What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-18 compared with 2020-03-19 · 19 added, 239 removed, 26 unchanged (91% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NYSE American under the symbol “ARMP.”

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NYSE American under the symbol “ARMP.”

Holders of Common Stock

5 unchanged sentences

Recent Sales of Unregistered Securities

On January 27, 2020, we entered into the Securities Purchase Agreement with Innoviva, pursuant to which the Company agreed to issue and sell to Innoviva, in a private placement, up to 8,710,800 newly issued shares of our common stock (the “Shares”) and warrants (the “Common Warrants”) to purchase up to 8,710,800 shares of common stock, with an exercise price per share of $2.87 (the “Private Placement”).

Each share of common stock is sold together with one Common Warrant, and the per-unit purchase price is $2.87.

First Closing

2020 Private Placement

On January 27, 2020, we entered into a Securities Purchase Agreement with Innoviva (the “2020 Securities Purchase Agreement”), pursuant to which we agreed to issue and sell to Innoviva, in the 2020 Private Placement, 8,710,800 newly issued shares of our common stock and warrants to purchase 8,710,800 shares of common stock, with an exercise price per share of $2.87.

Each share of common stock was sold together with one common warrant granting the warrant holder the right to purchase an additional share of common stock (“Common Unit”) at $2.87 per share.

The 2020 Private Placement occurred in two tranches.

The first closing (the “First Closing”) occurred on February 12, 2020, at which time Innoviva purchased 993,139 Shares and 993,139 Common Warrants, which was the maximum number of Shares and Common Warrants issuable to Innoviva in compliance with any and all applicable laws and without the requirement for the prior receipt of the stockholders’

approval under the listing requirements of the NYSE American, in exchange for an aggregate gross cash payment of approximately $2.8 million.

The First Closing was subject to the satisfaction of certain previously disclosed closing conditions (including obtaining voting agreements (the “Voting Agreements”) from stockholders of the Company representing at least 50.1% of the outstanding shares of common stock).

As of February 12, 2020, Armata had obtained Voting Agreements from stockholders representing approximately 61.3% of Armata’s then-outstanding common stock.

Second Closing

At the closing of the second tranche (the “Second Closing”), subject to satisfaction of certain closing conditions, including the Company’s stockholders’

voting in favor of the Private Placement, Innoviva will purchase 7,717,661 Shares and 7,717,661 Common Warrants for an aggregate purchase price of approximately $22.2 million.

The first closing occurred on February 12, 2020, at which time Innoviva purchased 993,139 Common Units in exchange for an aggregate gross cash payment of approximately $2.8 million.

On March 27, 2020, the second closing occurred subsequent to shareholder approval, at which time Innoviva purchased 7,717,661 Common Units in exchange for aggregate gross proceeds of $22.2 million.

Registration Rights Agreement and Investor Rights Agreement

As part of the First Closing of the Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) and an investor rights agreement (the “Investor Rights Agreement”) with Innoviva.

Pursuant to the Registration Rights Agreement, the Company must file a registration statement on Form S-1 or Form S-3 (the “Shelf Registration Statement”) covering the resale of the securities issued and sold pursuant to the Securities Purchase Agreement with the U.S.

Securities and Exchange Commission (the “Commission”) on a continuous basis pursuant to Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), or if Rule 415 is

not available for offers and sales of such securities, by such other means of distribution of such securities as Innoviva may reasonably specify.

The Company must use its commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event (i) no later than the fifteenth (15th) day following the filing of the Shelf Registration Statement in the event of no “review”

by the Commission, (ii) no later than the sixtieth (60th) day following the filing of the Shelf Registration Statement in the event of “limited review”

by the Commission, or (iii) in the event of a “review”

by the Commission, the one hundred and twentieth (120th) day following the filing of the Shelf Registration Statement, subject to certain exceptions.

The Investor Rights Agreement provides that for so long as Innoviva and its affiliates hold at least 12.5% of the outstanding shares of Common Stock on a fully-diluted basis, Innoviva shall have the right to designate two (2) directors to the board of directors of the Company (the “Board”), and for so long as Innoviva and its affiliates hold at least 8% but less than 12.5% of the outstanding shares of Common Stock on a fully-diluted basis, Innoviva shall have the right to designate one (1) director to the Board, subject to certain qualifications and conditions in the Investor Rights Agreement.

The Investor Rights Agreement also provides for participation rights for Innoviva to participate in future offerings of equity securities by the Company.

