Aridis Pharmaceuticals 10Q 2021 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38630

Aridis Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		47-2641188
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

983 University Avenue, Bldg. B
Los Gatos, California		95032
(Address of principal executive offices)		(Zip Code)

(408) 385-1742

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Title of each class:		Trading Symbol(s)		Name of each exchange on which registered:
Common Stock		ARDS		The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Small reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, $0.0001 par value per share, outstanding at October 31, 2021 was 14,054,036.

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		Page

	PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)	4

	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 4.	Controls and Procedures	42

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

Signatures		45

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PART I — FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANICAL STATEMENTS (UNADUITED)

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)


	September 30,		December 31,
	2021		2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	18,221	$	8,232
Accounts receivable		1,000		—
Other receivables		222		368
Contract costs		1,961		1,973
Prepaid expenses		2,177		2,182
Total current assets		23,581		12,755
Property and equipment, net		1,446		1,258
Intangible assets, net		23		27
Restricted cash		500		500
Contract costs, non-current		102		90
Other assets		433		487
Total assets	$	26,085	$	15,117
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$	2,644	$	1,886
Accrued liabilities		6,560		1,330
Deferred revenue		19,583		18,748
Note payable		0		439
Other liabilities		100		37
Total current liabilities		28,887		22,440
Deferred revenue, non-current		971		854
Note payable, non-current		0		276
Other liabilities		382		228
Total liabilities		30,240		23,798
Commitments and contingencies (Note 12)
Stockholders’ deficit:
Preferred stock (par value $0.0001; 60,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020)		0		—
Common stock (par value $0.0001; 100,000,000 shares authorized; 14,054,036 and 10,065,727 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively)		1		1
Additional paid-in capital		152,329		114,420
Accumulated deficit		(156,485)		(123,102)
Total stockholders' deficit		(4,155)		(8,681)
Total liabilities and stockholders’ deficit	$	26,085	$	15,117

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(unaudited)		(unaudited)		(unaudited)			(unaudited)
Revenue:
Grant revenue	$	417	$	—	$	417	$	1,000
License revenue		98		—		131		—
Total revenue		515		—		548		1,000
Operating expenses:
Research and development		19,842		4,161		29,370		12,725
General and administrative		1,699		1,631		5,337		4,853
Total operating expenses		21,541		5,792		34,707		17,578
Loss from operations		(21,026)		(5,792)		(34,159)		(16,578)
Other income (expense):
Interest income, net		1		6		2		77
Other income		23		—		52		—
Gain on extinguishment of Paycheck Protection Program loan		—		—		722		—
Share of loss from equity method investment		—		—		—		(9)
Net loss	$	(21,002)	$	(5,786)	$	(33,383)	$	(16,510)
Deemed dividends	$	(3,141)	$	—	$	(4,127)	$	—
Net loss available to common stockholders	$	(24,143)	$	(5,786)	$	(37,510)	$	(16,510)
Weighted-average common shares outstanding used in computing net loss per share available to common stockholders, basic and diluted		12,454,119		8,923,374		11,314,058		8,922,052
Net loss per share to common stockholders, basic and diluted	$	(1.94)	$	(0.65)	$	(3.32)	$	(1.85)

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(In thousands, except share amounts)


	Three Months Ended September 30, 2021 (unaudited)
							Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balances as of June 30, 2021	0	$	0	11,234,480	$	1	$	121,995	$	(135,483)	$	(13,487)
Issuance of common stock, pre-funded warrants and warrants in registered direct offering, net of issuance costs	—		—	1,300,000		—		23,294		—		23,294
Issuance of common stock in connection with license agreement	—		—	884,956		—		6,460		—		6,460
Deemed dividends	—		—	634,600		—		—		—		—
Stock-based compensation	—		—	—		—		580		—		580
Net loss	—		—	—		—		—		(21,002)		(21,002)
Balances as of September 30, 2021	—	$	—	14,054,036	$	1	$	152,329	$	(156,485)	$	(4,155)

	Three Months Ended September 30, 2020 (unaudited)
							Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balances as of June 30, 2020	—	$	—	8,923,374	$	1	$	105,418	$	(111,493)	$	(6,074)
Stock-based compensation	—		—	—		—		562		—		562
Net loss	—		—	—		—		—		(5,786)		(5,786)
Balances as of September 30, 2020	—	$	—	8,923,374	$	1	$	105,980	$	(117,279)	$	(11,298)


	Nine Months Ended September 30, 2021 (unaudited)
							Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balances as of December 31, 2020	—	$	—	10,065,727	$	1	$	114,420	$	(123,102)	$	(8,681)
Issuance of common stock, pre-funded warrants and warrants in registered direct offerings, net of issuance costs	—		—	2,337,405		—		29,711		—		29,711
Issuance of common stock in connection with license agreement	—		—	884,956		—		6,460		—		6,460
Deemed dividends	—		—	759,389		—		—		—		—
Issuance of common stock for consulting services	—		—	5,000		—		33		—		33
Exercise of stock options	—		—	1,559		—		5		—		5
Stock-based compensation	—		—	—		—		1,700		—		1,700
Net loss	—		—	—		—		—		(33,383)		(33,383)
Balances as of September 30, 2021	—	$	—	14,054,036	$	1	$	152,329	$	(156,485)	$	(4,155)

	Nine Months Ended September 30, 2020 (unaudited)
							Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balances as of December 31, 2019	—	$	—	8,918,461	$	1	$	104,404	$	(100,769)	$	3,636
Exercise of stock options	—		—	4,913		—		14		—		14
Stock-based compensation	—		—	—		—		1,562		—		1,562
Net loss	—		—	—		—		—		(16,510)		(16,510)
Balances as of September 30, 2020	—	$	—	8,923,374	$	1	$	105,980	$	(117,279)	$	(11,298)

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended
	September 30,
	2021		2020
	(unaudited)		(unaudited)
Cash flows from operating activities:
Net loss	$	(33,383)	$	(16,510)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		278		252
Stock-based compensation expense		1,700		1,562
Issuance of common stock in connection with license agreement		6,460		—
Issuance of common stock in exchange for consulting services		33		—
Gain on extinguishment of Paycheck Protection Program loan		(722)		—
Share of loss from equity method investment		0		9
Changes in operating assets and liabilities:
Accounts receivable		(1,000)		—
Other receivables		335		263
Prepaid expenses		5		702
Contract costs		0		(488)
Other assets		0		(30)
Accounts payable		824		(522)
Accrued liabilities and other		5,311		(619)
Deferred revenue		952		—
Net cash used in operating activities		(19,207)		(15,381)
Cash flows from investing activities:
Purchase of property and equipment		(573)		(33)
Net cash used in investing activities		(573)		(33)
Cash flows from financing activities:
Proceeds from issuance of common stock, pre-funded warrants and warrants, net		29,764		—
Proceeds from Paycheck Protection Program loan		0		715
Proceeds from stock option exercises		5		14
Net cash provided by financing activities		29,769		729
Net increase (decrease) in cash, cash equivalents and restricted cash		9,989		(14,685)
Cash, cash equivalents and restricted cash at:
Beginning of period		8,732		20,897
End of period	$	18,721	$	6,212
Supplemental cash flow disclosures:
Cash paid for taxes	$	2	$	2
Supplemental noncash investing and financing activities:
Property and equipment additions	$	119	$	—
Deemed dividends	$	4,127	$	—

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Aridis Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business and Basis of Presentation

Organization

Aridis Pharmaceuticals, Inc. (the “Company” or “we” or “our” or “us”) was established as a California limited liability corporation in 2003. The Company converted to a Delaware C corporation on May 21, 2014. Our principal place of business is in Los Gatos, California. We are a late-stage biopharmaceutical company focused on developing new breakthrough therapies for infectious diseases and addressing the growing problem of antibiotic resistance. The Company has a deep, diversified portfolio of clinical and pre-clinical stage non-antibiotic anti-infective product candidates that are complimented by a fully human monoclonal antibody discovery platform technology. The Company’s suite of anti-infective monoclonal antibodies offers opportunities to profoundly alter the current trajectory of increasing antibiotic resistance and improve the health outcome of many of the most serious life-threatening infections particularly in hospital settings.

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements (unaudited) include the accounts of the Company and our wholly-owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The condensed consolidated financial statements (unaudited) have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements (unaudited) reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. These condensed consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto for the preceding fiscal year included in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on March 30, 2021.

The condensed consolidated financial statements (unaudited) include the accounts of the Company and its 2 wholly-owned subsidiaries, Aridis Biopharmaceuticals, LLC and Aridis Pharmaceuticals, C.V. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in 1 segment. Management uses 1 measurement of profitability and does not segregate its business for internal reporting.

COVID-19

The COVID-19 outbreak in the United States has caused business disruption. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and impact on the Company’s clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. The on-going COVID-19 pandemic has caused an impact on patient enrollment globally and the rate of clinical site activations and depending on the rate of resolution of the on-going COVID-19 pandemic, it could further delay the progress of the Company’s clinical trials. In addition, the manufacturing of clinical trial drug supplies has been delayed. At this point, however, the extent to which COVID-19 may impact the Company’s financial condition or results of operations is uncertain.

Going Concern

The Company has had recurring losses from operations since inception and negative cash flows from operating activities during the three and nine months ended September 30, 2021 and the year ended December 31, 2020. Management expects to incur additional operating losses and negative cash flows from operations in the foreseeable future as the Company continues its product development programs.

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The Company’s research and development expenses and resulting cash burn during the nine months ended September 30, 2021, were largely due to costs associated with the Phase 3 study of AR-301 for the treatment of ventilator associated pneumonia (“VAP”) caused by the Staphylococcus aureus (S. aureus) bacteria, the Phase 1/2 study of AR-501 for the treatment of chronic lung infections associated with cystic fibrosis, the pre-launch activities associated with the Phase 3 study of AR-320 for the prevention of S. aureus VAP, and the preclinical development of AR-712 COVID-19 mAb. Current development activities are focused on AR-301, AR-320, AR-501 and AR-712. We expect our expenses to continue to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates.

The on-going COVID-19 pandemic is affecting the United States and global economies. The pandemic has affected the Company and is likely to continue to affect the Company and its third parties, on which the Company relies, by causing disruptions in the clinical trial supplies for the product candidates and the conduct of current and future clinical trials. Additionally, as the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. These effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

The Company plans to fund its losses from operations through current cash on hand and future debt and equity financings which we may obtain through one or more public or private equity offerings, debt financings, government or other third-party funding, strategic alliances and licensing or collaboration arrangements. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its research and development programs or future commercialization efforts, which could adversely affect its future business prospects and its ability to continue as a going concern. The Company believes that its current available cash and cash equivalents will not be sufficient to fund its planned expenditures and meet the Company’s obligations for at least the one-year period following its condensed consolidated financial statement issuance date.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in their normal course of business. There is substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these condensed consolidated financial statements are issued. These condensed consolidated financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Such estimates include those related to the evaluation of our ability to continue as a going concern, best estimate of standalone selling price of revenue deliverables, useful life of long-lived assets, classification of deferred revenue, income taxes, assumptions used in the Black-Scholes-Merton (“BSM”) model to calculate the fair value of stock-based compensation, deferred tax asset valuation allowances, and preclinical study and clinical trial accruals. Actual results could differ from those estimates.

Concentration of Risk

Credit Risk

The Company’s cash and cash equivalents are maintained at financial institutions in the United States of America. Deposits held by these institutions may exceed the amount of insurance provided on such deposits.

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Customer Risk

For the three months ended September 30, 2021, 1 customer accounted for 81% of total revenue and the other customer accounted for 19% of total revenue, and for the nine months ended September 30, 2021, 1 customer accounted for 76% of total revenue and the other customer accounted for 24% of total revenue. For the nine months ended September 30, 2020 1 customer accounted for 100% of total revenue. There was no revenue for the three months ended September 30, 2020. Both customers are located in the United States. As of September 30, 2021, there was 1 customer that accounted for 100% of accounts receivable and as of December 31, 2020, there were 0 accounts receivable.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of checking account and money market fund account balances. Restricted cash consists of deposits for a letter of credit that the Company has provided to secure its obligations under its facility lease.

