ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that impact our business. In particular, we encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.All amounts are expressed in United States dollars unless otherwise stated.

Aptose Biosciences Inc. (“Aptose,” the “Company,” “we,” “us,” or “our”) is a science-driven clinical stage biotechnology company committed to precision medicines addressing the unmet clinical needs in oncology, with an initial focus on hematology. The Company's small molecule cancer therapeutics pipeline includes products designed to provide single agent efficacy and to enhance the efficacy of other anti-cancer therapies and regimens without overlapping toxicities. The Company’s executive offices are located in San Diego, California, and our head office is located in Toronto, Canada.

Aptose Programs

Aptose is advancing oral targeted agents to treat life-threatening cancers that, in most cases, are not elective for patients and require immediate treatment. We have two clinical-stage investigational products under active development for the treatment of hematologic malignancies: tuspetinib (HM43239), an oral, potent myeloid kinase inhibitor, and luxeptinib (CG-806), an oral, dual lymphoid and myeloid kinase inhibitor.

Tuspetinib is an orally administered, highly potent myeloid kinome inhibitor that selectively targets a constellation of kinases operative in myeloid malignancies and known to be involved in tumor proliferation, resistance to therapy, and differentiation. This small molecule anticancer agent is currently being evaluated in an international Phase 1/2 clinical trial in patients with relapsed or refractory AML, including the emerging populations resistant to FLT3 inhibitors.

Luxeptinib is an orally administered, highly potent dual lymphoid and myeloid kinome inhibitor that selectively targets defined clusters of kinases that are operative in hematologic malignancies. This small molecule anticancer agent is currently being evaluated in a Phase 1a/b study for the treatment of patients having B-cell malignancies including classic CLL, SLL and certain NHL that are resistant/refractory/intolerant to other therapies, and in a Phase 1 a/b study for the treatment of patients with R/R AML and HR MDS.

PROGRAM UPDATES

Tuspetinib

Indication and Clinical Trials:

Tuspetinib is an oral, highly potent, small molecule inhibitor of kinases operative in myeloid malignancies and known to be involved in tumor proliferation, resistance to therapy and differentiation. Preclinical in vitro and in vivo studies suggest that Tuspetinib may be an effective monotherapy and combination therapy in patients with hematologic malignancies including AML. An international Phase 1/2 clinical trial in patients with relapsed or refractory AML is ongoing. The dose escalation portion of this study to date has observed evidence of robust clinical activity, including multiple complete responses in R/R AML patients with various disease genotypes, and no toxicity trends that should prevent further dose escalation.

The FDA granted orphan drug designation to Tuspetinib for the treatment of patients with AML in October 2018. Orphan drug designation is granted by the FDA to encourage companies to develop therapies for the treatment of diseases that affect fewer than 200,000 individuals in the United States. Orphan drug status provides research and development tax credits, an opportunity to obtain grant funding, exemption from FDA application fees and other benefits. The orphan drug designation also provides us with seven additional years of marketing exclusivity in this indication.

Manufacturing:

Following the Tuspetinib licensing agreement between Aptose and Hanmi on November 4, 2021, Aptose received from Hanmi an existing inventory of drug product expected to support continuation of the current Phase 1/2 study. The Company and Hanmi also entered into a separate supply agreement in 2022 for additional production of new drug substance (API) and drug product to support further clinical development. Additional batches of API and drug product have been produced by other companies during 2022.

Program Updates at Recent Scientific Forums:

As of January 30, 2023, Aptose announced dosing of patients in the APTIVATE Phase 1/2 clinical trial of tuspetinib, and that another clinical response has been achieved by a R/R AML patient receiving 40 mg tuspetinib once daily orally in the original dose exploration trial, the second response at the recently launched low-dose 40 mg cohort. In addition, Aptose elucidated a rationale for the superior safety profile of tuspetinib. While several kinase inhibitors require high exposures that exert near complete suppression of a single target to elicit responses, those agents often cause additional toxicity because they also cause extensive inhibition of that target in normal cells. In contrast, tuspetinib simultaneously suppresses a small suite of kinase-driven pathways critical for leukemogenesis. Consequently, tuspetinib achieves clinical responses at lower exposures with less overall suppression of each pathway, thereby avoiding many of the toxicities observed with competing agents.

Tuspetinib has completed the dose escalation and dose exploration phases of an international Phase 1/2 study in patients with relapsed or refractory AML across clinical centers in the United States and South Korea. Clinical data from tuspetinib in AML were presented at the American Society of Hematology (ASH) Annual Meeting in December 2022 and presented during a Corporate Comprehensive Clinical Update Call held December 11, 2022. Data presented demonstrated that tuspetinib delivers single agent responses without prolonged myelosuppression or life-threatening toxicities in these very ill and heavily pretreated relapsed or refractory AML patients. Responses were observed in a broad range of mutationally-defined populations, including those with mutated forms of NPM1, MLL, TP53, NRAS, KRAS, DNMT3A, RUNX1, wild-type FLT3, ITD or TKD mutated FLT3, various splicing factors, and other genes As of October 6, 2022, 60 heavily pretreated R/R AML patients were enrolled at multiple centers and treated at doses escalating from 20 mg to 200 mg, with further dose exploration at the 40 mg, 80 mg, 120 mg and 160 mg dose levels. Tuspetinib delivered multiple complete responses (CR) at 40 mg, 80 mg, 120 mg and 160 mg dose levels in which no dose limiting toxicities ("DLT) were observed. Tuspetinib demonstrated clinically meaningful benefit in all responders, by either bridging successfully to hematopoietic stem cell transplant (HSCT) or leading to a durable response, as well as a favorable safety profile. In addition to 5 CRc and 1 PR reported at ASH 2021, 4 new CRc and 3 new PR had been generated during 2022. New responses during 2022 were achieved with 160 mg,120 mg, 80 mg, and 40 mg. Among efficacy evaluable patients treated with 80 mg, 120 mg, or 160mg, the following response rates ranging from 19% to 75% were achieved in specific genotypic subpopulations of r/r AML patients. Significant bone marrow leukemic blast reductions were observed broadly in FLT3+ and FLT3 wildtype patients across multiple dose levels, comparable to reported gilteritinib data, but in more heavily pre-treated relapsed and refractory AML patients. Vignettes of patient experiences highlight the potency and breadth of tuspetinib to deliver complete remissions among several mutationally-defined populations with a diversity of adverse mutations. Tuspetinib continued to show a favorable safety profile with only mild AEs and no DLTs up to 160 mg per day, and no drug discontinuations from drug related toxicity. No drug related SAE, drug related deaths, differentiation syndrome, AE of QT prolongation or DLT were observed through the 160 mg level. Tuspetinib avoids many of the typical toxicities observed with other tyrosine kinase inhibitors. Aptose identified a safe therapeutic range with a broad therapeutic window, spanning the dose levels of 40, 80, 120 and 160 milligrams. Aptose also announced that enrollment had been initiate in the APTIVATE expansion trial for monotherapy and drug combination therapy with tuspetinib. For the APTIVATE expansion trial, Aptose selected 120 mg as the initiating single agent expansion dose and 80 mg as the initiating dose selected for combination with venetoclax.

At the European Hematology Association Annual Congress 2022 held June 9-12, 2022, Aptose presented preclinical data from tuspetinib in a poster entitled “Myeloid Kinome Inhibitor HM43239 Overcomes Acquired Resistance in Acute Myeloid Leukemia Models.” Oral HM43239 potently inhibits kinases that drive AML, including SYK, diverse forms of the FLT3, JAK1 and JAK2, and mutant forms of the c-KIT kinases. The SYK and JAK1/2 intracellular kinases and the FLT3 (mutated and wildtype) and cKIT (mutated) receptor kinases mediate oncogenic signaling pathways in AML that can drive malignant proliferation and promote drug resistance to certain drugs. Tuspetinib was developed to overcome shortcomings of other drugs, such as simple SYK inhibitors and approved inhibitors of FLT3. These preclinical findings support the continued clinical development of tuspetinib for the treatment of multiple AML populations, particularly those that who have been failed by other therapies.