As part of the First Closing of the 2020 Private Placement, we entered into a registration rights agreement (the “2020 Registration Rights Agreement”) and an investor rights agreement (the “Investor Rights Agreement”) with Innoviva.

Pursuant to the 2020 Registration Rights Agreement, we filed a registration statement on Form S-3 on April 1, 2020, which was declared effective on April 8, 2020, covering the resale of the securities issued and sold pursuant to the 2020 Securities Purchase Agreement with the Commission on a continuous basis pursuant to Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

The Investor Rights Agreement provides that for so long as Innoviva and its affiliates hold at least 12.5% of the outstanding shares of Common Stock on a fully-diluted basis, Innoviva shall have the right to designate two (2) directors to our board of directors, and for so long as Innoviva and its affiliates hold at least 8% but less than 12.5% of the outstanding shares of Common Stock on a fully-diluted basis, Innoviva shall have the right to designate one (1) director, subject to certain qualifications and conditions in the Investor Rights Agreement.

The Investor Rights Agreement also provides for participation rights for Innoviva to participate in future offerings of equity securities by Armata.

The Investor Rights Agreement was subsequently amended and restated by the A&R IRA.

2021 Private Placement

On January 26, 2021, we entered into the 2021 Securities Purchase Agreement with Innoviva, pursuant to which we agreed to issue and sell to Innoviva, in the 2021 Private Placement, 6,153,847 newly issued shares of our common stock and warrants to purchase 6,153,847 shares of common stock, with an exercise price per share of $3.25.

Each share of common stock was sold together with one common warrant granting the warrant holder the right to purchase an additional share of common stock at $3.25 per share.

See the section entitled “Business—Recent Developments” for a description of the 2021 Private Placement, which is incorporated by reference herein.

SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below as of December 31, 2020 and 2019, and for the years ended December 31, 2020 and 2019, are derived from our audited consolidated financial statements included elsewhere in this report.

This information should be read in conjunction with those consolidated financial statements, the notes thereto, and with “

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

This information should be read in conjunction with those consolidated financial statements, the notes thereto, and with “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .”

For the year ended December 31,

Statement of Operations Data:

Grant revenue

Loss from operations

11 unchanged sentences

(157,521,000)

Total stockholders’

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Annual Report.

Some of the information contained in this discussion and analysis are set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.

See “Special Note Regarding Forward-Looking Statements.”

actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled “Risk Factors”

and elsewhere in this Annual Report.

Our predecessor, C3 Jian, Inc., was incorporated under the laws of the state of California on November 4, 2005.

On February 26, 2016, as part of a reorganization transaction, C3 Jian, Inc.

merged with a wholly owned subsidiary of C3J, and as part of this process, C3 Jian, Inc.

was converted to a limited liability company organized under the laws of the State of California named C3 Jian, LLC.

On May 9, 2019, C3J completed a reverse merger with AmpliPhi, where Ceres Merger Sub, Inc., a wholly-owned subsidiary of AmpliPhi, merged with and into C3J.

Following the completion of the Merger, and a $10.0 million concurrent private placement financing, the former C3J stockholders owned approximately 76% of our common stock and the former AmpliPhi stockholders owned approximately 24% of our common stock.

Immediately prior to the Merger, AmpliPhi completed a 1-for-14 reverse stock split and changed its name to Armata Pharmaceuticals, Inc.

Our common stock is traded on the NYSE American exchange under the symbol “ARMP.”

We are headquartered in Marina Del Rey, CA, in a 35,500 square-foot research and development facility built for product development with capabilities spanning from bench to clinic.

In addition to microbiology, synthetic biology, formulation, chemistry and analytical laboratories, the facility is equipped with two licensed GMP drug manufacturing suites enabling the production, testing and release of clinical material.

Statements contained in this Annual Report that are not statements of historical fact are forward-looking statements within the meaning of the U.S.

Private Securities Litigation Reform Act of 1995.

Such forward-looking statements include, without limitation, statements concerning product development plans, commercialization of our products, the expected market opportunity for our products, the use of bacteriophages and synthetic phages to kill bacterial pathogens, having resources sufficient to fund our operations into the second quarter of 2021, future funding sources, general and administrative expenses, clinical trial and other research and development expenses, costs of manufacturing, costs relating to our intellectual property, capital expenditures, the expected benefits of our targeted phage therapies strategy, the potential market for our products, tax credits and carry-forwards, and litigation-related matters.

