What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-21 compared with 2023-03-16 · 421 added, 342 removed, 304 unchanged (72% of the section changed)

7 unchanged sentences

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

4 unchanged sentences

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

(the Company) as of December 31, 2022 and 2021, 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”).

(the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ (deficit) 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, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

2 unchanged sentences

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.

As discussed in Note 2 to the financial statements, the Company has suffered recurring losses and has stated that substantial doubt exists about the Company’s ability to continue as a going concern.

Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2.

34 unchanged sentences

Consolidated Bala nce Sheets

(in thousands, except share and per share data)

December 31, 2023

2 unchanged sentences

Cash and cash equivalents

Awards receivable

Prepaid expenses and other current assets

Other receivables

Total current assets

3 unchanged sentences

In-process research and development

Liabilities and stockholders’ equity

Liabilities and stockholders’ (deficit) equity

Current liabilities

2 unchanged sentences

Current portion of operating lease liabilities

Other current liabilities

Total current liabilities

Operating lease liabilities, net of current portion

Convertible debt

Long-term debt

Deferred tax liability

Total liabilities

Stockholders’ equity

Commitments and contingencies (Note 12)

Stockholders’ (deficit) equity

Common stock, $ 0.01 par value;

217,000,000 shares authorized;

36,144,706 and 27,112,299 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively

36,122,932 and 36,144,706 shares issued and outstanding at December 31, 2023 and 2022, respectively

Additional paid-in capital

Accumulated deficit

( 239,774,000 )

( 202,857,000 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total stockholders’ (deficit) equity

Total liabilities and stockholders’ (deficit) equity

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

1 unchanged sentence

Consolidated Statements of Operations

(in thousands, except share and per share data)

Grant revenue

4 unchanged sentences

Loss from operations

( 36,946,000 )

( 23,822,000 )

Other income (expense)

Gain upon extinguishment of Paycheck Protection Program loan

Interest income

Interest expense

Total other income (expense), net

( 36,917,000 )

( 23,155,000 )

Change in fair value of convertible debt

Loss on convertible debt extinguishment

Total other (expense) income, net

Per share information:

3 unchanged sentences

Armata Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

Stockholders’ Equity

Consolidated Statements of Stockholders’ (Deficit) Equity

(in thousands, except share data)

Stockholders’ (Deficit) Equity

Stockholders’

(Deficit) Equity

Balances, December 31, 2021

( 179,702,000 )

Sale of common stock, net of issuance costs

Exercises of warrants

Return of restricted stock awards for tax withholdings

Withholdings for taxes related to net share settlement of equity awards

Forfeiture of restricted stock awards

Exercise of stock options

Issuance of inducement stock awards

Stock-based compensation

( 23,155,000 )

Balances, December 31, 2022

( 202,857,000 )

Sale of common stock, net of issuance costs

Return of restricted stock awards for tax withholdings

Withholdings for taxes related to net share settlement of equity awards

Forfeiture of restricted stock awards

Exercise of stock options

Issuance of common stock upon vesting of restricted stock units

Stock-based compensation

( 36,917,000 )

Balances, December 31, 2023

( 239,774,000 )

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

1 unchanged sentence

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

Operating activities:

( 36,917,000 )

( 23,155,000 )

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

Gain upon extinguishment of Paycheck Protection Program loan

Stock-based compensation

Depreciation and amortization expense

Stock-based compensation expense

Change in fair value of convertible debt

Non-cash interest expense

Payment of accreted interest for deferred consideration for asset acquisition

Non-cash interest income

Loss on convertible debt extinguishment

Change in right-of-use asset

Loss from disposal of property and equipment

Changes in operating assets and liabilities:

Awards receivable

( 2,428,000 )

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Accrued compensation

Operating lease right-of-use asset and liability, net

Prepaid expenses and other current assets

( 8,715,000 )

( 1,950,000 )

Operating lease liability

Net cash used in operating activities

( 32,481,000 )

( 23,575,000 )

Investing activities:

Purchases of property and equipment

( 2,211,000 )

( 1,304,000 )

Proceeds from sale of property and equipment

Net cash used in investing activities

( 2,211,000 )

( 1,304,000 )

Financing activities:

Principal payment of deferred consideration for asset acquisition

( 1,414,000 )

Proceeds from issuance of convertible debt, net of issuance costs

Proceeds from issuance of long-term debt, net of issuance costs

Payment of deferred offering costs

Proceeds from sale of common stock, net of offering costs

Proceeds from exercise of warrants and stock options

Payments for taxes related to net share settlement of equity awards

Proceeds from exercise of stock options

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash, beginning of period

1 unchanged sentence

Supplemental disclosure of cash flow information:

ROU asset obtained by assuming operating lease liabilities

Paycheck Protection Program loan forgiveness

Unpaid offering costs

Right-of-use asset obtained in exchange for operating lease liability

Property and equipment included in accounts payable

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:

Year Ended December 31,

7 unchanged sentences

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”.

The Company has prepared its consolidated financial statements on a going concern basis, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business.

However, the Company has incurred net losses since its inception and has negative operating cash flows.

(“Armata”) together with its subsidiaries (the “Company”), is a clinical-stage biotechnology company focused on the development of pathogen-specific bacteriophage therapeutics for the treatment of antibiotic-resistant and difficult-to-treat bacterial infections using its proprietary bacteriophage-based technology.

Armata’s common stock, par value $ 0.01 per share (the “Common Stock”) is traded on the NYSE American exchange under the ticker symbol “ARMP”.

The Company’s principal stockholder, Innoviva Strategic Opportunities LLC (“Innoviva SO”), a wholly owned subsidiary of Innoviva Inc.

(“Innoviva”), owns 69.4 % of the Company’s outstanding equity as of December 31, 2023.

The Company also received $ 90.0 million in total debt financing from Innoviva SO during 2023 and in March 2024.

