What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-17 compared with 2021-03-18 · 206 added, 233 removed, 494 unchanged (47% of the section changed)

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Armata Pharmaceuticals, Inc.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( Ernst & Young, LLP ;

San Diego, CA ;

Consolidated Balance Sheets as of December 31, 2021 and 2020

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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”).

(the Company) as of December 31, 2021 and 2020, and 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, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

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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.

The accompanying consolidated financial statements have been prepared assuming 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.

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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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accrued clinical trial expenses and related research and development costs

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

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.

During 2021, the Company incurred $20.0 million for research and development costs and as of December 31, 2021, the Company recorded $0.5 million for accrued clinical trial expenses.

As described in Note 3 of the consolidated financial statements, the Company records accruals for estimated ongoing research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites, and others.

The Company accrues for the estimated ongoing clinical trial site costs based on patient enrollment and progress of the trial.

Auditing management's accounting for accrued clinical trial expenses and related research and development costs is especially challenging as evaluating the progress or stage of completion of the activities under the Company's research and development agreements is dependent upon a high volume of data from third-party service providers and internal clinical personnel, which is tracked in spreadsheets and other end user computing programs.

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.

To test the completeness of the Company's accrued clinical trial expenses and related research and development costs, we obtained supporting evidence of the research and development activities performed for significant clinical trials.

To assess the appropriate measurement of accrued clinical trial expenses and related research and development costs, our audit procedures included, among others, obtaining and inspecting significant agreements and agreement amendments, evaluating the Company's documentation of trial timelines and future projections of trial progress, confirming amounts incurred to-date with third-party service providers, and testing a sample of transactions and comparing the costs against related invoices and contracts.

We also tested a sample of subsequent payments to evaluate the completeness of the accrued expenses and compared the results to the current year accrual.

Determination of incremental borrowing rate for lease right-of-use assets and lease liabilities

Description of the Matter

As of December 31, 2021, the Company's operating lease right-of-use assets were $35.9 million and operating lease liabilities were $38.0 million (of which $1.5 million was current and $36.5 million was long-term).

As discussed in Note 3 to the consolidated financial statements, the Company recognizes operating lease assets and corresponding operating lease liabilities for all leases greater than one year on the consolidated balance sheet.

As discussed in Note 8 to the consolidated financial statements, the Company entered into an operating lease during the audit period for office and research space.

As the operating lease does not provide a determinable implicit interest rate, the Company used a third party to assist in determining its incremental borrowing rate (“IBR”), which was used to calculate the operating lease right-of-use asset and lease liability specific to the new lease.

Auditing the Company’s estimate of the IBR in calculating the operating right-of-use assets and operating lease liabilities resulting from the operating lease entered into during the audit period was challenging as it involved a high degree of subjective auditor judgment because of the significant judgments required for management to develop the estimate and changes in the

IBR assumption could have a material effect on the recorded right-of-use assets and lease liabilities.

How We Addressed the Matter in Our Audit

To test the operating lease right-of-use asset and operating lease liability recorded by the Company for the new lease entered into during the year ended December 31, 2021, our audit procedures included, among others, evaluating the methodology, significant assumptions and underlying data used by the Company.

We involved our valuation specialists to assist in evaluating the Company's methodology to develop the incremental borrowing rate and preparing an independent calculation of the rate, which we compared to management's estimate.

/s/ Ernst & Young LLP

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Accrued compensation

Deferred asset acquisition consideration

Current portion of operating lease liabilities

Paycheck Protection Program loan

Deferred asset acquisition consideration

Total current liabilities

Operating lease liabilities, net of current portion

Deferred asset acquisition consideration, net of current portion

Deferred tax liability

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217,000,000 shares authorized;

18,688,461 and 9,922,758 shares issued and outstanding at December 31, 2020 and 2019, respectively

27,112,299 and 18,688,461 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

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General and administrative

Loss on sale of assets (Note 6)

Total operating expenses

Loss from operations

( 23,822,000 )

( 21,587,000 )

Other income (expense)

Gain upon extinguishment of Paycheck Protection Program loan

Interest income

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Other income (expense)

Change in fair value of derivative liabilities

Total other income (expense), net

( 23,155,000 )

( 22,181,000 )

Per share information:

Net loss per share, basic

Weighted average shares outstanding, basic

Net loss per share, diluted

Weighted average shares outstanding, diluted

Net loss per share, basic and diluted

Weighted average shares outstanding, basic and diluted

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

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( 157,521,000 )

