Vaxart, Inc. - Quarter Report: 2019 September (Form 10-Q)

 

 

Table of Contents

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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, 2019

 

OR

 

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

 

For the transition period from                      to                     

 

Commission file number: 001-35285

 

	Vaxart, Inc.
	(Exact Name of Registrant as Specified in its Charter)

 

	Delaware		59-1212264
	(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

	290 Utah Ave., Suite 200, South San Francisco, CA 94080		(650) 550-3500
	(Address of principal executive offices, including zip code)		(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

	Title of each class		Trading symbol		Name of each exchange on which registered
	Common stock, $0.10 par value		VXRT		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 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller 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 13(a) of the Exchange 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 Registrant had 47,722,895 shares of common stock, $0.10 par value, outstanding as of November 8, 2019.

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		September 30, 2019				December 31, 2018
Assets
Current assets:
Cash and cash equivalents		$	19,558			$	11,506
Accounts receivable			559				1,796
Prepaid expenses and other current assets			1,137				1,343
Total current assets			21,254				14,645
Property and equipment, net			1,469				1,066
Right-of-use assets, net			2,301				—
Intangible assets, net			17,526				19,413
Other long-term assets			145				103
Total assets		$	42,695			$	35,227
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	1,049			$	962
Current portion of secured promissory note payable to Oxford Finance			2,454				1,667
Current portion of operating lease liability			820				—
Liability related to sale of future royalties, current portion			3,228				3,328
Other accrued liabilities			1,603				1,518
Total current liabilities			9,154				7,475
Operating lease liability, net of current portion			1,694				—
Liability related to sale of future royalties, net of current portion			12,926				14,413
Secured promissory note payable to Oxford Finance, net of current portion			—				1,944
Other long-term liabilities			18				157
Total liabilities			23,792				23,989
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred Stock: $0.10 par value; 5,000,000 shares authorized; none issued and outstanding as of September 30, 2019 or December 31, 2018			—				—
Common Stock: $0.10 par value; 100,000,000 shares authorized; 46,223,594 and 7,141,189 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively			4,622				714
Additional paid-in capital			124,533				108,513
Accumulated deficit			(110,252	)			(97,989	)
Total stockholders’ equity			18,903				11,238
Total liabilities and stockholders’ equity		$	42,695			$	35,227

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		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Revenue:
Revenue from customer service contracts		$	94			$	—			$	94			$	—
Revenue from government contract			—				194				—				1,324
Royalty revenue			8				87				3,736				1,050
Non-cash royalty revenue related to sale of future royalties			352				—				2,116				18
Total revenue			454				281				5,946				2,392
Operating expenses:
Research and development			3,713				4,381				11,249				12,801
General and administrative			1,455				1,674				4,856				5,455
Impairment of intangible assets			—				—				—				1,600
Impairment of property and equipment			—				106				—				106
Total operating expenses			5,168				6,161				16,105				19,962
Operating loss			(4,714	)			(5,880	)			(10,159	)			(17,570	)
Other income and (expenses):
Bargain purchase gain			—				—				—				6,660
Interest income			58				11				97				52
Interest expense			(84	)			(129	)			(288	)			(702	)
Non-cash interest expense related to sale of future royalties			(500	)			(532	)			(1,560	)			(1,298	)
Loss on revaluation of financial instruments			—				—				—				(3	)
Foreign exchange loss, net			11				(18	)			(32	)			(215	)
Total other income and (expenses)			(515	)			(668	)			(1,783	)			4,494
Net loss before income taxes			(5,229	)			(6,548	)			(11,942	)			(13,076	)
Provision for income taxes			31				—				294				29
Net loss			(5,260	)			(6,548	)			(12,236	)			(13,105	)
Series B and C preferred dividend			—				—				—				(339	)
Net comprehensive loss attributable to common stockholders		$	(5,260	)		$	(6,548	)		$	(12,236	)		$	(13,444	)
Net loss per share - basic and diluted		$	(0.32	)		$	(0.92	)		$	(0.96	)		$	(2.23	)
Shares used to compute net loss per share - basic and diluted			16,249,032				7,141,189				12,748,665				6,038,001

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										Additional								Total
		Common Stock								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Three Months Ended September 30, 2019
Balances as of June 30, 2019			15,785,735			$	1,579			$	119,258			$	(104,992	)		$	15,845
Issuance of common stock, pre-funded warrants and common stock warrants in September 2019, net of offering costs of $1,457			26,124,828				2,612				4,632				—				7,244
Issuance of common stock warrants to underwriters’ designees in September 2019			—				—				497				—				497
Issuance of common stock upon exercise of pre-funded warrants			4,313,031				431				—				—				431
Stock-based compensation			—				—				146				—				146
Net loss			—				—				—				(5,260	)			(5,260	)
Balances as of September 30, 2019			46,223,594			$	4,622			$	124,533			$	(110,252	)		$	18,903
Nine Months Ended September 30, 2019
Balances as of December 31, 2018			7,141,189			$	714			$	108,513			$	(97,989	)		$	11,238
Cumulative effect of adoption of new leases standard			—				—				—				(27	)			(27	)
Balances as of January 1, 2019, as adjusted			7,141,189			$	714			$	108,513			$	(98,016	)		$	11,211
Issuance of common stock in March 2019, net of offering costs of $560			1,200,000				120				2,320				—				2,440
Issuance of common stock warrants to placement agents’ designees in March 2019			—				—				100				—				100
Issuance of common stock, pre-funded warrants and common stock warrants in April 2019, net of offering costs of $1,579			925,455				93				7,648				—				7,741
Issuance of common stock warrants to underwriters’ designees in April 2019			—				—				333				—				333
Issuance of common stock, pre-funded warrants and common stock warrants in September 2019, net of offering costs of $1,457			26,124,828				2,612				4,632				—				7,244
Issuance of common stock warrants to underwriters’ designees in September 2019			—				—				497				—				497
Issuance of common stock upon exercise of pre-funded warrants			10,832,122				1,083				—				—				1,083
Stock-based compensation			—				—				490				—				490
Net loss			—				—				—				(12,236	)			(12,236	)
Balances as of September 30, 2019			46,223,594			$	4,622			$	124,533			$	(110,252	)		$	18,903

