Vaxart, Inc. - Quarter Report: 2020 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, 2020

 

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.)

 

	385 Oyster Point Boulevard, Suite 9A, 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, $0.0001 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 109,468,945 shares of common stock, $0.0001 par value, outstanding as of November 11, 2020.

 

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FORM 10-Q

FOR THE QUARTER ENDED September 30, 2020

TABLE OF CONTENTS

 

 

				Page
Part I	FINANCIAL INFORMATION			1
		Item 1.	Financial Statements (Unaudited)	1
			Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	1
			Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019	2
			Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020	3
			Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019	4
			Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	5
			Notes to the Condensed Consolidated Financial Statements	7
		Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
		Item 4.	Controls and Procedures	32
Part II	OTHER INFORMATION			33
		Item 1.	Legal Proceedings	33
		Item 1A.	Risk Factors	33
		Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
		Item 3.	Defaults Upon Senior Securities	37
		Item 4.	Mine Safety Disclosures	37
		Item 5.	Other Information	37
		Item 6.	Exhibits	38
SIGNATURES				39

 

		September 30, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	133,438			$	13,526
Accounts receivable			250				3,619
Prepaid expenses and other current assets			1,903				453
Total current assets			135,591				17,598
Property and equipment, net			662				210
Right-of-use assets, net			2,591				1,990
Intangible assets, net			15,794				17,093
Other long-term assets			72				141
Total assets		$	154,710			$	37,032
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	1,871			$	852
Current portion of operating lease liability			1,699				841
Liability related to sale of future royalties, current portion			3,008				2,916
Other accrued liabilities			3,724				4,565
Total current liabilities			10,302				9,174
Operating lease liability, net of current portion			1,032				1,472
Liability related to sale of future royalties, net of current portion			11,698				13,416
Other long-term liabilities			—				18
Total liabilities			23,032				24,080
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding as of September 30, 2020 and December 31, 2019			—				—
Common stock: $0.0001 par value; 150,000,000 shares authorized; 109,468,945 and 48,254,994 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively			11				5
Additional paid-in capital			266,687				129,608
Accumulated deficit			(135,020	)			(116,661	)
Total stockholders’ equity			131,678				12,952
Total liabilities and stockholders’ equity		$	154,710			$	37,032

 

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2020				2019				2020				2019
Revenue:
Revenue from customer service contracts		$	2			$	94			$	193			$	94
Royalty revenue			—				8				2,962				3,736
Non-cash royalty revenue related to sale of future royalties			263				352				535				2,116
Total revenue			265				454				3,690				5,946
Operating expenses:
Research and development			4,616				3,713				11,272				11,249
General and administrative			4,190				1,455				10,076				4,856
Restructuring costs			(952	)			—				(849	)			—
Total operating expenses			7,854				5,168				20,499				16,105
Operating loss			(7,589	)			(4,714	)			(16,809	)			(10,159	)
Other income and (expenses):
Interest income			5				58				69				97
Interest expense			—				(84	)			—				(288	)
Non-cash interest expense related to sale of future royalties			(464	)			(500	)			(1,401	)			(1,560	)
Foreign exchange gain (loss), net			(11	)			11				(13	)			(32	)
Total other income and (expenses)			(470	)			(515	)			(1,345	)			(1,783	)
Net loss before income taxes			(8,059	)			(5,229	)			(18,154	)			(11,942	)
Provision for income taxes			26				31				205				294
Net loss		$	(8,085	)		$	(5,260	)		$	(18,359	)		$	(12,236	)
Net loss per share - basic and diluted		$	(0.08	)		$	(0.32	)		$	(0.23	)		$	(0.96	)
Shares used to compute net loss per share - basic and diluted			107,718,578				16,249,032				81,121,045				12,748,665

 