The following table provides a reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets which, in aggregate, represent the amount reported in the condensed consolidated statements of cash flows (in thousands):


	September 30,		December 31,
	2021		2020
Cash and cash equivalents	$	18,221	$	8,232
Restricted cash		500		500
Total cash, cash equivalents and restricted cash	$	18,721	$	8,732

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company considers the credit worthiness of its customers but does not require collateral in advance of a sale. The Company evaluates collectability and maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio when necessary. The allowance is based on the Company’s best estimate of the amount of losses in the Company’s existing accounts receivable, which is based on customer creditworthiness, facts and circumstances specific to outstanding balances, and payment terms. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2021 there was $1.0 million in accounts receivable and 0 allowance for doubtful accounts and as of December 31, 2020, there were 0 accounts receivable and allowances for doubtful accounts.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years for lab equipment and computer equipment and software, and over the shorter of the lease term or useful life for leasehold improvements. Maintenance and repairs are charged to expense as incurred, and costs of improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the condensed consolidated balance sheet and any resulting gain or loss is reflected in the condensed consolidated statement of operations in the period realized.

Intangible Assets

Intangible assets are recorded at cost and amortized over the estimated useful life of the asset. Intangible assets consist of licenses with various institutions whereby the Company has rights to use intangible property obtained from such institutions.

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Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment is measured by the excess of the carrying amount of the assets over fair value less the costs to sell the assets, generally determined using the projected discounted future net cash flows arising from the asset. There have been 0 such impairments of long-lived assets as of September 30, 2021 and December 31, 2020.

Revenue Recognition

The Company recognizes revenue based on Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. See Note 6 for details of the development and license agreements.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, 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 at a point in time, or over time, as the entity satisfies performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. 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.

As part of the accounting for customer arrangements, the Company must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis. In developing the standalone price for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company recognizes revenue as or when the performance obligations under the contract are satisfied. The Company receives payments from its customers based on payment schedules established in each contract. The Company records any amounts received prior to satisfying the revenue recognition criteria as deferred revenue on its condensed consolidated balance sheets. Amounts recognized as revenue, but not yet received or invoiced are recorded within other receivables on the condensed consolidated balance sheet. Amounts are recorded as other receivables on the condensed consolidated balance sheet when our right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of a majority of the promised goods or services to the customer will be one year or less.

Contract Assets

The incremental costs of obtaining a contract under ASC 606 (i.e. costs that would not have been incurred if the contract had not been obtained) are recognized as an asset in the Company’s condensed consolidated balance sheets if the Company expects to recover them (see Note 6). Capitalized costs will be amortized to the respective expenses using a systematic basis that mirrors the pattern in which the Company transfers control of the goods and service to the customer. At each reporting date, the Company determines whether or not the capitalized costs to obtain a contract are impaired by comparing the carrying amount of the asset to the remaining amount of consideration that the Company received and expects to receive less the costs that relate to providing services under the relevant contract. For the three and nine months ended September 30, 2021 and 2020, there was 0 amortization of the contract assets and there have been 0 impairments as of September 30, 2021.

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Deferred Revenue

Amounts received prior to satisfying the above revenue recognition criteria, or in which the Company has an unconditional right to payment, are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. The Company has estimated the classification between current and noncurrent deferred revenue related to the respective license agreement within its condensed consolidated balance sheets at September 30, 2021 and December 31, 2020 (see Note 6).

Research and Development

Research and development costs are expensed to operations as incurred. Our research and development expenses consist primarily of:

●

salaries and related overhead expenses, which include stock-based compensation and benefits for personnel in research and development functions;

●

fees paid to consultants and contract research organizations, or CROs, including in connection with our preclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial material management and statistical compilation and analyses;

●

costs related to acquiring and manufacturing clinical trial materials;

●

costs related to compliance with regulatory requirements; and

●

payments related to licensed products and technologies.

Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or when the services are performed.

Stock-Based Compensation

The Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values, which the Company determines using the BSM option pricing model, on a straight-line basis over the requisite service period for the award. The Company accounts for forfeitures as they occur.

The BSM option pricing model incorporates various highly sensitive assumptions, including the fair value of our common stock, expected volatility, expected term and risk-free interest rates. The weighted average expected life of options was calculated using the simplified method as prescribed by the SEC’s Staff Accounting Bulletin, Topic 14 (“SAB Topic 14”). This decision was based on the lack of relevant historical data due to our limited historical experience. In addition, due to our limited historical data, the estimated volatility also reflects the application of SAB Topic 14, incorporating the historical volatility of comparable companies whose stock prices are publicly available. The risk-free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was 0, as we have never declared or paid dividends and have no plans to do so in the foreseeable future.

Income Taxes

The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by the relevant taxing authorities. Assessing an uncertain tax position begins

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with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. At each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. The Company’s policy is to recognize interest or penalties related to income tax matters in income tax expense.

Comprehensive Loss

The Company has no items of comprehensive income or loss other than net loss.

Loss Per Share

Basic loss per share is calculated by dividing net loss for the period by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period.

In March 2021 and in August 2021, the Company issued 124,789 and 634,600 dividend shares, respectively, to certain common stockholders with a fair value of approximately $986,000 and approximately $3.1 million, respectively, (see Note 9) which is included in the net loss available to common stockholders’ for the three and nine months ended September 30, 2021 in the below table.

For the three and nine months ended September 30, 2021 and 2020, there is no difference in the number of shares used to compute basic and diluted net loss per share due to the Company’s net loss position. The following table presents the computation of the basic and diluted net loss per share to common stockholders (in thousands, except share and per share data):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Numerator:	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net loss available to common stockholders (basic and diluted)	$	(24,143)	$	(5,786)	$	(37,510)	$	(16,510)

Denominator:
Weighted-average common shares outstanding used in computing net loss per share available to common stockholders, basic and diluted		12,454,119		8,923,374		11,314,058		8,922,052

Net loss per share to common stockholders, basic and diluted	$	(1.94)	$	(0.65)	$	(3.32)	$	(1.85)

The following potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:


	Three & Nine Months Ended
	September 30,
	2021	2020
	(unaudited)	(unaudited)
Stock options to purchase common stock	1,739,743	1,543,978
Common stock warrants	4,106,569	1,733,322
Pre-funded common stock warrants	3,647,556	—
	9,493,868	3,277,300

JOBS Act Accounting Election

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to take advantage of this provision and, as a result, we will adopt the extended transition period available under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided under the JOBS Act.

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Recently Issued Accounting Pronouncements not yet adopted as of September 30, 2021

Accounting Standards Update 2016-02 and 2018-11

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842). In July 2018, the FASB issued ASU 2018-10, Codification Improvements to ASC 842, Leases, which provides clarification to ASU 2016-02. These ASUs (collectively, the “new lease standard”) require an entity to recognize a lease liability and a right-of-use asset on the consolidated balance sheet for leases with lease terms of more than twelve months. Lessor accounting is largely unchanged, while lessees will no longer be provided with a source of off-balance sheet financing. Initial guidance required the adoption of the new lease standard using the modified retrospective transition method. In July 2018, the FASB issued ASU 2018-11, Leases (ASC 842)—Targeted Improvements, which allows entities to elect an optional transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoptions rather than in the earliest period presented. In March 2019, FASB issued ASU 2019-01, Codification improvements, which provides clarification on implementation issued associated with adopting ASU 2016-02. ASU 2019-01 enhances the guidance in ASC 842 surrounding the fair value of underlying assets for lessors, presentation of sales-type and direct financing leases on the condensed consolidated statement of cash flows, and transition guidance surrounding accounting changes and error corrections.

This guidance was effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In November 2019, the FASB deferred the effective date for adopting the leasing standard updates for private companies, not-for-profit organizations, and smaller reporting companies. In June 2020, the FASB issued additional deferral guidance that defers the effective date of the leasing standard updates for one year for entities in the “all other” category and public not-for-profit entities that have not yet issued financial statements adopting the standard. The deferrals of the standard are intended to provide relief to nonpublic companies and not-for-profit entities that have had their implementation efforts delayed by the COVID-19 pandemic.

As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, the new leasing standard updates would be effective for the Company for the year ended December 31, 2022, and all interim periods within the year ended December 31, 2023. Early adoption is permitted. While the Company continues to review its current accounting policies and practices to identify potential differences that would result from applying the new guidance, the Company expects that its non-cancellable operating lease commitments with a term of more than twelve months will be subject to the new guidance and recognized as right-of-use assets and operating lease liabilities on the Company’s condensed consolidated balance sheets upon adoption. The Company expects to elect transitional practical expedients such that the Company will not need to reassess whether contracts are leases and will retain lease classification and initial direct costs for leases existing prior to the adoption of the new lease standard.

Accounting Standards Update 2016-13

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (ASC 326)”, which is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. For public business entities, ASU 2016-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2020. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-13 is effective for the Company for the fiscal year ending on December 31, 2022, and all interim periods within. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-13 to have a material impact on the Company’s condensed consolidated financial statements and disclosures.

Accounting Standards Update 2019-12

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes (ASC 740)”, which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public entities, the ASU 2019-12 is effective for fiscal years and interim periods within those years beginning after December 15, 2020. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2019-12 is effective for the Company for the fiscal year ending on December 31, 2022, and all interim periods within. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

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3. Fair Value Disclosure

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2

Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3

Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying value of the Company’s cash and cash equivalents, prepaid expenses and other current assets, other assets, accounts payable, accrued liabilities, and note payable approximate fair value due to the short-term nature of these items.

4. Balance Sheet Components

Property and Equipment, net

Property and equipment, net consist of the following (in thousands):


	September 30,		December 31,
	2021		2020
	(unaudited)
Lab equipment	$	2,329	$	2,200
Computer equipment and software		25		25
Construction in progress		521		188
Total property and equipment		2,875		2,413
Less: Accumulated depreciation		(1,429)		(1,155)
Property and equipment, net	$	1,446	$	1,258

Depreciation expense was approximately $93,000 and $83,000 for the three months ended September 30, 2021 and 2020, respectively, and approximately $274,000 and $248,000 for the nine months ended September 30, 2021 and 2020, respectively.

In October 2020, the Company entered into a lease agreement for its new headquarters facility in Los Gatos, California (see Note 12). The Company moved into the new facility in December 2020 and recorded approximately $521,000 and $188,000 as of September 30, 2021 and December 31, 2020, respectively, in construction in progress related to leasehold improvements made by the Company related to the new facility.

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Intangible Assets, net

Intangible assets, net consist of the following (in thousands):


	September 30,		December 31,
	2021		2020
	(unaudited)
Licenses	$	81	$	81
Less: Accumulated amortization		(58)		(54)
Intangible assets, net	$	23	$	27

Amortization expense was approximately $1,000 and $2,000 for the three months ended September 30, 2021 and 2020, respectively, and approximately $4,000 for both nine month periods ended September 30, 2021 and 2020.

Licenses

The Broad Institute of MIT and Harvard — Non-Exclusive Manufacturing Licensing Agreement

The Company entered into a non-exclusive manufacturing licensing agreement with the Broad Institute of MIT and Harvard University (the “Broad Institute”) in January 2021 to make and manufacture CRISPR Modified Cell Lines, CRISPR Modified Animals and CRISPR Modified Plants. These license rights permit the non-exclusive use of the CRISPR Technology for the creation of and improvement of yield from protein and mAb production cell lines, which is one of the core components of the ʎPEX^TM mAb discovery and manufacturing production technology.

Pursuant to this agreement, the Company is obligated to pay to the Broad Institute an issue fee of $25,000, an annual license maintenance fee of $50,000 in 2022, and fees of $100,000 in 2023 and each year thereafter. Additionally, the Company is obligated to pay a royalty of a single digit percentage of all service income received from a customer for the manufacture, sale or transfer of CRISPR modified cell line, CRISPR Modified Animals and CRISPR Modified Plants or end products, as well as a small royalty (a fraction of a percent) on end product net sales from use of any commercialized product that contains any small or large molecule made through the use of a CRISPR modified cell line, CRISPR Modified Animals and CRISPR Modified Plants. The term of the license agreement continues until all patents and filed patent applications, included within the licensed Broad Institute patents, have expired or been abandoned.

