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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. Risk Factors of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Company Overview

We are a clinical stage, drug platform company addressing neurodegeneration, such as Alzheimer’s disease (“AD”) and Parkinson’s disease (“PD”). We are developing our lead product candidate, Buntanetap, which is designed to address AD, PD and potentially other chronic neurodegenerative diseases. Buntanetap is a synthetically produced small molecule, orally administered, brain penetrant compound. In several studies, Buntanetap was observed to inhibit the synthesis of neurotoxic proteins—APP/Aβ (“APP”), tau/phospho-tau (“tau”) and α-Synuclein (“αSYN”)—that are one of the main causes of neurodegeneration. High levels of

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neurotoxic proteins lead to impaired axonal transport, which is responsible for the communication between and within nerve cells. When that communication is impaired, the immune system is activated and attacks the nerve cells, eventually killing them. We have observed in our clinical studies in early AD and early PD patients and pre-clinical studies in mice and rats that Buntanetap lowered neurotoxic protein levels leading to improved axonal transport, reduced inflammation, lower nerve cell death and improved affected function.

In 2021, we completed two Phase 1/2 clinical studies: one in 14 early AD patients, and one in 54 early PD patients (together, the “AD/PD Trials”). In the AD/PD Trials, early AD patients were defined as those with a Mini Mental State Examination (MMSE) score between 19 and 28 and early PD patients as those patients at Hoehn & Yahr stages 1, 2 or 3. MMSE is a brief screening instrument used to assess cognitive function, with total scores ranging from 0 to 30 and a lower score indicating greater disease severity, while the Hoehn & Yahr scale is a medical assessment used to measure staging of the functional disability associated with PD where a higher stage indicates greater disease severity. In collaboration with the Alzheimer’s Disease Cooperative Study (“ADCS”), we also conducted a trial in 16 early AD patients (the “ADCS Trial”). In the ADCS Trial, early AD patients were defined as those patients with a MMSE score between 19 and 28. All three clinical trials were double-blind, placebo-controlled studies. We designed the studies by applying our understanding of the underlying neurodegenerative disease states, and measured both target and pathway validation in the spinal fluid of patients to determine whether patients improved following treatment. In addition to meeting their primary endpoints of safety and tolerability and secondary endpoint of pharmacokinetics of Buntanetap, our AD/PD Trials met exploratory endpoints of measures of biomarkers and improvements in cognition in AD patients, and in function in PD patients. We believe that the AD/PD Trials represent the first double-blind placebo-controlled studies that showed improvements in AD patients, as measured by ADAS-Cog, and in PD patients, as measured by UPDRS. Following completion of the AD/PD Trials, we submitted our data to the U.S. Food and Drug Administration (“FDA”) and requested direction to further pursue the development of Buntanetap in early PD patients. With the FDA’s guidance, we initiated a Phase 3 study in early PD patients in August 2022 (our “Phase 3 PD Study”). In the Phase 3 PD Study, early PD patients were defined as those at Hoehn & Yahr stages 1, 2 or 3, and OFF times of less than two hours per day. OFF time refers to when PD motor and/or non-motor symptoms occur between medication doses. We also submitted a proposed protocol for the treatment of moderate AD to the FDA, and after receiving permission to proceed, we initiated a Phase 2/3 study in mild to moderate AD patients in February 2023 (our “Phase 2/3 AD Study”). In the Phase 2/3 AD Study, mild to moderate AD patients were defined as those with a MMSE score between 14 and 24. At the completion of the ADCS Trial, the data showed that Buntanetap is a translational inhibitor in humans just like in animals, and we further observed that there was statistical improvement in cognition in early AD patients, just like in the AD/PD Trials.

Our Phase 3 PD Study and Phase 2/3 AD Study each have built in interim analyses. Our Phase 3 PD Study incorporated an interim analysis at two months, the results of which were disclosed on March 31, 2023. The pre-planned interim analysis was conducted by our data analytics provider based on 132 patients from all cohorts collectively for which baseline and two-month data was available. As the interim analysis was conducted at two months of the six-month endpoint and only on 132 patients, it may not be indicative of the results at six months for the full patient population because as the trial progresses, clinical outcomes may materially change as patient enrollment continues and more patient data become available, or different conclusions or considerations may qualify such results once additional data have been received and fully evaluated. Based on the results of the interim analysis, we intend to proceed with the Phase 3 PD Study as planned in accordance with the previously established protocol. We remain blinded to the Phase 3 PD Study and we do not have safety or efficacy data from the trial. A separate safety interim analysis is in process and we expect that interim analysis to be released in the second quarter of 2023. We intend to disclose the results of an interim analysis for our Phase 2/3 AD Study in Fall 2023. We plan to consult with the FDA following completion of these interim analyses, to obtain feedback on our ongoing and planned AD and PD studies, including conducting an open label extension study following the completion of the initial trials. Using the data from the Phase 3 PD Study interim analysis, we intend to design an 18-month long disease-modifying Phase 3 study in the same early PD patients. In addition, we intend to conduct a short 6-month study in advanced PD patients during the second half of the 18-month disease modifying Phase 3 study, at which time we will define the advanced PD patient population for the purposes of such study. Similarly, using the data from the Phase 2/3 AD Study interim analysis, we intend to design an 18-month disease modifying Phase 3 study in the same early AD patient population. In addition, we intend to conduct a short 6-month study in advanced AD patients during the second half of the 18-month disease modifying Phase 3 study, at which time we will define the advanced AD patient population for the purposes of such study. We expect both the ongoing Phase 3 PD Study and the Phase 2/3 AD Study to be completed by the end of 2023, and we intend to announce the data from the final analyses in the first quarter of 2024.

By the end of 2026, our goal is to have conducted the required pivotal studies for Buntanetap to be able to file two new drug applications (“NDAs”) with the FDA.