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																		Additional								Total
		Preferred Stock								Common Stock								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Equity (Deficit)
Three Months Ended September 30, 2018
Balances as of June 30, 2018			—			$	—				7,141,189				714				108,178				(86,539	)		$	22,353
Stock-based compensation			—				—				—				—				183				—				183
Net loss			—				—				—				—				—				(6,548	)			(6,548	)
Balances as of September 30, 2018			—			$	—				7,141,189			$	714			$	108,361			$	(93,087	)		$	15,988
Nine Months Ended September 30, 2018
Balances as of December 31, 2017			1,221,064			$	1				138,492				—			$	41,259			$	(79,982	)		$	(38,722	)
Issuance of common stock upon conversion of convertible promissory notes, related parties			—				—				1,571,702				157				35,420				—				35,577
Issuance of common stock upon conversion of convertible preferred stock			(1,221,064	)			(1	)			1,918,543				192				(191	)			—				—
Reclassification of warrant to equity			—				—				—				—				70				—				70
Issuance of common stock upon reverse merger			—				—				3,510,439				365				31,403				—				31,768
Issuance of common stock upon exercise of stock options			—				—				2,013				—				13				—				13
Stock-based compensation			—				—				—				—				387				—				387
Net loss			—				—				—				—				—				(13,105	)			(13,105	)
Balances as of September 30, 2018			—			$	—				7,141,189			$	714			$	108,361			$	(93,087	)		$	15,988

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		Nine Months Ended September 30,
		2019				2018
Cash flows from operating activities:
Net loss		$	(12,236	)		$	(13,105	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bargain purchase gain			—				(6,660	)
Depreciation and amortization			2,854				2,379
Impairment of intangible assets			—				1,600
Impairment of property and equipment			—				106
Stock-based compensation			490				387
Loss on revaluation of financial instruments			—				3
Non-cash interest expense			93				408
Amortization of note discount			—				18
Non-cash interest expense related to sale of future royalties			1,560				1,298
Non-cash revenue related to sale of future royalties			(3,147	)			(18	)
Change in operating assets and liabilities:
Accounts receivable			1,237				15,040
Prepaid expenses and other assets			164				(416	)
Accounts payable			136				(3,495	)
Accrued liabilities			(449	)			(6,391	)
Net cash used in operating activities			(9,298	)			(8,846	)
Cash flows from investing activities:
Purchase of property and equipment			(838	)			(512	)
Cash acquired in reverse merger			—				25,525
Cash paid for fractional shares in merger			—				(21	)
Purchases of short-term investments			—				(573	)
Proceeds from maturities of short-term investments			—				1,988
Net cash (used in) provided by investing activities			(838	)			26,407
Cash flows from financing activities:
Net proceeds from issuance of common stock in registered direct offering			2,540				—
Net proceeds from issuance of common stock, pre-funded warrants and common warrants in April 2019 underwritten offering			8,074				—
Net proceeds from issuance of common stock, pre-funded warrants and common warrants in September 2019 underwritten offering			7,741				—
Repayment of principal on secured promissory note payable to Oxford Finance			(1,250	)			(1,111	)
Repayment of short-term note			—				(112	)
Proceeds from issuance of common stock upon exercise of pre-funded warrants			1,083				—
Proceeds from issuance of common stock upon exercise of stock options			—				13
Net cash provided by (used in) financing activities			18,188				(1,210	)
Net increase in cash and cash equivalents			8,052				16,351
Cash, cash equivalents and restricted cash at beginning of the period			11,506				1,571
Cash, cash equivalents and restricted cash at end of the period		$	19,558			$	17,922

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		Nine Months Ended September 30,
		2019				2018
Supplemental disclosure of cash flow information:
Interest paid		$	195			$	276
Supplemental disclosure of non-cash investing and financing activity:
Issuance of warrants to placement agents’ designees		$	100			$	—
Issuance of warrants to underwriters’ designees		$	830			$	—
Issuance of common stock upon reverse merger, net of cash paid for partial shares		$	—			$	31,768
Conversion of convertible promissory notes, related parties into common stock upon reverse merger		$	—			$	35,577
Reclassification of convertible preferred stock warrant liability to equity		$	—			$	70
Operating lease liabilities arising from obtaining right-of-use assets		$	1,929				N/A
Acquisition of property and equipment included in accounts payable		$	3			$	102

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NOTE 1.  Organization and Basis of Presentation

 

General 

 

Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. The Company changed its name to Vaxart, Inc. (“Private Vaxart”) in July 2007, and reincorporated in the state of Delaware.

