What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-17 · 79 added, 133 removed, 567 unchanged (27% of the section changed)

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Notes to Consolidated Financial Statements for the Years Ended December 31, 2022 and 2021

Report of Independent Registered Public Accounting Firm

Report of Independ ent Registered Public Accounting Firm

The Board of Directors and Stockholders of Armata Pharmaceuticals, Inc.

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The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will 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.

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

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.

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 accounts or disclosures to which it relates.

Accrued clinical trial expenses and related research and development costs

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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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Armata Pharmaceuticals, Inc.

Consolidated Balance Sheets

Consolidated Bala nce Sheets

December 31, 2022

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Current portion of operating lease liabilities

Paycheck Protection Program loan

Deferred asset acquisition consideration

Total current liabilities

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Interest expense

Other income (expense)

Total other income (expense), net

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Sale of common stock, net of issuance costs

Exercise of warrants

Exercises of warrants

Return of restricted stock awards for tax withholdings

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Exercise of stock options

Issuance of stock awards, net of tax withholding

Issuance of inducement stock awards

Stock-based compensation

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Sale of common stock, net of issuance costs

Exercises of warrants

Return of restricted stock awards for tax withholdings

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Exercise of stock options

Issuance of inducement stock awards

Stock-based compensation

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Changes in operating assets and liabilities:

Award receivable

Awards receivable

( 2,428,000 )

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( 8,715,000 )

( 1,950,000 )

Net cash used in operating activities

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( 2,211,000 )

( 1,304,000 )

Net cash used in investing activities

( 2,211,000 )

( 1,304,000 )

Financing activities:

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( 1,414,000 )

Proceeds from Paycheck Protection Program Loan

Payment of deferred offering costs

Proceeds from sale of common stock, net of offering costs

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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 0.6906 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”, and together with its subsidiaries, is referred to herein as, the “Company”) is a clinical-stage biotechnology company focused on the development of precisely targeted bacteriophage therapeutics for the treatment of antibiotic-resistant and difficult-to-treat bacterial infections using its proprietary bacteriophage-based technology.

On May 9, 2019, the Company’s predecessor, C3J Therapeutics, Inc.

(“C3J”) completed a reverse merger with AmpliPhi Biosciences Corporation, a bacteriophage development stage company (“AmpliPhi”), where Ceres Merger Sub, Inc., a wholly-owned subsidiary of AmpliPhi, merged with and into C3J (the “Merger”).

Immediately prior to 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.

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.

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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 January 10, 2023, the Company entered into, as borrower, a secured convertible credit and security agreement (the “Credit Agreement”) with Innoviva Strategic Opportunities LLC, a wholly ‐ owned subsidiary of Innoviva, Inc.

INVA) (collectively, "Innoviva") , a principal stockholder of the Company.

The Credit Agreement provides for a secured term loan facility in an aggregate amount of $ 30 million (the “Loan”) at an interest rate of 8.0 % per annum, and has a maturity date of January 10, 2024.

Repayment of the Loan is required to be guaranteed by the Company’s domestic subsidiaries and foreign material subsidiaries, and the Loan is secured by substantially all of the assets of the Company and the subsidiary guarantors.

The Credit Agreement provides that if a Qualified Financing (as defined in the Credit Agreement) occurs, the outstanding principal amount of, and all accrued and unpaid interest on, the Loan shall be converted into shares of the Company’s common stock, par value $ 0.01 per share (“Common Stock”) at a price per share equal to a 15.0 % discount to the lowest price per share for Common Stock paid by investors in a Qualified Financing (which price paid by investors in a Qualified Financing may not be less than a 15.0 % discount to the closing price of Common Stock immediately prior to the consummation of a Qualified Financing event).

The Credit Agreement also requires the Company to file a registration statement (the “Registration Statement”) for the resale of all securities issued to the lender in connection with any conversion under the Credit Agreement.

After the Registration Statement has been declared effective by the U.S.

Securities and Exchange Commission, any outstanding Loan amount, including all accrued and unpaid interest thereon, may be converted at the lender’s option, into shares of Common Stock at a price per share equal to the greater of book value or market value per share of Common Stock on the date immediately preceding the effective date of the Credit Agreement, which is $ 1.52 (as may be appropriately adjusted for any stock split, combination or similar act).

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.

The gross proceeds to the Company from the transaction were $ 45 million.

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

The stock purchases were completed in two tranches.

On February 9, 2022, 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.