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We believe that we are the only company developing a drug for AD and PD that is designed to inhibit more than one neurotoxic protein, and has a mechanism of action designed to restore nerve cell axonal and synaptic activity. By improving brain function, our goal is to treat memory loss and dementia associated with AD as well as body and brain function associated with PD. Based on pre-clinical and clinical data collected to date, we believe that Buntanetap has the potential to be the first drug to interfere with the underlying mechanism of neurodegeneration, potentially enabling Buntanetap to be the only drug to improve cognition in AD and motor function in PD. The industry has encountered challenges in specifically targeting one neurotoxic protein, be it APP, tau or αSYN, indicating that doing so does not change the course of neurodegeneration. Our goal is to develop a disease modifying drug (“DMD”) for patients with neurodegeneration by leveraging our clinical and pre-clinical data to inhibit the three most relevant neurotoxic proteins. Studies have found that AD and PD are the most common neurodegenerative diseases in the U.S., and accordingly these diseases present two unmet needs of the aging population and two potentially large U.S. markets if a DMD is developed and approved.

We have never been profitable and have incurred net losses since inception. Our accumulated deficit at December 31, 2022 was $54,054,774. We expect to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when we will be able to achieve or maintain profitability, if at all.

Financial Operations Overview

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.

Research and Development Expenses

Our research and development expenses consist of expenses incurred in development and clinical studies relating to our product candidates, including:

● expenses associated with clinical development;

Research and development costs are either expensed as incurred or recorded separately as a prepaid asset, and the expense recognized when the service is performed. Clinical development expenses for our product candidates are a significant component of our current research and development expenses. Product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development, primarily due to increased size and duration of the clinical trials. We track and record information regarding external research and development expenses for each study or trial that we conduct. From time to time, we use third-party CROs, contractor laboratories and independent contractors in clinical studies. We recognize the expenses associated with third parties performing these services for us in our clinical studies based on the percentage of each study completed at the end of each reporting period.

Our research and development expenses in 2022 were primarily related to our Phase 3 study in early PD patients.Our research and development expenses in 2021 were primarily related to the AD/PD Trials which began treating patients in August 2020. We expect that our research and development expenses in 2023 and for the next several years will be significantly higher than in 2022 as a result of costs associated with our planned Phase 3 trials. These expenditures are subject to numerous uncertainties regarding timing and cost to completion. Completion of our clinical development and clinical trials may take several years or more and the length of time generally varies according to the type, complexity, novelty and intended use of our product candidates. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

● the number of sites included in the clinical trials;

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● the length of time required to enroll suitable patients;

● the size of patient populations participating in the clinical trials;

● the duration of patient follow-ups;

● the development stage of the product candidates; and

● the efficacy and safety profile of the product candidates.

Due to the stage of our research and development, we are unable to accurately determine the duration or completion costs of our development of Buntanetap. As a result of the difficulties of forecasting research and development costs of Buntanetap as well as the other uncertainties discussed above, we are unable to determine when and to what extent we will generate revenues from the commercialization and sale of approved product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our executive, finance, accounting, and administrative functions. Our general and administrative expenses also include professional fees for legal services, including patent-related expenses, consulting, tax and accounting services, insurance, rent and general corporate expenses. We expect that our general and administrative expenses will increase with the continued development and potential commercialization of our product candidates. We expect that our general and administrative expenses in 2023 and for the next several years will be significantly higher than in 2022 as we increase our employee count.

Grant Income

Grants received are recognized as grant income in the statements of operations as and when they are earned for the specific research and development projects for which these grants are designated. Grants payments received in excess of grant income earned are recognized as deferred grant on the balance sheet and grant income earned in excess of grant payments received is recognized as grant receivable on the balance sheets.

Income Taxes

As of December 31, 2022, the Company had U.S. federal net operating loss (“NOL”) carryforwards of $27,536,031 which may be available to offset future income tax liabilities. Federal NOL carryforwards generated in 2017 and prior of $2,764,240 will expire beginning 2032. The remaining federal NOL carryforwards generated beginning in 2018, do not expire. NOL carryforwards generated beginning in 2021 are permitted to offset 80% of taxable income in future years. As of December 31, 2022, the Company also had U. S. state NOL carryforwards of $30,082,914 which may be available to offset future income tax liabilities and will expire beginning in 2028.

NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (the “IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code. This could substantially limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.

Critical Accounting Policies and Use of Estimates

We have based our management’s discussion and analysis of financial condition and results of operations on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and

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the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical development expenses and stock-based compensation. The clinical development cost to advance any of our product candidates to marketing approval is substantial and involves numerous risks and uncertainties associated with pharmaceutical product development. As a result, we are unable to accurately predict the timing or amount of increased expenses and, as a result, clinical development expense could be materially different as the costs are incurred. We measure and record compensation expense using the applicable accounting guidance for share-based payments using the Black-Scholes option pricing model to value option awards which requires the use of subjective assumptions, including the expected life of the option and expected share price volatility. These assumptions used in calculating the fair value of stock-based awards represent our best estimates and involve inherent uncertainties and the application of judgment. As a result, if factors change and we used different assumptions, stock-based compensation expense could be materially different for stock-based awards.

While our significant accounting policies are more fully discussed in Note 2 to our audited financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.

Research and Development Expenses

We rely on third parties to conduct our clinical studies and to provide services, including data management, statistical analysis and electronic compilation. At the end of each reporting period, we compare the payments made to each service provider to the estimated progress towards completion of the related project. Factors that we consider in preparing these estimates include the number of patients enrolled in studies, milestones achieved and other criteria related to the efforts of our vendors. These estimates are subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, we record net prepaid or accrued expenses related to these costs.

Stock-Based Compensation

We account for grants of stock options to employees and non-employees based on their grant date fair value and recognize compensation expense over the vesting periods. We estimate the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculations, including the expected term, the expected volatility of our common stock, the risk-free interest rate and the expected dividend rate. Given the lack of a public market for our common stock prior to the IPO, the expected stock price volatility is based on a weighted approach that incorporates the historic daily volatility of our common stock since the IPO and the historic daily volatility of similar companies that have been publicly traded for a period commensurate with the expected term of the option.

