What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-02-25 compared with 2020-03-27 · 481 added, 517 removed, 456 unchanged (69% of the section changed)

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Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity for the years ended December 31, 2019 and 201 8

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

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REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM

The Shareholders and the Board of Directors of

Altimmune, Inc.

The Shareholders and the Board of Directors of Altimmune, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Altimmune, Inc.

(the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the 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 financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the 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 account or disclosure to which it relates.

Impairment assessment of Indefinite-lived Intangible Assets

Description of the Matter

At December 31, 2020, the Company's indefinite-lived intangible assets consisted of one acquired in-process research and development asset (IPR&D) with a carrying value of approximately $12.4 million.

As explained in Note 2 to the consolidated financial statements, the Company tests IPR&D for impairment at least annually at year end by evaluating qualitative factors which could be indicative of impairment.

In evaluating indefinite-lived intangible assets for impairment, the Company considers the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted timing or changes in the future cash flows to be generated by the completed products, probability of success of the ultimate project, and changes to other market-based assumptions, such as discount rates.

Auditing the Company's qualitative impairment assessment was complex and judgmental due to the significant estimation including the evaluation of assumptions that could indicate potential impairment.

Management’s assumptions that affect the evaluation included the forecasted changes in timing or amounts required to complete the project or in the future expected cash flows to be generated by the completed project

and the probability of success of the ultimate project.

These assumptions are forward looking and are sensitive to and affected by economic, industry, and company-specific qualitative factors.

How We Addressed the Matter in Our Audit

To assess the Company’s evaluation of impairment indicators of the IPR&D asset, we performed audit procedures that included, among others, evaluating the Company's significant assumptions described above.

We also, tested the completeness and accuracy of the underlying data.

For example, we compared the significant assumptions to current industry, market and economic trends, and to other relevant data.

In addition, to evaluate the probability of success, we considered the phase of development of the IPR&D project, the Company's history of obtaining regulatory approval, and third-party data regarding clinical trial success rates.

We assessed the historical accuracy of management’s estimates and performed sensitivity analyses on significant assumptions to evaluate the effect on the impairment assessment that would result from changes in the assumptions.

/s/ Ernst & Young LLP

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Baltimore, Maryland

March 27, 2020

February 25, 2021

ALTIMMUNE, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31,

Current assets:

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Intangible assets, net

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Notes payable

Accounts payable

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Total current liabilities

Deferred income taxes

Contingent consideration

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Year Ended December 31,

Year Ended December 31,

Operating expenses:

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General and administrative

Impairment charges

Impairment charge

Total operating expenses

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Other income (expense):

Changes in fair value of warrant liability, including loss on exchange

Changes in fair value of embedded derivative

Changes in fair value of warrant liability

Interest expense

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Other income, net

Total other income (expense)

Total other income, net

Net loss before income tax benefit

Income tax benefit

Other comprehensive loss — foreign currency translation adjustment

Other comprehensive income — unrealized gains on investments

Other comprehensive (loss) income — unrealized (loss) gain on investments

Comprehensive loss

Preferred stock accretion and other deemed dividends

Deemed dividends

Net loss attributable to common stockholders

Weighted-average common shares outstanding, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

Weighted-average common shares outstanding, basic and diluted

The accompanying notes are an integral part of the consolidated financial statements.

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Series B Redeemable

Preferred Stock

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Comprehensive

Stockholders’

Balance, January 1, 2018

Stock based compensation

Vesting and accelerated vesting of restricted stock

Exercises of stock options

Accretion of Series B redeemable convertible preferred stock

Conversion of Series B redeemable convertible preferred stock into common stock

Redemption of Series B redeemable convertible preferred stock for cash and release of embedded derivative

Issuance of common stock for the exchange of warrants

Issuance of common stock and units in registered direct offerings, net of offering costs

Issuance of common units in public offering, net of offering costs

Foreign currency translation adjustments

Balance, December 31, 2018

Balance at December 31, 2018

Stock based compensation

Vesting and accelerated vesting of restricted stock, net

Issuance of common stock upon exercise of warrants

Issuance of common stock in registered direct offering, net of offering costs

Vesting of restricted stock awards including withholding, net

Issuance of common stock in registered direct offering, net

Issuance of common stock for acquired in-process research and development

Issuance of common stock upon exercise of warrants

Unrealized gain on short term investments

Balance, December 31, 2019

Balance at December 31, 2019

Stock based compensation

Issuance of common stock from exercise of stock options

Vesting of restricted stock awards including withholding, net

Issuance of common stock from Employee Stock Purchase Plan

Issuance of common stock and pre-funded warrants in public offering, net

Issuance of common stock in at-the-market offering, net

Issuance of common stock upon exercise of warrants

Issuance of common stock related to contingent consideration liability

Unrealized loss on short term investments

Balance at December 31, 2020

The accompanying notes are an integral part of the consolidated financial statements .

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended December 31,

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Non-cash consideration for acquired in-process research and development

Changes in fair value of contingent consideration liability

Impairment charges

Stock-based compensation

Unrealized (gain) loss on foreign currency exchange

Debt discount accretion

Gain from disposal of property and equipment

Stock-based compensation expense

Depreciation and amortization

Unrealized gain on foreign currency exchange

Changes in fair value of warrant liability

Changes in fair value of embedded derivative

Changes in operating assets and liabilities:

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Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Deferred rent

Lease obligation

Accrued expenses and other liabilities

Tax refund receivable

Deferred tax benefit

Deferred taxes

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash paid for short-term investments

Proceeds from sales and maturities of short-term investments

Purchases of short-term investments

Purchases of property and equipment

Proceeds from sale of property and equipment

Additions to intangible assets

Cash paid for internally developed patents

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of notes payable

Redemption of preferred stock

Cash paid in conjunction with warrant exchange

Proceeds from exercises of warrants

Proceeds from issuance of common stock in at-the-market offering, net

Proceeds from issuance of common stock and pre-funded warrants in public offering, net

Proceeds from issuance of common stock in registered direct offering, net

Proceeds from issuance of notes payable

Payments of notes payable

Proceeds from conditional economic incentive

Proceeds from issuance of common stock, net of issuance costs

Proceeds from issuance of common units, net of issuance costs

Proceeds from exercise of warrants and stock options

Proceeds from issuance of common stock from Employee Stock Purchase Plan

Proceeds from exercises of stock options

Net cash provided by financing activities

EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

Net (decrease) increase in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash — beginning of year

Cash, cash equivalents and restricted cash — end of year

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest

SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES

Conversion of Series B redeemable convertible preferred stock into common stock

SUPPLEMENTAL NON-CASH ACTIVITIES:

Common stock issued related to contingent consideration liability

Common stock issued for acquired in-process research and development

Settlement of warrant liability for common stock

Notes payable issued in conjunction with the exchange of warrants

Accretion of Series B redeemable convertible preferred stock

Operating lease liability and right of use asset addition

The accompanying notes are an integral part of the consolidated financial statements .

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINAN CIAL STATEMENTS

Nature of Business and Basis of Presentation

Nature of Business

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature of Business and Organization

Altimmune, Inc., headquartered in Gaithersburg, Maryland, United States, together with its subsidiaries (collectively, the “Company” or “Altimmune”) is a clinical stage biopharmaceutical company incorporated under the laws of the State of Delaware.

The Company’s business is a result of a merger between PharmAthene, Inc.

(“PharmAthene”) and the business previously known as Altimmune, Inc.

(“Private Altimmune”).

In May of 2017, Private Altimmune merged with PharmAthene pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) dated January 18, 2017.

Except where the context indicates otherwise, references to “we,” “us,” “our,” “Altimmune” or the “Company” refer, for periods prior to the completion of the Mergers, to Private Altimmune and its subsidiaries, and for periods following the completion of the Mergers to the combined company and its subsidiaries.

The Company is focused on developing treatments for liver disease and immune modulating therapies.

Our diverse pipeline includes next generation peptide therapeutics for NASH (ALT-801) and chronic hepatitis B (HepTcell™), conjugated immunostimulants for the treatment of cancer (ALT-702) and intranasal vaccines (NasoVAX™ and NasoShield™).

The Company is focused on developing intranasal vaccines, immune modulating therapies and treatments for liver disease.

The Company’s diverse pipeline includes proprietary intranasal vaccines for COVID-19 (AdCOVID), anthrax (NasoShield) and influenza (NasoVAX);

an intranasal immune modulating therapeutic for COVID-19 (T-COVID);

and next generation peptide therapeutics for NASH (ALT-801) and chronic hepatitis B (HepTcell).

The Company has not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.

Basis of Presentation

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States (“U.S.

GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”).

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned.

Intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

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The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances.

Significant estimates relied upon in preparing the accompanying consolidated financial statements were related to revenue recognition, the fair value of common stock and other equity instruments, accounting for stock-based compensation, income taxes, collectability of accounts receivable, useful lives of long-lived assets, fair value of contingent consideration acquired, impairment of goodwill and other long-lived assets, and accounting for project development and certain accruals.

Significant estimates relied upon in preparing the accompanying consolidated financial statements were related to revenue recognition, the fair value of common stock and other equity instruments, accounting for stock-based compensation, income taxes, useful lives of long-lived assets, fair value of contingent consideration, impairment of long-lived assets, and accounting for project development and certain accruals.

The Company assesses the above estimates on an ongoing basis;

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Comprehensive Loss

For the years presented, the total comprehensive loss includes net loss and other comprehensive loss which represents unrealized gains on investments and foreign currency translation adjustments.

Foreign Currency Translation

Historically the Company’s UK subsidiaries utilized the British pound as their functional currency.

The assets and liabilities of these subsidiaries were translated at current exchange rates, while revenue and expenses were translated at the average rates in effect for the period.

The related translation gains and losses were included in other comprehensive income or loss within the Consolidated Statements of Operations and Comprehensive Loss.

As a result of an analysis which took into account the economic indicators of these subsidiaries from a long-term perspective, the Company changed the functional currency for these subsidiaries from British Pounds to U.S.

Dollars effective as of July 1, 2018.

The change in the Company’s functional currency determination has

been applied on a prospective basis in accordance with ASC 830.

Therefore, any translation gains and losses that were previously recorded in accumulated other comprehensive income through June 30, 2018 remain unchanged as of December 31, 2019.

For the years presented, the total comprehensive loss includes net loss and other comprehensive income (loss) which represents unrealized gains or losses on investments.

The Company is managed and operates as a single business focused on the research and development of immunotherapies and vaccines.

The Company is managed by a single management team, and consistent with its organizational structure, the Chief Executive Officer manages and allocates resources at a consolidated level.

Accordingly, the Company views its business as one reportable operating segment.

Accordingly, the Company views its business as one operating segment.

Short-term Investments

The Company’s short-term investments are comprised of U.S.

Treasury and corporate debt securities that have original maturities less than or equal to one year and are classified as available-for-sale securities.

Treasury, corporate debt securities and certificate of deposit that have original maturities less than or equal to one year and are classified as available-for-sale securities.

Such securities are carried at estimated fair value, with any unrealized holding gains or losses reported as accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity.

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Dividend and interest income are recognized in other income when earned.

The cost of securities sold is calculated using the specific identification method.

securities sold is calculated using the specific identification method.

The Company places all investments with government agencies, or corporate institutions whose debt is rated as investment grade.

Investments are classified as either current or non-current assets on our consolidated balance sheets based on their contractual maturity dates.

Intangible Assets

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License issuance fees are amortized on a straight-line basis over the estimated useful lives of the underlying licensed technology.

