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.
65
Table of Contents
Overview
Company Overview
We are a clinical stage, drug platform company addressing Alzheimer’s disease (“AD”), Parkinson’s disease (“PD”) and other chronic neurodegenerative diseases such as AD in Down Syndrome (“AD-DS”). Our lead compound, Buntanetap, is a small molecule administered orally that attacks neurodegeneration by entering the brain and inhibiting the translation of neurotoxic proteins—amyloid precursor protein APP/Aβ (“APP”), tau/phospho-tau (“tau”) and α-Synuclein (“αSYN”)—thereby improving axonal transport. Human studies in four mildly cognitive impaired patients have shown that Buntanetap lowered the levels of neurotoxic proteins and inflammatory factors. In preclinical studies, lower neurotoxic protein levels led to improved axonal transport, reduced inflammation, lower nerve cell death and improved function.
AD is a substantial market affecting over 30 million people worldwide and is expected to grow to over 100 million by 2050. While the market for neurodegeneration is over $100 billion, to date there are no disease modifying drugs for any neurodegenerative condition. Enormous efforts have gone into developing better drugs to treat neurodegeneration and the outcomes have been sobering. The results of clinical trials in AD, the two AD orphan indications AD-DS and early onset familial AD or in PD have not supported the development of successful disease modifying therapies.
Buntanetap is a small lipophilic molecule that is orally available and readily enters the brain, as demonstrated by preclinical pharmacokinetics analyses showing brain concentrations approximately six to eight times higher than plasma concentrations. Buntanetap has a mechanism of action that we believe to be unique, in that it inhibited the over-translation of and, therefore, reduced the levels of several neurotoxic proteins both in vitro and in vivo including APP, tau and αSYN.
By targeting multiple neurotoxic proteins, Buntanetap resembles a combination therapy approach, with the added convenience of being a single drug with a single drug target. Therefore, we have worked to understand how Buntanetap is able to inhibit the translation of more than one neurotoxic protein.
We recently completed two Phase 2a clinical trials. In 2021 we completed a Phase 2a clinical trial in 14 AD and 54 PD patients (the “AD/PD Trial”) which began treating patients in August 2020. In collaboration with the Alzheimer’s Disease Cooperative Study (“ADCS”) we conducted a trial in 16 early AD patients (the “ADCS Trial”). Both clinical trials were double-blind, placebo-controlled studies. We designed the two Phase 2a studies by applying our understanding of the underlying disease states in neurodegeneration and measured not just target, but also pathway validation in the spinal fluid of these patients. We measured as many factors as possible associated with the toxic cascade which begins with high levels of neurotoxic proteins which lead to impaired axonal transport, inflammation, the death of nerve cells and loss of cognition and motor function. By showing both target and pathway validation in two patient populations, we believe that our opportunity for successful Phase 3 studies is better than if we merely demonstrated target validation in one patient population.
We have never been profitable and have incurred net losses since inception. Our accumulated deficit at December 31, 2021 was $28,726.2 thousand. 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, or if, we will be able to achieve or maintain profitability.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
66
Table of Contents
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;
We expense all research and development costs as incurred. 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 2021 and 2020 primarily related to the AD/PD Trial which began treating patients in August 2020. In addition, we completed two long-term animal toxicology studies — a six-month study in rats and a nine-month study in dogs — which began in November 2019 and were substantially complete as of December 31, 2020. We expect that our research and development expenses in 2022 and for the next several years will be higher than in 2021 as a result of costs associated with the initiation of 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;
● 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 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
67
Table of Contents
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 2022 and for the next several years will be higher than in 2021 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. In September 2019, as modified in September 2020, we received a Notice of Award for a $1.9 million grant from the National Institute on Aging of the NIH to cover the costs of long-term toxicology studies on Buntanetap in rats and dogs. The costs of the studies and the grant income were substantially completed as of December 31, 2020.
Income Taxes
As of December 31, 2021, the Company had U.S. federal net operating loss (“NOL”) carryforwards of $21,844,192, 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. Following the enactment of the Coronavirus Aid, Relief, and Economic Security Act in March 2020, NOL carryforwards generated from 2018 through 2020 are permitted to offset 100% of taxable income in future years. NOL carryforwards generated beginning in 2021 are permitted to offset 80% of taxable income in future years.
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 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, stock-based compensation and grant income. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
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
68
Table of Contents
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.
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.
