $17.1 million. In connection with the completion of the IPO, all outstanding shares of convertible preferred stock were converted into 5,626,365 shares of common stock. See Note 6. Basis of Presentation The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Note 2 — Liquidity and Financial Condition The Company’s operating activities to date have been devoted to seeking licenses and engaging in research and development activities. The Company’s product candidates currently under development will require significant additional research and development efforts prior to commercialization. The Company has financed its operations since inception primarily using proceeds received from seed investors, and proceeds received from its IPO and two private placement issuances (the “Private Placements”). During 2022, the Company completed its IPO and the Private Placements in which the Company received an aggregate of approximately $ 33.1 million in net cash proceeds, after deducting placement agent fees and other offering expenses, see Note 6. The Company has incurred substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future. As of December 31, 2022, the Company had cash of approximately $ 25.8 million, working capital of approximately $ 22.3 million and an accumulated deficit of approximately $ 19.4 million. The Company believes the existing cash at December 31, 2022 will be sufficient to continue operations, satisfy its obligations and fund the future expenditures that will be required to conduct the clinical and regulatory work to develop its product candidates for at least one year following the date that these financial statements were issued. The Company will require significant additional capital to make the investments it needs to execute its long-term business plan. The Company expects a significant increase in cash outflows as compared to its historical spend for its planned pre-clinical development and clinical trial activities, and as such, it will need to raise additional capital to sustain operations and meet its long-term operating requirements beyond the one-year period following the date that these financial statements were issued. The Company expects to seek additional funding through additional debt or equity financings; however, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to the Company on favorable terms, if at all. If the Company is unable to secure additional capital, it may be required to curtail any clinical trials and development of products and take additional measures to reduce expenses in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations in the long-term. F- 7 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. The most significant estimates in the Company’s financial statements relate to the valuation of common stock (for transactions incurred prior to the consummation of the IPO), stock-based compensation, accrued research and development expenses and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage limit of $ 250,000 . As of December 31, 2022 and 2021, the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. Property and Equipment Property and equipment consists of computers and office furniture and fixtures, all of which are recorded at cost. Depreciation is recorded using the straight-line method over the respective useful lives of the assets ranging from three to seven years . Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. F- 8 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies (cont.) Fair Value Measurements Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: ● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and ● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. Financial instruments, including cash, prepaid expenses, deferred offering costs, receivables from related party, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. As of December 31, 2022, the contingent warrant liability that became issuable upon the closing of the Private Placements is valued on a recurring basis utilizing a Monte Carlo simulation which includes Level 3 inputs. See Note 6. As of December 31, 2022 and 2021, none of the Company’s non-financial assets or liabilities were recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented. The following assumptions were used for the valuation of the contingent warrant liability upon the various commitment dates, as discussed in Note 6, and at December 31, 2022: April 19, 2022 August 11, 2022 December 31, 2022 Exercise price $ 8.46875 $ 3.3938 $ 3.3938 Term (years) 4.00 5.00 4.61 Expected stock price volatility 117.0 % 127.8 % 120.8 % Risk-free rate of interest 2.86 % 2.98 % 4.03 % The fair value of financial instruments measured on a recurring basis is as follows: As of December 31, 2022 Description Total Level 1 Level 2 Level 3 Liabilities: Contingent warrant liability $ 14,021 — — $ 14,021 F- 9 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies (cont.) The following table summarizes the change in fair value, as determined by Level 3 inputs, for the contingent warrant liability using unobservable Level 3 inputs for the year ended December 31, 2022: Contingent Warrant Liability Balance at December 31, 2021 $ — Fair value at issuance 75,431 Change in fair value ( 61,410 ) Balance at December 31, 2022 $ 14,021 Deferred Offering Costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity as a reduction of proceeds generated as a result of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations. As of December 31, 2022, all previously deferred offering costs related to the IPO, totaling approximately $ 0.8 million, and of which $ 0.3 million were paid during 2021, were netted against the proceeds received upon the closing of the IPO, which occurred on February 23, 2022. Research and Development The Company expenses the cost of research and development as incurred. Research and development expenses include costs incurred in funding research and development activities, license fees, and other external costs. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and milestone payments due to third parties that perform research and development services on the Company’s behalf will be expensed as services are rendered or when the milestone is achieved. When billing terms under research and development contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations as of period end to those third parties. Accrual estimates are based on several factors, including the Company’s knowledge of the progress towards completion of the research and development activities, invoicing to date under the contracts, communication from the research institution or other companies of any actual costs incurred during the period that have not yet been invoiced, and the costs included in the contracts. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical accrual estimates made by the Company have not been materially different from the actual costs. See Notes 5 and 7. F- 10 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies (cont.) In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 730-10-25-1, Research and Development, costs incurred in obtaining licenses and patent rights are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use. The licenses purchased by the Company (see Note 5) require substantial completion of research and development, regulatory and marketing approval efforts to reach commercial feasibility and have no alternative future use. Accordingly, the total purchase price for the licenses acquired is reflected as research and development on the Company’s statements of operations. Contingencies Accruals are recorded for loss contingencies when it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously. Considering facts known at the time of the assessment, the Company determines whether potential losses are considered reasonably possible or probable and whether they are estimable. Based upon this assessment, the Company carries out an evaluation of disclosure requirements and considers possible accruals in the financial statements. Stock-Based Compensation The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based awards to employees with graded-vesting schedules are recognized, using the accelerated attribution method, on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Expected Term — The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term. Expected Volatility — Volatility is a measure of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate (i.e., expected volatility) during a period. Due to the lack of an adequate history of a public market for the trading of the Company’s common stock and a lack of adequate company-specific historical and implied volatility data, the Company computes stock price volatility over expected terms based on comparable companies’ historical common stock trading prices. For these analyses, the Company has selected companies with comparable characteristics, including enterprise value, risk profiles, and position within the industry. Common Stock Fair Value — Due to the absence of an active market for the Company’s common stock prior to the IPO, the fair value of the common stock underlying the Company’s stock options granted prior to the IPO was estimated at each grant date and was determined with the assistance of an independent third-party valuation expert. The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of significant levels of management judgment. After the completion of the IPO, the fair value of each share of common stock is based on the closing price of the Company’s common stock, as reported by the Nasdaq Capital Market, on the grant date of the award. Risk-Free Interest Rate — The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury securities with a remaining term commensurate with the estimated expected term. Expected Dividend — The Company has never declared or paid any cash dividends on its shares of common stock and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. The Company recognizes forfeitures of equity awards as they occur. F- 11 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies (cont.) Fair Value of Common Stock In order to determine the fair value of shares of common stock of the Company when issuing stock options prior to the IPO, the Company’s board of directors considered with input from third party valuations, among other things, contemporaneous valuations of the Company’s common stock. Given the absence of a public trading market of the Company’s capital stock prior to the IPO, the Company’s board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of the Company common stock, including: ● the prices, rights, preferences and privileges of the Company’s preferred stock relative to the Company’s common stock; ● the Company’s business, financial condition and results of operations, including related industry trends affecting the Company’s operations; ● the likelihood of achieving a liquidity event, such as an IPO, or sale of the Company, given prevailing market conditions; ● the lack of marketability of the Company’s common stock; ● the market performance of comparable publicly traded companies; ● U.S. and global economic and capital market conditions and outlook; and ● common stock valuation methodology. In estimating the fair market value of common stock of the Company, its board of directors first determined the equity value of its business using accepted valuation methods. The Company engaged a third-party valuation specialist to conduct a valuation, which used its most recent preferred stock financing as a starting point and determined the equity value of the Company based on the Backsolve method using an Option Pricing Method (OPM) to calculate the implied value based on a market approach. The Company’s equity value was allocated using OPM to estimate the fair market value of the Company’s classes of equity. After the completion of the IPO, the fair value of each share of common stock is based on the closing price of the Company’s common stock on the grant date of the award, as reported by the Nasdaq Capital Market. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in operations in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts expected to be realized by the use of a valuation allowance. F- 12 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies (cont.) Comprehensive Income (Loss) The Company is required to report all components of comprehensive income (loss), including net income (loss), in the accompanying financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency translation adjustments. Net loss and comprehensive loss were the same for all periods presented. Warrants The Company determines the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Distinguishing Liabilities from Equity , (“ASC 480-10”), and then in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 480-10, warrants are considered liability-classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing a variable number of shares. If the warrants do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants are classified as liability or equity. Liability-classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component of other income (expense), net in the statements of operations. Equity-classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date. As of December 31, 2022, all of the Company’s outstanding warrants are equity-classified warrants, except for the contingent warrants that became issuable upon the close of the Private Placements. See Note 6. Treasury Stock The Company records treasury stock activities under the cost method whereby the cost of the acquired stock is recorded as treasury stock. Net Loss Per Share Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period, including pre-funded warrants because their exercise requires only nominal consideration for delivery of shares. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the Company’s preferred stock, warrants, and options. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, as well as common stock options and warrants, from the calculation of net loss per share if their effect would be anti-dilutive. F- 13 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies (cont.) The two-class method is used to determine earnings per share based on participation rights of participating securities in any undistributed earnings. Each preferred stock that includes rights to participate in distributed earnings is considered a participating security and the Company uses the two-class method to calculate net income available to the Company’s common stockholders per common share — basic and diluted. The following securities were excluded from the computation of diluted shares outstanding for the periods presented, as they would have had an anti-dilutive impact on the Company’s net loss: Years Ended December 31, 2022 2021 Options to purchase shares of common stock 1,392,654 780,640 Warrants 5,264,274 — Series Seed Preferred Stock — 4,584,552 Total 6,656,928 5,365,192 New Accounting Pronouncement s In April 2012, the Jump-Start Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an emerging growth company. As an emerging growth company, the Company may elect to adopt new or revised accounting standards when they become effective for non-public companies, which typically is later than when public companies must adopt the standards. The Company has elected to take advantage of the extended transition period afforded by the JOBS Act and, as a result, unless the Company elects early adoption of any standards, will adopt the new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-public companies. In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for public business entities except for smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2020-06 on January 1, 2022, using the modified retrospective method, and the adoption of the ASU did not impact the Company’s financial position, results of operations, cash flows or net loss per share. F- 14 BLUE WATER VACCINES INC. Notes to Financial Statements Note 3 — Summary of Significant Accounting Policies (cont.) In October 2020, the FASB issued ASU 2020-10, Codification Improvements , which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The Company adopted ASU 2020-10 as of the reporting period beginning January 1, 2022. The adoption of this update did not have a material effect on the Company’s financial statements. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU provides guidance that will clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The new guidance is effective for all entities for annual and interim periods beginning after December 15, 2021, and early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2021-04 on January 1, 2022, and the adoption of the ASU did not impact the Company’s financial position, results of operations, cash flows or net loss per share. In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. This guidance is effective for public business entities beginning after December 15, 2023, including interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2022-03 effective July 1, 2022, and the adoption of the ASU did not impact the Company’s financial position, results of operations, cash flows, or net loss per share. The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements. Note 4 — Balance Sheet Details Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following as of December 31, 2022 and 2021: As of December 31, 2022 As of December 31, 2021 Prepaid research and development $ 231,981 $ 203,910 Prepaid insurance 148,789 4,842 Prepaid other 88,462 25,799 Total $ 469,232 $ 234,551 F- 15 BLUE WATER VACCINES INC. Notes to Financial Statements Note 4 — Balance Sheet Details (cont.) Accrued Expenses Accrued expenses consisted of the following as of December 31, 2022 and 2021: As of December 31, 2022 As of December 31, 2021 Accrued license fees $ 15,000 $ 225,000 Accrued research and development 847,747 300,182 Accrued deferred offering costs 125,000 246,236 Accrued compensation 1,132,859 234,265 Accrued franchise taxes 177,600 — Accrued director fees 38,750 — Accrued other 72,172 49,832 Total $ 2,409,128 $ 1,055,515 Note 5 — Significant Agreements Oxford University Innovation Limited In December 2018, the Company entered into an option agreement with Oxford University Innovation (“OUI”), which was a precursor to a license agreement (the “OUI Agreement”), dated July 16, 2019. Under the terms of the OUI Agreement, the Company holds an exclusive, worldwide license to certain specified patent rights and biological materials relating to the use of epitopes of limited variability and virus-like particle products and practice processes that are covered by the licensed patent rights and biological materials for the purpose of developing and commercializing a vaccine product candidate for influenza. The Company is obligated to use its best efforts to develop and market Licensed Products, as defined in the OUI Agreement, in accordance with its development plan, report to OUI on progress, achieve the following milestones and must pay OUI nonrefundable milestone fees when it achieves them: initiation of first Phase I study; initiation of first Phase II study; initiation of first Phase III/pivotal registration studies; first submission of application for regulatory approval (BLA/NDA); marketing authorization in the United States; marketing authorization in any EU country; marketing authorization in Japan; first marketing authorization in any other country; first commercial sale in Japan; first commercial sale in any ROW country; first year that annual sales equal or exceed certain thresholds. See Note 7 for additional information on the milestone payments as well as royalty obligations required under the OUI Agreement. The OUI Agreement will expire upon ten (10) years from the expiration of the last patent contained in the licensed patent rights, unless terminated earlier. During the year ended December 31, 2021, the U.S. Patent related to immunogenic composition was issued to OUI. This patent expires in August 2037. No additional patents have been issued as of December 31, 2022. Either party may terminate the OUI Agreement for an uncured material breach. The Company was able to terminate the OUI Agreement for any reason at any time upon six months’ written notice until July 16, 2022, which was the third anniversary of the OUI Agreement. OUI may terminate immediately if the Company has a petition presented for its winding-up or passes a resolution for winding up other than for a bona fide amalgamation or reconstruction or compounds with its creditors or has a receiver or administrator appointed. OUI may also terminate if the Company opposes or challenges the validity of any of the patents or applications in the Licensed Technology, as defined in the OUI Agreement; raises the claim that the know-how of the Licensed Technology is not necessary to develop and market Licensed Products; or in OUI’s reasonable opinion, is taking inadequate or insufficient steps to develop or market Licensed Products and does not take any further steps that OUI requests by written notice within a reasonable time. For the years ended December 31, 2022 and 2021, the Company did not incur any licensing fee payments for intellectual property licenses. See Note 7. F- 16 BLUE WATER VACCINES INC. Notes to Financial Statements Note 5 — Significant Agreements (cont.) St. Jude Children’s Hospital The Company entered into a license agreement (the “St. Jude Agreement”), dated January 27, 2020, with St. Jude Children’s Research Hospital (“St. Jude”). Under the terms of the St. Jude Agreement, the Company holds an exclusive, worldwide license to certain specified patent rights and biological materials relating to the use of live attenuated streptococcus pneumoniae and practice processes that are covered by the licensed patent rights and biological materials for the purpose of developing and commercializing a vaccine product candidate for streptococcus pneumoniae. The St. Jude Agreement will expire upon the expiration of the last valid claim contained in the licensed patent rights, unless terminated earlier. The Company is obligated to use commercially reasonable efforts to develop and commercialize the licensed product(s). The milestones include the following events: (i) complete IND enabling study; (ii) initiate animal toxicology study; (iii) file IND; (iv) complete Phase I Clinical Trial; (v) commence Phase II Clinical Trial; (vi) commence Phase III Clinical Trial; and (vii) regulatory approval, U.S. or foreign equivalent. If the Company fails to achieve the development milestones contained in the St. Jude Agreement, and if the Company and St. Jude fail to agree upon a mutually satisfactory revised timeline, St. Jude will have the right to terminate the St. Jude Agreement. Either party may terminate the St. Jude Agreement in the event the other party (a) files or has filed against it a petition under the Bankruptcy Act (among other things) or (b) fails to perform