MedImmune Limited — License Agreement

In July 2021, the Company executed a license agreement effective July 12, 2021 and entered into an amendment to the license agreement on August 9, 2021 (collectively the “MedImmune License Agreement”) with MedImmune Limited (“MedImmune”), pursuant to which MedImmune granted the Company an exclusive worldwide license for the development and commercialization of suvratoxumab, a Phase 3 ready fully human monoclonal antibody targeting the staphylococcus aureus alpha toxin (the “Licensed Product”). As consideration for the MedImmune License Agreement, the Company issued 884,956 shares of its common stock to MedImmune and a $5.0 million cash payment is due to MedImmune upon the earlier of (i) a registered direct offering in which the Company receives third-party funding or (ii) December 31, 2021. The $5.0 million liability has not been paid and therefore has been included in accrued liabilities within the Company’s condensed consolidated balance sheet at September 30, 2021, and recorded as research and development expense within its condensed consolidated statement of operations for the three and nine months ended September 30, 2021. The fair value of the 884,956 shares of the Company’s common stock issued in connection with the MedImmune License agreement is approximately $6.5 million (see Note 9) which the Company recognized as research and development expense within its condensed consolidated statement of operations and additional paid-in capital within equity in its condensed consolidated balance sheet during the three and nine months ended September 30, 2021.

As additional consideration, the Company will pay MedImmune milestone payments upon the achievement of certain regulatory approvals, for one licensed product, up to a total aggregate amount of $30.0 million and sales related milestone payments of up to $85.0 million. There are 0 development milestone payments. MedImmune is entitled to royalty payments based on aggregate net sales in the low to mid-teens. Further, until delivery of an interim data readout, or an interim futility analysis, from the first Phase 3 clinical study for any indication, MedImmune has a right of first negotiation regarding any commercial rights that the Company intends to sub-license. The term of the MedImmune License Agreement continues until the expiration of the last royalty term for the last licensed product as defined in the license agreement.

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Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	September 30,		December 31,
	2021		2020
	(unaudited)
License fees	$	5,008	$	—
Research and development services		957		872
Payroll related expenses		341		279
Professional services and other		254		179
Accrued liabilities	$	6,560	$	1,330

5. Equity Method Investment

On February 11, 2018, the Company entered into a joint venture agreement (the “JV Agreement”) with Shenzhen Hepalink Pharmaceutical Group Co., Ltd., a related party, principal shareholder of the Company, and a Chinese entity (“Hepalink”), to develop and commercialize products for infectious diseases. Under the terms of the JV Agreement, the Company contributed $1.0 million and the license of its technology relating to the Company’s AR-101 and AR-301 product candidates for use in the joint venture company named Shenzhen Arimab BioPharmaceuticals Co., Ltd. (the “JV Entity”) in the territories of the Republic of China, Hong Kong, Macau and Taiwan (the “Territory”) and initially owns 49% of the JV Entity. On July 2, 2018, the JV Entity received final approval from the government of the People’s Republic of China. It was agreed by the parties that the Company shall be reimbursed for certain legal and contract manufacturing expenses related to the clinical drug supply for a Phase 3 clinical study of AR-301 and the clinical drug supply for a clinical study of AR-105 (see Note 11).

On August 6, 2018, the Company entered into an amendment to the JV Agreement with Hepalink whereby the Company agreed to additionally contribute an exclusive, revocable, and royalty-free right and license to its AR-105 product candidate in the Territory. Pursuant to the JV Agreement and the amendment, Hepalink initially owns 51% of the JV Entity and is obligated to contribute the equivalent of $7.2 million to the JV Entity. Additionally, Hepalink is obligated to make an additional equity investment of $10.8 million or more at the time of the JV Entity’s first future financing.

The Company accounted for its investment in the JV Entity as an equity method investment. The Company recorded the equity method investment at $1.0 million which represents the Company’s contribution into the JV Entity. The Company’s license contributed to the JV Entity was recorded at its carryover basis of 0. The Company recognized losses from the operations of the JV Entity of 0 and $9,000 for the nine months ended September 30, 2021 and 2020, respectively. The Company did not recognize any losses from the operations of the JV Entity for the three months ended September 30, 2021 and 2020, as the net book value of the equity method investment has been 0 since March 31, 2020.

6. Development and License Agreements

Cystic Fibrosis Foundation Development Agreement

In December 2016, the Company received an award from the Cystic Fibrosis Foundation (“CFF”), which was executed under the Development Program Letter Agreement (the “CFF Agreement”), for approximately $2.9 million. Under the CFF Agreement, CFF made an upfront payment of $200,000 and will make milestone payments to the Company as certain milestones defined in the agreement are met. The milestones relate to pre-clinical and clinical research activities. The agreement also specifies that we are obligated to cumulatively spend on the development program at least an equal amount that the Company receives from the CFF. In the event that we do not spend as much as we received under the agreement, we are obligated to return any overage to the CFF. In November 2018, the CFF increased the award to approximately $7.5 million.

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As of the adoption date of ASC 606 on January 1, 2019 (the “Adoption Date”), the Company identified the following promises with regards to the clinical research activities under the CFF Agreement that represent an initial contract of: a) Phase 1 single ascending dose (“SAD”) clinical trial, which consists of the satisfied development-based milestones and one development-based milestone in progress which was accounted for as a single performance obligation; and contingent promises of: b) Phase 1 multiple ascending dose (“MAD”) clinical trial, which consists of one development-based milestone that had not yet been started, and c) Phase 2a clinical trial, which consists of four development-based milestones that had not yet been started. Of these promises, the Phase 1 SAD clinical trial was determined to be a distinct performance obligation as of the Adoption Date. For the clinical research activities related to the Phase 1 MAD clinical trial and the Phase 2a clinical trial that had not yet been started, the Company was contingently obligated to perform these clinical research activities only after the previous milestones, which achievement was uncertain, had been met.

The clinical research activities related to the Phase 1 MAD clinical trial and the Phase 2a clinical trial that had not been started were evaluated to determine if they should be considered variable consideration or contingent promises akin to optional purchases under ASC 606. The Company concluded that these two promises that have not been started are contingent promises because there is substantive uncertainty about the contingent event occurring (i.e. milestones being achieved) and the contingent event requires additional distinct services and incremental payments from the CFF. The Company determined that these contingent promises did not provide the CFF with any material rights. The Phase 1 MAD clinical trial and the Phase 2a clinical trial will be accounted for as separate contracts at the time the Company is obligated to perform the underlying clinical research activities.

The Company determined that the consideration for the Phase 1 SAD clinical trial contract included several development-based milestones, which had been achieved as of the Adoption Date, totaling approximately $1.7 million, and the one development-based milestone in progress as of the Adoption Date of $1.0 million became probable during the quarter ended March 31, 2019. Prior to March 31, 2019, the amount of the one development-based milestone in progress as of the Adoption Date could not be included in the transaction price as it was contingent on successful completion of Phase 1 SAD clinical trial, and it was not probable that significant reversal of cumulative revenue recognized would not occur if this milestone were included in the transaction price.

The Company determined the consideration for the Phase 1 MAD clinical trial contract included one development-based milestone of $1.0 million which became probable of achievement and was achieved during the quarter ended June 30, 2020. Prior to June 30, 2020, the amount of the one development-based milestone could not be included in the transaction price for this contract as it was contingent on successful completion of the Phase 1 MAD clinical trial, and it was not probable that a significant reversal of cumulative revenue recognized would not occur if this milestone were included in the transaction price.

The Company determined the consideration for the Phase 2a clinical trial contract totals approximately $3.8 million which includes four development-based milestones. The Company determined as of September 30, 2021, the transaction price for the Phase 2a clinical trial contract was $1.0 million as the first of the four development-based milestones was achieved during the quarter ended September 30, 2021. As of September 30, 2021, the amount of the remaining three development-based milestones could not be included in the transaction price for this contract as it was contingent on successful completion of the remaining three milestones, and it was not probable that a significant reversal of cumulative revenue recognized would not occur if those milestones were included in the transaction price.

The milestones under the CFF Agreement are development-based milestones related to pre-clinical and clinical research activities and the realization of or recognition of revenue associated with the milestones as determined by the completion of the milestones and, if applicable, review and approval of the achievement by the CFF. Each development-based milestone payment has specific criteria that needs to be met, some examples of which include, the completion of certain study activities and approval to move to the next activity. At every reporting period, the Company evaluates the individual facts and circumstances of the development-based milestone to assess whether the revenue attributable to the development-based milestone in progress should be constrained. The constraint assessment by the Company includes an analysis of the key judgements and considerations used for each milestone which include, but are not limited to, the nature and amount of work to be performed, if the work is subject to the approval of the CFF, clinical data and uncertainty with regards to the results of the clinical studies, and the probability of successful clinical studies. The constraint will be removed once the Company achieves the development-based milestone or has determined that there is probable completion of the development-based milestone, and it has also concluded that it is not probable that revenue recognized attributable to the development-based milestone will result in a significant reversal of revenue in the future.

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The Company determined that the clinical research activities under the CFF Agreement should be recognized over time by calculating the amount of revenue to recognize in any given period by accumulating the total related costs incurred for the respective clinical research activities related to that distinct performance obligation using the input method (cost-to-cost) and applies that percentage of completion to the transaction price at each reporting period. The Company believes this method best depicts the transfer of control to the customer, which occurs as the costs related to the clinical research activities are incurred.

For the three and nine months ended September 30, 2021, the Company recognized revenue of approximately $417,000 from the CFF Agreement, mainly due to the achievement of the first of four development-based milestones related to the Phase 2a clinical trial in the third quarter of 2021. The Company recorded a contract liability for the remaining consideration for achieving the first milestone of approximately $583,000 to deferred revenue, current, on its condensed consolidated balance sheet as of September 30, 2021.

For the nine months ended September 30, 2020, the Company recognized $1.0 million in revenue from the CFF Agreement, mainly due to the achievement of one development-based milestone related to the Phase 1 MAD clinical trial in the second quarter of 2020. The Company did 0t recognize any revenue during the three months ended September 30, 2020.

Serum License Agreement

In July 2019, the Company and Serum International B.V. (“SIBV”), an affiliate of Serum Institute of India Private Limited, entered into an option agreement which granted SIBV the option to license multiple programs from the Company and access the Company’s MabIgX® platform technology for asset identification and selection. The Company received an upfront cash payment of $5.0 million upon execution of this option agreement. In connection with the option agreement, SIBV made an equity investment whereby the Company issued 801,820 shares of its restricted common stock in a private placement to SIBV for total gross proceeds of $10.0 million. As a result of this transaction, SIBV and its affiliates, are considered related parties to the Company.

In September 2019, the Company and Serum AMR Products (“SAMR”), a party under common ownership of SIBV, entered into a License, Development and Commercialization Agreement (the “License Agreement”). Under the License Agreement, the Company received upfront payments totaling $15.0 million, of which $5.0 million was received in July 2019 through the option agreement referred to above. Pursuant to the License Agreement, the Company granted to SAMR exclusive licenses, and rights to sublicense, certain patent rights and technology related know-how to the Company’s products AR-301, AR-105, AR-101 and AR-201 in certain territories as defined in the License Agreement (the “licenses and know-how”), and granted SAMR an option for the Company to provide research services using its MabIgX® platform technology for the identification of up to five (5) candidates including product development of these identified candidates and an exclusive license of these products in certain territories (the “research and development option”). Further, under the License Agreement the Company will provide development support related to the licensed products in order to assist SAMR in its efforts around the licensed products in SAMR’s authorized territories which will be performed under the direction of a Joint Steering Committee (“JSC”) which the Company will participate in (collectively, “development support services”). In addition, under the License Agreement, SAMR was granted an exclusive manufacturing license option as the initial license granted above does not allow for manufacturing of certain products. This manufacturing option provides incremental rights related to these products beyond what is granted as part of the licensing discussed above (the “manufacturing rights option”). If a third party sublicensee of AR-301, AR-105 and AR-101 wishes to manufacture these products by itself for the territory for which it has a license from the Company, then the Company shall have the right to buy back the manufacturing rights for all territories outside of the certain territories by paying to SAMR $5.0 million.

Given the equity investment by SIBV was negotiated in conjunction with the option agreement, which resulted in the execution of the License Agreement, all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based on their fair value. The Company recorded approximately $5.0 million, which represented the fair value of the restricted common stock issued of $5.4 million, net of $441,000 of issuance costs, to stockholders’ equity within the Company’s consolidated balance sheet as of December 31, 2019. The Company allocated the net $4.6 million from the equity investment, after deducting commissions and offering costs, to the License Agreement. Therefore, the Company recorded approximately $19.6 million to deferred revenue based on the $15.0 million from upfront payments under the License Agreement and approximately $4.6 million from the equity allocation.