 

On February 13, 2018, Private Vaxart completed a business combination with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Aviragen merged with Private Vaxart, with Private Vaxart surviving as a wholly-owned subsidiary of Aviragen (the “Merger”). Pursuant to the terms of the Merger, Aviragen changed its name to Vaxart, Inc. (together with its subsidiaries, the “Company” or “Vaxart”) and Private Vaxart changed its name to Vaxart Biosciences, Inc. All of Private Vaxart’s convertible promissory notes and convertible preferred stock was converted into common stock, following which each share of common stock was converted into approximately 0.22148 shares of the Company’s common stock (the “Conversion”). Except as otherwise noted in these Financial Statements, all shares, equity securities and per share amounts of Private Vaxart are presented to give retroactive effect to the Conversion.

 

Immediately following the completion of the Merger, the Company effected a reverse stock split at a ratio of one new share for every eleven shares of the Company’s common stock outstanding (the “Reverse Stock Split”). Except as otherwise noted in these Financial Statements, all share, equity security and per share amounts are presented to give retroactive effect to the Reverse Stock Split.

 

Immediately after the Reverse Stock Split there were approximately 7.1 million shares of the Company’s common stock outstanding. Private Vaxart’s stockholders, warrantholders and optionholders owned approximately 51% of the fully-diluted common stock of the Company, with Aviragen’s stockholders and optionholders immediately prior to the Merger owning approximately 49% of the fully-diluted common stock of the Company. The Company also assumed all of Private Vaxart’s outstanding stock options and warrants with proportionate adjustments to the number of underlying shares and exercise prices based on an exchange ratio, based on the combined impact of the Conversion and the Reverse Stock Split, of approximately 0.0201346 shares of the Company for each share of Private Vaxart.

 

On March 20, 2019, the Company completed a registered direct offering (the “March 2019 Offering”) of 1,200,000 shares of the Company’s common stock. The total gross proceeds from the offering to the Company were $3.0 million. After deducting placement agent fees and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled $2.5 million. Pursuant to the terms of the engagement letter with the placement agents, the Company paid the placement agents aggregate fees and reimbursable costs of $320,000. In addition, the Company issued the placement agents’ designees 84,000 common stock warrants at the closing of the March 2019 Offering, each warrant entitling the holder to purchase one share of common stock for $3.125 at any time within five years of their issuance date. The aggregate fair value of these warrants at issuance was estimated to be $100,000 (see Note 10), which was recorded in offering costs.

 

On April 11, 2019, the Company completed a public underwritten offering (the “April 2019 Offering”) of 925,455 shares of common stock, 8,165,455 pre-funded warrants, and warrants to purchase 10,454,546 shares of common stock (including 1,363,636 common stock warrants issued upon the exercise by the underwriters of their option to purchase such warrants). Each share of common stock with an accompanying common stock warrant was sold for $1.10, and each pre-funded warrant with an accompanying common stock warrant was sold for $1.00, with the amount paid for each accompanying common stock warrant being $0.10. Each pre-funded warrant entitled the holder to purchase one share of common stock for $0.10, was immediately exercisable, subject to certain ownership limitations, and was exercisable at any time until all of the pre-funded warrants were exercised in full. Each common stock warrant entitles the holder to purchase one share of common stock for $1.10, is exercisable immediately, subject to certain ownership limitations, and will expire five years from the date of issuance.

 

The total gross proceeds from the April 2019 Offering to the Company were $9.3 million. After deducting underwriting discounts, commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company were $8.1 million. In addition, as of September 30, 2019, a further $0.8 million had been received from the exercise of all of 8,165,455 pre-funded warrants issued in the April 2019 Offering.

 

Pursuant to the terms of an underwriting agreement, the Company paid the underwriters aggregate commissions and reimbursable costs of $750,000. In addition, the Company issued the underwriters’ designees 636,364 common stock warrants at the closing of the April 2019 Offering, each warrant entitling the holder to purchase one share of common stock for $1.375 at any time within five years of their issuance date. The aggregate fair value of these warrants at issuance was estimated to be $333,000 (see Note 10), which was recorded in offering costs.

 

On September 30, 2019, the Company completed a public underwritten offering (the “September 2019 Offering”) of 26,124,828 shares of common stock (including 3,558,161 shares of common stock issued upon the partial exercise by the underwriters of their option to purchase 4,000,000 shares), 4,100,000 pre-funded warrants, and warrants to purchase 30,666,667 shares of common stock (including 4,000,000 common stock warrants issued upon the exercise by the underwriters of their option to purchase such warrants). Each share of common stock with an accompanying common stock warrant was sold for $0.30, and each pre-funded warrant with an accompanying common stock warrant was sold for $0.20, with the amount paid for each accompanying common stock warrant being $0.10. Each pre-funded warrant entitles the holder to purchase one share of common stock for $0.10, is immediately exercisable, subject to certain ownership imitations, and may be exercised at any time until all of the pre-funded warrants are exercised in full. Each common stock warrant entitles the holder to purchase one share of common stock for $0.30, is exercisable immediately, subject to certain ownership limitations, and will expire five years from the date of issuance.