										Additional								Total
		Common Stock								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Capital				Deficit				Equity
Three Months Ended September 30, 2020
Balances as of June 30, 2020			96,140,661			$	10			$	167,160			$	(126,935	)		$	40,235
Issuance of common stock in July 2020, net of offering costs of $2,966			12,503,806				1				97,033				—				97,034
Issuance of common stock upon exercise of common stock warrants			697,680				—				1,293				—				1,293
Issuance of common stock upon exercise of stock options			126,798				—				286				—				286
Stock-based compensation			—				—				915				—				915
Net loss			—				—				—				(8,085	)			(8,085	)
Balances as of September 30, 2020			109,468,945			$	11			$	266,687			$	(135,020	)		$	131,678
Nine Months Ended September 30, 2020
Balances as of December 31, 2019			48,254,994			$	5			$	129,608			$	(116,661	)			12,952
Issuance of common stock and common stock warrants in March 2020, net of offering costs of $1,278			4,000,000				—				8,722				—				8,722
Issuance of common stock warrants to placement agents’ designees			—				—				453				—				453
Issuance of common stock in July 2020, net of offering costs of $2,966			12,503,806				1				97,033				—				97,034
Issuance of common stock upon exercise of common stock warrants			44,404,966				5				25,946				—				25,951
Issuance of common stock upon exercise of stock options			305,179				—				402				—				402
Disgorgement of short-swing profits, net of costs			—				—				652				—				652
Stock-based compensation			—				—				3,871				—				3,871
Net loss			—				—				—				(18,359	)			(18,359	)
Balances as of September 30, 2020			109,468,945			$	11			$	266,687			$	(135,020	)		$	131,678

										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			$	2			$	120,835			$	(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				3				7,241				—				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			$	5			$	129,150			$	(110,252	)		$	18,903
Nine Months Ended September 30, 2019
Balances as of December 31, 2018			7,141,189			$	1			$	109,226			$	(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			$	1			$	109,226			$	(98,016	)		$	11,211
Issuance of common stock in March 2019, net of offering costs of $560			1,200,000				—				2,440				—				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				—				7,741				—				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				3				7,241				—				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				1,082				—				1,083
Stock-based compensation			—				—				490				—				490
Net loss			—				—				—				(12,236	)			(12,236	)
Balances as of September 30, 2019			46,223,594			$	5			$	129,150			$	(110,252	)		$	18,903

 

		Nine Months Ended September 30,
		2020				2019
Cash flows from operating activities:
Net loss		$	(18,359	)		$	(12,236	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,846				2,854
Stock-based compensation			3,871				490
Non-cash interest expense			—				93
Non-cash interest expense related to sale of future royalties			1,401				1,560
Non-cash revenue related to sale of future royalties			(3,027	)			(3,147	)
Change in operating assets and liabilities:
Accounts receivable			3,369				1,237
Prepaid expenses and other assets			(1,384	)			164
Accounts payable			810				136
Other accrued liabilities			(1,511	)			(449	)
Net cash used in operating activities			(12,984	)			(9,298	)
Cash flows from investing activities:
Purchase of property and equipment			(321	)			(838	)
Proceeds from sale of equipment			3				—
Net cash used in investing activities			(318	)			(838	)
Cash flows from financing activities:
Net proceeds from issuance of securities in registered direct offering			9,175				2,540
Net proceeds from issuance of common stock through at-the-market facility			97,034				—
Net proceeds from issuance of securities in April 2019 underwritten offering			—				8,074
Net proceeds from issuance of securities in September 2019 underwritten offering			—				7,741
Proceeds from issuance of common stock upon exercise of pre-funded warrants			—				1,083
Proceeds from issuance of common stock upon exercise of common stock warrants			25,951				—
Proceeds from issuance of common stock upon exercise of stock options			402				—
Disgorgement of short-swing profits, net of costs			652				—
Repayment of principal on secured promissory note payable to Oxford Finance			—				(1,250	)
Net cash provided by financing activities			133,214				18,188
Net increase in cash and cash equivalents			119,912				8,052
Cash, cash equivalents and restricted cash at beginning of the period			13,526				11,506
Cash, cash equivalents and restricted cash at end of the period		$	133,438			$	19,558

		Nine Months Ended September 30,
		2020				2019
Supplemental disclosure of cash flow information:
Interest paid		$	—			$	195
Supplemental disclosure of non-cash financing activity:
Issuance of warrants to placement agent’s representatives		$	453			$	100
Issuance of warrants to underwriters’ designees		$	—			$	830
Operating lease liabilities arising from obtaining right-of-use assets		$	1,022			$	1,929
Acquisition of property and equipment included in accounts payable		$	213			$	3

 

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”).