or otherwise breaches its obligations under the St. Jude Agreement, and has not cured such failure or breach within sixty (60) days. The Company may terminate for any reason on thirty (30) days written notice. On May 11, 2022, the Company entered into an amendment to the St. Jude Agreement, whereby the royalty terms, milestone payments and licensing fees were amended, and a revised development milestone timeline was agreed to. See Note 7 for more information on this amendment. For the years ended December 31, 2022 and 2021, the Company recognized $ 15,000 and $ 11,000 , respectively, for intellectual property licenses, which is recorded as research and development expenses. See Note 7 for additional information on the milestone payments as well as royalty obligations required under the St. Jude Agreement. Cincinnati Children’s Hospital Medical Center The Company entered into a license agreement (the “CHMC Agreement”), dated June 1, 2021, with Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical Center (“CHMC”). Under the terms of the CHMC Agreement, the Company holds an exclusive, worldwide license (other than the excluded field of immunization against, and prevention, control, or reduction in the severity of gastroenteritis caused by rotavirus and norovirus in China and Hong Kong) to certain specified patent and biological materials relating to the use of norovirus nanoparticles and practice processes that are covered by the licensed patent rights and biological materials for the purpose of developing and commercializing CHMC patents and related technology directed to a virus-like particle vaccine platform that utilizes nanoparticle delivery technology that may have potential broad application to develop vaccines for multiple infectious diseases. The term of the CHMC Agreement begins on the effective date and extends on a jurisdiction by jurisdiction and product by product basis until the later of: (i) the last to expire licensed patent; (ii) ten (10) years after the first commercial sale; or, (iii) entrance onto the market of a biosimilar or interchangeable product. The Company is obligated to use commercially reasonable efforts to bring licensed products to market through diligent research and development, testing, manufacturing and commercialization, to use best efforts to make all necessary regulatory filings and obtain all necessary regulatory approvals, to achieve milestones relating to development and sales, and report to CHMC on progress. The Company will also be obligated to pay the agreed upon development milestone payments to CHMC, as well as royalty payments, see Note 7 for additional information. The Company may terminate the CHMC Agreement for convenience, at any time prior to first commercial sale of a product or process by providing one hundred and eighty (180) days’ written notice to CHMC. It may also terminate for a CHMC uncured material breach. CHMC may terminate the CHMC Agreement for an uncured Company material breach or insolvency or bankruptcy. Pursuant to the terms of the CHMC Agreement, if the Company fails to achieve the milestones, and cannot mutually agree with CHMC on an amendment to the milestones, then CHMC will have the option of converting any and all of such exclusive licenses to nonexclusive licenses, to continue developing indications that have already entered development at any stage or in which the Company has invested in developing. CHMC may also terminate the CHMC Agreement to the fullest extent permitted by law in the countries of the worldwide territory, in the event the Company or its affiliates challenge or induce others set up challenges to the validity or enforceability of any of the Licensed Patents, as defined in the CHMC Agreement, and the Company will be obligated to reimburse CHMC for its costs, including reasonable attorneys’ fees. F- 17 BLUE WATER VACCINES INC. Notes to Financial Statements Note 5 — Significant Agreements (cont.) For the years ended December 31, 2022 and 2021, the Company recognized an aggregate of approximately $ 38,000 and $ 402,000 , respectively, for intellectual property licenses and patent reimbursements, which are recorded as research and development expenses and included in accounts payable as of December 31, 2022 and accrued expenses as of December 31, 2021. See Note 7. Ology Bioservices, Inc. (which was later acquired by National Resilience, Inc.) The Company entered into a Master Services Agreement (“Ology MSA”), dated July 19, 2019, with Ology, Inc. (“Ology”) to provide services from time to time, including but not limited to technology transfer, process development, analytical method optimization, cGMP manufacture, regulatory affairs, and stability studies of biologic products. Pursuant to the Ology MSA, the Company and Ology shall enter into a Project Addendum for each project to be governed by the terms and conditions of the Ology MSA. The Company has entered into two Project Addendums as of December 31, 2022. The initial Project Addendum was executed on October 18, 2019 and the Company was required to pay Ology an aggregate of approximately $ 4 million. Due to unforeseen delays associated with COVID-19, the Company and Ology entered into a letter agreement dated January 9, 2020 to stop work on the project, at which point the Company had paid Ology $ 100,000 for services to be provided. The second Project Addendum was executed on May 21, 2021 and the Company is obligated to pay Ology an aggregate amount of approximately $ 2.8 million, plus reimbursement for materials and outsourced testing, which will be billed at cost plus 15 %. During 2022, the Company entered into three amendments to the Ology MSA, to adjust the scope of work defined in the second Project Addendum. The amendments resulted in a net increase to the Company’s obligations under the second Project Addendum of $154,000. During the years ended December 31, 2022 and 2021, the Company incurred related research and development expenses of approximately $ 1,329,000 and $ 328,000 , respectively, and had approximately $ 476,000 and $ 669,000 recorded as related accounts payable and accrued expenses, respectively, at December 31, 2022, and approximately $ 164,000 and $ 115,000 recorded as related accounts payable and accrued expenses, respectively, at December 31, 2021. University of Texas Health Science Center at San Antonio The Company entered into a patent and technology license agreement (the “UT Health Agreement”), dated November 18, 2022, with the University of Texas Health Science Center at San Antonio (“UT Health”). Under the terms of the UT Health Agreement, the Company holds an exclusive, worldwide license (other than the excluded field of vectors, as defined in the UT Health Agreement) to certain specified patent rights relating to the development of a live attenuated, oral Chlamydia vaccine candidate. An initial non-refundable license fee of $100,000 was due upon execution of the agreement and subsequent annual license fees of $20,000 per year for each of the four years ending on December 31, 2026; $40,000 per year for each of the two years ending on December 31, 2028, and $60,000 per year for the year ending December 31, 2029 and each year thereafter until expiration or termination of the UT Health agreement. See Note 7 for information on milestone payments as well as royalty obligations required under the UT Health Agreement. The UT Health Agreement will expire upon the expiration of the last date of expiration or termination of the patent rights, unless terminated earlier. The Company may terminate the UT Health Agreement for convenience, by providing 90 days’ written notice to UT Health. UT Health may terminate the UT Health Agreement in the event the Company (a) becomes arrears in payment due and does not make payment within 30 days after notification from UT Health or (b) is in breach of any non-payment provision and does not cure such breach within 60 days after notification from UT Health or (c) UT Health delivers notice to the Company of three or more actual material breaches of the UT Health Agreement in any 12-month period or (d) in the event the Company or its affiliates initiates any proceeding or action to challenge the validity, enforceability, or scope of any of the licensed patents. For the year ended December 31, 2022, the Company recognized an aggregate of $ 100,000 for intellectual property licenses, which are recorded as research and development expenses and included in accounts payable as of December 31, 2022. F- 18 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity Authorized Capital On February 23, 2022, in connection with the closing of the IPO, the Company filed with the Secretary of State of the State of Delaware an amended and restated certificate of incorporation (the “A&R COI”), which became effective immediately. There was no change to the Company’s authorized shares of common stock and preferred stock of 250,000,000 shares and 10,000,000 shares, respectively, or the par value, which is $ 0.00001 for both common and preferred stock. Prior to this amendment, the Company had designated 1,150,000 shares of preferred stock, with par value $ 0.00001 per share. In addition, on February 23, 2022 and in connection with the closing of the IPO, the Company’s board of directors adopted Amended and Restated Bylaws. Common Stock As of December 31, 2022 and 2021, there were 15,724,957 and 3,200,000 shares of common stock issued, respectively, and 15,265,228 and 3,200,000 shares of common stock outstanding, respectively. Holders of the Company’s common stock are entitled to one vote for each share held of record, and are entitled upon liquidation of the Company to share ratably in the net assets of the Company available for distribution after payment of all obligations of the Company and after provision has been made with respect to each class of stock, if any, having preference over the common stock, currently including the Company’s preferred stock. The shares of common stock are not redeemable and have no preemptive or similar rights. On February 17, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC, acting as representative of the underwriters (“Boustead”), in relation to the Company’s IPO, pursuant to which the Company agreed to sell to the underwriters an aggregate of 2,222,222 shares of the Company’s common stock, at a price of $ 9.00 per share. The IPO closed on February 23, 2022, and resulted in net proceeds to the Company, after deducting the 8 % underwriting discount, and other offering costs, of approximately $ 17.1 million. Pursuant to the Underwriting Agreement, the Company issued to Boustead warrants to purchase 111,111 shares of common stock, exercisable for five years at the option of the holder, at a per share exercise price equal to $ 10.35 . The Company evaluated the terms of the warrants issued at the close of the IPO and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. Since the Company determined that the warrants were equity-classified, the Company recorded the proceeds from the IPO, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital. During October 2022, in connection with a settlement agreement that was entered into with Boustead, these warrants were exchanged for 93,466 shares of restricted common stock (“the Warrant Exchange”). See Note 7. The Warrant Exchange was accounted for as a modification of the warrant, with an incremental fair value of approximately $ 10,000 , which was recorded as general and administrative expense in the accompanying statements of