 

 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

The total gross proceeds from the September 2019 Offering to the Company were $8.7 million. After deducting underwriting discounts, commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company were $7.7 million. In addition, as of September 30, 2019, a further $0.3 million had been received from the exercise of pre-funded warrants and 1,433,333 pre-funded warrants remained outstanding.

 

Pursuant to the terms of an underwriting agreement, the Company paid the underwriters aggregate commissions and reimbursable costs of $713,000. In addition, the Company issued the underwriters’ designees 2,115,738 common stock warrants at the closing of the September 2019 Offering, each warrant entitling the holder to purchase one share of common stock for $0.375 at any time within five years of their issuance date. The aggregate fair value of these warrants at issuance was estimated to be $497,000 (see Note 10), which was recorded in offering costs.

 

The Company’s principal operations are based in South San Francisco, California, and it operates in one reportable segment, which is the discovery and development of oral recombinant protein vaccines, based on its proprietary oral vaccine platform.

 

Liquidity and Going Concern

 

Since incorporation, the Company has been involved primarily in performing research and development activities, hiring personnel, and raising capital to support these activities. The Company has experienced losses and negative cash flows from operations since its inception. As of September 30, 2019, the Company had an accumulated deficit of $110.3 million and a loan with an outstanding balance of $2.5 million from Oxford Finance, LLC (“Oxford Finance”) which was repaid in full on November 4, 2019 (see Notes 8 and 13).

 

The Company expects to incur increasing costs as research and clinical trials are advanced and, therefore, expects to continue to incur losses and negative operating cash flows for the next several years. Absent additional funding or adjustments to currently planned operating activities, management believes that the Company’s cash and cash equivalents of $19.6 million held as of September 30, 2019, are sufficient to fund the Company into, but probably not beyond, the third quarter of 2020.

 

The Company reviews its operations and clinical plans on a continuing basis, including its commitments for upcoming clinical trials. The Company plans to finance its operations with royalty revenue on sales of Inavir, additional equity or debt financing arrangements, and potentially with additional funding from government contracts or strategic alliances with partner companies. The availability and amount of such funding is not certain.

 

The uncertainties inherent in the Company’s future operations and in its ability to obtain additional funding raise substantial doubt about its ability to continue as a going concern beyond one year from the date these financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

While management believes its plan to raise additional funds will alleviate the conditions that raise substantial doubt, these plans are not entirely within its control and cannot be assessed as being probable of occurring.  If adequate funds are not available, the Company may be required to reduce operating expenses, delay or reduce the scope of its product development programs, obtain funds through arrangements with others that may require the Company to relinquish rights to certain of its technologies or products that the Company would otherwise seek to develop or commercialize itself, or cease operations.

 

 

 

NOTE 2.  Summary of Significant Accounting Policies

 

Basis of Presentation – The Company has prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to these rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes related thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 6, 2019 (the “Annual Report”). Except as noted below, there have been no material changes to the Company’s significant accounting policies described in Note 2 to the consolidated financial statements included in the Annual Report. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position and the results of its operations and cash flows. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Basis of Consolidation – The condensed consolidated financial statements include the financial statements of Vaxart, Inc. and its subsidiaries. All significant transactions and balances between Vaxart, Inc. and its subsidiaries have been eliminated in consolidation.

 

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results and outcomes could differ from these estimates and assumptions.

 

Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company places its cash, cash equivalents and short-term investments at financial institutions that management believes are of high credit quality. The Company is exposed to credit risk in the event of default by the financial institutions holding the cash and cash equivalents to the extent such amounts are in excess of the federally insured limits. The Company has not experienced any losses on its deposits since inception.

 

The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. The Company generally requires no collateral from its customers.

 

Leases – Effective January 1, 2019, the Company records operating leases as right-of-use assets and operating lease liabilities in its condensed consolidated balance sheets for all operating leases with terms exceeding one year. Right-of-use assets represent the right to use an underlying asset for the lease term, including extension options considered reasonably certain to be exercised, and operating lease liabilities to make lease payments. Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term. To the extent that lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the lease commencement date to determine the present value of lease payments. The expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in operating expenses in the Company’s statement of operations and comprehensive loss. The Company has elected to not separate lease and non-lease components of facilities leases, whereas non-lease components of equipment leases are accounted for separately from lease components. 

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which replaced most current lease guidance when it became effective. This standard update was designed to increase transparency and improve comparability by requiring entities to recognize assets and liabilities on the balance sheet for all leases, with certain exceptions. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations. The Company adopted the new guidance effective January 1, 2019, using the modified retrospective method, and used the effective date method of adoption, as permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements, which the FASB issued in July 2018, clarified by ASU 2019-01, Leases (Topic 842): Codification Improvements, which the FASB issued in March 2019, which reduces the disclosure requirements on transition. The Company has elected the short-term lease recognition exemption for all classes of assets, which means that it will not recognize right-of-use assets or lease liabilities for leases with a duration of one year or less. Further, the Company has elected to use all of the practical expedients available on transition, whereby it has not reassessed under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.

 

The adoption of this standard had a material effect on the Company’s condensed consolidated balance sheets, the most significant effects being the recognition of new right-of-use assets and lease liabilities. The Company recognized lease liabilities of $1,229,000, $783,000 of which was current, and right-of-use assets of $953,000 based on the present value of the remaining minimum rental payments for existing operating leases, derecognized liabilities related to deferred rent and lease loss accrual of $249,000, $111,000 of which was current, and recognized an increase of $27,000 to accumulated deficit on adoption of the new accounting policy.

