vaxx-20220331
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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
March 31, 2022
-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
 
001-41058
Vaxxinity, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
86-2083865
(State or other jurisdiction of
 
incorporation or organization)
(I.R.S. Employer
Identification No.)
1717 Main St
,
Ste 3388
Dallas
,
TX
75201
(
254
)
244-5739
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
__________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Class A Common Stock, par value
$0.0001 per share
VAXX
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
No
Indicate by check mark whether the registrant has submitted
 
electronically every Interactive Data File required to be submitted
 
pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or
 
for such shorter period that the registrant was required
 
to submit such files). Yes
 
No
Indicate by check mark whether the registrant is a large accelerated
 
filer, an accelerated filer, a non-accelerated filer, 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:
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).
As of May 6, 2022, the registrant had
112,120,585
 
shares of $0.0001 par value Class A common stock
 
outstanding and
13,874,132
 
shares of $0.0001 par value Class B
common stock outstanding.
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
 
the
 
effects
 
of
 
the
 
Russia-Ukraine
 
conflict
 
and
 
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 Item
 
1A. “Risk
 
Factors” in
 
our Annual
 
Report on
 
Form 10-K
 
for the
year ended
 
December 31,
 
2021. 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
PART
 
I – FINANCIAL INFORMATION
Item 1. Financial Statements.
VAXXINITY,
 
INC.
CONDENSED CONSOLIDATED
 
BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31,
December 31,
2022
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
124,766
$
144,885
Amounts due from related parties
399
393
Prepaid expenses and other current assets
8,183
8,851
Total current assets
133,348
154,129
Property and equipment, net
12,594
12,173
Long-term prepaid fixed assets
157
199
Long-term deposits
1,351
Restricted cash
78
172
Total assets
$
147,528
$
166,673
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
1,460
$
3,192
Amounts due to related parties
16,787
19,407
Accrued expenses and other current liabilities
5,784
4,519
Notes payable
380
376
Total current liabilities
24,411
27,494
Other liabilities
Notes payable, net of current portion
10,226
10,323
Other long-term liabilities
236
237
Total liabilities
34,873
38,054
Commitments and contingencies (Note 16)
Preferred stock: $
0.0001
 
par value,
50,000,000
 
shares authorized at March 31, 2022 and December 31,
 
2021
Stockholders’ equity:
Class A common stock, $
0.0001
 
par value;
1,000,000,000
 
shares authorized,
111,967,092
 
and
111,518,094
 
shares issued and
outstanding at March 31, 2022 and December 31, 2021,
 
respectively
278
278
Class B common stock, $
0.0001
 
par value;
100,000,000
 
shares authorized,
13,874,132
 
shares issued and outstanding at
March 31, 2022 and December 31, 2021
Additional paid-in capital
360,121
357,822
Accumulated deficit
(247,744)
(229,481)
Total stockholders’ equity
112,655
128,619
Total liabilities and stockholders’ equity
$
147,528
$
166,673
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
VAXXINITY,
 
INC.
CONDENSED CONSOLIDATED
 
STATEMENTS
 
OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended March 31,
2022
2021
Revenue
$
$
17
Cost of revenue
1
Gross profit
16
Operating expenses:
Research and development
11,478
11,688
General and administrative
6,686
8,584
Total operating expenses
18,164
20,272
Loss from operations
(18,164)
(20,256)
Other (income) expense:
Interest expense
105
511
Interest income
(5)
Change in fair value of convertible notes
2,667
Change in fair value of simple agreement for future equity
8,365
Change in fair value of warrant liability
214
(Gain) loss on foreign currency translation, net
(1)
8
Other (income) expense
99
11,765
Net loss
$
(18,263)
$
(32,021)
Net loss per share, basic and diluted
$
(0.15)
$
(0.47)
Weighted average
 
common shares outstanding, basic and diluted
125,709,613
68,550,993
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
VAXXINITY,
 