Innoviva designees represent three out of eight Board of Directors seats during the year ended December 31, 2023, and cannot vote or take any action by written consent with respect to any shares of common stock held by Innoviva SO that represent, in the aggregate, more than 49.5 % of the total number of shares of the Company’s Common Stock for voting on the matters related to election or removal of the Company’s board members or amending the bylaws of the Company to reduce the maximum number of directors or setting the number of directors who may serve on the board of the Company in accordance with the voting agreement.

The voting agreement expires on the earlier of the fifth anniversary of the agreement’s effective date, January 26, 2021, or the approval by the Food and Drug Administration (the “FDA”) of any of the Company’s product candidates for marketing and commercial distribution.

Innoviva SO and Innoviva are related parties of the Company.

Liquidity and Going Concern

The Company has incurred significant operating losses since inception and has primarily relied on equity, debt and grant financing to fund its operations.

As of December 31, 2023, the Company had an accumulated deficit of $ 308.8 million.

The Company expects to continue to incur substantial losses, and its transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the achievement of sufficient revenues to support its cost structure.

The Company may never achieve profitability, and unless and until then, the Company will need to continue to raise additional capital.

The existing cash and cash equivalents of $ 13.5 million as of December 31, 2023, together with a $ 35.0 million loan received from Innoviva in March 2024, will not be sufficient to fund its operations for the next 12 months from the date of these consolidated financial statements.

These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.

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

On 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.

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”).

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 accompanying consolidated 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.

Recent Financing:

2024 Credit Agreement

On March 4, 2024, the Company entered into a credit and security agreement (the “2024 Credit Agreement”) for a loan in an aggregate amount of $ 35.0 million with Innoviva SO.

The 2024 loan bears interest at an annual rate of 14 % and matures on June 4, 2025.

Principal and accrued interest are payable at maturity.

Repayment of the loan is guaranteed by the Company’s domestic subsidiaries, and the loan is secured by substantially all of the assets of the Company and the subsidiary guarantors .

Concurrently with the execution of the 2024 loan, we amended certain provisions of the Convertible Loan and Credit Agreement to, among other things, conform certain terms relating to permitted indebtedness and permitted liens.

2023 Credit Agreement

On July 10, 2023, the Company entered into a credit and security agreement (the “Credit Agreement”) for a loan in an aggregate amount of $ 25.0 million (the “Loan”) with Innoviva SO.

The Loan bears interest at an annual rate of 14 % and matures on January 10, 2025.

Principal and accrued interest are payable at maturity.

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

See Note 8, “Long Term debt” , for additional details.

2023 Convertible Credit Agreement

On January 10, 2023, the Company entered into a secured convertible credit and security agreement (the “Convertible Credit Agreement”) with Innoviva SO.

The Convertible Credit Agreement provides for a secured term loan facility in an aggregate amount of $ 30.0 million (the “Convertible Loan”), which bears interest at a rate of 8.0 % per annum and was scheduled to mature on January 10, 2024.

Concurrently with the execution of the Credit Agreement, the Company amended certain provisions of the Convertible Credit Agreement to, among other changes, extend the term of the Convertible Loan to January 10, 2025.

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

The Convertible Credit Agreement provides for various conversion and repayment options, including the conversion of principal and accrued interest into the shares of the Company’s Common Stock upon a Qualified Financing (as defined below) and the Company’s option to repay the loan prior to maturity.

See Note 7, “Convertible debt” , for additional details.

The Company plans to raise additional capital through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses and other similar arrangements.

While the Company believes this plan to raise additional funds will alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, 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.

6 unchanged sentences

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries including C3J, Biocontrol Limited and AmpliPhi Australia Pty Ltd.

All significant intercompany accounts and transactions have been eliminated.

The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and applicable rules and regulations of the U.S.

Securities and Exchange Commission for financial reporting.

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

All intercompany accounts and transactions have been eliminated upon consolidation.

Any reference in the condensed consolidated financial statements to applicable guidance is meant to refer to authoritative U.S.

GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the amounts reported in its consolidated financial statements and accompanying notes.

On an ongoing basis, management evaluates these estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances.

By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period.

On an ongoing basis, the Company evaluates estimates and assumptions, including but not limited to those related to the fair value of the convertible debt, stock-based compensation expense, accruals for research and development costs, the valuation of deferred tax assets, impairment of goodwill and intangible assets and impairment of long-lived assets.

Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ materially from those estimates.

The Company operates and manages its business as one reportable operating segment, which is the business of developing a pathogen-specific bacteriophage therapeutics for the treatment of antibiotic-resistant and difficult-to-treat acute and chronic bacterial infections using its proprietary bacteriophage-based technology.

The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating resources and evaluating financial performance.

The long-lived assets of $ 12.4 million, which represents 98.8 % of the Company’s total long-lived assets, are maintained in the United States.

Concentration of Credit Risks and Certain Other Risks

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and marketable securities.

As of December 31, 2023 and 2022, cash, cash equivalents and marketable securities were invested primarily in money market funds and U.S.

treasury securities through highly rated financial institutions.

Investments are restricted, in accordance with the Company’s investment policy, to a concentration limit per issuer or sector.

Other receivables represents amounts due from Medical Technology Enterprise Consortium (Note 13) and reimbursement for tenant improvements (Note 12).

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposits with commercial banks and financial institutions.

Restricted Cash

The Company defines restricted cash as cash and cash equivalents that cannot be withdrawn or used for general operating activities.

The restricted cash consists of two irrevocable letters of credit with financial institutions related to the Company’s operating leases (Note 12).

Fair Value of Financial Instruments

Financial instruments include cash equivalents, prepaid expenses and other assets, restricted cash, accounts payable, accrued expenses and deferred asset acquisition consideration.

The carrying amount of cash equivalents prepaid expenses and other assets, restricted cash, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments.