Intangible assets with finite useful lives are being amortized over 6 to 20 years and are evaluated separately from indefinite-lived intangible assets for impairment at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Intangible assets with finite useful lives are being amortized over 6 to 20 years.

These amortization costs are classified as research and development expenses in the accompanying statements of operations and comprehensive loss.

Impairment of Long-lived Assets and Goodwill

The Company evaluates our long-lived tangible and intangible assets, including IPR&D assets and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Impairment of long-lived assets other than goodwill and indefinite lived intangibles is assessed by comparing the undiscounted cash flows expected to be generated by the asset to its carrying value.

Prior to the complete impairment of goodwill in 2018, goodwill was tested for impairment by comparing the estimated fair value of our single reporting unit to its carrying value.

The Company’s IPR&D assets are currently non-amortizing.

Impairment of Long-lived Assets

The Company evaluates its long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Impairment of long-lived assets other than goodwill and indefinite lived intangibles is assessed by comparing the undiscounted cash flows expected to be generated by the asset group to its carrying value.

As mentioned above, the Company’s IPR&D assets are currently non-amortizing.

Until such time as the projects are either completed or abandoned, the Company test those assets for impairment at least annually at year end, or more frequently at interim periods, by evaluating qualitative factors which could be indicative of impairment.

Qualitative factors being considered include, but are not limited to, the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted in timing or changes in the future cash flows to be generated by the completed products, and changes to other market-based assumptions, such as discount rates.

If impairment indicators are present as a result of our qualitative assessment, the Company will test those assets for

impairment by comparing the fair value of the assets to their carrying value.

Qualitative factors being considered include, but are not limited to, the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted changes in timing or changes in the future cash flows to be generated by the completed products, a probability of success of the ultimate project and changes to other market-based assumptions, such as discount rates.

If impairment indicators are present as a result of the Company’s qualitative assessment, the Company will test those assets for impairment by comparing the fair value of the assets to their carrying value.

Upon completion or abandonment, the value of the IPR&D assets will be amortized to expense over the anticipated useful life of the developed products, if completed, or charged to expense when abandoned if no alternative future use exists.

During the fourth quarter of 2018, the Company recorded $24,450,011 of impairments related to IPR&D assets.

During 2019, the Company recorded $1,000,000 of impairments related to IPR&D assets.

The Company has one IPR&D asset, HepTcell, that was acquired in 2015.

The Company performed a qualitative assessment for the IPR&D impairment testing for 2020 and determined that no impairment indicators were present.

During the third quarter of 2019, the Company abandoned its SparVax-L asset and recorded $1.0 million of impairment to fully write-off the balance of this IPR&D asset.

See Note 5 for further details.

During the year ended December 31, 2018, the goodwill impairment charges of $490,676 represented an adjustment recorded to reduce the tax refund receivable acquired in connection with a 2017 business combination.

There was no goodwill balance outstanding as of December 31, 2019 and 2018.

The Company performed a quantitative assessment for the HepTcell IPR&D impairment test during 2019 and determined that there was no impairment.

Fair Value Measurements

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Financial Instruments

The Company’s financial instruments consist of cash, cash equivalents, restricted cash, accounts receivable, short-term investments, notes payable, accounts payable, accrued expenses, BPI France notes, contingent consideration, common stock warrants classified as a liability, common stock warrants classified as equity, convertible preferred stock, redeemable convertible preferred stock, and an embedded derivative.

The Company’s financial instruments consist of cash, cash equivalents, restricted cash, accounts receivable, short-term investments, notes payable, accounts payable, accrued expenses, contingent consideration, common stock warrants classified as a liability, and common stock warrants classified as equity.

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their fair value due to the short-term nature of those financial instruments.

Short-term investments are recorded at fair value, with any unrealized holding gains or losses reported as accumulated other comprehensive income or loss.

The BPI France notes prior to their redemption or cancellation are recorded at their repayment value which approximates fair value.

Contingent payments classified as a liability was recorded at fair value estimated using the Monte Carlo simulation valuation model.

Redeemable convertible preferred stock until its redemption was classified as temporary equity and its carrying amount accreted over the term of the instrument up to its liquidation and redemption value.

Common stock warrants classified as equity and convertible preferred stock classified as temporary equity are initially recorded at their grant date fair value.

Notes payable, prior to their redemption or cancellation, are recorded at their repayment value which approximates fair value.

Contingent payments classified as a liability are recorded at fair value estimated using the Monte Carlo simulation valuation model.

Common stock warrants classified as equity is initially recorded at their grant date fair value.

For those warrants with a down round feature, if the down round feature is triggered, the Company would remeasure those instruments at that time with changes recorded as a deemed dividend all within equity.

Common stock warrants classified as a liability and the embedded derivative are recorded at fair value and are remeasured every reporting period with the changes in fair value recorded as a component of other income (expenses), net until their settlement or exercise.

Common stock warrants classified as a liability are recorded at fair value and are remeasured every reporting period with the changes in fair value recorded as a component of other income (expenses), net until their settlement or exercise.

Our revenue consists primarily of government and foundation grants and contracts that support the Company’s efforts on specific research projects.

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These grants and contracts generally provide for reimbursement of approved costs as those costs are incurred by the Company.

Research grants and contracts and the related accounts receivable are recognized as earned when reimbursable expenses are incurred and the performance obligation is complete.

Research grants and contracts and the related accounts receivable are recognized as earned in proportion to when reimbursable expenses are incurred in performance of the contract.

Payments received in advance of services being provided are recorded as deferred revenue.

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Research and development costs are expensed as incurred.

Research and development costs include payroll and personnel expense, consulting costs, external contract research and development expenses, raw materials, drug product manufacturing costs, and allocated overhead, including depreciation and amortization, rent and utilities.

Research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.

Clinical Trial Costs

Clinical trial costs are a component of research and development expenses.

The Company accrues and expenses clinical trial activities performed by third parties based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activation, and other information provided to the Company by our vendors.

Research and development costs consist of payroll and personnel expense, consulting costs, external contract research and development expenses, which includes fees paid to other entities that conduct certain research and development activities on the Company’s behalf, such as clinical research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), raw materials, drug product manufacturing costs, laboratory supplies and allocated overhead, including depreciation and amortization, rent and utilities.

Material research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.

Clinical trial costs are a significant component of research and development expenses, and the Company outsources a significant portion of these costs to third parties.

Third party clinical trial expenses include investigator fees, site and patient costs, CRO costs, costs for central laboratory testing, data management and CMO costs.

The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs.

These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties.

Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued expenses.

These third-party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred.

Material advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed.

When evaluating the adequacy of the accrued expenses, the Company analyze progress of the studies, including the phase or completion of events, invoices received and contracted costs.

Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period.

Cash Equivalents

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Restricted Cash

The Company had restricted cash of $34,174 and $634,416 at December 31, 2019 and 2018, respectively held in money market savings accounts as collateral.

The restricted cash as of December 31, 2019 is for the Company’s facility lease obligation.

The restricted cash as of December 31, 2018, was for the Company’s facility lease obligation and $600,000 for a legal bond supporting the Company’s attempt to collect on amounts previously due from a third-party that was released from restriction in 2019.

The Company had restricted cash of $34,174 at both December 31, 2020 and 2019, held in money market savings accounts as collateral.

The restricted cash as of December 31, 2020 and 2019 is for the Company’s facility lease obligation.

Restricted cash is classified as a component of cash, cash equivalents, and restricted cash in the accompanying consolidated balance sheets and consolidated statements of cash flows.

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To manage accounts receivable credit risk, the Company monitors the creditworthiness of its grantors.

Government accounts for 100% of research grants and contracts and accounts receivable for the years ended December 31, 2019 and 2018.

As discussed above, the Company believes that credit risks associated with these government grants and contracts and accounts receivable is not significant.

government accounts for 97% and 95% of revenue for the years ended December 31, 2020 and 2019, respectively.

government accounts for 100% of accounts receivable for both the years ended December 31, 2020 and 2019.

Property and Equipment, Net

The Company records property and equipment at cost less accumulated depreciation and amortization.

Expenditures for maintenance and repairs are charged to operations as incurred, whereas major improvements are capitalized as additions to property

and equipment.

Expenditures for maintenance and repairs are charged to operations as incurred, whereas major improvements are capitalized as additions to property and equipment.

Costs of assets under construction are capitalized but are not depreciated until the construction is substantially complete and the assets being constructed are ready for their intended use.

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Lesser of lease term or estimated useful lives

Preferred Stock

Shares of redeemable preferred stock were issued in August 2017.

Redeemable preferred stock was classified as temporary equity and was initially recorded at its original issuance price, net of issuance costs and discounts.

Such discounts included common stock warrants issued as part of the financing which were required to be classified as a liability and recorded at fair value (Note 12), an embedded derivative related to certain redemption features which was classified as a liability and recorded at fair value (Note 10), and the intrinsic value of a beneficial conversion feature present in the instrument at issuance (Note 10).

The carrying value of the redeemable preferred stock was accreted over the term of the redeemable preferred stock up to its redemption value, using the straight-line method which approximates the effective interest method due to the short-term nature of the redeemable preferred stock terms with the amount of the accretion recorded as a reduction of additional paid-in capital.

All redeemable preferred stock was either redeemed or converted during the year ended December 31, 2018.

Common stock warrants issued in connection with the redeemable preferred stock in 2017 were classified as a liability because these warrants contained terms which could, in certain circumstances, required the Company to settle the instruments for cash and such circumstances are outside the Company’s control.

Common stock warrants classified as a liability are initially recorded at their issuance date fair value and are remeasured on each subsequent balance sheet date with changes in fair value recorded as a component of other income (expenses), net.

These common stock warrants were valued using the Monte Carlo simulation valuation model.

These warrants were subsequently redeemed in 2018 (Note 12).

Common stock warrants issued in connection with the Unit Offering (as defined in Note 11), the Second Registered Direct Offering (as defined in Note 11), and the Third Registered Direct Offering (as defined in Note 11) were classified as a component of permanent equity because they are freestanding financial instruments that were legally detachable and separately exercisable from other debt and equity instruments, are contingently exercisable, do not embody an obligation for the Company to repurchase its shares, and permits the holders to receive a fixed number of common shares upon exercise.

Common stock warrants issued in connection with the 2018 Unit Offering, the 2018 and 2019 Registered Direct Offerings, and the 2020 Public Offering (all terms defined in Note 10 and Note 11), were classified as a component of permanent equity because they are freestanding financial instruments that were legally detachable and separately exercisable from other debt and equity instruments, are contingently exercisable, do not embody an obligation for the Company to repurchase its shares, and permits the holders to receive a fixed number of common shares upon exercise.

In addition, such warrants did not provide any guarantee of value or return.

The Second Registered Direct Offering and Third Registered Direct Offering triggered down round adjustments to the exercise price of warrants issued in connection with the unit offering.

The Company treated the value of the effect of the reduction in exercise price as a deemed dividend, resulting in a reduction to income available to common shareholders (Note 12) .

The 2018 Registered Direct Offering and 2019 Registered Direct Offering triggered down round adjustments to the exercise price of warrants issued in connection with the 2018 Unit Offering.

In 2019, the Company treated the value of the effect of the reduction in exercise price as a deemed dividend, resulting in a reduction to income available to common shareholders (see Note 11) .

There was a reduction in exercise price in 2020 due to the At-the-Market Offering which triggered an anti-dilution provision under the warrant agreement with the Company’s holders of redeemable preferred stock (see Note 11).

Stock-based Compensation

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Stock-based compensation awarded to employees is measured at the grant date fair value of stock option grants and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of estimated forfeitures.