Words such as “believe,”

“anticipate,”

“plan,”

“expect,”

“intend,”

“will,”

“goal,”

“potential”

and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements necessarily contain these identifying words.

These statements are subject to risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Item 1A, “Risk Factors”

and elsewhere in this Annual Report on Form 10-K.

These forward-looking statements speak only as of the date on which they were made, and we undertake no obligation to update any forward-looking statements.

We are a clinical-stage biotechnology company focused on the development of precisely targeted bacteriophage therapeutics for the treatment of antibiotic-resistant infections using our proprietary bacteriophage-based technology.

Bacteriophages or “phages”

have a powerful and highly differentiated mechanism of action that enables binding to and killing specific bacteria, in contrast to traditional broad-spectrum antibiotics.

We believe that phages represent a promising means to treat bacterial infections, especially those that have developed resistance to current standard of care therapies, including the so-called multidrug-resistant or “superbug”

strains of bacteria.

We are a leading developer of phage therapeutics, which are uniquely positioned to address the growing worldwide threat of antibiotic-resistant bacterial infections.

We are combining our proprietary approach and expertise in identifying, characterizing and developing both naturally-occurring and engineered (synthetic) bacteriophages with our proprietary phage-specific Good Manufacturing Practice compliance (“cGMP”) manufacturing capabilities to advance a broad pipeline of high-quality bacteriophage product candidates.

We believe that synthetic phage, engineered using advances in sequencing and synthetic biology techniques, represent a promising means to advance phage therapy, including phage-based diagnostics and improving upon the ability of natural phage to treat bacterial infections, especially those that have developed resistance to current antibiotic therapies, including the multidrug-resistant or “superbug”

bacterial pathogens.

Our phage product candidates aim to address areas of significant unmet clinical need, by targeting key antibiotic-resistant bacteria including those on the World Health Organization’s global priority pathogens list.

We are developing and advancing our second-generation phage product candidate for Pseudomonas aeruginosa (“

aeruginosa ”), known as AP-PA02.

We anticipate initiating a Phase 1b/2, multi-center, double-blind, randomized, placebo-controlled, single and multiple ascending dose study to evaluate the safety, tolerability, and preliminary efficacy of AP-PA02 in subjects with cystic fibrosis (“CF”) and chronic pulmonary P.

aeruginosa infection in the first half of 2020.

We are also developing a second-generation phage product candidate for Staphylococcus aureus (“

aureus ”), known as AP-SA02, for the treatment of S.

aureus bacteremia.

We intend to file an IND Application with the FDA to initiate a Phase 1/2, multi-center, randomized, double-blind, placebo- controlled dose escalation study that will assess the safety, tolerability, and efficacy of AP-SA02 in the second half of 2020.

In partnership with Merck & Co., known as Merck Sharp & Dohme outside of the United States and Canada (“Merck”), we are developing proprietary synthetic phage candidates to target undisclosed infectious disease agents.

Our proprietary phage engineering platform serves to enhance the clinical and commercial prospects of phage therapy.

These attributes include expanded host range, improved potency which is a fundamental drug property that can translate into improved clinical efficacy, and importantly, biofilm disruption, which is a critical aspect of serious infections that needs to be addressed.

In addition to our more advanced pipeline programs, we have phage discovery efforts underway to target other major pathogens of infectious disease (including the ESKAPE pathogens:

Enterococcus faecium , Klebsiella pneumoniae , Acinetobacter baumannii , and Enterobacter species) and preventable infectious disease of the microbiome.

We are committed to conducting formal randomized clinical trials required for FDA approval in order to move toward commercialization of alternatives to traditional antibiotics and provide a potential method of treating patients suffering from drug-resistant bacterial infections.

The following chart summarizes the status of our phage product candidate development programs:

We have generally incurred net losses since our inception and our operations to date have been primarily limited to research and development and raising capital.

As of December 31, 2019, we had an accumulated deficit of $157.5 million.

We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and seeking to obtain regulatory approval of our product candidates.

We currently expect to use our existing cash and cash equivalents for the continued research and development of our product candidates, including through our targeted phage therapies strategy, and for working capital and other general corporate purposes.

We expect to continue to incur significant and increasing operating losses at least for the next several years.

We do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for at least one of our product candidates.

We may also use a portion of our existing cash and cash equivalents for the potential acquisition of, or investment in, product candidates, technologies, formulations or companies that complement our business, although we have no current understandings, commitments or agreements to do so.

Our existing cash and cash equivalents will not be

sufficient to enable us to complete all necessary development of any potential product candidates.