INC.
CONDENSED CONSOLIDATED
 
STATEMENTS
 
OF CONVERTIBLE PREFERRED STOCK
(in thousands, except share amounts)
(Unaudited)
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
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
$
$
$
62,475
Exchange of Series Seed, Series Seed-1, Series Seed-2, Series
A-1 and Series A-2 for Series A
(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)
53,502,585
62,475
Conversion of convertible notes to Series A preferred stock,
net of debt issuance costs
3,624,114
27,545
27,545
Conversion of notes payable with related parties to Series A
convertible preferred
423,230
2,205
2,205
Conversion of Simple Agreement for Future Equity to Series A
convertible preferred
4,539,060
35,600
35,600
Conversion of warrant liability to Series A convertible
preferred
134,106
614
614
Issuance of Series B convertible preferred stock, net of
issuance costs of $
55
5,441,863
43,480
43,480
Balance at March 31, 2021
$
$
$
$
$
62,223,095
$
128,439
5,441,863
$
43,480
$
171,919
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
VAXXINITY,
 
INC.
CONDENSED CONSOLIDATED
 
STATEMENTS
 
OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(Unaudited)
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional Paid-in
Capital
Accumulated
Deficit
Stockholders’
Equity (Deficit)
Balance at December 31, 2021
111,518,094
$
278
13,874,132
$
$
$
357,822
$
(229,481)
$
128,619
Issuance of common stock upon exercise of stock options
448,998
121
121
Stock-based compensation expense
2,178
2,178
Net loss
(18,263)
(18,263)
Balance at March 31, 2022
111,967,092
$
278
13,874,132
$
$
$
360,121
$
(247,744)
$
112,655
Common Stock-Class A
Common Stock-Class B
Treasury Stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional Paid-in
Capital
Accumulated
Deficit
Stockholders’
Equity (Deficit)
Balance at December 31, 2020
60,360,523
$
272
10,999,149
$
(3,169,093)
$
(23)
$
4,682
$
(92,306)
$
(87,375)
Issuance of common stock upon exercise of stock options
9,785
4
4
Vesting of restricted stock
15,405
Issuance of common stock upon stock grant
485,836
103
103
Retirement of treasury stock upon reorganization
(3,169,093)
3,169,093
23
(23)
Stock-based compensation expense
3,440
3,440
Net loss
(32,021)
(32,021)
Balance at March 31, 2021
57,702,456
$
272
10,999,149
$
$
$
8,206
$
(124,327)
$
(115,849)
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
VAXXINITY,
 
INC.
CONDENSED CONSOLIDATED
 
STATEMENTS
 
OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended March 31,
2022
2021
Cash flows from operating activities:
Net loss
$
(18,263)
$
(32,021)
Adjustments to reconcile net loss to net cash used in operating
 
activities:
Depreciation expense
333
282
Amortization of debt issuance costs
14
228
Stock-based compensation expense
2,178
3,440
Non-cash interest expense
Change in fair value of convertible notes
2,667
Change in fair value of warrant liability
214
Change in fair value of simple agreement for future equity
8,365
Changes in operating assets and liabilities:
Accounts receivable
26
Amounts due from related parties
(6)
(5)
Prepaid expenses and other current assets
667
(12,752)
Long-term deposits
(1,351)
Deferred offering costs
(862)
Accounts payable
(1,733)
914
Amounts due to related parties
(2,620)
(1,671)
Accrued expenses and other current liabilities
1,268
2,937
Other long-term liabilities
(1)
(3)
Net cash used in operating activities
(19,514)
(28,241)
Cash flows from investing activities:
Purchase of property and equipment
(713)
Net cash used in investing activities
(713)
Cash flows from financing activities:
Proceeds from issuance of notes payable with related parties
2,000
Repayment of convertible notes payable
(2,000)
Repayment of notes payable
(107)
(104)
Proceeds from issuance of simple agreement for future equity
2,900
Proceeds from issuance of Series B convertible preferred stock,
 
net of issuance costs
43,480
Proceeds from exercise of stock options
121
4
Net cash provided by financing activities
14
46,280
Increase (decrease) in cash, cash equivalents, and restricted
 
cash
(20,213)
18,039
Cash, cash equivalents, and restricted cash at beginning of
 
period
145,057
31,198
Cash, cash equivalents, and restricted cash at end of period
$
124,844
$
49,237
Supplemental Disclosure
Cash paid for interest
$
92
$
96
Noncash Financing Activities
Exchange of Series Seed, Series Seed-1, Series Seed-2, Series
 