Results of Operations

Years ended December 31, 2022 and 2021

Operating expenses and other income were comprised of the following:

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​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended

​ ​ December 31, ​

​ ​ (in thousands)

Operating expenses: ​ ​ ​ ​ ​ ​ ​

General and administrative ​ $ 8,995.7 ​ $ 6,058.2 ​

Other income: ​ ​ ​ ​ ​ ​ ​

Interest income ​ $ 182.7 ​ $ 13.3 ​

Grant income ​ $ — ​ $ 36.8 ​

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Research and Development Expenses

Research and development expenses increased by $8,036.5 thousand for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily the result of an increase of $6,629.5 thousand in expenses related to our clinical trials, including production of material, an increase in stock-based compensation expense of $1,357.7 thousand, and an increase of $202.4 thousand in other personnel expenses, partially offset by a decrease of $100.5 thousand in expenses related to our long-term toxicology studies.

General and Administrative Expenses

General and administrative expenses increased by $2,937.5 thousand for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily the result of increases of $3,097.2 thousand in stock-based compensation expense, partially offset by a decrease of $230.4 thousand in conference and meeting expenses.

Interest Income, Net

Interest income, net increased $159.8 thousand for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily the result of higher interest rates compared to the prior year.

Grant Income

Grant income decreased $36.8 thousand for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was the result of income recognized related to a grant from the NIH to reimburse the costs of our long-term toxicology studies in rats and dogs, which studies began in November 2019 and were substantially completed as of December 31, 2020.

Liquidity and Capital Resources

Since our inception in 2008, we have devoted most of our cash resources to research and development and general and administrative activities. We have financed our operations primarily with the proceeds from the sale of common stock, convertible preferred stock and convertible promissory notes. To date, we have not generated any revenues from the sale of products, and we do not anticipate generating any revenues from the sales of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. As of December 31, 2022, our principal source of liquidity was our cash and cash equivalents, which totaled $28,377.7 thousand.

Equity Financings

We closed an equity offering on May 26, 2021, raising gross proceeds of $50,000.0 thousand and net proceeds of $46,648.4 thousand, after deducting underwriting discounts and issuance costs.

Future Capital Requirements

We do not have sufficient capital on hand to fund our operations for the next 12 months and will need to raise additional capital to meet our obligations as they become due. We believe that our current cash and cash equivalents and funding from existing grants will be sufficient to fund our operating expenses and capital expenditure requirements until the fourth quarter of 2023, including our ongoing Phase 2/3 AD Trial and our ongoing Phase 3 PD Trial. We will need to raise substantial additional capital to complete the development and commercialization of our product candidates through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. However, there can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. We have no committed external sources of funds. If we are unable to raise sufficient additional capital or defer sufficient operating expenses, we may be compelled to reduce the scope of our operations.

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We expect to incur significant operating losses for the foreseeable future, and for these losses to further increase, as we ramp up our clinical development programs and begin activities for commercial launch readiness. We may also encounter unforeseen expenses, difficulties, complications, delays and other currently unknown factors that could adversely affect our business.

Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

● the effects of competing technological and market developments;

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

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Adequate funding may not be available to us on acceptable terms or at all. Our potential inability to raise capital when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds as required, we may need to delay, reduce, or terminate some or all development programs and clinical trials. We may also be required to sell or license our rights to product candidates in certain territories or indications that we would otherwise prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to address our liquidity needs, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially and adversely affect our business and financial prospects. See the section of this Annual Report on Form 10-K titled “Risk Factors” for additional risks associated with our substantial capital requirements.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities.

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​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​

​ ​ December 31, ​

​ ​ (in thousands) ​

Statement of Cash Flows Data: ​ ​ ​

Total net cash (used in) provided by: ​ ​ ​

​

Operating Activities

For the year ended December 31, 2022, cash used in operations was $17,312.9 thousand compared to $9,132.1 thousand for the year ended December 31, 2021. The increase in cash used in operations was primarily the result of the costs associated with our AD/PD Trials and higher personnel expenses.

We expect cash used in operating activities to increase in 2023 as compared to 2022 due to an expected increase in our operating losses associated with ongoing development of our product candidates and planned increases in our personnel count.

Financing Activities

Cash provided by financing activities was $4.6 thousand during the year ended December 31, 2022, attributable to proceeds from the exercise of stock options.

Cash provided by financing activities was $46,743.5 thousand during the year ended December 31, 2021, attributable to net proceeds from our equity offering of approximately $46,648.4 thousand, and proceeds from the exercise of stock options of $95.1 thousand.

Restatement of Previously Issued Quarterly Financial Statements

During its preparation of its 2022 audited combined financial statements and notes thereto, the Company concluded that there were material research and development expenses and related balance sheet errors in its previously issued unaudited condensed financial statements as of and for each of the quarterly and year to date periods ended March 31, 2022, June 30, 2022 and September 30, 2022, primarily relating to the timing of payments for research and development expenses and recognition of expenses.

The Company noted the following items were improperly expensed during the three months ended March 31, 2022:

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These errors in the accounting for research and development expenses resulted in an understatement of prepaid assets and other current assets of $800,840, accrued expenses and other current liabilities of $140,690 and an overstatement of operating expenses and net loss of $660,150 as of and for the three months ended March 31, 2022.

The Company noted the following items were improperly expensed during the three and six months ended June 30, 2022:

These errors, including the errors from the three months ended March 31, 2022, in the accounting for research and development expenses resulted in a cumulative understatement of prepaid assets and other current assets of $3,441,895, as of June 30, 2022, and an overstatement operating expenses and net loss of $2,781,745 and $3,441,895 for the three and six months ended June 30, 2022, respectively.

