UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
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(Exact name of registrant as specified in its charter)
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incorporation or organization)
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Identification No.)
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(Former name, former address and former fiscal year, if changed since last report)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
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Name of each exchange
on which registered
The Nasdaq Global 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
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act:
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Smaller reporting company
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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).
As of December 17, 2021, the registrant had
Class B common stock outstanding.
1
SPECIAL NOTE REGARDING FORWARD -LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements are neither
historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions
regarding the future of our business, future plans and strategies and other future conditions. In some cases, you can identify forward-
looking statements because they contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “predict,”
“project,” “target,” “potential,” “seek,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “plan,” other words and
terms of similar meaning and the negative of these words or similar terms.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our
control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual
performance and outcomes may differ materially from those made in or suggested by the forward-looking statements contained in
this Quarterly Report. In addition, even if our results of operations, financial condition and cash flows, and the development of the
markets in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report, those results or
developments may not be indicative of results or developments in subsequent periods. New factors emerge from time to time that
may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that could cause
actual results and outcomes to differ from those reflected in forward-looking statements include, among others, the following:
• the prospects of UB-612 and other product candidates, including the timing of data from our clinical trials for UB-612
and other product candidates and our ability to obtain and maintain regulatory approval for our product candidates;
• our ability to develop and commercialize new products and product candidates;
• our ability to leverage our Vaxxine Platform;
• the rate and degree of market acceptance of our products and product candidates;
• our status as a clinical-stage company and estimates of our addressable market, market growth, future revenue,
expenses, capital requirements and our needs for additional financing;
• our ability to comply with multiple legal and regulatory systems relating to privacy, tax, anti-corruption
and other applicable laws;
• our ability to hire and retain key personnel and to manage our future growth effectively;
• competitive companies and technologies and our industry and our ability to compete;
• our and our collaborators’, including United Biomedical’s (“UBI”), ability and willingness to obtain, maintain, defend
and enforce our intellectual property protection for our proprietary and collaborative product candidates, and the scope
of such protection;
• the performance of third party suppliers and manufacturers and our ability to find additional suppliers and
manufacturers;
• our ability and the potential to successfully manufacture our product candidates for pre -clinical use, for clinical trials
and on a larger scale for commercial use, if approved;
• the ability and willingness of our third-party collaborators, including UBI, to continue research and development
activities relating to our product candidates;
• general economic, political, demographic and business conditions in the United States, Taiwan and other
jurisdictions;
• the potential effects of government regulation, including regulatory developments in the United
States and other jurisdictions;
• ability to obtain additional financing in future offerings;
• expectations about market trends; and
2
• the effects of the COVID-19 pandemic on business operations, the initiation, development and operation of our
clinical trials and patient enrollment of our clinical trials.
We discuss many of these factors in greater detail under Part II, Item 1A. “Risk Factors.” These risk factors are not
exhaustive and other sections of this report may include additional factors which could adversely impact our business and
financial performance. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as
exhibits completely and with the understanding that our actual future results may be materially different from what we expect.
We qualify all of the forward- looking statements in this Quarterly Report by these cautionary statements. Except as required
by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information,
future events or otherwise.
As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms
“we,” “our,” “us,” the “Company” refer to Vaxxinity, Inc. and its subsidiaries. All brand names or trademarks appearing in this
Quarterly Report are the property of their respective owners.
3
Table of Contents
Page
4
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89
4
PART I. Financial Information
Item1. Financial Statements
VAXXINITY, INC.
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
December 31,
September 30,
2020
2021
Assets
Current assets:
Cash and cash equivalents
$
$
Accounts receivable
Amounts due from related parties
Prepaid expenses and other current assets
Total current assets
Deferred offering costs
Property and equipment, net
Licensed intellectual property, net
Restricted cash
Total assets
$
$
Liabilities, convertible preferred stock, and stockholders’ deficit
Current liabilities:
Accounts payable
$
$
Amounts due to related parties
Accrued expenses and other current liabilities
Notes payable
Notes payable with related parties
Convertible notes payable
Convertible notes with related parties, net of discount
Total current liabilities
Other liabilities
Simple agreement for future equity
Notes payable
Warrant liability
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 14)
nil
nil
Convertible preferred stock:
Series seed stock
Series seed-1 stock
Series seed-2 stock
Series A-1 stock
Series A-2 stock
Series A stock
Series B stock
Total convertible preferred stock
Stockholders’ deficit:
Class A common stock
Treasury stock
(23 )
Additional paid-in capital
Accumulated deficit
(92,306 )
(181,290 )
Total stockholders' deficit
(87,375 )
(157,367 )
Total liabilities, convertible preferred stock, and stockholders' deficit
$
$
Note: Derived from audited Financial Statements as of December 31, 2020.