operations. In addition, 200,000 restricted shares of common stock were issued to Boustead upon execution of an advisory agreement, which was entered into concurrent with the settlement agreement. The fair value of the restricted shares of common stock, which had no vesting provisions, was valued at $ 254,000 , and was recorded as general and administrative expense in the accompanying statements of operations. See Note 7. The restricted shares of common stock issued under the settlement and advisory agreements was valued based on the closing trading price on the date the agreements were executed, adjusted to reflect the effect of the restriction on the sale of the common stock. The value of the restriction was measured using the Black-Scholes model to measure the discount for lack of marketability, using the following assumptions: expected term of 0.5 years, expected volatility of 96.36 %, risk-free interest rate of 4.09 % and dividend yield of 0.0 %. Treasury Stock On November 10, 2022, the board of directors approved a stock repurchase program (the “Repurchase Program”) to allow the Company to repurchase up to 5 million shares of common stock with a maximum price of $ 1.00 per share, with discretion to management to make purchases subject to market conditions. On November 18, 2022, the board of directors approved an increase to the maximum price to $ 2.00 per share. There is no expiration date for this program. During 2022, the Company repurchased 459,729 shares of common stock at an average price of $ 1.23 per share, for approximately $ 0.6 million. Shares that are repurchased are classified as treasury stock pending future use and reduce the number of shares outstanding used in calculating earnings per share. As of December 31, 2022, there are approximately 4.5 million shares remaining, that can be repurchased under the Repurchase Program. F- 19 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) Private Investments in Public Equity April Private Placement On April 19, 2022, the Company consummated the closing of a private placement (the “April Private Placement”), pursuant to the terms and conditions of a securities purchase agreement, dated as of April 13, 2022. At the closing of the April Private Placement, the Company issued 590,406 shares of common stock, pre-funded warrants to purchase an aggregate of 590,406 shares of common stock and preferred investment options to purchase up to an aggregate of 1,180,812 shares of common stock. The purchase price of each share of common stock together with the associated preferred investment option was $ 6.775 , and the purchase price of each pre-funded warrant together with the associated preferred investment option was $ 6.774 . The aggregate net cash proceeds to the Company from the April Private Placement were approximately $ 6.9 million, after deducting placement agent fees and other offering expenses. The pre-funded warrants had an exercise price of $ 0.001 per share, were exercisable on or after April 19, 2022, and were exercisable until the pre-funded warrants were exercised in full. The pre-funded warrants were exercised in full on May 24, 2022, and as such the Company issued 590,406 shares of common stock on that date. The preferred investment options were exercisable at any time on or after April 19, 2022 through April 20, 2026, at an exercise price of $ 6.65 per share, subject to certain adjustments as set forth in the agreement. H.C. Wainwright & Co., LLC (“Wainwright”) acted as the exclusive placement agent for the April Private Placement. The Company agreed to pay Wainwright a placement agent fee and management fee equal to 7.5 % and 1.0 %, respectively, of the aggregate gross proceeds from the April Private Placement and reimburse certain out-of-pocket expenses up to an aggregate of $ 85,000 . In addition, the Company issued warrants to Wainwright (the “April Wainwright Warrants”) to purchase up to 70,849 shares of common stock. The Wainwright Warrants are in substantially the same form as the preferred investment options, except that the exercise price is $ 8.46875 . The form of the preferred investment options is a warrant, and as such the preferred investment options, the pre-funded warrants, and the Wainwright Warrants are collectively referred to as the “April Private Placement Warrants”. Further, upon any exercise for cash of any preferred investment options, the Company agreed to issue to Wainwright additional warrants to purchase the number of shares of common stock equal to 6.0 % of the aggregate number of shares of common stock underlying the preferred investment options that have been exercised, also with an exercise price of $ 8.46875 (the “April Contingent Warrants”). The maximum number of April Contingent Warrants issuable under this provision is 70,849 . In connection with the April Private Placement, the Company entered into a Registration Rights Agreement with the purchasers, dated as of April 13, 2022 (the “April Registration Rights Agreement”). The April Registration Rights Agreement provides that the Company shall file a registration statement covering the resale of all of the registrable securities (as defined in the April Registration Rights Agreement) with the Securities and Exchange Commission (the “SEC”) no later than the 20th calendar day following the date of the April Registration Rights Agreement and have the registration statement declared effective by the SEC as promptly as possible after the filing thereof, but in any event no later than the 45th calendar day following April 13, 2022 or, in the event of a full review by the SEC, the 75th day following April 13, 2022. The registration statement on Form S-1 required under the April Registration Rights Agreement was filed with the SEC on May 3, 2022, and became effective on May 20, 2022. Upon the occurrence of any Event (as defined in the April Registration Rights Agreement), which, among others, prohibits the purchasers from reselling the securities for more than ten consecutive calendar days or more than an aggregate of fifteen calendar days during any 12-month period, and should the registration statement cease to remain continuously effective, the Company would be obligated to pay to each purchaser, on each monthly anniversary of each such Event, an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 2.0 % multiplied by the aggregate subscription amount paid by such purchaser in the April Private Placement. As of December 31, 2022, the Company determined that the likelihood of the Company incurring liquidated damages pursuant to the April Registration Rights Agreement is remote, and as such, no accrual of these payments is required as of December 31, 2022. F- 20 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) The Company evaluated the terms of the April Private Placement Warrants and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. Since the Company determined that the April Private Placement Warrants were equity-classified, the Company recorded the proceeds from the April Private Placement, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital. The Company evaluated the terms of the April Contingent Warrants and determined that they should be classified as a liability based upon accounting guidance provided in ASC 815-40. Since the April Contingent Warrants are a form of compensation to Wainwright, the Company recorded the value of the liability of approximately $ 36,000 , as a reduction of additional paid in capital, with subsequent changes in the value of the liability recorded in other income in the accompanying statements of operations. The Company measured the liability upon the close of the April Private Placement using a Monte Carlo simulation. See Note 3. On August 11, 2022, the investors in the April Private Placement agreed to cancel the aggregate of 1,180,812 preferred investment options issued in the April Private Placement, as part of their participation in the August Private Placement. Concurrent with the cancellation of the April preferred investment options, which was accounted for as an exchange of equity-linked financial instruments, the April Contingent Warrants, which were issuable only upon exercise of the preferred investment options, were also modified. See ‘August Private Placement’ below for further detail. August Private Placement On August 11, 2022, the Company consummated the closing of a private placement (the “August Private Placement”), pursuant to the terms and conditions of a securities purchase agreement, dated as of August 9, 2022. At the closing of the August Private Placement, the Company issued 1,350,000 shares of common stock, pre-funded warrants to purchase an aggregate of 2,333,280 shares of common stock and preferred investment options to purchase up to an aggregate of 4,972,428 shares of common stock. The purchase price of each share of common stock together with the associated preferred investment option was $ 2.715 , and the purchase price of each pre-funded warrant together with the associated preferred investment option was $ 2.714 . The aggregate net cash proceeds to the Company from the August Private Placement were approximately $ 8.7 million, after deducting placement agent fees and other offering expenses. In addition, the investors in the August Private Placement, who are the same investors from the April Private Placement, agreed to cancel preferred investment options to purchase up to an aggregate of 1,180,812 shares of the Company’s common stock issued in April 2022. The pre-funded warrants have an exercise price of $ 0.001 per share, are exercisable on or after August 11, 2022, and are exercisable until the pre-funded warrants are exercised in full. The preferred investment options are exercisable at any time on or after August 11, 2022 through August 12, 2027, at an exercise price of $ 2.546 per share, subject to certain adjustments as defined in the agreement. During 2022, an aggregate of 1,686,640 of the pre-funded warrants were exercised, and as such the Company issued 1,686,640 shares of common stock. The remaining 646,640 of pre-funded warrants were exercised subsequent to December 31, 2022. See Note 11. Wainwright acted as the exclusive placement agent for the August Private Placement. The Company agreed to pay Wainwright a placement agent fee and management fee equal to 7.5 % and 1.0 %, respectively, of the aggregate gross proceeds from the August Private Placement and reimburse certain out-of-pocket expenses up to an aggregate of $ 85,000 . In addition, the Company issued warrants to Wainwright (the “August Wainwright Warrants”) to purchase up to 220,997 shares of common stock. The August Wainwright Warrants are in substantially the same form as the preferred investment options, except that the exercise price is $ 3.3938 . The form of the preferred investment options is a warrant, and as such the preferred investment options, the pre-funded warrants, and the August Wainwright Warrants are collectively referred to as the “August Private Placement Warrants”. Further, upon any exercise for cash of any preferred investment options, the Company agreed to issue to Wainwright additional warrants to purchase the number of shares of common stock equal to 6.0 % of the aggregate number of shares of common stock underlying the preferred investment options that have been exercised, also with an exercise price of $ 3.3938 (the “August Contingent Warrants”). The maximum number of August Contingent Warrants issuable under this provision is 298,346 , which includes 