Financial instruments include cash equivalents, prepaid expenses and other receivables, restricted cash, accounts payable and accrued liabilities, accrued compensation and other current liabilities, convertible debt and long-term debt.

The carrying amounts of the above assets and liabilities are generally considered to be representative of their respective fair values because of the short-term nature of those instruments.

Convertible debt is accounted at fair value.

Long-term debt was accounted at fair value at inception and its subsequent fair value is not significantly different from its amortized basis, as effective interest rate is considered at market.

Property and Equipment

8 unchanged sentences

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

The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable.

Recoverability is measured by comparison of the book values of the assets to future net undiscounted cash flows that the assets or the asset groups are expected to generate.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value, which is measured based on the estimated discounted future net cash flows arising from the assets or asset groups.

No impairment losses on long-lived assets have been recorded through December 31, 2022 or 2021.

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

Recoverability is measured by comparison of the carrying values of the assets to future net undiscounted cash flows that the assets or the asset groups are expected to generate.

An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset.

No impairment losses on long-lived assets have been recorded for the years ended December 31, 2023 or 2022.

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

IPR&D assets are intangible assets with indefinite lives and are not subject to amortization.

8 unchanged sentences

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

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

Management judgment is required in the forecast of future operating results that are used in the Company’s impairment analysis.

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

Significant assumptions utilized in the Company’s income approach model include the discount rate, timing of clinical studies and regulatory approvals, the probability of success of its research and development programs, timing of 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, 2022, the Company performed the annual evaluation of its IPR&D assets for impairment.

The Company considered the development timelines for its S.

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

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.

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.

As of December 31, 2023 and 2022, the Company performed the annual evaluation of its IPR&D assets for impairment.

The Company used multi-period excess earnings method, a variation of the discounted cash flow approach.

Management assumptions included expected revenue forecast, estimated expenses, rate of success, and a discount rate.

The fair value of the bacteriophage development programs for S.

aureus infections was greater than its carrying value as

a result of the quantitative analysis.

Consequently, no impairment loss was recognized as of December 31, 2023 and 2022.

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

4 unchanged sentences

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, 2022 or 2021.

The Company performed quantitative analysis of goodwill impairment and noted no impairment as of December 31, 2023 and 2022.

Research and Development

3 unchanged sentences

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

Some of these contractors 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.

1 unchanged sentence

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.

Stock-Based Compensation

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

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

To estimate the fair value of an award, the Company uses the Black-Scholes option pricing model.

This model requires inputs such as expected term, expected volatility, expected dividend yield of stock and risk-free interest rate.

Expected volatility is based on the historical volatility of the Company’s own stock price as well as stock volatility of similar publicly traded peer companies.

The expected term represents the period that the Company expects its stock options to be outstanding.

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

Securities and Exchange Commission Staff Accounting Bulletin 110, which is the mid-point between the option vesting date and the expiration date.

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

Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

The fair value of restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) is determined based on the number of units granted and the closing price of the Company’s Common Stock as of the grant date.

The Company accounts for forfeitures in the period they occur.

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

2 unchanged sentences

The functional currency of the Company and its wholly owned subsidiaries is the U.S.

Revenue Recognition

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

To determine revenue recognition for contracts with customers, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the Company satisfies its performance obligations.

At contract inception, the Company assesses the goods or services agreed upon within each contract and assess whether each good or service is distinct and determine those that are performance obligations.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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

Grants and Awards

In applying the provisions of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), Armata has determined that grants and awards are out of the scope of ASC 606 because the funding entities do not meet the 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”).

Assets and liabilities denominated in foreign currencies are translated to U.S.

dollars using the exchange rates at the date of transaction or historical rates.

Revenues and expenses from the Company’s foreign subsidiaries are translated using the quarterly

average exchange rate in effect during the year.

Foreign currency translation gains and losses are recorded as other income (expense) in the Company’s consolidated statement of operations.

Transactions denominated in foreign currencies are initially measured in U.S.

dollars using the exchange rate on the date of the transaction.

Foreign currency denominated monetary assets and liabilities are subsequently re-measured at the end of each reporting period using the exchange rate at that date, with the corresponding foreign currency transaction gain or loss recorded in the consolidated statements of operations.

Nonmonetary assets and liabilities are not subsequently re-measured.

Grants Revenue and Other Awards

The Company determines whether agreements are within the scope of Accounting Standard Codification (“ASC”) Topic 606, Revenue from contracts with customers (“ASC 606”) or other topics at the effective date of an agreement.

The Company also determines if grants and awards are in scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”).

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.

20, Accounting for Government Grants and Disclosure of Government Assistance , by analogy, and revenue is recognized when the Company incurs expenses related to the grants for the amount the Company is entitled to under the provisions of the contract.

Armata also considers the guidance in ASC Topic 730, Research and Development (“ASC 730”), which requires an assessment, at the inception of the grant or award, of whether the agreement is a liability .

If Armata is obligated to repay funds received regardless of the outcome of the related research and development activities, then Armata is required to estimate and recognize that liability.

Alternatively, if Armata is not required to repay the funds, then payments received are recorded as revenue or contra-expense as the expenses are incurred.

Deferred grant or award liability represents award funds received or receivable for which the allowable expenses have not yet been incurred as of the balance sheet date.

20, Accounting for Government Grants and Disclosure of Government Assistance , by analogy, and revenue is recognized when the Company incurs expenses related to the grant for the amount the Company is entitled to under the provisions of the agreement.

The Company also considers the guidance in ASC Topic 730, Research and Development (“ASC 730”), which requires an assessment, at the inception of the grant or award, of whether the agreement is a liability .

If Armata is obligated to repay funds received regardless of the outcome of the related research and development activities, then the Company is required to estimate and recognize that liability.

Alternatively, if the Company is not required to repay the funds, then payments received are recorded as revenue or contra-expense as the expenses are incurred.