The accompanying notes are an integral part of the condensed combined consolidated financial statements.
5
VAXXINITY, INC.
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
Three Months Ended
September 30,
Nine months ended September 30,
2020
2021
2020
2021
Revenue
$
$
$
$
Cost of revenue
(178 )
Gross profit/loss
(1,870 )
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
(12,694 )
(30,275 )
(21,057 )
(77,221 )
Other expense:
Interest expense, net
Change in fair value of convertible notes
Change in fair value of warrant liability
Change in fair value of simple agreements for future
equity
615
Foreign currency loss, net
Other expense, net
Net loss
$
(16,465 )
$
(30,389 )
$
(27,238 )
$
(88,984 )
Net loss per share, basic and diluted
(0.24 )
(0.44 )
(0.47 )
(1.30 )
Weighted average common shares outstanding, basic
and diluted
The accompanying notes are an integral part of the condensed combined consolidated financial statements.
6
VAXXINITY, INC.
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
(in thousands, except share amounts)
(unaudited)
Convertible Preferred Stock
Series Seed
Series Seed-1
Series Seed-2
Series A-1
Series A-2
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Total
Balance at June 30, 2020
$
$
$
$
$
$
Issuance of Series A-1 preferred stock, net of issuance costs of
$
Conversion of Simple Agreement for Future Equity to Series A-2 preferred
stock, net of issuance costs of $
Balance at September 30, 2020
$
$
$
$
$
$
Convertible Preferred Stock
Series Seed
Series Seed-1
Series Seed-2
Series A-1
Series A-2
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Total
Balance at December 31, 2019
$
$
$
$
$
$
Issuance of Series Seed-1 convertible preferred stock, net of issuance costs of $
Issuance of Series Seed-2 preferred stock, net of issuance costs of $
Conversion of Simple Agreement for Future Equity to Series Seed-2 preferred Stock
Issuance of Series A-1 preferred stock, net of issuance costs of
$
Conversion of Simple Agreement for Future Equity to Series A-2 preferred stock, net of
issuance costs of $
—
—
Balance at September 30, 2020
$
$
$
$
$
$
7
VAXXINITY, INC.
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 202 0
(in thousands, except share amounts)
(unaudited)
Stockholders’ Deficit
Common Stock
Common Stock
(Class A)
Common Stock
(Class B)
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Paid-in
Capital
Accumulated
Deficit
Stockholders’
Deficit
Balance at June 30, 2020
$
$
$
(3,169,093 )
$
(23 )
$
$
(63,121 )
$
(58,818 )
Issuance of common stock upon exercise of stock options
Stock-based compensation expense
Reclassification of common stock to Class A common stock
(60,290,572 )
(271 )
—
Reclassification of common stock to Class B common stock
(10,999,149 )
—
Net loss
(16,465 )
(16,465 )
Balance at September 30, 2020
$
$
$
(3,169,093 )
$
(23 )
$
$
(79,586 )
$
(74,973 )
Stockholders’ Deficit
Common Stock
Common Stock
(Class A)
Common Stock
(Class B)
Treasury Stock
Additional
Paid-in
Capital
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Accumulated
Deficit
Stockholders’
Deficit
Balance at December 31, 2019
$
$
$
(3,169,093 )
$
(23 )
$
$
(52,348 )
$
(48,510 )
Issuance of common stock upon exercise of stock options
Vesting of restricted stock
Issuance of common stock for C19 Shareholders
—
Stock-based compensation expense
Reclassification of common stock to Class A common stock
(60,290,572 )
(271 )
—
Reclassification of common stock to Class B common stock
(10,999,149 )
—
Net loss
(27,238 )
(27,238 )
Balance at September 30, 2020
$
$
$
(3,169,093 )
$
(23 )
$
$
(79,586 )
$
(74,973 )
The accompanying notes are an integral part of the condensed combined consolidated financial statements.
8
VAXXINITY, INC.
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(in thousands, except share amounts)
(unaudited)
Convertible Preferred Stock
Series A
Series B
Shares
Amount
Shares
Amount
Total
Balance at June 30, 2021
$
$
$
Additional issuance costs of Series B convertible preferred stock
(52 )
(52 )
Balance at September 30, 2021
$
$
$
Convertible Preferred Stock
Series Seed
Series Seed-1
Series Seed-2
Series A-1
Series A-2
Series A
Series B
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Total
Balance at December 31, 2020
$
$
$
$
$
$
$
$
Exchange of Series Seed, Series
(7,831,528 )
(10,383 )
(22,876,457 )
(20,903 )
(14,615,399 )
(11,315 )
(1,871,511 )
(4,640 )
(6,307,690 )
(15,234 )
Conversion of convertible notes to
Conversion of notes payable with
preferred
Conversion of SAFEs to Series A
Conversion of Warrants to Series A
Issuance of Series B convertible preferred
stock, net of issuance costs of $
Balance at September 30, 2021
$
$
$
$
$
$
$
$
9
VAXXINITY, INC.