For performance-based awards where the vesting of the options may be accelerated upon the achievement of certain milestones, vesting and the related stock-based compensation is recognized as an expense when it is probable the milestone will be met.

For awards containing a market condition, the effect of the market condition is reflected in measuring the grant date fair value of the award and is recognized over the requisite service period, which is usually the vesting period, on a straight-line basis, net of estimated forfeitures.

When awards are modified, the Company compares the fair value of the affected award measured immediately prior to modification to its value after modification.

If awards are modified, the Company compares the fair value of the affected award measured immediately prior to modification to its value after modification.

To the extent that the fair value of the modified award exceeds the original award, the incremental fair value of the modified award is recognized as compensation on the date of modification for vested awards, and over the remaining vesting period for unvested awards.

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Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period without consideration for potentially dilutive securities.

Net loss attributable to common stockholders and participating preferred stock is allocated to each share on an as-converted basis as if all of the net loss for the period had been distributed.

During periods in which the Company incurred a net loss, the Company does not allocate net loss to participating securities because they do not have a contractual obligation to share in the net loss of the Company.

The Company computes diluted net loss per common share after giving consideration to all potentially dilutive common equivalents, including convertible preferred stock, redeemable preferred stock, common stock options, restricted stock awards, and common stock warrants outstanding during the period except where the effect of such non-participating securities would be antidilutive.

The Company computes diluted net loss per common share after giving consideration to all potentially dilutive common equivalents, including all unvested restricted stock, common stock warrants, and common stock options outstanding during the period except where the effect of such non-participating securities would be anti-dilutive.

Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods.

The Company’s headquarters lease is the primary lease, accounted for as an operating lease under the new lease accounting guidance, which the Company adopted on January 1, 2019 under the prospective optional transition method.

The Company elected the package of practical expedients permitted.

Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease, (b) whether classification of the operating leases would be different in accordance, or (c) whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs at lease commencement.

In addition, the Company does not allocate the consideration between lease and non-lease components.

The Company determines if an arrangement is a lease at inception.

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The Company records contingent consideration associated with development and regulatory milestones that meets the definition of a liability under ASC 480 at fair value.

The fair value model used to calculate this obligation is based on the income approach (a discounted cash flow model) or a Monte Carlo simulation, if more appropriate, that has been risk adjusted based on the probability of achievement of the milestones.

The fair value model used to calculate this obligation is based on the Monte Carlo simulation that has been risk adjusted based on the probability of achievement of the milestones.

The inputs the Company uses for determining the fair value of the contingent consideration associated with development and regulatory milestones are Level 3 fair value measurements.

The Company re-evaluates the fair value on a quarterly basis.

Changes in the fair value can result from adjustments to the discount rates and updates in the assumed timing of milestone achievement.

Any future increase in the fair value of the contingent consideration associated with development and regulatory milestones are based on an increased likelihood that the underlying milestones will be achieved.

The change in Company’s estimates associated with payment s which will become due and payable for development and regulatory milestones will change the fair value of contingent consideration, resulting in a charge or contra expense to research and development expense in the period in which the increase or decrease is determined.

Changes in the fair value can result from adjustments to the probability of achievement of the milestones, stock price, volatility and the risk-free interest rate.

The change in Company’s estimates associated with payments which will become due and payable for development and regulatory milestones will change the fair value of contingent consideration, resulting in a charge or contra expense to research and development expense in the period in which the increase or decrease is determined.

Recently Issued Accounting Pronouncements

Recently Adopted :

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (“ASU 2016-02”).

ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018.

The standard requires a modified retrospective approach or an optional transition to apply the new guidance in the year of transition rather than at the beginning of the earliest period presented.

The Company adopted ASU 2016-02 in the first quarter of 2019 under the optional transition method.

The Company’s existing operating leases were accounted for as operating lease liabilities and right of use assets upon adoption.

The Company has elected the package of practical expedients permitted.

In addition, the Company does not allocate the consideration between lease and non-lease components.

The adjustment resulted in an increase of $756,347 to total assets and total liabilities on the January 1, 2019 consolidated balance sheet.

The adoption did not have a material impact on the consolidated statement of operations or consolidated statement of cash flows.

In June 2018, FASB issued ASU No.

2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

The Company adopted ASU 2018-07 in the first quarter of 2019.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Pending Adoptions:

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No.

2018-13 was issued to modify and enhance the disclosure requirements for fair value measurements and eliminates certain disclosure requirements, such as the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy.

This ASU adds new disclosure requirements for Level 3 measurements and is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

The Company adopted this guidance in the first quarter of 2020, which resulted in expanded disclosures in Note 3 regarding the Company’s recurring Level 3 fair value measurements.

Not Yet Adopted :

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments, which required entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

Measurement of Credit Losses on Financial Instruments (“ASU No.

2016-13 requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

This update also required enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.

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Adoption is not expected to have a material impact on the Company’s consolidated financial statement disclosure requirements.

In August 2018, FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, was issued to modify and enhance the disclosure requirements for fair value measurements.

This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and early adoption is permitted.

The Company is still completing its assessment of the impacts and anticipated adoption date of this guidance.

Adoption is not expected to have a material impact on the Company’s consolidated financial statement disclosure requirements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU No.

ASU 2019-12 amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications.

The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year.

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The standard will be effective for the Company beginning January 1, 2021, with early adoption of the amendments permitted.

The Company is currently evaluating the impact from the adoption of ASU 2019-12 on its consolidated financial statements.

The Company entered into a definitive agreement to acquire all of the equity interests of Spitfire Pharma, Inc.

(“Spitfire”) on July 8, 2019.

Spitfire was a privately held, preclinical pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist for the treatment of non-alcoholic steatohepatitis.

The transaction closed on July 12, 2019.

The Company issued 1,887,250 unregistered shares of its common stock (the “shares”) as upfront consideration to certain former securityholders of Spitfire (collectively, the “Spitfire Equityholders”), representing an amount equal to $5,000,000 less working capital and transaction expense adjustment amounts as defined in the agreement (the “closing consideration”).

The number of shares issued as payment of the Closing Consideration was determined based on the average of the closing prices of the Company’s common stock as reported on the Nasdaq Global Market for the twenty consecutive trading days prior to and including July 8, 2019, the date on which the parties entered into the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”).

The Spitfire Equityholders agreed to a lock-up on the upfront consideration pursuant to which 33.3% of the shares will be released at 6 months;

33.3% will be released at 12 months;

and 33.3% will be released at 18 months.

The Merger Agreement also includes future contingent payments up to $88,000,000 in cash and shares of the Company’s common stock as follows (each, a “Milestone Event”):

a one-time payment of $5.0 million (the “IND Milestone Consideration Amount”) within sixty days of the submission of an Investigational New Drug Application (“IND”) to the United States Food and Drug Administration (the “FDA”) or other applicable governmental authority in a foreign jurisdiction, which IND has not been rejected or placed on clinical hold by the FDA or such applicable foreign governmental authority within time specified in the Merger Agreement;

a one-time payment of $3.0 million (together with the IND Milestone Consideration Amount, the “Regulatory Milestones”) within sixty days of the initiation of a human clinical trial of a product candidate anywhere in the world;

payments of up to $80.0 million upon the achievement of specified worldwide net sales (the “Sales Milestones”) of all products developed using the technology acquired in the License Agreement within ten years following the approval of a new drug application filed with the FDA.

The Company determined that the acquisition of Spitfire should be accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset is not considered a business.

The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses.

During the year ended December 31, 2019, the Company recorded an in-process research and development expense of $4,337,574 for the up-front consideration, which included the fair value of the common stock transferred and net liabilities assumed.

The fair value of the common shares transferred was based on the Company’s stock price of $2.45 on July 12, 2019, offset by an estimated discount of $832,277 for lack of marketability.

The future contingent payments related to the Regulatory Milestones are stock-based payments accounted for under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity.

Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months and 50% are released at 6 months.

As of the acquisition date, the Company estimated future contingent consideration based upon a Monte Carlo simulation that has been risk adjusted based on the probability of achieving the milestone and a discount for lack of marketability.

The Company remeasured the fair value of the contingent consideration as of December 31, 2019.

During the year ended December 31, 2019, the Company has expensed $2,750,000 to in-process research and development expenses.

The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies.

Accordingly, the Company will recognize the Sales Milestones when the contingency is resolved and the amount is paid or payable.

Finally, transaction costs associated with the Spitfire acquisition of $680,090 are recorded within research and development expense during the year ended December 31, 2019.

Net Loss Per Share

Because the Company has reported net loss attributable to common stockholders for the years ended December 31, 2019 and 2018, basic and diluted net loss per share attributable to common stockholders are the same for both years.

All preferred stock, unvested restricted stock, common stock warrants, stock options, and other potentially dilutive shares have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.

Potential common shares issuable upon conversion, unvested restricted stock, common stock warrants, stock options, and other potentially dilutive shares are excluded from the computation of diluted weighted-average shares outstanding are as follows:

Adoption is not expected to have a material impact on the Company’s consolidated financial statement disclosure requirements.

Fair Value Measurement

The Company records cash equivalents, short-term investments, contingent consideration, and warrant liability at fair value on a recurring basis.

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants based on assumptions that market participants would use in pricing an asset or liability.

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2020 consisted of the following:

Fair Value Measurement at December 31, 2020

Cash equivalents - money market funds

Short-term investments

Contingent consideration liability (see Note 8)

Warrant liability

The warranty liability is included in Other long-term liabilities in the consolidated balance sheet at December 31, 2020.

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 consisted of the following:

Fair Value Measurement at December 31, 2019

Cash equivalents — money market fund

Short-term investments

Contingent consideration liability (see Note 8)

Warrant liability

The warranty liability is included in Other long-term liabilities in the consolidated balance sheet at December 31, 2019.

Short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data (Level 2).

The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value.

Short-term investments with quoted prices at December 31, 2020 as shown below:

As of December 31, 2020

Common stock warrants

Common stock options

Unvested restricted stock

Other dilutive securities

Amortized Cost

Unrealized Gain

United States treasury securities

Asset-backed and corporate debt securities

Certificates of deposit

Short-term investments with quoted prices at December 31, 2019 as shown below:

As of December 31, 2019

Amortized Cost

Unrealized Gain

United States treasury securities

Asset-backed and corporate debt securities

The fair value of contingent payments classified as a liability is based on the regulatory milestones described in Note 8 and estimated using the Monte Carlo simulation valuation model with Level 3 inputs.

The assumptions used to estimate the fair value of contingent payments that were classified as a liability at December 31, 2020 include the following significant unobservable inputs :

Unobservable input

Value or Range

Weighted Average

Expected volatility

Risk-free interest rate

Cost of capital

Discount for lack of marketability

Probability of payment

Projected year of payment

The assumptions used to estimate the fair value of contingent payments that were classified as a liability at December 31, 2019 include the following significant unobservable inputs :

Unobservable input

Value or Range

Weighted Average

Expected volatility

Risk-free interest rate

Cost of capital

Discount for lack of marketability

Probability of payment

Projected year of payment

The Company’s warrant liability is valued using the Monte Carlo simulation valuation model with Level 3 inputs.

If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs.

There were no transfers into and out of any of the levels of the fair value hierarchy during 2020 or 2019.

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis.

Assets recorded at fair value on a non-recurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired.

During the year ended December 31, 2020, the Company had no significant assets or liabilities that were measured at fair value on a non-recurring basis.

During the year ended December 31, 2019, the Company recognized an intangible asset impairment (see Note 5) measured at fair value on a non-recurring basis.