As of December 31, 2023 and 2022, the Company recognized as other receivables in its consolidated balance sheets $ 1.5 million and $ 1.9 million, respectively, related to invoiced grant amounts that have not been received.

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

The Company currently only has operating leases.

The Company currently has only 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.

2 unchanged sentences

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 date of remeasurement 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 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.

2 unchanged sentences

Deferred income taxes are recognized for the future tax consequences of temporary differences using enacted statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Temporary differences include the differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities and net operating loss and tax credit carryforwards.

differences include the differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities and net operating loss and tax credit carryforwards.

The effect on deferred taxes of a change in tax rates is recognized in income (expense) in the period that includes the enactment date.

6 unchanged sentences

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Comprehensive Income (Loss)

Comprehensive income (loss) is composed of net loss and other comprehensive income (loss).

The Company did not have other comprehensive income (loss) for the years ended December 31, 2023 and 2022, as such, the comprehensive income (loss) for these periods was equal to the net loss.

Basic and Diluted Net Loss per Share

Net earnings or loss per share (“EPS”) is calculated in accordance with the applicable accounting guidance provided in ASC 260, Earnings per Share.

Basic EPS is calculated by dividing net income or loss by the weighted-average number of common shares outstanding.

Diluted net loss per share is computed in accordance with the treasury stock method and reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock.

The calculation of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the warrants, and the presumed exercise of such securities are dilutive to net loss per share for the period, an adjustment to net loss available to common stockholders used in the calculation is required to remove the change in fair value of the warrants from the numerator for the period.

Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any, under the treasury stock method.

Recent Accounting Pronouncements Not Yet Adopted

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of Common Stock outstanding during the period, without consideration of potentially dilutive securities.

Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of Common Stock and potentially dilutive securities outstanding for the period.

For purposes of the diluted net loss per share calculation, the Common Stock warrants, Convertible Loan, unvested restricted stock awards and restricted stock units, and stock options are considered to be potentially dilutive securities.

Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities.

Under the two-class method, warrants issued to Innoviva are assumed to participate in undistributed earnings on an as-exercised basis, in accordance with the warrant agreements.

The Company’s participating securities do not have a contractual obligation to share in the Company’s losses.

As such, the net loss was attributed entirely to common stockholders.

Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments .

2 unchanged sentences

Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized.

This new guidance is effective for calendar-year smaller reporting public entities in the first quarter of 2023.

The Company is currently evaluating the impact of this ASU and does not expect that adoption of this standard will have a material impact on its consolidated financial statements or related disclosures.

In August 2020, the FASB issued ASU No.

2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) .

This new guidance became effective for calendar-year smaller reporting public entities in the first quarter of 2023.

The Company adopted this ASU as of January 1, 2023, which did not have an impact on its consolidated financial statements or related disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) .

ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments.

It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions.

In addition, ASU 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 the Company as of January 1, 2024.

In addition, ASU 2020-06 modifies how particular convertible instruments and certain

contracts that may be settled in cash or shares impact the diluted earnings per share computation.

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.

The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative .

This ASU aligns the requirements in the ASC to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, announced by the SEC.

The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date.

Early adoption is prohibited.

The Company is currently evaluating the impact of adopting ASU 2023-06 on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

This ASU requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2023-07 on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This ASU requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2023-09 on its consolidated financial statements.

Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market.

When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following three levels:

Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability.

These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents include investments in a money market fund of zero and $ 0.5 million as of December 31, 2023 and 2022, respectively, which are carried at fair value and represent Level 1 financial instruments under the fair value hierarchy.

The Company’s Convertible Loan (Note 7) is measured at fair value and remeasured at each measurement period, with changes in fair value recorded as other income (expense) in the consolidated statement of operations.

The Company estimates the fair value of its Convertible Loan using a weighted probability model of various debt settlement scenarios during its term discounted to the reporting date.

Conversion option scenarios are valued using option pricing

models with assumptions and estimates such as volatility, expected term and risk-free interest rates.

Level 3 fair value inputs include probability and timing of various settlement scenarios and selection of comparable companies.

The Company estimated fair value of its Convertible Loan using the following inputs.

December 31, 2023

Discount rate

21.01 %- 45.88 %

Probabilities of settlement scenarios

101.1 %- 123.6 %

Expected term (in years)

Risk-free rate

4.62 %- 5.39 %

The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

Convertible Loan

Pre Modification

Convertible Loan

Post Modification

Balance at December 31, 2022

Net proceeds from issuance of the Convertible Loan (1)

Initial recognition of modified Convertible Loan (1)

Change in fair value

Convertible Loan exchanged (2)

Loss on extinguishment

Balance at December 31, 2023

(1) The Convertible Loan is carried at fair value in the consolidated balance sheets.

As such, the principal and accrued interest are included in the determination of fair value.

(2) The Company concluded that the amendment to the Convertible Loan was an extinguishment for accounting purposes and the amount exchanged was the relative fair value allocated to the Convertible Loan at the extinguishment date (Note 7).

Net Loss per Share

The following outstanding securities at December 31, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding for the years ended December 31, 2022 and 2021, as they would have been anti-dilutive:

The following outstanding securities at December 31, 2023 and 2022 have been excluded from the computation of diluted weighted average shares outstanding, as they would have been anti-dilutive:

December 31, 2023

December 31, 2022

Outstanding stock options

Unvested restricted stock units

Restricted stock awards

Shares issuable upon the conversion of Convertible Loan

Outstanding warrants

Balance Sheet Details

Property and Equipment, net

Property and equipment consisted of the following:

Property and equipment as of December 31, 2023 and 2022 consisted of the following (in thousands):

December 31, 2023

5 unchanged sentences

accumulated depreciation

( 11,103,000 )

( 10,225,000 )

Property and equipment, net

Depreciation expense totaled $ 0.9 million and $ 1.2 million the years ended December 31, 2022 and 2021, respectively.

Depreciation and amortization expense totaled $ 1.0 million and $ 0.9 million for the years ended December 31, 2023 and 2022, respectively.

Property and equipment not in use was $ 8.1 million and $ 1.0 million as of December 31, 2023 and 2022, respectively, and are included in the laboratory equipment in the table above.

These assets are not depreciated until they are placed in service.

Other Receivables

Other receivables as of December 31, 2023 and 2022 consisted of the following (in thousands):

December 31, 2023

December 31, 2022

Tenant improvement allowance receivable (Note 12)

Grant and award receivable

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

Accounts payable and accrued liabilities as of December 31, 2023 and 2022 consisted of the following (in thousands):

December 31, 2023

3 unchanged sentences

Other accrued expenses

Loss before income taxes consisted of the following components:

Convertible Debt

On January 10, 2023, the Company received the Convertible Loan in the aggregated amount of $ 30.0 million from Innoviva pursuant to the Convertible Credit Agreement.

The Convertible Loan bears interest at a rate of 8.0 % per annum and was scheduled to mature on January 10, 2024.

The Convertible Credit Agreement was amended on July 10, 2023, in connection with the Credit Agreement with Innoviva to, among other changes, extend the maturity of the Convertible Loan to January 10, 2025.

The Convertible Loan principal and accrued interest are payable at maturity.

The Convertible Credit Agreement provides that if there is a financing from new investors of at least $ 30.0 million (a “Qualified Financing”), the outstanding principal amount of and all accrued and unpaid interest on the Convertible

Loan shall be converted into shares of the Company’s 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 such Qualified Financing.

The Convertible Credit Agreement also required the Company to file a registration statement for the resale of all securities issued to the lender in connection with any conversion under the Convertible Credit Agreement, which the Company originally filed on February 13, 2023 and which was declared effective by the SEC on April 6, 2023.

The Convertible Credit Agreement also confers upon the lender the option to convert any outstanding Convertible Loan amount, including all accrued and unpaid interest thereon, 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 Convertible Credit Agreement, which was market value of $ 1.52 (as may be appropriately adjusted for any stock split, combination or similar act).

The Company evaluated authoritative guidance for accounting for the Convertible Loan and concluded that the Convertible Loan should be accounted for at fair value under ASC 480, Distinguish Liabilities from Equity , due to the fact that the Convertible Loan will predominately be settled with the Company’s Common Stock.

Consequently, the Company recorded the Convertible Loan in its entirety at fair value on its consolidated balance sheet, with changes in fair value recorded as other income (expenses) in the consolidated statements of operations during each reporting period.

On July 10, 2023, in connection with the Credit Agreement with Innoviva, as discussed below, the Company amended the terms of the Convertible Credit Agreement, to, among other changes, extend the maturity of the Convertible Loan to January 10, 2025.

The Company concluded that the amendment was an extinguishment for accounting purposes.

The Company recognized a $ 1.8 million gain as the change in fair value of the Convertible Loan before the extinguishment date, July 10, 2023.

The Company estimated fair value of the combined transaction, the Loan and the Convertible Loan, before and after modification and calculated an extinguishment loss of $ 3.9 million, which was recognized as other income (expense) in the consolidated statement of operations for the year ended December 31, 2023.

The Company recognized a $ 23.6 million loss as the change in fair value of the Convertible Loan from July 10, 2023 to December 31, 2023.

Long-Term Debt

On July 10, 2023, the Company entered into the Credit Agreement with Innoviva.

The Credit Agreement provides for a secured term loan facility in an aggregate amount of $ 25.0 million at an interest rate of 14.0 % per annum and has a maturity date of January 10, 2025.

Principal and accrued interest are payable at maturity.

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

The Credit Agreement contains customary affirmative and negative covenants and representations and warranties, including financial reporting obligations and certain limitations on indebtedness, liens, investments, distributions (including dividends), collateral, investments, mergers or acquisitions and fundamental corporate changes.

The Credit Agreement also includes customary events of default, including payment defaults, breaches of provisions under the loan documents, certain losses or impairment of collateral and related security interests, the occurrence of certain events that could reasonably be expected to have a “material adverse effect” as set forth in the Credit Agreement, certain bankruptcy or insolvency events, and a material deviation from the Company’s operating budget.

The Loan was initially recognized at fair value of $ 21.2 million and subsequently recognized at the amortized cost net of debt issuance costs and debt discount of $ 3.8 million.

Debt issuance costs and debt discount in the amount of $ 0.9 million were amortized to interest expense using the effective interest method during the year ended December 31, 2023 .

The Loan’s annual effective interest rate was 27.31 % as of December 31, 2023.

The Company recognized $ 2.6 million interest expense for the year ended December 31, 2023.

Stockholders’ Equity (Deficit)

Private Investment

February 2022 Private Placement

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

Pursuant and subject to the terms and conditions of the February 2022 Securities Purchase Agreement and related agreements, Innoviva agreed to 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 occurred 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 the Company’s stockholders voting in favor of the transaction, Innoviva purchased 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.

Warrants issued to Innoviva expire in five years from the respective issuance date.

The Company reviewed the authoritative accounting guidance and determined that the warrants meet the criteria to be accounted for as permanent equity.

On December 31, 2023 and 2022, outstanding Common Stock warrants to purchase shares of Common Stock, all classified as equity financial instruments, are as follows:

December 31, 2023

December 31, 2022

Exercise Price

Expiration Date

October 16, 2023

February 11, 2025

March 27, 2025

January 26, 2026

March 16, 2026

February 8, 2027

March 30, 2027

Shares Reserved for Future Issuance

As of December 31, 2023 and 2022, the Company had reserved shares of its Common Stock for future issuance as follows:

December 31, 2023

December 31, 2022

Stock options outstanding

Unvested restricted stock units

Employee stock purchase plan

Shares available for future grants under the 2016 Plan

Warrants outstanding

Shares issuable upon the conversion of Convertible Loan

Total shares reserved

Equity Incentive Plans

Stock Award Plans

The Company maintains a 2016 Equity Incentive Plan (the “2016 Plan”), which provides for the issuance of incentive share awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance-based stock awards.