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
(in thousands, except share amounts)
(unaudited)
Stockholders’ Deficit
Common Stock
(Class A)
Common Stock
(Class B)
Additional
Paid-in
Capital
Accumulated
Deficit
Stockholders’
Deficit
Shares
Amount
Shares
Amount
Balance at June 30, 2021
$
$
$
$
(150,901 )
$
(141,821 )
Issuance of common stock upon exercise of
Stock-based compensation expense
Common Stock Warrants (See Note 4)
Net loss
(30,389 )
(30,389 )
Balance at September 30, 2021
$
$
$
$
(181,290 )
$
(157,367 )
Stockholders’ Deficit
Common Stock
(Class A)
Common Stock
(Class B)
Treasury Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Stockholders’
Deficit
Shares
Amount
Shares
Amount
Shares
Amount
Balance at December 31, 2020
$
$
(3,169,093 )
$
(23 )
$
$
(92,306 )
$
(87,375 )
Issuance of common stock upon exercise of stock options
Vesting of restricted stock
—
Reclassification of common stock to Class B common stock
(2,874,985 )
—
Issuance of common stock upon stock grant
—
Retirement of treasury stock upon merger
(3,169,093 )
(23 )
—
—
—
Stock-based compensation expense
Common Stock Warrants (See Note 4)
Net loss
(88,984 )
(88,984 )
Balance at September 30, 2021
$
$
$
$
$
(181,290 )
$
(157,367 )
The accompanying notes are an integral part of the condensed combined consolidated financial statements.
10
VAXXINITY, INC.
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
September 30,
2020
2021
Cash flows from operating activities:
Net loss
$
(27,238 )
$
(88,984 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
Stock-based compensation expense
Non-cash interest expense
Change in fair value of convertible notes
Change in fair value of warrant liability
Change in fair value of simple agreement for future equity
615
Accounts receivable
(26 )
Prepaid expenses and other current assets
(5,296 )
(10,155 )
Amounts due from related parties
(34 )
(18 )
Deferred offering costs
(541 )
(3,935 )
Accounts payable
Amounts due to related parties
Accrued expenses and other current liabilities
Other liabilities
(2,625 )
Net cash used in operating activities
(22,669 )
(67,026 )
Cash flows from investing activities:
Purchase of property and equipment
(1,026 )
(50 )
Net cash used in investing activities
(1,026 )
(50 )
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable
Payment of debt issuance costs for related party convertible
(300 )
(5,500 )
(2,096 )
(100 )
(257 )
Net cash provided by financing activities
Increase in cash, cash equivalents, and restricted cash
Cash and cash equivalents at beginning of period
Restricted Cash
Cash, cash equivalents and restricted cash at end of period
$
$
Supplemental disclosures of non-cash investing, financing and cash flow information:
Non-cash interest expense
Conversion of simple agreement for future equity into Series Seed 2 preferred stock
Fair value of restricted stock vesting during the period
Conversion of simple agreement for future equity into Series A-2 preferred stock
Acquisition of airplane through isuance of note payable
Fair value of warrants issued in connection with preferred stock issuance
Issue of Warrant for Licensed Intellectual Property
The accompanying notes are an integral part of the condensed combined consolidated financial statements.
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
11
1. Nature of the Business
Vaxxinity, Inc., a Delaware corporation (“Vaxxinity”, and together with its subsidiaries, the “Company”), was formed
through the combination of two separate businesses that originated from United Biomedical, Inc. (“UBI”) in two separate transactions:
a spin-out from UBI in 2014 of operations focused on developing chronic disease product candidates that resulted in United
Neuroscience (“UNS”), and a second spin-out from UBI in 2020 of operations focused on the development of a COVID-19 vaccine
that resulted in C19 Corp. (“COVAXX”).
On February 2, 2021, Vaxxinity was incorporated for the purpose of reorganizing and combining UNS and COVAXX
and on March 2, 2021, did so by acquiring all the outstanding equity interests of UNS and COVAXX pursuant to a contribution and
exchange agreement (the “Contribution and Exchange Agreement”) whereby the existing equity holders of UNS and COVAXX
contributed their equity interests in each of UNS and COVAXX in exchange for equity in Vaxxinity (the “Reorganization”).
The Company is a biotechnology company currently focused on developing product candidates for human use in the
fields of neurology and coronaviruses utilizing its “Vaxxine Platform” — a peptide vaccine technology first developed by UBI and
subsequently refined over the last two decades. The Company is engaged in the development and commercialization of rationally
designed prophylactic and therapeutic vaccines to combat chronic disorders and infectious diseases with large patient populations and
unmet medical need. UBI is a significant shareholder of the Company and, therefore, considered a related party.