A-1 and Series A-2 for Series A preferred
 
stock
$
$
62,475
Conversion of simple agreement for future equity into Series A
 
preferred stock
$
$
35,600
Conversion of convertible notes payable into Series A
 
preferred stock
$
$
27,545
Conversion of notes payable with related parties into Series
 
A preferred stock
$
$
2,205
Conversion of warrant liability into Series A preferred stock
$
$
614
Retirement of treasury stock upon reorganization
$
$
23
The accompanying notes are an integral part
 
of these unaudited condensed consolidated financial statements.
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
10
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 of 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.
The Company
 
is subject
 
to risks and
 
uncertainties common
 
to early-stage
 
companies in
 
the biotechnology
 
industry including,
 
but not
limited
 
to,
 
uncertainty
 
of
 
product
 
development
 
and
 
commercialization,
 
lack
 
of
 
marketing
 
and
 
sales
 
history,
 
development
 
by
 
its
competitors of new
 
technological innovations, dependence on
 
key personnel, market
 
acceptance of products,
 
product liability, protection
of proprietary technology,
 
ability to raise additional
 
financing, and compliance
 
with government regulations. If
 
the Company does not
successfully commercialize any of its
 
product candidates, it will
 
be unable to generate
 
recurring product revenue or
 
achieve profitability.
The
 
Company’s
 
product
 
candidates
 
are
 
in
 
development
 
and
 
will
 
require
 
significant
 
additional
 
research
 
and
 
development
 
efforts,
including extensive pre-clinical and clinical testing and
 
regulatory approval prior to commercialization. These efforts require significant
amounts of
 
additional capital, adequate
 
personnel and
 
infrastructure and
 
extensive compliance-reporting
 
capabilities. There can
 
be no
assurance that
 
the Company’s
 
research and
 
development will
 
be successfully
 
completed, that
 
adequate protection
 
for the
 
Company’s
intellectual property
 
will be
 
obtained, that
 
any products
 
developed will
 
obtain necessary
 
government regulatory
 
approval or
 
that any
approved products will be commercially viable.
 
Even if the Company’s product development efforts are
 
successful, it is uncertain when,
if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in
technology and is dependent upon the services of its employees and consultants.
Contribution and Exchange Agreement
On March
 
2, 2021,
 
in accordance
 
with the
 
Contribution and
 
Exchange Agreement,
 
(i) all
 
outstanding shares
 
of UNS
 
and COVAXX
preferred stock and
 
common stock were
 
contributed to Vaxxinity and exchanged for
 
like shares
 
of stock in
 
Vaxxinity,
 
(ii) the outstanding
options to
 
purchase shares
 
of UNS and
 
COVAXX
 
common stock
 
were terminated
 
and substituted
 
with options
 
to purchase
 
shares of
common stock in Vaxxinity,
 
(iii) the outstanding warrant to purchase shares of COVAXX
 
common stock was cancelled and exchanged
for a warrant to acquire common stock in Vaxxinity
 
and (iv) each outstanding Reorganization Convertible Note (as defined below) was
contributed to Vaxxinity
 
and the holders of such notes received Series A preferred stock in Vaxxinity.
 