 

The increase in accumulated deficit arose because the right-of-use asset impairment charge that would have been recorded in the three months ended December 31, 2018, under Topic 842 exceeded the lease loss accrual, net of accretion, that was recorded. This impact aside, the adoption had no effect on the Company’s statements of operations or cash flows, other than on related disclosures.

 

Recent Accounting Pronouncements

 

The Company has reviewed all newly-issued accounting pronouncements and concluded that they either are not applicable to the Company’s operations or no material effect is expected on its condensed consolidated financial statements as a result of future adoption.

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 3.  Fair Value of Financial Instruments

 

Fair value accounting is applied for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities that approximate fair value due to their relatively short maturities. As short-term investments are classified as held-to-maturity, they are recorded at their amortized cost.

 

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.

 

The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

 

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

 

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

 

The Company’s money market funds are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities. The Company’s convertible preferred stock warrant liability was classified within Level 3 of the fair value hierarchy as it was valued using inputs that were unobservable in the market.

 

The Company’s only recurring financial assets that are measured at fair value were $15,000 held in money market funds and classified as cash equivalents as of both September 30, 2019 and December 31, 2018, with no recurring financial liabilities held at either date or in the nine months ended September 30, 2019. The following table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018:

 

 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 4.  Balance Sheet Components

 

(a)

Cash and Cash Equivalents

 

Cash and cash equivalents comprises the following:

 

 

(b)

Accounts Receivable

 

Accounts receivable comprises the following:

 

The Company has provided no allowance for uncollectible accounts as of September 30, 2019 or December 31, 2018.

 

(c)

Property and Equipment, Net

 

Property and equipment, net consists of the following:

 

 

Depreciation expense was $131,000 and $130,000 for the three months ended September 30, 2019 and 2018, respectively, and $386,000 and $349,000 for the nine months ended September 30, 2019 and 2018, respectively. Leasehold improvements and furniture at the Company’s leased facility in Georgia, which was subleased in November 2018 for less than the Company is obligated to pay (see Note 7), were assessed as impaired as of September 30, 2018, and accordingly an impairment charge of $106,000 was charged to operating expenses.

 

(d)

Right-of-Use Assets, Net

 

Right-of-use assets, net consists of the following:

 

 

 

(e)

Intangible Assets

 

Intangible assets comprise developed technology, intellectual property and, until it was considered fully impaired, in-process research and development. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over useful lives ranging from 1.3 to 11.75 years for developed technology and 20 years for intellectual property. Intangible assets consist of the following:

 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

Intangible asset amortization expense was $433,000 and $812,000 for the three months ended September 30, 2019 and 2018, respectively, and $1,887,000 and $2,030,000 for the nine months ended September 30, 2019 and 2018, respectively. Following the results of Phase 2 trials in June 2018, the in-process research and development was assessed as fully impaired in the three months ended June 30, 2018, with the related $1.6 million acquired in the Merger (see Note 1) being charged to operating expenses.

 

As of September 30, 2019, the estimated future amortization expense by year is as follows (in thousands):

 

 

(f)

Accrued Liabilities

 

Accrued liabilities consist of the following:

 

 

 

 

NOTE 5.  Revenue

 

Service Contracts with Customers

 

Revenue Recognition. The Company recognized revenue of $94,000 from service contracts with customers of in the three months ended September 30, 2019, the first period in which such revenue has been recorded. Revenue is recognized ratably as the Company provides promised services to its customers in amounts that reflect the consideration that the Company expects to receive for those services.

 

Contract Balances. Accounts receivable related to service contracts with customers was $204,000 as of September 30, 2019. There were no such receivables as of December 31, 2018. There were no contract assets, representing unbilled receivables where revenue has been recognized in advance of customer billings, at either date.

 

Remaining Performance Obligations. Remaining Performance Obligations (“RPO”) comprise deferred revenue plus unbilled contract revenue. As of September 30, 2019, the aggregate amount of RPO was $523,000, comprising $110,000 of deferred revenue, included in other accrued liabilities (see Note 4) and $413,000 of unbilled contract revenue which is not recorded on the balance sheet. We expect 100% of these amounts to be recognized as revenue within the next year. Unbilled contract revenue represents non-cancelable contracts under which the Company has an obligation to perform, for which and revenue has not yet been recognized in the financial statements and the fixed amounts billable have not yet been invoiced.

 

Government Contract

 

In September 2015, the Department of Health and Human Services, Office of Biomedical Advanced Research and Development Authority (“HHS BARDA”) awarded the Company a contract to support the advanced development of a more effective and universal influenza vaccine to improve seasonal and pandemic influenza preparedness. On each of May 25 and July 18, 2017, and June 28, 2018, the Company entered into a Modification of Contract with HHS BARDA, the combined effect being to increase the value of the existing $14 million contract by $1.7 million and to extend it through September 30, 2018. The modified contract was a cost-plus-fixed-fee contract, which reimbursed the Company for allowable direct contract costs plus allowable indirect costs and a fixed fee, totaling $15.7 million. The Company recognized revenue of $194,000 and $1,324,000 during the three and nine months ended September 30, 2018, respectively. As of December 31, 2018, the cumulative revenue recorded from inception under the HHS BARDA contract represented the maximum billable under the contract as presently modified, with no further change orders envisaged.