 

On March 2, 2020, the Company completed a registered direct offering (the “March 2020 Offering”) of 4,000,000 shares of the Company’s common stock and warrants to purchase 2,000,000 shares of common stock. Each common stock warrant entitles the holder to purchase one share of common stock for $2.50, is exercisable immediately, subject to certain ownership limitations, and will expire five years from the date of issuance. The total gross proceeds from the offering to the Company were $10.0 million. After deducting placement agent fees and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled $9.2 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 $775,000. In addition, the Company issued the placement agents’ designees 280,000 common stock warrants at the closing of the March 2020 Offering, each warrant entitling the holder to purchase one share of common stock for $3.125 at any time within five years of the effective date of the March 2020 Offering. The aggregate fair value of these warrants at issuance was estimated to be $453,000 (see Note 10), which was recorded in offering costs.

 

On June 8, 2020, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation to change the par value of its common and preferred stock from $0.10 per share to $0.0001 per share and to increase the number of authorized shares of common stock from 100,000,000 to 150,000,000. Except as otherwise noted in these condensed consolidated financial statements, all share, equity security and per share amounts are presented to give retroactive effect to these changes.

 

On July 13, 2020, the Company completed the sale of 12,503,806 shares for gross proceeds of approximately $100 million from an at-the-market facility (the “ATM Program”) under a sales prospectus agreement dated July 8, 2020. After deducting sales commissions and expenses, net cash proceeds under the ATM Program were approximately $97 million.

 

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.

 

 

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 U.S. 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, 2019, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 19, 2020 (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 and accounts receivable. The Company places its cash and cash equivalents 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.

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40). In addition to simplifying the accounting for certain debt and equity instruments, none of which the Company presently has outstanding, this standard update provides guidance on how certain instruments should be treated in the computation of earnings per share. The Company plans to adopt the new guidance effective January 1, 2021. Its adoption will have an immaterial impact on the number of shares used in the computation of year-to-date basic and diluted earnings per share.

 

The Company has reviewed all other significant newly-issued accounting pronouncements that are not yet effective and concluded that they are either not applicable to its operations or their adoption will not have a material impact on its financial position or results of operations.

 

 

 

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, accounts receivable, accounts payable and accrued liabilities that approximate fair value due to their relatively short maturities.

 

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 held no recurring financial assets that are measured at fair value as of September 30, 2020. The Company held $100,002,000 and $15,000 in money market funds, classified as cash equivalents, as of September 30, 2020 and December 31, 2019, respectively. The Company held no recurring financial liabilities at either date or in the nine months ended September 30, 2020 or 2019.

 

NOTE 4.  Balance Sheet Components

 

(a)

Cash and Cash Equivalents

 

Cash and cash equivalents comprises the following:

 

 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

(b)

Accounts Receivable

 

Accounts receivable comprises the following:

 

The Company has provided no allowance for uncollectible accounts as of September 30, 2020 and December 31, 2019.

 

(c)

Property and Equipment, Net

 

Property and equipment, net consists of the following:

 

 

Depreciation expense was $34,000 and $131,000 for the three months ended September 30, 2020 and 2019, respectively, and $78,000 and $386,000 for the nine months ended September 30, 2020 and 2019, respectively. There were no impairments of the Company’s property and equipment recorded in the nine months ended September 30, 2020 or 2019.

 

(d)

Right-of-Use Assets, Net

 

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

 

(e)

Intangible Assets, Net

 

Intangible assets comprise developed technology and intellectual property. 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. As of September 30, 2020, developed technology and intellectual property had remaining lives of 9.1 and 7.25 years, respectively. Intangible assets consist of the following:

 

 

Total amortization expense for the three months ended September 30, 2020 and 2019, was $433,000 and $433,000, respectively, and for the nine months ended September 30, 2020 and 2019, was $1,299,000 and $1,887,000, respectively. 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

As of September 30, 2020, the estimated future amortization expense by year is as follows (in thousands):

 

 

(f)

Other Accrued Liabilities

 

Other accrued liabilities consist of the following:

 

 

 

NOTE 5.  Revenue

 

Service Contracts with Customers

 

Contract Balances. Accounts receivable related to service contracts with customers as of September 30, 2020 and December 31, 2019, was nil and $181,000, respectively. Contract assets, representing unbilled receivables where revenue has been recognized in advance of customer billings, as of September 30, 2020 and December 31, 2019, was $214,000 and $21,000, respectively, which is included in prepaid expenses and other current assets.