In particular:
Each UNS common share and convertible preferred share was exchanged
 
for 0.2191 shares of Vaxxinity
 
common stock or
Series A preferred stock, as applicable;
Each share of COVAXX
 
common and convertible preferred stock was exchanged for
3.4233
 
shares of Vaxxinity
 
common
stock or Series A preferred stock, as applicable (and prior to the closing of 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 Vaxxinity’s
 
Series A preferred stock);
The Reorganization Convertible Notes were exchanged
 
for an aggregate of
4,047,344
 
shares of Vaxxinity’s
 
Series A
preferred stock; and
Each outstanding option of both UNS and COVAXX
 
to purchase common shares of UNS or COVAXX
 
was terminated and
substituted with an option to purchase shares of Class A common stock of
 
Vaxxinity.
 
Each outstanding UNS option was
exchanged based on a conversion ratio of
0.2191
. Each outstanding COVAXX
 
option was exchanged based on a conversion
ratio of
3.4233
.
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
11
All parties to
 
the Contribution
 
and Exchange
 
Agreement intended
 
that the contribution
 
of outstanding equity
 
interests to Vaxxinity
 
in
exchange for Vaxxinity’s
 
common stock and preferred stock be treated as
 
an integrated transaction for U.S. federal income
 
tax purposes
that is governed by Section 351(a) of the Internal Revenue Code of 1986, as amended.
The Reorganization
 
was determined
 
to be a
 
common control
 
transaction, so
 
the carrying
 
values of all
 
contributed assets
 
and assumed
liabilities
 
remained
 
unchanged
 
and
 
the
 
financial
 
information
 
for
 
all
 
periods
 
in
 
the
 
financial
 
statements
 
presented
 
prior
 
to
 
the
Reorganization are presented on a consolidated basis.
Reverse Stock Split
 
On October 29,
 
2021, the
 
Company effectuated
 
a reverse stock
 
split of 1-for-
1.556
 
(the “Stock Split”)
 
of the Company’s
 
Class A and
Class B common
 
stock pursuant to
 
an amendment to
 
the Company’s
 
Amended and Restated
 
Certificate of Incorporation
 
approved by
the Company’s
 
board of directors
 
and stockholders.
 
As a result
 
of the Stock
 
Split, the Company
 
also adjusted the
 
share and per
 
share
amounts
 
associated
 
with
 
its options
 
and
 
warrants
 
to
 
purchase shares
 
of
 
its common
 
stock.
 
These
 
unaudited
 
condensed
 
consolidated
financial
 
statements
 
including
 
the
 
notes
 
have
 
been
 
retroactively
 
adjusted
 
to
 
reflect
 
the
 
Stock
 
Split
 
for
 
all
 
periods
 
presented.
 
Any
fractional shares that would have resulted from the Stock Split have been rounded down
 
to the nearest whole share.
 
Initial Public Offering
On November 15, 2021, the Company closed its IPO of
6,000,000
 
shares of Class A common stock at a public offering price of $
13.00
per share. On
 
November 18, 2021
 
the Company held
 
a subsequent closing for
 
the issuance of an
 
additional
537,711
 
shares of Class A
common stock pursuant
 
to a
 
30-day option granted
 
to the
 
underwriters to purchase
 
up to an
 
additional
900,000
 
shares of Class
 
A common
stock at
 
the IPO
 
price, less
 
underwriting
 
discounts and
 
commissions. The
 
aggregate net
 
proceeds to
 
the Company
 
from the
 
offering,
after deducting underwriting discounts
 
and commissions and
 
other offering expenses payable
 
by the Company, was approximately
 
$
71.1
million. Upon the closing
 
of the IPO, all previously
 
outstanding shares of the Company’s
 
redeemable convertible preferred
 
stock were
automatically converted at the same ratio used for the Stock Split (1-for-
1.556
) into shares of its Class A common stock.
Liquidity
At three
 
months
 
ended
 
March 31,
 
2022,
 
the
 
Company
 
had $124.8
 
million
 
of
 
cash
 
and
 
cash equivalents.
 