Results of Operations
Operating expenses and other income (expense) were comprised of the following:
Year Ended
December 31,
(in thousands)
Operating expenses:
Other income (expense):
Change in fair value of derivative liability — (26.5)
Interest income, net 13.3 47.2
Years ended December 31, 2021 and 2020
Research and Development Expenses
Research and development expenses increased by $5,425.0 thousand for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily the result of an increase of $3,559.8 thousand in expenses related to our clinical trials, including production of material, an increase in stock-based compensation expense of $1,878.0 thousand, and an increase of $599.5 thousand in other personnel expenses, partially offset by a decrease of $725.8 thousand in expenses related to our long-term toxicology studies.
General and Administrative Expenses
General and administrative expenses increased by $2,472.0 thousand for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily the result of increases of $954.7 thousand in stock-based compensation expense, $458.4 thousand in other personnel expenses, an increase of $560.4 thousand in professional fees and recruiting expenses, and an increase of $259.5 thousand in conference and meeting expenses.
69
Table of Contents
Change in Fair Value of Derivative Liability
The derivative liability represents an embedded derivative in our convertible promissory notes which were issued in March 2019. At each balance sheet date, we estimated the fair value of the derivative liability and recognized any change in our statements of operations. The fair value of the derivative liability was adjusted to $132.5 thousand immediately prior to the closing of our IPO on January 31, 2020. Effective upon the closing of the IPO, the derivative liability was eliminated, and the amount was reclassified to additional paid-in capital on the balance sheet.
Interest Income, Net
Interest income, net decreased $33.9 thousand for the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease was primarily the result of lower interest rates compared to the prior year.
Grant Income
Grant income decreased $1,120.6 thousand for the year ended December 31, 2021 compared to the year ended December 31, 2020. 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, 2021, our principal source of liquidity was our cash, which totaled $45,686.0 thousand.
Equity Financings
We closed our IPO on January 31, 2020, raising gross proceeds of $13,800.0 thousand and net proceeds of $12,034.4 thousand, after deducting underwriting discounts and issuance costs.
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.
Debt Financings
In March 2019 we issued $530.0 thousand principal amount of convertible promissory notes. Upon the closing of our IPO on January 31, 2020, the outstanding convertible promissory notes plus accrued interest converted into 118,470 shares of our common stock at a 20% discount to the public offering price.
Future Capital Requirements
We expect that current cash and cash equivalents will be sufficient to fund our operations and capital requirements for at least the next 12 months. We believe that these available funds will be sufficient to complete a Phase 3 clinical trial for Buntanetap in PD and conduct a second Phase 3 study in AD or PD for this product candidate. However, it is difficult to predict our spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.
To the extent that our capital resources are insufficient to meet our future operating and capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and
70
Table of Contents
licensing arrangements or other financing alternatives. We have no committed external sources of funds. Additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms, if at all.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities.
Year Ended
December 31,
(in thousands)
Statement of Cash Flows Data:
Total net cash provided by (used in):
Increase in cash and cash equivalents $ 37,611.4 $ 8,072.8
Years ended December 31, 2021 and 2020
Operating Activities
For the year ended December 31, 2021, cash used in operations was $9,132.1 thousand compared to $3,970.8 thousand for the year ended December 31, 2020. The increase in cash used in operations was primarily the result of the costs associated with our AD/PD Trial and higher personnel expenses.
We expect cash used in operating activities to increase in 2022 as compared to 2021 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 $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.
Cash provided by financing activities was $12,043.6 thousand during the year ended December 31, 2020, attributable to net proceeds from our IPO of $12,034.4 thousand, after deducting underwriting discounts and issuance costs, and proceeds from the exercise of stock options of $9.2 thousand.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of this standard did not have an impact on our financial statements.
Significant Contractual Obligations and Commitments
We lease our office facilities under a month-to-month operating lease.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by applicable SEC regulations.
71
Table of Contents
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 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, our disclosure controls and procedures were 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.
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 conduct an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021. Based on the assessment, management has concluded that, as of December 31, 2021, our internal control over financial reporting was effective.
72
Table of Contents
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, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
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 2022 annual meeting of shareholders, to be filed with the SEC.
Item 11. Executive Compensation.
We incorporate the information required by this Item 11 by reference to the definitive proxy statement for our 2022 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 2022 annual meeting of shareholders, to be filed with the SEC.