The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants.

The term of the options granted is ten years , the exercise price is the Company’s closing price at the date of grant and the vesting period is usually four years .

The Company also granted RSUs under the 2016 Plan that vest over four years.

Under the 2016 Plan, the number of shares authorized for issuance is automatically increased by a number equal to 5 % of the total number of shares of the Company’s capital stock outstanding on December 31st of the preceding calendar year, or a lesser number of shares determined by the Board annually beginning from January 1, 2017 until January 1, 2026.

As of December 31, 2023, there were 2,368,160 shares available for issuance under the 2016 Plan.

The increase as of January 1, 2024 was 1,807,235 shares.

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

As of December 31, 2023, all RSAs were fully vested.

Pursuant to its 2016 Employee Stock Purchase Plan (“ESPP”), the Company may grant or provide for the grant of rights to purchase shares of its Common Stock.

The number of shares of its Common Stock reserved for issuance under the ESPP will automatically increase on January 1st of each calendar year by the lesser of 1 % of the total number of shares of the Company’s Common Stock outstanding on December 31st of the preceding calendar year and 30,000 shares, subject to the ability of the Company’s Board of Directors to take action to reduce the size of the increase in any given year.

There were no awards issued under ESPP.

As of December 31, 2023, the Company had reserved 9,748 shares for future grants under the ESPP.

Stock option activities during the year ended December 31, 2023 are presented below:

Options Outstanding

Value (in thousands)

Outstanding at December 31, 2022

Forfeited/Cancelled/Expired

Outstanding at December 31, 2023

Vested and expected to vest at December 31, 2023

Exercisable at December 31, 2023

The aggregate intrinsic value of options at December 31, 2023 is based on the Company’s closing stock price on that date of $ 3.24 per share.

The weighted average grant date fair value of the options granted during 2023 was $ 1.97 .

The fair value of vested options during the year ended December 31, 2023 was $ 5.1 million.

Restricted stock awards and restricted stock unit award activities during the year ended December 31, 2023 are presented below:

Outstanding at December 31, 2022

Forfeited/Cancelled

Vested and Issued as Common Stock

Outstanding at December 31, 2023

As of December 31, 2023, there was $ 1.8 million of total unrecognized compensation expense related to unvested stock options, restricted stock awards and restricted stock units, which the Company expects to recognize over the weighted average remaining period of approximately 1.7 years.

Stock-based Compensation

The Company estimates the fair value of stock options with performance and service conditions using the Black-Scholes valuation model.

The assumptions used to estimate the options fair value were as follows:

Year Ended December 31,

United States

( 32,228,000 )

( 21,714,000 )

Risk-free interest rate

3.54% - 5.54 %

2.65 % - 4.20 %

Expected volatility

75.40 % - 116.96 %

81.81 % - 85.86 %

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.

The differences between the Company’s effective tax rate and the U.S.

federal statutory tax rate were as follows:

federal statutory income tax rate

Adjustments for tax effects of:

State income taxes, net of federal tax

Stock-based compensation

Change in valuation allowance

Effective income tax rate

Significant components of the Company’s deferred tax assets and liabilities were as follows:

Expected term (in years)

Expected dividend yield

In July 2023, in connection with the resignation of its former chief executive officer, the Company amended the terms of certain of his awards.

As a result, the Company reversed $ 0.6 million previously recognized stock-based compensation expense related to his forfeited and unvested awards.

The tables below summarize the total stock-based compensation expense (reversal) included in the Company’s consolidated statements of operations for the periods presented (in thousands):

Year Ended December 31,

Research and development

General and administrative

Total stock-based compensation

Loss before income taxes consisted of the following components (in thousands):

Year Ended December 31,

United States

Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

Deferred tax assets:

6 unchanged sentences

valuation allowance

( 68,818,000 )

( 58,251,000 )

Total deferred tax assets after valuation allowance

1 unchanged sentence

Right-of-use asset

( 12,043,000 )

( 10,033,000 )

In-process research and development

( 3,077,000 )

Total deferred tax liabilities

( 15,120,000 )

( 13,110,000 )

Net deferred tax liability

( 3,077,000 )

The Company’s net operating loss carryforwards at December 31, 2023 are $ 167.6 million and $ 118.9 million for federal and state income tax purposes, respectively.

Federal and state net operating loss carryforwards are available to offset future taxable income, if any, and will begin to expire in 2026 to 2028, respectively.

The federal 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 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.

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.

Accordingly, in 2019 the Company reduced its deferred tax assets for the net operating loss and credit carryforwards that were expected to expire unused with a corresponding offset to the valuation allowance recorded against such assets.

Future ownership changes under Section 382 may also limit the Company’s ability to fully utilize any remaining tax benefits.

The Company has generated federal and state income tax losses in all years since its inception.

Accordingly, management has determined that significant negative evidence precludes the Company from recording a net deferred tax asset for financial statement purposes as it is more likely than not that its deferred tax assets will not be realized.

Federal and state net operating loss carryforwards are available to offset future taxable income, if any, and will begin to expire in 2026 and 2028, respectively.

The federal net operating loss carryforwards generated after 2017 of $ 113.1 million will carryforward indefinitely and can be used to offset up to 80% of future annual taxable income.

The Company’s net operating loss carryforwards may be subject to a substantial annual limitation as a result of ownership changes that have occurred or could occur in the future pursuant to Internal Revenue Code Sections 382 and 383.