 

Remaining Performance Obligations. Remaining Performance Obligations (“RPO”) comprise deferred revenue plus unbilled contract revenue. As of September 30, 2020 and December 31, 2019, there was no deferred revenue and the aggregate amount of RPO was $18,000 and $211,000, respectively, all of which was unbilled contract revenue which is not recorded on the balance sheet. We expect, subject to stay-at-home restrictions, that 100% of this amount will be recognized as revenue within the next three months. Unbilled contract revenue represents non-cancelable contracts under which the Company has an obligation to perform, for which revenue has not yet been recognized in the financial statements and the fixed amounts billable have not yet been invoiced.

 

Royalty Agreements

 

Aviragen entered into a royalty-generating research and license agreement with GlaxoSmithKline, plc (“GSK”) in 1990 for the development and commercialization of zanamivir, a neuraminidase inhibitor marketed by GSK as Relenza, to treat influenza. Under the agreement, all Relenza patents owned by the Company were exclusively licensed to GSK. All of the Company’s Relenza patents have expired, with the last remaining patent expiring in July 2019 in Japan, at which time royalty revenue ceased, although until April 30, 2020, it remained subject to adjustments for sales returns and exchange rate differences. The royalty revenue related to Relenza recognized in the three months ended September 30, 2020 and 2019, was nil and $8,000, respectively, and in the nine months ended September 30, 2020 and 2019, was $193,000 and $772,000, respectively, representing 7% of net sales in Japan.

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

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, 2020 and 2019, was $2,769,000 and $2,964,000, respectively, representing 4% of net sales in Japan. In addition, the Company recognized non-cash royalty revenue related to the sale of future royalties (see Note 6) of $263,000 and $352,000 in the three months ended September 30, 2020 and 2019, respectively, and $535,000 and $2,116,000 in the nine months ended September 30, 2020 and 2019, respectively. Both the royalty revenue and the non-cash royalty revenue related to sale of future royalties have been subjected to a 5% withholding tax in Japan, for which $13,000 and $17,000 was included in income tax expense in the three months ended September 30, 2020 and 2019, respectively, and $165,000 and $254,000 was included in income tax expense in the nine months ended September 30, 2020 and 2019, respectively.

 

The Company’s royalty revenue is seasonal, in line with the flu season, so 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 HealthCare Royalty Partners III, L.P. (“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 during the nine months ended September 30, 2020 (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 an operating lease agreement with an initial term 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 right of use of these premises was assessed as partially impaired as of December 31, 2019 (see Note 14). The Company also obtained, via the Merger in February 2018, the right of use of facilities located in Alpharetta, Georgia, 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 has the right of use of two facilities located in South San Francisco, California, under leases that terminate on July 31, 2021, with no extension options, and the right of use of equipment under a lease that terminates in September 2021. Further, the Company has identified an embedded lease for the rental of facilities in Burlingame, California, within a Statement of Work for the manufacture of bulk vaccine product that is expected to be completed by September 2021.

 

As of September 30, 2020, the weighted average discount rate for operating leases with initial terms of more than one year was 10.34% and the weighted average remaining term of these leases was 2.58 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, 2020 (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, 2020 and 2019, are summarized as follows:

 

 

Net cash outflows associated with operating leases totaled $243,000 and $253,000 in the three months ended September 30, 2020 and 2019, respectively, and $717,000 and $740,000 in the nine months ended September 30, 2020 and 2019, respectively.

 

 

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 the 30-day U.S. LIBOR plus 6.17%, was 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 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.

 

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 $284,000 during the three and nine months ended September 30, 2019, respectively, of which $55,000 and $191,000, respectively, was paid. The note was repaid in full on November 4, 2019.

 

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 also entered into indemnification agreements with its directors and officers that 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 legal proceedings 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, is not material to its consolidated financial condition or cash flows. However, any current or future dispute resolution or legal proceeding, regardless of the merits of any such proceeding, could result in substantial costs and a diversion of management’s attention and resources that are needed to run the Company successfully, and could have a material adverse impact on its business, financial condition and results of operations.