The Company noted the following items were improperly expensed during the three and nine months ended September 30, 2022:

These errors, including the errors from the six months ended June 30, 2022, in the accounting for research and development expenses resulted in an understatement of prepaid assets and other current assets of $4,631,390 as of September 30, 2022, and an overstatement of operating expenses and net loss of $1,189,495 and $4,631,390 for the three and nine months ended September 30, 2022, respectively.

Detailed restatements of the Company's condensed quarterly financial statements are provided in this Annual Report on Form 10-K, Note 12 - Restatement of Previously Issued Unaudited Condensed Financial Statements.

Recent Accounting Pronouncements

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in ASU 2021-10 require annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The new disclosure requirements include information about the nature of the transactions and the related accounting policy used to account for the transactions; the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and significant terms and conditions of the transactions, including commitments and contingencies. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted, and may be adopted prospectively or retrospectively. We adopted this standard prospectively. As such, the adoption did not have an impact on our financial statements.

JOBS Act

Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting

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standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

This item is not required for smaller reporting companies.

Item 8. Financial Statements and Supplementary Data.

Our financial statements, accompanying notes and Report of Independent Registered Public Accounting Firm are included in this Annual Report on Form 10-K beginning on page F-1, which are incorporated in this Item 8 by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, as a result of the material weaknesses in our internal control, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as our principal financial and accounting officer, to allow timely decisions regarding required disclosures.

Identified Material Weakness

In connection with the audit of our financial statements as of December 31, 2022 and 2021 and for the years ended December 31, 2022 and 2021, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness related to the proper classification of research and development expenses, which impacted our previously issued condensed financial statements as of and for the three months ended March 31, 2022, three and six months ended June 30, 2022 and three and nine months ended September 30, 2022.

Remediation Plan

Our management, with the oversight of the Audit Committee of the Board of Directors, has updated our internal processes and controls to strengthen their effectiveness and developed a remediation plan which includes the following actions:

● Augment existing staff; and

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● Strengthen the review process.

We will not be able to conclude whether the actions we are taking will fully remediate the material weakness in our internal control over financial reporting until the updated controls have operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate further action.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management utilized the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to assess the effectiveness of our internal control over financial reporting as of December 31, 2022. Based on the assessment, management has concluded that, as of December 31, 2022, our internal control over financial reporting was not effective, due to the remaining material weakness in our internal control over financial reporting described above.

As an emerging growth company, management’s assessment of internal control over financial reporting was not subject to attestation by our independent registered public accounting firm.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, as the material weakness relating to our internal control over financial reporting described above was identified subsequent to December 31, 2022. We are now taking actions to remediate the material weakness, which may result in changes in our internal control over financial reporting in periods subsequent to December 31, 2022.

Item 9B. Other Information.

None.

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PART III

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Item 10. Directors and Executive Officers and Corporate Governance.

We incorporate the information required by this Item 10 by reference to the definitive proxy statement for our 2023 annual meeting of shareholders, to be filed with the SEC.

The following is a list of our executive officers as of the date of this Annual Report.

Name Position

Maria Maccecchini ​ President and Chief Executive Officer

Henry Hagopian ​ Chief Financial Officer

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Item 11. Executive Compensation.

We incorporate the information required by this Item 11 by reference to the definitive proxy statement for our 2023 annual meeting of shareholders, to be filed with the SEC.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

We incorporate the information required by this Item 12 by reference to the definitive proxy statement for our 2023 annual meeting of shareholders, to be filed with the SEC.

Equity Compensation Plan Information

​ ​ ​ ​ ​ ​ ​ ​

​ Number of ​ ​ ​

​ ​ securities to be issued ​ ​ ​ ​ Number of securities remaining

​ ​ upon exercise of ​ Weighted-average ​ available for future issuance under

​ (a) (b) (c)

Equity compensation plans not approved by security holders 2,400 ​ $ 7.50 —

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Item 13. Certain Relationships and Related Transactions and Director Independence.

We incorporate the information required by this Item 13 by reference to the definitive proxy statement for our 2023 annual meeting of shareholders, to be filed with the SEC.

Item 14. Principal Accountants Fees and Services.

We incorporate the information required by this Item 14 by reference to the definitive proxy statement for our 2023 annual meeting of shareholders, to be filed with the SEC.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) Documents filed as part of this report:

3. Exhibits. See (b) below.

(b) Exhibits

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ExhibitNumber Description of Exhibit

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ExhibitNumber Description of Exhibit

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23.1 ​ Consent of WithumSmith+Brown, PC.

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31.1 ​ Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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31.2 ​ Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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32.1 ​ Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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32.2 ​ Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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101.SCH XBRL Taxonomy Extension Schema Document

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101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Labels Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

​

+ Indicates management contract or compensatory plan.

(c) Financial Statement Schedules

None.

Item 16. Form 10-K Summary.

None.

​

​

95

Table of Contents

ANNOVIS BIO, INC.

Table of Contents

​ ​ ​

​ Page(s)

Report of Independent Registered Public Accounting Firm ​ F-2

Statements of Operations for the Years ended December 31, 2022 and 2021 ​ F-4

Statements of Cash Flows for the Years ended December 31, 2022 and 2021 ​ F-6

Notes to Financial Statements ​ F-7

​

​

​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Annovis Bio, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Annovis Bio, Inc. (the “Company”), as of December 31, 2022 and 2021, and the related statements of operations, changes in 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.

Substantial Doubt Regarding Going Concern

The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1 to the financial statements, the entity has a history of recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Restatement of Previously Issued Financial Statements

As discussed in Note 12 to the financial statements, the Company has restated its 2022 quarterly financial information for an error in the accounting for research and development costs.

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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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

/s/ WithumSmith+Brown, PC

​

We have served as the Company’s auditor since 2019.

​

East Brunswick, New Jersey

March 31, 2023

​

PCAOB ID Number 100

​

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ANNOVIS BIO, INC.

Balance Sheets

​

​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

​ ​ ​ ​ ​ ​ ​

Assets ​ ​ ​

Current assets: ​ ​ ​

Liabilities and Stockholders’ Equity ​ ​

Current liabilities: ​ ​

Commitments and contingencies (Note 7) ​ ​

Stockholders’ equity: ​ ​

​

See accompanying notes to financial statements.