70,849 of April Contingent Warrants that were modified in connection with the August Private Placement. F- 21 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) In connection with the August Private Placement, the Company entered into a Registration Rights Agreement with the purchasers, dated as of August 9, 2022 (the “August Registration Rights Agreement”). The August Registration Rights Agreement provides that the Company shall file a registration statement covering the resale of all of the registrable securities (as defined in the August Registration Rights Agreement) with the SEC no later than the 30th calendar day following the date of the August Registration Rights Agreement and have the registration statement declared effective by the SEC as promptly as possible after the filing thereof, but in any event no later than the 45th calendar day following August 9, 2022 or, in the event of a full review by the SEC, the 80th day following August 9, 2022. The registration statement on Form S-1 required under the Registration Rights Agreement was filed with the SEC on August 29, 2022, and became effective on September 19, 2022. Upon the occurrence of any Event (as defined in the August Registration Rights Agreement), which, among others, prohibits the purchasers from reselling the securities for more than ten consecutive calendar days or more than an aggregate of fifteen calendar days during any 12-month period, and should the registration statement cease to remain continuously effective, the Company would be obligated to pay to each purchaser, on each monthly anniversary of each such Event, an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 2.0 % multiplied by the aggregate subscription amount paid by such purchaser in the August Private Placement. As of December 31, 2022, the Company determined that the likelihood of the Company incurring liquidated damages pursuant to the August Registration Rights Agreement is remote, and as such, no accrual of these payments is required as of December 31, 2022. The Company evaluated the terms of the August Private Placement Warrants and determined that they should be classified as equity instruments based upon accounting guidance provided in ASC 480 and ASC 815-40. Since the Company determined that the August Private Placement Warrants were equity-classified, the Company recorded the proceeds from the August Private Placement, net of issuance costs, within common stock at par value and the balance of the net proceeds to additional paid in capital. As discussed above, the investors in the Private Placements agreed to cancel the aggregate of 1,180,812 preferred investment options issued in the April Private Placement, as part of their participation in the August Private Placement. The preferred investment options that were cancelled were effectively exchanged for 1,289,148 new preferred investment options in the August Private Placement, and accordingly have been accounted for as a modification or exchange of equity-linked instruments. In accordance with ASC 815-40, as the preferred investment options were classified as equity instruments before and after the exchange, and as the exchange is directly attributable to an equity offering, the Company recognized the effect of the exchange as an equity issuance cost. The increase in the fair value of the preferred investment options as a result of the exchange was approximately $ 860,000 , and was determined using the Black-Scholes option pricing model, with the following assumptions: Original Exchanged Exercise price $ 6.65 $ 2.546 Term (years) 3.67 5.0 Expected stock price volatility 116.2 % 120.2 % Risk-free rate of interest 3.16 % 2.98 % The Company evaluated the terms of the August Contingent Warrants and determined that they should be classified as a liability based upon accounting guidance provided in ASC 815-40. As a result of the exchange of the preferred investment options issued in the April Private Placement, the underlying equity-linked instruments that would trigger issuance of the April Contingent Warrants was replaced, and therefore the 70,849 of April Contingent Warrants were exchanged for 70,849 of the August Contingent Warrants. The value of the April Contingent Warrant liability was adjusted to fair value on the date of modification, using a Monte Carlo simulation, with the change in fair value of approximately $ 8,000 recognized in the accompanying statements of operations. The remaining 227,497 August Contingent Warrants were measured as a liability upon the close of the August Private Placement. Since the Contingent Warrants are a form of compensation to the placement agent, the Company recorded the value of the liability of approximately $ 39,000 , as a reduction of additional paid in capital. The entire 298,346 of August Contingent Warrants were remeasured at December 31, 2022, using a Monte Carlo simulation, with the change in the value of the liability recorded in other income (expense) in the accompanying statements of operations. See Note 3. F- 22 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) Warrants The following summarizes activity related to the Company’s outstanding warrants as discussed above, excluding contingent warrants issuable upon exercise of the preferred investment options, for the year ended December 31, 2022: Weighted Average Weighted Remaining Average Contractual Number of Exercise Life Shares Price (in years) Outstanding as of December 31, 2021 — $ — — Granted 9,479,883 2.43 Exercised ( 2,277,046 ) 0.001 Cancelled ( 1,291,923 ) 6.97 Outstanding as of December 31, 2022 5,910,914 2.37 4.7 Warrants vested and exercisable as of December 31, 2022 5,910,914 $ 2.37 4.7 As of December 31, 2022, the outstanding warrants include 70,849 April Private Placement Warrants and 5,840,065 August Private Placement Warrants, which are exercisable into 5,910,914 shares of common stock which had a fair value of $ 1.10 per share, based on the closing trading price on that day. Additionally, as of December 31, 2022, the value of the April Contingent Warrants and the August Contingent Warrants (collectively the “Contingent Warrants”) was approximately $ 14,000 , and none of the Contingent Warrants have been issued, as no preferred investment options have been exercised. Preferred Stock Prior to the close of the IPO, the Company had designated 1,150,000 shares of preferred stock as Series Seed Preferred Stock (“Series Seed”), with an original issue price of $ 6.09 per share (the “Original Issue Price”). As of December 31, 2022 and 2021, there were 0 and 1,146,138 shares of Series Seed issued and outstanding, respectively. Conversion Each share of the Series Seed was convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder, at a conversion price of $ 1.52 per share, subject to certain adjustments for stock splits, stock dividends, recapitalizations, and similar corporate transactions, into fully paid and non-assessable shares of the Company’s common stock. Each Series Seed share was automatically convertible into common stock of the Company, at the then-effective conversion price, upon the closing of a firmly underwritten public offering netting proceeds of at least $ 50 million with an offering price of at least three hundred percent ( 300 %) of the Original Issue Price of the Series Seed. On February 18, 2022, the majority of the holders of the Series Seed approved the automatic conversion of the outstanding shares of the Series Seed and all related accrued and unpaid dividends, upon the closing of the IPO. The number of shares of Common Stock to be issued upon the closing of the IPO pursuant to the conversion were to be calculated in accordance with the original conversion terms provided by the Company’s Amended and Restated Certificate of Incorporation (“COI”) dated July 1, 2019. This conversion occurred on February 23, 2022, upon the closing of the Company’s IPO. F- 23 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) Dividends Holders of the Series Seed were entitled to receive cumulative dividends at a per share rate of 8 % per annum, compounded annually, on the initial investment amount commencing on the date of issue. Dividends were payable only when, as, and if declared by the board of directors or upon a Liquidation Event (as defined below). Dividends on Series Seed shares were in preference to any dividend on the Company’s common stock. As of December 31, 2021, aggregate cumulative dividends totaled $ 1,489,803 , or $ 1.30 per Series Seed share, and upon the close of the IPO in 2022, aggregate cumulative dividends of $ 1,586,162 , or $ 1.38 per Series Seed share, were automatically converted into shares of common stock. Liquidation Preference In the event of certain voluntary or involuntary acquisition or sale transactions or upon the liquidation, dissolution or winding up of the Company (each, a “Liquidation Event”), the holders of Series Seed were entitled to receive out of the proceeds or assets of the Company legally available for distribution to its stockholders (the “Proceeds”), prior and in preference to any distribution of the Proceeds of such Liquidation Event to the holders of shares of common stock by reason of their ownership thereof, an amount (“the Liquidation Preference Amount”) determined based on the provisions of the Company’s COI. The COI provided that the Liquidation Preference Amount be calculated upon the occurrence of a Liquidation Event, based on the Company’s achievement of a Pre-Clinical Milestone and a Qualified Financing, both as defined in the COI. Per the provisions of the COI, if a Liquidation Event occurred before a Pre-Clinical Milestone was achieved, the Liquidation Preference Amount would be equal to two times the Series Seed Original Issue price per share, plus unpaid cumulative dividends. If a Liquidation Event occurred after a Pre-Clinical Milestone was achieved, and after a Qualified Financing was completed, then the Liquidation Preference Amount would be equal to one times the Series Seed Original Issue price, plus unpaid cumulative dividends. If a Liquidation Event occurred after a Pre-Clinical Milestone was achieved and before a Qualified Financing was completed, the Liquidation Preference Amount would be equal to the greater of (a) such amount per share as such holder would have been entitled to receive after a Qualified Financing or (b) two times the Series Seed Original Issue price, plus unpaid cumulative dividends. As of December 31, 2021, and all other prior historical periods, the Liquidation Preference Amount was equal to two times the Series Seed Original Issue Price per share, plus unpaid cumulative dividends. In the event that the Proceeds were insufficient to enable the distribution in full of the Liquidation Preference Amount to the holders of the Series Seed for all of the preferred shares held by them, all of the Proceeds were to be distributed among the holders of Series Seed on a pro rata basis. Upon completion of the distribution required to the holders of Series Seed, all of the remaining Proceeds available for distribution to stockholders were to be distributed among the holders of common shares and preferred shares, on an as-converted basis, pro rata based on the number of common shares held by each such holder. However, if upon the occurrence of a Liquidation Event, the Liquidation Preference Amount the Series Seed stockholders were entitled to receive is two times the Original Issue Price per share, plus unpaid cumulative dividends, after such distribution is made, then the remaining