Forfeiture of restricted stock awards

Issuance of common stock and conversion of deferred consideration for asset acquisition

Issuance of common stock in connection with reverse merger

Sale of common stock, net of issuance costs

Exercise of warrants

Return of restricted stock awards for tax withholdings

Forfeiture of restricted stock awards

Exercise of stock options

Issuance of stock awards, net of tax withholding

Stock-based compensation

Balances, December 31, 2019

( 22,181,000 )

Stockholders’ Equity

Stockholders’

( 22,181,000 )

Balances, December 31, 2020

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Exercise of stock options

Issuance of stock awards, net of tax withholding

Issuance of inducement stock awards

Stock-based compensation

( 23,155,000 )

Balances, December 31, 2021

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Operating activities:

( 23,155,000 )

( 22,181,000 )

Adjustments required to reconcile net loss to net cash used in operating activities:

Gain upon extinguishment of Paycheck Protection Program loan

Stock-based compensation

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Payment of accreted interest for deferred consideration for asset acquisition

Change in fair value of derivative liability

Loss on sale of assets (Note 6)

Changes in operating assets and liabilities:

Award receivable

( 2,428,000 )

Accounts payable and accrued liabilities

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Prepaid expenses and other current assets

( 1,950,000 )

Net cash used in operating activities

( 23,575,000 )

( 18,270,000 )

Investing activities:

Purchases of property and equipment

Proceeds from sale of property and equipment

Cash acquired in reverse merger transaction

Net cash (used in) provided by investing activities

( 1,304,000 )

Net cash used in investing activities

( 1,304,000 )

Financing activities:

Principal payment of deferred consideration for asset acquisition

( 1,414,000 )

Proceeds from Paycheck Protection Program Loan

Proceeds from sale of common stock, net of offering costs

Proceeds from exercise of employee stock options

Proceeds from exercise of warrants

Proceeds from exercise of warrants and stock options

Net cash provided by financing activities

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

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Supplemental schedule of non-cash investing and financing activities:

Supplemental disclosure of cash flow information:

ROU asset obtained by assuming operating lease liabilities

Paycheck Protection Program loan forgiveness

Unpaid offering costs

Property and equipment included in accounts payable

Issuance of common stock in reverse merger transaction

Conversion of deferred asset acquisition consideration upon reverse merger

Year Ended December 31,

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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 February 9, 2022, the Company entered into a securities purchase agreement (“February 2022 Securities Purchase Agreement”) to sell its common stock and warrants to Innoviva Strategic Opportunities LLC, a wholly ‐ owned subsidiary of Innoviva, Inc.

INVA) (collectively, "Innoviva").

The gross proceeds to the Company from the transaction are expected to be $ 45 million.

Pursuant and subject to the terms and conditions of the securities purchase agreement and related agreements, Innoviva will purchase 9,000,000 newly issued shares of the Company’s common stock, at a price of $ 5.00 per share, and warrants to purchase up to 4,500,000 additional shares of common stock, with an exercise price of $ 5.00 per share.

The stock purchases are expected to occur in two tranches.

Upon execution , Innoviva purchased 3,614,792 shares of common stock and warrants to purchase 1,807,396 shares of common stock for an aggregate purchase price of approximately $ 18.1 million.

At the closing of the second tranche, upon the Company’s stockholders voting in favor of the transaction, Innoviva will purchase 5,385,208 shares of common stock and warrants to purchase 2,692,604 shares of common stock for an aggregate purchase price of $ 26.9 million.

Subject to the satisfaction of certain closing conditions, including the approval of the Company’s stockholders, the second closing contemplated by the securities purchase agreement is expected to occur near the end of the first quarter of 2022.

On October 28, 2021, the Company entered into a securities purchase agreement (the “October 2021 Securities Purchase Agreement”) with the Cystic Fibrosis Foundation (“CFF”), a Delaware corporation, the Company’s partner for its lead Phase 1b/2a clinical development program, and Innoviva Strategic Opportunities LLC, a wholly-owned subsidiary of Innoviva, Inc.

INVA) (collectively, “Innoviva”) for the private placement of newly issued shares of common stock, par value $ 0.01 per share, of the Company (“Common Stock”).

Pursuant to the October 2021 Securities Purchase Agreement, the Company issued and sold 909,091 shares to CFF and 1,212,122 shares to Innoviva, each at a per share price of $ 3.30 (the “October 2021 Private Placements”).