Accordingly, we will be required to obtain further funding through one or more other public or private equity offerings, debt financings, collaboration, strategic financing, grants or government contract awards, licensing arrangements or other sources.

Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

Adequate additional funding may not be available to us on acceptable terms, or at all.

If we are unable to raise capital when needed or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of assets, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether.

Any of these events could have a material adverse effect on our business, financial condition and results of operations and result in a loss of investment by our stockholders.

Recent Events

On January 27, 2020, we entered into the Securities Purchase Agreement with Innoviva, pursuant to which the Company agreed to issue and sell to Innoviva, in a private placement, up to 8,710,800 newly issued shares of our common stock and warrants to purchase up to 8,710,800 shares of common stock, with an exercise price per share of $2.87 (the “Private Placement”).

Each share of common stock is sold together with one Common Warrant, and the per-unit purchase price is $2.87.

The Private Placement is occurring in two tranches.

The first closing occurred on February 12, 2020, at which time Innoviva purchased 993,139 Shares and 993,139 Common Warrants, which was the maximum number of Shares and Common Warrants issuable to Innoviva in compliance with any and all applicable laws and without the requirement for the prior receipt of the stockholders’

approval under the listing requirements of the NYSE American, in exchange for an aggregate gross cash payment of approximately $2.8 million.

At the closing of the second tranche, subject to satisfaction of certain closing conditions, including the Company’s stockholders’

voting in favor of the Private Placement, Innoviva will purchase an additional 7,717,661 Shares and 7,717,661 Common Warrants for an aggregate purchase price of approximately $22.2 million.

See “Part II—Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Recent Sales of Unregistered Securities”

for more information .

Results of Operations

As a result of the Merger, C3J was considered the accounting acquirer of AmpliPhi because C3J’s shareholders retained a majority control of ownership of the combined company subsequent to the Merger;

therefore, the historical financial statements presented herein prior to the closing of the Merger are the historical financial statements of C3J.

Comparison of year ended December 31, 2019 and 2018

Research and Development

Research and development expenses for the year ended December 31, 2019 and 2018 were $9.8 million and $8.4 million, respectively.

The net increase of $1.4 million was primarily related to a $0.9 million increase in stock-based compensation expense, a $0.7 million increase in personnel expenses due to increased headcount, $0.5 million increase in lab supplies, $0.4 million increase of outside services, $0.2 million increase of rent and utilities expenses , offset by $1.3 million of tax rebate from the Australian tax authorities.

Acquired In-Process Research and Development

Acquired in-process research and development (“IPR&D”) expense of $6.8 million for the year ended December 31, 2018 consists of the estimated fair value of the assets acquired and consideration given in connection with the acquisition of the synthetic phage assets.

As the assets acquired were in the research and development phase and were determined to not have any alternative future use, it was expensed as acquired IPR&D.

There was no such expense for the year ended December 31, 2019.

General and Administrative

General and administrative expenses for the year ended December 31, 2019 and 2018 were $9.3 million and $2.5 million, respectively.

The increase of $6.8 million was primarily due to a $3.3 million increase in stock-based compensation expense, $2.1 million increase in professional fees (legal, audit and investment banking) primarily associated with the Merger, $0.4 million increase in personnel-related expenses, $0.5 million increase in insurance costs and $0.5 million increase in administrative costs of being a public company.

Loss on sale of assets

Loss on sale of available-for-sale assets of $0.7 million during the year ended December 31, 2019 represented the excess of carrying value of Slovenia net assets sold over proceeds received.

The loss primarily related to fixed assets sold and accordingly, there was no impact on cash and cash equivalents from this transaction.

Other Income (Expense)

For the year ended December 31, 2019, we recorded a noncash gain of $1.1 million upon the settlement of the derivative liability as a result of the issuance of equity in connection with the SGI asset acquisition coinciding with the closing of the Merger.

See Note 11 to our consolidated financial statements.

Non cash interest expense of $0.9 million for the year ended December 31, 2019 was fairly consistent with $1.0 million recorded for the year ended 2018, respectively.

Non cash interest expense consists of interest accretion on the time-based cash payments due in connection with the SGI asset acquisition.

The slight decrease was due to a partial cash payment of $1.0 million to SGI during 2019.

There was no income tax benefit for the year ended December 31, 2019 or December 31, 2018.

Operating activities

Net cash used in operating activities for the year ended December 31, 2019 was $15.6 million, as compared to $10.6 million for the year ended December 31, 2018.