Major conclusions include

•

HM43239 inhibits wild type and mutant forms of FLT3 at low nM concentrations

•

HM43239 inhibits SYK, JAK1, JAK2 and mutant forms of c-KIT at low nM concentrations

•

HM43239 inhibits phospho-FLT3, phospho-SYK, phospho-EKR1/2 and phospho-JAK/STAT5 that participate in signaling and rescue pathways

•

HM43239 has potential to kill cells and tumors resistant to other FLT3 inhibitors

•

HM43239, at doses that are well tolerated, demonstrates in vivo efficacy on tumors resistant to other FLT3 inhibitors

Luxeptinib

Indication and Clinical Trials:

Luxeptinib is currently being evaluated in a Phase 1 a/b trial in patients with relapsed or refractory B cell malignancies who have failed or are intolerant to standard therapies, and in a separate Phase 1 a/b trial in patients with relapsed or refractory AML or high-risk MDS. During 2022, a new G3 formulation was tested as a single dose in 20 patients during the ongoing Phase 1 a/b clinical program. Modeling of the pharmacokinetic (PK) properties of G3 predicted steady-state plasma exposure from continuous dosing with 50 mg of G3 (every 12 hours, Q12h) should be comparable to that of 900 mg of the original G1 formulation Q12h, representing a significant improvement in bioavailability with G3. On November 14, 2022, Aptose announced dosing of the first AML patient to receive a continuous dosing regimen of the G3 formulation (50 mg G3 Q12h), with the protocol allowing for further dose escalation of G3 in subsequent patients. Clinical data from both studies were presented during a Corporate Comprehensive Clinical Update Call held December 11, 2022. During the Corporate Update Call, Aptose announced a CR was achieved with a diffuse large B-cell lymphoma (DLBCL) patient at the end of Cycle 22 with 900mg BID of the original G1 formulation. Previously, an MRD-negative CR was reported with a R/R AML patient receiving 450mg BID of the original G1 formulation. Aptose expects that 9-15 patients will determine if G3 is safe and achieves desired exposures to deliver clinical responses.

Manufacturing:

During fiscal years 2017 and 2018, we created a scalable chemical synthetic route for the manufacture of luxeptinib drug substance and have scaled the manufacture of API to multi-kg levels, we completed the manufacture of a multi-kg batch of API under GMP conditions as our API supply for our first-in-human clinical trials, and we manufactured under GMP conditions two dosage strengths of capsules to serve as our clinical supply in those human studies. During fiscal 2019 and 2020, we completed successful manufacture of multiple batches of API and drug product, and planned numerous GMP production campaigns to supply the ongoing trial and planned trials into the future. To date we have been able to manufacture API and capsules to support clinical supplies under GMP conditions. In fiscal 2021 and 2022 we continued our manufacturing campaigns and scale-up and tech transfer activities to support additional manufacturing capacity for the ongoing and planned clinical trials of luxeptinib. Additional research and development funds were utilized to support the development of the G3 formulation of luxeptinib. Now that the G3 formulation has been successfully manufactured and has demonstrated encouraging PK properties, the manufacture of additional batches of the first (“G1”) and second generation formulation of luxeptinib are discontinued, and the amount of drug substance manufacturing is reduced.

Publication of Peer-Reviewed Research Articles Related to Luxeptinib:

During the first quarter of 2023, Aptose and its scientific collaborators published a peer reviewed research article, entitled “Luxeptinib interferes with LYN-mediated activation of SYK and modulates BCR signaling in lymphoma,” in the online journal PLOS ONE. The article elucidates the mechanism by which luxeptinib suppresses the B-cell receptor and compares it to BTK inhibitor ibrutinib. Results showed that both luxeptinib and ibrutinib are potent inhibitors of recombinant forms of BTK but have different efficacy profiles and effects on BTK activity. Luxeptinib was more effective than ibrutinib at reducing both steady state and anti-IgM-induced phosphorylation of the LYN and SYK kinases upstream of BTK where IB has little or no effect.

During the first quarter of 2022, three separate peer-reviewed research articles were published that presented preclinical data related to the application of luxeptinib to the treatment of AML, certain B-cell lymphomas and inflammation. These publications contribute to the body of preclinical data demonstrating luxeptinib’s activity as a lymphoid and myeloid kinome inhibitor, and now as an inflammation kinome inhibitor, and support its continued clinical development in several therapeutic areas.

Program Updates at Recent Scientific Forums:

On December 11, 2021, we presented clinical updates from luxeptinib in patients with R/R B-cell malignancies and R/R AML in two virtual poster presentations at the 63rd ASH Annual Meeting (A Phase 1 a/b Dose Escalation Study of the Mutation Agnostic BTK/FLT3 Inhibitor Luxeptinib (CG-806) in Patients with Relapsed or Refractory B-Cell Malignancies; A Phase 1 a/b Dose Escalation Study of the Mutation Agnostic FLT3/BTK Inhibitor Luxeptinib (CG-806) in Patients with Relapsed or Refractory Acute Myeloid Leukemia. The presentations highlighted that in both of these Phase 1/2 studies luxeptinib has been generally well tolerated at dose levels of 450, 600 and 750 mg BID over multiple cycles, and that patients already were being dosed at the 900 mg level. Target engagement of BTK and FLT3, and anti-tumor activity, including dose- and exposure-dependent tumor reductions, have been observed in multiple patients collectively between the studies, including in patients with follicular lymphoma, diffuse large B-cell lymphoma, CLL/SLL, and AML.

We have completed several non-clinical and clinical studies that demonstrate the highly differentiated profile of luxeptinib. Key studies that have been presented at scientific forums are as follows:

•

On April 27, 2020, we presented the early clinical data on luxeptinib at the AACR Virtual Annual Meeting I in lieu of the live oral presentation originally planned. A video summary of Abstract # 9967 - Early clinical findings from a Phase 1a/b dose escalation trial to evaluate the safety and tolerability of CG-806 in patients with relapsed or refractory CLL/SLL or non-Hodgkin’s lymphomas described the first-in-human tests of luxeptinib which are being carried out in a Phase 1a/b clinical study in patients with significant unmet needs including patients with relapsed or refractory CLL, SLL or NHL who had been failed by or been intolerant to two lines of established therapy. We noted that the second patient, treated at the 300 mg BID dose level, represented a classic CLL patient that developed a brisk lymphocytosis (evidence of BTK target engagement and evidence of pharmacologic activity), and that enrollment was continuing.

•

On June 12, 2020, we presented new clinical data on luxeptinib in a poster presentation at the 25th Congress of the EHA. The poster, Early Clinical Findings from a Phase 1 a/b Dose Escalation Trial to Evaluate the Safety and Tolerability of CG-806 in Patients with Relapsed or Refractory CLL/SLL or Non-Hodgkin’s Lymphomas (EHA2020 Abstract# EP711), reviewed luxeptinib data for eight patients (as of the data cut-off date on May 5, 2020) with relapsed or refractory CLL, SLL or NHL in the first in-human Phase 1a/b, open-label, single arm, multicenter dose-escalation clinical study. Data from the ongoing trial demonstrated that luxeptinib was well-tolerated in patients treated at 150 mg, 300 mg, 450 mg BID over multiple cycles, with no dose-limiting toxicities or serious adverse events observed, supporting continued dose escalation. Luxeptinib treatment achieved human steady state PK levels known to be effective in murine tumor models and led to complete inhibition of phospho-BTK and multiple CLL survival pathways. Luxeptinib treatment also led to lymphocytosis in both classic CLL patients entering study with elevated lymphocyte counts and led to complete inhibition of phospho-FLT3, suggesting that dose levels evaluated in this study may be therapeutic in patients with AML.

•

On December 6, 2020, we presented new clinical data in a virtual poster presentation at the 62nd ASH Annual Meeting. The poster, A Phase 1 a/b Dose Escalation Study of the Mutation Agnostic BTK/FLT3 Inhibitor CG-806 in Patients with Relapsed or Refractory CLL/SLL or Non-Hodgkin’s Lymphomas reviewed luxeptinib data for fourteen patients (as of the cutoff date of November 2, 2020) with relapsed or refractory CLL, SLL or NHL in the first in-human Phase 1a/b, open-label, single arm, multicenter dose-escalation clinical study. Data from the ongoing trial demonstrated that luxeptinib was generally well-tolerated in patients treated at 150 mg, 300 mg, 450 mg, and 600 mg BID over multiple cycles, supporting continued dose escalation. At the ongoing 750 mg dose, luxeptinib achieved steady state plasma concentration greater than 2 micromolar at the of Cycle 1. Luxeptinib treatment also led to modest reductions in patients with different B-cell malignancies. On December 6, 2020, Aptose also hosted a corporate event and clinical update, where the company’s management highlighted some early clinical observations on safety, tolerability, pharmacokinetics and activity from the Phase 1a/b study in B-cell malignancies as well as from the recently initiated Phase 1a/b study in AML.On June 11, 2021, we presented clinical data on luxeptinib in a poster presentation at the EHA June 2021 Congress. With luxeptinib in heavily pretreated B-cell cancer patients we presented that many of the patients rapidly progressed immediately before luxeptinib treatment was initiated, resulting in a trend of tumor growth early in treatment, often followed by tumor reductions. We observed dose-dependent anti-leukemic activity to luxeptinib in patients who received dose escalation, including one follicular lymphoma patient who experienced tumor growth while on 450mg BID and upon dose escalation to 600mg BID the patient experienced 43% tumor reduction from peak (12% from baseline). In that patient, luxeptinib was well-tolerated with single agent activity for the duration of 16+ cycles of therapy. In addition, one CLL patient and one WM patient reported >25% tumor volume reduction.