The Company received aggregate gross proceeds from the October 2021 Private Placements of approximately $ 7.0 million, before deducting transaction expenses .

On January 26, 2021, the Company entered into a securities purchase agreement (the “January 2021 Securities Purchase Agreement”) with Innoviva, pursuant to which the Company issued and sold to Innoviva, in a private placement, up to 6,153,847 newly issued shares of Common Stock, and warrants (the “Common Warrants”) to purchase up to 6,153,847 shares of Common Stock, with an exercise price per share of $ 3.25 (the “January 2021 Private Placement”).

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”).

8,710,800 newly issued shares of 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.

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.

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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.

Significant Accounting Policies

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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

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Shorter of lease term or useful life

Fair Value Measurements

Fair value measurements are market-based measurements, not entity-specific measurements.

Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability.

The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values.

The basis for fair value measurements for each level within the hierarchy is described below:

● 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 did not have any assets or liabilities that require recurring or nonrecurring measurements.

Impairment of Long-Lived Assets

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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.

No impairment losses on long-lived assets have been recorded through December 31, 2021 or 2020.

In-Process Research and Development (“IPR&D”) and Acquired IPR&D

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

commercialization of these programs, forecasted sales, gross margin, selling, general and administrative expenses, capital expenditures, as well as anticipated growth rates.

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 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, 2021, the Company performed the annual evaluation of its IPR&D assets for impairment.

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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.

The Company also performed a quantitative analysis for impairment analysis and based on this analysis, the fair value of this phage program was greater than its carrying value as of December 31, 2021.

Consequently, no impairment was noted for the IPR&D asset.

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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.

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.

There was no impairment of goodwill during the year ended December 31, 2021 or 2020.

Research and Development

All research and development costs are expensed as incurred.

Research and development costs consist primarily of salaries, employee benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services).

Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites, and others.

Some of these contractor’s bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones.

For the latter, the Company accrues the expenses as goods or services are used or rendered.

Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial.

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.

In January 2022, the Company received AU Tax Rebates of approximately $ 0.2 million related to calendar year 2020, and such rebates have been recorded as an offset to research and development expense in the Company’s consolidated statements of operations for the three months ending March 31, 2022.

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 was recognized in 2021 as an offset to research and development expenses.

Stock-Based Compensation

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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.

During the years ended

December 31, 2021 and 2020, the Company did not recognize revenue or deferred revenue from contracts with customers.

Grants and Awards

definition of a “customer”, as defined by ASC 606, as there is not considered to be a transfer of control of goods or services.

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 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.

To the extent the grant or award is within the scope of ASC 808, the Company recognizes the award upon achievement of certain milestones as credits to research and development expenses.

For grant and awards outside the scope of ASC 808, the Company applies ASC 606 or International Accounting Standards No.

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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.

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.

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

The Company currently only has operating leases.

The Company recognizes a right-of-use operating lease asset and associated short- and long-term operating lease liability on its consolidated balance sheet for operating leases greater than one year.

The right-of-use assets represent the Company’s right to use an underlying asset for the lease term and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease arrangements.

Right-of-use operating lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments the Company will pay over the lease term.

The Company determines the lease term at the inception of each lease, which includes renewal options only if the Company concludes that such options are reasonably certain to be exercised.

As the Company’s leases do not provide an interest rate implicit in the lease, the Company uses its incremental borrowing rate, based on the information available on the date of adoption of Topic 842, Leases , as of the lease inception date or at the lease option extension date in determining the present value of future payments.

The Company recognizes rent expense for the minimum lease payments on a straight-line basis over the expected term of the leases.

The Company recognizes period expenses, such as common area maintenance expenses, in the period such expenses are incurred.

The Company utilizes the asset and liability method of accounting for income taxes.

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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

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

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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.

In August 2020, the FASB issued ASU No.

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In addition, ASU 2020-06 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 amendments in ASU

2020-06 are effective for the Company as of January 1, 2024.

Early adoption is permitted.

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.

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 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

Changes in estimated fair value

Balance, December 31, 2019

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.

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

Prepaid expenses

Property and equipment

Right of use asset

In-process research and development (1)

Accounts payable

Other long term liabilities

Deferred tax liability

Net assets acquired

Purchase price

(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

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

9 through December 31, 2019

Research and development expenses

General and administrative expenses

Sale of Slovenia

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.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplying the Accounting for Income Taxes, 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 guidance became effective for the Company on January 1, 2021 and the adoption did not have a material impact on its consolidated financial statements or related disclosures.

