Armata Pharmaceuticals, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ 81 Table of Contents ARMATA PHARMACEUTICALS INC. INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS Armata Pharmaceuticals Inc. ​ ​ ​ Report of Independent Registered Public Accounting Firm 83 ​ ​ Consolidated Balance Sheets as of December 31, 2020 and 2019 85 ​ ​ Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 86 ​ ​ Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and 2019 87 ​ ​ Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 88 ​ ​ Notes to Consolidated Financial Statements for the Years Ended December 31, 2020 and 2019 89 ​ ​ ​ 82 Table of Contents Report of Independent Registered Public Accounting Firm ​ The Board of Directors and Stockholders of Armata Pharmaceuticals, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Armata Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, 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 the years then ended, in conformity with U.S. generally accepted accounting principles. ​ The Company’s Ability to Continue as a Going Concern ​ The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter 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. ​ ​ ​ ​ Valuation of in-process research and development intangible assets Description of the Matter ​ At December 31, 2020, the Company’s in-process research and development (“IPR&D”) intangible assets were $10.3 million. As discussed in Note 3 to the consolidated financial statements, IPR&D assets are intangible assets with indefinite lives and are not subject to amortization. Such assets are 83 Table of Contents initially measured at their acquisition-date fair values and are subject to impairment testing at least annually until completion or abandonment of research and development efforts associated with the projects. The Company tests IPR&D assets for impairment as of December 31 of each year or more frequently if indicators of impairment are present. Auditing the impairment test was complex and highly judgmental due to the significant estimation required to determine the fair value of the IPR&D intangible assets. In particular, the fair value estimates required the use of valuation methodologies that were sensitive to significant assumptions such as changes in the discount rate, timing of clinical studies and regulatory approvals, the probability of success of research and development programs and forecasted sales and anticipated growth rates. How We Addressed the Matter in Our Audit ​ To test the estimated fair value of the Company’s IPR&D intangible assets, we performed audit procedures that included, among others, assessing the Company’s use of appropriate valuation methodologies with the assistance of a valuation specialist, performing sensitivity analyses to determine which assumptions had the greatest impact on the overall determination of fair value, and testing the completeness and accuracy of the underlying data. Our audit procedures over the most significant assumptions included comparing the assumptions to current industry, market and economic trends, to historical results of the Company’s business and other guideline companies within the same industry and to other relevant factors. For example, to evaluate the probability of success of research and development programs, we considered the phase of development of the IPR&D project and third-party data regarding clinical trial success rates. ​ /s/ Ernst & Young LLP ​ We have served as the Company’s auditor since 2019. ​ San Diego, California March 18, 2021 ​ 84 Table of Contents Armata Pharmaceuticals Inc. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 December 31, 2019 ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 9,649,000 ​ $ 6,033,000 ​ Awards receivable ​ ​ 561,000 ​ ​ — ​ Prepaid expenses and other current assets ​ 636,000 ​ 622,000 ​ Total current assets ​ 10,846,000 ​ 6,655,000 ​ Restricted cash ​ ​ 1,200,000 ​ ​ 700,000 ​ Property and equipment, net ​ 2,047,000 ​ 2,187,000 ​ Operating lease right-of-use asset ​ 10,790,000 ​ 2,028,000 ​ In-process research and development ​ ​ 10,256,000 ​ ​ 10,256,000 ​ Goodwill ​ ​ 3,490,000 ​ ​ 3,490,000 ​ Other assets ​ 887,000 ​ 135,000 ​ Total assets ​ $ 39,516,000 ​ $ 25,451,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ equity ​ ​ ​ Current liabilities ​ ​ ​ Accounts payable and accrued liabilities ​ $ 1,929,000 ​ $ 1,278,000 ​ Accrued compensation ​ ​ 563,000 ​ ​ 1,323,000 ​ Deferred asset acquisition consideration ​ ​ 1,940,000 ​ ​ 970,000 ​ Current portion of operating lease liabilities ​ ​ 1,551,000 ​ ​ 1,308,000 ​ PPP Loan ​ ​ 722,000 ​ ​ — ​ Total current liabilities ​ 6,705,000 ​ 4,879,000 ​ Operating lease liabilities, net of current portion ​ ​ 10,877,000 ​ ​ 1,555,000 ​ Deferred asset acquisition consideration, net of current portion ​ ​ — ​ ​ 1,347,000 ​ Deferred tax liability ​ ​ 3,077,000 ​ ​ 3,077,000 ​ Total liabilities ​ 20,659,000 ​ 10,858,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity ​ ​ ​ Common stock, $0.01 par value; 217,000,000 shares authorized; 18,688,461 and 9,922,758 shares issued and outstanding at December 31, 2020 and 2019, respectively ​ 187,000 ​ 99,000 ​ Additional paid-in capital ​ 198,372,000 ​ 172,015,000 ​ Accumulated deficit ​ (179,702,000) ​ (157,521,000) ​ Total stockholders’ equity ​ 18,857,000 ​ 14,593,000 ​ Total liabilities and stockholders’ equity ​ $ 39,516,000 ​ $ 25,451,000 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 85 Table of Contents Armata Pharmaceuticals Inc. Consolidated Statements of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ Grant revenue ​ $ 823,000 ​ $ — ​ Operating expenses ​ ​ ​ ​ ​ ​ ​ Research and development ​ 14,444,000 ​ 9,824,000 ​ General and administrative ​ 7,966,000 ​ 9,265,000 ​ Loss on sale of assets (Note 6) ​ ​ — ​ ​ 663,000 ​ Total operating expenses ​ ​ 22,410,000 ​ ​ 19,752,000 ​ Loss from operations ​ (21,587,000) ​ (19,752,000) ​ Other income (expense) ​ ​ ​ Interest income ​ ​ 28,000 ​ 96,000 ​ Interest expense ​ ​ (628,000) ​ ​ (931,000) ​ Other income (expense) ​ ​ 6,000 ​ ​ (9,000) ​ Change in fair value of derivative liabilities ​ ​ — ​ 1,117,000 ​ Total other income (expense), net ​ (594,000) ​ 273,000 ​ Net loss ​ (22,181,000) ​ (19,479,000) ​ Per share information: ​ ​ ​ Net loss per share, basic ​ $ (1.35) ​ $ (2.49) ​ Weighted average shares outstanding, basic ​ ​ 16,415,012 ​ ​ 7,827,197 ​ Net loss per share, diluted ​ $ (1.35) ​ $ (2.55) ​ Weighted average shares outstanding, diluted ​ ​ 16,415,012 ​ ​ 8,009,909 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 86 Table of Contents Armata Pharmaceuticals Inc. Consolidated Statements of Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ Equity ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Accumulated ​ Stockholders’ ​ Shares Amount Capital Deficit Equity Balances, December 31, 2018 5,069,633 ​ $ 51,000 ​ $ 145,685,000 ​ $ (138,042,000) ​ $ 7,694,000 Forfeiture of restricted stock awards (44,255) ​ ​ — ​ ​ (39,000) ​ ​ — ​ (39,000) Issuance of common stock and conversion of deferred consideration for asset acquisition ​ 516,976 ​ ​ 5,000 ​ ​ 1,457,000 ​ ​ — ​ ​ 1,462,000 Issuance of common stock in connection with reverse merger ​ 2,389,135 ​ ​ 23,000 ​ ​ 10,686,000 ​ ​ — ​ ​ 10,709,000 Sale of common stock, net of issuance costs ​ 1,991,269 ​ ​ 20,000 ​ ​ 9,955,000 ​ ​ — ​ ​ 9,975,000 Stock-based compensation — ​ ​ — ​ ​ 4,271,000 ​ ​ — ​ 4,271,000 Net loss — ​ ​ — ​ ​ — ​ ​ (19,479,000) ​ (19,479,000) Balances, December 31, 2019 9,922,758 ​ $ 99,000 ​ $ 172,015,000 ​ $ (157,521,000) ​ $ 14,593,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ Equity ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Accumulated ​ Stockholders’ ​ ​ Shares Amount Capital Deficit Equity Balances, December 31, 2019 9,922,758 ​ $ 99,000 ​ $ 172,015,000 ​ $ (157,521,000) ​ $ 14,593,000 Sale of common stock, net of issuance costs ​ 8,710,800 ​ ​ 87,000 ​ ​ 22,723,000 ​ ​ — ​ ​ 22,810,000 Exercises of warrants ​ 14,464 ​ ​ — ​ ​ 81,000 ​ ​ — ​ ​ 81,000 Return of restricted stock awards for tax withholdings ​ (2,511) ​ ​ — ​ ​ (8,000) ​ ​ — ​ ​ (8,000) Forfeiture of restricted stock awards ​ (4,010) ​ ​ — ​ ​ — ​ ​ — ​ ​ — Exercise of stock options ​ 27,382 ​ ​ 1,000 ​ ​ 86,000 ​ ​ — ​ ​ 87,000 Issuance of stock awards, net of tax withholding ​ 19,578 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation ​ — ​ ​ — ​ ​ 3,475,000 ​ ​ — ​ ​ 3,475,000 Net loss — ​ ​ — ​ ​ — ​ ​ (22,181,000) ​ (22,181,000) Balances, December 31, 2020 18,688,461 ​ $ 187,000 ​ $ 198,372,000 ​ $ (179,702,000) ​ $ 18,857,000 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 87 Table of Contents Armata Pharmaceuticals Inc. Consolidated Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 ​ ​ ​ ​ ​ Operating activities: ​ ​ ​ ​ ​ ​ Net loss ​ $ (22,181,000) ​ $ (19,479,000) Adjustments required to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation ​ 1,114,000 ​ 1,351,000 Stock-based compensation ​ ​ 3,475,000 ​ ​ 4,271,000 Non-cash interest expense ​ 628,000 ​ 918,000 Payment of accreted interest for deferred consideration for asset acquisition ​ ​ (432,000) ​ ​ — Change in fair value of derivative liability ​ — ​ (1,117,000) Loss on sale of assets (Note 6) ​ ​ — ​ ​ 663,000 Changes in operating assets and liabilities: ​ ​ ​ ​ Award receivable ​ ​ (467,000) ​ ​ — Accounts payable and accrued liabilities ​ 544,000 ​ (1,374,000) Accrued compensation ​ ​ (760,000) ​ ​ (853,000) Operating lease right-of-use asset and liability, net ​ ​ 803,000 ​ ​ (310,000) Prepaid expenses and other current assets ​ (994,000) ​ 348,000 Net cash used in operating activities ​ (18,270,000) ​ (15,582,000) Investing activities: ​ ​ Purchases of property and equipment ​ ​ (824,000) ​ ​ (224,000) Proceeds from sale of property and equipment ​ ​ — ​ ​ 93,000 Cash acquired in reverse merger transaction ​ ​ — ​ ​ 3,008,000 Net cash (used in) provided by investing activities ​ (824,000) ​ 2,877,000 Financing activities: ​ ​ Principal payment of deferred consideration for asset acquisition ​ ​ (568,000) ​ ​ (1,000,000) Proceeds from Paycheck Protection Program Loan ​ ​ 717,000 ​ ​ — Proceeds from sale of common stock, net of offering costs ​ ​ 22,893,000 ​ ​ 9,975,000 Proceeds from exercise of employee stock options ​ ​ 87,000 ​ ​ — Proceeds from exercise of warrants ​ ​ 81,000 ​ ​ — Net cash provided by financing activities ​ 23,210,000 ​ 8,975,000 Net increase (decrease) in cash, cash equivalents and restricted cash ​ 4,116,000 ​ (3,730,000) Cash, cash equivalents and restricted cash, beginning of period ​ 6,733,000 ​ 10,463,000 Cash, cash equivalents and restricted cash, end of period ​ $ 10,849,000 ​ $ 6,733,000 Supplemental schedule of non-cash investing and financing activities: ​ ​ Unpaid offering costs ​ $ 65,000 ​ $ 116,000 Property and equipment included in accounts payable ​ $ 150,000 ​ $ 36,000 Issuance of common stock in reverse merger transaction ​ $ — ​ $ 10,709,000 Conversion of deferred asset acquisition consideration upon reverse merger ​ $ — ​ $ 1,463,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 2019 Cash and cash equivalents ​ $ 9,649,000 ​ $ 6,033,000 Restricted cash ​ ​ 1,200,000 ​ ​ 700,000 Cash, cash equivalents and restricted cash ​ $ 10,849,000 ​ $ 6,733,000 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 88 Table of Contents Armata Pharmaceuticals Inc. Notes to Consolidated Financial Statements 1. Organization and Description of the Business Armata Pharmaceuticals, Inc. (“Armata”, and together with its subsidiaries referred to herein as, the “Company”) is a clinical-stage biotechnology company focused on the development of pathogen-specific bacteriophage therapeutics for the treatment of antibiotic-resistant infections using its proprietary bacteriophage-based technology. The Company was created as a result of a business combination between C3J Therapeutics, Inc. (“C3J”) and AmpliPhi Biosciences Corporation (“AmpliPhi”) that closed on May 9, 2019, where Ceres Merger Sub, Inc., a wholly owned subsidiary of AmpliPhi, merged with and into C3J (the “Merger”), with C3J surviving the Merger as a wholly owned subsidiary of AmpliPhi. In the Merger, each share of C3J common stock outstanding immediately prior to the Merger was converted into the right to receive approximately .6906 shares of AmpliPhi common stock. The shares were then adjusted further to account for a reverse split of AmpliPhi common stock at a reverse split ratio of 1-for-14. All share and per share amounts have been retrospectively adjusted to give effect to the exchange of C3J common stock and the reverse split of AmpliPhi common stock. Immediately prior to the closing of the Merger, AmpliPhi changed its name to Armata Pharmaceuticals, Inc. Armata’s common stock is traded on the NYSE American exchange under the ticker symbol “ARMP.” Immediately following the Merger, certain existing C3J shareholders purchased $10.0 million in Armata common stock. After the Merger and such concurrent private placement, the former C3J security holders owned approximately 76% of the aggregate number of shares of Armata’s common stock and the security holders of AmpliPhi as of immediately prior to the Merger owned approximately 24% of the aggregate number of shares of Armata’s common stock. In addition, upon closing of the Merger, five of the seven members of the board of directors were appointed by C3J. In connection with the Merger, C3J was considered the accounting acquirer of AmpliPhi because C3J’s shareholders retained a majority control of ownership of the Company subsequent to the Merger. In addition, the seven-member board of directors of the combined company include five members established by C3J. Therefore, the historical financial statements presented herein prior to the closing of the Merger are the historical financial statements of C3J. C3J’s 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. Prior to the Merger, C3J was privately held and was financed principally through a series of equity financings. 2. Liquidity The Company has prepared its consolidated financial statements on a going concern basis, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business. However, the Company has incurred net losses since its inception and has negative operating cash flows. These circumstances raise substantial doubt about the Company’s 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 the Company’s ability to continue as a going concern. On March 27, 2020, the Company completed a private placement transaction and sold to Innoviva Inc. (“Innoviva”) 8,710,800 newly issued shares of the Company’s common stock and warrants to purchase 8,710,800 shares of common stock, with an exercise price per share of $2.87 (the “2020 Private Placement”). 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 $2.87 per share. The 2020 Private Placement was closed in two tranches raising total gross proceeds of $25.0 million. 89 Table of Contents ​ On January 26, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Innoviva, pursuant to which the Company agreed to issue and sell to Innoviva, in a private placement, up to 6,153,847 newly issued shares of common stock, par value $0.01 per share (the “Shares”), and warrants (the “Common Warrants”) to purchase up to 6,153,847 shares of our common stock, with an exercise price per share of $3.25 (the “2021 Private Placement”). The 2021 Private Placement closed in two tranches. On January 26, 2021 and concurrently with entering into the Securities Purchase Agreement, the Company completed the first tranche (the “First Closing”) of the 2021 Private Placement. At the First Closing, Innoviva purchased 1,867,912 Shares and Common Warrants to purchase 1,867,912 shares of common stock, for an aggregate purchase price of approximately $6.1 million. At the closing of the second tranche (the “Second Closing”), which was approved by the Company’s stockholders, Innoviva purchased 4,285,935 Shares and Common Warrants to purchase 4,285,935 shares of common stock for an aggregate purchase price of $13.9 million. The Second Closing was completed on March 17, 2021. ​ Management plans to raise additional capital through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses and other similar arrangements. 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’s 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. The Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all. Furthermore, if the Company issues equity securities to raise additional funds, its existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products on terms that are not favorable to the Company. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its research and development programs or other operations. If any of these events occur, the Company’s ability to achieve the development and commercialization goals would be adversely affected. For the foreseeable future, the Company’s ability to continue its operations is dependent upon its ability to obtain additional capital. 3. Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries including C3J, Biocontrol Limited and AmpliPhi Australia Pty Ltd. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in its consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates. Cash and Cash Equivalents Cash and cash equivalents consist primarily of deposits with commercial banks and financial institutions. Fair Value of Financial Instruments 90 Table of Contents ​ Financial instruments include cash equivalents, prepaid expenses and other assets, restricted cash, accounts payable, accrued expenses and deferred asset acquisition consideration. The carrying amount of cash equivalents prepaid expenses and other assets, restricted cash, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the Level 3 inputs of borrowing rates currently available to the Company, the Company believes the fair value of deferred asset acquisition consideration approximates its carrying value. ​ Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Upon disposal, retirement, or sale of an asset, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations. Estimated useful lives for property and equipment are as follows: ​ ​ ​ ​ Estimated Useful Lives Laboratory equipment 5 – 10 years Office and computer equipment 3 – 5 years Leasehold improvements Shorter of lease term or useful life ​ Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparison of the book values of the assets to future net undiscounted cash flows that the assets or the asset groups are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value, which is measured based on the estimated discounted future net cash flows arising from the assets or asset groups. No impairment losses on long-lived assets have been recorded through December 31, 2020. In-Process Research and Development (“IPR&D” and Acquired IPR&D) IPR&D assets are intangible assets with indefinite lives and are not subject to amortization. The Company’s IPR&D assets represent a capitalized in-process bacteriophage development programs for S. aureus infections that the Company acquired through the Merger. Such assets are initially measured at their acquisition-date fair values and are subject to impairment testing at least annually until completion or abandonment of research and development efforts associated with the projects. Upon successful completion of each project, the Company makes a determination as to the then remaining useful life of the intangible asset and begins amortization. ​ The Company tests IPR&D assets 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 the Company’s impairment analysis. The estimates the Company uses are consistent with the plans and estimates that it uses to manage its business. Significant assumptions utilized in the Company’s income approach model include the discount rate, timing of clinical studies and regulatory approvals, the probability of success of its research and development programs, timing of 91 Table of Contents commercialization of these programs, forecasted sales, gross margin, selling, general and administrative expenses, capital expenditures, as well as anticipated growth rates. During the fourth quarter ended December 31, 2020, the Company performed the annual evaluation of its IPR&D assets for impairment. The Company considered the development timelines for its S. aureus development program and noted no qualitative factors that would indicate potential impairment of its IPR&D asset. In addition, the Company performed a quantitative analysis of the fair value of its S. aureus phage program as of December 31, 2020, using a net present value model of projected income and expenses and a discount rate of 16.7%. Based on this analysis, the fair value of this phage program was greater than its carrying value as of December 31, 2020. Consequently, no impairment was noted for the IPR&D asset. Goodwill Goodwill, which has an indefinite useful life, represents the excess of purchase consideration over the fair value of net assets acquired. The Company’s goodwill as of December 31, 2020 is associated with AmpliPhi’s business prior to the Merger. Goodwill is not subject to amortization and is required to be tested for impairment at least on an annual basis. The Company tests goodwill for impairment as of December 31 of each year. The Company determines whether goodwill may be impaired by comparing the carrying value of the single reporting unit, including goodwill, to the fair value of the reporting unit. If the fair value is less than the carrying amount, a more detailed analysis is performed to determine whether goodwill is impaired. The impairment loss, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the goodwill and is recorded in the Company’s consolidated statements of operations. There was no impairment of goodwill during the year ended December 31, 2020. ​ Stock-Based Compensation Compensation expense related to stock options granted to employees and non-employees is measured at the grant date based on the estimated fair value of the award and is recognized on the accelerated attribution method over the requisite service period. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. 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. Foreign Currency Translations and Transactions The functional currency of the Company and its wholly owned subsidiaries is the U.S. dollar. Revenue Recognition The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligations. At contract inception, the Company assesses the goods or services agreed upon within each contract and assess whether each good or service is distinct and determine those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. During the years ended December 31, 2020 and 2019 the company did not recognize revenue or deferred revenue from contracts with customers. Grants and Awards In applying the provisions of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) , Armata has determined that grants and awards are out of the scope of ASC 606 because the funding entities do not meet the 92 Table of Contents definition of a “customer”, as defined by ASC 606, as there is not considered to be a transfer of control of goods or services. With respect to each grant or award, the Company determines if it has a collaboration in accordance with ASC Topic 808, Collaborative Arrangements (“ASC 808”). To the extent the grant or award is within the scope of ASC 808, the Company recognizes amounts received as a contra-expense or grant revenue on the consolidated statement of operations when the related research and development expenses are incurred. For grant and awards outside the scope of ASC 808, the Company applies ASC 606 or International Accounting Standards No. 20, Accounting for Government Grants and Disclosure of Government Assistance , by analogy, and revenue is recognized when the Company incurs expenses related to the grants for the amount the Company is entitled to under the provisions of the contract. ​ Armata also considers the guidance in ASC Topic 730, Research and Development (“ASC 730”), which requires an assessment, at the inception of the grant or award, of whether the agreement is a liability . If Armata is obligated to repay funds received regardless of the outcome of the related research and development activities, then Armata is required to estimate and recognize that liability. Alternatively, if Armata is not required to repay the funds, then payments received are recorded as revenue or contra-expense as the expenses are incurred. ​ Deferred grant or award liability represents award funds received or receivable for which the allowable expenses have not yet been incurred as of the balance sheet date. ​ Research and Development Costs Research and development (“R&D”) costs consist primarily of direct and allocated salaries, incentive compensation, stock-based compensation and other personnel-related costs, facility costs, and third-party services. Third party services include studies and clinical trials conducted by clinical research organizations. R&D activities are expensed as incurred. The Company records accruals for estimated ongoing clinical trial expenses. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Judgments and estimates are made in determining the accrued balances at the end of the reporting period. Research and development expenses are partially offset by the benefit of tax incentive payments for qualified research and development expenditures from the Australian tax authority (“AU Tax Rebates”). The Company does not record AU Tax Rebates until payment is received due to the uncertainty of receipt. During the year ended December 31, 2019, the Company received AU Tax Rebates of approximately $1.3 million related to calendar year 2018, and such rebates have been recorded as an offset to research and development expense in the Company’s consolidated statements of operations. During the year ended December 31, 2020, the Company applied for AU Tax Rebates for the calendar year 2019 and received $0.7 million in January 2021 which will be recognized in the first quarter of 2021 as an offset to research and development expenses. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Deferred income taxes are recognized for the future tax consequences of temporary differences using enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Temporary differences include the differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities and net operating loss and tax credit carryforwards. The effect on deferred taxes of a change in tax rates is recognized in income (expense) in the period that includes the enactment date. The Company evaluates the likelihood that deferred tax assets will be recovered from future taxable income. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s income tax returns are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax authorities. In addition, the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including 93 Table of Contents resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Derivative Liabilities Derivative liabilities are accounted for in accordance with the applicable accounting guidance provided in ASC 815 – Derivatives and Hedging based on the specific terms of the agreements. Derivative liabilities are recorded at fair value at each reporting period with any change in fair value recognized as a component of change in fair value of asset acquisition derivative liability in the consolidated statements of operations. The Company has a zero derivative liability balance at December 31, 2020 as the liability of $1.1 million at December 31, 2018 was settled upon the Merger in May 2019. Basic and Diluted Net Loss per Share Net earnings or loss per share (“EPS”) is calculated in accordance with the applicable accounting guidance provided in ASC 260, Earnings per Share. Basic EPS is calculated by dividing net income or loss by the weighted-average number of common shares outstanding. Diluted net loss per share is computed in accordance with the treasury stock method and reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants, and the presumed exercise of such securities are dilutive to net loss per share for the period, an adjustment to net loss available to common stockholders used in the calculation is required to remove the change in fair value of the warrants from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method. Settlement of Zero-coupon Debt Instrument The Company’s deferred purchase consideration arrangement with Synthetic Genomics (Note 12) does not have a stated interest rate. Upon repayment of deferred purchase consideration, the Company classifies the portion attributable to accreted interest as a cash outflow for operating activities, and the portion relating to principal as a cash outflow for financing activities. Recent Accounting Pronouncements 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. The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. This new guidance is effective for calendar-year smaller reporting public entities in the first quarter of 2023. The Company is currently evaluating the impact of this ASU and does not expect that adoption of this standard will have a material impact on its consolidated financial statements or related disclosures. In December 2019, the FASB issued ASU 2019-12, Income Taxes (“ASC 740”) , which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for calendar-year public business entities in 2021 and interim periods within that year. Early adoption is permitted. The Company does not expect adoption of this new guidance will have a material impact on its consolidated financial statements or related disclosures. 94 Table of Contents In August 2020, the FASB issued ​ASU No. 2020-06​, ​ Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)​ (“ASU 2020-06”). ​ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 202-06 modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in ASU 2020-06 are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements and does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements. Recently Adopted Accounting Standards In November 2018, FASB issued ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606 . The objective of the standard is to clarify the interaction between Topic 808, Collaborative Arrangements , and Topic 606, Revenue from Contracts with Customers . Currently, Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements is often based on an analogy to other accounting literature or an accounting policy election. Similarly, aspects of Topic 606 have resulted in uncertainty in practice about the effect of the revenue standard and credit loss standard on the accounting for collaborative arrangements. The standard became effective for the Company for fiscal periods beginning on January 1, 2020. The adoption of this ASU did not have an impact on the Company’s financial condition, results of operations, cash flows, or financial statement disclosures. 4. Fair Value of Financial Assets and Liabilities – Derivative Instruments The guidance regarding fair value measurements prioritizes the inputs used in measuring fair value and establishes a three-tier value hierarchy that distinguishes among the following: ● Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. ● Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly. ● Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The Company estimates the fair values of derivative liabilities utilizing Level 3 inputs. No derivative liabilities have been transferred between the classification levels. Estimating the fair values of derivative liabilities requires the use of significant and subjective inputs that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. There were no assets or liabilities that require recurring fair value measurements as of December 31, 2020 or 2019. The following table sets forth a summary of changes in the fair value of the Company’s derivative liabilities during the year ended December 31, 2019: ​ ​ ​ ​ ​ ​ ​ Asset Acquisition ​ ​ ​ Derivative Liability ​ Balance, December 31, 2018 ​ $ 1,117,000 ​ Changes in estimated fair value ​ (1,117,000) ​ Balance, December 31, 2019 ​ $ — ​ ​ 95 Table of Contents The Company estimated 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 its own non-performance risk as required by ASC 820 – Fair Value Measurement . There is no longer a potential payment requirement associated with the derivative liability subsequent to the Merger. Accordingly, the fair value of the derivative liability was reduced to zero with the associated change recorded in other income. ​ 5. The Merger ​ On May 9, 2019, the Company completed the Merger (see Note 1). On the date of the Merger, AmpliPhi had, and the Company currently has, IPR&D related to the S. aureus development program, a phage product candidate for the treatment of S. aureus infections. The product candidate was utilized in clinical applications through single-patient expanded access guidelines established by U.S. and Australian regulatory agencies. Further, AmpliPhi provided a workforce that is considered to have the necessary skills, knowledge, and experience to perform a process, that when applied to IPR&D is critical to the ability to convert it into outputs. Based on this evaluation, the Company determined that the Merger should be accounted for as a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). ​ In connection with the Merger, the Company allocated the total purchase consideration of $10.7 million in stock to the net assets and liabilities acquired, including identifiable intangible assets and related deferred tax liability, based on their respective fair values at the acquisition date. The Company recognizes deferred tax liabilities for indefinite-lived intangible assets in accordance with ASC 740, Income Taxes. ​ The following table summarizes the allocation of the purchase price to the fair value of the respective assets and liabilities acquired, which was finalized in the quarter ended December 31, 2019. ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ $ 3,008,000 ​ ​ Prepaid expenses ​ ​ 257,000 ​ ​ Property and equipment ​ ​ 708,000 ​ ​ Right of use asset ​ ​ 271,000 ​ ​ In-process research and development (1) ​ ​ 10,256,000 ​ ​ Total assets ​ ​ 14,500,000 ​ ​ Accounts payable ​ ​ (4,004,000) ​ ​ Other long term liabilities ​ ​ (199,000) ​ ​ Deferred tax liability ​ ​ (3,077,000) ​ ​ Net assets acquired ​ ​ 7,220,000 ​ ​ Purchase price ​ ​ 10,710,000 ​ ​ Goodwill (2) ​ ​ $ 3,490,000 ​ ​ (1) IPR&D relates to a bacteriophage product candidate for the treatment of S. aureus infections in patients with bacteremia. The valuation of this asset was prepared by an independent third party based on estimated discounted cash flows based on probability-weighted future development expenditures and revenue streams provided by the Company’s management. ​ (2) Goodwill represents the excess of the purchase price over the valuation of the fair value of tangible and identified intangible assets, less liabilities, acquired. ​ In addition, the Company incurred and expensed costs directly related to the Merger totaling approximately $1.1 million which are included in general and administrative expenses in the consolidated statement of operations. ​ Since the closing date of the Merger, the results of AmpliPhi’s operations have been included in the Company’s consolidated financial statements. Selected amounts related to AmpliPhi’s business included in the Company’s consolidated statements of operations from the period of May 9, 2019, the date of the Merger, to December 31, 2019 and 96 Table of Contents for the year ended December 31, 2020 are summarized in the table below. Amounts shown do not include the offset to research and development expenses related to AU Tax rebates discussed in Note 3. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ May 9, 201 9 through December 31, 2019 Research and development expenses ​ $ 583,000 $ 1,321,000 General and administrative expenses ​ ​ 1,205,000 ​ 1,917,000 Sale of Slovenia ​ ​ - ​ 663,000 Net loss ​ $ 1,788,000 $ 3,901,000 ​ ​ ​ 6. Loss on Sale of Assets ​ The Company produces clinical quantities of each of its bacteriophage product candidates at its cGMP-compliant manufacturing facilities. With the completion of the Merger in May 2019, the Company had two manufacturing sites, one in Marina del Rey, California and additionally in Ljubljana, Slovenia. Each manufacturing site had clean rooms, in-use equipment and experienced manufacturing personnel. ​ On November 8, 2019, the Company entered into an agreement to sell the Slovenia subsidiary to an un-related third-party buyer (“Buyer”) and on December 6, 2019, the sale transaction was completed. The agreement requires that the Buyer maintain the ability of the Slovenia facility to manufacture the Company’s products. If the Company requires such products, the Buyer and the Company would negotiate a supply agreement governing the purchase and sale of such products. In addition, the Company has the right to repurchase the Slovenian subsidiary’s operations at any point in the five year period immediately following the closing. The Company recognized a loss on sale of assets of $0.7 million, representing the excess of the net assets sold over proceeds received, in the statement of operations for the year ended December 31, 2019. ​ 7. Net Loss per Share Diluted EPS for the year ended December 31, 2019 included a numerator adjustment to remove the gain related to the change in fair value of derivative liabilities $0.9 million, net of interest. Additionally, diluted EPS for the year ended December 31, 2019 included an adjustment to the weighted-average shares outstanding to appropriately weigh the shares issued for the Synthetic Genomics asset acquisition discussed in Note 12. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2020 2019 Basic and diluted net loss per share calculation: ​ ​ Net loss, basic ​ $ (22,181,000) ​ $ (19,479,000) ​ Change in fair value of derivative liabilities, net of interest ​ ​ — ​ ​ (938,000) ​ Net loss, diluted ​ ​ (22,181,000) ​ ​ (20,417,000) ​ Weighted average shares outstanding, basic ​ 16,415,012 ​ 7,827,197 ​ Net loss per share, basic ​ $ (1.35) ​ $ (2.49) ​ Weighted average shares outstanding, diluted ​ 16,415,012 ​ 8,009,909 ​ Net loss per share, diluted ​ $ (1.35) ​ $ (2.55) ​ 97 Table of Contents ​ The following outstanding securities at December 31, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding for the years ended December 31, 2020 and 2019, as they would have been anti-dilutive: ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2020 2019 Options ​ 1,668,926 1,275,380 Restricted stock awards 322,756 343,493 Warrants ​ 10,547,618 ​ 1,854,007 Total 12,539,300 3,472,880 ​ ​ 8. Balance Sheet Details Property and Equipment, net Property and equipment consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 December 31, 2019 Laboratory equipment ​ $ 6,547,000 ​ $ 6,047,000 Furniture and fixtures ​ ​ 719,000 ​ ​ 646,000 Office and computer equipment ​ 413,000 ​ 323,000 Leasehold improvements ​ 3,423,000 ​ 3,329,000 Total ​ ​ 11,102,000 ​ ​ 10,345,000 Less: accumulated depreciation ​ (9,055,000) ​ (8,158,000) Property and equipment, net ​ $ 2,047,000 ​ $ 2,187,000 ​ Depreciation expense totaled $1.1 million and $1.4 million the years ended December 31, 2020 and 2019, respectively. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 2019 Accounts payable ​ $ 956,000 ​ $ 547,000 Accrued clinical trial expenses ​ ​ 248,000 ​ ​ — Other accrued expenses ​ ​ 725,000 ​ ​ 731,000 ​ ​ $ 1,929,000 ​ $ 1,278,000 ​ ​ 9. Income Taxes Loss before income taxes consisted of the following components: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 United States ​ $ (21,583,000) ​ $ (18,341,000) Foreign ​ (598,000) ​ (1,138,000) Total ​ $ (22,181,000) ​ $ (19,479,000) ​ 98 Table of Contents The company has not recognized any current or deferred tax expense on its US and Foreign pre-tax losses for the years ended December 31, 2020 and 2019. The differences between the Company’s effective tax rate and the U.S. federal statutory tax rate were as follows: ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 U.S. federal statutory income tax rate 21.0 % 21.0 % Adjustments for tax effects of: ​ ​ ​ ​ ​ State income taxes, net of federal tax ​ 6.6 % 2.6 % Stock-based compensation ​ (0.7) % (0.5) % Change in valuation allowance ​ (28.5) % (22.7) % Net operating loss carryforwards and credit expirations 0 % (3.1) % Stock issuance costs 0 % (1.2) % Gain on derivative liability extinguishment 0 % 1.2 % Slovenia facility sale 0 % 1.9 % Permanent differences 0 % 1.3 % Other ​ 1.6 % (0.5) % Effective income tax rate 0.0 % 0.0 % ​ Significant components of the Company’s deferred tax assets and liabilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 Deferred tax assets: ​ ​ ​ ​ ​ ​ Net operating loss carryforwards ​ $ 31,243,000 ​ $ 26,291,000 Capitalized research and development ​ 15,789,000 ​ 15,262,000 Stock-based compensation ​ 2,087,000 ​ 1,358,000 Depreciation and amortization ​ ​ 1,405,000 ​ ​ 1,632,000 Lease accounting ​ ​ 3,478,000 ​ ​ 801,000 Other ​ 989,000 ​ 981,000 Total deferred tax assets before valuation allowance ​ ​ 54,991,000 ​ 46,325,000 Less: valuation allowance ​ (51,972,000) ​ (45,670,000) Total deferred tax assets after valuation allowance ​ ​ 3,019,000 ​ ​ 655,000 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities: ​ ​ ​ ​ Right-of-use asset ​ ​ (3,019,000) ​ ​ (655,000) In-process research and development ​ ​ (3,077,000) ​ ​ (3,077,000) Total deferred tax liabilities ​ ​ (6,096,000) ​ ​ (3,732,000) Net deferred tax liability ​ $ (3,077,000) ​ $ (3,077,000) ​ ​ ​ ​ ​ ​ ​ ​ The Company’s net operating loss carryforwards at December 31, 2020 are $110.5 million and $78.7 million for federal and state income tax purposes, respectively. Federal and state net operating loss carryforwards are available to offset future taxable income, if any, and will begin to expire in 2026 to 2028, respectively. The federal NOL’s generated in tax years 2018 and forward will carryforward indefinitely. The ability of the Company to utilize net operating losses carryforwards to reduce future domestic taxable income and domestic income tax is subject to various limitations under the Internal Revenue Code (Code). The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes during any three-year period resulting in an aggregate change of more than 50% in beneficial ownership. The Company previously determined an ownership change occurred on May 9, 2019 as a result of the merger discussed in Note 5. The resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before the expire. 