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of a COVID-19 pandemic. The COVID-19 pandemic is
evolving, and to date, has led to the implementation of various responses, including government-imposed quarantines, travel
restrictions and other public health safety measures.
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how it
will impact its operations and the operations of its customers, suppliers, vendors and business partners. The Company does not yet
know the full extent of potential delays or impacts on its business, its clinical trials, its research programs, healthcare systems or the
global economy and it cannot presently predict the scope and severity of any potential business shutdowns or disruptions. The extent
to which COVID-19 impacts its business, results of operation and financial condition will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information that may emerge
concerning the severity of COVID-19 or the effectiveness of actions to contain COVID-19 or treat its impact, among others. If the
Company or any of the third parties with whom the Company engages, however, were to experience shutdowns or other business
disruptions, its ability to conduct its business in the manner and on the timelines presently planned could be materially and negatively
affected, which could have a material adverse impact on its business, results of operation and financial condition.
The Company has not incurred impairment losses in the carrying values of its assets as a result of the COVID-19 pandemic
and it is not aware of any specific related event or circumstance that would require it to revise its estimates reflected in these
condensed combined consolidated financial statements.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim condensed combined consolidated financial statements have been prepared pursuant to
the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. The
condensed consolidated financial statements for the periods presented include the accounts of UNS and COVAXX that were parties to
the Contribution and Exchange Agreement. All share and per share amounts, as originally recorded by each entity, have been
converted to a number of shares and per share amounts using the conversion ratios determined under the Contribution and Exchange
Agreement.
These interim condensed combined consolidated financial statements are unaudited and, in the opinion of management,
include all adjustments (consisting of normal recurring adjustments and accruals) necessary to fairly present the results of the interim
periods. The condensed combined balance sheet at December 31, 2020, has been derived from the audited financial statements at that
date. Operating results for the three and nine months ended September 30, 2021 and cash flows for the nine months ended September
30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2021 or any other
future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
12
with accounting principles generally accepted in the United States (“U.S. GAAP”) have been omitted in accordance with the rules and
regulations for interim reporting of the SEC. These interim condensed financial statements should be read in conjunction with the
financial statements and notes thereto included in our report for the year ended December 31, 2020.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed financial statements are disclosed in our
annual financial statements for the year ended December 31, 2020. There have been no changes to the Company’s significant
accounting policies during the three and nine months ended September 30, 2021.
Emerging Growth Company Status
The Company is an “emerging growth company” (“EGC”), as defined in the Jumpstart Our Business Startups Act (“JOBS
Act”) and is permitted to and plans to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under
Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS
Act for the implementation of new or revised accounting standards. The Company has elected to avail itself of the extended transition
period and, therefore, while the Company is an EGC it will not be subject to new or revised accounting standards at the same time that
they become applicable to other public companies that are not EGCs.
Recently Adopted Accounting Pronouncements
In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18, Collaborative
Arrangements (Topic 808):
, (“ASU 2018-18”). The amendments in this
update clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue when the
collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue
consideration received from a collaborative arrangement participant if the participant is not a customer. ASU 2018-18 is effective for
the Company’s annual reporting periods after December 15, 2020. The Company adopted ASU 2018-18 at January 1, 2021. The
adoption of this pronouncement did not have a material impact on the Company’s combined consolidated financial statements or its
results of operations.
In December 2019, the FASB issued ASU 2019-12,
Taxes
the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new
standard will be effective for the Company beginning January 1, 2021. The Company adopted ASU 2019-12 at January 1, 2021. The
adoption of this pronouncement did not have a material impact on the Company’s combined consolidated financial statements or its
results of operations.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-12, “Leases (Topic 842), and associated ASUs related to Topic 842, which
requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created
by those leases. The new guidance requires that a lessee recognize assets and liabilities for leases, and recognition, presentation and
measure in the financial statements will depend on its classification as a finance or operating lease. In addition, the new guidance
requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash
flows arising from leases. The estimated impact on our existing lease agreements is approximately $
.
The Company has elected to apply the transition requirements as of January 1, 2022. This approach allows for a
cumulative effect adjustment in the period of adoption, and prior periods continue to be reported in accordance with historic
accounting under ASC 840 “Leases.” Additionally, as an accounting policy election, the Company has chosen to not apply the
standard to any existing short-term leases (term of 12 months or less) as this is optional under U.S. GAAP.
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
13
3. Fair Value Measurements
The value for the Convertible Notes, SAFE and warrant liability balances as of December 31, 2020 are based on significant inputs not
observable in the market, which represents a Level 3 measurement within the fair value hierarchy. In accordance with the Contribution
and Exchange Agreement, on March 2, 2021 the Convertible Notes, SAFEs and warrants were all converted into Series A preferred
stock.