•

Also, on June 11, 2021, during a virtual corporate update event we provided updated clinical findings with luxeptinib for the treatment of patients with relapsed or refractory AML. We presented dose-dependent inhibition of phospho-FLT3, -BTK, -SYK, and -PDGFRα signaling and that all three R/R-AML patients with FLT3-ITD mutations who received 450mg BID luxeptinib (the lowest dose) for 28 days experienced blast reductions. Two patients experienced blast reduction of 67-90% but later experienced disease progression. However, one patient who failed chemotherapy twice, failed prior FLT3 inhibitor therapy, failed venetoclax and decitabine treatment and failed AHSC transplants twice, achieved a MRD-negative CR with monotherapy of 450mg BID luxeptinib.

•

On December 11, 2021, we presented clinical updates from luxeptinib in patients with relapsed or refractory B-cell malignancies and relapsed or refractory AML in two virtual poster presentations at the 63rd ASH Annual Meeting (A Phase 1 a/b Dose Escalation Study of the Mutation Agnostic BTK/FLT3 Inhibitor Luxeptinib (CG-806) in Patients with Relapsed or Refractory B-Cell Malignancies; A Phase 1 a/b Dose Escalation Study of the Mutation Agnostic FLT3/BTK Inhibitor Luxeptinib (CG-806) in Patients with Relapsed or Refractory Acute Myeloid Leukemia). The presentations highlighted that in both of these Phase 1/2 studies luxeptinib has been generally well tolerated at dose levels of 450, 600 and 750 mg BID over multiple cycles, and is currently being dosed in 900 mg BID cohorts in parallel. Target engagement of BTK and FLT3, and anti-tumor activity, including dose- and exposure-dependent tumor reductions, have been observed in multiple patients collectively between the studies, including in patients with FL, DLBCL, CLL/SLL, and AML.

Other corporate matters

Nasdaq notice

On July 18, 2022, we received a deficiency letter (the “Deficiency Letter”) from the Nasdaq Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that, for the preceding 30 consecutive business days, the closing bid price for our Common Shares was below the minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Deficiency Letter had no immediate effect on the listing of the Company’s Common Shares, and our Common Shares will continue to trade on The Nasdaq Capital Market under the symbol “APTO” at this time. Our Common Shares continue to trade on the Toronto Stock Exchange (“TSX”) under the symbol “APS.” Our listing on the TSX is independent and will not be affected by the Nasdaq listing status. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were given 180 calendar days, to regain compliance with the

Minimum Bid Price Requirement. On January 18, 2023, we qualified for a 180-day extension to July 18, 2023. If we are unable to meet the minimum closing bid price requirement under Nasdaq Listing Rule 5810(c)(3)(A) by then, Nasdaq will provide notice that our securities will be subject to delisting.

We intend to monitor the closing bid price of our Common Shares and consider our available options if the closing bid price of our Common Shares remains below $1.00 per share, including effecting a reverse stock split. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement during the additional 180-day compliance period with respect to the minimum bid price requirement, or maintain compliance with the other listing requirements.

LIQUIDITY AND CAPITAL RESOURCES

We are an early stage development company and we currently do not earn any revenues from our drug candidates. The continuation of our research and development activities and the commercialization of the targeted therapeutic products are dependent upon our ability to successfully finance and complete our research and development programs through a combination of equity financing and payments from strategic partners. We have no current sources of significant payments from strategic partners.

Sources of liquidity:

The following table presents our cash and cash equivalents, investments and working capital as of December 31, 2022 and 2021.

(in thousands) Balances at December 31, 2022 Balances at December 31, 2021

Working capital is a non-GAAP measure and represents cash, cash equivalents, investments, prepaid expenses and other current assets less current liabilities.

Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We plan to raise additional funds in order to fund our business operations. We will seek access to financing but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to raise additional funds could be affected by adverse market conditions, the status of our product pipeline, possible delays in enrollment in our trial, and various other factors and we may be unable to raise capital when needed, or on terms favorable to us. If necessary funds are not available, we may have to delay, reduce the scope of, or eliminate some of our development programs, potentially delaying the time to market for any of our product candidates.

Our cash needs for the next twelve months include estimates of the number of patients and rate of enrollment of our clinical trials, the amount of drug product that we will require to support our clinical trials, and our general corporate overhead costs to support our operations, and our reliance on our manufacturers. We have based these estimates on assumptions and plans which may change and which could impact the magnitude and/or timing of operating expenses and our cash runway.

2022 Base Shelf

In October 2022, we filed a short form base shelf prospectus (the 2022 “Base Shelf”) that allows us to distribute, upon the filing of prospectus supplements, up to $200,000,000 of Common Shares, warrants, or units comprising any combination of Common Shares and warrants. The Base Shelf was declared effective by the SEC on October 21, 2022 and expires on October 7, 2025.

At-The-Market Facilities

On December 9, 2022, the Company entered into an “at-the-market” equity distribution agreement with Jones Trading acting as the agents, the (the "2022 ATM Facility"). Under the terms of the 2022 ATM Facility, the Company may, from time to time, sell Common Shares having an aggregate offering value of up to $50 million through Jones Trading on the Nasdaq Capital Market. During the year ended December 31, 2022, the Company issued 72,541 shares under the facility at an average price of $0.72 for gross proceeds of $52 thousand ($51 thousand net of share issuance costs). Costs associated with the proceeds consisted of 3% cash commission.

On May 5, 2020, the Company entered an “at-the-market” equity distribution agreement with Piper Sandler & Co. (“Piper Sandler”) and Canaccord Genuity LLC (“Canaccord Genuity”) acting as co-agents (the “2020 ATM Facility”). Under the terms of the 2020 ATM Facility, the Company could, from time to time, sell Common Shares having an aggregate offering value of up to $75 million through Piper Sandler and Canaccord Genuity on the Nasdaq Capital Market. During the year ended December 31, 2022, the Company issued 54,687 shares under the 2020 ATM Facility at an average price of $0.95 for gross proceeds of $52 thousand ($50 thousand net of share issue costs). Costs associated with the proceeds consisted of a 3% cash commission. During the year ended December 31, 2021, the Company issued 15,315 shares under the ATM Facility at an average price of $2.446 for gross proceeds of $37 thousand ($36 thousand net of share issue costs). As of October 31, 2022, the date the Agreement was terminated, the Company had raised a total of $89 thousand gross proceeds ($86 thousand net of share issuance costs) under the ATM Facility. Costs associated with the proceeds consisted of a 3% cash commission.

Our ability to raise additional funds could be affected by adverse market conditions, the status of our product pipeline, possible delays in enrollment in our trial related to COVID-19, and various other factors and we may be unable to raise capital when needed, or on terms favorable to us. If the necessary funds are not available, we may need to delay, reduce the scope of, or eliminate some of our development programs, potentially delaying the time to market for any of our product candidates.

Cash flows:

The following table presents a summary of our cash flows for the years ended December 31, 2022 and 2021:

For the Years Ended,

Net cash provided by (used in):

Effect of exchange rates changes on cash and cash equivalents (4 ) 7

Net (decrease)/increase in cash and cash equivalents $ (2,144 ) $ (78,279 )

Cash used in operating activities:

Our cash used in operating activities for the years ended December 31, 2022 and 2021 was approximately $32.3 million and $43.3 million, respectively. Our uses of cash for operating activities for both years consisted primarily of salaries and wages for our employees, facility and facility-related costs for our offices and laboratories, fees paid in connection with preclinical and clinical studies, drug manufacturing costs, laboratory supplies and materials, and professional fees. In the year ended December 31, 2021, our use of cash from operating activities also included $5.0 million in license fees paid to Hanmi for global development rights of compound tuspetinib. Net cash used in operating activities was lower in the year ended December 31, 2022 as compared with the year ended December 31, 2021 resulting mostly from lower operating expenses, as discussed further below. See “Results of Operations.”