Property and Equipment, Net

Property and equipment, net consisted of the following:

As of December 31,

Furniture, fixtures and equipment

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Depreciation expense related to property and equipment for the years ended December 31, 2020 and 2019 was $251,244 and $239,821, respectively.

Goodwill and Intangible Assets

Intangible Assets

The Company’s intangible assets consisted of the following:

As of December 31, 2019

December 31, 2020

Internally developed patents

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Total intangible assets subject to amortization

As of December 31, 2018

December 31, 2019

Internally developed patents

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IPR&D assets are periodically assessed for impairment by considering the state of completion of the projects, the remaining activities required to complete development, the anticipated market for the completed products, and anticipated future cash required to complete development.

During the fourth quarter of 2018, based on the continued decline of the Company’s market capitalization following the completion of the equity offerings and a strategic review of the development pipeline at the direction of a new CEO, the Company concluded under the qualitative assessment that an impairment indicator was present as it related to three IPR&D assets.

Based on the Company’s strategic review, management concluded it would discontinue development of the Oncosyn cancer immunotherapy program and accordingly the entire amount of this IPR&D asset, or $3,061,011 was charged to expense.

For the remaining two IPR&D assets related to HepTcell and SparVax-L, the Company calculated fair value using an excess earnings method or discounted cash flow model and compared the fair value to the carrying amount of the indefinite lived asset.

Based on the analysis, the fair value of the Company’s HepTcell IPR&D asset exceeded its carrying value by an amount greater than 10%.

However, during 2018, the Company concluded that the fair value of the SparVax-L IPR&D intangible asset was approximately $1,000,000 as compared to the current carrying value of the asset of $22,389,000, which resulted in an impairment charge of $21,389,000.

Key assumptions used in the analysis included projected cash flows, a probability of success of the ultimate project, and the discount rate.

During 2019, as a result of the SparVax-L NIAID contract completion and the US government’s funding prioritization of only single dose anthrax vaccine candidates, we abandoned the project and concluded that the full remaining net book value of the SparVax-L IPR&D asset was impaired.

As a result, of $1,000,000 was written off as an impairment charge which was classified as a component of operating expenses during the year ended December 31, 2019.

During the year ended December 31, 2018, an additional $490,676 of goodwill was written off as an impairment charge.

The impairment was an adjustment to reduce the tax refund receivable acquired in connection with a 2017 business combination.

Changes in the carrying amounts of IPR&D assets and goodwill for the years ended December 31, 2019 and 2018 were:

Balance, January 1, 2018

Foreign currency translation adjustments

Impairment charges

Balance, December 31, 2018

Impairment charges

Balance, December 31, 2019

There was no impairment loss during the year ended December 31, 2020.

During 2019, as a result of the SparVax-L NIAID contract completion and the U.S.

government’s funding prioritization of only single dose anthrax vaccine candidates, the Company abandoned the project and concluded that the full remaining net book value of the SparVax-L IPR&D asset was impaired.

As a result, $1.0 million was written off as an impairment charge which was classified as a component of operating expenses during the year ended December 31, 2019.

The Company rents office and laboratory space in the United States.

The Company also leases office equipment under a non-cancellable equipment lease through December 2022.

Rent expense during the years ended December 31, 2020 and 2019 under all of

the Company’s operating leases was $407,200 and $346,603, respectively, which includes short-term leases and variable lease costs not included in the lease obligation.

The office space lease provides for increases in future minimum annual rental payments as defined in the lease agreements.

The office space lease also includes an option to renew the lease as of the end of the term.

The Company has determined that the lease renewal option is not reasonably certain of being exercised.

The cash paid for operating lease liabilities for the year ended December 31, 2020 and 2019 was $391,090 and $380,805, respectively.

Supplemental balance sheet information related to the operating leases is as follows:

Operating lease obligations (see Note 7 and 9)

Right of use asset

Weighted-average remaining lease term

Weighted-average discount rate

Maturities of operating lease liabilities are as follows:

Year ending December 31,

Total operating lease payments

imputed interest

Total operating lease liabilities (see Note 7 and 9)

Accrued Expenses and Other Current Liabilities

Accrued expense and other current liabilities consist of the following:

As of December 31,

Accrued professional services

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Accrued interest

Lease obligation, current portion

Deferred rent, current portion

Accrued research and development

Lease obligation, current portion (see Note 6)

Deferred revenue

Total accrued expenses

University of Alabama at Birmingham Research Foundation

The Company had an agreement with the University of Alabama at Birmingham Research Foundation (“UABRF”) for the exclusive worldwide license to develop, manufacture, and commercialize certain proprietary technology developed at UABRF.

That agreement expired in accordance with its terms in January 2020.

Under the terms of the amended and restated agreement, the Company was obligated to pay an annual license fee of $20,000 and low single digit royalty fees upon the commencement of product sales.

Fees incurred under the UABRF agreement totaled $20,000 in each of the years ended December 31, 2019 and 2018 and are classified as a component of research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.

Janssen Vaccines & Prevention B.V.

The Company has a royalty-bearing, worldwide non-exclusive license agreement with Janssen Vaccines & Prevention B.V.

(“Janssen”) for use of its vaccine technology.

We may terminate the license agreement without cause, and the agreement contains customary provisions for either party to terminate prior to the expiration of the agreement.

The amended license agreement expires on a product-by-product and country-by-country basis on the later of the date upon which the last of the licensed patents applicable to the relevant product expires or 15 years from the date of first commercial sale of the relevant product.

The Janssen patent rights include patents issued in the United States with an expected expiration date no earlier than April 2020, in each case not giving effect to any potential extensions and assuming payment of all associated fees.

Upon expiration of the amended license agreement, or if we terminate the amended license agreement for Janssen’s material breach, we retain the right to exploit the rights granted.

Under the agreement, the Company is required to pay an annual license fee and annual royalty fees upon reaching certain milestones in an amount that equals the greater of a low single digit percentage of net sales or $100,000.

Fees incurred under the Janssen agreement totaled $111,499 and $177,625 for the years ended December 31, 2019 and 2018, respectively, and are included in research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.

Auburn University

The Company has an exclusive, world-wide license agreement to develop, manufacture, and commercialize certain vaccine technology developed at Auburn University.

The Auburn University agreement expires on the last of the related patent expiration date which may be extended upon patent renewal.

The last of the patent expiration date is currently on August 15, 2025.

Under the agreement, the Company paid an upfront fee of $1,000 upon signing of the agreement, and is obligated to pay an annual license fee of $5,000, and low single digit royalty fees from net product sales or sublicenses of the technology.

Fees incurred under the Auburn University agreement totaled $5,000 in each of the years ended December 31, 2019 and 2018 and are included in research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.

Contingent Consideration

The Company entered into an Agreement and Plan of Merger and Reorganization, dated July 8, 2019, by and among the Company, Springfield Merger Sub, Inc., Springfield Merger Sub, LLC, Spitfire Pharma, Inc.

and David Collier, as the Stockholder Representative (the “Spitfire Merger Agreement”) to acquire all of the equity interests of Spitfire Pharma, Inc.

(“Spitfire”).

Spitfire was a privately held, preclinical pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist for the treatment of non-alcoholic steatohepatitis.

The transaction closed on July 12, 2019.

The Company issued 1,887,250 unregistered shares of its common stock (the “shares”) as upfront consideration to certain former securityholders of Spitfire (collectively, the “Spitfire Equityholders”), representing an amount equal to $5.0 million less working capital and transaction expense adjustment amounts as defined in the agreement.

The acquisition of Spitfire was accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset was not considered a business.

The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses.

During the year ended December 31, 2019, the Company recorded an in-process research and development expense of $4.3 million for the upfront consideration, which included the fair value of the common stock transferred and net liabilities assumed.

Transaction costs of $0.7 million was recorded within research and development expense on the Company’s consolidated statements of operations and comprehensive loss during the year ended December 31, 2019.

The Spitfire Merger Agreement also includes future contingent payments up to $88.0 million in cash and shares of the Company’s common stock as follows (each, a “Milestone Event”):

a one-time payment of $3.0 million (the “Phase 2 Milestone Consideration Amount” and together with the IND Milestone Consideration Amount, the “Regulatory Milestones”) within sixty days of the initiation of a human clinical trial of a product candidate anywhere in the world;

The Regulatory Milestones will be payable in shares of the Company’s Common Stock, with the number of shares of the Company’s Common Stock to be issued in connection with each milestone amount, if any, are dependent on the share price at the time of achievement.

The number of any shares issued in consideration for the IND Milestone Consideration Amount will be determined based on lower of (A) the average of the closing prices of our Common Stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days prior to the IND Reference Date or (B) $2.95.

The value of any shares issued in consideration for the Phase 2 Milestone Consideration Amount shall be determined based the lower of (A) on the average of the closing trading prices of our Common Stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days immediately preceding the date of the occurrence of the Phase 2 Milestone Event or (B) $3.54.

Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months and 50% are released at 6 months.

The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies .

Accordingly, the Company will recognize the Sales Milestones when the contingency is resolved and the amount is paid or payable.

On November 3, 2020, the Company received acknowledgement from the Australian Government Department of Health on the Company’s submitted clinical trial notification (“CTN”) which triggered the obligation to settle the IND Milestone payment to the former owners.

As a result, on November 19, 2020, the Company issued 1,694,906 shares of its Common Stock valued at $9.57 per share for the amount value of $13.6 million to the former Spitfire stockholders.

Pursuant to the Spitfire Merger Agreement, the Company issued the shares within sixty days of the submission of the CTN, which was October 29, 2020.

From September 30, 2020 through the date of issuance, the Company recognized a decrease in the fair value of the IND Milestone payment of $5.4 million to research and development expense and reclassified the balance in the contingent consideration liability associated with the fair value of the IND Milestone payment to equity in the Company’s consolidated balance sheet.

At the acquisition date, the Company estimated future contingent consideration of $2.8 million for the Regulatory Milestones which was based upon a Monte Carlo simulation that was risk adjusted based on the probability of achieving the milestones and a discount for lack of marketability, which was expensed to in-process research and development expenses during the third quarter of 2019.

The Company remeasures the fair value of contingent consideration at each reporting date, and below is a summary of the contingent consideration activity through December 31, 2020:

Year Ended December 31,

Beginning balance

Acquisition date fair value

Cumulative change in fair value

Fair value of payments settled in common stock (IND Milestone)

Ending balance

The net increase in fair value throughout 2020 was primarily attributable to an increase in the closing share price of the Company’s common stock and in the probability of milestone achievement, partially offset by the fair value of the IND Milestone payment settled in common stock.

Any changes in fair value including the initial determination of acquisition date fair value have been recorded within research and development expense during the respective periods presented.

Notes Payable and Other Liabilities

The Company’s current portion of outstanding notes payable are summarized as follows:

As of December 31,

BPI France notes, short-term portion

Total notes payable

The Company’s long-term portion of outstanding notes payable as well as other long-term liabilities are summarized as follows:

As of December 31,

BPI France notes, long-term portion

Lease obligation, long-portion (see Note 15)

Deferred rent, long-term portion

Common stock warrant liability (see Note 12)

Economic conditional grants

Paycheck Protection Program

On April 7, 2020, the Company applied for a loan from ServisFirst Bank, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S.

Small Business Administration (the "SBA").

On April 13, 2020, the Loan was approved and the Company received the proceeds from a loan in the amount of $632,000 (the “PPP Loan”).

The PPP Loan, which took the form of a promissory note (the “Promissory Note”), was set to mature on April 7, 2022 and bore interest at a rate of 1% per annum.

Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), was to commence on November 7, 2020.

The Promissory Note provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects.

The Company could prepay the principal of the PPP Loan at any time without incurring any prepayment charges.

All or a portion of the Loan may be forgiven by the SBA and lender upon application by the Company upon documentation of expenditures in accordance with the SBA requirements.

On July 21, 2020, the Company voluntarily extinguished the Promissory Note by paying the outstanding principal and accrued interest in cash.

The Company’s other long-term liabilities are summarized as follows:

Lease obligation, long-term portion (see Note 6)

Conditional economic incentive grants

Total other long-term liabilities

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Economic Incentive Grants

The Company has two conditional economic incentive grants for a total of $250,000 from Montgomery County and State of Maryland.

The Company has two conditional economic incentive grants for a total of $250,000 from Montgomery County, Maryland and the State of Maryland.

The Montgomery County grant was received in May of 2018, with a term expiring on February 28, 2028.

The State of Maryland grant was received in October 2019, with a 10-year term expiring on December 31, 2029.

These grants are conditional primarily based on the Company maintaining its current headquarter locations in addition to employing a required number of employees at different reporting dates through the term of the grant.

The Company is accruing 3% interest on both grants and has recorded $5,042 in interest expense for the year ended December 31, 2019.

Exchange Notes

In conjunction with the First Exchange (as defined in Note 12) the Company issued convertible notes (the “Exchange Notes”) with an aggregate principal value of $1,500,000, which were initially convertible into up to 73,530 shares of our common stock at the note holder’s option on the maturity date.

The Exchange Notes were also convertible in the event of default, at which time the balance

of the notes would increase by 112% and was convertible at a share price equal to the lower of $20.40 per share or 75% of the weighted average price of common stock during the twenty consecutive trading day period immediately preceding the event of default.

In the event the weighted average price of common stock as defined above is below $4.50 per share, then a supplemental cash payment was due to the note holder .

The conversion and redemption options embedded in the Exchange Notes qualified for derivative accounting under ASC 815-15 “Derivatives and Hedging”.

The fair value of the derivative liability at the date of issuance resulted in a discount to the Exchange Notes of $180,611 which was accreted into interest expense over the term of the convertible note.

Debt issuance costs of $58,172 were capitalized and was recognized in interest expense over the term of the notes.

In addition, the Company paid the holders of the Exchange Notes and additional $54,226 of interest earned.

During the year ended December 31, 2018, total interest expense recognized on the Exchange Notes was $293,009.

The Company fully redeemed the Exchange Notes and accrued interest for cash in October 2018.

Preferred Stock

Redeemable Convertible Preferred Stock

On August 16, 2017, the Company issued 15,656 shares of $0.0001 par value, redeemable preferred stock and warrants to purchase up to 78,181 shares of common stock (see Note 12), for total gross proceeds of $14,716,370, and incurred issuance costs totaling $1,697,800.

The redeemable preferred stock matured on August 16, 2018.

In addition, the redeemable preferred stock agreements required that the Company reserve a sufficient number of common shares to cover at least 150% of the common shares expected to be issued upon the conversion of the redeemable preferred stock at the then current conversion price, and the exercises of common stock warrants issued in connection with the redeemable preferred stock.

Because the securities contained contingencies which could require the Company to redeem the shares for cash, and such contingencies were outside the control of the Company, the redeemable preferred stock was classified outside of permanent equity.

Because a substantive conversion feature was also present at issuance, the redeemable preferred stock is only contingently redeemable and therefore prior to its redemption or conversion was classified as temporary equity and carried on the balance sheet in between liabilities and equity at its accreted redemption value.

In addition, certain features present in the redeemable preferred stock required separate recognition.

For purposes of this evaluation, the Company determined that the redeemable preferred instrument is more akin to a debt host because the installment conversion feature, as the primary settlement mechanism, is indexed to an underlying other than interest rates or credit risk and settles in variable shares.

Because the potential contingent redemption price contained a significant premium over the issuance price, the redemption feature is considered to be not clearly and closely related to the debt-like host instrument.

All redemption features (including the change of control redemption, triggering event redemption, mandatory redemption, and installment redemption) were determined to be a single, compound embedded derivative financial instrument to be bifurcated and separately accounted for as a liability.

The embedded derivative financial instrument was initially recorded at its fair value on the redeemable preferred stock issuance date and was being remeasured on each subsequent balance date with changes in fair value classified as a component of other income (expenses), net.

The embedded derivative was classified as a component of other long-term liabilities until its expiration with the conversion of the last amount of redeemable preferred stock.

The redeemable preferred stock also contained a beneficial conversion feature at issuance.

The conversion feature was “in-the-money” as of the commitment date as the fair value of the underlying common share was greater than the effective conversion price.

The beneficial conversion feature, measured as the intrinsic value of the feature, totaled $1,506,196 on the redeemable preferred stock issuance date, and was classified as a component of additional paid-in capital.

The beneficial conversion feature was not remeasured in subsequent periods but was recognized in nine equal amounts corresponding to each of the redeemable preferred stock installments.

During the year ended December 31, 2018, the Company recognized $1,338,840 of the beneficial conversion feature.

The fair value used to determine the initial carrying value of the embedded redemption derivative financial instrument was measured using Level 3 inputs and was estimated using the Monte Carlo simulation valuation model.

The periodic changes in the fair value of the embedded redemption derivative financial instrument for the year ended December 31, 2018 are as follows:

Balance, January 1, 2018

Changes in fair value

Balance, December 31, 2018

During the year ended December 31, 2018, the Company converted 9,813 shares of the redeemable preferred stock for an aggregate of 502,078 shares of common stock.

In June 2018, the Company additionally agreed to redeem the First Exchange

investors’ remaining 2,364 shares of Series B Preferred Stock at their face value of $2,364,044.

Since the redemption occurred prior to the stated maturity date, $56,792 of the redemption price is considered a deemed dividend.

On July 11, 2018, the Company entered into exchange agreements with certain other holders of the Series B Preferred Stock and warrants (the “Second Exchange”) pursuant to which the Company (i) issued an aggregate of 32,124 shares of common stock and (ii) paid $22,241 in cash, in exchange for all of their outstanding shares of our Series B Preferred Stock.

Due to the redemption occurring prior to the stated maturity date, this exchange resulted in a deemed contribution of $111,553.

As of December 31, 2019 and 2018, there were no remaining Redeemable Convertible Preferred Shares outstanding.

On September 26, 2018, the Company issued an aggregate of 286,633 shares of common stock at a purchase price of $17.02 per share to certain institutional investors in a registered direct offering (the “First Registered Direct Offering”).

The net proceeds of the First Registered Direct Offering were $4,334,816, after deducting placement agent fees and offering expenses of $543,677.

On October 2, 2018, the Company issued a combined total of 2,400,000 common units and pre-funded units in a public offering (the “Unit Offering”).

Each common unit in the Unit Offering was sold at a public offering price of $5.00 and consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $6.00.

Each warrant sold in the Unit Offering was exercisable immediately and expired five years from the date of issuance.

Each pre-funded unit in the Unit Offering was sold at a public offering price of $4.99 and consisted of a pre-funded warrant to purchase one share of common stock at an exercise price of $0.01 per share and a warrant to purchase one share of common stock at an exercise price of $6.00.

The pre-funded warrants were immediately exercisable and were able to be exercised at any time until all of the pre-funded warrants were exercised in full.

All of the pre-funded warrants were exercised prior to December 31, 2018.

The net proceeds of the Unit Offering were $10,667,506, after deducting the underwriting discount and estimated offering expenses payable by the Company.

The entire amount of 2,400,000 common shares issued in connection with the Unit Offering are included in common shares outstanding.

The warrants issued in the Unit Offering are each subject to anti-dilution protection.

Accordingly, to the extent the Company was to issue additional common stock or securities convertible into common stock at an issuance price lower than exercise price of the warrants, the exercise price of the warrants would be adjusted to the lower of (i) the issuance price or (ii) the lowest volume weighted average price of the Company’s common stock on the five trading days following the announcement of the new offering.

On October 10, 2018, the Company issued a combined total of 4,629,630 common units and pre-funded units to certain institutional investors in a registered direct offering (the “Second Registered Direct Offering”).

Each common unit in the Second Registered Direct Offering was sold at a price of $5.40 and consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $5.40.

Each warrant sold in the Second Registered Direct Offering was exercisable immediately and expired five years from the date of issuance.

Each pre-funded unit in the Second Registered Direct Offering was sold at a public offering price of $5.39 and consisted of a pre-funded warrant to purchase one share of common stock at an exercise price of $0.01 per share and a warrant to purchase one share of common stock at an exercise price of $5.40.

The pre-funded warrants were immediately exercisable and were able to be exercised at any time until all of the pre-funded warrants are exercised in full.

All of the pre-funded warrants were exercised prior to December 31, 2018.

The net proceeds of the Second Registered Direct Offering were $22,400,673, after deducting the underwriting discount and estimated offering expenses payable by the Company.

The entire amount of 4,629,630 common shares issued in connection with the Unit Offering are included in common shares outstanding.

On March 12, 2019, the Company issued a combined total of 4,361,370 common units and pre-funded units to certain institutional investors in a registered direct offering (the “Third Registered Direct Offering”).

Each common unit in the Third Registered Direct Offering was sold at a price of $3.21 and consisted of one share of common stock and 0.70 of a warrant to purchase one share of common stock at an exercise price of $3.21.

Each warrant sold in the Third Registered Direct Offering was exercisable immediately and expired five years from the date of issuance.

Each pre-funded unit in the Third Registered Direct Offering was sold at a public offering price of $3.20 and consisted of a pre-funded warrant to purchase one share of common stock at an exercise price of $0.01 per share and 0.70 of a warrant to purchase one share of common stock at an exercise price of $3.21.

All of the pre-funded warrants were exercised prior to March 31, 2019.

The net proceeds of the Third Registered Direct Offering were $12,668,784, after deducting the underwriting discount and estimated offering expenses payable by the Company.

The warrants issued in both the Unit Offering and the Second Registered Direct Offering were concluded to be equity classified freestanding financial instruments.

The Second Registered Direct Offering triggered a down round adjustment to the exercise price of the warrants issued in the Unit Offering from $6.00 to $4.1798.

The value of a down round feature is measured as the difference between the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price and the financial instrument’s fair value (without the down round feature) using the reduced exercise price.

During the year ended December 31, 2018, the Company treated the value of the effect of the reduction in exercise price as a deemed dividend of $780,038 which reduced income available to common shareholders.

The warrants issued in the Third Registered Direct Offering were also concluded to be equity classified freestanding financial instruments.

The Third Registered Direct Offering triggered an additional down round adjustment to the exercise price of the warrants

issued in the Unit Offering from $4.1798 to $2.7568.

These grants are conditional primarily based on the Company maintaining its current headquarter locations in addition to employing a required number

of employees at different reporting dates through the term of the grant.

The Company is accruing 3% interest on both grants and has recorded $12,625 and $5,042 in interest expense for the years ended December 31, 2020 and 2019, respectively.

Public Offering

On July 16, 2020, the Company offered and sold (i) 3,369,564 shares of common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants of the Company to purchase 1,630,436 shares of common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant).

The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of the Company’s common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company’s common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company.

The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020.

The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

The Company has assessed the Pre-Funded Warrants for appropriate equity or liability classification and determined that the Pre-Funded Warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to FASB Accounting Standards Codification Topic 815, Derivatives and Hedging (“ASC 815”).

The Pre-Funded Warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815.