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The License Agreement is determined to be within the scope of ASC 606, as the transaction represents a contract with a customer where the participants function in a customer/vendor relationship and are not exposed equally to the risks and rewards of the activities contemplated under the License Agreement. Using the concepts of ASC 606, the Company identified the following performance obligations under the License Agreement: 1) the transfer of licenses of the intellectual property for AR-301, AR-101, AR-105 and AR-201, inclusive of the related technology know-how conveyance (referred to as the license and know-how above); and 2) the Company to deliver ongoing development support services related to the licensed products and the Company’s participation in the JSC (referred to as the development support services above); and identified the following material promises under the License Agreement: 3) SAMR was granted a research and development option of up to five identified product candidates for the Company to perform including specific development services (the research and development option referred to above); and 4) SAMR was granted an exclusive manufacturing license option which would provide for incremental manufacturing rights related to AR-301, AR-105 and AR-101 beyond what is granted in the License Agreement (the manufacturing rights option referred to above). The Company concluded that the performance obligations and material promises identified are separate and distinct from each other.

The Company is also entitled to additional payments from SAMR of up to $42.5 million, conditioned upon the achievement of specified milestones related to completion of certain trials and regulatory approvals as defined in the License Agreement. Further, the Company may receive additional royalty-based payments from SAMR if certain sales levels on licensed products are achieved as defined in the License Agreement. The Company concluded that these milestones and royalty payments each contain a significant uncertainty associated with a future event. As such, these milestone and royalty payments are constrained at contract inception and are not included in the transaction price as the Company could not conclude that it is probable a significant reversal in the amount of cumulative revenue recognized will not occur surrounding these payments. At the end of each reporting period, the Company will update its assessment of whether the milestone and royalty payments are constrained by considering both the likelihood and magnitude of the potential revenue reversal. At September 30, 2021 and December 31, 2020 the Company performed an assessment and determined that these milestone and royalty payments are constrained.

The Company determined that the transaction price under the License Agreement was $19.6 million, consisting of the $15.0 million from upfront payments under the License Agreement and approximately $4.6 million from the equity allocation as noted above, which was allocated among the performance obligations and material promises based on their respective related standalone selling prices. The Company allocated the $19.6 million transaction price to the following: approximately $14.5 million to the licenses and know-how; approximately $79,000 to the development support services; approximately $892,000 to the research and development option; and approximately $4.1 million to the manufacturing rights option.

The Company determined that the intellectual property licensed under the License Agreement represents functional intellectual property and it has significant standalone functionality and therefore should be recognized at a point in time upon satisfying the performance obligations. The Company will satisfy the performance obligations upon transfer of the licenses and know-how to SAMR, and expects to satisfy these performance obligations by the end of the third quarter of 2022.

The Company determined that no performance obligations or material promises were satisfied as of September 30, 2021, and therefore, 0 revenue related to the License Agreement was recognized for the three and nine months ended September 30, 2021 and 2020. The Company has recorded contract liabilities resulting from the License Agreement of approximately $18.6 million and $18.7 million to deferred revenue, current, and approximately $971,000 and $854,000 to deferred revenue, noncurrent, on its condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. The Company capitalized a contract asset resulting from the License Agreement of approximately $2.1 million related to the incremental costs of obtaining the License Agreement on its condensed consolidated balance sheets, of which approximately $2.0 million and $2.0 million is classified as current, and approximately $102,000 and $90,000 is classified as noncurrent, as of September 30, 2021 and December 31, 2020, respectively.

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Kermode Licensing and Product Discovery Agreement

In February 2021, the Company entered into an out-licensing and product discovery agreement, and a statement of work (collectively, the “Kermode Agreement”) with Kermode Biotechnologies, Inc. (“Kermode”). Under the terms of this agreement, Kermode will fund for one year the discovery of product candidates for African Swine Fever Virus (“ASFV”) with an option to include the discovery of product candidates for swine influenza virus (“SIV”). Kermode also received exclusive rights to all mAbs and vaccines discovered for veterinary uses and rights to a non-exclusive license to use the Company’s ʎPEX technology platform for further development activities. The Company retained exclusive rights to mAbs and vaccines discovered for human uses. In March 2021, the Company received a nonrefundable upfront payment of $500,000 and will receive two milestone payments of $250,000 each from Kermode after certain research and development phases in the agreement are completed. The Kermode Agreement defines four phases of research and development activities. The Company is also entitled to royalty payments based on future net sales if Kermode is ultimately successful in commercializing product candidates.

The Kermode Agreement is within the scope of ASC 606 as the parties have a customer/vendor relationship and are not exposed equally to the risks and rewards of the activities contemplated in the Kermode Agreement. The Company identified the following promises under the Kermode Agreement: 1) research and development services, and 2) license rights of the ʎPEX Platform and mAbs and vaccines (“Program IP”). The Company determined that these promises are not distinct from each other, and therefore represent one performance obligation.

As of September 30, 2021, the transaction price of the Kermode Agreement was $500,000, consisting of the nonrefundable upfront payment. The two milestone payments, totaling $500,000, and potential royalty payments were not included in the transaction price, as it was not probable that a significant reversal of cumulative revenue recognized would not occur if these amounts were included. At the end of each reporting period, the Company will update its assessment of whether the milestone payments and royalties are constrained by considering both the likelihood and magnitude of the potential revenue reversal.

The Company determined that the one performance obligation under the Kermode Agreement should be recognized over time. At each reporting period, the amount of revenue to recognize will be calculated using the input method (cost-to-cost), by comparing cumulative costs incurred to the total estimated costs to perform all four phases of the research and development activities, and applying that percentage of completion to the transaction price. The Company believes this method best depicts the transfer of control to the customer, which occurs as the costs related to the research and development activities are incurred.

For the three and nine months ended September 30, 2021, the Company recognized approximately $98,000 and $131,000, respectively, in revenue related to the Kermode Agreement. The Company has recorded the remaining portion of the nonrefundable upfront payment as a contract liability of approximately $369,000 to deferred revenue, current, on its condensed consolidated balance sheet as of September 30, 2021.

7. Paycheck Protection Program Loan

The Company applied for and received a loan, which is in the form of a note dated May 1, 2020, from Silicon Valley Bank (“SVB”) in the aggregate amount of approximately $715,000 (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest may be forgiven as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the covered period.

The Loan was payable over two years at an interest rate of 1% per annum, with an estimated deferral of payments until mid-2021. The Company is required to pay principal and interest on the Loan in equal monthly installments estimated to begin in mid-2021 and the outstanding interest balance accrued during the deferral period is to be paid on the maturity date, which is May 1, 2022. The Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Loan contains events of default (as defined in the PPP Loan agreement), in which the occurrence could result in the acceleration of all amounts due under the Loan.

The Company’s Loan forgiveness application was submitted to the Small Business Administration (“SBA”) in October 2020. Since the forgiveness of the Loan was outside the Company’s control, the Company accounted for its PPP Loan as debt.

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At December 31, 2020, the Company recognized the entire amount of the PPP Loan proceeds of approximately $715,000 as a note payable, and classified approximately $439,000 as current and $276,000 as noncurrent, in its condensed consolidated balance sheet. The Company recognized approximately $0 and $3,000, for the three and nine months ended September 30, 2021, respectively, and for the three and nine months ended September 30, 2020, the Company recognized approximately $1,000 and $3,000, respectively, in interest expense in its condensed consolidated statements of operations.

In May 2021, the Company received confirmation that the PPP Loan was forgiven by the SBA and was legally released from its financial obligation by the lender, SVB. As such, for the nine months ended September 30, 2021, the Company recognized in its condensed consolidated statement of operations a gain on extinguishment of PPP Loan of approximately $722,000, which includes the PPP Loan principal of approximately $715,000 and accrued interest of approximately $7,000. At September 30, 2021, the Company had 0 liabilities related to the PPP Loan recorded in its condensed consolidated balance sheet.

8. Warrants

In August 2021, the Company entered into a Securities Purchase Agreement (the “August 2021 Securities Purchase Agreement”) with an institutional investor, pursuant to which the Company agreed to offer, issue and sell to this investor, in a registered direct offering, 1,300,000 shares of its Common Stock, pre-funded warrants to purchase up to an aggregate of 3,647,556 shares of Common Stock (the ”Pre-Funded Warrants”), and warrants to purchase up to 2,473,778 shares of Common Stock (the “Warrants”). The combined purchase price of each share of Common Stock and accompanying Warrants is $5.053 per share. The combined purchase price of each Pre-Funded Warrant and accompanying Warrant is $5.052 (equal to the combined purchase price per share of Common Stock and accompanying Warrant, minus $0.001). The Company received gross proceeds of approximately $25.0 million, and after deducting the placement agent fees and expenses and offering costs, net proceeds were approximately $23.3 million (see Note 9).

Each Warrant is exercisable for 1 share of Common Stock at an exercise price of $5.00 per share. The Warrants are immediately exercisable and will expire seven years from the original issuance date, or August 4, 2028. The Pre-Funded Warrants were offered in lieu of shares of Common Stock to the Purchaser whose purchase of shares of Common Stock in the Offering would otherwise result in the Purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the Purchaser, 9.99%) of the Company’s outstanding Common Stock immediately following the consummation of this Offering. Each Pre-Funded Warrant is exercisable for 1 share of Common Stock at an exercise price of $0.001 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. A holder (together with its affiliates) may not exercise any portion of the Warrant or Pre-Funded Warrant, as applicable, to the extent that the holder would own more than 4.99% (or, at the holder’s option upon issuance, 9.99%) of the Company’s outstanding Common Stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Warrant or Pre-Funded Warrant, as applicable. The exercise price of the Warrants and the Pre-Funded Warrants are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants and Pre-Funded Warrants. Each of the Warrants and the Pre-Funded Warrants may be exercised on a “cashless” basis under certain circumstances set forth in the Warrants and Pre-Funded Warrants.

The Company measured the fair value of the Common Stock and Pre-Funded Warrants based on the Company’s closing stock price on the date the August 2021 Purchase Agreement was entered into and the fair value of the Warrants was based upon a BSM valuation model. The BSM valuation model used the following assumptions: expected term of seven years, expected volatility of approximately 97%, risk-free interest rate of 0.96%, and dividend yield of 0%. The Company used the relative fair value method to allocate the net proceeds received from the sale of the Common Stock, the Pre-Funded Warrants and the Warrants of approximately $23.3 million. The Company recorded approximately $4.4 million, $12.2 million and $6.7 million, which represented the relative fair value of the Common Stock, Pre-Funded Warrants and Warrants, respectively, to stockholders’ deficit within the Company’s condensed consolidated balance sheet.

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9. Common Stock

As of September 30, 2021 (unaudited), the Company had reserved the following common stock for future issuance:


Shares reserved for exercise of outstanding warrants to purchase common stock		4,106,569
Shares reserved for exercise of outstanding pre-funded warrants to purchase common stock		3,647,556
Shares reserved for exercise of outstanding options to purchase common stock		1,739,743
Shares reserved for issuance of future options		393,815
Total		9,887,683

March 2021 Securities Purchase Agreement

In March 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 Securities Purchase Agreement”) with certain institutional and individual investors (the “Purchasers”), pursuant to which the Company agreed to offer, issue and sell to the Purchasers, in a registered direct offering, an aggregate of 1,037,405 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”) for aggregate gross proceeds to the Company of approximately $7.0 million, and after deducting commissions and offering costs, net proceeds were approximately $6.4 million.

In October 2020, shares of Common Stock were sold in a registered direct offering in which each share contains a price based anti-dilution rights. If the Company issues additional securities at a purchase price less than the purchase price paid by these respective holders, the Company shall issue additional common shares equal to the difference of the number of common shares that each respective shareholder would have received if they paid the subsequent lower price, and the number of shares each respective shareholder originally received. As a result of the March 2021 registered direct offering price per share being less than the October 2020 registered direct offering price per share, the Company was obligated to issue an additional 124,789 shares of unregistered Common Stock to the investors in the Company’s October 2020 registered direct offering pursuant to the anti-dilutive provisions of the October 2020 Securities Purchase Agreement. In March 2021, the Company issued 124,789 dividend shares to certain common stockholders with a fair value of approximately $986,000, which the Company recorded as a credit to additional paid-in capital, and since the Company has an accumulated deficit, the corresponding debit to additional paid-in capital, resulting in no dollar impact within the Company’s condensed consolidated statement of changes in stockholders’ deficit for the nine months ended September 30, 2021.