The following tables present information about the Company’s financial instruments measured at fair value on a recurring basis and
indicate the level of the fair value hierarchy used to determine such fair values:
December 31, 2020
Level 1
Level 2
Level 3
Total
Liabilities
Convertible notes payable
$
$
$
$
SAFEs
Warrant liability
$
$
$
$
September 30, 2021
Level 1
Level 2
Level 3
Total
Assets
Money market funds
$
$
$
$
$
$
$
$
During the nine months ended September 30, 2020 and 2021, there were
Convertible Notes
During the years ended December 31, 2019 and 2020, and the nine months ended September 30, 2021, the Company issued
Convertible Notes. In accordance with ASC 480, a portion of the Convertible Notes were required to be measured and accounted for
at fair value at each reporting date. The Company determined the Convertible Notes requiring a measurement to fair value represent a
recurring measurement that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant
unobservable inputs.
Convertible Notes requiring a measurement to fair value are as follows (in thousands):
September 30,
2021
Beginning balance, December 31, 2020
$
Level 3 fair value of the principal amount of
convertible notes
$
Change in fair value
Conversion to Series A preferred stock
(26,707 )
Ending balance September 30, 2021
$
The fair value of the Convertible Notes was estimated using a straight debt and conversion feature valuation model consisting
of probability assumptions on multiple conversion scenarios, discount rates and interest rates.
In accordance with the Contribution and Exchange Agreement, on March 2, 2021, the Convertible Notes were converted into
Series A preferred stock.
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
14
Simple Agreement for Future Equity
During the year ended December 31, 2020, the Company executed SAFE arrangements. The fair value of the SAFEs on the
date of issuance was determined to equal the proceeds received by the Company. The value of the SAFEs on the dates of conversion
into preferred stock was determined to be equal to the fair value of the preferred stock issued, or $
The following table sets forth a summary of the activities of the SAFE arrangements, which represents a recurring
measurement that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable
inputs (in thousands):
SAFE
Liability
Balance at December 31, 2020
$
Change in fair value
Issuance of SAFEs
Conversion to Series A preferred stock
(35,600 )
Balance at September 30, 2021
$
In accordance with the Contribution and Exchange Agreement, on March 2, 2021, the SAFEs were converted into Series A
preferred stock.
Warrants to Purchase Series A-1 Convertible Preferred Stock & Common Stock
In connection with the 2020 Series A-1 convertible preferred stock (“Series A-1 preferred”) financing transactions, the
Company issued fully vested warrants to purchase
consideration for assistance with the sale and issuance of the Series A-1 preferred. The warrants were determined to represent issuance
costs and were recorded as a reduction in the proceeds received from the sale.
The warrants were issued to advisors of the company and represented non-variable contingently redeemable instruments. As
such, the warrants were accounted for as liabilities and adjusted to fair value at each reporting period.
The warrants are exercisable on the date of issuance and have an exercise price of $
. In December 2020,
. As of
December 31, 2020,
fair value of the liability associated with the warrant to purchase shares of Series A-1 preferred at the end of each reporting period
until the Reorganization, when the warrant converted into Series A preferred stock and subsequently, in connection with the IPO,
converted into Class A common stock.
The following table sets forth a summary of the activity of the warrant liability which represented a recurring measurement
that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs (in
thousands):
Warrants
Liability
Balance at December 31, 2020
$
Change in fair value
Exchange of warrants for shares of Series A preferred stock
(614 )
Balance at September 30, 2021
$
On August 5, 2021, as partial consideration for the rights and licenses the company received pursuant to the Platform License
Agreement, the company issued a warrant to United Biomedical, Inc., for the purchase of
at an exercise price of $
underlying characteristics, the warrant was classified as additional paid in capital with a corresponding recognition as an ‘intangible
asset - licensed intellectual property’ to be amortized over its estimated useful life of
.
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
15
4. Property, Equipment and Licensed Intellectual Property
Property and equipment, net consisted of the following (in thousands):
December 31,
September 30,
2020
2021
Airplane
$
$
Laboratory and computer equipment
Furniture and fixtures
Total property and equipment
$
$
Less accumulated depreciation
(878 )
(1,704 )
Property and equipment, net
$
$
Depreciation and amortization expense for the three and nine months ended September 30, 2020 was less than $
than $
$
Licensed intellectual property, net consisted of the following (in thousands):
Licensed intellectual property is amortized over the estimated lifetime of the intangible asset (
As of September 30, 2021, the annual amortization schedule is as follows (in thousands):
September 30,
2021
Licensed intellectual property
$
Less accumulated amortization
(103 )
Licensed intellectual property, net
$
Amount
2021 (Q4 2021)
$
2022
2023
2024
2025 and thereafter
$
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
December 31,
September 30,
2020
2021
Accrued professional fees and other
Accrued payroll and benefits
Accrued interest
Accrued external research and development
$
6. Convertible Notes Payable
Beginning in April 2018, the Company issued several Convertible Notes, some of which were issued to related parties. The
Convertible Notes bear simple interest at annual rates ranging from
% to
%. All unpaid principal, together with the accrued
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
16
interest thereon, are payable upon an event of default or upon maturity, which ranges from
one
. The Convertible Notes
contain a number of provisions addressing automatic and optional conversion, events of default, and prepayment provisions.