 

On August 4, 2020, a purported shareholder derivative complaint was filed in the Superior Court of California, San Mateo County, entitled Godfrey v. Latour, et al. An amended complaint was filed on September 4, 2020, and the case was re-named Ennis v. Latour, et al. The amended complaint names certain of Vaxart’s officers and directors as defendants, asserting claims against them for breach of fiduciary duty, unjust enrichment, and waste and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaint also asserts claims for breach of fiduciary duty, unjust enrichment, and aiding and abetting breach of fiduciary duty against Armistice Capital, LLC (“Armistice”). The claims challenge certain stock options granted to certain of the Company’s officers and directors between March 24, 2020 and June 15, 2020 and certain amendments to two warrants held by Armistice, as disclosed on June 8, 2020. The amended complaint purports to bring the lawsuit derivatively on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” against which no damages are sought. On October 14, 2020, all defendants in the action filed a demurrer with the court, seeking to have the entire case dismissed. 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

On September 8, 2020, a purported shareholder derivative complaint was filed in the Chancery Court in the State of Delaware, entitled Galjour v. Floroiu, et al. On October 20, 2020, a purported shareholder derivative and class action complaint, entitled Jaquith v. Vaxart, Inc., was filed in the Court of Chancery of the State of Delaware. The complaints name as defendants certain of Vaxart’s current and former directors, asserting claims against them for breach of fiduciary duty, unjust enrichment, and waste and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaints also assert claims against Armistice. The complaints challenge certain stock options granted to certain of the Company’s officers and directors between June 8, 2020 and June 15, 2020 and certain amendments made to two warrants held by Armistice, as disclosed on June 9, 2020. Both complaints purport to bring suit derivatively on behalf of and for the benefit of the Company, and the Jaquith complaint also purports to assert a direct claim for breach of fiduciary duty on behalf of a class of Vaxart stockholders. Both complaints name the Company as a “nominal defendant” against which no claims are asserted and no damages are sought. On October 9, 2020, Defendants moved to dismiss the Galjour complaint and to stay the action pending disposition of the Ennis action in California. On November 9, 2020, the Court denied Defendant’s motion to stay the Galjour action pending disposition of the Ennis action in California. On November 9, 2020, the Court also ordered that the parties meet and confer to consolidate the Jaquith and Galjour actions.

 

On September 17, 2020, a purported derivative complaint was filed in the U.S. District Court for the Northern District of California, entitled Stachowski v. Boyd, et al. The complaint names as defendants certain of Vaxart’s current directors, asserting claims against them for breach of fiduciary duty and unjust enrichment and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The complaint also alleges a violation of §14(a) of the Securities Exchange Act of 1934 for allegedly false statements or omissions in the Company’s April 24, 2020, proxy statement regarding the Company’s options practices. The complaint also asserts a claim for breach of fiduciary duty against Armistice. The claims are based on allegations that certain stock options granted to certain of the Company’s officers and directors between June 8 and June 15, 2020, were allegedly improper and that certain warrants held by Armistice were amended on June 8, 2020, allegedly for no consideration. The complaint purports to bring the lawsuit derivatively on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” against which no claims are asserted and no damages are sought.

 

Two substantially similar securities class actions were filed in the U.S. District Court for the Northern District of California, the first, titled Himmelberg v. Vaxart, Inc. et al. was filed on August 24, 2020 (the “Himmelberg Action”), and the second action, titled Hovhannisyan v. Vaxart, Inc. et al. was filed on September 1, 2020 (the “Hovhannisyan Action,” and together, the “Putative Class Actions”). On September 17, 2020, the court issued an order that the Putative Class Actions were related and would proceed as one consolidated action. The Putative Class Actions both name as defendants certain of Vaxart’s current and former executive officers and directors, and Armistice. The complaint claims two violations of federal civil securities laws, violation of SEC Rule 10b-5, as against all defendants; and violation of Section 20(A) of the Exchange Act, as against all defendants except for Vaxart. The Putative Class Actions allege defendants violated securities laws by misstating and omitting information regarding the Company’s Operation Warp Speed (“OWS”) involvement to deceive the investing public and inflate the market price of Vaxart securities. The Putative Class Actions seek to be certified as a class action for similarly situated shareholders and seek, among other things, an uncertain amount of damages and attorneys’ fees and costs.