Proceeds available for distribution to stockholders were to be distributed among the holders of common shares, pro rata based on the number of common shares held by each such holder. F- 24 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) Voting On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series Seed was entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series Seed held by such holder were convertible as of the record date for determining stockholders entitled to vote on such matter. Holders of Series Seed were to vote together with the holder of common stock as a single class. Holders of Series Seed shares were entitled to nominate two out of five of the Company’s directors. Equity Incentive Plans The Company’s 2019 Equity Incentive Plan (the “2019 Plan”) was adopted by its board of directors and by its stockholders on July 1, 2019. The Company has reserved 1,400,000 shares of common stock for issuance pursuant to the 2019 Plan. There were no share-based awards granted under the 2019 Plan during the years ended December 31, 2022 and 2021. In addition, on February 23, 2022 and in connection with the closing of the IPO, the Company’s board of directors adopted the Company’s 2022 Equity Incentive Plan (the “2022 Plan”), which is the successor and continuation of the Company’s 2019 Plan. Under the 2022 Plan, the Company may grant stock options, restricted stock, restricted stock units, stock appreciation rights, and other forms of awards to employees, directors and consultants of the Company. Upon its effectiveness, a total of 1,600,000 shares of common stock were reserved for issuance under the 2022 Plan. In August 2022, the number of shares of common stock reserved for issuance under the 2022 Plan was increased to 2,600,000 . The stock options granted during the year ended December 31, 2022 were all granted under the 2022 Plan. As of December 31, 2022, there were 1,041,894 options available for issuance under the 2022 Plan. Stock Options The following summarizes activity related to the Company’s stock options under the 2019 Plan and the 2022 Plan for the year ended December 31, 2022: Weighted Average Weighted Remaining Average Total Contractual Number of Exercise Intrinsic Life Shares Price Value (in years) Outstanding as of December 31, 2021 780,640 $ 0.01 $ 532,787 8.1 Granted 797,223 5.92 — — Forfeited / cancelled ( 19,757 ) 6.45 — — Exercised ( 165,452 ) 0.01 573,465 — Outstanding as of December 31, 2022 1,392,654 $ 3.30 $ 670,161 8.2 Options vested and exercisable as of December 31, 2022 933,888 $ 2.99 $ 534,006 8.0 F- 25 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) The fair value of options granted in 2022 was estimated using the following assumptions: For the Year Ended December 31, 2022 Exercise price $ 1.06 – 6.45 Term (years) 5.00 – 10.00 Expected stock price volatility 112.6 % – 121.2 % Risk-free rate of interest 2.9 % – 4.3 % The weighted average grant date fair value of stock options granted during the year ended December 31, 2022 was $ 3.40 . The aggregate fair value of stock options that vested during the years ended December 31, 2022 and 2021 was approximately $ 2.1 million and $ 0.1 million, respectively. Of the total stock options granted during the year ended December 31, 2022, 200,000 stock options were granted to the Company’s Chief Executive Officer (“CEO”), Chairman, and significant stockholder, 200,000 stock options were granted to the Company’s Chief Business Officer (“CBO”), and 100,000 stock options were granted to the Company’s Chief Financial Officer (“CFO”). The aggregate grant-date fair value of the stock options granted to the CEO, CBO, and CFO was approximately $ 1.8 million, of which approximately $ 1.5 million was recognized as stock-based compensation expense during the year ended December 31, 2022. Additionally, during the year ended December 31, 2022, the Company granted an aggregate of 72,223 stock options to non-executive directors. The grant-date fair value of the stock options granted to the non-executive directors was approximately $ 0.2 million, of which approximately $ 0.2 million was recognized as stock-based compensation expense during the year ended December 31, 2022. During the year ended December 31, 2022, the Company’s board of directors approved the accelerated vesting of an aggregate of 32,517 stock options to a former director and a former advisor, in connection with their separation from the Company. The Company recognized stock-based compensation expense of approximately $ 0.1 million related to these modifications during the year ended December 31, 2022. F- 26 BLUE WATER VACCINES INC. Notes to Financial Statements Note 6 — Stockholders’ Equity (cont.) Stock-Based Compensation Stock-based compensation expense for the years ended December 31, 2022 and 2021 was as follows: For the Years Ended December 31, 2022 2021 General and administrative $ 1,309,687 $ 41,061 Research and development 664,879 89,080 Total $ 1,974,566 $ 130,141 As of December 31, 2022, unrecognized stock-based compensation expense relating to outstanding stock options is approximately $ 0.7 million, which is expected to be recognized over a weighted-average period of 1.89 years. Note 7 — Commitments and Contingencies Office Leases Starting in 2018, the Company leased office space for approximately $ 5,500 a month from a related party. The Company was required to pay a $ 15,000 rental deposit. The Company terminated the related party lease in May 2021. Rent expense related to this lease for the years ended December 31, 2022 and 2021 was approximately $ 0 and $26,000, respectively. The Company entered into a month-to-month lease in Cincinnati, Ohio, with an unrelated party in April 2021 with monthly payments of approximately $ 500 per month. The Company entered into a short-term lease in Palm Beach, Florida with an unrelated party, with a commencement date of May 1, 2022, for approximately $ 14,000 per month. The lease term ends on April 30, 2023 and is personally guaranteed by the Company’s CEO. During the year ended December 31, 2022, the Company incurred rent expense on this lease of approximately $ 129,000 , and variable lease expense of approximately $ 12,000 . Litigation From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. As of December 31, 2022, the Company is not a party to any material legal proceedings and is not aware of any pending or threatened claims. On April 15, 2022, the Company received a demand letter (the “Demand Letter”) from Boustead. The Demand Letter alleged that the Company breached the Underwriting Agreement entered into between Boustead and the Company, dated February 17, 2022, in connection with the Company’s initial public offering. The Demand Letter alleged that, by engaging Wainwright as placement agent in the April Private Placement, the Company breached Boustead’s right of first refusal (“ROFR”) to act as placement agent granted to Boustead under the Underwriting Agreement and, as a result of selling securities in the April Private Placement, breached the Company’s obligation under the Underwriting Agreement not to offer, sell, issue, agree or contract to sell or issue or grant or modify the terms of any option for the sale of, any securities prior to February 17, 2023 (the “Standstill”). F- 27 BLUE WATER VACCINES INC. Notes to Financial Statements Note 7 — Commitments and Contingencies (cont.) On October 9, 2022, the Company and Boustead entered into a Settlement Agreement and Release (the “Settlement Agreement”), pursuant to which Boustead agreed to waive the ROFR and the Standstill, and to release the Company from certain claims with respect to the April Private Placement, the August Private Placement, and all future private, public equity or debt offerings of the Company. As consideration for such waiver and termination of the Underwriting Agreement, the Company paid Boustead a cash fee of $ 1,000,000 , $ 50,000 in legal expenses, and released Boustead from all claims, subject to certain exceptions. In addition, the Company issued to Boustead 93,466 shares of restricted common stock in exchange for the cancellation of 111,111 warrants issued to Boustead in connection with the IPO (see Note 6). Concurrent with the execution of the Settlement Agreement, the Company and Boustead Capital Markets, LLP (“Boustead Capital”) entered into a three-month Advisory Agreement (the “Advisory Agreement”) for which consideration equal to 200,000 shares of restricted common stock, with no vesting provisions, was issued to Boustead Capital upon execution of the Advisory Agreement. The restricted common stock issued in connection with these agreements had an aggregate fair value of approximately $ 264,000 . See Note 6. The Company determined that all consideration due by the Company under the Settlement Agreement and the Advisory Agreement relates to the settlement of a liability that was incurred in 2022, and accordingly, recorded a related expense of approximately $ 1.3 million for the year ended December 31, 2022, which is included in general and administrative expenses in the accompanying statements of operations. Registration Rights Agreements See Note 6, Private Investments in Public Equity . Significant Agreements Oxford University Innovation Limited Pursuant to the OUI Agreement, as disclosed in Note 5, the Company is obligated to pay certain milestone and royalty payments in the future, as the related contingent events occur. Specifically, the Company is obligated to pay a 6 % royalty on all net sales of licensed products, as defined in the OUI Agreement, with an annual minimum royalty payment of $ 250,000 starting post-product launch, until the expiration of the OUI Agreement or revocation of the last valid claim covering a licensed product, at which point a royalty rate of 3 % will apply. An annual maintenance fee of $10,000 and $20,000 is required in the pre-phase III year and Phase III year, respectively, and as defined in the OUI Agreement. The Company is also obligated to pay a 25 % royalty on any sums received by the Company from any sublicensee (including all up-front, milestone and other one-off payments received by the Company from any sub-licenses or other contracts granted by the Company with respect to the licensed technology). In addition, the Company is required to pay OUI milestone payments of up to an aggregate of $ 51.25 million; specifically, upon the achievement of specified development milestones of approximately $ 2.25 million, regulatory milestones of approximately $ 9.5 million, and commercial milestones of approximately $ 39.5 million. The annual maintenance fee and milestone fees are indexed to the RPI (Retail Prices index for all items which is published in the United Kingdom by the Office for National Statistics, or any replacement of it) and will be increased or decreased as appropriate as set forth in the OUI Agreement. As of December 31, 2022, the Company evaluated the likelihood of the Company achieving the specified milestones and generating product sales, and determined the likelihood is not yet probable and as such, no accrual of these payments is required as of December 31, 2022. F- 28 BLUE WATER VACCINES INC. Notes to Financial Statements Note 7 — Commitments and Contingencies (cont.) Oxford University Research Agreement Pursuant to the terms of the OUI Agreement, as disclosed in Note 5, the Company entered into a sponsored research agreement dated December 18, 2019 with Oxford University for research related to the OUI Agreement for a period of three years for a