99 Table of Contents Accordingly, in 2019 the Company reduced its deferred tax assets for the net operating loss and credit carryforwards that were expected to expire unused with a corresponding offset to the valuation allowance recorded against such assets. Future ownership changes under Section 382 may also limit the Company’s ability to fully utilize any remaining tax benefits. The Company does not believe that it has experienced another more-than 50% ownership change since the date of the merger. Future equity transactions by the Company, or by 5% of stockholders, could cause a more-than-50% ownership change and, therefore, trigger a limitation on the annual utilization of net operating losses. The Company has generated federal and state income tax losses in all years since its inception. Accordingly, management has determined that significant negative evidence precludes the Company from recording a net deferred tax asset for financial statement purposes as it is more likely than not that its deferred tax assets will not be realized. The Company files income tax returns in the U.S. federal jurisdiction, state of California and certain foreign jurisdictions. As of December 31, 2020, the Company is no longer subject to U.S. federal income tax examinations for tax years ended on or before December 31, 2014 or to California state income tax examinations for tax years ended on or before December 31, 2013. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward. The Company did not have a liability for unrecognized tax benefits at December 31, 2020 and 2019. The Company’s policy is to classify interest and penalties on uncertain tax positions as a component of tax expense. As of December 31, 2020, the Company has no accrued interest or penalties related to uncertain tax positions. ​ 10. Paycheck Protection Program Loan ​ In April 2020, the Company received loan proceeds of $717,000 (“PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business, calculated as provided under the PPP. The PPP provides a mechanism for forgiveness of up to the full amount borrowed after twenty-four weeks as long as the borrower uses the loan proceeds during the twenty-four week period after the loan origination for eligible purposes, including payroll costs, certain benefits costs, rent and utilities costs or other permitted purposes, and maintains its payroll levels, subject to certain other requirements and limitations. The amount of loan forgiveness is subject to reduction, among other reasons, if the borrower terminates employees or reduces salaries during the measurement period. The Company is prepared to submit its application for loan forgiveness and anticipates that the loan will be forgiven based on the current guidelines. The Company cannot provide any assurance that it will be eligible for loan forgiveness or that any amount of the PPP loan will ultimately be forgiven. ​ The PPP Loan is unsecured, evidenced by a promissory note (the “Note”) given by the Company as borrower through its bank, serving as the lender. The interest rate on the Note is 1.0% per annum. Payments of principal and interest are deferred until August 2021 (the “Deferral Period”). Any unforgiven portion of the PPP Loan is payable over the two-year term, with payments deferred during the Deferral Period. The Company is permitted to prepay the Note at any time without payment of any premium. ​ 11. Commitments and Contingencies Operating Leases The Company leases office and research and development space under a noncancelable operating lease in Marina Del Rey, CA. The lease commenced January 1, 2012 and in April 2020, the Company amended the lease (“Lease Amendment”) which, among other things, extended the lease term through December 31, 2031. Base annual rent for calendar year 2022 under the Lease Amendment will be approximately $1.9 million, and base rent increases by 3% annually and will be $2.5 million by the end of the amended term. In addition, the Company received rent abatement for six months starting May 1, 2020, and an allowance for tenant improvements of $0.8 million to be used during calendar 100 Table of Contents year of 2021. In accordance with authoritative guidance, the Company remeasured the lea se liability to be $11.7 million and related right of use asset of $11.0 million as of the Lease Amendment date with an incremental borrowing rate of 12.9% . Concurrent with the Company’s execution of the Lease Amendment, an irrevocable letter of credit in the amount of $1.2 million was delivered to the landlord. Starting on February 1, 2022, and each year thereafter the letter of credit will be reduced by 20% of the then outstanding amount. Future minimum annual lease payments under the Company’s noncancelable operating leases as of December 31, 2020, are as follows: ​ ​ ​ ​ ​ Operating ​ ​ Leases 2021 $ 1,638,000 2022 ​ 1,893,000 2023 ​ ​ 1,950,000 2024 ​ ​ 2,008,000 2025 ​ ​ 2,069,000 Thereafter ​ ​ 13,783,000 Total minimum lease payments ​ ​ 23,341,000 Less: amount representing interest ​ ​ (10,913,000) Present value of operating lease obligations ​ ​ 12,428,000 Less: current portion ​ ​ (1,551,000) Noncurrent operating lease obligations ​ $ 10,877,000 ​ Rent expense was $1.9 million and $1.5 million for the years ended December 31, 2020 and 2019, respectively. Total cash payments for operating leases as included in the consolidated statements of cash flows during the year ended December 31, 2020 and 2019 was $1.1 million and $1.7 million, respectively. ​ License Agreement The Company entered into an exclusive license agreement with The Regents of the University of California (the “Regents”) on April 24, 2007 including amendments for the use of several patents. As part of the license agreement, the Company issued The Regents 10,540 shares of common stock. The Company is required to pay the Regents $5,000 in annual maintenance fees and milestone fees for the first licensed product in both the Human Dental and Human Medical fields of application as follows: 1) filing of an Investigational New Drug application: $20,000; 2) completing a Phase 1 clinical trial: $50,000; 3) completing a Phase 2 clinical trial: $50,000; 4) completing a Phase 3 clinical trial: $150,000; and 5) first commercial sale of a license product: $250,000. Total expenses incurred under the Regents license agreement was $21,000 for each of the years ended December 31, 2020 and 2019. On October 21, 2020, the Company provided the notice to the Regents to terminate the license agreement, which would become effective 90 days from the date of the termination notice. Legal Proceedings From time to time, the Company may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of business. Any of these claims could subject the Company to costly legal expenses and, while management generally believes that there is adequate insurance to cover many different types of liabilities, the Company’s insurance carriers may deny coverage or policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, 101 Table of Contents could damage the Company’s reputation and business. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on its consolidated results of operations or financial position. ​ 12. Synthetic Genomics Asset Acquisition ​ On February 28, 2018, C3J completed an acquisition of certain synthetic phage assets (the “synthetic phage assets”) from Synthetic Genomics, Inc. (“SGI”) for consideration consisting of $8.0 million in cash and $27.0 million in equity. The cash payments consisted of: $1.0 million paid at closing on February 28, 2018, $1.0 million at one year from closing, $1.0 million at two years from closing, and $5.0 million at three years from closing (the payments due on the one, two, three year anniversary are collectively the “time-based payment obligation”). The equity payment (the “equity payment” and, together with the time-based payment obligation, the “deferred purchase price arrangement”) was due upon the earlier of the initial public offering of shares of C3J’s common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, the sale of all or substantially all of C3J’s assets to a third party, or a consolidation or merger into a third party. On December 20, 2018, in contemplation of the Merger (see Note 5), the deferred purchase price arrangement was amended. Under the amended agreement, the purchase consideration consisted of (i) closing consideration of $1.0 million paid on February 28, 2018, (ii) cash payments of $1.0 million on January 31, 2019, $1.0 million on January 31, 2020, and $2.0 million on January 31, 2021, (iii) an issuance of that number of shares of C3J’s common stock equal to ten percent of C3J’s fully-diluted capitalization, excluding options and restricted stock awards, immediately prior to the closing of the Merger, and (iv) potential milestone payments of up to $39.5 million related to the development and relevant regulatory approval of products utilizing bacteriophage from the synthetic phage assets acquired from SGI (the “milestone payment obligation”). The equity payment was determined to be a derivative liability in accordance with ASC 815, Derivatives and Hedging and was initially recorded at its fair value of $2.8 million. Throughout 2018 and until May 9, 2019, the derivative liability was adjusted to its fair value based upon a payment probability assessment and marked-to-market at the end of each period (see Note 4). Following the December 20, 2018 amendment to the deferred purchase price arrangement, the Company considered the probability of the reduction to the share issuance consideration in estimating the fair value of the derivative liability. The equity payment was settled on May 9, 2019, the date of the Merger (Note 5). There was no interest expense related to the equity payment for the year ended December 31, 2020 or 2019. For year ended December 31, 2020 and 2019, the Company recognized $0.6 million and $0.9 million of interest expense related to the time-based payment obligations. ​ 13. Research Collaboration Arrangement In connection with the Synthetic Phage Asset Acquisition discussed in Note 12, the Company was assigned a research collaboration agreement (“Research and Option Agreement”) with Merck. In May 2019, the Research and Option Agreement was amended and extended for four years. During the research term, the Company will be entitled to milestone payments tied to the achievement of product development milestone events in the amount of $1.5 million. The collaboration agreement also provides for the initiation of a second research program should Merck exercise that option during the initial research term and pays the option fee of $1.5 million. To date, Merck has not exercised its license option nor has the Company reached any milestones or earned any revenue under the Research and Option Agreement. Merck has the right to terminate the agreement at any time with 90 days’ notice. Each party to the Research and Option Agreement is responsible for its costs and expenses in connection with the research program. ​ ​ ​ 102 Table of Contents 14. Grants and Awards MTEC Grant On June 15, 2020, the Company entered into an Research Project Award agreement (the “MTEC Agreement”) with the Medical Technology Enterprise Consortium (“MTEC”), pursuant to which the Company will receive a $15.0 million grant and entered into a three-year program administered by DoD through MTEC with funding from the Defense Health Agency and Joint Warfighter Medical Research Program. The Company plans to use the grant to partially fund a Phase 1b/2, randomized, double-blind, placebo-controlled, dose escalation clinical study of Armata's therapeutic phage-based candidate, AP-SA02, for the treatment of complicated S. aureus bacteremia infections. The MTEC Agreement specifies that the grant will be paid to the Company through a cost reimbursable model, based on agreed upon cost share percentages, and the grant money received is not refundable to MTEC. Upon license or commercialization of intellectual property developed with the funding from the MTEC Agreement, additional fees will be due to MTEC. The Company will elect whether to (a) pay a fixed royalty amount, which is subject to a cap based upon total funding received, or (b) pay an additional assessment fee, which would also be subject to a cap based upon a percentage of total funding received. The MTEC Agreement will be effective through January 25, 2024. The MTEC Agreement may be terminated in whole or in part, 30 calendar days following the written notice from the Company to MTEC. In addition, MTEC has the right to terminate the MTEC Agreement upon material breach by the Company. The Company determined that the MTEC Agreement is not in the scope of ASC 808 or ASC 606. Applying ASC 606 by analogy the Company recognizes proceeds received under the MTEC Agreement as grant revenue on the statement of operations when related costs are incurred. The Company recognized $0.8 million in grant revenue from the MTEC Agreement during the year ended December 31, 2020. CFF Therapeutics Development Award On March 13, 2020, the Company entered into an award agreement (the “Agreement”) with CFF, pursuant to which it received a Therapeutics Development Award of up to $5.0 million (the “Award”). The Award will be used to fund a portion of the Company’s Phase 1b/2 clinical trial of the P. aeruginosa phage candidate, AP-PA02, as a treatment for P. aeruginosa airway infections in people with CF. The first payment under the Agreement, in the amount of $1.0 million, became due upon signing the Agreement and was received in April 2020. The remainder of the Award will be paid to the Company incrementally in installments upon the achievement of certain milestones related to the development program and progress of the Phase 1b/2 clinical trial of AP-PA02, as set forth in the Agreement. ​ If the Company ceases to use commercially reasonable efforts directed to the development of AP-PA02, or any other Product (as defined in the Agreement), for a period of 360 days (an “Interruption”) and fails to resume the development of the Product after receiving from CFF notice of an Interruption, then the Company must either repay the amount of the Award actually received by the Company, plus interest, or grant to CFF (1) an exclusive (even as to the Company), worldwide, perpetual, sublicensable license under technology developed under the Agreement that covers the Product for use in treating infections in CF patients (the “CF Field”), and (2) a non-exclusive, worldwide, perpetual, sublicensable license under certain background intellectual property covering the Product, to the extent necessary to commercialize the Product in the CF Field. Upon commercialization by the Company of any Product, the Company will owe a fixed royalty amount to CFF, which is to be paid in installments determined, in part, based on commercial sales volumes of the Product. The Company will be obligated to make an additional fixed royalty payment upon achieving specified sales milestones. The Company may also be obligated to make a payment to CFF if the Company transfers, sells or licenses the Product in the CF Field, or if the Company enters into a change of control transaction. ​ 103 Table of Contents The term of the Agreement commenced on March 10, 2020 and expires on the earlier of the date on which the Company has paid CFF all of the fixed royalty payments set forth therein, the effective date of any license granted to CFF following an Interruption, or upon earlier termination of the Agreement. Either CFF or the Company may terminate the agreement for cause, which includes the Company’s material failure to achieve certain development milestones. The Company’s payment obligations survive the termination of the Agreement. ​ The Company concluded that the CFF Award is in the scope of ASC 808. Accordingly, as discussed in Note 3, award amounts received from CFF upon achievement of certain milestones are recognized as credits to research and development expenses in the period the expenses are incurred. During year ended December 31, 2020, the Company recognized $1.0 million as credits to research and development expenses related to the CFF Award. In addition, the Company concluded under the guidance in ASC 730 that it does not have an obligation to repay funds received once related research and development expenses are incurred. 