On March 31, 2022, upon our stockholders voting in favor of the transaction, Innoviva purchased approximately 5,385,208 shares of common stock and warrants to purchase approximately 2,692,604 shares of common stock for an aggregate purchase price of $ 26.9 million.

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.

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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.

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.

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.

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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.

The Company’s IPR&D assets represent capitalized in-process bacteriophage development programs for S.

aureus infections that the Company acquired through a business combination.

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.

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aureus development program and noted no qualitative factors that would indicate potential impairment of its IPR&D asset.

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.

The Company also performed a quantitative analysis for impairment analysis and based on this analysis, the fair value of this bacteriophage program was greater than its carrying value as of December 31, 2022.

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

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, 2021 is associated with AmpliPhi’s business prior to the Merger.

Goodwill, which has an indefinite useful life, represents the excess of purchase consideration over the fair value of net assets acquired in an acquisition.

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.

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.

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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.

Some of these contractors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual

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

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

During the years ended December 31, 2022 and 2021, the Company did not recognize revenue or deferred revenue from contracts with customers.

Grants and Awards

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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.

Right-of-use operating lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments, including noncash 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.

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 date of remeasurement 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.

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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 9) 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

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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 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 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 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

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( 36,917,000 )

( 23,155,000 )

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, 2022 and 2021.

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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 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 federal net operating loss carryforwards generated in tax years 2018 and forward will carryforward indefinitely and be available to offset up to 80% of future taxable income each year, subject to certain modifications made by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted in 2020.

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 a business combination.

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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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, 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.

Base annual rent for calendar year 2022, the first year under the Lease Amendment extended term, was 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 % .

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

In accordance with authoritative guidance, the Company remeasured 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.

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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.

The Company is entitled to receive an allowance for tenant improvements of up to $ 7.3 million, and the Company is responsible for construction costs over such allowance.

Out of pocket expenses to be incurred by the Company are considered noncash lease payments, and included in the lease liability and right-of-use asset when the amount can be reasonably estimated.

As of November 16, 2022, the Company finalized the budget to complete the construction of the 2021 Lease.

Accordingly, the Company remeasured the lease liability and related right-of-use asset as of November 30, 2022, using an incremental borrowing rate of 11.8 %.

The remeasured lease liability of the 2021 Lease as of November 16, 2022 was $ 37.0 million, and the related right of use asset was $ 33.8 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.

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Total minimum lease payments

estimated short-term variable lease payments

amount representing interest

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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 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 settled on May 9, 2019, the date of the Merger (Note 1).

On December 20, 2018, the synthetic phage assets purchase agreement was amended, such that 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 a business combination, 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 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.

For the year ended December 31, 2022 and 2021, the Company recognized $ 0 and $ 0.1 million of interest expense related to the time-based payment obligations, respectively.

Research Collaboration Arrangement

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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.

The collaboration agreement also provides for the initiation of a second research program should Merck exercise that option during the initial research term and pay 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.

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Each party to the Research and Option Agreement is responsible for its costs and expenses in connection with the research program.

On December 14, 2022, the Company received a termination notice for the Research and Option Agreement effective March 14, 2023.

Grants and Awards

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/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.

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.

Departement of Defence (the “DoD”) through MTEC with funding from the Defense Health Agency and Joint Warfighter Medical Research Program.

On September 29, 2022, the MTEC Agreement was modified to increase the total award by $ 1.3 million to $ 16.3 million and extend the term into the third quarter of 2024.

The MTEC funds are 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 Staphylococcus aureus bacteremia infections.

The MTEC Agreement specifies that the grant will be paid to the Company over the term of the award 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 will be effective through October 30, 2024.

The MTEC Agreement may be terminated in whole or in part, 30 calendar days following the written notice from the Company to MTEC.

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

aeruginosa airway infections in people with CF.

aeruginosa airway infections in people with cystic fibrosis (“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.

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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.

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

The stock purchases were completed in two tranches.

On February 9, 2022, 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”).

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”).

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 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 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.

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March 16, 2026

February 8, 2027

March 30, 2027

Stock-based Compensation

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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.

The Company has issued restricted stock awards (“RSAs”) under certain legacy option plan that generally vest over two to four years based on service conditions.

The RSAs began vesting in May 2019, and no additional awards will be issued under this legacy plan.

Stock-based Compensation

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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 no t make matching contributions to the 401(k) plan for the years ended December 31, 2022 and 2021.

1 unchanged sentence

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