​

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ANNOVIS BIO, INC.

Statements of Operations

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Year Ended December 31,

​ ​ ​ ​ ​ ​ ​ ​

Operating expenses: ​ ​ ​ ​

Other income: ​ ​ ​

Grant income ​ ​ — ​ 36,754

Income tax expense (benefit) ​ ​ — ​ —

Basic and diluted loss per common share ​ ​ $ (3.10) ​ $ (1.90)

​

See accompanying notes to financial statements.

​

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ANNOVIS BIO, INC.

Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2022 and 2021

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Stockholders’ Equity (Deficit)

​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Total ​ Total

​ ​ Common Stock ​ Paid-In ​ Accumulated ​ Stockholders’

​ Shares Amount Capital Deficit Equity

Cashless exercise of warrants ​ 53,924 ​ ​ 5 ​ ​ (5) ​ ​ — ​ ​ —

​

See accompanying notes to financial statements.

​

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ANNOVIS BIO, INC.

Statements of Cash Flows

​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Cash flows from operating activities: ​ ​ ​

Changes in operating assets and liabilities: ​ ​ ​ ​

Prepaid expenses and other current assets ​ (7,328,912) ​ (270,788)

Cash flows from financing activities: ​ ​

Proceeds from exercise of stock options ​ 4,613 ​ 95,102

Net cash provided by financing activities ​ 4,613 ​ 46,743,515

​

See accompanying notes to financial statements.

​

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Annovis Bio, Inc.

Notes to Financial Statements

December 31, 2022 and 2021

(1) Nature of Business, Going Concern and Management’s Plans

Annovis Bio, Inc. (the “Company” or “Annovis”) was incorporated on April 29, 2008, under the laws of the State of Delaware. Annovis is a clinical-stage drug platform company addressing neurodegeneration such as Alzheimer’s disease (“AD”) and Parkinson’s disease (“PD”). The toxic cascade in neurodegeneration begins with high levels of neurotoxic proteins which lead to impaired axonal transport, inflammation, death of nerve cells and loss of cognition and motor function. The Company’s lead product candidate, Buntanetap, is a small molecule administered orally that is designed to attack neurodegeneration by entering the brain and inhibiting the translation of multiple neurotoxic proteins thereby impeding the toxic cascade.

Since its founding, the Company has been engaged in organizational activities, including raising capital, and research and development activities. The Company has not generated substantial revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. The Company is subject to those risks associated with any clinical stage pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. Further, the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital.

The Company has a history of incurring net losses and anticipates incurring additional losses until such time, if ever, that it can generate significant revenue from its product candidates currently in development. The Company’s primary source of capital has been the issuance of equity securities.

On May 26, 2021, the Company closed an underwritten public offering of 1,000,000 shares of its common stock at an offering price of $50.00 per share, for gross proceeds of $50.0 million. The net proceeds of the offering were approximately $46.6 million, after deducting underwriting discounts and issuance costs paid by the Company. The Company’s common stock trades on the New York Stock Exchange under the ticker symbol “ANVS”.

Since the Company's inception, the Company has incurred losses and negative cash flows from operations. At December 31, 2022, the Company had an accumulated deficit of $54.1 million. The Company's net loss was $25.3 million and $14.5 million for the years ended December 31, 2022 and 2021, respectively. The Company follows the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 205-40, Presentation of Financial Statements-Going Concern, or ASC 205-40, which requires management to assess the Company's ability to continue as a going concern for one year after the date the financial statements are issued. The Company expects that its existing balance of cash and cash equivalents as of December 31, 2022 is sufficient to fund operations through the third quarter of 2023, but not for more than one year after the date of this filing and therefore management has concluded that substantial doubt exists about the Company's ability to continue as a going concern. Management's plans to mitigate this risk include raising additional capital through equity. Management's plans may also include the deferral of certain operating expenses unless and until additional capital is received. However, there can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company, or that the Company will be successful in deferring certain operating expenses. If the Company is unable to raise sufficient additional capital or defer sufficient operating expenses, the Company may be compelled to reduce the scope of its operations.

(2) Summary of Significant Accounting Policies

(a) Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as

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found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

(b) 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, including disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results may materially vary from these estimates.

Significant items subject to such estimates and assumptions include progress towards completion of research and development projects, stock-based compensation expense, grant income and contingent liabilities. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. Accounting estimates used in the preparation of these financial statements change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.

(c) Basic and Diluted Net Income per Share

Basic net loss per share is determined using the weighted average number of shares of common stock outstanding during each period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of common stock. The computation of diluted net loss per shares does not include the conversion of securities that would have an anti-dilutive effect.

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse effect on the Company’s financial condition, results of operations, and cash flows.

(e) Issuance Costs Associated with Equity Issuances

Issuance costs incurred in connection with the Company’s equity issuances, which primarily consisted of direct incremental legal, printing, listing and accounting fees, are offset against proceeds received in the issuances and charged to additional paid-in capital in the period the equity issuance is completed.

(f) Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts payable and accrued expenses. Cash and cash equivalents are reported at fair value. The recorded carrying amount of accounts payable and accrued expenses reflect their fair value due to their short-term nature.

(g) Research and Development

Research and development costs are either expensed as incurred or recorded separately as a prepaid asset, and the expense recognized when the service is performed and are primarily comprised of personnel-related expenses and external research and development expenses incurred under arrangements with third parties, such as contract research organizations and consultants. At the end of each reporting period, the Company compares the payments made to each service provider to the estimated progress towards completion of the related project. Factors that the Company considers in preparing these estimates include the number of patients enrolled in studies, milestones achieved, and other criteria related to the efforts of its vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, the Company will record net prepaid or accrued expenses related to these costs. Prepaid clinical expenses represent valid future economic benefits based on our contracts with our vendors, and are realized in the ordinary course of business.