Accordingly, the Pre-Funded Warrants are classified as equity and are accounted for as a component of additional paid-in capital at the time of issuance.

During the year ended December 31, 2020, no Pre-Funded Warrants were exercised.

At-the-Market Offering

On March 27, 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”) with JMP Securities LLC, serving as placement agent (the “Placement Agent”) with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $50.0 million (the “Shares”) through the Placement Agent (the “Offering”).

Any Shares offered and sold in the Offering were issued pursuant to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission (the “SEC”) on April 4, 2019, which was declared effective on April 12, 2019, the prospectus supplement relating to the Offering filed with the SEC on March 27, 2020 and any applicable additional prospectus supplements related to the Offering that form a part of the Registration Statement.

The aggregate market value of Shares eligible for sale in the Offering and under the Equity Distribution Agreement were subject to the limitations of General Instruction I.B.6 of Form S-3, to the extent required under such instruction.

The Company offered Shares having an aggregate offering price of $18.9 million pursuant to the prospectus supplement filed with the SEC on March 27, 2020.

On June 1, 2020, the Company filed an amendment to the Agreement which amended the prospectus supplement dated March 27, 2020 to increase the aggregate offering price to $50.0 million.

As of December 31, 2020, the Company has sold 5,594,455 shares of Common Stock under the Agreement resulting in $48.2 million in net proceeds, which concluded this Offering.

The Company recorded and recognized approximately $0.3 million of offering costs which offset the proceeds received from the shares sold associated with this program.

Registered Direct Offering

On March 12, 2019, the Company issued a combined total of 4,361,370 common units and pre-funded units to certain institutional investors in a registered direct offering (the “Registered Direct Offering”).

Each common unit in the Registered Direct Offering was sold at a price of $3.21 and consisted of one share of common stock and 0.70 of a warrant to purchase one share of common stock at an exercise price of $3.21.

Each warrant sold in the Registered Direct Offering was exercisable immediately and expired five years from the date of issuance.

Each pre-funded unit in the Registered Direct Offering was sold at a public offering price of $3.20 and consisted of a pre-funded warrant to purchase one share of common stock at an exercise price of $0.01 per share and 0.70 of a warrant to purchase one share of common stock at an exercise price of $3.21.

All of the pre-funded warrants were exercised

The net proceeds of the Registered Direct Offering were $12.7 million, after deducting the underwriting discount and estimated offering expenses payable by the Company.

The warrants issued in the Registered Direct Offering were recognized as equity classified freestanding financial instruments.

The Registered Direct Offering triggered a down round adjustment to the exercise price of the warrants issued in the 2018 Unit Offering (refer to Note 11) from $4.1798 to $2.7568.

During the year ended December 31, 2019, the Company treated the value of the effect of the reduction in exercise price as a deemed dividend of $452,925 which reduced income available to common shareholders.

On July 12, 2019, as discussed in Note 3, the Company issued 1,887,250 unregistered shares of its common stock as upfront consideration to certain former Spitfire Equityholders representing the closing consideration.

The following common stock warrants were outstanding at December 31, 2020:

7 unchanged sentences

August 16, 2022

Issued with common units in Unit Offering

October 2, 2018

Issued with common units in the 2018 Unit Offering

October 2, 2018

Underwriter warrant issued with public offering

October 2, 2023

September 28, 2021

Issued with common units in the Second Registered Direct Offering

Issued with common units in the 2018 Registered Direct Offering

October 10, 2018

October 10, 2023

Issued with common units in the Third Registered Direct Offering

Issued with common units in the 2019 Registered Direct Offering (see Note 10)

March 12, 2019

March 12, 2024

Issued with common units in the 2020 Public Offering (see Note 10)

July 16, 2020

*Liability classified warrants

11 unchanged sentences

October 2, 2023

Underwriter warrant issued with public offering

Underwriter warrant issued in 2018 Unit Offering

October 2, 2018

September 28, 2021

Issued with common units in the Second Registered Direct Offering

Issued with common units in the 2018 Registered Direct Offering

October 10, 2018

October 10, 2023

Issued with common units in the 2019 Registered Direct Offering (see Note 10)

March 12, 2019

March 12, 2024

*Liability classified warrants

In May 2017, the Company issued 155 common stock warrants to replace outstanding common stock warrants in connection with the Merger Agreement.

In August 2017, in connection with the redeemable preferred stock issuance (Note 10), the Company granted warrants to holders of redeemable preferred stock to purchase up to 78,181 shares of the Company’s common stock.

Warrants issued with the redeemable preferred stock are classified as a liability and are initially recorded at their grant date fair value, to be remeasured on each subsequent balance sheet date.

The warrant liability is classified as component of other long-term liabilities.

During the years ended December 31, 2019, and 2018, the Company exchanged 1,550 and 76,569, respectively, of these warrants for a combination common stock and cash, leaving 62 of these warrants outstanding as of December 31, 2019.

On June 29, 2018 the Company closed on privately negotiated exchange agreements with certain investors to exchange warrants to purchase 53,125 common shares of the Company (the “First Exchange”) in exchange for:

167,700 shares of the Company’s common stock valued at approximately $12.60 per share;

Convertible notes with an initial aggregate principal balance of $1,500,000 (Note 9), and;

$1,100,000 in cash consideration.

The total fair value of the consideration given in exchange for the warrants in the First Exchange was $4,727,000, which exceeded the March 31, 2018 fair value of the warrants by $3,467,935.

The warrant fair value at March 31, 2018 was determined assuming an orderly transaction between market participants, using a Monte Carlo simulation valuation model.

The Company was

compelled to enter into the exchange transaction as management believes the dilutive features of the common stock warrants prevented the Company from obtaining sufficient financing on acceptable terms.

Accordingly, the Company recorded a loss on exchange of warrants in the First Exchange of $3,593,082, inclusive of transaction costs of $125,147, which is reported in changes in fair value of warrant liability including loss on exchange on the consolidated statement of operations and comprehensive loss.

The Company additionally agreed to redeem the First Exchange investors’ remaining shares of Series B Preferred Stock at their face value of $2,364,044 (Note 10).

The value of the shares of the Company’s common stock which were part of the First Exchange consideration were valued at a 5% discount to the June 29, 2018 closing price.

This amount is considered a marketability discount calculated based on an analysis of the leak out provision provided for in the exchange agreements.

The key assumptions used in calculating the marketability discount were:

Holding period, in years

Risk free rate

Dividend yield

On July 11, 2018, the Company entered into exchange agreements with certain other holders of the redeemable preferred stock and warrants (the “Second Exchange”) pursuant to which we (i) issued an aggregate of 32,124 shares of common stock and (ii) paid $22,241 in cash, in exchange for all of the outstanding shares of our Series B Preferred Stock (Note 10).

We additionally issued 145,038 shares of common stock in exchange for warrants to purchase 22,523 shares of common stock.

Consideration for the Series B Preferred Stock was transferred to the holders on July 11, 2018.

Consideration for the warrant exchange was subject to shareholder approval which the Company obtained at its annual shareholder meeting on August 30, 2018, and the shares of common stock were subsequently transferred to the holders on September 12, 2018.

On September 7, 2018, the Company closed on exchange agreements with certain holders of our warrants (the “Third Exchange”) pursuant to which we issued 5,929 shares of common stock in exchange for warrants to purchase 921 shares of common stock.

The consideration given for the warrants in the Second and Third Exchange was valued at the closing price of the common stock on the day the transactions closed and the shares were transferred, which was $8.64 and $8.85 per share, respectively.

Accordingly, the Company realized a gain on the exchange of warrants of $779,923 based on the fair value of the shares transferred as compared to the last determination of fair value of the warrants performed by the Company as of June 30, 2018, which is reported in changes in fair value of warrant liability including loss on exchange on the consolidated statement of operations and comprehensive loss.

The following is a summary of the income statement effect of changes in the Company’s outstanding warrants:

Year Ended December 31,

Changes in fair value of warrants

Loss on warrants exchanged

Transaction costs

Change in fair value of warrant liability, including gain (loss) on exchange

A summary of warrant activity during the years ended December 31, 2019 and 2018 is as follows:

The following is a description of the common stock warrants issued prior to January 1, 2019:

Replacement Warrants

In May 2017, the Company issued 155 common stock warrants to replace outstanding common stock warrants in connection with the Company’s merger with PharmAthene, Inc.

Redeemable Preferred Stock Warrants

In August 2017, in connection with a redeemable preferred stock issuance, the Company granted warrants to holders of redeemable preferred stock to purchase up to 78,181 shares of the Company’s common stock.

Warrants issued with the redeemable

preferred stock are classified as a liability and were initially recorded at their grant date fair value, and remeasured on each subsequent balance sheet date.

The warrant liability is classified as a component of other long-term liabilities.

During the year ended December 31, 2019, the Company exchanged 1,550 of these warrants for a combination of common stock and cash, leaving 62 of these warrants outstanding as of December 31, 2019.

During the second quarter of 2020, the 62 common stock warrants were repriced to 1,420 common stock warrants due to the At-the-Market Offering which triggered an anti-dilution provision under the warrant agreement with the Company’s holders of redeemable preferred stock .

2018 Unit Offering

On October 2, 2018, the Company issued a combined total of 2,400,000 common units and pre-funded units in a public offering (the “2018 Unit Offering”).

Each common unit in the 2018 Unit Offering was sold at a public offering price of $5.00 and consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $6.00.

Each warrant sold in the 2018 Unit Offering was exercisable immediately and expired five years from the date of issuance.

Each pre-funded unit in the 2018 Unit Offering was sold at a public offering price of $4.99 and consisted of a pre-funded warrant to purchase one share of common stock at an exercise price of $0.01 per share and a warrant to purchase one share of common stock at an exercise price of $6.00.

The pre-funded warrants were immediately exercisable and were able to be exercised at any time until all of the pre-funded warrants were exercised in full.

All of the pre-funded warrants were exercised prior to December 31, 2018.

The warrants issued in the 2018 Unit Offering are each subject to anti-dilution protection.

In conjunction with the 2018 Unit Offering, the Company issued 196,650 warrants to the underwriter.

The underwriter warrants had an exercise price per share equal to 125% of the public offering price per common unit in this offering and could be exercised on a cashless basis.

As of December 30, 2020, all of the underwriter warrants were exercised in full.

2018 Registered Direct Offering

Each common unit in the 2018 Registered Direct Offering was sold at a price of $5.40 and consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $5.40.

Each warrant sold in the 2018 Registered Direct Offering was exercisable immediately and expired five years from the date of issuance.

Each pre-funded unit in the 2018 Registered Direct Offering was sold at a public offering price of $5.39 and consisted of a pre-funded warrant to purchase one share of common stock at an exercise price of $0.01 per share and a warrant to purchase one share of common stock at an exercise price of $5.40.

The pre-funded warrants were immediately exercisable and were able to be exercised at any time until all of the pre-funded warrants are exercised in full.

All of the pre-funded warrants were exercised prior to December 31, 2018.

The 2018 Registered Direct Offering triggered a down round adjustment to the exercise price of the warrants issued in the 2018 Unit Offering from $6.00 to $4.1798.