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.

Basic and diluted net loss per share calculation:

Net loss, basic

Change in fair value of derivative liabilities, net of interest

Net loss, diluted

Weighted average shares outstanding, basic

Net loss per share, basic

Weighted average shares outstanding, diluted

Net loss per share, diluted

The following outstanding securities at December 31, 2021 and 2020 have been excluded from the computation of diluted weighted average shares outstanding for the years ended December 31, 2021 and 2020, as they would have been anti-dilutive:

December 31, 2021

December 31, 2020

Unvested restricted stock units

Restricted stock awards

9 unchanged sentences

accumulated depreciation

( 10,225,000 )

( 9,055,000 )

Property and equipment, net

2 unchanged sentences

Accounts payable and accrued liabilities consisted of the following:

December 31, 2021

December 31, 2020

Accounts payable

4 unchanged sentences

United States

( 21,714,000 )

( 21,583,000 )

( 1,441,000 )

( 23,155,000 )

( 22,181,000 )

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, 2021 and 2020.

6 unchanged sentences

Change in valuation allowance

Net operating loss carryforwards and credit expirations

Stock issuance costs

Gain on derivative liability extinguishment

Slovenia facility sale

Permanent differences

Effective income tax rate

8 unchanged sentences

valuation allowance

( 58,251,000 )

( 51,972,000 )

Total deferred tax assets after valuation allowance

1 unchanged sentence

Right-of-use asset

( 10,033,000 )

( 3,019,000 )

In-process research and development

( 3,077,000 )

Total deferred tax liabilities

( 13,110,000 )

( 6,096,000 )

Net deferred tax liability

( 3,077,000 )

The Company’s net operating loss carryforwards at December 31, 2021 are $ 128.4 million and $ 94.4 million for federal and state income tax purposes, respectively.

1 unchanged sentence

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 ability of the Company to utilize net operating loss 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.

The resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before the expire.

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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.

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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.

The PPP Loan was 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 was 1.0 % per annum.

In July 2021, the Company received notification of forgiveness of the full loan amount and associated interest from the Small Business Administration.

The Company recorded a gain of $ 0.7 million from the PPP loan extinguishment in the statement of operations during the year ended December 31, 2021.

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 Company leases office and research and development space under a non-cancelable operating lease in Marina del Rey, CA.

The lease commenced January 1, 2012 and in April 2020, the Company amended the lease (“2020 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

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% .

Base annual rent for calendar year 2022, the first year under the Lease Amendment extended term, 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 a six-month rent abatement in 2020.

The Company did not use an allowance for tenant improvements of $ 0.8 million during 2021, which will offset rent payments as prescribed by the 2020 Lease Amendment starting in 2022.

In accordance with authoritative guidance, the Company re-measured the lea se liability in April 2020 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 12.89 % .

Concurrent with the Company’s execution of the 2020 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.

On October 28, 2021, the Company entered into a lease for office and research and development space under a non-cancellable lease in Los Angeles, CA (the “2021 Lease”).

The 2021 Lease payment start date is May 1, 2022 and the total lease term is for 16 years and runs through 2038.

Monthly rent for 2022 and 2023 will be fully or partially abated while the lessor and the Company complete planned tenant improvements to the facility.

Base monthly rent will be approximately $ 0.25 million in 2024.

The Company is entitled to receive an allowance for tenant improvements of up to $ 7.3 million.

In connection with the 2021 Lease, in 2022 the Company delivered an irrevocable standby letter of credit in the total amount of $ 5.0 million to the landlord.

Future minimum annual lease payments under the Company’s noncancelable operating leases as of December 31, 2021, are as follows:

1 unchanged sentence

amount representing interest

( 36,299,000 )

Present value of operating lease obligations

current portion

( 1,509,000 )

Noncurrent operating lease obligations

1 unchanged sentence

Total cash payments for operating leases as included in the consolidated statements of cash flows during the year ended December 31, 2021 and 2020 was $ 2.2 million and $ 1.1 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:

2) completing a Phase 1 clinical trial:

3) completing a Phase 2 clinical trial:

4) completing a Phase 3 clinical trial:

and 5) first commercial sale of a license product:

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

2 unchanged sentences

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,

could damage the Company’s reputation and business.

Additionally, any such claims, whether or not successful, 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.

4 unchanged sentences

$ 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.

or a consolidation or merger into a third party.