The increase of $5.0 million was due to a $2.8 million increase in net loss, $0.5 million increase in non-cash adjustments to cash used in operating activities and a $1.7 million net increase in operating assets and liabilities.

Investing activities

Net cash provided by investing activities was $2.9 million and $8.8 million for the year ended December 31, 2019 and 2018, respectively.

During the year ended December 31, 2019, the cash provided was primarily due to $3.0 million acquired in connection with the Merger, offset in part by net capital equipment purchases of $0.1 million.

During the year ended December 31 2018, the cash provided was primarily due to a $9.6 million net maturity and sale of investment securities offset in part by $0.8 million in net capital equipment purchases.

Financing activities

Net cash of $9.0 million provided by financing activities for the year ended December 31, 2019 was comprised of net cash proceeds of $10.0 million from a common stock sale coinciding with the Merger, offset in part by a payment of $1.0 million in deferred consideration related to the time-based payment obligation in connection with the SGI asset acquisition.

There was zero change to net cash related to financing activities for the year ended December 31, 2018.

Liquidity, Capital Resources and Financial Condition

We have prepared our consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business.

However, we have incurred net losses since our inception and have negative operating cash flows.

These circumstances raise substantial doubt about our ability to

continue as a going concern.

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning our ability to continue as a going concern.

While management believes this plan to raise additional funds will alleviate the conditions that raise substantial doubt, these plans are not entirely within its control and cannot be assessed as being probable of occurring.

The Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all.

As of December 31, 2019, we had unrestricted cash and cash equivalents of $6.0 million.

In February 2020, we completed the first closing of the Private Placement and raised gross proceeds of $2.8 million.

Considering our current cash resources and the assumed proceeds from the second closing of the Private Placement with Innoviva, management believes our cash resources will be sufficient to fund our planned operations into the second quarter of 2021.

For the foreseeable future, our ability to continue its operations is dependent upon our ability to obtain additional capital.

Future Capital Requirements

We will need to raise additional capital in the future to continue to fund our operations.

Our future funding requirements will depend on many factors, including:

the costs and timing of our research and development activities;

the progress and cost of our clinical trials and other research and development activities;

manufacturing costs associated with our targeted phage therapies strategy and other research and development activities;

the terms and timing of any collaborative, licensing, acquisition or other arrangements that we may establish;

whether and when we receive future Australian tax rebates, if any;

the costs and timing of seeking regulatory approvals;

the costs of filing, prosecuting and enforcing any patent applications, claims, patents and other intellectual property rights;

the costs of potential lawsuits involving us or our product candidates.

We may seek to raise capital through a variety of sources, including:

the public equity market;

private equity financings;

collaborative arrangements, government grants or strategic financings;

licensing arrangements;

public or private debt.

Any additional fundraising efforts may divert our management team from their day to day activities, which may adversely affect our ability to develop and commercialize our product candidates.

Our ability to raise additional funds will depend, in part, on the success of our product development activities, including our targeted phage therapies strategy and any clinical trials we initiate, regulatory events, our ability to identify and enter into in-licensing or other strategic arrangements, and other events or conditions that may affect our value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control.

We cannot be certain that sufficient

funds will be available to us when required or on acceptable terms.

If we are unable to secure additional funds on a timely basis or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of technology or assets, pursue an acquisition of our company by a third party at a price that may result in a loss on investment for our stockholders, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether.

Any of these events could have a material adverse effect on our business, financial condition and results of operations.

Moreover, if we are unable to obtain additional funds on a timely basis, there will be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and loss of investment by our stockholders.

To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution to our existing stockholders.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are described in Note 3 to the consolidated financial statements included in this Annual Report.

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements as of December 31, 2019 and December 31, 2018, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates and judgments, including those related to impairment assessment of our indefinite lived intangible assets, stock-based compensation and derivative liabilities.

We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

Valuation of Goodwill and Intangible Assets with Indefinite Lives

Our goodwill represents the excess of the cost over the fair value of net assets acquired from our business combination.

The determination of the value of goodwill and intangible assets arising from the business combination requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including capitalized in-process research and development, or IPR&D.

Intangible assets acquired in a business combination that are used for IPR&D activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts.

Upon commercialization of the relevant research and development project, we will amortize the acquired in-process research and development over its estimated useful life or expense the acquired in-process research and development should the research and development project be unsuccessful with no future alternative use.