MedImmune Limited License Agreement

Effective July 12, 2021, the Company entered into the MedImmune License Agreement, pursuant to which MedImmune granted the Company an exclusive worldwide license for the development and commercialization of suvratoxumab, a Phase 3 ready fully human monoclonal antibody targeting staphylococcus aureus alpha toxin (see Note 4). As part of the consideration for the MedImmune License Agreement, the Company issued 884,956 shares of its’s common stock to MedImmune. The fair value of the 884,956 shares of the Company’s common stock issued in connection with the MedImmune License agreement is approximately $6.5 million. The Company measured the fair value of the common stock issued to MedImmune based on the Company’s closing stock price on the effective date of the MedImmune License Agreement. The Company recognized the $6.5 million as research and development expense within its condensed consolidated statement of operations and additional paid-in capital within equity in its condensed consolidated balance sheet during the three and nine months ended September 30, 2021.

August 2021 Securities Purchase Agreement

In August 2021, the Company entered into a Securities Purchase Agreement (the “August 2021 Securities Purchase Agreement”) with an institutional investor, pursuant to which the Company agreed to offer, issue and sell to this investor, in a registered direct offering, 1,300,000 shares of its Common Stock, pre-funded warrants to purchase up to an aggregate of 3,647,556 shares of Common Stock (the “Pre-Funded Warrants”), and warrants to purchase up to 2,473,778 shares of Common Stock (the “Warrants”). The combined purchase price of each share of Common Stock and accompanying Warrants is $5.053 per share. The combined purchase price of each Pre-Funded Warrant and accompanying Warrant is $5.052 (equal to the combined purchase price per share of Common Stock and accompanying Warrant, minus $0.001). The Company received gross proceeds of approximately $25.0 million, and after deducting the placement agent fees and expenses and offering costs, net proceeds were approximately $23.3 million (see Note 8).

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As a result of this registered direct offering price per share being less than the October 2020 and March 2021 registered direct offerings price per share, the Company was obligated to issue an additional 634,600 shares of unregistered Common Stock to the investors in the Company’s October 2020 and March 2021 registered direct offerings pursuant to the anti-dilutive provisions of the October 2020 and March 2021 Securities Purchase Agreements. In August 2021, the Company issued 634,600 dividend shares to certain common stockholders with a fair value of approximately $3.1 million, which the Company recorded as a credit to additional paid-in capital, and since the Company has an accumulated deficit, the corresponding debit to additional paid-in capital, resulting in no dollar impact within the Company’s condensed consolidated statement of changes in stockholders’ deficit for the nine months ended September 30, 2021.

10. Stock-Based Compensation

Equity Incentive Plan

In May 2014, the Company adopted and the shareholders approved the 2014 Equity Incentive Plan (the 2014 Plan). Under the 2014 Plan, 233,722 shares of the Company’s common stock were initially reserved for the issuance of stock options to employees, directors, and consultants, under terms and provisions established by the Board of Directors. Under the terms of the 2014 Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive stock options may not be less than 110% of fair market value, as determined by the Board of Directors. The terms of options granted under the 2014 Plan may not exceed ten years.

In June 2020, the adoption of an amendment to the 2014 Plan to eliminate the evergreen provision and set the number of shares of common stock reserved for issuance thereunder to 2,183,692 shares was approved by the Company’s stockholders.

Stock Options

The number of shares, terms, and vesting periods are determined by the Company’s Board of Directors or a committee thereof on an option by option basis. Options generally vest ratably over service periods of up to four years and expire ten years from the date of grant.

Stock option activity for the nine months ended September 30, 2021 is represented in the following table:


		Options Outstanding
			Weighted-
	Shares Available	Number of	Average
	for Grant	Shares	Exercise Price
Balances at December 31, 2020	584,161	1,550,956	$	9.43
Additional shares reserved	—	—		—
Options granted	(224,140)	224,140		7.20
Options exercised	—	(1,559)		2.89
Options cancelled	33,794	(33,794)		10.81
Balances at September 30, 2021	393,815	1,739,743	$	9.12

The Company estimated the fair value of options using the BSM option valuation model. The fair value of options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of the options granted during the three and nine months ended September 30, 2021 and the three and nine months ended September 30, 2020 were estimated using the following assumptions:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021	2020	2021	2020
Expected term (in years)	—	6.00	6.00	6.00
Expected volatility	0	99%	99% - 100%	84% - 99%
Risk-free interest-rate	0	0.38%	0.75% - 1.14%	0.38% - 1.73%
Dividend yield	0	0%	0%	0%

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During the three months ended September 30, 2021, the Company did not grant any options. During the nine months ended September 30, 2021, the Company granted options to purchase 224,140 shares with a weighted-average grant date fair value of $5.04 per share. During the three and nine months ended September 30, 2020, the Company granted options to purchase 26,667 shares and 200,177 shares with a weighted-average grant date fair value of $5.10 and $4.69 per share, respectively.

There were 0 options exercised during both three month periods ended September 30, 2021 and 2020. There were 1,559 options exercised during the nine months ended September 30, 2021, and the aggregate intrinsic value of these options exercised was approximately $5,000. There were 4,913 options exercised during the nine months ended September 30, 2020, and the aggregate intrinsic value of these options exercised was approximately $17,000.

Stock-Based Compensation

The following table presents stock-based compensation expense related to stock options (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Research and development	$	170	$	156	$	502	$	431
General and administrative		410		406		1,198		1,131
Total	$	580	$	562	$	1,700	$	1,562

As of September 30, 2021, total unrecognized stock-based compensation expenses related to unvested stock options was approximately $2.8 million, which is expected to be recognized on a straight-line basis over a weighted-average period of approximately 2.0 years.

11. Related Parties

Joint Venture

On February 11, 2018, the Company entered into a Joint Venture (“JV”) Agreement with Hepalink which is a related party and principal shareholder in the Company, pursuant to which the Company formed a JV Entity for developing and commercializing products for infectious diseases in the greater China territories. It was agreed by the parties that the Company shall be reimbursed for certain legal and contract manufacturing expenses related to the clinical drug supply for a Phase 3 clinical study of AR-301 and the clinical drug supply for a clinical study of AR-105. For the three months ended September 30, 2021 and 2020, the Company recorded approximately $14,000 and $0, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recorded approximately $60,000 and $184,000, respectively, as a reduction to operating expenses in the condensed consolidated statements of operations for amounts reimbursed to the Company by the JV Entity under this arrangement. As of September 30, 2021 and December 31, 2020, the Company recorded approximately $28,000 and $3,000, respectively, in other receivables on the condensed consolidated balance sheets for amounts owed to the Company by the JV Entity under this arrangement and the Company expects the amounts to be collectable and as a result, no reserve for uncollectability was established.

Serum International B.V.

In July 2019, the Company issued 801,820 shares of its restricted common stock in a private placement to Serum International B.V. (“SIBV”), an affiliate of Serum Institute of India Private Limited, for total gross proceeds of $10.0 million. As a result of this transaction, SIBV and its affiliates are considered related parties to the Company. In September 2019, the Company and Serum AMR Products (“SAMR”), a party under common ownership of SIBV, entered into a License, Development and Commercialization Agreement (the “ License Agreement”) (see Note 6).

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The Company determined that no performance obligations or material promises were satisfied as of September 30, 2021, and therefore, 0 revenue related to the License Agreement was recognized for the three and nine months ended September 30, 2021 and, 2020. The Company has recorded contract liabilities resulting from the License Agreement of approximately $18.6 million and $18.7 million to deferred revenue, current, and approximately $971,000 and $854,000 to deferred revenue, noncurrent, on its condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. The Company capitalized a contract asset resulting from the License Agreement of approximately $2.1 million related to the incremental costs of obtaining the License Agreement on its condensed consolidated balance sheets, of which approximately $2.0 million and $2.0 million is classified as current, and approximately $102,000 and $90,000 is classified as noncurrent, as of September 30, 2021 and December 31, 2020, respectively.

Common Stock Purchase

In July 2021, 2 members of the Company’s board of directors and its Chief Executive Officer purchased 12,175 shares of the Company’s common stock for a total purchase price of approximately $60,000. In September 2021, its Chief Medical Officer purchased 5,100 shares of the Company’s common stock for a total purchase price of approximately $21,000. The Company’s common stock shares were purchased in the open market at market price.

12. Commitments and Contingencies

Facility Lease

In October 2020, the Company entered into a new lease agreement (the “Lease Agreement”) with Boccardo Corporation (the “Landlord”) pursuant to which the Company leased approximately 15,129 square feet of office and laboratory space in Los Gatos, California. In December 2020, the Company moved into the new facility which serves as the Company’s corporate headquarters and the Company has made leasehold improvements to the new facility of which approximately $378,000 may be reimbursed by the Landlord as certain criteria are met as defined in the Lease Agreement. The lease commenced in December 2020 and has an approximate five year term with a three year renewal option. Rental payments by the Company commenced on February 1, 2021. In connection with the Lease Agreement, the Company was required to deliver a security deposit in the form of a letter of credit of $500,000 to the Landlord which is classified as restricted cash, noncurrent, in the Company’s condensed consolidated balance sheet.

The future minimum lease payments for the new facility as of September 30, 2021 are as follows (in thousands):


Period ending:
Three months ending December 31, 2021	$	149
Year ending December 31, 2022		610
Year ending December 31, 2023		628
Year ending December 31, 2024		646
Year ending December 31, 2025		666
Thereafter		57
Total	$	2,756

Rent expense was approximately $156,000 and $129,000 for the three months ended September 30, 2021 and 2020, respectively, and $474,000 and $344,000 for the nine months ended September 30, 2021 and 2020, respectively. The Company has recorded approximately $77,000 and $37,000 to deferred rent and lease incentive obligation, classified as current other liabilities, and approximately $382,000 and $223,000 to deferred rent and lease incentive obligation, classified as noncurrent other liabilities, on its condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may incur charges in the future as a result of these indemnification obligations.

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License Agreements

The Company has entered into various collaboration and licensing agreements that provide it with access to certain technology and patent rights. Under the terms of the agreements, the Company may be required to make milestone payments upon achievement of certain development and regulatory activities.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of September 30, 2021 and December 31, 2020, no accruals have been made related to commitments and contingencies.

From time to time, the Company may be involved in various legal proceedings, claims and litigation arising in the ordinary course of business. See below Legal Proceedings for legal complaints filed during the year ended December 31, 2020, and as of September 30, 2021, there were no other pending legal proceedings.

Legal Proceedings

A complaint was filed in February 2020 in the New York State Supreme Court against the Company by an investor who invested in the Company’s preferred stock in July 2017 prior to the Company’s IPO in August 2018. The complaint alleges, among other things, that the Company breached its contract and fiduciary duty, by not issuing additional securities to the investor as a result of the Company’s IPO. The plaintiff is asking for approximately $277,000 in compensatory damages. The parties are currently in fact discovery. The Company believes that the claims in this complaint are without merit and intends to defend vigorously against them.

In September 2021, Cantor Fitzgerald & Co. (“Cantor”) filed a complaint in the Supreme Court of the State of New York, County of New York, against the Company alleging that it breached a letter agreement with Cantor and owe Cantor approximately $1.8 million, including attorney’s fees for a financing fee related to the Company’s equity offering in August 2021. The Company believes that the claims in this complaint are without merit and intend to defend vigorously against them. The Company has filed an answer to the complaint and the parties have scheduled a mediation proceeding.

Grant Income

The Company receives various grants that are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement for expenditures disallowed under the terms of the grant; however, management believes that these disallowances, if any, would be immaterial.