15. Stockholders’ Equity The Company is authorized to issue one class of shares designated as “Common Stock”. The number of shares of common stock authorized to be issued is 217,000,000 shares. Private Investment On January 27, 2020, the Company entered into the Securities Purchase Agreement with Innoviva, pursuant to which the Company agreed to issue and sell to Innoviva, in the 2020 Private Placement, 8,710,800 newly issued shares of the Company’s 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 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. ​ The warrants expire five years from the issuance date. The Company reviewed the authoritative accounting guidance and determined that the warrants meet the criteria to be accounted for as permanent equity. As described in more detail in Note 2, in January 2021, the Company entered into a securities purchase agreement with Innoviva for the 2021 Private Placement. Warrants At December 31, 2020, outstanding warrants to purchase shares of common stock are as follows: ​ ​ ​ ​ ​ ​ ​ Shares Underlying ​ ​ ​ ​ ​ Outstanding ​ Exercise ​ Expiration Warrants Price Date 2,246 ​ $ 567.00 ​ March 31, 2021 597,881 ​ $ 21.00 ​ May 10, 2022 1,235,491 ​ $ 5.60 ​ October 16, 2023 993,139 ​ $ 2.87 ​ February 12, 2025 7,717,661 ​ $ 2.87 ​ March 27, 2025 1,200 ​ $ 1,680.00 ​ None 10,547,618 ​ ​ ​ ​ 104 Table of Contents 16. Stock-based Compensation Stock Award Plans ​ The Company maintains a 2016 Equity Incentive Plan (the “2016 Plan”), which provides for the issuance of incentive share awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance-based stock awards. The awards may be granted by the Company’s board of directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. Stock options expire no later than ten years from the date of grant and generally vest and typically become exercisable over a four-year period following the date of grant. Upon the exercise of stock options, the Company issues the resulting shares from shares reserved for issuance under the 2016 Plan. Under the 2016 Plan, the number of shares authorized for issuance automatically increases annually beginning January 1, 2017 and through January 1, 2026. ​ In connection with the Merger, the Company assumed the C3J Jian, Inc. Amended 2006 Stock Option Plan (the “Assumed 2006 Plan”) and the C3J Therapeutics, Inc. 2016 Stock Plan (the “Assumed 2016 Plan”). These plans provided for stock option and restricted stock awards (“RSAs”) to C3J employees in years prior to the Merger with AmpliPhi. The number of shares subject to each outstanding stock option and RSA under those assumed plans, along with the exercise price of stock options, were equitably adjusted pursuant to the terms of the plans to reflect the impact of the Merger and the one-for-fourteen reverse stock split, in each case in a manner intended to preserve the then-current intrinsic value of the awards. No additional awards will be made under either plan. The assumed C3J stock options were substantially vested and expensed as of the merger date. Vesting of the assumed C3J RSAs is based on the occurrence of a public liquidity event, or a change in control. In the event of a public liquidity event, service or milestone based vesting schedules begins. Service periods are generally two to four years. In the event of a change in control, 100% vesting occurs upon the closing of such an event. The merger with AmpliPhi constituted a public liquidity event and triggered the start of vesting of RSAs. ​ In November 2020, the Company made an inducement grant of a restricted stock unit award outside of its 2016 Plan to a new employee for 70,000 shares of the Company’s common stock, of which 40,000 shares will vest six months from the grant date and the remaining 30,000 shares will vest three years from the grant date. In addition, the Company granted this new employee 33,000 shares of its common stock which were immediately vested upon issuance. ​ Stock-based Compensation ​ The Company estimates the fair value of stock options with performance and service conditions using the Black-Scholes valuation model. 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 the accelerated attribution method over the requisite service period. ​ The assumptions used in the Black-Scholes model for options granted during the year ended December 31, 2020 are presented below: ​ ​ ​ ​ ​ Year Ended ​ December 31, 2020 ​ Risk-free interest rate 0.13% --1.48% ​ Expected volatility 90.43% -- 94.0% ​ Expected term (in years) 5.5 – 7.0 ​ Expected dividend yield 0% ​ ​ 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 an analysis of the historical volatility of Armata and peer companies’ common stock. The expected term represents the period that the Company expects its stock options to be outstanding. The expected term assumption is estimated using the simplified method set forth in the U.S. Securities and Exchange Commission Staff Accounting Bulletin 110, which is the mid-point between the option vesting date and 105 Table of Contents the expiration date. For stock options granted to parties other than employees or directors, the Company elects, on a grant by grant basis, to use the expected term or the contractual term of the option award. The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. ​ The tables below summarize the total stock-based compensation expense included in the Company’s consolidated statements of operations for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 1,252,000 ​ $ 872,000 ​ General and administrative ​ 2,223,000 ​ 3,398,000 ​ Total stock-based compensation ​ $ 3,475,000 ​ $ 4,270,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2020 2019 Expense related to RSA's issued prior to Merger and vesting beginning on Merger closing date ​ $ 2,081,000 ​ $ 2,152,000 Acceleration of RSA expense in connection with executive severance ​ ​ 55,000 ​ ​ 1,244,000 Expense related to inducement award ​ ​ 166,000 ​ ​ — Expense related to vesting of stock options issued under the Company's stock plans ​ ​ 1,173,000 ​ ​ 874,000 Total stock-based compensation expense ​ $ 3,475,000 ​ $ 4,270,000 ​ Stock option transactions during the year ended December 31, 2020 are presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options Outstanding ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Weighted ​ Remaining ​ ​ ​ ​ ​ ​ ​ Average ​ Contractual ​ Aggregate ​ ​ ​ ​ Exercise ​ Term ​ Intrinsic ​ Shares Price (Years) Value Outstanding at December 31, 2019 1,275,380 ​ $ 7.61 8.81 ​ ​ — Granted 551,766 ​ 3.38 — ​ — Exercised ​ (27,382) ​ ​ 3.15 ​ — ​ ​ 14,000 Forfeited/Cancelled (130,838) ​ 5.69 — ​ — Outstanding at December 31, 2020 1,668,926 ​ $ 6.30 8.32 ​ $ — Vested and expected to vest at December 31, 2020 1,668,926 ​ $ 6.30 8.32 ​ $ — Exercisable at December 31, 2020 439,526 ​ $ 14.82 6.75 ​ $ — ​ Restricted stock award transactions under the Assumed 2016 Plan and restricted stock unit award transactions during the year ended December 31, 2020 are presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Avg ​ ​ ​ ​ Grant Date ​ Shares Fair Value Outstanding at December 31, 2019 ​ 343,493 ​ $ 21.83 Granted ​ 103,000 ​ ​ 3.34 Forfeited/Cancelled ​ (4,010) ​ 16.02 Vested and Issued as Common Stock ​ (119,727) ​ ​ 12.24 Outstanding at December 31, 2020 ​ 322,756 ​ $ 19.55 ​ The aggregate intrinsic value of options at December 31, 2020 is based on the Company’s closing stock price on that date of $2.98 per share. As of December 31, 2020, there was $3.4 million of total unrecognized compensation 106 Table of Contents expense related to unvested stock options and RSAs, excluding unvested RSAs with performance conditions deemed to be improbable for the period ended December 31, 2020, which the Company expects to recognize over the weighted average remaining period of 1.71 years. ​ Shares Reserved For Future Issuance ​ As of December 31, 2020, the Company had reserved shares of its common stock for future issuance as follows: ​ ​ ​ ​ ​ Shares Reserved Stock options outstanding 1,668,926 Unvested restricted stock units ​ 70,000 Employee stock purchase plan 7,605 Available for future grants under the 2016 Plan 138,814 Warrants outstanding 10,547,618 Total shares reserved 12,432,963 ​ ​ 17. Employee Retirement Plan The Company’s employees participate in an employee retirement plan under Section 401(k) of the Internal Revenue Code of 1986, as amended. All of the Company’s employees who meet minimum eligibility requirements are eligible to participate in the plan. Matching contributions to the 401(k) plan are made for certain eligible employees to meet non-discrimination provisions of the plan. The Company did not make matching contributions to the 401(k) plan for the years ended December 31, 2020 and 2019. ​ ​ ​ ​ 107 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.