A summary of warrant activity is as follows:

Year Ended December 31,

Warrants outstanding, January 1

Exercises, conversions, exchanges and repurchases

Warrants outstanding, December 31

The periodic changes in the fair value of the warrant liability is as follows:

Balance, January 1, 2018

Warrants settled upon exchange

Changes in fair value

Balance, December 31, 2018

Warrant repurchases

Changes in fair value

Balance, December 31, 2019

The following assumptions were used to estimate the fair value of warrants classified as a liability using the Monte Carlo simulation valuation model with Level 3 inputs at December 31, 2019 and 2018 were as follows:

As of December 31,

Expected volatility

Expected term (years)

Risk-free interest rate

Expected dividend yield

Warrants outstanding, beginning

Warrants outstanding, ending

Stock-Based Compensation

1 unchanged sentence

The Company established the 2001 Employee Stock Option Plan to provide incentive stock options and non-qualified stock options to employees, and the 2001 Non-employee Stock Option Plan to provide non-qualified stock options to the members of the board of directors and advisory board, and non-employees.

The 2001 Employee Stock Option Plan and the 2001 Non-employee Stock Option Plan are collectively referred to as the “2001 Plans.” In connection with the Merger Agreement in 2017, the Company issued options from its 2001 Plans to replace options previously granted option plans.

The 2001 Employee Stock Option Plan and the 2001 Non-employee Stock Option Plan are collectively referred to as the “2001 Plans.” In connection with the PharmAthene Merger Agreement in 2017, the

Company issued options from its 2001 Plans to replace options previously granted.

The Company de-designated common stock available for issuance under the 2001 Plans.

4 unchanged sentences

In addition, the Company assumed the PharmAthene, Inc.

Amended and Restated 2007 Long-Term Incentive Compensation Plan, or the 2007 Plan.

Amended and Restated 2007 Long-Term Incentive Compensation Plan (the “2007 Plan”).

Awards outstanding under the 2007 Plan remained outstanding in accordance with their applicable terms and conditions.

10 unchanged sentences

The Board has reserved 2,000,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan (subject to customary adjustments in the event of a change in capital structure of the Company), and the Inducement Plan will be administered by the Compensation Committee.

In accordance with Rule 5635(c)(4) of the NASDAQ Listing Rules,

awards under the Inducement Plan may be only made to an employee who has not previously been an employee or member of the Board or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

In accordance with Rule 5635(c)(4) of the NASDAQ Listing Rules, awards under the Inducement Plan may be only made to an employee who has not previously been an employee or member of the Board or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

The 2001 Plans, the 2007 Plan, the Omnibus Plan, and the Inducement Plan are collectively referred to as the “Plans.” During the year ended December 31, 2020 under the Plans, a total of 708,000 options to purchase shares of common stock were granted.

10 unchanged sentences

Expected term represents the number of years that the Company’s option grants are expected to be outstanding.

There is not sufficient historical share exercise data to calculate the expected term of the stock options, therefore, the Company elected to utilize the simplified method to value option grants.

There is not sufficient historical share exercise data to calculate the expected term of the stock options, therefore, the

Company elected to utilize the simplified method to value option grants.

Under this approach, the weighted average expected life is presumed to be the average of the vesting term and the contractual term of the option.

5 unchanged sentences

The fair value of each non-employee stock option is estimated at the date of grant using Black-Scholes with assumptions generally consistent with those used for employee stock options, with the exception of expected term, which is over the contractual life.

A summary of stock option activities under the Plans is presented below:

A summary of stock option activity under the Plans is presented below:

Stock Options

2 unchanged sentences

Contractual Term

Average Intrinsic

Outstanding, January 1, 2019

Aggregate Intrinsic

Outstanding, December 31, 2019

Forfeited or expired

1 unchanged sentence

Exercisable, December 31, 2020

Expected to vest, December 31, 2019

The per share weighted-average grant date fair value of stock options granted during the years ended December 31, 2019 and 2018 were $2.67 and $4.63, respectively.

At December 31, 2019, there was $1,375,808 of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 3.22 years.

Vested and expected to vest, December 31, 2020

The per share weighted-average grant date fair value of stock options granted during the years ended December 31, 2020 and 2019 were $4.75 and $2.67 per share, respectively.

The total intrinsic value of stock options exercised during the year ended December 31, 2020 was $0.9 million.

There were no shares exercised during the year ended December 31, 2019.

The total fair value of awards vested during 2020 and 2019 was $1.1 million and $1.0 million, respectively.

At December 31, 2020, there was $2.7 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.4 years.

Restricted Stock

1 unchanged sentence

The weighted average grant date fair value of the restricted stock award was $310.80 per share.

The restricted stock vests

ratably at the end of each quarter over four years starting on December 31, 2016 with 50% of the original issued shared subject to accelerated vesting upon a deemed liquidation event.

Fair value of restricted shares that vested during the year ended December 31, 2019 totaled $648.

The Company expects the 213 remaining shares to vest during 2020.

On November 30, 2018, the Company authorized and granted one executive officer a restricted stock award of 322,907 shares.

The restricted stock vests ratably at the end of each quarter over four years starting on December 31, 2016 with 50% of the original issued shared subject to accelerated vesting upon a deemed liquidation event.

During the year ended December 31, 2020, 213 of the restricted shares fully vested, which completed the vesting of this share award.

In November 2018, the Company authorized and granted the Chief Executive Officer a restricted stock award of 322,907 shares on his date of hire.

The weighted average grant date fair value of the restricted stock award was $3.59 per share.

1 unchanged sentence

provided, however, that the executive officer has not experienced a termination prior to the applicable vesting date.

Fair value of the 87,454 restricted shares that vested during the year ended December 31, 2019 totaled $159,032.

The fair value of the 80,727 restricted shares that vested during the year ended December 31, 2020 totaled $0.8 million.

In June 2020, the Company authorized and granted 109,525 shares of restricted stock awards which vested over three months.

The weighted average grant date fair value of the restricted stock award was $9.19 per share.

The fair value of the 109,525 restricted shares that vested during the year ended December 31, 2020 totaled $1.3 million.

In September 2020, the Company authorized and granted 15,000 shares of restricted stock units which vested over a four-year period, 25% of the shares vesting on the one-year anniversary, and the remaining 75% vesting in 36 substantially equal monthly installments and will be fully vested on September 22, 2024.

The weighted average grant date fair value of the restricted stock award was $14.35 per share.

No restricted shares vested during the year ended December 31, 2020.

A summary of restricted stock activities is presented below:

Unvested, January 1, 2019

Unvested, December 31, 2019

As of December 31, 2019, total unrecognized compensation expense related to restricted stock awards was $843,770, which the Company expects to recognize over a weighted average period of approximately 2.92 years.

Unvested, December 31, 2020

As of December 31, 2020, total unrecognized compensation expense related to restricted stock awards was $0.7 million, which the Company expects to recognize over a weighted average period of approximately 2.1 years.

2019 Employee Stock Purchase Plan

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Subject to any plan limitations, the 2019 ESPP allows eligible employees to contribute through payroll deductions up to 10% of their earnings for the purchase of the Company’s common stock at a discounted price per share.

The offering periods begin in February and August of each year, with the initial offering period starting on August 1, 2019.

The offering periods begin in February and August of each year, with the initial offering period started on August 1, 2019.

The common shares issuable under the 2019 ESPP were registered pursuant to a registration statement on Form S-8 on April 4, 2019.

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Accordingly, stock-based compensation expense is determined based on the option’s grant-date fair value, employee contributions, and the Company’s stock price and is recognized over the requisite service period of the option.

The Company used the Black-Scholes valuation model and recognized stock-based compensation expense of $21,608 for the year-ended December 31, 2019.

The Company used the Black-Scholes valuation model.

During the year ended December 31, 2020, employees purchased 92,661 shares for $135,466 under the 2019 ESPP.

The Company recognized stock-based compensation expense related to this plan of $158,177 and $21,608 for the years ended December 31, 2020 and 2019, respectively.

Stock-based Compensation Expense

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General and administrative

Government Contracts and Grants

In June 2020, the Company was awarded $4.7 million from the U.S.

Army Medical Research & Development Command (“USAMRDC”) to fund its Phase 1/2 clinical trial of T-COVID.

The competitive award was granted by USAMRDC in collaboration with the Medical Technology Enterprise Consortium (“MTEC”), a 501(c)(3) biomedical technology consortium working in partnership with the Department of Defense (“DoD”).

Under the contract, MTEC will pay the Company a firm fixed fee based upon the achievement of certain milestones for conduct and completion of a Phase 1/2 study and research and development work on the replication-deficient adenovirus 5 (“RD-Ad5”) vector vaccine platform.

For the year ended December 31, 2020, the Company has recognized $4.2 million of grant revenue under this contract.

In July 2016, the Company signed a five-year contract with BARDA.

The contract, as amended, has a total value of up to $133.7 million and is used to fund clinical development of NasoShield.

Under the contract, BARDA pays the Company a fixed fee and reimburses certain costs for the research and development of an Ad5-vectored, protective antigen-based intranasal anthrax vaccine through cGMP manufacture and conduct of a Phase 1 clinical trial dose ranging assessment of safety and immunogenicity.

The contract consists of an initial base performance period providing approximately $27.8 million in funding for the period July 2016 through June 2021.

BARDA has seven options to extend the contract to fund certain continued development and manufacturing activities for the anthrax vaccine, including Phase 2 clinical studies.

Each option, if exercised by BARDA, would provide additional funding ranging from approximately $1.1 million to $34.4 million for a three-year period beginning in 2021.

For the years ended December 31, 2020 and 2019, the Company has recognized $3.1 million and $5.3 million of grant revenue under the current BARDA contract, respectively.

Employee Benefit Plans

The Company has a 401(k)-retirement plan in which substantially all of our employees in the United States are eligible to participate in.

Eligible employees may elect to contribute up to the maximum limits, as set by the Internal Revenue Service, of their eligible compensation.

During 2020 and 2019, the Company made discretionary plan contributions of $170,727 and $131,412, respectively.

The components of net loss before income tax benefit are as follows:

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Net loss before income tax benefit

The components of the income tax benefits are as follows:

The components of the income tax benefit are as follows:

Year Ended December 31,

US state and local

state and local

Income tax benefit

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State income taxes, net of federal benefit

Foreign income tax rate differential

Stock compensation

Research and development tax credit

Acquisition costs

Goodwill impairment

Acquired in process research and development impairment

Loss on warrant exchange and warrant FMV changes

Permanent differences and other

Acquired in process research and development

CARES Act U.S.

federal and state carryback claim

Change in valuation allowance

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Deferred tax assets:

Domestic NOLs

Net operating losses

Accrued expenses

Deferred revenue

Stock compensation

Deferred rent

Lease liability

Research and development carryforward

Valuation allowance

Total deferred tax assets

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Right of use asset

IRC §481(a) adjustment

Total deferred tax liabilities

Deferred tax assets, net

Valuation allowance

Total deferred tax liabilities net

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The increase in the valuation allowance during the year ended December 31, 2020 primarily relates to increases for current year losses in both the U.S.

and foreign locations which the Company concluded needed a full valuation allowance.

and foreign locations which the Company concluded needed a full valuation allowance, but was partially offset by the utilization of a portion of the U.S.

federal and state losses to offset the Company’s 2016 tax liability, due to provisions of the CARES Act enacted in 2020.

The Company has recorded a valuation allowance against its gross U.S.

deferred tax assets it believes are not more likely than not realizable and the net non-U.S.

deferred tax assets.

Deferred tax liabilities, consist primarily of indefinite life IPR&D assets located in a foreign subsidiary, which will be applied in the future to offset against NOLs that have an unlimited life.

deferred tax assets, although, a portion of the current year loss was benefited for an additional U.S.

Federal carryback from the CARES Act.

Deferred tax liabilities, consist primarily of indefinite life IPR&D assets located in a foreign subsidiary, which will be applied in the future to offset against net operating losses (“NOLs”) that have an unlimited life.

The Company has U.S.

federal net operating loss carryforwards of approximately $29,596,042 as of December 31, 2019.