To
 
date,
 
the
 
Company
 
has
primarily financed
 
its operations through
 
the sale of
 
convertible preferred
 
stock and
 
common stock and
 
borrowings under
 
promissory
notes
 
(including
 
Convertible
 
Notes),
 
a
 
portion
 
of
 
which
 
has
 
been
 
raised
 
from
 
related
 
party
 
entities.
 
The
 
Company
 
has
 
experienced
significant
 
negative cash
 
flows from
 
operations
 
since inception,
 
and incurred
 
a net
 
loss of
 
$18.3 million
 
for the
 
three months
 
ended
March 31, 2022. Net cash used in operating
 
activities for the three months ended March 31, 2022
 
was $19.5 million.
 
In addition, as of
March 31, 2022, the Company has an accumulated deficit of $247.7 million. The Company expects to incur substantial operating losses
and negative cash flows from operations for the foreseeable future. As of the
 
date these financial statements were available to be issued,
the
 
Company
 
expects
 
its
 
existing
 
cash
 
and
 
cash
 
equivalents
 
to
 
be
 
sufficient
 
to
 
fund
 
its
 
operating
 
expenses
 
and
 
capital
 
expenditure
requirements for at least the next 12 months.
The Company will need to obtain additional funding
 
beyond the period that is 12 months from the date these financial
 
statements were
available to be issued whether through collaboration
 
agreements, private or public equity or
 
debt offerings or a combination thereof, and
such
 
additional
 
funding
 
may
 
not
 
be
 
available
 
on
 
terms
 
the
 
Company
 
finds
 
acceptable
 
or
 
at
 
all.
 
If
 
the
 
Company
 
is
 
unable
 
to
 
obtain
sufficient
 
capital to
 
continue
 
to advance
 
its programs,
 
the Company
 
would be
 
forced to
 
delay,
 
limit, reduce
 
or terminate
 
its product
development
 
or
 
future
 
commercialization
 
efforts
 
or
 
grant
 
rights
 
to
 
third
 
parties
 
to
 
develop
 
and
 
market
 
product
 
candidates
 
that
 
the
Company would otherwise prefer to develop and market itself.
The
 
accompanying
 
unaudited
 
condensed
 
consolidated
 
financial
 
statements
 
have
 
been
 
prepared
 
on
 
a
 
going
 
concern
 
basis,
 
which
contemplates
 
the
 
realization
 
of
 
assets
 
and
 
satisfaction
 
of
 
liabilities
 
in
 
the
 
ordinary
 
course
 
of
 
business.
 
The
 
unaudited
 
condensed
consolidated
 
financial
 
statements
 
do
 
not
 
include
 
any
 
adjustments
 
relating
 
to
 
the
 
recoverability
 
and
 
classification
 
of
 
recorded
 
asset
amounts or the amounts and classification of liabilities that might result from the outcome
 
of the uncertainties described above.
 
2. Summary of Significant Accounting Policies
Basis of presentation
The
 
accompanying
 
interim
 
unaudited
 
condensed
 
consolidated
 
financial
 
statements
 
have
 
been
 
prepared
 
using
 
generally
 
accepted
accounting principles in the United States of America (GAAP)
 
and pursuant to the rules and regulations of the
 
United States Securities
and Exchange Commission (“SEC”) for interim financial
 
reporting. The unaudited condensed consolidated financial
 
statements for the
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
12
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
 
and the Stock Split ratio.
 
These interim
 
condensed 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
consolidated balance sheet at December 31, 2021, has been derived from the
 
audited financial statements at that date. Operating results
for the three months ended March 31, 2022 and cash flows for the three months ended March 31, 2022 are not necessarily indicative of
the results that
 
may be expected for
 
the fiscal year
 
ended December 31,
 
2022 or any
 
other future period.
 
Certain information and footnote
disclosures normally
 
included in
 
annual financial
 
statements prepared
 
in accordance
 
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 unaudited 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, 2021.
Leases
At inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we
 
determine the classification as
either
 
operating
 
leases
 
or
 
financing
 
leases.
 