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 2022 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 2022 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:
73
Table of Contents
3. Exhibits. See (b) below.
(b) Exhibits
ExhibitNumber Description of Exhibit
23.1 Consent of WithumSmith+Brown, PC.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
74
Table of Contents
ExhibitNumber Description of Exhibit
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH XBRL Taxonomy Extension Schema Document
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.
75
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, 2021 and 2020 F-4
Statements of Cash Flows for the Years ended December 31, 2021 and 2020 F-6
Notes to Financial Statements F-7
F-1
Table of Contents
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, 2021 and 2020, and the related statements of operations, statements of redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2021 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, 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 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 2, 2022
PCAOB ID Number 100
F-2
Table of Contents
ANNOVIS BIO, INC.
Balance Sheets
As of December 31,
Assets
Current assets:
Prepaid expenses and other current assets 315,464 44,676
Current liabilities:
Commitments and contingencies (Note 8)
Stockholders’ equity (deficit):
See accompanying notes to financial statements.
F-3
Table of Contents
ANNOVIS BIO, INC.
Statements of Operations
Year Ended December 31,
Operating expenses:
Other income (expense):
Change in fair value of derivative liability — (26,500)
Income tax expense (benefit) — —
Basic and diluted loss per common share $ (1.90) $ (0.87)
See accompanying notes to financial statements.
F-4
Table of Contents
ANNOVIS BIO, INC.
Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2021 and 2020
Redeemable Convertible Preferred Stock Stockholders’ Equity (Deficit)
Total
Additional Stockholders’
Series A Series A-1 Common Stock Paid-In Accumulated Equity
Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit)
Stock-based compensation expense — — — — — — 1,742,163 — 1,742,163
Cashless exercise of warrants — — — — 53,924 5 (5) — —
Stock-based compensation expense — — — — — — 4,697,627 — 4,697,627
See accompanying notes to financial statements.
F-5
Table of Contents
ANNOVIS BIO, INC.
Statements of Cash Flows
Year Ended December 31,
Cash flows from operating activities:
Amortization of deferred financing fees — 129
Amortization of debt discount — 396
Change in fair value of derivative liability — 26,500
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (270,788) (34,097)
Cash flows from financing activities:
Proceeds from exercise of stock options 95,102 9,217
Cash and cash equivalents, beginning of year 8,074,658 1,858
Supplemental disclosure of non-cash financing activities:
See accompanying notes to financial statements.
F-6
Table of Contents
Annovis Bio, Inc.
Notes to Financial Statements
December 31, 2021 and 2020
(1) Nature of Business and Liquidity
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”), Parkinson’s disease (“PD”) and Down syndrome patients with AD (“DS-AD”). 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 compound, Buntanetap, is a small molecule administered orally that attacks 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.
The Company closed its initial public offering (the “IPO”) on January 31, 2020, pursuant to which it sold a total of 2,300,000 shares of common stock at an initial offering price of $6.00 per share for total gross proceeds of approximately $13.8 million. The net proceeds of the IPO were approximately $12.0 million after deducting underwriting discounts and issuance costs paid by the Company. 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. Upon the closing of the IPO, outstanding redeemable convertible preferred stock and convertible promissory notes converted into shares of Company common stock totaling 4,117,089 and 118,470, respectively. 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”.
As of the date these financial statements are issued, management believes that the current cash and cash equivalents are sufficient to fund operations and capital requirements for at least the next 12 months including one potential short-term clinical trial in AD and one potential short term clinical trial in PD. To fund additional planned Phase 3 trials, however, the Company will need to raise additional capital. There is no assurance that such financing will be available when needed or on acceptable terms.
(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
F-7
Table of Contents
to refer to U.S. GAAP as 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 (Loss) per Share
Basic net income (loss) per share is determined using the weighted average number of shares of common stock outstanding during each period. Diluted net income (loss) per share includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred stock, convertible promissory notes and stock options, which would result in the issuance of incremental shares of common stock. The computation of diluted net income (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. At times, the Company’s cash balances may exceed the current insured amounts under the Federal Deposit Insurance Corporation.
(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 expensed as incurred 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.
F-8
Table of Contents
(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.
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, 2021 and 2020, 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, 2021 or December 31, 2020.
(k) Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of this standard did not have an impact on the Company’s financial statements.