Of this amount, $6,576,869 has a 20-year carry forward period that will expire at various dates beginning in 2021.

Under current law, the remaining amount of $23,019,173 has an unlimited life.

As of December 31, 2019 and 2018, the Company does not have any material unrecognized tax benefits.

The Company files income tax returns in the United States, various U.S.

states, U.K., and France.

The Company is still open to examination by the applicable taxing authorities from 2009 forward, although tax attributes that were generated prior to 2009 may still be adjusted upon examination by federal, state, foreign, or local tax authorities if they either have been or will be used in a future period.

federal and state net operating loss carryforwards of approximately $45.7 million as of December 31, 2020.

Of this amount, $6.6 million has a 20-year carry forward period that will expire at various dates beginning in 2021.

Under current law, the remaining amount of $39.1 million has an unlimited life.

The Company also has foreign net operating loss carryforward of approximately $30.8 million which carryforward indefinitely.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in the Company’s ownership may limit the amount of NOLs that can be utilized annually in the future to offset its U.S.

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The amount of the annual limitation is determined based on the value of the Company immediately before the ownership change.

The Company has reduced the NOL and related valuation allowance in both 2018 and 2019 and subsequent ownership changes may further affect the limitation in future years.

Lease Obligations

The Company rents office and laboratory space in the United States.

The Company also leases office equipment under a non-cancellable equipment lease through December 2022.

Rent expense during the years ended December 31, 2019 and 2018 under all of

the Company’s operating leases was $346,603 and $632,658, respectively, which includes short-term leases and variable lease costs not included in the lease obligation.

Short-term leases are leases having a term of twelve months or less.

The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

The office space lease provides for increases in future minimum annual rental payments as defined in the lease agreements.

The Company has determined the lease renewal option is not reasonably certain.

The office space lease provided the Company tenant improvement incentives and allowances.

The Company recorded $164,090 and $115,782 of amortization of lease incentive obligation as a reduction of rent expense for the years ended December 31, 2019 and 2018, respectively.

The cash paid for operating lease liabilities for the year ended December 31, 2019 was $380,805.

Supplemental other information related to the operating leases balance sheet information is as follows:

December 31, 2019

Operating lease obligations

Right of use asset

Weighted-average remaining lease term

Weighted-average discount rate

Maturities of lease liabilities are as follows:

Year ending December 31,

2025 and thereafter

Total lease payments

Less imputed interest

The Company has reduced the NOL and related valuation allowance in historical periods and while the Company is in the process of completing its evaluation of whether an equity shift occurred in 2020, it is not expected to require an adjustment to the net NOLs and related valuation allowance.

Subsequent ownership changes may further affect the limitation in future years.

The Company continues to evaluate its losses for these provisions.

Significant judgment is required in evaluating tax positions and determining the provision for income taxes.

The Company establishes liabilities for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes may be due.

These liabilities are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are fully supportable.

The Company adjusts these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit.

The provision for income taxes includes the impact of changes to these liabilities.

The amount of unrecognized tax benefits was $0.7 million and $0.0 million as of December 31, 2020 and 2019, respectively.

Any changes in the next twelve months are not anticipated to have a significant impact on the results of operations, financial position or cash flows of the Company.

All of the Company’s uncertain tax positions, if recognized, would affect its income tax expense.

The Company has elected an accounting policy to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2020 and 2019, potential interest and penalties on unrecognized tax benefits were not significant.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding related interest and penalties:

Year Ended December 31,

Beginning of year

Positions taken in the prior year

The Company files income tax returns in the United States, various U.S.

states, U.K., and Australia.

Net Loss Per Share

Because the Company has reported net loss attributable to common stockholders for the years ended December 31, 2020 and 2019, basic and diluted net loss per share attributable to common stockholders are the same for both years.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average numbers of shares of common stock outstanding for the period.

Basic shares outstanding includes the weighted average effect of the Company’s outstanding pre-funded warrants, the exercise of which requires little or no consideration for the delivery of shares of common stock.

Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period.

As such, all unvested restricted stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted average shares outstanding because such securities would have an anti-dilutive impact for all periods presented.

Potential common shares issuable upon conversion, vesting or exercise of unvested restricted stock, common stock warrants, and stock options that are excluded from the computation of diluted weighted-average shares outstanding, as they are anti-dilutive, are as follows:

Common stock warrants

Common stock options

Restricted stock

Commitments and Contingencies

See Note 8 for the Company’s commitments under license agreements.

License Obligations

University of Alabama at Birmingham Research Foundation

That agreement expired in accordance with its terms in January 2020.

Under the terms of the amended and restated agreement, the Company was obligated to pay an annual license fee of $20,000 and low single digit royalty fees upon the commencement of product sales.

Fees incurred under the UABRF agreement totaled $20,000 for the year ended December 31, 2019 and are classified as a component of research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.

PER.C6 Cell Line - Janssen Vaccines & Prevention B.V.

The Company has a royalty-bearing, worldwide non-exclusive license agreement with Janssen Vaccines & Prevention B.V.

(formerly known as Crucell Holland B.V.) (“Janssen”) for use of its vaccine technology.

The Company may terminate the license agreement without cause, and the agreement contains customary provisions for either party to terminate prior to the expiration of the

Upon expiration of the amended license agreement, or if the Company terminates the amended license agreement for Janssen’s material breach, the Company retains the right to exploit the rights granted.

On April 2, 2020, the Company entered into Amendment No.

3 to the Second Restated License Agreement and additionally entered into Amendment No.

4, 5 and 6 throughout 2020 (collectively, the “Amendments”), by and between the Company and Janssen (as amended by Amendment No.

1 to Second Restated License Agreement and Amendment No.

2 to Second Restated License Agreement, together with the Amendments, the “License Agreement”).

Pursuant to the Amendment, the field of licenses granted to the Company for the use of the PER.C6 cell line under the License Agreement is expanded to cover COVID-19 caused by SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), in addition to the existing licenses related to Bacillus anthracis and influenza virus.

All capitalized terms not defined herein shall have the meanings assigned to them in the Amendment or the License Agreement, as applicable.

Pursuant to the Amendment, the Company agreed to pay certain additional development-based milestone payments through approval of licensed products by the FDA for the treatment or prevention of COVID-19, up to an aggregate amount of $1.2 million.

The Company also agreed to pay royalty payments as a percentage of net sales of products to a royalty stacking reduction and minimum annual royalty payments, until the expiration of the term of the License Agreement, as amended.

Fees incurred under the Janssen agreement totaled $310,502 and $111,499 for the years ended December 31, 2020 and 2019, respectively, and are included in research and development expenses in the accompanying consolidated statements of operations and comprehensive loss.

Spitfire Acquisition

As disclosed in Note 8, the Company is obligated to make payments of up to $80.0 million upon the achievement of specified worldwide net sales of all products developed using the technology acquired from Spitfire Pharma Inc.

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In December 2019, a complaint was filed by Dr.

De-Chu Christopher Tang (“Plaintiff”) against the Company in U.S.

District Court for the Eastern District of Texas.

De-Chu Christopher Tang (“Plaintiff”) against the Company, which the Company removed to the United States District Court for the Eastern District of Texas.

The Plaintiff amended the complaint in February 2020 to include Vipin K.

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In March 2020 the Defendants filed a motion to dismiss the complaint.

Subsequently the Plaintiff filed a motion to strike Defendants’ motion to dismiss and both motions are currently pending.

The Court denied the motion without prejudice and allowed Plaintiff an opportunity to file an amended complaint.

Plaintiff’s second amended complaint was filed on April 17, 2020, and Defendants filed a motion to dismiss that complaint on May 1, 2020.

A hearing on Defendants’ motion to dismiss was held on May 20, 2020, and the motion is currently pending.

Plaintiff, who is representing himself, alleges five causes of action as follows:

(1) Defendants’ alleged retention of Plaintiff’s lab notebooks;

(1) Defendants’ alleged retention of Plaintiff’s lab notebooks after the termination of his employment in 2012;

(2) alleged plagiarism based on publishing an article without naming Plaintiff as an author;

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(4) allegations that Defendants manipulated the Company’s stock and caused a decrease in value;

and (5) allegations that the Defendants “wast[ed] government grant money and poison[ed] science by leaving data to rot.” The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation.

and (5) allegations that the Defendants “wast[ed] government grant money and poison[ed] science by leaving data to rot.” On September 30, 2020, Plaintiff filed a motion titled “Motion to Proscribe Defendants’ Allegedly Illegal Use of Plaintiff’s AdHigh System in Altimmune’s Human Clinical Trials,” to which Defendants filed an opposition on October 13, 2020.

The court has not yet ruled on that motion, which also remains pending.

On November 6, 2020, Defendants filed a motion for summary judgment on the basis of lack of personal jurisdiction, insufficient service of process, and failure to state a claim.

The court has not yet ruled on that motion, which also remains pending.

On December 1, 2020, the magistrate judge assigned to the case issued a report and recommendation recommending that Defendants’ motion to dismiss of May 1, 2020 be granted and that this action be dismissed for lack of personal jurisdiction.

Plaintiff filed objections to the report and recommendation on December 14, 2020, and the resolution of those objections by the district court remains pending.

The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation.

However, the outcome of this legal proceeding is uncertain at this time and the Company cannot reasonably estimate a range of loss, if any.

Accordingly, the Company has not accrued any liability associated with this action.

The Company is a party in various other contractual disputes, litigation, and potential claims arising in the ordinary course of business.

The Company does not believe that the resolution of these matters will have a material adverse effect on its financial position or results of operation s.

Fair Value Measurement

The Company records cash equivalents, short-term investments, contingent consideration, and warrant liability at fair value on a recurring basis.

As discussed in Note 2, the Company classifies assets and liabilities measured at fair value using the fair value hierarchy per ASC 820.

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 consisted of the following:

Fair Value Measurement at December 31, 2019

Recurring fair value measurements

Cash equivalents - money market funds

Short-term investments

Contingent consideration

Warrant liability

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2018 consisted of the following:

Fair Value Measurement at December 31, 2018

Recurring fair value measurements

Cash equivalents — money market fund

Warrant liability

Cash equivalents and short-term investments valued using publicly quoted market prices, data from third party pricing services, and other market observable data at the end of each reporting period.

Short-term investments had quoted prices at December 31, 2019 as shown below:

As of December 31, 2019

Amortized Cost

Unrealized Gain

United States treasury securities

Corporate debt securities

The fair value of contingent payments classified as a liability was estimated using the Monte Carlo simulation valuation model with Level 3 inputs.

The assumptions used to estimate the fair value of contingent payments that were classified as a liability at December 31, 2019 were as follows:

Expected volatility

Risk-free interest rate

Cost of capital

There were no transfers into and out of any of the levels of the fair value hierarchy during 2019 or 2018.

Assets recorded at fair value on a nonrecurring basis, such as property and equipment, intangible assets, and goodwill are recognized at fair value when they are impaired.

During the years ended December 31, 2019 and 2018, the Company recognized goodwill and intangible asset impairments (Note 6) measured at fair value on a nonrecurring basis.

Employee Benefit Plans

The Company has a 401(k)-retirement plan in which substantially all of our employees in the United States are eligible to participate in.

Eligible employees may elect to contribute up to the maximum limits, as set by the Internal Revenue Service, of their eligible compensation.

During 2019 and 2018, we made discretionary plan contributions of $131,412 and $139,042, respectively.

The Company is a party in various other contractual disputes, litigation, and potential claims arising in the ordinary course of business none of which are currently reasonably possible or probable of material loss.

Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk