What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-21 compared with 2024-03-21 · 253 added, 192 removed, 533 unchanged (46% of the section changed)

7 unchanged sentences

Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023

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

Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2024 and 202 3

Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 202 3

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

(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”).

(the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, stockholders’ deficit, 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, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

51 unchanged sentences

In-process research and development

Liabilities and stockholders’ (deficit) equity

Liabilities and stockholders’ deficit

Current liabilities

1 unchanged sentence

Accrued compensation

Term debt, current

Current portion of operating lease liabilities

1 unchanged sentence

Total current liabilities

Convertible Loan, non-current

Term debt, non-current

Operating lease liabilities, net of current portion

Convertible debt

Long-term debt

Deferred tax liability

1 unchanged sentence

Commitments and contingencies (Note 12)

Stockholders’ (deficit) equity

Stockholders’ deficit

Common Stock, $ 0.01 par value;

217,000,000 shares authorized;

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

36,183,067 and 36,122,932 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’ (deficit) equity

Total liabilities and stockholders’ (deficit) equity

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

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

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Total operating expenses

Loss from operations

Operating loss

Other income (expense)

1 unchanged sentence

Interest expense

Change in fair value of convertible debt

Loss on convertible debt extinguishment

Total other (expense) income, net

Change in fair value of the Convertible Loan

Gain (loss) on debt and the Convertible Loan extinguishments

Total other income (expense), net

Per share information:

Net loss per share, basic and diluted

Weighted average shares outstanding, basic and diluted

Net loss per share, basic

Weighted average shares outstanding, basic

Net loss per share, diluted

Weighted average shares outstanding, diluted

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

Armata Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ (Deficit) Equity

Consolidated Statements of Stockholders’ Deficit

(in thousands, except share data)

Stockholders’ (Deficit) Equity

Stockholders’ Deficit

Stockholders’

(Deficit) Equity

Balances, December 31, 2022

Sale of common stock, net of issuance costs

Withholdings for taxes related to net share settlement of equity awards

Forfeiture of restricted stock awards

Exercise of stock options

Stock-based compensation

Balances, December 31, 2022

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

Stock-based compensation expense

Balances, December 31, 2023

Stockholders’ Deficit

Stockholders’

Balances, December 31, 2023

Exercise of stock options

Withholdings for taxes related to net share settlement of equity awards

Issuance of Common Stock upon release of restricted stock units, net of tax withholdings

Stock-based compensation expense

Balances, December 31, 2024

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

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Stock-based compensation expense

Change in fair value of convertible debt

Change in fair value of the Convertible Loan

Non-cash interest expense

Non-cash interest income

Loss on convertible debt extinguishment

Gain (loss) on debt and Convertible Loan extinguishments

Change in right-of-use asset

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Financing activities:

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 issuance of the Convertible Loan, net of issuance costs

Proceeds from issuance of term debt, net of issuance costs

Payments for taxes related to net share settlement of equity awards

1 unchanged sentence

Net cash provided by financing activities

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

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

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

Property and equipment included in accounts payable

Property and equipment included in accounts payable and accrued liabilities

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

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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.

Innoviva designees represent three out of eight seats of the Company’s Board of Directors (“Board of Directors”) during the year ended December 31, 2024, 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 Company’s Board of Directors 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.

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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.

The existing cash and cash equivalents of $ 9.3 million as of December 31, 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.

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2025 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.

On March 12, 2025, the Company entered into a credit and security agreement (the “2025 Credit Agreement”) for a loan in an aggregate amount of $ 10.0 million (the “2025 Loan”) with Innoviva Strategic Opportunities LLC, a wholly owned subsidiary of Innoviva, Inc.

INVA), our principal stockholder and a related party (collectively, “Innoviva”).

The 2025 Loan bears interest at an annual rate of 14.0 % and matures on March 12, 2026.

Principal and accrued interest are payable at maturity.

Repayment of the 2025 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.

Concurrently with the execution of the 2025 Credit Agreement, the Company entered into amendments to (i) its existing convertible loan (the “Convertible Loan”) and secured credit and security agreement, dated January 10, 2023, with Innoviva (the “Convertible Credit Agreement”), (ii) its existing secured term loan facility (the “2023 Loan”) and credit and security agreement, dated July 10, 2023, with Innoviva (the “2023 Credit Agreement”) and (iii) its existing secured term loan facility (the “2024 Loan”) and credit and security agreement, dated March 4, 2024, with Innoviva (the “2024 Credit Agreement”), which, among other things, extended the maturity date of each loan to March 12, 2026.

2024 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.

On March 4, 2024, the Company entered into 2024 Credit Agreement for the 2024 Loan in an aggregate amount of $ 35.0 million.

The 2024 Loan bears interest at an annual rate of 14.0 % and was scheduled to mature on June 4, 2025.

On March 12, 2025, the Company executed an amendment to the 2024 Credit Agreement which, among other things, extended the 2024 Loan maturity date to March 12, 2026.

Principal and accrued interest are payable at maturity.

Repayment of the 2024 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.

Concurrently with the execution of the 2024 Credit Agreement, the Company amended certain provisions of the Convertible Loan and Convertible Credit Agreement and the 2023 Loan and 2023 Credit Agreement to, among other things, conform certain terms relating to permitted indebtedness and permitted liens.

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

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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.

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 Loan, 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).

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

As of December 31, 2024 and 2023, cash, cash equivalents and restricted cash were invested primarily in money market funds and U.S.

treasury securities through highly rated financial institutions in accordance with the Company’s investment policy, to a concentration limit per issuer or sector.

Other receivables represent amounts due from the Medical Technology Enterprise Consortium (“MTEC”) (Note 13, “ Grants and Awards” ) and reimbursement for tenant improvements (Note 12, “ Commitments and Contingencies ”).

Cash and Cash Equivalents

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

Cash and cash equivalents consist primarily of cash deposits and marketable securities with original maturities of less than three months.

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).

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

Fair Value of Financial 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.

The Convertible Loan 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.

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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.

As of December 31, 2024, 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, 2024.

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

As of December 31, 2023, 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.

1 unchanged sentence

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.

aureus infections was greater than its carrying value as a result of the quantitative analysis.

No impairment loss was recognized as of December 31, 2024 and 2023.

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

Goodwill is not subject to amortization and is required to be tested for impairment at least on an annual basis.

Goodwill is not subject to amortization and is required to be tested for impairment

at least on an annual basis.

The Company tests goodwill for impairment as of December 31 of each year.

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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.

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.

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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 determines whether agreements are within the scope of 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”).

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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.

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.

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

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

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In addition, the calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

The Company recognizes liabilities for uncertain tax positions based on a two-step process.

The Company recognizes liabilities for uncertain tax

positions based on a two-step process.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

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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 .

The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income.

For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset.

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

This new guidance 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 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 adopted ASU 2023-07 standard in the fourth quarter of 2024 for annual and retrospective reporting periods with all interim disclosures to begin in the first quarter of fiscal year 2025.

Refer to Note 15.

“ Segment Reporting” .

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”).

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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 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 consolidated financial statements.

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

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 (loss) per share (“EPS”) computation.

The Company adopted this ASU as of January 1, 2024, which did not have an impact on its consolidated financial statements or related disclosures.

Recent Accounting Pronouncements Not Yet Adopted

On 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.

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.

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):

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

In November 2024, the FASB issued Accounting Standards Update ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory;

employee compensation;

and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included.

ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements.

The Company is currently evaluating the provisions of this guidance and assessing the potential impact on the Company’s consolidated financial statement disclosures.

Fair Value Measurements

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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.

December 31, 2024

Investments in money market fund – financial assets, included in cash and cash equivalents

Convertible Loan– financial liabilities

December 31, 2023

Convertible Loan– financial liabilities

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.

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.

The Company estimated the fair value of its Convertible Loan using the following inputs for the years ended December 31, 2024 and 2023:

December 31, 2024

December 31, 2023

Discount rate

15.67 %- 28.28 %

21.01 %- 45.88 %

Probabilities of settlement scenarios

83.30 %- 111.60 %

101.1 %- 123.6 %

Expected term (in years)

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4.08 %- 5.33 %

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)

4.62 %- 5.39 %

The following table presents a summary of the changes in the fair value of its Convertible Loan for the years ended December 31, 2024 and 2023 (in thousands):

December 31, 2024

December 31, 2023

Convertible Loan at the beginning of the period

Net 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

Amount exchanged (2)

Loss on the Convertible Loan extinguishment

Convertible Loan at the end of the period

(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).

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

Net Loss per Share

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:

The computation of basic EPS is based on the weighted-average number of the Company’s Common Stock outstanding.

The computation of diluted EPS is based on the weighted-average number of the Company’s Common Stock outstanding and potential dilutive Common Stock.

Diluted EPS is computed using the more dilutive of the treasury stock method, which reflects the potential dilution that would occur if securities or other contracts to issue Common Stock were exercised or converted to the Company’s Common Stock.

Common Stock options, warrants and unvested restricted stock units were not included in dilutive EPS as their impact would be antidilutive.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2024 and 2023 (in thousands, except share and per share data):

Year Ended December 31,

Net loss attributable to common stockholders, basic

Gain from change in fair value of the Convertible Loan

Gain on debt and the Convertible Loan extinguishments

Net loss attributable to common stockholders, diluted

Weighted average shares outstanding, basic

Shares issuable upon the conversion of the Convertible Loan

Weighted average common shares outstanding, diluted

Net loss per share, basic

Net loss per share, diluted

The following outstanding securities as of December 31, 2024 and 2023 have been excluded from the computation of diluted weighted average shares outstanding, as they would have been anti-dilutive:

December 31, 2024

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Unvested restricted stock units

Restricted stock awards

Shares issuable upon the conversion of Convertible Loan

Shares issuable upon the conversion of the Convertible Loan (1)

Outstanding warrants

(1) The Company determined the number of shares issuable upon the conversion of the Convertible Loan as of December 2023, based on the Convertible Loan principal amount of $ 30.0 million, accrued and unpaid interest of $ 2.4 million, calculated at an annual interest rate of 8 %, converted at $ 1.52 per share.

Balance Sheet Details

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Depreciation and amortization expense totaled $ 1.3 million and $ 1.0 million for the years ended December 31, 2024 and 2023, 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.

Property and equipment not in use was $ 8.3 million and $ 8.1 million as of December 31, 2024 and 2023, respectively, and is included in the laboratory equipment in the table above.

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

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Tenant improvement allowance receivable (Note 12)

Grant and award receivable

Grant and award receivable (Note 13)

Accounts Payable and Accrued Liabilities

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Other accrued expenses

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.

Convertible Loan

On January 10, 2023, the Company received the Convertible Loan in the aggregate 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 Credit Agreement was amended on July 10, 2023, in connection with the Company’s entry into the 2023 Credit Agreement to, among other changes, extend the maturity of the Convertible Loan to January 10, 2025.

Then, on March 12, 2025, the Company executed a subsequent amendment to the Convertible Credit Agreement which, among other things, extended the Convertible Loan maturity date to March 12, 2026.

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

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 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 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 $ 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.

On July 10, 2023, in connection with the 2023 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.

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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.

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

On November 12, 2024, the Company amended the terms of the Convertible Credit Agreement and 2023 Credit Agreement, to, among other changes, extend the maturity of both loans to January 10, 2026.

The Company concluded that the amendments were a combined transaction and an extinguishment for accounting purposes.

The Company estimated fair value of the combined transaction, the 2023 Loan and the Convertible Loan, before and after modification and calculated an extinguishment gain of $ 2.2 million, which was recognized as other income (expense) in the consolidated statement of operations for the year ended December 31, 2024.

After this amendment, the Company continued to account for the Convertible Loan at fair value on its consolidated balance sheet, with changes in fair value recorded as other income (expense) in the consolidated statements of operations during each reporting period.

The Company recognized $ 31.4 million as the change in fair value of the Convertible Loan for the year ended December 31, 2024.

On March 12, 2025, the Company executed an amendment to the Convertible Credit Agreement which, among other things, extended the Convertible Loan maturity date to March 12, 2026.

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

The 2023 Credit Agreement provides for the 2023 Loan, a secured term loan facility in an aggregate amount of $ 25.0 million at an interest rate of 14.0 % per annum, and was scheduled to mature on January 10, 2025.

Principal and accrued interest are payable at maturity.

Repayment of the 2023 Loan is guaranteed by the Company’s domestic subsidiaries, and the 2023 Loan is secured by substantially all of the assets of the Company and the subsidiary guarantors.

On November 12, 2024, the Company executed an amendment to the 2023 Credit Agreement, which, among other things, extended the 2023 Loan maturity date to January 10, 2026.

On March 12, 2025, the Company executed a subsequent amendment to the 2023 Credit Agreement which, among other things, extended the 2023 Loan maturity date to March 12, 2026.

The 2023 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.

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The 2023 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 Company recognized $ 2.4 million and $ 0.9 million debt issuance costs and debt discount for the years ended December 31, 2024 and 2023, respectively, using the effective interest method.

The Company recognized $ 6.7 million and $ 2.6 million of accrued interest expense for the years ended December 31, 2024 and 2023, respectively.

The 2023 Loan’s annual effective interest rate was 48.76 % and 27.31 % as of December 31, 2024 and 2023, respectively.

On March 4, 2024, the Company entered into the 2024 Credit Agreement for the 2024 Loan in an aggregate amount of $ 35.0 million.

The 2024 Loan bears interest at an annual rate of 14.0 % and was scheduled to mature on June 4, 2025.

On March 12, 2025, the Company executed an amendment to the 2024 Credit Agreement which, among other

things, extended the 2024 Loan maturity date to March 12, 2026.

Principal and accrued interest are payable at maturity.

Repayment of the 2024 Loan is guaranteed by the Company’s domestic subsidiaries, and the 2024 Loan is secured by substantially all of the assets of the Company and the subsidiary guarantors.

The 2024 Loan was initially recognized at cash proceeds of $ 35.0 million net of debt issuance costs of $ 0.1 million, and subsequently is recognized at the amortized cost.

Debt issuance costs are amortized using the effective interest method to interest expense over the term of the 2024 Loan.

The Company recognized $ 4.1 million of accrued interest expense for the year ended December 31, 2024.

The 2024 Loan’s annual effective interest rate was 14.25 % as of December 31, 2024.

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

The 2023 Credit Agreement and the 2024 Credit Agreement contain 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 2023 Credit Agreement and the 2024 Credit Agreement also include 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 2023 Credit Agreement and the 2024 Credit Agreement, certain bankruptcy or insolvency events, and a material deviation from the Company’s operating budget.

Stockholders’ Deficit

As of December 31, 2024 outstanding warrants to purchase shares of Common Stock were as follows:

Exercise Price

Expiration Date

October 16, 2023

February 11, 2025

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Unvested restricted stock units

Employee stock purchase plan

Shares issuable under the Employee Stock Purchase Plan

Shares available for future grants under the 2016 Plan

Warrants outstanding

Shares issuable upon the conversion of Convertible Loan

Shares issuable upon the conversion of the Convertible Loan (1)

Total shares reserved

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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.

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 of Directors annually beginning from January 1, 2017 until January 1, 2026.

As of December 31, 2024, there were 3,405,908 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.

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Forfeited/Cancelled/Expired

( 1,231,023 )

Outstanding at December 31, 2024

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The aggregate intrinsic value of options at December 31, 2024 is based on the Company’s closing stock price on that date of $ 1.85 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.

The weighted average grant date fair value of the options granted during 2024 and 2023 was $ 2.54 and $ 1.97 , respectively.

The fair value of vested options during the year ended December 31, 2024 and 2023 was $ 2.8 million and $ 5.1 million, respectively.

Restricted stock awards and restricted stock unit award activities during the year ended December 31, 2024 are presented below:

Outstanding at December 31, 2023

Forfeited/Cancelled

Vested and Issued as Common Stock

Outstanding at December 31, 2024

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.

As of December 31, 2024, there was $ 2.6 million of total unrecognized compensation expense related to unvested stock options and restricted stock units, which the Company expects to recognize over the weighted average remaining period of approximately 1.9 years .

Stock-based Compensation

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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):

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Lease accounting

Interest expense carryforward

Total deferred tax assets before valuation allowance

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In-process research and development

Debt basis differences

Total deferred tax liabilities

Net deferred tax liability

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.

The Company’s net operating loss carryforwards at December 31, 2024 are $ 195.3 million, $ 139.2 million and $ 12.0 for federal, state and foreign 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 and 2029, respectively.

The federal net operating loss carryforwards generated after 2017 of $ 140.8 million will carryforward indefinitely and can be used to offset up to 80% of future annual taxable income.

The Company's foreign net operating loss carryforwards do not expire.

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.

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Stock-based compensation

Non-deductible debt items

Change in valuation allowance

Debt extinguishment

Change in rate

Fair value adjustment on convertible debt

Return to provision

Permanent differences and other

Effective income tax rate

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However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward.

The Company did not have a liability for unrecognized tax benefits at December 31, 2023 and 2022.

The Company did no t have a liability for unrecognized tax benefits at December 31, 2024 and 2023.

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

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Operating Leases

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

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.

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.

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 Company leases office and research and development space under a non-cancelable operating lease in Marina del Rey, CA, with the lease term through December 31, 2031.

Annual base rent is from $ 1.9 million and increases by 3 % annually and will be $ 2.5 million by the end of the term.

The Company also maintains an irrevocable letter of credit in connection with this lease, which had a balance of $ 0.5 million as of December 31, 2024 and is reducing 20 % annually through the end of the lease term .