 

On October 23, 2020, a purported shareholder derivative complaint was filed in the U.S. District Court for the Southern District of New York, entitled Roth v. Armistice Capital LLC, et al. The complaint names Armistice and an Armistice-affiliated Company director as defendants, asserting a violation of Exchange Act Section 16(b) and seeking the disgorgement of short-swing profits obtained in violation thereof. The complaint purports to bring the lawsuit derivatively on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” against which no damages are sought.

 

The Company’s legal costs incurred in its defense against these claims are expensed as incurred.

 

 

 

NOTE 10.  Stockholders’ Equity

 

(a)

Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of preferred stock, $0.0001 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 the Company has no present plan to issue any shares of preferred stock.

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

(b)

Common Stock

 

At the Company’s annual meeting of stockholders held on June 8, 2020, the Company’s shareholders approved an amendment to the Company’s certificate of incorporation to increase the authorized number of shares of common stock from 100,000,000 shares to 150,000,000 shares and decrease the par value of the Company’s capital stock from $0.10 to $0.0001. On June 8, 2020, the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware to effect the amendment.

 

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 therefor. 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, 2020, 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 following warrants were outstanding as of September 30, 2020, 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 280,000 common stock warrants issued to placement agents’ designees at the closing of the March 2020 Offering (see Note 1) each entitle the holder to purchase one share of common stock for $3.125 at any time within five years of February 27, 2020, the effective date of the March 2020 Offering. The aggregate fair value of these warrants at issuance was estimated to be $453,000, using the Black-Scholes valuation model, using a closing stock price of $2.34 and assumptions including estimated volatility of 98%, a risk-free interest rate of 0.88%, a zero dividend rate and an estimated remaining term of 4.99 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, $1.10 and $2.50 and those exercisable for $3.125 expiring in February 2025 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

 

On April 23, 2019, the Company’s stockholders approved the adoption of the 2019 Equity Incentive Plan (the “2019 Plan”), under which the Company is authorized to issue incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards and restricted stock units, 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. Following adoption of the 2019 Plan, all previous plans were frozen, and on forfeiture, cancellation and expiration, awards under those plans are not assumed by the 2019 Plan.

 

The aggregate number of shares of common stock authorized for issuance under the 2019 Plan was initially 1,600,000 shares, which was increased through an amendment to the 2019 Plan adopted by the Company’s stockholders on June 8, 2020, to 8,000,000 (the “Plan Amendment”), subject to standard adjustments 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. Further amendments to the 2019 Plan to increase the share reserve would require stockholder approval. 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.

 

In March 2020, the Company granted 411,000 performance-based restricted stock unit (“PRSU”) awards to employees which vest upon the achievement of certain performance conditions by December 31, 2020, subject to each employee’s continued service relationship with the Company. As of September 30, 2020, all of these 411,000 PRSUs were outstanding. The related compensation cost, which is based on the grant date fair value of the Company’s common stock multiplied by the number of PRSUs granted, is recognized as an expense ratably over the estimated vesting period when achievement of the performance condition is considered probable. Based on the Company’s evaluation of the probability of achieving the performance condition as of September 30, 2020, the Company recognized $101,000 and $632,000 of related expense during the three and nine months ended September 30, 2020, respectively.

 

On March 24, 2020, the board of directors of the Company approved the grant of an aggregate of 2,610,000 options with an exercise price of $1.70 per share (the closing price of the Company’s common stock on March 24, 2020) (the “March Option Awards”), which vest as to 25% of the underlying shares of common stock on the date of grant and thereafter in twenty-four (24) equal monthly installments from May 1, 2020 until April 1, 2022; provided that the stock options were not exercisable until the approval by the stockholders of the Plan Amendment. On June 8, 2020, the stockholders approved the Plan Amendment and at such time the March Option Awards became exercisable, subject to the vesting schedule noted previously.

 

A summary of stock option transactions in the nine months ended September 30, 2020, is as follows:

 

As of September 30, 2020, there were 6,320,530 options outstanding with a weighted average exercise price of $2.27, a weighted average remaining term of 9.18 years and an aggregate intrinsic value of $28.7 million. Of these options, 2,539,452 were vested, with a weighted average exercise price of $2.79, a weighted average remaining term of 8.90 years and an aggregate intrinsic value of $10.8 million. The Company received $402,000 for the 305,179 options exercised during the nine months ended September 30, 2020, which had an intrinsic value of $1.6 million. No options were exercised during the nine months ended September 30, 2019.