Cystic Fibrosis Foundation Agreement

In December 2016, the Company received an award for up to $2.9 million from the CFF to advance research on potential drugs utilizing inhaled gallium citrate anti-infective. In November 2018, the CFF increased the award to $7.5 million. Under the award agreement, the CFF will make payments to the Company as certain milestones are met. The award agreement also contains a provision whereby if the Company spends less on developing a potential drug utilizing inhaled gallium citrate anti-infective than the Company actually receives under this award agreement, the Company will be required to return the excess portion of the award to the CFF. At the end of any reporting period, if the Company determines that the cumulative amount spent on this program is less than the cumulative cash received from the CFF, the Company will record the excess amount received as a liability. NaN liability related to this excess amount was recorded by the Company as of September 30, 2021 and December 31, 2020.

In the event that development efforts are successful and the Company commercializes a drug from these related development efforts, the Company will be subject to paying to CFF a one-time amount over time equal to 9 times the actual net award received from CFF. Such amount shall be paid in not more than 5 annual installments, as follows: within ninety days of the end of the calendar year in which the first commercial sale occurs, and within ninety days of the end of each subsequent calendar year until the net amount received from CFF is repaid. The Company shall pay 15% of net sales for that calendar year up to the amount of the net award received from CFF (except that in the fifth installment, if any, the Company shall pay the remaining unpaid portion of the net award received from CFF).

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In the event that the Company licenses rights to the product in the field to a third-party, sells the product, or consummates a change of control transaction prior to the first commercial sale, the Company shall pay to CFF an amount equal to 15% of the amounts received by the Company and its shareholders in connection with such disposition (whether paid upfront or in accordance with subsequent milestones and whether paid in cash or property) up to nine times the actual net award received from CFF. The payment shall be made within sixty days after the closing of such a transaction.

In the event that the development efforts are delayed, which result from events within the Company’s control, for more than one hundred eighty (180) consecutive days at any time before the first commercialization of the drug from the related development efforts, the CFF may provide an interruption notice to the Company, or in lieu of the interruption license, pay to the CFF an amount greater than two times the award received plus interest up to the time of such election. The Company then has thirty (30) days to respond to such notice. If the Company does not respond within thirty (30) days, an interruption license shall be effective. The interruption license to the CFF is an exclusive, worldwide license under the development program technology to manufacture, have manufactured, license, use, sell, offer to sell, and support the product in the field and includes financial conditions for both parties.

None of these events have occurred as of September 30, 2021.

Kermode Agreement

In February 2021, the Company entered into the Kermode Agreement, in which the Company received an upfront payment of $500,000 and will receive additional milestone payments from Kermode as certain phases defined in the agreement are completed. The Company is also entitled to additional payments from Kermode for royalty payments on future net sales (see Note 6). In the event that the research and development efforts under the agreement are successful and if the Company elects to develop and commercialize products under certain provisions contained in the agreement, the Company shall pay to Kermode a single digit percentage royalty of net sales from those products. None of these events occurred as of September 30, 2021.

MedImmune Limited License Agreement

In July 2021, the Company executed the MedImmune License Agreement (see Note 4). As additional consideration under this agreement, the Company will pay MedImmune milestone payments upon the achievement of certain regulatory approvals, for one licensed product, up to a total aggregate amount of $30.0 million and sales related milestone payments of up to $85.0 million. There are 0 development milestone payments. MedImmune is entitled to royalty payments based on aggregate net sales in the low to mid-teens. Further, until delivery of an interim data readout, or an interim futility analysis, from the first Phase 3 clinical study for any indication, MedImmune has a right of first negotiation regarding any commercial rights that the Company intends to sub-license. None of these events occurred as of September 30, 2021.

13. Subsequent Events

The Company submitted a complaint in Superior Court of the State of California, County of Santa Clara, against its former landlord on October 22, 2021, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment and violation of the unfair competition law. The claims arise from rent increases and the termination of the tenancy the Company allege were not permitted by the agreement with the landlord. The Company seeks to recover rent paid under protest, its deposit, moving and relocation expenses and consequential damages arising from disruption to its operations. The Company will account for any possible gain that may result from this complaint upon settlement.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”), contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.

Our operations and business prospects are always subject to risks and uncertainties including, among others:

●

the timing of regulatory submissions;

●

our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;

●

approvals for clinical trials may be delayed or withheld by regulatory agencies;

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preclinical and clinical studies will not be successful or confirm earlier results, meet expectations, meet regulatory requirements, or meet performance thresholds for commercial success;

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risks relating to the timing and costs of clinical trials, the timing and costs of other expenses;

●

risks associated with obtaining third-party funding;

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risks associated with delays, increased costs and funding shortages caused by or resulting from the COVID-19 pandemic;

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management and employee operations and execution risks;

●

loss of key personnel;

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competition;

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risks related to market acceptance of products;

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intellectual property risks;

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assumptions regarding the size of the available market, benefits of our products, product pricing, and timing of product launches;

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risks associated with the uncertainty of future financial results;

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our ability to attract collaborators and partners; and

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risks associated with our reliance on third-party organizations.

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Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The condensed consolidated financial statements (unaudited) included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2020, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-K filed with the SEC on March 30, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

We are a late-stage biopharmaceutical company focused on the discovery and development of novel anti-infectives. A significant focus of ours is on targeted immunotherapy using fully human monoclonal antibodies, or mAbs, to treat life-threatening infections. mAbs represent an innovative treatment approach that harnesses the human immune system to fight infections and are designed to overcome the deficiencies associated with current therapies, such as rise in drug resistance, short duration of response, limited tolerability, negative impact on the human microbiome, and lack of differentiation among the treatment alternatives. The majority of our product candidates are derived by employing our differentiated antibody discovery platforms. Our proprietary product pipeline comprises fully human mAbs targeting specific pathogens associated with life-threatening bacterial infections, primarily nosocomial pneumonia, and viral infections such as COVID-19.

In 2019 we announced the development of a novel antibody discovery and production platform technology called ʎPEX™ (pronounced ‘apex’). This technology complements and further extends the capabilities of MabIgX^® to quickly screen large number of antibody-producing B-cells from patients and generation of high mAb-producing mammalian production cell line at a speed not previously attainable. As a result, we can significantly reduce time for antibody discovery and manufacturing compared to conventional approaches. This technology is being applied to the development of COVID-19 mAbs. We also announced initiation of research and development activities of our monoclonal antibody programs for COVID-19 called AR-712 and AR-701.

In July 2021, we announced that our COVID-19 mAb cocktail AR-712 binds and neutralizes the Delta variant virus SARS COV2 at a highly effective level (IC₅₀~20ng/mL). Binding and viral neutralization analyses project that AR-712 will be effective against all variants on the U.S. Center for Disease Control’s Variants of Interest and Variants of Concern lists. The dual antibody cocktail will be delivered as an inhaled treatment and is expected to provide broad coverage of all known high-risk variants. In addition, we announced the preclinical development services support from the National Institute of Allergy and Infectious Diseases (“NIAID”) at the National Institutes of Health (“NIH”) which provided further demonstration of strong therapeutic efficacy of inhaled delivery in a SARS-COV2 hamster challenge model. AR-712 achieved reversal of disease in infected animals at an inhaled dose of 1mg/kg, equivalent to a ~10mg dose in humans from a nebulizer. These results confirmed our efficacy studies showing highly efficient dosing by inhalation. For reference purposes, the dose of commercially available COVID antibody therapies is in the range of 500mg to 1,200mg. AR-712 is being developed as a self-administered, out-patient treatment for COVID-19 patients who are not yet hospitalized. The product candidate is designed to substantially lower the barrier to treatment of COVID-19 patients and encourage treatment much earlier in the course of their disease within the patients’ own homes. The manufacturing of clinical trial drug supplies has been delayed. Currently, we expect the clinical Phase 1/2 study to be launched in the first half of 2022.

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Our lead product candidate, AR-301 has exhibited promising preclinical data and clinical data from a Phase 1/2a clinical study in patients. AR-301 targets the alpha toxin produced by gram-positive bacteria Staphylococcus aureus, or S. aureus, a common pathogen associated with hospital-aquired pneumonia (“HAP”) and ventilator-associated pneumonia (“VAP”). In contrast to other programs targeting S. aureus toxins, we are developing AR-301 as a treatment of pneumonia, rather than prevention of S. aureus colonized patients from progression to pneumonia. In January 2019, we initiated a Phase 3 pivotal trial evaluating AR-301 for the treatment of VAP. This AR-301 Phase 3 study remains blinded, and the independent Data Monitoring Committee with access to unblinded data continues to monitor study subjects for safety and has not conveyed any safety concerns (i.e., thus far an un-remarkable safety profile). The on-going COVID-19 pandemic has caused an impact on patient enrollment globally and the rate of clinical site activation. The activation of AR-301 clinical trial sites progressed globally during the pandemic, but the patient enrollment slowed due to the prioritization of the intensive care units (“ICU”) around the world to COVID-19 patients. As countries start to emerge from the pandemic, we expect patient enrollment to improve, and enrollment to be complete in late first half of 2022. As such, we expect to deliver top-line data by approximately mid-2022.

In July 2021, we announced an in-licensing agreement with MedImmune Limited, a wholly owned subsidiary of AstraZeneca, for the worldwide commercial rights of suvratoxumab, which is a half-life extended human IgG1 monoclonal antibody that also targets the alpha toxin produced by S. aureus. Suvratoxumab is a fully human, IgG1 monoclonal antibody targeting S. aureus alpha toxin. This product is given the product code ‘AR-320’. As with AR-301, AR-320’s mode of action is independent of the antibiotic resistance profile of S. aureus, and it is active against infections caused by both methicillin-resistant S. aureus (“MRSA”) and methicillin-susceptible S. aureus (“MSSA”). Suvratoxumab and AR-301 are complementary products. Suvratoxumab’s focus on preventive treatment of S. aureus pneumonia complements Aridis’ AR-301 Phase 3 mAb program which is being developed as a therapeutic treatment of S. aureus pneumonia. A multinational, randomized, double blinded, placebo controlled Phase 2 study conducted by AstraZeneca (n=196 patients) showed that mechanically ventilated ICU patients colonized with S. aureus who are treated with suvratoxumab saw a relative risk reduction of pneumonia by 32% in the overall intend to treat study population, and by 47% in the prespecified under 65 year old population, which is the target population in the planned Phase 3 study. The relative risk reduction in the target population reached statistical significance, and was also associated with a substantial reduction in the duration of care needed in the ICU and hospital [see https://www.thelancet.com/journals/laninf/article/PIIS1473-3099(20)30995-6/fulltext]. We believe that AR-320 will be first-line treatment, first to market, first-in-class pre-emptive treatment of S. aureus colonized patients. The same first-line, first to market and first-in-class strategy applies to the acute treatment with the monoclonal antibody AR-301, which we believe makes us a leader in this respiratory health space.

To complement and diversify our portfolio of targeted mAbs, we are developing a broad spectrum small molecule non-antibiotic anti-infective agent gallium citrate (AR-501). AR-501 is being developed in collaboration with the Cystic Fibrosis Foundation (“CFF”) as a chronic inhaled therapy to treat lung infections in cystic fibrosis patients. In 2018, AR-501 was granted Orphan Drug, Fast Track and Qualified Infectious Disease Product (“QIDP”) designations by the Food and Drug Administration (“FDA”). During the third quarter of 2019, the European Medicines Agency (“EMA”) granted the program Orphan Drug Designation. We initiated a Phase 1/2a clinical trial in December 2018 of the inhalable formulation of gallium citrate, which is being evaluated for the treatment of chronic lung infections associated with cystic fibrosis. In June 2020, we announced positive results from the Phase 1 portion of our Phase 1/2a clinical trial of AR-501 in which healthy subjects were enrolled. The Safety Monitoring Committee (“SMC’) and Data Safety Monitoring Board (“DSMB”) from the Cystic Fibrosis Foundation supported that the study proceed at all dose levels to the Phase 2a portion of the Phase 1/2a trial in adult subjects with cystic fibrosis. The on-going COVID-19 pandemic has caused an impact on the rate of clinical site activation. We provisionally expect to complete enrollment of the Phase 2a portion with cystic fibrosis subjects in early 2022 with top-line data available during the first half of 2022.