 

Billings under the contract were based on approved provisional indirect billing rates, which permit recovery of fringe benefits, overhead and general and administrative expenses. Indirect rates as well as allowable costs are subject to audit by HHS BARDA on an annual basis. Management believes that revenues recognized to date have been recorded in amounts that are expected to be realized upon final audit and settlement. When the final determination of the allowable costs for any year has been made, revenue and billings may be adjusted accordingly in the period that the adjustments are known and collection is probable. Costs relating to contract acquisition are expensed as incurred. The Company does not consider any of the revenue recorded under this contract in any period to be at risk of reversal.

 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Royalty Agreements

 

Aviragen entered into a royalty-bearing research and license agreement with GlaxoSmithKline, plc (“GSK”) in 1990 for the development and commercialization of zanamivir, a neuraminidase inhibitor marketed by GSK under the name Relenza to treat influenza. All of the Company’s Relenza patents have expired, the last remaining intellectual property related to the Relenza patent portfolio, which is solely owned by the Company and exclusively licensed to GSK, having expired in July 2019 in Japan. The Company recognized royalty revenue related to Relenza of $8,000 in the three months ended September 30, 2019 compared to $87,000 in the three months ended September 30, 2018. In the nine months ended September 30, 2019, and in the post-Merger period in the nine months ended September 30, 2018, the Company recognized royalty revenue related to Relenza of $772,000 and $498,000, respectively, representing 7% of net sales in Japan.

 

The Company also generates royalty revenue from the sale of Inavir in Japan, pursuant to a collaboration and license agreement that Aviragen entered into with Daiichi Sankyo Company, Limited (“Daiichi Sankyo”) in 2009. In September 2010, laninamivir octanoate was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, the Company currently receives a 4% royalty on net sales of Inavir in Japan. The last patent related to Inavir is set to expire in December 2029, at which time royalty revenue will cease. The royalty revenue related to Inavir recognized in the nine months ended September 30, 2019, and in the post-Merger period in the nine months ended September 30, 2018, was $2,964,000 and $552,000, respectively, representing 4% of net sales in Japan. No such revenue was recognized in the three months ended September 30, 2019, since the sum receivable, net of withholding tax, of $335,000, was payable to Healthcare Royalty Partners III, L.P. (“HCRP”) (see Note 6). In the three months ended September 30, 2018, no non-cash royalty revenue related to the sale of future royalties was earned. Both the royalty revenue and the non-cash royalty revenue related to the sale of future royalties have been subjected to a 5% withholding tax in Japan, for which $17,000 was included in income tax expense in the three months ended September 30, 2019, and $254,000 and $29,000 was included in income tax expense in the nine months ended September 30, 2019 and 2018, respectively.

 

The Company’s royalty revenue is seasonal, in line with the flu season. The majority of the Company’s royalty revenue is earned in the first and fourth fiscal quarters.

 

 

 

NOTE 6. Liabilities Related to Sale of Future Royalties

 

In April 2016, Aviragen entered into a Royalty Interest Acquisition Agreement (the “RIAA”) with HCRP. Under the RIAA, HCRP made a $20.0 million cash payment to Aviragen in consideration for acquiring certain royalty rights (“Royalty Rights”) related to the approved product Inavir in the Japanese market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and a commercialization agreement that the Company entered into with Daiichi Sankyo. Per the terms of the RIAA, HCRP is entitled to the first $3.0 million plus 15% of the next $1.0 million in royalties earned in each year commencing on April 1, with any excess revenue being retained by the Company.

 

Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the RIAA, this transaction is accounted for as a liability that is being amortized using the interest method over the life of the arrangement. The Company has no obligation to pay any amounts to HCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. In order to record the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement and the payments that will be passed through to HCRP over the life of this agreement. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cash interest expense using an estimated effective interest rate. The royalties earned in each period that will be passed through to HCRP are recorded as non-cash royalty revenue related to sale of future royalties, with any excess not subject to pass-through being recorded as royalty revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to sale of future royalties is commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company adjusts the amortization of the liability and interest rate. As a result of this accounting, even though the Company does not retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability, including the related interest, is fully amortized.

 

The following table shows the activity within the liability account in the nine months ended September 30, 2019 (in thousands):

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 7.  Leases

 

The Company has obtained the right of use for office and manufacturing facilities under five operating lease agreements, one of which has been subleased, and for equipment under three operating lease agreements with initial terms exceeding one year and under three operating lease agreements with initial terms of one year or less.

 

The Company obtained the right of use of real estate located in South San Francisco, California, in June 2015 that was scheduled to terminate on April 30, 2020, with a five-year extension option that the Company exercised in July 2019, extending the lease until April 30, 2025. The Company also obtained, via the Merger, the right of use of facilities located in Alpharetta, Georgia, in February 2018 that terminates on February 28, 2021, with no extension option. These facilities were subleased for the remainder of the lease term effective November 30, 2018. In addition, the Company obtained the right of use of three facilities located in South San Francisco, California, under two leases that terminate on July 31, 2021 and one lease that terminates on November 30, 2019, with no extension options, and the right of use of equipment under three leases that terminate between October 2019 and September 2021.