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 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, 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 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.

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

Base monthly rent is approximately $ 0.3 million in 2024.

The Company was responsible for construction costs over the tenant improvements allowance of $ 7.2 million.

The construction was completed as of December 31, 2024, and the Company received the

full allowance.

Out-of-pocket expenses to be incurred by the Company were considered noncash lease payments, and included in the lease liability and right-of-use asset.

In connection with the execution of the 2021 Lease, the Company delivered an irrevocable standby letter of credit in the 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, 2024, are as follows (in thousands):

Total minimum lease payments

estimated short-term variable lease payments

amount representing interest

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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 years ended December 31, 2023 and 2022 were $ 3.5 million and $ 2.7 million, respectively.

Operating lease expenses were $ 8.4 million and $ 7.4 million for the years ended December 31, 2024 and 2023, respectively.

Variable costs related to operating expenses and taxes, which are recognized as incurred, were $ 1.7 million and $ 1.0 million for the years ended December 31, 2024 and 2023, respectively.

The following table summarizes supplemental cash flow information related to the Company’s operating leases for the years ended December 31, 2024 and 2023 (in thousands):

Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

The following table summarizes the weighted-average remaining lease term and weighted-average discount rate related to the Company’s operating leases as of December 31, 2024 and 2023:

December 31, 2024

December 31, 2023

Weighted-average remaining lease term, years

Weighted-average discount rate, %

Legal Proceedings

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Additionally, any such claims, whether or not successful, could damage the Company’s reputation and business.

The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on its consolidated results of operations or financial position.

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.

Grants and Awards

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 June 15, 2020, the Company entered into an agreement (the “MTEC Agreement”) with MTEC, pursuant to which the Company received a $ 15.0 million award and entered into a multi-year program administered by the DoD through MTEC and managed by the Naval Medical Research Command (“NMRC”) – Naval Advanced Medical Development (“NAMD”) 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/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.

In July 2024, the MTEC Agreement was modified to increase the total award by $ 5.3 million to $ 21.6 million and extend the term into the third quarter of 2025.

The Company is using the award 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 S.

aureus bacteremia infections.

The MTEC Agreement specifies that the award 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 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 is effective through October 30, 2024.

The MTEC Agreement is effective through August 15, 2025.

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

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CFF Therapeutics Development Award

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 CFF Award was used to fund 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 Pseudomonas airway infections in people with cystic fibrosis (“CF”).

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.

The remainder of the CFF Award was 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 total amount of the CFF award was recognized through December 2023 and no additional payments are expected.

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.

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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.

During year ended December 31, 2024 and 2023, the Company recognized zero and $ 0.3 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.

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

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.

The Company did match contributions of $ 0.2 million to the 401(k) plan for the years ended December 31, 2024 and 2023.

Segment Reporting

The determination of a single business segment is consistent with the consolidated financial information regularly provided to the Company’s chief operating decision maker (“CODM”).

The Company’s CODM is its Chief Executive Officer, who reviews financial information on an aggregate basis for purposes of assessing performance, making operating decisions, allocating resources and evaluating financial performance.

The long-lived assets of $ 14.0 million, which represents 99.3 % of the Company’s total long-lived assets, are maintained in the United States.

The following table includes certain segment information for the years ended December 31, 2024 and 2023.

Year Ended December 31,

Grant revenue

Operating expenses

Research and development expenses:

Non-Cystic Fibrosis Bronchiectasis

Cystic Fibrosis

AP-SA02Prosthetic Joint Infection

Expenses not allocated by projects

Total external research and development expenses

Research and development personnel expenses

Other research and development expenses

Total research and development expenses

General and administrative expenses:

General and administrative personnel expenses

Other general and administrative expenses

Total general and administrative expenses

Total operating expenses

Operating loss

Other income (expense), net

Subsequent Events

On March 12, 2025, the Company entered into the 2025 Credit Agreement for the 2025 Loan in an aggregate amount of $ 10.0 million.The 2025 Loan bears interest at an annual rate of 14.0 % and matures on March 12, 2026.

Principal and accrued interest are payable at maturity.

Repayment of the 2025 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 2025 Credit Agreement, the Company entered into amendments to (i) the Convertible Loan and Convertible Credit Agreement, (ii) the 2023 Loan and 2023 Credit Agreement, and (iii) the 2024 Loan and 2024 Credit Agreement, which, among other things, extended the maturity date of the Convertible Loan, 2023 Loan and 2024 Loan, respectively, to March 12, 2026.

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