To date, we have devoted substantially all our resources to research and development efforts relating to our therapeutic candidates, including conducting clinical trials and developing manufacturing capabilities, in-licensing related intellectual property, protecting our intellectual property and providing general and administrative support for these operations. We have generated revenue from payments under our collaboration strategic research and development contracts and federal awards and grants, as well as awards and grants from not-for-profit entities and fee for service to third-party entities. Since our inception, we have funded our operations primarily through these sources and the issuance of common stock, convertible preferred stock, and debt securities. Current clinical development activities are focused on AR-301, AR-320 and AR-501. Our expenses and resulting cash burn during the nine months ended September 30, 2021, were largely due to costs associated with the Phase 3 study of AR-301 for the treatment of VAP caused by the S. aureus bacteria, the pre-launch activities associated with the Phase 3 study of AR-320 for the prevention of S. aureus VAP, preclinical development of AR-712 COVID-19 mAb, and the Phase 1/2 study of AR-501 for the treatment of chronic lung infections associated with cystic fibrosis.

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Financial Overview

We have incurred losses since our inception. Our net losses were approximately $33.4 million and $22.3 million for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively. As of September 30, 2021 we had approximately $18.2 million of cash and cash equivalents and had an accumulated deficit of approximately $156.5 million. Substantially all our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, strengthening our manufacturing capabilities and from general and administrative costs associated with our operations.

We have not yet achieved commercialization of any of our products, and we have a cumulative net loss from our operations. We will continue to incur net losses for the foreseeable future. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. We will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through the sale of equity and/or debt securities, grant funding and license agreements. Historically, our principal sources of cash have included proceeds from grant funding, license agreements, fees for services performed, issuances of convertible debt and the sale of our common and preferred stock. Our principal use of cash has been cash used in operations, including funding of research and development, our clinical trials and general working capital requirements. We expect that the principal use of cash in the future will be for continuing operations, including funding of research and development, our clinical trials and general working capital requirements.

We anticipate that our expenses will increase substantially if and as we:

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continue enrollment in our ongoing clinical trials;

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initiate new clinical trials;

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seek to identify, assess, acquire and develop other products, therapeutic candidates and technologies;

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seek regulatory and marketing approvals in multiple jurisdictions for our therapeutic candidates that successfully complete clinical studies;

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establish collaborations with third parties for the development and commercialization of our products and therapeutic candidates;

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make milestone or other payments under our agreements, pursuant to which we have or will license or acquire rights to intellectual property and technology;

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seek to maintain, protect, and expand our intellectual property portfolio;

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seek to attract and retain skilled personnel;

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incur the administrative costs associated with being a public company and related costs of compliance;

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create additional infrastructure to support our operations as a commercial stage public company and our planned future commercialization efforts;

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experience any delays or encounter issues with any of the above; and

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experience protracted COVID-19 related delays.

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We expect to continue to incur significant expenses and increasing losses for at least the next several years. Accordingly, we anticipate that we will need to raise additional capital in order to obtain regulatory approval for, and the commercialization of, our therapeutic candidates. Until such time that we can generate meaningful revenue from product sales, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any approved therapies or products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could adversely affect our business, financial condition and results of operations.

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. Such estimates include those related to the evaluation of our ability to continue as a going concern, our best estimate of standalone selling price of revenue deliverables, useful lives of long lived assets, classification of deferred revenue, income taxes, assumptions used in the Black-Scholes-Merton (“BSM”) model to calculate the fair value of stock based compensation, deferred tax asset valuation allowances, and preclinical study and clinical trial accruals. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. Our critical accounting policies are primarily revenue recognition and research and development expenses and related accruals.

Revenue Recognition

We recognize revenue based on Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform 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 at a point in time, or over time, as the entity satisfies performance obligations. We only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

As part of the accounting for customer arrangements, we must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. We use judgment to determine whether milestones or other variable consideration should be included in the transaction price.

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The transaction price is allocated to each performance obligation on a relative standalone selling price basis. In developing the standalone price for a performance obligation, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We recognize revenue as or when the performance obligations under the contract are satisfied. We receive payments from our customers based on payment schedules established in each contract. We record any amounts received prior to satisfying the revenue recognition criteria as deferred revenue on the condensed consolidated balance sheet. Amounts recognized as revenue, but not yet received or invoiced, are recorded within other receivables on the condensed consolidated balance sheet. Amounts are recorded as other receivables on the condensed consolidated balance sheet when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of a majority of the promised goods or services to the customer will be one year or less.

Research and Development Expenses

We recognize research and development expenses to operations as they are incurred. Our research and development expenses consist primarily of:

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salaries and related overhead expenses, which include stock-based compensation and benefits for personnel in research and development functions;

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costs related to acquiring and manufacturing clinical trial materials;

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costs related to compliance with regulatory requirements; and

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payments related to licensed products and technologies.

We plan to increase our research and development expenses for the foreseeable future as we continue to develop our therapeutic programs, and subject to the availability of additional funding, further advance the development of our therapeutic candidates for additional indications and begin to conduct clinical trials.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our therapeutic candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our therapeutic candidates.

The significant accounting policies used in the preparation of our condensed consolidated financial statements are as follows:

General and Administrative Expenses

General and administrative expenses consist primarily of costs related to executive, finance, corporate development and administrative support functions, including stock-based compensation expenses and benefits for personnel in general and administrative functions. Other significant, general and administrative expenses include rent, accounting and legal services, obtaining and maintaining patents or other intellectual property rights, the cost of various consultants, occupancy costs, insurance premiums and information systems costs.

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We expect that our general and administrative expenses will increase as we continue to operate as a public company, continue to conduct our clinical trials and prepare for commercialization. We believe that these increases will likely include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel to support product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures, and similar requirements applicable to public companies.

Stock-Based Compensation

We recognize compensation expense for all stock-based awards based on the grant-date estimated fair values, which we determine using the BSM option pricing model, on a straight-line basis over the requisite service period for the award. We account for forfeitures as they occur.

The BSM option pricing model incorporates various highly sensitive assumptions, including the fair value of our common stock, expected volatility, expected term and risk-free interest rates. The weighted average expected life of options was calculated using the simplified method as prescribed by the SEC’s Staff Accounting Bulletin, Topic 14 (“SAB Topic 14”). This decision was based on the lack of relevant historical data due to our limited historical experience. In addition, due to our limited historical data, the estimated volatility also reflects the application of SAB Topic 14, incorporating the historical volatility of comparable companies whose stock prices are publicly available. The risk-free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was zero, as we have never declared or paid dividends and have no plans to do so in the foreseeable future.

Income Taxes

We account for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. For the three and nine months ended September 30, 2021 and 2020, no income tax expense or benefit was recognized, primarily due to a full valuation allowance recorded against the net deferred tax asset

We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by the relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. At each balance sheet date, unresolved uncertain tax positions must be reassessed, and we determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

Going Concern

We assess and determine our ability to continue as a going concern under the provisions of ASC 205-40, Presentation of Financial Statements—Going Concern, which requires us to evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that our annual and interim condensed consolidated financial statements are issued. Certain additional financial statement disclosures are required if such conditions or events are identified. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting.

Determining the extent, if any, to which conditions or events raise substantial doubt about our ability to continue as a going concern, or the extent to which mitigating plans sufficiently alleviate any such substantial doubt, as well as whether or not liquidation is imminent, requires significant judgment by us. We have determined that there is substantial doubt about our ability to continue as a going concern for at least the one-year period following our condensed consolidated financial statements issuance date, which have been prepared assuming that we will continue as a going concern. We have not made any adjustments to our condensed consolidated financial statements to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of us to continue as a going concern.

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Results of Operations

Comparison of the Three Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended
	September 30,
	2021		2020		Change $
Revenue:	(unaudited)		(unaudited)
Grant revenue	$	417	$	—	$	417
License revenue		98		—		98
Total revenue		515		—		515
Operating expenses:
Research and development		19,842		4,161		15,681
General and administrative		1,699		1,631		68
Total operating expenses		21,541		5,792		15,749
Loss from operations		(21,026)		(5,792)		(15,234)
Other income (expense):
Interest income, net		1		6		(5)
Other income		23		—		23
Net loss	$	(21,002)	$	(5,786)	$	(15,216)

Grant Revenue. Grant revenue increased to approximately $417,000 for the three months ended September 30, 2021 from zero for the three months ended September 30, 2020 due to the achievement of the first of four development-based milestones related to the Phase 2a clinical trial under the award from the CFF in the third quarter of 2021 and no recognition of grant revenue during the third quarter of 2020.

License Revenue. License revenue increased to approximately $98,000 for the three months ended September 30, 2021 from zero for the three months ended September 30, 2020 due to the recognition of revenue related to the out-licensing and product discovery agreement, and a statement of work, with Kermode Biotechnologies, Inc. (“Kermode”) (collectively, the “Kermode Agreement”), which was entered into in February 2021. There was no recognition of license revenue during the third quarter of 2020.

Research and Development Expenses. Research and development expenses increased by approximately $15.7 million from approximately $4.2 million for the three months ended September 30, 2020 to approximately $19.8 million for the three months ended September 30, 2021 due primarily to:

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an increase of approximately $11.5 million in expenses related to the AR-320 license agreement that we entered into with MedImmune Limited during the third quarter of 2021, of which approximately $6.5 million was related to the issuance of our common stock to MedImmune Limited and a $5.0 million cash payment which is payable to MedImmune Limited by the end of 2021;

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an increase of approximately $3.0 million in spending on drug manufacturing expenses to prepare for our AR-320 Phase 3 trial, which is expected to start in early 2022.

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an increase of approximately $0.8 million in spending on research and development activities for our COVID-19 programs;

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an increase of approximately $0.4 million in spending on clinical trial activities and drug manufacturing expenses for the Phase 2a study of our AR-501 program; and

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an increase of approximately $0.2 million in personnel, consulting and other related costs.

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These increases were partially offset by:

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a decrease of approximately $0.1 million in spending on clinical trial activities for the Phase 3 study of our AR-301 program;

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a decrease of approximately $0.1 million in spending on other research and development activities.

General and Administrative Expenses. General and administrative expenses increased by approximately $68,000 from approximately $1.6 million for the three months ended September 30, 2020 to approximately $1.7 million for the three months ended September 30, 2021 which was due primarily to increases in Delaware franchise taxes, professional service fees, patent related expenses, and other general facility related costs, partially offset by a decrease in personnel related costs.

Interest Income, Net. Interest income, net decreased by approximately $5,000 from $6,000 for the three months ended September 30, 2020 to approximately $1,000 for the three months ended September 30, 2021. The decrease is primarily due to lower interest rates during the quarter ended September 30, 2021 as compared to the quarter ended September 30, 2020.

Other Income. Other income increased by approximately $23,000 from zero for the three months ended September 30, 2020 to approximately $23,000 for the three months ended September 30, 2021. The increase was primarily related to income from a sublease agreement we entered into with a tenant on March 1, 2021 to sublet a small portion of our Los Gatos facility. There was no sublease agreement or related income during the quarter ended September 30, 2020.

Comparison of the Nine Months Ended September 30, 2021 and 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands):


	Nine Months Ended
	September 30,
	2021		2020		Change $
Revenue:	(unaudited)		(unaudited)
Grant revenue	$	417	$	1,000	$	(583)
License revenue		131		—		131
Total revenue		548		1,000		(452)
Operating expenses:
Research and development		29,370		12,725		16,645
General and administrative		5,337		4,853		484
Total operating expenses		34,707		17,578		17,129
Loss from operations		(34,159)		(16,578)		(17,581)
Other income (expense):
Interest income, net		2		77		(75)
Other income		52		—		52
Gain on extinguishment of Paycheck Protection Program loan		722		—		722
Share of loss from equity method investment		—		(9)		9
Net loss	$	(33,383)	$	(16,510)	$	(16,873)

Grant Revenue. Grant revenue decreased to $417,000 for the nine months ended September 30, 2021 from approximately $1.0 million for the nine months ended September 30, 2020 due to the recognition of revenue from the achievement of the first of four development-based milestones related to the Phase 2a clinical trial under the award from the CFF in the third quarter of 2021 and the recognition of revenue from the achievement of one development-based milestone related to the Phase 1 MAD clinical trial in the second quarter of 2020.

License Revenue. License revenue increased to approximately $131,000 for the nine months ended September 30, 2021 from zero for the nine months ended September 30, 2020 primarily due to the recognition of revenue related to the Kermode Agreement, which was entered into in February 2021. There was no recognition of license revenue during the first nine months of 2020.