 

As of September 30, 2019, the weighted average discount rate for operating leases with initial terms of more than one year was 10.53% and the weighted average remaining term of these leases was 3.82 years. Discount rates were determined using the Company’s marginal rate of borrowing at the time each lease was executed or extended.

 

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than twelve months as of September 30, 2019 (in thousands):

 

 

The Company presently has no finance leases and no future obligations under operating leases for equipment with initial terms of one year or less.

 

Certain operating lease agreements for facilities include non-lease costs, such as common area maintenance, which are recorded as variable lease costs. Operating lease expenses for the three and nine months ended September 30, 2019, are summarized as follows:

 

 

Net cash outflows associated with operating leases totaled $253,000 and $740,000 in the three and nine months ended September 30, 2019, respectively. Rent expense was and $255,000 and $623,000 for the three and nine months ended September 30, 2018, respectively.

 

Future minimum payments and sublease income under operating leases as of December 31, 2018, were as follows:

 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 8.  Secured Promissory Note Payable to Oxford Finance

 

On December 22, 2016, the Company entered into a loan and security agreement (the “Loan Agreement”) with Oxford Finance, under which the Company borrowed $5.0 million. The $5.0 million loan, which bore interest at 30-day U.S. LIBOR plus 6.17%, is evidenced by a secured promissory note and was repayable over four years, with interest only payable over the first 12 months and the balance fully amortized over the subsequent 36 months. Upon repayment, an additional final payment equal to $325,000 was due, which was being accreted as interest expense over the term of the loan using the effective-interest method. The loan was secured by substantially all the Company’s assets, except for intellectual property, which was subject to a negative pledge, and contained customary financial and operating covenants limiting the Company’s ability to transfer or dispose of assets, merge with or acquire other companies, make investments, pay dividends, incur additional indebtedness and liens and conduct transactions with affiliates.

 

In connection with the Loan Agreement, the Company issued a warrant to Oxford Finance to purchase 7,563 shares of its Series C convertible preferred stock at an exercise price of $33.11 per share (the “Warrant”), expiring in December 2026. The fair value of the Warrant at the date of issuance was $134,000, which was recorded as debt discount and is being amortized as interest expense over the term of the loan using the effective-interest method. The annual effective interest rate of the note, including the accretion of the final payment and the amortization of the debt discount, was approximately 10.5%. The Company recorded interest expense related to the Loan Agreement of $82,000 and $128,000 during the three months ended September 30, 2019 and 2018, respectively, of which $55,000 and $87,000 was paid, respectively, and recorded interest expense of $284,000 and $407,000 during the nine months ended September 30, 2019 and 2018, respectively, of which $191,000 and $276,000 was paid, respectively.

 

The Warrant provided that if the share price at the next equity financing was less than the Warrant exercise price, then the Warrant would be for the new class of shares, the exercise price would be the new class share price, and the number of shares would be calculated by dividing $250,000 by the new class share price. Due to this antidilution protection, the Company determined that the Warrant needed to be recorded as a liability, and therefore estimated the fair value of the Warrant upon issuance and at each balance sheet date, with any changes in the fair value being recorded within the loss on revaluation of financial instruments line in the statements of operations and comprehensive loss.

 

Due to the antidilution protection, following the Merger, the Warrant was amended to allow the holder to purchase 10,914 shares of common stock at an exercise price of $22.99 per share. Since the amended Warrant contains no non-standard antidilution protections or similar features, the fair value of $70,000 on February 13, 2018, was transferred to equity.

 

The outstanding balance of this loan, including the additional final payment of $325,000, was paid in full on November 4, 2019 (see Note 13).

 

 

 

NOTE 9. Commitments and Contingencies

 

(a)

Leases

 

The Company’s lease commitments are detailed in Note 7.

 

(b)

Indemnifications

 

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance.

 

(c)

Litigation

 

From time to time the Company may be involved in claims arising in connection with its business. Based on information currently available, the Company believes that the amount, or range, of reasonably possible losses in connection with any pending actions against it in excess of established reserves, in the aggregate, not to be material to its consolidated financial condition or cash flows. However, losses may be material to the Company’s operating results for any particular future period, depending on the level of income or loss for such period.

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 10.  Stockholders’ Equity

 

(a)

Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of preferred stock, $0.10 par value per share. The Company’s board of directors may, without further action by the stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 5,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of the Company’s common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deterring or preventing a change of control or other corporate action. No shares of preferred stock are currently outstanding, and we have no present plan to issue any shares of preferred stock.

 

(b)

Common Stock

 

On April 23, 2019, the Company’s stockholders approved a Certificate of Amendment to the Company’s Restated Certificate of Incorporation (the “Certificate”), to decrease the authorized number of shares of common stock, par value $0.10, from 200,000,000 to 100,000,000 shares. On April 23, 2019, the Certificate was filed with the Secretary of State of the State of Delaware. Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders. Holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefore. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically. As of September 30, 2019, no dividends had been declared by the board of directors.

 

In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied. There are no sinking fund provisions applicable to the common stock.