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
F-9
Table of Contents
December 15, 2021, with early adoption permitted, and may be adopted prospectively or retrospectively. The Company does not believe the adoption of this standard will have a significant impact on its 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) 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 table 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, 2021 and December 31, 2020:
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 $36,754 and $1,157,449 for the years ended December 31, 2021 and 2020, respectively, in connection with the NIH grant. The Company received payments under the grant of $36,754 and $1,892,524 during the years ended December 31, 2021 and 2020, respectively and recorded a grant receivable of $0 as of December 31, 2021 and 2020, and had no unreimbursed, eligible costs incurred under the grant. As of December 31, 2021, there were no remaining funds available under the grant.
F-10
Table of Contents
(5) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
As of December 31,
Prepaid clinical trial expenses $ 232,752 $ —
(6) Accrued Expenses
Accrued expenses consisted of the following:
As of December 31,
Accrued license payments — 3,833
See Note 8 for further detail on the accrued license payments.
(7) Convertible Promissory Notes
In March 2019, the Company issued convertible promissory notes (the “Notes”) to various investors in the aggregate principal amount of $530,000. Interest accrued at 8% compounded annually on all Notes. The maturity date was the earlier of a Liquidity Event or upon the written demand of the holders of a majority of the outstanding principal amount of the Notes made any time after December 31, 2023. A Liquidity Event was defined as (i) the date of the closing of a merger or reorganization of the Company with another entity; (ii) the sale of substantially all of the assets of the Company in which the Company’s stockholders own less than 50% of the equity securities after the event; or (iii) a liquidation of the Company.
The Company incurred costs of $8,622 in connection with the issuance of the Notes. In addition, on issuance, the Company recognized a discount associated with the Notes of $26,500 related to the fair value of an embedded derivative reflecting the share-settlement provision upon the closing of a Qualified Financing. Unamortized deferred financing fees and debt discount were deducted from the face amount of the Notes on the balance sheets. The Company amortized the deferred financing fees and debt discount over the term of the Notes as additional interest expense using the effective interest method. The effective interest rate on the Notes was 9.8%. The Company made no cash payments for interest.
On January 31, 2020, the Company closed its IPO. In accordance with the terms of the Notes, the outstanding Notes plus accrued interest converted into 118,470 shares of Company common stock at a 20% discount to the initial offering price of shares issued in the IPO.
(8) Commitments and Contingencies
(a) Leases
The Company leases its office facilities under a month-to-month operating lease. Total rental expense was $51,760 and $41,603 for the years ended December 31, 2021 and 2020, respectively.
F-11
Table of Contents
(b) 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.
(c) 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 $930,000 at December 31, 2021.
(d) 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.
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 Trial. Both complaints were voluntarily dismissed without prejudice by the plaintiffs.
At December 31, 2021, the Company did not have any pending legal actions.
(e) 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.
(9) Redeemable Convertible Preferred Stock and Stockholders’ Equity
(a) Overview
The Company closed its IPO on January 31, 2020, issuing 2,300,000 shares of common stock. In connection with the closing of the Company’s IPO, the then-outstanding 5,133,159 shares of Series A and 630,722 shares of Series A-1 redeemable convertible preferred stock converted into an aggregate of 4,117,089 shares of Company common stock. Each share of redeemable convertible preferred stock was converted into the number of shares of common stock determined by dividing the original issue price by the applicable conversion price. The Series A-1 conversion price was $1.26, and the Series A conversion price was $0.70.
F-12
Table of Contents
The Company’s Amended and Restated Certificate of Incorporation was adopted on January 31, 2020 to authorize the issuance of two classes of stock to be designated, respectively, common stock and preferred stock. The total number of shares which the Company is authorized to issue is 37,000,000, each with a par value of $0.0001 per share. Of these shares, 35,000,000 shall be common stock and 2,000,000 shall be preferred stock.
(b) 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.
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.
(c) Preferred Stock
Preferred stock may be issued from time to time by the Board in one or more series.
(d) 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, 2021 and 2020, were 2,400 and 100,000, respectively. The Company accounts for the warrants as a component of stockholders’ equity.
(10) 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, 2021, 630,569 shares were available for future grants.
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, 2021 and 2020 was as follows:
F-13
Table of Contents
Year Ended
December 31,
Stock option activity for the years ended December 31, 2021, and 2020, was as follows:
Weighted
Average
Remaining
Weighted Contractual Aggregate
Number of Average Term Intrinsic
Shares Exercise Price (Years) Value
The aggregate intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $11,163,998 and $196,976, respectively. As of December 31, 2021 there was $9,933,691 unrecognized compensation expense related to unvested options. That cost is expected to be recognized over a weighted-average period of 1.4 years.