 

On June 15, 2020, the Company awarded 900,000 performance-based options and 845,280 time-based options with an exercise price of $2.46 per share (the closing price of the Company’s common stock on the grant date) to its new Chief Executive Officer. Vesting of the time-based options will be as follows: 25% on the first anniversary of the grant date and 75% in equal monthly installments over the three-year period commencing on such first anniversary, with accelerated vesting with respect to 50% of any then-unvested option shares upon a substantial strategic agreement, as determined by the Board, and with accelerated vesting in full in the event of a “Change in Control” (as defined under the 2019 Plan).

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Vesting of the performance-based options would occur if the Company achieved a specified closing price during any ten consecutive trading days by November 30, 2020, with one-third based on a closing price of $5.00, one-third based on a closing price of $7.50 and one-third based on a closing price of $10.00, subject to continuing employment. Utilizing a Monte Carlo Simulation and assumptions of the fair value of Common Stock of $2.46, estimated volatility of 105%, a risk-free interest rate of 0.35%, a zero dividend rate and an expected term of 5.23 years, the Company determined the weighted average fair value of these options on the issuance date to be $0.31 per share, or $279,000, which was initially being expensed over the estimated vesting term, assuming vesting occurs by November 30, 2020, for each tranche.

 

The tranches based on closing prices of $5.00, $7.50 and $10.00 vested on July 9, 2020, July 20, 2020 and July 24, 2020, respectively, so the unamortized balance as of June 30, 2020, was expensed in the three months ended September 30, 2020. The weighted average grant date fair value of all other options awarded in the nine months ended September 30, 2020 and 2019, was $1.98 and $0.55, 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 and PRSUs was as follows:

 

 

As of September 30, 2020, the unrecognized stock-based compensation cost related to outstanding unvested stock options and PRSUs that are expected to vest was $5.4 million, which the Company expects to recognize over an estimated weighted average period of 2.35 years.

 

NOTE 12.  Related Party Transactions

 

In April 2020 the Company recorded a net amount of $652,000 related to the disgorgement of stockholder short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized these related party proceeds as an increase to contributed capital on the condensed consolidated balance sheet.

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 13.  Net Loss Per Share

 

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 in the three and nine months ended September 30, 2020 or 2019, as the effect would be anti-dilutive 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:

 

 

 

 

VAXART, INC. AND SUBSIDIARIES

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 14.  Restructuring Costs

 

Restructuring liabilities primarily consist of the estimated future obligations for contract suspension costs. These restructuring liabilities, all of which are expected to be paid in the year ending December 31, 2020, are recorded in other accrued liabilities in the condensed consolidated balance sheets.

 

The Company approved a reduction-in-force during the year ended December 31, 2019, for which it accrued severance and benefits charges, all of which were paid in the three months ended March 31, 2020. The Company also accrued the maximum amount potentially payable under a manufacturing work order which it suspended. Following negotiations with the vendor, the Company paid $2,252,000 in the three months ended September 30, 2020, in full settlement with the vendor, and reversed the remainder of the balance accrued. Further, the Company recorded impairment charges against property and equipment and right-of-use assets formerly used for manufacturing covering the period in which no benefits were expected to be derived, and incurred legal fees and accretion costs in connection with the restructuring. In the nine months ended September 30, 2020, the Company recorded costs for legal fees and for accretion related to the manufacturing premises. The Company does not expect to incur any further charges related to this restructuring.

 

Cumulative restructuring costs incurred and a reconciliation of the change in related liabilities during the nine months ended September 30, 2020, is as follows:

 

 

 

 

NOTE 15.  Subsequent Events

 

On October 13, 2020, the Company entered into an Open Market Sale Agreement^SM, (the “Sales Agreement”) pursuant to which it may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $250 million. The Company incurred direct expenses of approximately $0.3 million in connection with filing a prospectus supplement, dated October 13, 2020, with the SEC, and will pay sales commissions of 4.5% of gross proceeds from the sale of shares. As of November 12, 2020, no shares had been sold under the Sales Agreement.

 

Changes in the status of litigation since September 30, 2020, are included in “Note 9. Commitments and Contingencies—(c) Litigation”.