 

The Company had shares of common stock reserved for issuance as follows:

 

 

(c)

Warrants

 

The Company has the following warrants outstanding as of September 30, 2019, all of which contain standard anti-dilution protections in the event of subsequent rights offerings, stock splits, stock dividends or other extraordinary dividends, or other similar changes in the Company’s common stock or capital structure, and none of which have any participating rights for any losses:

 

 

The aggregate fair value at issuance of the warrants entitling the holder to purchase one share of common stock for $3.125 that were issued to the placement agents’ designees at the closing of the March 2019 Offering (see Note 1) was estimated to be $100,000, using the Black-Scholes valuation model, using a closing stock price of $2.08 and assumptions including estimated volatility of 80%, a risk-free interest rate of 2.34%, a zero dividend rate and an estimated remaining term of 5.0 years. The aggregate fair value at issuance of the warrants entitling the holder to purchase one share of common stock for $1.375 that were issued to the underwriters’ designees at the closing of the April 2019 Offering (see Note 1) was estimated to be $333,000, using the Black-Scholes valuation model, using a closing stock price of $0.89 and assumptions including estimated volatility of 83%, a risk-free interest rate of 2.31%, a zero dividend rate and an estimated remaining term of 5.0 years. The aggregate fair value at issuance of the warrants entitling the holder to purchase one share of common stock for $0.375 that were issued to the underwriters’ designees at the closing of the September 2019 Offering (see Note 1) was estimated to be $497,000, using the Black-Scholes valuation model, using a closing stock price of $0.36 and assumptions including estimated volatility of 83%, a risk-free interest rate of 1.55%, a zero dividend rate and an estimated remaining term of 5.0 years.

 

In the event of a Fundamental Transaction (a transfer of ownership of the Company as defined in the warrant) within the Company’s control, the holders of the unexercised common stock warrants exercisable for $0.30, $0.375 and $1.10 shall be entitled to receive cash consideration equal to a Black-Scholes valuation, as defined in the warrant. If such Fundamental Transaction is not within the Company’s control, the warrantholders would only be entitled to receive the same form of consideration (and in the same proportion) as the holders of the Company’s common stock, hence these warrants are classified as a component of permanent equity.

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 11.  Equity Incentive Plans

 

Prior to the Merger, Private Vaxart issued equity awards for compensation purposes to employees, directors and consultants under its 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan expired in July 2017 and no further awards may be made under the 2007 Plan. Each outstanding stock option to acquire shares of Private Vaxart stock, whether vested or unvested, was assumed in the Merger after adjustment for the impact of the Conversion and the Reverse Stock Split.

 

In November 2016, Aviragen’s stockholders approved the 2016 Equity Incentive Plan (“2016 Plan”), under which all outstanding awards under Aviragen’s previous plans became available for issuance under the 2016 Plan if such awards were forfeited or otherwise terminated.

 

Under the 2016 Plan, Aviragen was authorized to issue incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), restricted stock (“RSAs”) and restricted stock units (“RSUs”). Awards that expired or were canceled generally became available for issuance again under the 2016 Plan. Awards have a maximum term of ten years from the grant date and may vest over varying periods, as specified by the Company’s Board of Directors for each grant. Following stockholder approval of the 2019 Equity Incentive Plan (the “2019 Plan”), no further awards are available for grant under the 2016 Plan.

 

On April 23, 2019, the Company’s stockholders approved the adoption of the 2019 Plan, under which the Company is authorized to issue ISOs, NQSOs, stock appreciation rights, RSAs, RSUs, other stock awards and performance awards that may be settled in cash, stock, or other property. The 2019 Plan is designed to secure and retain the services of employees, directors and consultants, provide incentives for the Company’s employees, directors and consultants to exert maximum efforts for the success of the Company and its affiliates, and provide a means by which employees, directors and consultants may be given an opportunity to benefit from increases in the value of the Company’s common stock.

 

The aggregate number of shares of common stock that may be issued under the 2019 Plan will not exceed 1,600,000 shares, which can only be increased by stockholder approval, except that all awards are subject to adjustment in the event of a stock split, stock dividend or other extraordinary dividend, or other similar change in the Company’s common stock or capital structure. Awards that expire or are canceled generally become available for issuance again under the 2019 Plan. Awards have a maximum term of ten years from the grant date and may vest over varying periods, as specified by the Company’s board of directors for each grant.

 

A summary of stock option transactions in the nine months ended September 30, 2019, is as follows:

 

 

The weighted average grant date fair value of options awarded in the nine months ended September 30, 2019 and 2018, was $0.55 and $3.59, respectively. Fair values were estimated using the following assumptions:

 

 

The Company measures the fair value of all stock-based awards on the grant date and records the fair value of these awards, net of estimated forfeitures, to compensation expense over the service period. Total stock-based compensation recognized for options was as follows:

 

 

As of September 30, 2019, the unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $1.1 million, which the Company expects to recognize over an estimated weighted average period of 2.61 years.

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

 

NOTE 12.  Net Loss Per Share Attributable to Common Stockholders

 

The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share amounts):

 

 

No adjustment has been made to the net loss attributable to common stockholders as the effect would be antidilutive due to the net loss.

 

The following potentially dilutive securities were excluded from the computation of diluted weighted average shares outstanding because they would have been antidilutive:

 

 

 

 

NOTE 13.  Subsequent Events

 

The secured promissory note payable to Oxford Finance (see Note 8) was repaid in full on November 4, 2019. The Company will expense the related unamortized deferred financing costs of approximately $0.1 million in the three months ending December 31, 2019.

 

 

 

 

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