The Company accounts for the Convertible Notes at fair value, in accordance with ASC 480, with any changes in fair value
being recognized through the condensed combined consolidated statements of operations.
In accordance with the Contribution and Exchange Agreement, on March 2, 2021 each Reorg. Convertible Note (as defined
below) that was outstanding was exchanged for shares of Series A preferred stock, as set forth in the applicable Convertible Note
agreements and the Contribution and Exchange Agreement.
During the three and nine months ended September 30, 2021, the Company recognized interest expense of $
million, respectively, related to the Convertible Notes. In addition, during the nine months ended September 30, 2021, the Company
recognized a change in fair value of $
related to the Convertible Notes.
The following table shows the activity of the Convertible Notes (in thousands):
Convertible Notes
Principal Amount Payable
Change in Fair Value
Accrued Interest
Issuance
Conversion to
Standard
Related Party
Standard
Related Party
Standard
Related Party
Costs
Series A
Preferred
Balance
December 31, 2019
$
$
$
$
$
$
$
$
—
$
Additions
(300 )
Settlements
(5,500 )
—
—
—
—
—
(5,500 )
September 30, 2020
$
$
$
$
$
$
$
(300 )
$
—
$
Convertible Notes
Principal Amount Payable
Change in Fair Value
Accrued Interest
Issuance
Conversion to
Standard
Related Party
Standard
Related Party
Standard
Related Party
Costs
Series A
Preferred
Balance
December 31, 2020
$
$
$
$
$
$
$
(217 )
$
—
$
Additions
—
—
—
Settlements
(2,000 )
—
—
—
(187 )
—
—
—
(2,187 )
Amortization
—
—
—
—
—
—
—
Conversion of Convertible
—
—
—
—
—
—
(27,546 )
(27,379 )
September 30, 2021
$
$
$
$
$
$
$
(27,546 )
$
7. Notes Payable
Notes Payable with Related Parties
In December 2018, the Company entered into related party convertible notes payable (the “2018 Related Notes” and together
with the Convertible Notes, the “Reorg. Convertible Notes”) for $
2018 Related Notes bore simple interest at an annual rate of
% and contain a number of provisions addressing automatic and optional
conversion, events of default and prepayment. In accordance with the Contribution and Exchange Agreement, on March 2, 2021, the
2018 Related Notes were converted into Series A preferred stock.
In November 2019, the Company borrowed $
formal loan agreement was executed. However, the Company has elected to accrue interest at an annual rate of
%, consistent with the
terms and conditions of the Convertible Notes and 2018 Related Notes, which was the closest benchmark the Company could
evaluate. The 2019 Executive Note was repaid in August 2021.
Note Payable—Airplane
In connection with the acquisition of an airplane, the Company entered into a note payable agreement (the “2025 Note”) in
June 2020 for $
% and a maturity date of
. Principal and interest payments
are payable monthly in the amount of $
the co-founders of the Company. In addition, the Company incurred debt issuance costs of $
over the term of the loan. There are no financial covenants associated with the 2025 Note.
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
17
The carrying value of the 2025 Note is as follows (in thousands):
September 30,
2021
Principal
$
Unamortized debt issuance cost
(198 )
Carrying amount
Less: current portion
(425 )
Note payable, net of current portion and debt issuance cost
$
As of September 30, 2021, the remaining principal payments for the 2025 Note, are as follows (in thousands):
Amount
2021
$
2022
2023
2024
2025 and thereafter
$
Interest expense associated with the 2025 Note was less than $
September 30, 2020. Interest expense associated with the 2025 Note was $
ended September 30, 2021.
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
18
Note Payable—Paycheck Protection Program
The Company applied for and received a loan, which is in the form of a note dated May 5, 2020, from HSBC Bank USA,
National Association (“HSBC”) in the aggregate amount of approximately $
Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”),
provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying
business. As of December 31, 2020, there were no events of default under the PPP Loan. The Company paid off the PPP Loan in full,
including all accrued but unpaid interest to the repayment date, in August 2021.