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Research and Development Expenses. Research and development expenses increased by approximately $16.6 million from approximately $12.7 million for the nine months ended September 30, 2020 to approximately $29.4 million for the nine months ended September 30, 2021 due primarily to:

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an increase of approximately $3.0 million in spending on drug manufacturing expenses to prepare for our AR-320 Phase 3 trial, which is expected to start in early 2022.

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an increase of approximately $1.6 million in spending on research and development activities for our COVID-19 programs;

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an increase of approximately $0.6 million in personnel, consulting and other related costs;

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an increase of approximately $0.6 million in spending on clinical trial activities and drug manufacturing expenses for the Phase 2a study of our AR-501 program; and

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an increase of approximately $0.1 million in spending on other research and development activities.

These increases were partially offset by:

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a decrease of approximately $0.5 million in spending on clinical trial activities and drug manufacturing expenses for the Phase 3 study of our AR-301 program; and

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a decrease of approximately $0.3 million in spending on clinical trial activities and drug manufacturing expenses as we continue to wind-down the Phase 2 study of our AR-105 program that was terminated during 2019.

General and Administrative Expenses. General and administrative expenses increased by approximately $484,000 from approximately $4.9 million for the nine months ended September 30, 2020 to approximately $5.3 million for the nine months ended September 30, 2021 which was due primarily to increases in professional service fees, personnel related costs, including stock based compensation, other general facility related costs, and Delaware franchise taxes.

Interest Income, Net. Interest income, net decreased by approximately $75,000 from $77,000 for the nine months ended September 30, 2020 to approximately $2,000 for the nine months ended September 30, 2021. The decrease is primarily due to lower average cash balances during the first nine months of 2021 as compared to the first nine months of 2020.

Other Income. Other income increased by approximately $52,000 from zero for the nine months ended September 30, 2020 to approximately $52,000 for the nine months ended September 30, 2021. The increase was primarily related to income from a sublease agreement we entered into with a tenant on March 1, 2021 to sublet a small portion of our Los Gatos facility. There was no sublease agreement or related income during the first half of 2020.

Gain on Extinguishment of Paycheck Protection Program Loan. Gain on extinguishment of the PPP loan of approximately $722,000 for the nine months ended September 30, 2021 is related to the forgiveness of our loan from the Small Business Administration and release of financial obligation from our lender, Silicon Valley Bank, in May 2021. There was no extinguishment of debt in 2020.

Share of Loss in Equity Method Investment. Loss from equity method investment decreased by approximately $9,000 from $9,000 for the nine months ended September 30, 2020 to zero for the nine months ended September 30, 2021 which was due to there being no share of losses from our equity method investment recorded in the first half of 2021 as the net book value of the investment has been zero since March 31, 2020.

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Liquidity, Capital Resources and Going Concern

As of September 30, 2021 we had approximately $18.2 million of cash and cash equivalents and had an accumulated deficit of approximately $156.5 million.

In March 2021, we entered into a Securities Purchase Agreement with certain institutional and individual investors, pursuant to which we agreed to offer, issue and sell to these investors, in a registered direct offering, an aggregate of 1,037,405 shares of our common stock for aggregate gross proceeds to us of approximately $7.0 million, and after deducting commissions and offering costs, net proceeds were approximately $6.4 million.

As a result of the March 2021 registered direct offering price per share being less than the October 2020 registered direct offering price per share, we were obligated to issue an additional 124,789 shares of unregistered common stock to the investors in our October 2020 registered direct offering pursuant to the anti-dilutive provisions of the October 2020 Securities Purchase Agreement. In March 2021, we issued 124,789 shares to our common stockholders, who purchased in October 2020, with a fair value of approximately $986,000 which we recorded as a credit to additional paid-in capital, and since we have an accumulated deficit, the corresponding debit to additional paid-in capital, resulting in no dollar impact within our condensed consolidated statement of changes in stockholders’ deficit for the nine months ended September 30, 2021.

On August 2, 2021, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we agreed to offer, issue and sell to this investor, in a registered direct offering, 1,300,000 shares of our common stock, pre-funded warrants to purchase up to an aggregate of 3,647,556 shares of our common stock (the “Pre-Funded Warrants”), and warrants to purchase up to 2,473,778 shares of our common stock (the “Warrants”). The combined purchase price of each share of common stock and accompanying Warrants is $5.053 per share. The combined purchase price of each Pre-Funded Warrant and accompanying Warrant is $5.052 (equal to the combined purchase price per share of common stock and accompanying Warrant, minus $0.001). We received gross proceeds of approximately $25.0 million, and after deducting the placement agent fees and expenses and our estimated offering expenses, net proceeds were approximately $23.3 million.

As a result of the August 2021 registered direct offering price per share being less than the October 2020 and March 2021 registered direct offerings price per share, we are obligated to issue an additional 634,600 shares of unregistered common stock to the investors in our October 2020 and March 2021 registered direct offerings pursuant to the anti-dilutive provisions of the October 2020 and March 2021 Securities Purchase Agreements. In August 2021, we issued 634,600 shares to our common stockholders, who purchased in October 2020 and March 2021, with a fair value of approximately $3.1 million which we recorded as a credit to additional paid-in capital, and since we have an accumulated deficit, the corresponding debit to additional paid-in capital, resulting in no dollar impact within our condensed consolidated statement of changes in stockholders’ deficit for the nine months ended September 30, 2021.

We have had recurring losses from operations since inception and negative cash flows from operating activities during the nine months ended September 30, 2021 and the year ended December 31, 2020. We anticipate that we will continue to generate operating losses and use cash in operations through the foreseeable future. Management plans to finance operations through equity or debt financings or other capital sources, including potential collaborations or other strategic transactions. There can be no assurances that, in the event that we require additional financing, such financing will be available on terms which are favorable to us, or at all. If we are unable to raise additional funding to meet our working capital needs in the future, we will be forced to delay or reduce the scope of our research programs and/or limit or cease our operations. We believe that our current available cash and cash equivalents will not be sufficient to fund our planned expenditures and meet our obligations for at least the one-year period following our condensed consolidated financial statements issuance date. There is substantial doubt about our ability to continue as a going concern unless we are able to successfully raise additional capital.

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Cash Flows

Our net cash flow from operating, investing and financing activities for the periods below were as follows (in thousands):


	Nine Months Ended
	September 30,
	2021		2020
Net cash provided by (used in):	(unaudited)		(unaudited)
Operating activities	$	(19,207)	$	(15,381)
Investing activities		(573)		(33)
Financing activities		29,769		729
Net increase (decrease) in cash, cash equivalents and restricted cash	$	9,989	$	(14,685)

Cash Flows from Operating Activities.

Net cash used in operating activities was approximately $19.2 million for the nine months ended September 30, 2021, which was primarily due to our net loss of approximately $33.4 million, an increase of approximately $1.0 million in accounts receivable and the non-cash gain of approximately $722,000 related to the gain on extinguishment of our PPP loan resulting from the SBA’s forgiveness of our loan. The cash used in operating activities was partially offset by an increase of approximately $5.3 million in accrued liabilities and other, an increase of approximately $952,000 in deferred revenue, resulting from the Kermode Agreement and the CFF grant, an increase of approximately $824,000 in accounts payable, a decrease of approximately $335,000 in other receivables, and the non-cash charges of approximately $6.5 million related to issuance of our common stock in connection with the MedImmune license agreement entered into during the third quarter of 2021, $1.7 million related to stock-based compensation and approximately $278,000 in depreciation and amortization.

Net cash used in operating activities was approximately $15.4 million for the nine months ended September 30, 2020, which was primarily due to our net loss of approximately $16.5 million, an increase of approximately $488,000 in capitalized contract costs, resulting from the SAMR License Agreement, a decrease of approximately $619,000 in accrued liabilities and other, and a decrease of approximately $522,000 in accounts payable. The cash used in operating activities was partially offset by a decrease of approximately $702,000 in prepaid expenses, a decrease of approximately $263,000 in other receivables, and the non-cash charges of approximately $1.6 million related to stock-based compensation and approximately $252,000 in depreciation and amortization.

Cash Flows from Investing Activities.

Net cash used in investing activities of approximately $573,000 during the nine months ended September 30, 2021, was due to the purchase of equipment, primarily for diagnostic use in clinical trials, and improvements to our new leased facility during the first nine months of 2021.

Net cash used in investing activities of approximately $33,000 for the s nine months ended September 30, 2020, was due to the purchase of equipment, primarily for diagnostic use in clinical trials.

Cash Flows from Financing Activities.

Net cash provided by financing activities of approximately $29.8 million during the nine months ended September 30, 2021 was primarily due to net proceeds received from registered direct offerings of our common stock in March and August 2021 and net proceeds received from stock option exercises.

Net cash provided by financing activities of approximately $729,000 during the nine months ended September 30, 2020 was due to proceeds of approximately $715,000 received from the PPP Loan and approximately $14,000 was due to net proceeds received from stock option exercises.

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Future Funding Requirements

To date, we have generated revenue from grants and contract services performed and funding from the issuance of convertible preferred stock and common stock sales. We do not know when, or if, we will generate any revenue from our development stage therapeutic programs. We do not expect to generate any revenue from sales of our therapeutic candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates. We expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our therapeutic candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations.

Our future funding requirements will depend on many factors, including:

●

the progress, costs, results and timing of our clinical trials;

●

FDA acceptance, if any, of our therapies for infectious diseases and for other potential indications;

●

the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;

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the number and characteristics of product candidates that we pursue, including our product candidates in preclinical development;

●

the ability of our product candidates to progress through clinical development successfully;

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our need to expand our research and development activities;

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the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;

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our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

●

the effect of the COVID-19 pandemic on our business and operations;

●

our need and ability to hire additional management and scientific, medical and administrative personnel;

●

the effect of competing technological and market developments; and

●

our need to implement additional internal systems and infrastructure, including financial and reporting systems.

Until such time that we can generate meaningful revenue from the sales of approved therapies and products, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates and/or grant licenses on terms that may not be favorable to us.

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Off-Balance Sheet Arrangements

During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the SEC.

JOBS Act Accounting Election

Recently Issued Accounting Pronouncements

Please refer to section “Recently Issued Accounting Pronouncements not yet adopted as of September 30, 2021” in Note 2 of our Notes to the Condensed Consolidated Financial Statements.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (the “SEC’s”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective as of September 30, 2021.

We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to correct any material deficiencies that we may discover. Our goal is to ensure that our management has timely access to material information that could affect our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to modify our disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

A complaint was filed on February 18, 2020 in the New York State Supreme Court against us by an investor who invested in our preferred stock in July 2017 which was prior to our initial public offering in August 2018. The complaint alleges, among other things, that we breached our contract and fiduciary duty, by not issuing additional securities to the investor as a result of our initial public offering. The plaintiff is asking for approximately $277,000 in compensatory damages. The parties are currently in fact discovery. We believe that all of the claims in the complaint are without merit and intend to defend vigorously against them.

On September 1, 2021, Cantor Fitzgerald & Co. (“Cantor”) filed a complaint in the Supreme Court of the State of New York, County of New York, against us alleging that we breached a letter agreement with Cantor and owe Cantor approximately $1.8 million, including attorney’s fees for a financing fee related to our equity offering in August 2021. We believe that the claims in this complaint are without merit and intend to defend vigorously against them. We have filed an answer to the complaint and the parties have scheduled a mediation proceeding.

We submitted a complaint in Superior Court of the State of California, County of Santa Clara, against our former landlord on October 22, 2021, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment and violation of the unfair competition law. The claims arise from rent increases and the termination of the tenancy that we allege were not permitted by the agreement with the landlord. We seek to recover rent paid under protest, our deposit, moving and relocation expenses and consequential damages arising from disruption to our operations.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2020.

Item 5. Other Information.

None.

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Item 6. Exhibits

Exhibit No.		Description
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Aridis Pharmaceuticals, Inc.

Dated: November 10, 2021	By:	/s/ Vu Truong
	Vu Truong
	Chief Executive Officer
	(Principal Executive Officer)


Dated: November 10, 2021	By:	/s/ Fred Kurland
	Fred Kurland Chief Financial Officer
	(Principal Financial Officer)

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Aridis Pharmaceuticals (ARDS) 10-Q2021 Q3 Quarterly report

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