On December 20, 2018, in contemplation of the Merger (see Note 1), 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 1).

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.

The present value of the time-based payment obligations was included in the Company’s balance sheet, with interest accreted to the maturity date.

The Company paid the last installment of the time-based payment obligation in the amount of $ 2.0 million during the year ended December 31, 2021.

For the year ended December 31, 2021 and 2020, the Company recognized $ 0.1 million and $ 0.6 million of interest expense related to the time-based payment obligations, respectively.

Research Collaboration Arrangement

8 unchanged sentences

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.

The Company plans to use the grant to partially fund a Phase 1b/2a, randomized, double-blind, placebo-controlled, dose escalation clinical study of Armata's therapeutic phage-based candidate, AP-SA02, for the treatment of S.

aureus bacteremia infections.

7 unchanged sentences

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.

The Company recognized $ 4.5 million and $ 0.8 million in grant revenue from the MTEC Agreement during the year ended December 31, 2021 and 2020, respectively.

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.

The Award will be used to fund a portion of the Company’s Phase 1b/2a clinical trial of the P.

aeruginosa phage candidate, AP-PA02, as a treatment for P.

1 unchanged sentence

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.

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/2a 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.

6 unchanged sentences

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.

Accordingly, as discussed in Note 3, the Company recognizes the award upon achievement of certain milestones as credits to research and development expenses.

During year ended December 31, 2021 and 2020, the Company recognized $ 2.8 million and $ 1.0 million as credits to research and development expenses related to the CFF Award, respectively.

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.

2 unchanged sentences

The number of shares of common stock authorized to be issued is 217,000,000 shares.

Private Investment

Private Investments

On February 9, 2022, the Company entered into the February 2022 Securities Purchase Agreement to sell its common stock and warrants to Innoviva.

The gross proceeds to the Company from the transaction are expected to be $ 45 million, before deducting estimated offering expenses.

The stock purchases are expected to occur in two tranches.

Upon execution of the February 2022 Securities Purchase Agreement, Innoviva purchased 3,614,792 shares of common stock and warrants to purchase 1,807,396 shares of common stock for an aggregate purchase price of approximately $ 18.1 million.

INVA) (collectively, “Innoviva”) for the private placement of newly issued shares of common stock, par value $ 0.01 per share, of the Company (“Common Stock”).

The Company received aggregate gross proceeds from the October 2021 Private Placements of approximately $ 7.0 million, before deducting transaction expenses .

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 .

2 unchanged sentences

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.

On March 27, 2020, the second closing occurred subsequent to stockholder 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.

At December 31, 2021, outstanding warrants to purchase shares of common stock are as follows:

Shares Underlying

March 31, 2021

Shares Underlying Outstanding Warrants

Exercise Price

Expiration Date

October 16, 2023

1 unchanged sentence

March 27, 2025

January 26, 2026

March 16, 2026

Stock-based Compensation

23 unchanged sentences

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:

The assumptions used in the Black-Scholes model for options granted during the year ended December 31, 2021 and 2020 are presented below:

December 31, 2021

December 31, 2020

Risk-free interest rate

0.73 % - 1.29 %

0.13 % - 1.48 %

Expected volatility

84.07 % - 93.37 %

90.43 % - 94.0 %

Expected term (in years)

5 unchanged sentences

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

the expiration date.

Securities and Exchange Commission 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, the Company elects, on a grant by grant basis, to use the expected term or the contractual term of the option award.

6 unchanged sentences

Total stock-based compensation

Expense related to RSA's issued prior to Merger and vesting beginning on Merger closing date

Acceleration of RSA expense in connection with executive severance

Expense related to inducement award

Expense related to vesting of stock options issued under the Company's stock plans

Total stock-based compensation expense

Stock option transactions during the year ended December 31, 2021 are presented below:

11 unchanged sentences

The aggregate intrinsic value of options at December 31, 2021 is based on the Company’s closing stock price on that date of $ 5.48 per share.

As of December 31, 2020, there was $3.4 million of total unrecognized compensation

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.

As of December 31, 2021, there was $ 2.4 million of total unrecognized compensation expense related to unvested stock options and RSAs, excluding unvested RSAs with performance conditions deemed to be improbable for the period ended December 31, 2021, which the Company expects to recognize over the weighted average remaining period of 1.7 years.

Shares Reserved For Future Issuance

11 unchanged sentences

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.

The Company did no t make matching contributions to the 401(k) plan for the years ended December 31, 2021 and 2020.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data