Operating
 
leases
 
are
 
included
 
in
 
Operating
 
lease
 
right-of-use
 
assets
 
and
 
Operating
 
lease
liabilities in our Condensed Consolidated Balance Sheets.
Lease recognition occurs
 
at the commencement date
 
and lease liability amounts
 
are based on the present
 
value of lease payments
 
over
the lease term. Our lease
 
terms may include options
 
to extend or terminate the
 
lease when it is reasonably
 
certain that we will exercise
that
 
option.
 
If a
 
lease
 
does not
 
provide
 
information
 
to determine
 
an implicit
 
interest rate,
 
we
 
use our
 
incremental
 
borrowing
 
rate
 
in
determining the present value of
 
lease payments. Right-of-use (ROU) assets represent
 
our right to use an underlying
 
asset for the lease
term, and lease liabilities represent our obligation to make lease payments under the lease. ROU assets also include any lease payments
made prior
 
to the commencement
 
date and exclude
 
lease incentives received.
 
Operating lease expense
 
is recognized on
 
a straight-line
basis over the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term,
 
unless there
is a transfer of
 
title or purchase option
 
reasonably certain of exercise.
 
Lease agreements with
 
both lease and nonlease
 
components, are
generally accounted for together as a single lease component.
Related party transactions
The Company has a Related
 
Party policy which defines related parties,
 
and assigns oversight responsibility for related
 
party transactions
to
 
the
 
Company's
 
Audit
 
Committee.
 
The
 
Committee
 
reviews
 
in
 
advance
 
related
 
party
 
transactions,
 
and
 
considers
 
multiple
 
factors,
including the proposed aggregate
 
value of the
 
transaction, or, in the
 
case of indebtedness,
 
the amount of
 
principal that would
 
be involved,
the benefits
 
to the
 
Company of
 
the proposed
 
transaction, the
 
availability of
 
other sources
 
of comparable
 
products or
 
services, and
 
an
assessment of
 
whether the
 
proposed transaction
 
is on terms
 
that are comparable
 
to the terms
 
available to
 
or from, as
 
the case may
 
be,
unrelated third parties. Under the policy, related party transactions are approved only if the Committee determines in good faith that the
transaction is not inconsistent with the interests of the Company and its shareholders.
Significant accounting policies
 
The significant accounting policies used in preparation of these unaudited
 
condensed consolidated financial statements are disclosed in
our
 
annual
 
financial
 
statements
 
for
 
the
 
year
 
ended
 
December 31,
 
2021.
 
There
 
have
 
been
 
no
 
changes
 
to
 
the
 
Company’s
 
significant
accounting policies during the three months ended March 31, 2022.
Recently issued accounting pronouncements
 
From time
 
to time,
 
new accounting
 
pronouncements are
 
issued by
 
the FASB
 
or other
 
standard setting
 
bodies and
 
are adopted
 
by the
Company
 
as
 
of
 
the
 
specified
 
effective
 
date.
 
Unless
 
otherwise
 
discussed,
 
the
 
Company
 
believes
 
that
 
the
 
impact
 
of
 
recently
 
issued
standards that are not yet effective will not have a material impact on
 
its financial position or results of operations upon adoption.
Recently adopted accounting standards
In
 
July
 
2018,
 
the
 
FASB
 
issued
 
ASU
 
No.
 
2018-11,
 
Leases
 
(Topic
 
842):
 
Targeted
 
Improvements
 
(“ASU
 
2018-11”).
 