8. Convertible Preferred Stock
As explained in Note 1, in accordance with the Contribution and Exchange Agreement, on March 2, 2021 each share of
preferred stock of UNS and COVAXX, as well as each Reorg. Convertible Note, that was outstanding was exchanged for Vaxxinity’s
preferred stock as set forth in the Contribution and Exchange Agreement. Each UNS convertible preferred share was exchanged for
of Vaxxinity preferred stock.
As of September 30, 2021,
Vaxxinity’s Amended and Restated Certificate of Incorporation (authorized
shares of convertible preferred stock with a par value of $
as Series A preferred stock and
The holders of Vaxxinity’s preferred stock have liquidation rights in the event of a deemed liquidation that, in certain
situations, are not solely within the control of Vaxxinity. Therefore, the preferred stock is classified outside of stockholders’ deficit.
Preferred stock consisted of the following as of September 30, 2021:
As of September 30, 2021
Issuance Dates
Shares
issued and
outstanding
Common
Stock Issuable
Upon
Conversion
Series A preferred stock
March 2021
Series B preferred stock
March 2021
Series B preferred stock
June 2021
The common stock issuable upon conversion reflects the application of the stock split described in Note 1. All shares of
preferred stock were automatically converted into shares of Vaxxinity’s Class A common stock concurrently with the closing of the
Company’s IPO in November 2021.
9. Simple Agreement for Future Equity
During the year ended December 31, 2020, the Company executed SAFE arrangements. The SAFEs were not
mandatorily redeemable, nor did they require the Company to repurchase a fixed number of shares. The Company determined that
the SAFEs contained a liquidity event provision that embodied an obligation indexed to the fair value of the Company’s equity
shares and could require the Company to settle the SAFE obligation by transferring assets or cash. For this reason, the Company
recorded the SAFEs as a liability under ASC 480 and
re-measured the fair value at the end of each reporting period, with changes
in fair value reported in earnings.
In March 2020, the Company issued a SAFE (“SAFE 1”) for $
Series Seed-2 convertible preferred stock at $
August 2020, the Company
issued a series of SAFEs (“SAFE 2”) for $
preferred stock (“Series A-2 preferred”) at $
August 2020.
The Company determined the fair value of SAFE 2 investment on the date of conversion and recognized the difference
between the fair value on the date of conversion and the initial fair value of SAFE 2 investment in the consolidated statement of
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
19
operations. A loss of $0.6 million was recorded in the consolidated statement of operations for the nine months ended September
30, 2020.
In December 2020, the Company issued a series of SAFEs (collectively, “SAFE 3”) for $
the Company issued additional SAFEs for $
As explained in Note 1, in accordance with the Contribution and Exchange Agreement, on March 2, 2021, the
shareholders of both UNS and COVAXX contributed their capital stock in exchange for Vaxxinity’s capital stock. Prior to the
Reorganization, all the holders of outstanding COVAXX SAFEs agreed to convert such SAFEs into shares of Series A-3 preferred
stock of COVAXX, which shares were then exchanged for shares of the Company’s Series A preferred stock.
10. Common Stock
As explained in Note 1, in accordance with the Contribution and Exchange Agreement, on March 2, 2021, all outstanding
shares of common stock of UNS and COVAXX were contributed to Vaxxinity and exchanged for an aggregate of
of Vaxxinity’s Class A common stock,
A preferred was exchanged for Vaxxinity’s common stock. Each UNS share of common stock was exchanged for
Vaxxinity common stock and each share of COVAXX common stock was exchanged for
stock.
In September 2021, the Company converted
Executive Officer and Executive Chairman on a
-to-one basis for shares of Class B common stock.
As of September 30, 2021, Vaxxinity’s Amended and Restated Certificate of Incorporation authorized
common stock with a par value of $
and
Holders of Class A common stock and Class B common stock have identical rights, except with respect to voting and
conversion. Except as otherwise expressly provided in Vaxxinity’s Amended and Restated Certificate of Incorporation or Bylaws, or
required by applicable law, holders of Class A common stock will be entitled to one vote per share on all matters submitted to a vote
of stockholders and holders of our Class B common stock will be entitled to ten votes per share on all matters submitted to a vote of
stockholders.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters submitted to a
vote of stockholders, except (i) amendments to Vaxxinity’s Amended and Restated
Certificate of Incorporation to increase or decrease the par value of a class of capital stock, in which case the applicable class
would be required to vote separately to approve the proposed amendment and (ii) amendments to Vaxxinity’s Amended and Restated
Certificate of Incorporation that alter or change the powers, preferences or special rights of a class of capital stock in a manner that
affects its holders adversely, in which case the applicable class would be required to vote separately to approve the proposed
amendment.