We do not expect to generate positive cash flow from operations for the foreseeable future due to additional research and development costs, including costs related to drug discovery, preclinical testing, clinical trials, and manufacturing, as well as operating expenses associated with supporting these activities, and potential milestone payment to our collaborators. It is expected that negative cash flow will continue until such time, if ever, that we receive regulatory approval to commercialize any of our products under development and/or royalty or milestone revenue from any such products exceeds expenses.

Cash flow from investing activities:

Our cash provided by investing activities for the year ended December 31, 2022 was $30.1 million, consisting mainly of proceeds from the maturity of investments.

Our cash used in investing activities for the year ended December 31, 2021 was $35.2 million, and consisted of net purchases of investments of approximately $35.0 million and purchases of property and equipment of approximately $212 thousand.

The composition and mix of cash, cash equivalents and investments is based on our evaluation of conditions in financial markets and our near-term liquidity needs. We have exposure to credit risk, liquidity risk and market risk related to our investments. The Company manages credit risk associated with its cash and cash equivalents and investments by maintaining minimum standards of R1‐low or A‐low investments. The Company invests only in highly rated corporations and treasury bills which are capable of prompt liquidation. The Company manages its liquidity risk by continuously monitoring forecasts and actual cash flows. The Company is subject to interest rate risk on its cash and cash equivalents and investments. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to interest rates on the investments, owing to the relative short‐term nature of the investments.

Cash flow from financing activities:

Our cash flow from financing activities for the year ended December 31, 2022 was approximately $116 thousand, and consisted of proceeds from the from shares issued from the 2022 ATM Facility of approximately $51 thousand, proceeds from shares issued from the 2020 ATM Facility of $50 thousand, and proceeds from the exercise of stock options of $15 thousand.

Our cash flow from financing activities for the year ended December 31, 2021 was approximately $226 thousand, and consisted mostly of proceeds from the exercise of stock options of $190 thousand and proceeds from shares issued from the 2020 ATM Facility of approximately $36 thousand as described above.

Contractual Obligations and Off-Balance Sheet Financing

As of December 31, 2022, we have not entered into any off-balance sheet arrangements.

The Company enters into research, development and license agreements in the ordinary course of business where the Company receives research services and rights to proprietary technologies. Milestone and royalty payments that may become due under various agreements are dependent on, among other factors, clinical trials, regulatory approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain.

On November 4, 2021, the Company entered into an exclusive license agreement with Hanmi for global rights to its compound named tuspetinib. Under the Company’s license agreement with Hanmi, the Company has maximum obligations for clinical development and global regulatory milestones totaling $64.5 million for the first potential clinical indication of tuspetinib, $34 million for the second indication, and $29 million for the third indication. The Company has maximum obligations for tiered global sales based milestones totaling $280 million. The Company also has an obligation for tiered royalty payments on global sales of commercialized product. The timing of any milestone or royalty payments that may become due is not yet determinable.

Under the license agreement with CG with regards to the Rights (other than the China Rights), the Company has obligations for development milestones of $16 million related to the initiation of Phase 2 and pivotal clinical trials, and regulatory milestones totaling $44 million. The Company also has an obligation to pay royalty payments on sales of commercialized product. The timing of any milestone or royalty payments that may become due is not yet determinable.

Under the license agreement with CG with regards to the China Rights, we entered into a license agreement with CG to gain an exclusive license to luxeptinib in China (including the People’s Republic of China, Hong Kong and Macau). The Company has future obligations of development milestones of $6 million related to approval of an IND and to the initiation of Phase 2 and pivotal clinical trials, and regulatory milestones totaling $20 million. The Company also has an obligation to pay sales milestones and royalty payments on sales of commercialized product. The timing of any milestone or royalty payments that may become due is not yet determinable.

RESULTS OF OPERATIONS

A summary of the results of operations for the years ended December 31, 2022 and 2021 is presented below:

Year ended December 31,

(in thousands except per Common Share data) 2022 2021

Revenues $ — $ —

Unrealized gain/(loss) on securities available-for-sale (2 ) —

Basic and diluted loss per Common Share $ (0.45 ) $ (0.73 )

Net loss of $41.8 million for the year ended December 31, 2022 decreased by approximately $23.5 million as compared with $65.4 million for the year ended December 31, 2021, primarily as of a result of a reduction in research and development program costs and personnel expenses of $5.4 million, the $12.5 million in license fees paid to Hanmi in 2021 for development rights of tuspetinib, and a $5.0 million decrease in general and administrative costs.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred related to the research and development of our product candidates. Costs include the following:

•

External research and development expenses incurred under agreements with third parties, such as CROs, consultants, members of our scientific advisory boards, external labs and CMOs;

•

Employee-related expenses, including salaries, benefits, travel, and stock-based compensation for personnel directly supporting our clinical trials and manufacturing, and development activities;

•

License fees.

We have ongoing Phase 1 clinical trials for our product candidates tuspetinib and luxeptinib. Tuspetinib was licensed into Aptose in November 2021 and we have assumed sponsorship, and the related costs, of the tuspetinib study effective January 1, 2022. In December 2021, we discontinued the APTO-253 program and are exploring strategic alternatives for this compound.

We expect our research and development expenses to be higher for the foreseeable future as we continue to advance tuspetinib into larger clinical trials.

The research and development (“R&D”) expenses for the years ended December 31, 2022 and 2021 were as follows:

Year ended December 31,

License fee – Tuspetinib — 12,500

Program costs – Tuspetinib 10,083 57

Depreciation of equipment 39 12

R&D expenses decreased by $17.9 million to $28.1 million for the year ended December 31, 2022 as compared with $46.0 million for the comparative period in 2021. Changes to the components of our R&D expenses presented in the table above are primarily as a result of the following activities:

•

License fees paid in the year ended December 31, 2021 to Hanmi of $12.5 million for global development rights of tuspetinib, including $5.0 million in cash and $7.5 million in Common Shares. There were no license fee paid in the year ended December 31, 2022.

•

Program costs for tuspetinib increased by $10.0 million. We in-licensed the development rights for tuspetinib in the fourth quarter of 2021 and assumed sponsorship, and the related costs, of the study effective January 1, 2022.

•

Program costs for luxeptinib decreased by approximately $10.1 million, primarily due to lower manufacturing costs as a result of the current formulation requiring less API than the prior formulation, and lower clinical trial costs.

•

Program costs for APTO-253 decreased by approximately $3.4 million due to the Company's decision on December 20, 2021 to discontinue further development of APTO-253.

•

Personnel-related expenses decreased by $0.4 million, due to lower headcount in 2022.

•

Stock-based compensation decreased by approximately $1.6 million in the year ended December 31, 2022, compared with the year ended December 31, 2021, primarily due to stock options granted with lower grant date fair values in the current period.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and travel, including stock-based compensation for our executive, finance, business development, human resource, and support functions. Other general and administrative expenses and professional fees for auditing, and legal services, investor relations and other consultants, insurance and facility related expenses.

We expect that our general and administrative expenses will increase for the foreseeable future as we incur additional costs associated with being a publicly traded company and to support our expanding pipeline of activities. We also expect our intellectual property related legal expenses to increase as our intellectual property portfolio expands.

The general and administrative expenses for the years ended December 31, 2022 and 2021 are as follows:

Year ended December 31,

General and administrative, excluding items below: $ 11,444 $ 10,164

Depreciation of equipment 81 138

General and administrative expenses for the year ended December 31, 2022 were approximately $14.5 million as compared with $19.5 million for the comparative period in 2021, a decrease of approximately $5.0 million. The decrease was primarily as a result of a decrease in stock-based compensation costs of $6.2 million, partially offset by higher salaries expenses, higher travel expenses, and higher professional fees.

Stock-based compensation decreased by approximately $6.2 million mostly as a result of a lower number of options granted in the year ended December 31, 2022, with those options having a lower grant date fair value as compared with the options granted in the comparative period, and additional compensation recognized in the comparative period for modifications made to then vested and unvested stock options for one former company officer, as part of a separation and release agreement.

CRITICAL ACCOUNTING POLICIES

Critical Accounting Policies and Estimates

We periodically review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and transparent information relative to the current economic and business environment. As part of this process, we have reviewed our selection, application and communication of critical accounting policies and financial disclosures. Management has discussed the development and selection of the critical accounting policies with the Audit Committee of the Board, and the Audit Committee has reviewed the disclosure relating to critical accounting policies in this MD&A.

Significant accounting judgments and estimates

Management’s assessment of our ability to continue as a going concern involves making a judgment, at a particular point in time, about inherently uncertain future outcomes and events or conditions. Please see the “Liquidity and Capital Resources” section in this document for a discussion of the factors considered by management in arriving at its assessment.