These ownership changes may limit or eliminate the amount of net operating loss carryforwards that can be utilized to offset future taxable income.

If eliminated, the related asset would be removed from deferred tax assets with a corresponding reduction in the valuation allowance.

In general, an 'ownership change' as defined by the tax code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.

The Company has not undergone an ownership change analysis pursuant to Internal Revenue Code Section 382 as of December 31, 2023.

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets.

Based on the weight of available evidence, including the Company's history of operating losses, management has determined that it is more likely than not that the Company’s net deferred tax assets will not be realized.

Accordingly, a valuation allowance has been established by the Company to fully offset these net deferred tax assets.

The Company increased its valuation allowance by approximately $ 6.3 million during the year ending December 31, 2023:

federal statutory income tax rate

Adjustments for tax effects of:

State income taxes, net of federal tax

Stock-based compensation

Change in valuation allowance

Debt extinguishment

Change in rate

Fair value adjustment on convertible debt

Effective income tax rate

The Company files income tax returns in the U.S.

5 unchanged sentences

The Company’s policy is to classify interest and penalties on uncertain tax positions as a component of tax expense.

As of December 31, 2022, the Company has no accrued interest or penalties related to uncertain tax positions.

Paycheck Protection Program Loan

In April 2020, the Company received loan proceeds of $ 717,000 (“PPP Loan”) under the Paycheck Protection Program (“PPP”).

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business, calculated as provided under the PPP.

The PPP 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.

As of December 31, 2023 and 2022, the Company has no accrued interest or penalties related to uncertain tax positions.

Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiary because the parent entity would not be required to include the distribution into income as the amount would be tax free.

The Tax Cuts and Jobs Act subjects a U.S.

stockholder to tax on GILTI earned by certain foreign subsidiaries.

The FASB Staff Q&A, Topic 740 No.

Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election either to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only.

The Company has elected to account for GILTI in the year the tax is incurred.

Commitments and Contingencies

1 unchanged sentence

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.

The lease commenced on 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, 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 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 % .

In accordance with authoritative guidance, the Company re-measured the lease liability in April 2020 to be $ 11.7 million using an incremental borrowing rate of 12.89 % and related right of use asset was $ 11.0 million.

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.

As of December 31, 2023, the letter of credit was $ 0.7 million.

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, California (the “2021 Lease”).

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

Monthly rent for 2022 and 2023 are 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, 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.

The Company is entitled to receive an allowance for tenant improvements of up to $ 7.3 million, of which the Company received $ 5.4 million during the year ended December 31, 2023.

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 the 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.

Future minimum annual lease payments under the Company’s noncancelable operating leases as of December 31, 2022, are as follows:

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

The re-measured 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 .

During the year ended December 31, 2023, the budget was modified and the Company re-measured the lease liability.

As a result, the lease liability and related right-of-use asset increased by approximately $ 2.7 million, using an incremental borrowing rate of 14.27 %.

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

Future minimum annual lease payments under the Company’s noncancelable operating leases as of December 31, 2023, are as follows (in thousands):

Total minimum lease payments

1 unchanged sentence

amount representing interest

( 38,834,000 )

Present value of operating lease obligations

current portion

( 17,011,000 )

Noncurrent operating lease obligations

Rent expense was $ 7.4 million and $ 6.3 million for the years ended December 31, 2023 and 2022, respectively.

Total cash payments for operating leases as included in the consolidated statements of cash flows during the year ended December 31, 2022 and 2021 was $ 2.7 million and $ 2.2 million, respectively.

Total cash payments for operating leases as included in the consolidated statements of cash flows during the years ended December 31, 2023 and 2022 were $ 3.5 million and $ 2.7 million, respectively.

Legal Proceedings

4 unchanged sentences

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.

Synthetic Genomics Asset Acquisition

On February 28, 2018, C3J completed an acquisition of certain synthetic phage assets (the “synthetic phage assets”) from Synthetic Genomics, Inc.

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, 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

In connection with the Synthetic Phage Asset Acquisition discussed in Note 12, the Company was assigned a research collaboration agreement (“Research and Option Agreement”) with Merck.

In May 2019, the Research and Option Agreement was amended and extended for four years.

During the research term, the Company will be entitled to milestone payments tied to the achievement of product development milestone events in the amount of $ 1.5 million.

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

Merck has the right to terminate the agreement at any time with 90 days’ notice.

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

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 the U.S.

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

On June 15, 2020, the Company entered into a Research Project Award agreement (the “MTEC Agreement”) with the Medical Technology Enterprise Consortium (“MTEC”), pursuant to which the Company received a $ 15.0 million grant and entered into a three-year program administered by the U.S.

Department of Defense through MTEC managed by the Naval Medical Research Command 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.

The MTEC funds are to partially fund a Phase 1b/2a, randomized, double-blind, placebo-controlled, dose escalation clinical study of the Company's therapeutic phage-based candidate, AP-SA02, for the treatment of complicated Staphylococcus aureus bacteremia infections.

The MTEC Agreement specifies that the grant is 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 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.

The MTEC Agreement is effective through October 30, 2024.

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

In addition, MTEC has the right to terminate the MTEC Agreement upon material breach by the Company.

The Company determined that the MTEC Agreement is not in the scope of ASC 808 or ASC 606.

Applying ASC 606 by analogy the Company recognizes proceeds received under the MTEC Agreement as grant revenue on the statement of operations when related costs are incurred.

The Company recognized $ 5.5 million and $ 4.5 million in grant revenue from the MTEC Agreement during the year ended December 31, 2022 and 2021, respectively.

Applying ASC 606 by analogy the Company recognizes proceeds received under the MTEC Agreement as grant revenue in the statement of operations when related costs are incurred.

The Company recognized $ 4.5 million and $ 5.5 million in grant revenue from the MTEC Agreement during the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, the Company had $ 1.5 million and $ 1.9 million as awards receivable from MTEC, 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/2a clinical trial of the P.