Holders of common stock are entitled to receive, ratably, dividends as may be declared by Vaxxinity’s board of directors out
of funds legally available therefor if the board of directors, in its discretion, determines to issue dividends.
The voting, dividend, and liquidation rights of the holders of common stock are subject to and qualified by the rights, powers,
and preferences of the holders of Vaxxinity’s preferred stock.
The Company has reserved shares of common stock for issuance for the following purposes at September 30, 2021:
Series A preferred stock
Series B preferred stock
Options issued and outstanding
Options available for future grants
Warrants issued and outstanding to purchase shares of common
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
20
11. Equity Incentive Plan
Stock Options
In February 2021, the Company replaced the 2017 and 2020 Stock Option and Grant Plans with the newly-adopted 2021
Stock Option and Grant Plan (the “Plan”), which provides for the Company to grant qualified incentive options, nonqualified options,
restricted stock awards, unrestricted stock awards, and restricted stock units to employees and non-employees to purchase the
Company’s common stock.
The maximum number of shares of common stock that can be issued under the Plan is
6,362,45
6 Class B shares. As of September 30, 2021,
that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of stock, withheld to cover the
exercise price or tax withholdings, or otherwise terminated, other than by exercise, shall be added back to the Shares available for
issuance under the Plan.
The exercise price for grants made pursuant to the terms of the Plan is determined in the applicable grant by the board of
directors. Any incentive options granted to persons possessing less than
% of the total combined voting power of all classes of stock
may not have an exercise price of less than
% of the fair market value of the common stock on the grant date. Any incentive
options granted to persons possessing more than
% of the total combined voting power of all classes of stock may not have an
exercise price of less than
% of the fair market value of the common stock on the grant date.
The option term for incentive awards may not be greater than
to persons possessing more than
% of the total combined voting power of all classes of stock may not have an option term of greater
than
directors.
In August 2021, we canceled existing options to purchase, in aggregate,
by Mei Mei Hu and Louis Reese in exchange for an equal number of options to purchase shares of our Class B common stock. The
new options to purchase shares of our Class B common stock were issued with exercise prices equal to the fair value of our Class B
common stock on the new grant date. The company concluded, due to an increased exercise price in the exchanged options, there will
be no associated incremental value reflected in our stock compensation expense.
As of September 30, 2021 there were
14,351,853
6,362,456
shares outstanding, of which
7,092,282
Total stock-based compensation expense for stock options is as follows (in thousands):
Three Months Ended September 30,
Nine months ended September 30,
2020
2021
2020
2021
Research and development
$
$
$
$
General and administrative
Total stock-based compensation expense
$
$
$
$
Restricted Stock
The following table summarizes the Company’s restricted stock activity for the nine months ended September 30, 2021:
Number of
Shares
Weighted
average grant
date fair value
per share
Unvested at December 31, 2020
$
Vested
(15,405 )
$
Unvested at September 30, 2021
$
VAXXINITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(unaudited)
21
Stock-based compensation expense recognized on vested restricted stock was immaterial for the three and nine months ended
September 30, 2020 and 2021, respectively.
12. Income Taxes
During the three and nine months ended September 30, 2020 and 2021, respectively, the Company recorded
tax benefit for the net operating losses incurred in each year, due its uncertainty of realizing a benefit
from those items. The
Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual
effective tax rate, adjusted for the effect of discrete items arising during the interim quarterly period. The impact of such inclusions
could result in a higher or lower effective tax rate during a particular quarterly period, based upon the mix and timing of actual
earnings or losses versus annual projections. In each quarterly period, the Company updates its estimate of the annual effective tax
rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets,
which primarily consist of net operating loss carryforwards. The Company has considered its history of cumulative net losses,
estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not
that the company will not realize the benefits of its deferred tax
13. Net Loss Per Share
The Company’s unvested restricted common shares have been excluded from the computation of basic net loss per share.
The Company’s potentially dilutive securities, which include options, unvested restricted stock, convertible notes payable
and convertible preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to
reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and
diluted net loss per share is the same. The Company excluded the following potential common shares, presented based on amounts
outstanding at each period end, from the computation of diluted net loss per share as of September 30, 2021 because including them
would have had an anti-dilutive effect:
Series A preferred stock
Series B preferred stock
Options to purchase common stock
Warrants issued and outstanding to purchase shares of common stock
14. Commitments and Contingencies
Contractual Obligations
The Company enters into agreements with contract research organizations (“CROs”) to conduct clinical trials and preclinical
studies and contract manufacturing organizations (“CMOs”) to produce vaccines and other potential product candidates. Contracts
with CROs and CMOs are generally cancellable, with notice, at the Company’s option.
As of September 30, 2021, the Company had remaining prepayments to CROs of $
CMOs of $
anticipated vaccine product candidate.
Lease Agreements
The Company has multiple operating lease agre