Other important accounting policies and estimates made by management are the estimates related to prepaid and accrued R&D activities, the valuation of contingent liabilities, the valuation of tax accounts, and the assumptions used in determining the valuation of share-based compensation.

Research and Development Activities:

R&D costs are expensed as incurred. R&D costs consist primarily of salaries and benefits, stock-based compensation, manufacturing, contract services, clinical trials, and research related overhead. Non-refundable advance payments for goods and services that will be used in future research are recorded in prepaid and other assets and are expensed when the services are performed.

The Company records expenses for research and development activities based on Management’s estimates of services received and efforts expended pursuant to contracts with vendors that conduct research and development on the Company’s behalf. The financial terms vary from contract to contract and may result in uneven payment flows as compared with services performed or products delivered. As a result, the Company is required to estimate research and development expenses incurred during the period, which impacts the amount of accrued expenses and prepaid balances related to such costs as of each balance sheet date. Management estimates the amount of work completed through discussions with internal personnel and the contract research and contract manufacturing organizations as to the progress or stage of completion of the services. The Company’s estimates are based on a number of factors, including the Company’s knowledge of the status of each of the research and development project milestones, and contract terms together with related executed change orders. Management makes significant judgments and estimates in determining the accrued balance at the end of each reporting period.

Although Management does not expect our estimates to be materially different from amounts actually incurred, if the estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in the Company reporting amounts that are too high or too low in any particular period. As of December 31, 2022, the Company has recorded approximately $1.3 million in prepaid expenses and approximately $3.3 million in accrued liabilities related to its research and development activities. If the estimates are too high or too low by a factor of 10% this would mean that prepaid expenses would be over or understated by approximately $130 thousand, and accrued liabilities would be over or understated by approximately $330 thousand. On a combined basis, this could mean an increase or decrease in research and development expenses by approximately $460 thousand. To date, there have been no material differences between the estimates of such expenses and the amounts actually incurred.

Valuation of contingent liabilities:

The Company utilizes considerable judgment in the measurement and recognition of provisions and the Company’s exposure to contingent liabilities. Judgment is required to assess and determine the likelihood that any potential or pending litigation or any and all potential claims against the Company may be successful. The Company must estimate if an obligation is probable, as well as quantify the possible economic cost of any claim or contingent liability. Such judgments and assumptions are inherently uncertain. The increase or decrease of one of these assumptions could materially increase or decrease the fair value of the liability and the associated expense.

Valuation of tax accounts:

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Currently, the Company has deductible temporary differences which would create a deferred tax asset. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. To date, the Company has determined that none of its deferred tax assets should be recognized. The Company’s deferred tax assets are mainly comprised of its net operating losses from prior years and prior year research and development expenses not yet deducted for income tax purposes. These tax pools relate to entities that have a history of losses, have varying expiry dates, and may not be used to offset taxable income. As well, there are no taxable temporary differences or any tax planning opportunities available that could partly support the recognition of these losses as deferred tax assets. The generation of future taxable income could result in the recognition of some portion or all of the remaining benefits, which could result in an improvement in the Company’s results of operations through the recovery of future income taxes.

Valuation of share-based compensation:

Management measures the costs for share based payments using market-based option valuation techniques. Assumptions are made and judgment is used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the share price, expected dividend yield, and expected life of the options. The Company uses historical data to estimate the expected dividend yield and expected volatility of its Common Shares in determining the fair value of stock options. The expected life of the options represents the estimated length of time the options are expected to remain outstanding. Such judgments and assumptions are inherently uncertain. The increase or decrease of one of these assumptions could materially increase or decrease the fair value of share- based payments and share purchase warrants issued and the associated expense.

The weighted average assumptions that were used in the Black-Scholes option pricing model to determine the fair value of stock options granted during the periods ended December 31, 2022 and 2021, respectively, are presented in Note 12 to the consolidated financial statements.

Updated share information

As of March 21, 2023, we had 93,005,278 Common Shares issued and outstanding. In addition, there were 19,506,857 Common Shares issuable upon the exercise of outstanding stock options.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Under SEC rules and regulations, as a smaller reporting company, we are not required to provide this information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required pursuant to this items are included in Item 15 of this Annual Report and are presented beginning on page F-1 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of our fiscal year ended December 31, 2022, an evaluation of 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) was carried out by our management, with the participation of our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officers, to allow timely decisions regarding required disclosure.

It should be noted that while our principal executive officer and principal financial officer believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive and financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on those criteria. We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K under the Securities Act. For as long as we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) during our fiscal quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III.

Certain information required by Part III of this Annual Report on Form 10-K is omitted from this report because we are incorporating by reference to the definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, referred to as the Proxy Statement, which will be filed with the SEC within 120 days of the 2022 fiscal year-end.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Election of Directors,” “Nomination of Directors,” and “Corporate Governance – Board Committees” and except for the information required with respect to our executive officers, which has been included under the heading “Executive Officers” in Item 1, Part I of this Form 10-K, and is incorporated herein by reference, and except for information on our code of ethics:

We have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.aptose.com under the Corporate Governance section of our Investor Relations page. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals that is required to be disclosed pursuant to SEC rules and regulations, the name of such person who is granted the waiver and the date of the waiver.

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Executive Compensation,” and “Director Compensation.”

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Share Ownership of Certain Beneficial Owners, Management and Directors” and “Equity Compensation Plan Information.”

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AN DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Corporate Governance - Independence of the Board” and “Interest of Related Persons in Transactions.”

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Audit, Audit-Related, Tax and Other Fees” and “Pre-Approval Policies and Procedures.”

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)

Documents filed as part of this report.

Financial Statements. We have filed the following documents as part of this Annual Report:

Page

Consolidated Statements of Financial Position F-4

Consolidated Statements of Loss and Comprehensive Loss F-5

Consolidated Statements of Changes in Shareholders' Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

Financial Statement Schedules.

All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or notes thereto.

(b)

Exhibits

ExhibitNumber Description of Document

21.1* List of Subsidiaries

23.1* Consent of Independent Registered Public Accounting Firm (KPMG)

24.1* Powers of Attorney (included on signature page)

101.INS** Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

+ Indicates management contract or compensatory plan.

* Filed herewith.

Confidential treatment has been sought with respect to certain portions of this exhibit.

Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

** In accordance with Rule 406T of Regulation S-T, the Inline XBRL related information in Exhibit 101 to this Annual Report on Form 10-K is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

ITEM 16. form 10-k summary

None.

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on the 23rdday of March, 2023.

Aptose Biosciences Inc. /s/ William G. Rice

By: William G. Rice, Ph.D.

President, Chief Executive Officer and Chairman of the Board of Directors

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. William G. Rice and Mr. Fletcher Payne, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

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.

Signature Title

/s/ William G. Rice

/s/ Fletcher Payne

/s/ Denis R. Burger

Denis R. Burger, Ph.D. Director, Lead Independent

/s/ Carol G. Ashe

Carol G. Ashe Director

/s/ Erich M. Platzer

Erich M. Platzer, M.D., Ph.D. Director

/s/ Bernd R. Seizinger

Bernd R. Seizinger, M.D., Ph.D. Director

/s/ Mark D.Vincent

Mark D.Vincent, M.D. Director

/s/ Warren Whitehead

Warren Whitehead Director

Consolidated Financial Statements

APTOSE BIOSCIENCES INC.

Years ended December 31, 2022 and 2021

F-1

Aptose Biosciences Inc.

KPMG LLP

100 New Park Place, Suite 1400

Vaughan, ON L4K 0J3

Tel 905-265 5900

Fax 905-265 6390

www.kpmg.ca

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Aptose Biosciences Inc.:

Opinion on the ConsolidatedFinancial Statements

We have audited the accompanying consolidated statements of financial position of Aptose Biosciences Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated 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 the years then ended, in conformity with U.S. generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 2 (a) to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency 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 Notes 1 and 2 (a). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited,

a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.

F-2

Aptose Biosciences Inc.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Research and Development Prepaid and Accrued Costs

As discussed in Notes 2(i), 4 and 9 to the consolidated financial statements, the Company records expenses for research and development activities based on Management’s estimates of services received and efforts expended pursuant to contracts with vendors that conduct research and development on the Company’s behalf. The financial terms vary from contract to contract and may result in uneven payment flows as compared with services performed or products delivered. As a result, the Company is required to estimate research and development expenses incurred during the period, which impacts the amount of accrued expenses and prepaid balances related to such costs as of each balance sheet date. Management estimates the amount of work completed through discussions with internal personnel and the contract research and contract manufacturing organizations as to the progress or stage of completion of the services. The Company’s estimates are based on a number of factors, including the Company’s knowledge of the status of each of the research and development project milestones, and contract terms together with related executed change orders. Management makes significant judgments and estimates in determining the accrued balance at the end of each reporting period.