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(h) Grant Income

Grants received are recognized as grant income in the statements of operations as and when they are earned for the specific research and development projects for which these grants are designated. Grants payments received in excess of grant income earned are recognized as deferred grant on the balance sheet and grant income earned in excess of grant payments received is recognized as grant receivable on the balance sheets.

(i) Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are recognized in compensation expense in the period when they occur. For stock awards that vest based on performance conditions (e.g. achievement of certain milestones), expense is recognized when it is probable that the condition will be met. Stock option modification expense is calculated as the incremental fair value of the modified award over the fair value of the original award measured immediately before the award's terms were modified. For vested awards, the incremental fair value is recognized immediately.

The Company uses the Black-Scholes option pricing model to value its option awards which requires the use of subjective assumptions, including the expected life of the option and expected share price volatility. 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. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

Upon exercise of stock options, the Company issues shares first from treasury stock, if available, then from authorized but unissued shares.

(j) Income Taxes

The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2022 and 2021, the Company had a full valuation allowance against its deferred tax assets.

The Company is subject to the provisions of ASC 740, Income Taxes, which prescribes a more likely-than-not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. There are currently no open federal or state tax audits. The Company has not recorded any liability for uncertain tax positions at December 31, 2022 or 2021.

(k) Recent Accounting Pronouncements

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in ASU 2021-10 require annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The new disclosure requirements include information about the nature of the transactions and the related accounting policy used to account for the transactions; the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and significant terms and conditions of the transactions, including commitments and contingencies. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted, and may be adopted prospectively or retrospectively. We adopted this standard prospectively. As such, the adoption did not have an impact on our financial statements.

​

(3) Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price)

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in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy that serves to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on unobservable inputs and models that are supported by little or no market activity.

The following tables provides the carrying value and fair value of certain financial assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 2022 and 2021:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Fair Value Measurement at

​ Carrying Value Level 1 Level 2 Level 3

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Fair Value Measurement at

​ Carrying Value Level 1 Level 2 Level 3

​

​

(4) Grant Income

In September 2019, as modified in September 2020, the Company received a Notice of Award for a $1.9 million grant from the National Institute on Aging of the National Institutes of Health (the “NIH”) to cover costs of long-term chronic toxicology studies of Buntanetap in rats and dogs. The Company began the long-term chronic toxicology studies in November 2019. The Company recognized grant income of $0 and $36,754 for the years ended December 31, 2022 and 2021, respectively, in connection with the NIH grant. The Company received payments under the grant of $36,754 during the year ended December 31, 2021 and recorded a grant receivable of $0 as of December 31, 2021, and had no unreimbursed, eligible costs incurred under the grant. As of December 31, 2022, there were no remaining funds available under the grant.

(5) Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

​

​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

​

​

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(6) Accrued Expenses

Accrued expenses consisted of the following:

​

​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

​

See Note 7 for further detail on the accrued license payments.

​

(7) Commitments and Contingencies

(a) Research & Development

The Company has entered contracts with contract research organizations (CROs) and contract manufacturers (CMOs) related the Company's clinical trials. The contracts require upfront payments, milestone payments, and pass through cost reimbursement, to be made. While the contracts are cancellable with (written) notice, the Company is obligated for payments for services rendered through the termination date of the project with the CRO/CMO.

(b) Leases

The Company leases its office facilities under a month-to-month operating lease. Total rental expense was $66,802 and $51,760 for the years ended December 31, 2022 and 2021, respectively.

(c) License Agreement

The Company previously licensed the rights to certain chemical compounds, know-how and intellectual property rights that may be suitable for the development of human therapeutics from a subsidiary of Horizon Therapeutics, PLC (the “Licensor”). Under the license agreement, the Company paid a minimum annual fee of $46,000 and was required to make milestone payments upon attainment of certain milestone events, royalties based on net sales of products covered by the patent-related rights and a portion of any sublicense income received by the Company. The Licensor also granted the Company a buy-out option which was exercisable at any time during the term of the agreement at increasing amounts based on the achievement of certain milestones. The Company had the right to terminate the agreement at any time by giving 90 days advance notice subject to the payment of any amounts due under the agreement at that time. Expenses related to the license agreement were recognized in general and administrative expense in the statements of operations.

In July 2021, the Company gave notice to the Licensor of its termination of the license agreement and the license agreement was terminated effective October 14, 2021. The Company has paid to the Licensor the prorated annual fees through the termination date. No milestones had been achieved as of the termination date.

(d) Employment Agreements

The Company has agreements with its executive officers that provide for severance payments to the employee upon termination of the agreement by the Company for any reason other than for cause, death or disability or by the employee for good reason. The maximum aggregate severance payments under the agreements were approximately $1,291,900 at December 31, 2022.

(e) Litigation

The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows.

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During the year ended December 31, 2021, two securities class action complaints were filed against the Company and its executive officers following disclosure of interim results from the AD/PD Trials. Both complaints were voluntarily dismissed without prejudice by the plaintiffs.

At December 31, 2022, the Company did not have any pending legal actions.

(f) Risks and Uncertainties

The extent to which the COVID-19 pandemic could have a material impact on the Company’s current or future clinical trials is dependent on the spread of the disease and government and healthcare system responses to such spread, which are presently highly uncertain. Management continues to evaluate the potential impact. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

​

(8) Stockholders’ Equity

(a) Common Stock

1. Dividends

Subject to the rights of holders of all classes of Company stock outstanding having rights that are senior to or equivalent to holders of common stock, the holders of the common stock are entitled to receive dividends when and as declared by the Board of Directors (“Board”).

2. Liquidation

Subject to the rights of holders of all classes of stock outstanding having rights that are senior to or equivalent to holders of common stock as to liquidation, upon the liquidation, dissolution or winding up of the Company, the assets of the Company will be distributed to the holders of common stock.

3. Voting

The holders of common stock are entitled to one vote for each share of common stock held. There is no cumulative voting.

(b) Preferred Stock

Preferred stock may be issued from time to time by the Board in one or more series.

(c) Warrants

In conjunction with the IPO, the Company granted the underwriters 100,000 warrants to purchase shares of Company common stock at an exercise price of $7.50 per share, which is 125% of the initial public offering price. The warrants have a five-year term and were exercisable as of January 29, 2021. During the year ended December 31, 2021, 97,600 of the warrants were tendered to the Company by the holders pursuant to cashless exercises. Warrants outstanding as of December 31, 2022 and 2021, were 2,400 and 2,400, respectively. The Company accounts for the warrants as a component of stockholders’ equity.

​

(9) Stock-Based Compensation

Effective upon the closing of the Company’s IPO on January 31, 2020, the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) became effective, succeeding the Company’s previous equity incentive plan. No new options may be issued under the previous plan, although shares subject to grants which are cancelled or forfeited will again be available under the 2019 Plan. Effective June 1, 2021, the 2019 Plan was amended to increase the number of shares authorized to be issued from 1,000,000 to 2,000,000. As of December 31, 2022, 392,874 shares were available for future grants.

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The 2019 Plan provides for grants to employees, members of the Board, consultants and advisors to the Company, in the form of stock options, stock awards and other equity-based awards. The amount and terms of grants are determined by the Board. Stock options have a maximum term of 10 years after date of grant and are exercisable in cash or as otherwise determined by the Board.

Stock-based compensation expense in the statements of operations, including the fair value of stock awards to consultants and advisors for services rendered, for the years ended December 31, 2022 and 2021 was as follows:

​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended

​ ​ December 31,

​

Stock option activity for the years ended December 31, 2022, and 2021, was as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Weighted ​

​ ​ ​ ​ ​ ​ ​ Average ​ ​

​ ​ ​ ​ ​ ​ ​ Remaining ​ ​

​ ​ ​ ​ Weighted ​ Contractual ​ Aggregate

​ ​ Number of ​ Average ​ Term ​ Intrinsic

​ ​ Shares ​ Exercise Price ​ (Years) ​ Value

Forfeited — ​ $ - ​

​

The aggregate intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $803,357 and $11,163,998, respectively. As of December 31, 2022, there was $4,089,400 unrecognized compensation expense related to unvested options. That cost is expected to be recognized over a weighted-average period of 1.39 years.

During the years ended December 31, 2022 and 2021, the Company issued 348,294 and 538,095 options, respectively. Under the grant agreements for the 2022 stock option grants, 10,000 of the options vested immediately, 9,947 of the options vested on March 29, 2022, 9,947 of the options vest on March 31, 2023, 43,333 of the options vest on August 29, 2023, and 255,067 of the options vest in substantially equal quarterly installments over two years from the date of grant. 20,000 of the options have performance-based vesting conditions. As of December 31, 2022, it was not considered probable that the performance conditions would be achieved, and no compensation expense was recognized during the period related to these options. Under the grant agreements for the 2021 stock option grants, 143,391 of the options vested immediately, 155,253 of the options vested on March 31, 2022, 155,251 of the options vest on March 31, 2023 and 84,200 of the options vest in substantially equal quarterly installments over two years from the date of grant. All of the options have a 10-year term.

​

The weighted average grant date fair value of options issued during the years ended December 31, 2022 and 2021 was $13.24 per share and $27.13 per share, respectively. The fair value was estimated using the Black Sholes option pricing model. The expected life of options was estimated using the simplified method, as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment. The risk-free rate was based on the interest rate payable on U.S. Treasury securities at the time of grant for a period that is commensurate with the expected term of the option. Given the lack of

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a public market for the Company’s common stock prior to the IPO, the expected stock price volatility was based on a weighted approach that incorporates the historic daily volatility of the Company’s common stock since the IPO and the historic daily volatility of similar companies that have been publicly traded for a period commensurate with the expected term of the option. The expected dividend yield is 0% because the Company has not historically paid and does not expect for the foreseeable future to pay a dividend on its common stock. The weighted average assumptions used in the valuation of options granted were as follows:

​

​ ​ ​ ​ ​ ​ ​

​ Year Ended Year Ended

Risk-free interest rate 2.24 % 1.17 %

Expected life 5.9 ​ 5.3 ​

Expected volatility 112 % 113 %

Expected dividend yield — ​ — ​

​

During the year ended December 31, 2022, previously issued stock options were modified for an employee who is no longer employed with the Company. As a result of this modification, $1,219,572 was recognized as stock option modification expense and included in general and administrative expenses on the accompanying statement of operations.

(10) Net Loss Per Share

The Company has reported a net loss for the years ended December 31, 2022 and 2021, and the basic and diluted net loss per share attributable to common stockholders are the same for both years because all warrants and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.

The following table sets forth the computation of basic and diluted net loss per share:

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​

​ ​ December 31, ​

Numerator ​ ​ ​ ​

Denominator ​ ​ ​

Net loss per share, basic and diluted ​ $ (3.10) ​ $ (1.90) ​

​

Potential common shares that are excluded from the computation of diluted weighted-average shares outstanding are as follows:

​

​ ​ ​ ​ ​

​ ​ December 31,

​

​

(11) Income Taxes

The federal and state provision (benefit) for income taxes was $0 for the years ended December 31, 2022 and 2021.