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

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.

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.

On March 13, 2020, the Company entered into an award agreement (the “Award Agreement”) with Cystic Fibrosis Foundation (“CFF”), pursuant to which the Company received a Therapeutics Development Award of $ 5.0 million (the “CFF Award”).

The CFF Award has funded a portion of the Company’s Phase 1b/2a clinical trial of the Pseudomonas aeruginosa (“ P.

aeruginosa ”) phage candidate, AP-PA02, as a treatment for airway infections in people with cystic fibrosis (“CF”).

The CFF Award is payable 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 Award Agreement.

The first payment under the Award Agreement, in the amount of $ 1.0 million, became due upon signing the Award Agreement and was received in April 2020.

The last milestone in the amount of $ 0.3 million was achieved in December 2023 and was received in January 2024.

If the Company ceases to use commercially reasonable efforts directed to the development of AP-PA02, or any other Product (as defined in the Award 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 CFF 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 Award Agreement that covers the Product for use in treating infections in CF patients (the “CF Field”), and (2) a non-exclusive, worldwide, perpetual, sublicensable license under certain background intellectual property covering the Product, to the extent necessary to commercialize the Product in the CF Field.

Upon commercialization by the Company of any Product, the Company will owe a fixed royalty amount to CFF, which is to be paid in installments determined, in part, based on commercial sales volumes of the Product.

1 unchanged sentence

The Company may also be obligated to make a payment to CFF if the Company transfers, sells or licenses the Product in the CF Field, or if the Company enters into a change of control transaction.

The term of the Agreement commenced on March 10, 2020 and expires on the earlier of the date on which the Company has paid CFF all of the fixed royalty payments set forth therein, the effective date of any license granted to CFF following an Interruption, or upon earlier termination of the Agreement.

Either CFF or the Company may terminate the Agreement for cause, which includes the Company’s material failure to achieve certain development milestones.

The Company’s payment obligations survive the termination of the Agreement.

The term of the Award Agreement commenced on March 10, 2020 and expires on the earlier of the date on which the Company has paid CFF all of the fixed royalty payments set forth therein, the effective date of any license granted to CFF following an Interruption, or upon earlier termination of the Award Agreement.

Either CFF or the Company may terminate the Award Agreement for cause, which includes the Company’s material failure to achieve certain development milestones.

The Company’s payment obligations survive the termination of the Award Agreement.

The Company concluded that the CFF Award is in the scope of ASC 808.

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, 2022 and 2021, the Company recognized $ 1.0 million and $ 2.8 million as credits to research and development expenses related to the CFF Award, respectively.

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

During year ended December 31, 2023 and 2022, the Company recognized $ 0.3 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.

Stockholders’ Equity

The Company is authorized to issue one class of shares designated as “Common Stock”.

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

Private 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 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”).

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

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.

At December 31, 2022, outstanding warrants to purchase shares of common stock are as follows:

Shares Underlying Outstanding Warrants

Exercise Price

Expiration Date

October 16, 2023

February 11, 2025

March 27, 2025

January 26, 2026

March 16, 2026

February 8, 2027

March 30, 2027

Stock-based Compensation

Stock Award Plans

The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company.

The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant.

Stock options expire no later than ten years from the date of grant and generally vest and typically become exercisable over a four-year period following the date of grant.

Under the 2016 Plan, the number of shares authorized for issuance automatically increases annually beginning January 1, 2017 and through January 1, 2026 .

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

The Company estimates the fair value of stock options with performance and service conditions using the Black-Scholes valuation model.

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

The assumptions used in the Black-Scholes model for options granted during the year ended December 31, 2022 and 2021 are presented below:

December 31, 2022

December 31, 2021

Risk-free interest rate

2.65 % - 4.20 %

0.73 % - 1.29 %

Expected volatility

81.81 % - 85.86 %

84.07 % - 93.37 %

Expected term (in years)

Expected dividend yield

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

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

Expected volatility is based on an analysis of the historical volatility of Armata and peer companies’ common stock.

The expected term represents the period that the Company expects its stock options to be outstanding.

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

Securities and Exchange Commission Staff Accounting Bulletin 110, which is the mid-point between the option vesting date and the expiration date.

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

The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future.

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

The tables below summarize the total stock-based compensation expense included in the Company’s consolidated statements of operations for the periods presented:

Year Ended December 31,

Research and development

General and administrative

Total stock-based compensation

Stock option transactions during the year ended December 31, 2022 are presented below:

Options Outstanding

Outstanding at December 31, 2021

Forfeited/Cancelled

Outstanding at December 31, 2022

Vested and expected to vest at December 31, 2022

Exercisable at December 31, 2022

Restricted stock award transactions under the Assumed 2016 Plan and restricted stock unit award transactions during the year ended December 31, 2022 are presented below:

Outstanding at December 31, 2021

Forfeited/Cancelled

Vested and Issued as Common Stock

Outstanding at December 31, 2022

The aggregate intrinsic value of options at December 31, 2022 is based on the Company’s closing stock price on that date of $ 1.24 per share.

As of December 31, 2022, there was $ 3.2 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, 2022, which the Company expects to recognize over the weighted average remaining period of 1.8 years.

Shares Reserved For Future Issuance

As of December 31, 2022, the Company had reserved shares of its common stock for future issuance as follows:

Shares Reserved

Stock options outstanding

Unvested restricted stock units

Employee stock purchase plan

Available for future grants under the 2016 Plan

Warrants outstanding

Total shares reserved

Employee Retirement Plan

1 unchanged sentence

All of the Company’s employees who meet minimum eligibility requirements are eligible to participate in the plan.

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

The Company did match contributions of $ 0.2 million and zero to the 401(k) plan for the years ended December 31, 2023 and 2022.

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