We identified the evaluation of research and development prepaid and accrued costs as a critical audit matter. Higher degree of auditor judgment was required in evaluating the results of our audit procedures because of the subjectivity and estimation uncertainty associated with this estimate.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the critical audit matter. This included controls over the development of the estimated amount of prepaid and accrued costs incurred by the contract research and contract manufacturing organizations. For a selection of research and development projects, we assessed the Company’s estimates of a selection of the research and development activities completed to date by:

•

inquiring with Company personnel responsible for overseeing the research and development activities to understand progress of the activities including project milestones, and contract terms together with related executed change orders

•

inspecting the terms of the contracts, including related executed change orders, between the Company and the respective contract research and contract manufacturing organizations, the correspondence between the Company and these organizations as to the completion status, and using this information to arrive at an independent estimate of the prepaid or accrual amounts and comparing it to the amounts recorded by the Company

We have served as the Company’s auditor since 1994.

/s/KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Vaughan, Canada

March 23, 2023

F-3

APTOSE BIOSCIENCES INC.

Consolidated Statements of Financial Position

(Expressed in thousands of US dollars)

Assets

Current assets:

Non-current assets:

Right-of-use assets, operating leases 1,297 465

Liabilities and Shareholders’ Equity

Current liabilities:

Current portion of lease liability, operating leases 301 459

Non-current liabilities:

Lease liability, operating leases 1,002 115

Shareholders’ equity:

Share capital:

Accumulated other comprehensive loss (4,318 ) (4,316 )

Total liabilities and shareholders’ equity $ 51,027 $ 82,525

See accompanying notes to consolidated financial statements.

Going concern, see Note 2.

Commitments, see Note 10.

Subsequent events, see Notes 1, 10 and 16.

F-4

APTOSE BIOSCIENCES INC.

Consolidated Statements of Loss and Comprehensive Loss

(Expressed in thousands of US dollars, except for per common share data)

Revenue $ — $ —

Expenses:

Other income:

Foreign exchange gain/(loss) (9 ) (1 )

Other comprehensive loss:

Unrealized loss on securities available-for-sale (2 ) —

Basic and diluted loss per common share $ (0.45 ) $ (0.73 )

Basic and diluted loss per common share 92,267 89,086

See accompanying notes to consolidated financial statements.

F-5

APTOSE BIOSCIENCES INC.

Consolidated Statements of Changes in Shareholders’ Equity

(Expressed in thousands of US dollars, except for per common share data)

Common Shares

Common shares issued under the October 2022 ATM 73 51 — — — 51

Common shares issued under the May 2020 ATM 55 50 — — — 50

Common shares issued upon exercise of stock options 14 26 (11 ) — — 15

Stock-based compensation — — 5,207 — — 5,207

Common shares issued under the ESPP plan 11 7 — — — 7

Other comprehensive loss — — — (2 ) — (2 )

Common shares issued under the May 2020 ATM 15 36 — — — 36

Common shares issued upon exercise of stock options 82 327 (137 ) — — 190

See accompanying notes to consolidated financial statements.

F-6

APTOSE BIOSCIENCES INC.

Consolidated Statements of Cash Flows

(Expressed in thousands of US dollars)

Cash flows from operating activities:

Items not involving cash:

Shares issued to Hanmi Pharmaceutical as license fees — 7,500

Depreciation and amortization 120 150

Disposal of property and equipment 16 —

Amortization of right-of-use assets 408 472

Interest on lease liabilities 35 43

Unrealized foreign exchange gain/(loss) 4 (7 )

Accrued interest on investments (60 ) (18 )

Change in operating working capital:

Operating lease payments (546 ) (555 )

Other assets (124 ) (4 )

Cash used in operating activities (32,322 ) (43,304 )

Cash flows from financing activities:

Issuance of common shares under 2022 ATM 51 —

Issuance of common shares under 2020 ATM 50 36

Issuance of common shares pursuant to exercise of stock options 15 190

Cash provided by financing activities 116 226

Cash flows from (used in) investing activities:

Maturity (acquisition) of investments, net 30,090 (34,996 )

Purchase of property and equipment (24 ) (212 )

Cash provided by (used in) investing activities 30,066 (35,208 )

Effect of exchange rate fluctuations on cash and cash equivalents held (4 ) 7

Decrease in cash and cash equivalents (2,144 ) (78,279 )

Cash and cash equivalents, beginning of year 39,114 117,393

Cash and cash equivalents, end of year $ 36,970 $ 39,114

See accompanying notes to consolidated financial statements.

F-7

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

Reporting entity:

We are advancing targeted agents to treat life-threatening cancers that, in most cases, are not elective for patients and require immediate treatment. We have two clinical-stage investigational products for hematological malignancies: tuspetinib, an oral, potent myeloid kinase inhibitor, and luxeptinib, an oral, dual lymphoid and myeloid kinase inhibitor.

Since our inception, we have financed our operations and technology acquisitions primarily from equity financing, proceeds from the exercise of warrants and stock options, and interest income on funds held for future investment. Our uses of cash for operating activities have primarily consisted of salaries and wages for our employees, facility and facility-related costs for our offices and laboratories, fees paid in connection with preclinical and clinical studies, drug manufacturing costs, laboratory supplies and materials, and professional fees.

Our ability to raise additional funds could be affected by adverse market conditions, the status of our product pipeline, possible delays in enrollment in our trial, and various other factors and we may be unable to raise capital when needed, or on terms favorable to us. If necessary funds are not available, we may have to delay, reduce the scope of, or eliminate some of our development programs, potentially delaying the time to market for any of our product candidates.

We do not expect to generate positive cash flow from operations for the foreseeable future due to the early stage of our clinical trials. It is expected that negative cash flow will continue until such time, if ever, that we receive regulatory approval to commercialize any of our products under development and/or royalty or milestone revenue from any such products exceeds expenses.

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2022, the Company has an accumulated deficit of approximately $464.3 million; cash and cash equivalents and investment balances of approximately $47.0 million; and working capital of approximately $37.2 million. Management recognizes that in order for us to meet our capital requirements, and continue to operate, additional financing will be necessary. We plan to raise additional funds in order to fund our business operations through equity financing under the 2022 Base Shelf or the 2022 ATM Facility. We will seek access to financing but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-8

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

On July 18, 2022, we received a letter from the Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, for the last 30 consecutive business days, the bid price for our Common Shares had closed below the minimum $1.00 per share required for continued inclusion on the Nasdaq Capital Market under the Nasdaq Listing Rules. Under Nasdaq Listing Rule 5810(c)(3)(A), if during the 180 calendar day period following the date of the notice the closing bid price of our Common Shares is at or above $1.00 for a minimum of 10 consecutive business days, we would regain compliance with the minimum bid price requirement and our Common Shares would continue to be eligible for listing on the Nasdaq Capital Market, absent noncompliance with any other requirement for continued listing.

On January 18, 2023, we qualified for a 180-day extension to July 18, 2023. If we are unable to meet the minimum closing bid price requirement under Nasdaq Listing Rule 5810(c)(3)(A) by then, Nasdaq will provide notice that our securities will be subject to delisting.

Significant accounting policies

(a)

Basis of presentation - Going concern

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States, or GAAP and the rules and regulations of the Securities and Exchange Commission, or SEC, related to annual reports filed on Form 10-K, assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, substantial doubt about the Company's ability to continue as a going concern exists.

As of December 31, 2022, the Company had an accumulated deficit of approximately $464.3 million, cash and investment balances of approximately $47.0 million, and working capital of approximately $37.2 million. In order for the Company to meet its capital requirements, and continue to operate, additional financing will be necessary. The Company is evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, obtaining equity financing, and restructuring of operations to decrease expenses. However, given the impact of the economic downturn on the U.S. and global financial markets, the Company may be unable to access further equity or when needed. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all. The consolidated financial statements do not reflect any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern. Such adjustments may be material.

The functional and presentation currency of the Company is the US dollar.

(b)

Basis of consolidation:

These consolidated financial statements include the accounts of its subsidiaries. All intercompany transactions, balances, revenue, and expenses are eliminated on consolidation.

(c)

Significant accounting policies, estimates and judgments

The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from those estimates. The consolidated financial statements contain estimates, which by their nature, are uncertain.