total of £ 420,000 . The Company prepaid the full amount to Oxford of $ 554,802 for the services in January 2020, of which approximately $ 0.1 and $ 0.2 million remains as a prepaid expense as of December 31, 2022 and 2021, respectively. On May 16, 2022, the Company entered into an amendment to the Oxford University Research Agreement, whereby the Oxford University Research Agreement was extended until June 30, 2024, with an option to extend another 12 months, for a fee of £ 53,500 (or approximately $ 56,000 ). During the years ended December 31, 2022 and 2021, the Company incurred research and development expenses related to the sponsored research agreement with Oxford of approximately $ 51,000 and $ 185,000 , respectively. St. Jude Children’s Hospital Pursuant to the St. Jude Agreement, as disclosed in Note 5, the Company is obligated to pay certain milestone and royalty payments in the future, as the related contingent events occur. On May 11, 2022, the Company entered into an amendment to the St. Jude Agreement, whereby the royalty terms, milestones payments and licensing fees were amended. Specifically, pursuant to the terms of the St. Jude Agreement, as amended, the Company is obligated to make 5 % royalty payments for each licensed product(s) sold by the Company or its affiliates, based on the net sales for the duration of the St. Jude Agreement, and also pay 15 % of consideration received for any sublicenses. The Company is also required to pay an additional one-time $ 5,000 license fee, and an annual maintenance fee of $ 10,000 beginning on the first anniversary of the Effective Date (which is waived if all of the developmental milestones scheduled for completion before such annual fee is due have been achieved). In addition, the Company is required to pay St. Jude milestone payments of up to an aggregate of $ 1.9 million; specifically, upon the achievement of specified development milestones of $ 0.3 million, regulatory milestones of $ 0.6 million, and commercial milestones of $ 1.0 million. As of December 31, 2022, the Company evaluated the likelihood of the Company achieving the specified milestones and generating product sales, and determined the likelihood is not yet probable and as such, no accrual of these payments is required as of December 31, 2022. St. Jude Children’s Sponsored Research Agreement In addition to the St. Jude Agreement, the Company also entered into a sponsored research agreement dated May 3, 2021 with St. Jude for research related to the St. Jude Agreement (the “St. Jude SRA”). Pursuant to the St. Jude SRA, the Company is obligated to pay St. Jude an aggregate amount of $ 73,073 in two parts, Phase I for $ 57,624 and Phase II for $ 15,449 . This sponsored research project began during 2021. The Company entered into a second sponsored research agreement with St. Jude, dated August 29, 2022, pursuant to which the Company is obligated to pay St. Jude an amount of $ 75,603 which is due within 30 days of the effective date of the agreement. During the years ended December 31, 2022 and 2021, the Company incurred related research and development expenses related to the sponsored research agreements with St. Jude of approximately $27,000 and $65,000, respectively. Cincinnati Children’s Hospital Medical Center Pursuant to the CHMC Agreement, as disclosed in Note 5, the Company is obligated to pay certain milestone and royalty payments in the future, as the related contingent events occur. Specifically, the Company is obligated to pay CHMC a single-digit royalty on net sales, being 5%, 4% or 2% depending on the product, until the last valid claim covering a licensed product exists, at which point the royalty rates decrease by 50%. The Company is also obligated to pay up to a 25% royalty on any non-royalty sublicense revenue paid to the Company by any sublicensee. The CHMC Agreement also provides the Company with an option to license any CHMC or jointly patented modification, alteration or improvement of any invention claimed in a Licensed Patent (“CHMC Improvement” and “Joint Improvement, respectively”), with a $ 50,000 option fee for each Improvement that the Company elects to include in the license grant of the CHMC Agreement. In addition, the Company is required to pay CHMC milestone payments of up to an aggregate of $ 59.75 million; specifically, upon the achievement of specified development milestones of approximately $ 0.5 million, regulatory milestones of approximately $ 1.25 million, and commercial milestones of approximately $ 58 million. As of December 31, 2022, the Company evaluated the likelihood of the Company achieving the specified milestones and generating product sales, and determined the likelihood is not yet probable and as such, no accrual of these payments is required as of December 31, 2022. F- 29 BLUE WATER VACCINES INC. Notes to Financial Statements Note 7 — Commitments and Contingencies (cont.) CHMC Sponsored Research Agreement In addition to the CHMC Agreement, the Company also entered into a sponsored research agreement dated June 30, 2022 with CHMC for research related to the CHMC Agreement (the “CHMC SRA”). Pursuant to this research agreement, the Company is obligated to pay CHMC an aggregate amount not-to-exceed $ 247,705 . The CHMC SRA has a term of one year, and is cancelable upon 60 days written notice by either party for convenience. In addition, either party may terminate the CHMC SRA in the event the other party (a) files or has filed against it a petition under the Bankruptcy Act (among other things) or (b) fails to perform or otherwise breaches its obligations under the agreement, and has not cured such failure or breach within 30 days of notice of material breach. During the year ended December 31, 2022, the Company incurred related research and development expenses of approximately $ 111,000 , which was included in accrued expenses at December 31, 2022. There were no such expenses incurred during the year ended December 31, 2021. Ology Bioservices, Inc. (which was later acquired by National Resilience, Inc.) See Note 5. University of Texas Health Science Center at San Antonio Pursuant to the UT Health Agreement, as disclosed in Note 5, the Company is obligated to pay certain milestone and royalty payments in the future, as the related contingent events occur. Specifically, the Company is obligated to pay UT a single-digit royalty on net sales, being 5 % or 3 % depending on whether the product is covered by a valid claim or not, as defined in the agreement. The Company is also obligated to pay a 20 % royalty on any sums received by the Company from any sublicensee. In addition, the Company is required to pay UT Health milestone payments of up to an aggregate of approximately $2.2 million; specifically, upon the achievement of specified development milestones of approximately $0.7 million and regulatory milestones of approximately $1.5 million . As of December 31, 2022, the Company evaluated the likelihood of the Company achieving the specified milestones and generating product sales, and determined the likelihood is not yet probable and as such, no accrual of these payments is required as of December 31, 2022. Underwriter Termination Agreement On February 7, 2022, the Company and its former underwriter, Maxim Group (“Maxim”), entered into a termination agreement, whereby the parties agreed to terminate their engagement of Maxim as the Company’s lead managing underwriter and book runner in connection with the Company’s IPO. Per the terms of the termination agreement, the Company agreed to pay Maxim a termination fee of $ 300,000 , due upon the close of the Company’s IPO. The termination fee was recorded as general and administrative expense, and paid, during the year ended December 31, 2022. Indemnification In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may incur charges in the future as a result of these indemnification obligations. Risks and Uncertainties — COVID-19 Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for drug candidates, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. F- 30 BLUE WATER VACCINES INC. Notes to Financial Statements Note 8 — Related Party Transactions The Company originally engaged the CEO, who is also the Board Chairman and prior to the close of the IPO, sole common stockholder of the Company, pursuant to a consulting agreement commencing October 22, 2018, which called for the Company to pay for consulting services performed on a monthly basis. Upon the close of the Company’s IPO, the consulting agreement was terminated and the CEO’s employment agreement became effective. During the years ended December 31, 2022 and 2021, the Company incurred approximately $ 63,000 and $ 435,000 , respectively, in fees under the consulting agreement, which are recognized in general and administrative expenses in the accompanying statements of operations. During 2022 the Company entered into a lease agreement that is personally guaranteed by the Company’s CEO. See Note 7. The Company also leased office space from a related party, through common ownership. The lease is further described in Note 7 of these financial statements. The lease was terminated in May 2021, and the related deposit was reclassified to the receivable from related party balance. During the fourth quarter of 2021, the amounts due from this related party were determined to be uncollectible and were written off. The total amount written off, which related to the lease deposit, overpaid rent, and utility expenses, was approximately $ 22,000 , and is recognized in general and administrative expenses in the accompanying statements of operations. During the year ended December 31, 2022, the Company’s compensation committee approved one-time bonus awards of $ 140,000 and $ 100,000 to the Company’s CEO and CBO, respectively, in recognition of their efforts in connection with the Company’s IPO. These bonuses were recognized during the year ended December 31, 2022 as general and administrative expenses in the accompanying statements of operations. During the year ended December 31, 2021, the Company’s board of directors approved a bonus of approximately $ 200,000 to the CEO, which is also recognized in general and administrative expenses in the statements of operations. In addition, during the year ended December 31, 2022, the Company’s compensation committee approved stock option grants under the Company’s 2022 Equity Incentive Plan to certain of the Company’s executive officers. See Note 6. As of December 31, 2022 and 2021, the Company has a receivable from related party of approximately $ 36,000 and $ 153,000 , respectively. The balance as of December 31, 2022 consists of miscellaneous payments made by the Company on the behalf of the Company’s CEO. Subsequent to December 31, 2022, the CEO paid the Company the receivable balance. The balance as of December 31, 2021, consists primarily of consulting fee prepayments to the Company’s CEO, in the amount of $ 140,000 . These consulting fee prepayments were repaid to the Company in lieu of a bonus payout due to the CEO during May 2022. The remaining balance as of December 31, 2021 consists of miscellaneous payments made by the Company on the behalf of the CEO. A former director of the Company, who currently serves on the Company’s Scientific Advisory Board, serves on the Advisory Board for the Cincinnati Children’s Hospital Medical Center Innovation Fund, which is affiliated with CHMC. The Company has an exclusive license agreement with CHMC as disclosed in Note 5. This director resigned from the Company’s board upon the close of its IPO. Note 9 — Income Taxes The Company’s major tax jurisdictions are the United States and various state jurisdictions, and the Company does not have any pending tax audits. Generally, the Company’s federal returns from 2019 on and state returns from 2018 on, are subject to examination by the United States and state tax authorities; however, to the extent allowed by law, tax authorities have the ability to adjust the Company’s carryforwards of unutilized net operating losses and research and development credits for all years. At December 31, 2022, the Company had a net operating loss (“NOL”) carryforward for federal and state income tax purposes totaling approximately $ 12.5 million and $ 12.1 million, respectively, available to reduce future taxable income. The federal NOL and certain state NOLs of $ 8.5 million are carried forward indefinitely subject to a limitation of 80 % of taxable income. State NOLs of approximately $ 3.7 million will begin to expire in 2024 if not utilized. The NOL carry forward is subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Under the Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss carryforwards and research credit carryforwards to offset taxable income and tax, respectively, may be limited based on cumulative changes in ownership. The Company has not completed an analysis to determine whether any such limitations have been triggered as of December 31, 2022. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. F- 31 BLUE WATER VACCINES INC. Notes to Financial Statements Note 9 — Income Taxes (cont.) The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets consist of the following: As of December 31, 2022 2021 Deferred tax assets: Net-operating loss carryforward $ 2,986,738 $ 1,120,155 Capitalized research and development 885,176 — Stock-based compensation 308,552 106,171 Accrued compensation 186,573 55,500 License agreement 82,626 59,685 Other accrued expenses 65,886 14,636 Gross deferred tax assets 4,515,551 1,356,147 Valuation allowance ( 4,512,546 ) ( 1,353,673 ) Deferred tax assets, net of allowance $ 3,005 $ 2,474 Deferred tax liabilities: Fixed assets ( 3,005 ) ( 2,474 ) Total deferred tax liabilities $ ( 3,005 ) $ ( 2,474 ) Net deferred tax assets $ — $ — The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses since inception, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2022 and 2021. During the year ended December 31, 2022, the valuation allowance increased by approximately $ 3.2 million. The provision for income taxes on earnings subject to income taxes differs from the statutory Federal rate at December 31, 2022 and 2021, due to the following: For the Years Ended December 31, 2022 2021 Expected income tax benefit at Federal statutory tax rate $ ( 2,818,164 ) $ ( 717,640 ) State and local taxes, net of Federal tax benefit ( 501,277 ) ( 91,233 ) Research credits ( 16,477 ) — Permanent items 194,705 9,501 State rate adjustment 19,600 119,414 Other ( 37,260 ) 4,228 Change in valuation allowance 3,158,873 675,730 Provision for income taxes $ — $ — Under U.S. GAAP, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained. Additionally, U.S. GAAP provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: For the Years Ended December 31, 2022 2021 Beginning balance $ - $ - Increases related to prior year tax positions 11,517 - Increases related to current year tax positions 5,493 - Ending balance $ 17,010 $ - At December 31, 2022 and 2021, the Company’s unrecognized tax benefits were $ 17,010 and $ 0 , respectively. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022 and 2021, there were no accrued interest and penalties associated with uncertain tax positions. F- 32 BLUE WATER VACCINES INC. Notes to Financial Statements Note 10 — Retirement Plan Effective January 1, 2022, the Company adopted a defined contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code (“the 401(k) Plan”). The 401(k) Plan is for the benefit of all qualifying employees and permits voluntary contributions by employees of up to 100 % of eligible compensation, subject to the maximum limits imposed by the Internal Revenue Service. The terms of the 401(k) Plan allow for discretionary employer contributions. No expenses were incurred related to the 401(k) Plan during the year ended December 31, 2022, and the 401(k) Plan lapsed during 2022 due to inactivity. Note 11 — Subsequent Events During January 2023, an aggregate of 646,640 of the Pre-Funded Warrants issued in connection with the August Private Placement were exercised, at an exercise price of $ 0.001 per share, and the Company issued 646,640 shares of common stock in accordance with such exercise. On January 26, 2023, the Company’s board of directors appointed a new director to replace a director who resigned from the board on January 13, 2023. The new director was granted 2,386 stock options, with an exercise price of $ 1.28 . In addition, the Company’s board of directors approved the accelerated vesting of an aggregate of 11,504 stock options to the former director. On February 1, 2023, the Company entered into a co-development agreement with AbVacc, Inc. (“AbVacc”), for the purpose of conducting research aimed at co-development of specific vaccine candidates, including monkeypox and Marburg virus disease with the potential to expand to others using the Norovirus nanoparticle platform (“Co-Development Project”), and to govern the sharing of materials and information, as defined in the agreement, for the Co-Development Project. Under the agreement, AbVacc and the Company will collaborate, through a joint development committee, to establish and implement a development plan or statement of work for each Co-Development Project targeted product. Under the co-development agreement, either the Company or AbVacc, whichever party is the primary sponsor of any resulting product (as defined in the agreement), will be obligated to compensate the other party for certain milestone payments that would range between $2.1 million and $4.75 million, plus royalties of between 2% to 4%. The term of the agreement is three years from the effective date, unless previously terminated by either party, in accordance with the agreement. F- 33 EXHIBIT INDEX Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation filed with Delaware Secretary of State on February 23, 2022. (3) 3.2 Amended and Restated Bylaws. (3) 4.1 Specimen Common Stock Certificate. (1) 4.2 Description of Registered Securities (8) 10.1 2019 Equity Incentive Plan. (1) 10.2 2022 Equity Incentive Plan. (10) 10.3 2019 Equity Incentive Plan Form of Stock Option Grant Agreement. (1) 10.4 2022 Equity Incentive Plan Form of Incentive Stock Option Agreement (Employee). (1) 10.5 2022 Equity Incentive Plan Form of Nonstatutory Stock Option Agreement (Consultant). (1) 10.6 2022 Equity Incentive Plan Form of Nonstatutory Stock Option Agreement (Non-Employee Director). (1) 10.7 2022 Equity Incentive Plan Form of Nonstatutory Stock Option Agreement (Employee). (1) 10.8 Exclusive License Agreement between the Registrant and Children’s Hospital Medical Center, d/b/a Cincinnati Children’s Hospital Medical Center, effective as of June 1, 2021. (2) 10.9 License Agreement between the Registrant and Oxford University Innovation Limited, effective as of July 16, 2019. (2) 10.10 Exclusive License Agreement between the Registrant and St. Jude Children’s Research Hospital, Inc., effective as of January 27, 2020. (2) 10.11 Lease Agreement, dated as of April 29, 2021, between the Registrant and Regus Management Group, LLC. (1) 10.12 Master Services Agreement between the Registrant and Ology Bioservices, Inc., effective as of July 19, 2019. (1) 10.13 Project Addendum 1 to Master Services Agreement between the Registrant and Ology Bioservices, Inc., effective as of October 9, 2019. (1) 10.14 Letter Agreement between the Registrant and Ology Bioservices, Inc., dated as of January 9, 2020. (1) 10.15 Project Addendum II to Master Services Agreement between the Registrant and Ology Bioservices, Inc., effective as of May 21, 2021. (1) 10.16 Form of Employment Agreement with Joseph Hernandez. (1) 10.17 Form of Employment Agreement with Erin Henderson. (1) 10.18 Form of Employment Agreement with Jon Garfield. (1) 10.19 Form of Indemnification Agreement for Directors and Officers. (1) 10.20 Form of Securities Purchase Agreement, dated as of April 13, 2022, by and among the Company and the Purchasers. (5) 10.21 Form of Registration Rights Agreement, dated as of April 13, 2022, by and among the Company and the Purchasers. (5) 10.22 Form of Securities Purchase Agreement, dated as of August 9, 2022, by and among the Company and the Purchasers. (6) 10.23 Form of Registration Rights Agreement, dated as of August 9, 2022, by and among the Company and the Purchasers. (6) 10.24 Settlement Agreement and Release, dated October 9, 2022, by and between the Registrant and Boustead Securities, LLC. (8) 10.25 Amendment No. 1 to Project Addendum 2 to Master Services Agreement, dated as of April 20, 2022, by and between the Registrant and Ology Bioservices, Inc. (9) 10.26 Amendment #1 to Exclusive License Agreement, dated as of May 11, 2022, by and between the Registrant and St. Jude Children’s Research Hospital, Inc. (9) 153 Exhibit No. Description 14 Code of Ethics. (2) 23.1 Consent of Mayer Hoffman McCann P.C.* 24.1 Power of Attorney (included on signature page to this Registration Statement).* 31.1 Certification of the Principal Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of the Principal Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Certification of the 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 the Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 101.INS Inline XBRL Instance Document 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 (formatted as Inline XBRL and contained in Exhibit 101) * Filed herewith. ** Previously filed. (1) Incorporated by reference to the Company’s Registration Statement on Form S-1, filed with the SEC on October 8, 2021. (2) Incorporated by reference to the Company’s Registration Statement on Form S-1/A, filed with the SEC on November 5, 2021. (3) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 24, 2022. (4) Incorporated by reference to the Company’s Registration Statement on Form S-1/A, filed with the SEC on November 29, 2021. (5) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 19, 2022. (6) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on August 11, 2022. (7) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 1, 2022. (8) Incorporated by reference to the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2022. (9) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 13, 2022. (10) Incorporated by reference to the Company’s Registration Statement on Form S-1/A, filed with the SEC on January 6, 2022. 154 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Blue Water Vaccines Inc. Date: March 8, 2023 By: /s/ Joseph Hernandez Joseph Hernandez Chairman of the Board and Chief Executive Officer (principal executive officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 8, 2023. Signature Title /s/ Joseph Hernandez Chairman of the Board and Chief Executive Officer (principal executive officer) Joseph Hernandez /s/ Jon Garfield Chief Financial Officer (principal financial and accounting officer) Jon Garfield Vuk Jemerić Director Vuk Jemerić /s/ Timothy Ramdeen Director Timothy Ramdeen /s/ James Sapirstein Director James Sapirstein /s/ Simon Tarsh Director Simon Tarsh 155