Goodwill and IPR&D are not amortized;

however, they are assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review.

The goodwill or IPR&D are considered to be impaired if we determine that the carrying value of the reporting unit or IPR&D exceeds its respective fair value, respectively.

Impairment of Goodwill

We perform our goodwill impairment analysis at the reporting unit level.

For the year ended December 31, 2019 and 2018, our company has one reporting unit.

We perform our annual impairment analysis by either doing a qualitative assessment of a reporting unit’s fair value from the last quantitative assessment to determine if there is potential impairment, or comparing a reporting unit’s estimated fair value to its carrying amount.

If a quantitative assessment is performed the evaluation includes management estimates of cash flow projections based on internal future projections and/or use of a market approach by looking at market values of comparable companies .

Our market capitalization is also considered as a part of this analysis.

In accordance with our accounting policy, we completed the annual evaluation for impairment of goodwill as of December 31, 2019 using the qualitative method and determined that no impairment existed.

Impairment Review of In-process Research and Development (“IPR&D”)

We test our IPR&D asset for impairment as of December 31 of each year or more frequently if indicators of impairment are present.

The authoritative accounting guidance provides an optional qualitative assessment for any indicators that indefinite-lived intangible assets are impaired.

If it is determined that it is more likely than not that the indefinite-lived intangible assets, including IPR&D, are impaired, the fair value of the indefinite-lived intangible assets is compared with the carrying amount and impairment is recorded for any excess of the carrying amount over the fair value of the indefinite-lived intangible assets.

If and when a quantitative analysis of IPR&D assets is required based on the result of the optional qualitative assessment, the estimated fair value of IPR&D assets is calculated based on the income approach, which includes discounting expected future net cash flows associated with the assets to a net present value.

The fair value measurements utilized to perform the impairment analysis are categorized within Level 3 of the fair value hierarchy.

Significant management judgment is required in the forecast of future operating results that are used in our impairment analysis.

The estimates management use are consistent with the plans and estimates that it uses to manage its business.

Significant assumptions utilized the income approach model include the timing of clinical studies and regulatory approvals, the probability of success of its research and development programs, timing of commercialization of these programs, forecasted sales, gross margin, selling, general and administrative expenses, capital expenditures, as well as anticipated growth rates.

Our analysis indicated no impairment existed.

Valuation of Derivatives

In connection with the Synthetic Phage platform, we provided SGI with the right to receive additional payments upon the occurrence of specified events related to 1) the initial public offering of shares of C3J’s common stock pursuant to an effective registration statement under the Securities Act, 2) the sale of all or substantially all the assets of C3J to a third party, or 3) a consolidation or merger into a third party.

We determined that these contingent rights are required to be accounted for as derivatives in accordance with ASC 815 — Derivatives and Hedging.

We estimate the fair value of this derivative by forecasting the timing and likelihood of the events occurring and discounting the probability adjusted payments using an appropriate discount based on market interest rates and our own non-performance risk as required by ASC 820 — Fair Value Measurement.

Stock-Based Compensation

Compensation expense related to stock options granted is measured at the grant date based on the estimated fair value of the award and is recognized on an accelerated attribution method over the requisite service period.

We determine the estimated fair value of each stock option on the date of grant using the Black-Scholes valuation model which uses assumptions regarding a number of complex and subjective variables.

The risk-free interest rate is based on the U.S.

Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.

Expected volatility is based on the historical volatility of our common stock.

The expected term represents the period that we expect our stock options to be outstanding.

The expected term assumption is estimated using the simplified method set forth in the U.S.

Securities and Exchange (the “SEC”) Staff Accounting Bulletin 110, which is the mid-point between the option vesting date and the expiration date.

For stock options granted to parties other than employees or directors, we elect, on a grant by grant basis, to use the expected term or the contractual term of the option award.

We have never declared or paid dividends on our common stock and have no plans to do so in the foreseeable future.

Forfeitures are recognized as a reduction of stock-based compensation expense as they occur.

Changes in these assumptions may lead to variability with respect to the amount of stock compensation expense we recognize related to stock options.

Stock-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable.

If the outcome of such performance condition is not

determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed .

Recent Accounting Pronouncements

Refer to Note 3 of the notes to the consolidated financial statements contained elsewhere in this Annual Report.

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

In addition, we do not engage in trading activities involving non-exchange traded contracts.

Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b‑2 of the Exchange Act and are not required to provide the information required under this item.

Total stockholders’ equity

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 5. Market for Registrant’s Common Equity