The impacts of such estimates are pervasive throughout the consolidated financial statements and mayrequire accounting adjustments based on future occurrences.

The estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

F-9

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

(d)

Leases

The Company’s operating leases of tangible property with terms greater than twelve months are recognized as right of use assets, which represents the lessee’s right to use, or control the use of, a specified asset for the lease term, and a corresponding lease liability, which represents the lessee’s obligation to make lease payments under a lease, measured on a discounted basis. Landlord inducements in the form of free rent periods are netted against lease payments to the landlord in measuring right-of-use assets and lease liabilities.

(e) Cash and cash equivalents:

Cash and cash equivalents are short-term highly liquid investments with original maturities of 90 days or less as of the date of purchase. Cash equivalents are accounted for an amortized cost basis, which approximates their fair value due to their short-term maturities.

(f)

Investments:

Investments consist of term deposits with original maturities greater than 90 days and are classified by management as securities available-for-sale. These available-for-sale securities are recorded at estimated fair values. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income (AOCI) in shareholder’s equity. Realized gains and losses and declines in value that are judged to be other than temporary are included in interest income.

(g)

Concentration of risk:

The Company is subject to credit risk from the Company’s cash and cash equivalents and investments. The carrying amount of the financial assets represents the maximum credit exposure. The Company manages credit risk associated with its cash and cash equivalents and investments by maintaining minimum standards of R1‐low or A‐low investments and the Company invests only in highly rated corporations and treasury bills, which are capable of prompt liquidation.

The Company has cash accounts in Canada and the US. The Canada Deposit Insurance Corporation (CDIC) and the US Federal Deposit Insurance Corporation (FDIC) provide insurance to protect depositors against the loss of their deposits in case of a bank failure. However, the maximum amount of coverage varies by jurisdiction and account type. In Canada, the CDIC insures eligible deposits up to $100,000 (CAD) per depositor, per insured category, per member institution. In the United States, the FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. It is important to note that not all deposits are eligible for insurance coverage. For example, deposits in foreign currency, deposits held in trust, and investments such as mutual funds, stocks, and bonds are not insured by either the FDIC or CDIC.

The Company is subject to intermediary risk associated with the actions of financial intermediaries, such as banks or investment managers, who act on behalf of clients to buy and sell assets. The Company has diversified the investments with two large financial institutions to reduce the concentration of risk in any one institution, and spread the risk. This measure reduces the likelihood of being significantly impacted by the failure of a single financial institution.

The Company has reduced the exposure to individual investment vehicles to minimize the risk of loss in case of adverse events. The Company has diversified the investment portfolio across different asset classes and investment vehicles to achieve this goal.

(h) Property and equipment:

F-10

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

Property and equipment is measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The Company records depreciation at rates that charge operations with the cost of the assets over their estimated useful lives on a straight‐line basis as follows:

Office furniture 5 years

Laboratory equipment 5 years

Computer hardware 3 years

Computer software 3 years

Leasehold improvements Life of lease

The residual value, useful life and methods of depreciation of the assets are reviewed at each reporting period and adjusted prospectively if appropriate.

(i)

Research and development:

Research and development (R&D) costs are expensed as incurred. R&D costs consist primarily of salaries and benefits, stock-based compensation, manufacturing, contract services, clinical trials and research related overhead. Non-refundable advance payments for goods and services that will be used in future research are recorded in prepaid and other assets and are expensed when the services are performed.

(j)

Fair value:

The Company measures its financial assets and liabilities at fair value. The carrying amounts for the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities approximate their fair value due to their short maturities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

(k)

Stock-based compensation:

The Company has a stock‐based compensation plan (the “Plan”) available to officers, directors, employees, and consultants with grants under the Plan approved by the Company’s Board of Directors. Under the Plan, the exercise price of each option equals the closing trading price of the Company’s stock on the day prior to the grant if the grant is made during the trading day or the closing trading price on the day of the grant if the grant is issued after markets have closed. Vesting is provided for at the discretion of the Board of Directors and the expiration of options is to be no greater than 10 years from the date of grant.

The Company uses the fair value based method of accounting for employee awards granted under the Plan. The Company calculates the fair value of each stock option grant using the Black‐Scholes option pricing model at the grant date. The stock‐based compensation cost of the options is recognized as stock‐based compensation expense over the relevant vesting period of the stock options using an estimate of the number of options that will eventually vest.

F-11

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

Stock options awarded to non‐employees are measured at the grant-date fair value of the equity instruments issued in accordance with FASB accounting standards update No 2018-07, Topic 718.

The Company has a stock incentive plan pursuant to which the Board maygrant equity settled stock‐based awards comprised of restricted stock units or dividend equivalents to employees, officers, consultants, independent contractors, advisors and non‐employee directors of the Company. Compensation cost for restricted share units is measured at fair value at the date of grant, which is the market price of the underlying security, and is expensed over the award’s vesting period on a straight-line basis using an estimate of the number of awards that will eventually vest.

(l)

Segment reporting:

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or CODM. The Company’s Chief Executive Officer serves as its CODM. The Company views its operations and manages its business as one segment, which is the discovery and development of personalized therapies addressing unmet medical needs in oncology. The Company operates primarily in the US.

(m)

Loss per share:

Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during the year. Diluted loss per share is computed similarly to basic loss per share except that the weighted average share outstanding is increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the year. The inclusion of the Company’s stock options and warrants in the computation of diluted loss per share has an anti‐dilutive effect on the loss per share and, therefore, they have been excluded from the calculation of diluted loss per share.

(n)

Income taxes:

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which these temporary differences are expected to be recovered or settled. Valuation allowances are provided 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.

The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filing is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. Potential interest and penalties associated with such uncertain tax positions are recorded as components of income tax expense. As of December 31, 2022 and December 31, 2021, the Company has not recorded any reserves for potential payments as the Company has a history of losses and does not have any revenue from operations.

(o) Recent Accounting Pronouncements

There were various accounting standards and interpretations issued recently, none of which are expected to have a material impact on our financial position, operations, or cash flows.

Cash and cash equivalents:

Cash and cash equivalents consists of cash of $596 thousand (December 31, 2021 ‐ $294 thousand), deposits in high interest savings accounts, money market funds and accounts with original maturities less than 90 days totaling $36.374 million (December 31, 2021 ‐ $38.820 million). See Note 16, Subsequent Events.

F-12

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

Prepaid expenses:

Prepaid research and development expenses $ 1,271 $ 632

Other prepaid expenses 139 33

Property and equipment:

December 31, 2022 Cost Accumulateddepreciation Net book value

December 31, 2021 Cost Accumulateddepreciation Net book value

In the year ended December 31, 2022, the company recorded a loss on disposition of fixed assets of $16 thousand, with these assets having had an original cost of $196 thousand and accumulated depreciation of $180 thousand. Also in the year ended December 31, 2022, the Company had additions to fixed assets of $24 thousand.

Right-of-use assets, operating leases:

Right-of-use assets, beginning of year $ 1,860 $ 1,848

Additions to right-of-use assets 1,240 12

Right-of-use assets, end of year 3,100 1,860

Accumulated amortization (1,803 ) (1,395 )

Right-of use assets, NBV $ 1,297 $ 465

Investments:

Investments consisted of the following as of December 31, 2022 and December 31, 2021:

Cost Unrealized gain Market value

United States Treasury Bills $ 9,991 $ (2 ) $ 9,989

F-13

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

Cost Unrealized gain Market value

Guaranteed Investment Certificate $ 20,016 $ — $ 20,016

The short-term U.S. Treasury Bills recorded as investments as of December 31, 2022 had maturities of one year.

Fair value measurements and financial instruments:

The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value.

Level 1 ‐ inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 ‐ inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data or other means; and

Level 3 ‐ inputs are unobservable (supported by little or no market activity).

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

The following table presents the fair value of the Company’s financial instruments for the periods presented:

Assets

Money Market accounts $ 165 $ — $ 165 $ —

United States Treasury Bills 9,989 — 9,989 —

Assets

High interest savings accounts 5,045 — 5,045 —

Guaranteed Investment Certificate 20,016 — 20,016 —

Accrued liabilities:

Accrued liabilities as of December 31, 2022 and December 31, 2021 consisted of the following:

Accrued personnel-related costs $ 2,302 $ 2,152

Accrued research and development expenses 3,122 3,520

F-14

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

10.