During the years ended December 31, 2021 and 2020, the Company issued 538,095 and 810,000 options, respectively. Under the grant agreements for the 2021 stock option grants, 143,391 of the options vested immediately, 155,253 of the options vest 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. Under the grant agreements for the 2020 stock option grants, 50,000 of the options vested after one year and the remainder of the options were vested and exercisable upon 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, 2021 and 2020 was $27.13 per share and $2.19 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 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
F-14
Table of Contents
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 1.17 % 0.38 %
Expected life 5.3 5.0
Expected volatility 113 % 80 %
Expected dividend yield — —
During the year ended December 31, 2020, the Company granted stock awards totaling 25,000 shares to consultants and advisors for services rendered which vested upon grant. These awards had a weighted-average grant date fair value of $4.91 per share and an aggregate fair value of $122,750, which was recognized in stock-based compensation expense upon grant. No stock awards were issued during the year ended December 31, 2021. As of December 31, 2021, there were no unvested stock awards and there was no unrecognized compensation expense related to stock awards.
(11) Net Loss Per Share
The Company has reported a net loss for the years ended December 31, 2021 and 2020, and the basic and diluted net loss per share attributable to common stockholders are the same for both years because all redeemable convertible preferred stock, convertible promissory notes, 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 $ (1.90) $ (0.87)
Potential common shares that are excluded from the computation of diluted weighted-average shares outstanding are as follows:
December 31,
(12) Income Taxes
The federal and state provision (benefit) for income taxes was $0 for the years ended December 31, 2021 and 2020.
F-15
Table of Contents
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, 2021 and 2020 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 13.7 % 7.6 %
Permanent differences 0.1 % (0.8) %
Research and development credit 2.4 % 1.9 %
Stock-based compensation 15.7 % — %
Change in valuation allowance (52.9) % (29.7) %
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,
Capitalized research and development 2,002,431 —
Research and development tax credit carryforwards 648,077 241,414
Net deferred taxes $ — $ —
As of December 31, 2021, the Company had U.S. federal net operating loss (“NOL”) carryforwards of $21,844,192, 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, 2021, the Company also had U.S. state NOL carryforwards of $24,391,076 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, 2021 and 2020 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 $7,672,071 and $1,619,516 in the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, the Company had federal research and development tax credit carryforwards of $648,077 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.
F-16
Table of Contents
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 2018 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, 2021, 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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. Previously, NOLs generated after December 31, 2017 were limited to 80% of taxable income in future years. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The NOL carryback provision of the CARES Act had no impact on the Company due to its tax losses generated during all prior years.
(13) Related-Party Transactions
As discussed in Note 7, in March 2019 the Company issued Notes in the aggregate principal amount of $530,000. Three of the Company’s directors purchased an aggregate of $305,000 of the Notes. On January 31, 2020, the Company closed its IPO and the outstanding Notes plus accrued interest held by directors converted into 71,429 shares of the Company’s common stock.
(14) Subsequent Events
On January 3, 2022, the Company granted options to purchase an aggregate of 188,294 shares of common stock at an exercise price of $19.78 per share to employees, members of the board of directors and consultants to the Company.
F-17
Table of Contents
SIGNATURES
In accordance with the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ANNOVIS BIO, INC.
By: /s/ MARIA MACCECCHINI
Name: Maria Maccecchini
Title: President and Chief Executive Officer
SIGNATURES
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 and on the dates indicated. Each of the undersigned hereby constitute and appoint Maria Maccecchini and Jeffrey McGroarty, and each of them, his or her true and lawful attorneys-in-fact and agents, with full and several power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities, to sign one or more amendments to this Annual Report on Form 10-K, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that this Annual Report and any amendments shall comply with the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
/s/ MARIA MACCECCHINI President and Chief Executive Officer March 2, 2022
Maria Maccecchini (principal executive officer)
/s/ JEFFREY MCGROARTY Chief Financial Officer (principal March 2, 2022
Jeffrey McGroarty financial and accounting officer)
/s/ MICHAEL HOFFMAN Chairman of the Board and Director March 2, 2022
Michael Hoffman
/s/ CLAUDINE BRUCK Director March 2, 2022
Claudine Bruck
/s/ REID MCCARTHY Director March 2, 2022
Reid McCarthy
/s/ MARK WHITE Director March 2, 2022
Mark White
76