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A reconciliation of income tax provision (benefit) computed at the statutory federal income tax rate to income taxes as reflected in the financial statements for the years ended December 31, 2022 and 2021 is as follows:

​

​ ​ ​ ​ ​ ​

​ ​ Year Ended

​ ​ December 31,

Federal income tax benefit at statutory rate 21.0 % 21.0 %

State and local tax, net of federal benefit 5.7 % 13.7 %

Permanent differences (1.5) % 0.1 %

Research and development credit ​ 3.8 % 2.4 %

Stock-based compensation ​ 0.8 % 15.7 %

Change in valuation allowance (29.8) % (52.9) %

Effective income tax rate 0.0 % 0.0 %

​

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets are comprised of the following:

​

​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

Net deferred taxes ​ $ — ​ $ —

​

As of December 31, 2022, the Company had U.S. federal net operating loss (“NOL”) carryforwards of $27,536,031 which may be available to offset future income tax liabilities. Federal NOL carryforwards generated in 2017 and prior of $2,764,240 will expire beginning in 2032. The remaining federal NOL carryforwards generated in 2018 and later do not expire. As of December 31, 2022, the Company also had U.S. state NOL carryforwards of $30,082,914 which may be available to offset future income tax liabilities and will expire beginning in 2028.

The Company has recorded a full valuation allowance against its net deferred tax assets as of December 31, 2022 and 2021 because the Company has determined that is it more likely than not that these assets will not be fully realized due to historic net operating losses incurred. The Company experienced a net change in valuation allowance of $7,554,381 and $7,672,071 in the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company had federal research and development tax credit carryforwards of $1,618,294 available to reduce future tax liabilities which expire beginning in 2028.

Under the provisions of the Internal Revenue Code, the NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is 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. The Company has completed financings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. The Company’s tax years from

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2019 to the present remain open for review. All open years may be examined to the extent that tax credits or NOL carryforwards are used in future periods. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations.

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (R&E) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the US must be amortized over a 5-year period if incurred, and R&E expenses incurred outside the US must be amortized over a 15-year period. R&E activities are broader in scope than qualified research activities considered under IRC Section 41 (relating to the research tax credit). For the year ended December 31, 2022, the Company performed an analysis based on available guidance and determined that it will continue to be in a loss position even after the required capitalization and amortization of its R&E expenses. The Company will continue to monitor this issue for future developments, but it does not expect R&E capitalization and amortization to require it to pay cash taxes now or in the near future.

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(12) Restatement of Previously Issued Unaudited Condensed Financial Statements

During its preparation of its 2022 audited combined financial statements and notes thereto, the Company concluded that there were material research and development expenses and related balance sheet errors in its previously issued unaudited condensed financial statements as of and for each of the quarterly and year to date periods ended March 31, 2022, June 30, 2022 and September 30, 2022, primarily relating to the timing of payments for research and development expenses and recognition of expenses.

The Company noted the following items were improperly expensed during the three months ended March 31, 2022:

These errors in the accounting for research and development expenses resulted in an understatement of prepaid assets and other current assets of $800,840, accrued expenses and other current liabilities of $140,690 and an overstatement of operating expenses and net loss of $660,150 as of and for the three months ended March 31, 2022.

The Company noted the following items were improperly expensed during the three and six months ended June 30, 2022:

These errors, including the errors from the three months ended March 31, 2022, in the accounting for research and development expenses resulted in a cumulative understatement of prepaid assets and other current assets of $3,441,895, as of June 30, 2022, and an overstatement operating expenses and net loss of $2,781,745 and $3,441,895 for the three and six months ended June 30, 2022, respectively.

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The Company noted the following items were improperly expensed during the three and nine months ended September 30, 2022:

These errors, including the errors from the six months ended June 30, 2022, in the accounting for research and development expenses resulted in an understatement of prepaid assets and other current assets of $4,631,390 as of September 30, 2022, and an overstatement of operating expenses and net loss of $1,189,495 and $4,631,390 for the three and nine months ended September 30, 2022, respectively.

As a result of such errors, the Company concluded that the previously issued 2022 unaudited condensed financial statements were materially misstated and has restated herein our previously issued unaudited condensed financial statements for each interim period within the fiscal year ended December 31, 2022. The restatement corrections impact certain components within operating cash flows of the unaudited condensed statements of cash flows. Total operating cash flows, investing activities, financing activities, and cash and cash equivalents are unchanged as a result of the restatements and as a result are not restated herein.

The following tables present the amounts previously reported, the restatement impact and the amount as restated. The 2022 quarterly restatements will be effective with the filing of our future 2023 unaudited interim condensed financial statement filings in Quarterly Reports on Form 10-Q.

The values as previously reported for the fiscal quarters ended September 30, 2022, June 30, 2022, and March 31, 2022 were derived from our Quarterly Reports on Form 10-Q filed on November 8, 2022, August 8, 2022 and May 4, 2022, respectively.

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Annovis Bio, Inc.

Balance Sheets

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ (unaudited)

​ As Restatement As

​ ​ Reported ​ Impacts ​ Restated

Assets ​ ​ ​ ​ ​ ​ ​ ​ ​

Current assets: ​ ​ ​

Deferred clinical materials ​ — ​ — ​ —

Liabilities and Stockholders’ Equity ​ ​ ​

Current liabilities: ​ ​ ​

Commitments and contingencies (Note 7) ​ ​ ​

Stockholders’ equity: ​ ​ ​

​

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Annovis Bio, Inc.

Statements of Operations

(unaudited)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Three Months Ended March 31, 2022

​ ​ As ​ Restatement ​ As

​ Reported Impacts Restated

Operating expenses: ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other income: ​ ​ ​

Grant Income ​ — ​ — ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income tax expense (benefit) ​ — ​ — ​ —

Basic and diluted loss per common share ​ $ (0.72) ​ — ​ $ (0.64)

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Annovis Bio, Inc.

Statements of Cash Flows

(unaudited)

​

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Three Months Ended March 31, 2022

​ ​ As ​ ​ ​ As

​ ​ Reported ​ Restatement Impacts ​ Restated

Cash flows from operating activities: ​ ​

Adjustments to reconcile net loss to net cash used in operating activities: ​ ​

Changes in operating assets and liabilities: ​ ​

Net cash used in operating activities ​ ​ (3,021,789) — ​ ​ (3,021,789)

Cash flows from financing activities: ​ ​

Proceeds from exercise of stock options ​ ​ 4,613 — ​ ​ 4,613

Net cash used in financing activities ​ ​ 4,613 — ​ ​ 4,613

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