Lease liability

Aptose leases office space in San Diego, California and Toronto, Canada. The lease for the San Diego office space was scheduled to expire on March 31, 2023. On November 4, 2022, this lease was extended through May 31, 2026 (the "Third Amendment"). Management has determined that the Third Amendment represents a lease modification, as defined by ASC 842, Leases, does not meet the requirements for accounting as a separate contract and continues to meet the definition of an operating lease. Accordingly, the Company has accounted for the Third Amendment prospectively, via remeasurements, on the Modification Date, to the lease liability and corresponding right-of-use asset. Aptose previously leased lab space in San Diego, which we exited prior to the expiration of the lease on February 28, 2023. The costs incurred in exiting this laboratory space were not material. We lease office space in Toronto, Ontario, Canada, with this lease previously scheduled to expire on June 30, 2023. This lease was extended for one year on February 23, 2023, with this extension expiring on June 30, 2024. The Company has not included any extension periods in calculating its right-to-use assets and lease liabilities. The Company also enters into leases for small office equipment.

Minimum payments, undiscounted, under our operating leases are as follows:

Years ending December 31,

To calculate the lease liability, the lease payments in the table above were discounted over the remaining term of the leases using the Company’s incremental borrowing rate as of January 1, 2019 for existing leases at the time of adopting ASC 842, and for new leases after the date adoption, as of the date of the execution date of the new lease. The following table presents the weighted average remaining term of the leases and the weighted average discount rate:

Weighted-average remaining term – operating leases (years) 3.3 1.2

Weighted-average discount rate – operating leases 6.62 % 5.37 %

Lease liability, current portion $ 301 $ 459

Lease liability, long term portion 1,002 115

Lease liability, total $ 1,303 $ 574

Operating lease costs and operating cash flows from our operating leases are as follows:

Operating lease cost $ 443 $ 515

Operating cash flows from operating leases $ 546 $ 555

F-15

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

11.

Share capital:

The Company has authorized share capital of an unlimited number of common voting shares.

(a)

Equity issuances:

(i)

2022 At-The-Market ("ATM") Facility

On December 9, 2022, the Company entered into an equity distribution agreement with Jones Trading acting as the agent in connection with the 2022 ATM Facility. Under the terms of the 2022 ATM Facility, the Company may, from time to time, sell Common Shares having an aggregate offering value of up to $50 million through Jones Trading on the Nasdaq Capital Market. During the year ended December 31, 2022, the Company issued 72,541 shares under this ATM Facility at an average price of $0.72 for gross proceeds of $52 thousand ($51 thousand net of share issuance costs). Costs associated with the proceeds consisted of 3% cash commission.

(ii)

Hanmi Licensing Payment

On December 9, 2021, the Effective date, the Company entered into an exclusive license agreement with Hanmi Pharmaceutical Co. Ltd. (Hanmi) for global rights to tuspetinib. Pursuant to the terms of this agreement, on December 14, 2021, the Company issued 3,235,548 Common Shares as a partial upfront payment to Hanmi in consideration of the license and other rights granted for a total cost of $7.5 million. The number of Common Shares issued is determined using the average market closing price of the Common Shares on the Nasdaq stock market over the five (5) trading day period ending on the Effective Date. See also Note 13, Collaborative agreements.

(iii)

2020 At‐The‐Market (“ATM”) Facility

On May 5, 2020, the Company entered into an equity distribution agreement with Piper Sandler and Canaccord Genuity (the "Agreement") acting as co-agents in connection with the 2020 ATM Facility. Under the terms of the 2020 ATM Facility, the Company may, from time to time, sell Common Shares having an aggregate offering value of up to $75 million through Piper Sandler and Canaccord Genuity on the Nasdaq Capital Market. During the period from January 1, 2022 to October 21, 2022, the date the Agreement was terminated, the Company issued 54,687 shares under this ATM equity facility at an average price of $0.95 for gross proceeds of $52 thousand ($50 thousand net of share issuance costs). During the year ended December 31, 2021, the Company issued 15,315 shares under the facility at an average price of $2.446 for gross proceeds of $37 thousand ($36 thousand net of share issue costs). As of October 21, 2022, the date the Agreement was terminated, the Company had raised a total of $89 thousand gross proceeds ($86 thousand net of share issuance costs) under the 2020 ATM Facility. Costs associated with the proceeds consisted of a 3% cash commission.

(b)

Loss per share:

Loss per common share is calculated using the weighted average number of Common Shares outstanding and is presented in the table below:

(in thousands) Year ended December 31, 2022 Year ended December 31, 2021

Weighted-average common shares – basic and diluted 92,267 89,086

Net loss per share – basic and diluted $ (0.45 ) $ (0.73 )

The effect of any potential exercise of the Company’s stock options outstanding during the years ended December 31, 2022 and December 31, 2021 has been excluded from the calculation of diluted loss per common share as it would be anti‐dilutive.

F-16

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

12.

Stock‐based compensation:

(a)

Stock option plan and employee stock purchase plan

Effective June 1, 2021,the Company adopted a new stock incentive plan (New Incentive Plan) and an employee stock purchase plan (ESPP).

The New Incentive Plan authorizes the Board of Directors to administer the New Incentive Plan to provide equity‐based compensation in the form of stock options, stock appreciation rights., restricted stock, restricted stock units and Dividend Equivalents.

The Corporation currently maintains its existing Share Option Plan and 2015 Stock Incentive Plan (2015 SIP). Effective June 1, 2021 no further grants will be made under the Share Option Plan or 2015 SIP, though existing grants under the Share Option Plan will remain in effect in accordance with their terms.

The aggregate number of our common shares, no par value, that may be issued under all awards under the New Incentive Plan is (i) 6,343,242, plus (ii) any of our Common Shares subject to any outstanding award under our prior plans that, after June 1, 2021, are not purchased or are forfeited or reacquired by us, or otherwise not delivered to the participant due to termination, cancellation or cash settlement of such award subject to the share counting provisions of the New Incentive Plan.

Under both the Share Option Plan and the New Incentive Plan, the exercise price of each option equals the closing trading price of the Company’s stock on the day prior to the grant if the grant is made during the trading day or the closing trading price on the day of grant if the grant is issued after markets have closed. Vesting is provided for at the discretion of the Board of Directors and the expiration of options is to be no greater than 10 years from the date of grant.

The Company uses the fair value-based method of accounting for employee awards granted under both plans. The Company calculates the fair value of each stock option grant using the Black‐Scholes option pricing model at the grant date. The stock‐based compensation cost of the options is recognized as stock‐based compensation expense over the relevant vesting period of the stock options using an estimate of the number of options that will eventually vest.

The ESPP, which is administered by the Board of Directors, allows eligible employees of the Company with an opportunity to purchase Common Shares through accumulated payroll deductions up to a maximum 15% of eligible compensation. The ESPP will be implemented by consecutive offering periods with a new offering period commencing on the first trading day on or after February 1 and August 1 each year, or on such other date as the Board of Directors will determine, and continuing thereafter until terminated in accordance with the Plan. Unless the Board of Directors provides otherwise, the purchase price will be equal to eighty‐five percent (85%) of the fair market value of a Common Share on the offering date or the exercise date, whichever is lower.

The maximum number of Common Shares which will be made available for sale under the ESPP will be 1,700,000 Common Shares.

The first six-month offering period began on February 1, 2022 and ended on August 1, 2022. There were 10,858 Common Shares issued under the ESPP as of December 31, 2022 (December 31, 2021 - nil). The second six-month period began on August 1, 2022 and ended on February 1, 2023.

F-17

APTOSE BIOSCIENCES INC.

Notes to Consolidated Financial Statements Years ended December 31, 2022 and 2021

(Tabular amounts in thousands of United States dollars, except as otherwise noted)

Stock option transactions for the year ended December 31, 2022 and December 31, 2021, are summarized as follows:

(in thousands)

Aggregate intrinsic value represents the excess of the value of the closing stock price on the previous trading day of the respective balance sheet dates over the exercise price of the stock options. Total intrinsic value of options exercised was $3 thousand for 2022 (2021 – $222 thousand).

As of December 31, 2022, there was $2.68 million of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over an estimated weighted-average period of 1.52 years.

The following table presents the weighted average assumptions that were used in the Black‐Scholes option pricing model to determine the fair value of stock options granted during the period, and the resultant weighted average fair values:

Risk-free interest rate 2.17 % 0.59 %

APTOF US Equity

APTOF · 10-K · period ended 2022-12-31

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 11. EXECUTIVE COMPENSATION

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AN DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 16. form 10-k summary

APTOF US Equity☆

APTOF · 10-K · period ended 2022-12-31

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Item 11. EXECUTIVE COMPENSATION

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AN DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

ITEM 16. form 10-k summary

APTOF US Equity