ASU
 
2018-11
provided an alternative method in addition to the modified retrospective transition method for ASU No. 2016-02, Leases: Amendments
to the FASB
 
Accounting Standards Codification (“ASU
 
2016-02”), issued in February
 
2016. Under ASU 2018-11,
 
an entity may elect
to initially
 
apply the
 
new lease
 
standard at
 
the adoption
 
date and
 
recognize a
 
cumulative-effect adjustment
 
to the
 
opening balance
 
of
retained earnings in the
 
period of adoption. Under
 
ASU 2016-02, a lease is required
 
to recognize assets and liabilities
 
with lease terms
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
13
of more than
 
twelve months. ASU
 
2016-02 is effective for
 
nonpublic business entities
 
and public entities
 
eligible to be
 
Smaller Reporting
Companies for fiscal years beginning after December 15, 2021.
 
The Company
 
adopted the
 
new standard
 
on January
 
1, 2022
 
using the
 
modified retrospective
 
approach. The
 
Company has
 
elected to
apply the
 
transition method
 
that allows companies
 
to continue
 
applying the
 
guidance under the
 
lease standard
 
in effect
 
at that time
 
in
the comparative
 
periods presented
 
in the condensed
 
financial statements
 
and recognize
 
a cumulative-effect
 
adjustment to
 
the opening
balance of accumulated deficit on the date of adoption. The Company has elected to combine lease components (for example fixed rent
payments)
 
with
 
non-lease
 
components
 
(for
 
example,
 
common-area
 
maintenance
 
costs)
 
on
 
our
 
facility,
 
lab
 
equipment
 
and
 
CRO
embedded
 
lease
 
asset classes.
 
The
 
Company
 
also
 
elected
 
the “package
 
of practical
 
expedients”,
 
which
 
permits
 
the
 
Company
 
not
 
to
reassess under the new standard the Company’s
 
prior conclusions about lease identification, lease classification
 
and initial direct costs.
In addition, the Company also elected the
 
short-term lease practical expedients allowed under the standard. Lastly, the Company did not
elect the
 
practical expedient
 
allowing the
 
use-of-hindsight
 
which would
 
require the
 
Company to
 
reassess the
 
lease term
 
of its
 
leases
based on all facts and circumstances through the effective date.
Results for reporting
 
period beginning after
 
January 1, 2022
 
are presented under
 
the new standard,
 
while prior period
 
amounts are not
adjusted
 
and
 
continue
 
to
 
be
 
reported
 
under
 
the
 
accounting
 
standards
 
in
 
effect
 
for
 
the
 
prior
 
period.
 
Upon
 
adoption
 
of the
 
new
 
lease
standard, on January
 
1, 2022, the
 
Company was not
 
entered into any
 
leases subject to
 
ASC 842 and
 
did not capitalize
 
a ROU asset
 
or
lease liability.
 
 
3. Fair Value
 
Measurements
The Company's money market accounts are shown at
 
fair value based on unadjusted quoted
 
market prices in active markets for
 
identical
assets.
The following
 
table presents
 
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 (in
 
thousands):
March 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
119,796
$
$
$
119,796
Total assets
$
119,796
$
$
$
119,796
December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
139,794
$
$
$
139,794
Total assets
$
139,794
$
$
$
139,794
During the three months ended March 31, 2022 and the year ended December 31, 2021, there were
no
 
transfers between Level 1, Level
2 and Level 3.
 
4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
March 31,
December 31,
2022
2021
Prepaid materials and supplies
$
3,657
$
3,517
Deposits
3,468
4,379
Clinical prepayments
709
614
Other
349
341
$
8,183
$
8,851
The Company’s prepaid material and supplies related to enzyme-linked immunosorbent assay (“ELISA”) test
 
production, of which $
1.0
million was paid to a related
 
party and $
2.5
 
million related to materials to be
 
utilized during its Phase 3 COVID-19 vaccine
 
clinical trial.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
14
 
5. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
March 31,
December 31,
2022
2021
Airplane
$
11,983
$
11,983
Laboratory and computer equipment
2,560
1,831
Software
169
168
Facilities, furniture and fixtures
110
85
Vehicles
86
87
Total property
 
and equipment
14,908
14,154
Less: accumulated depreciation
(2,314)
(1,981)
Property and equipment, net
$
12,594
$
12,173
Depreciation expense for the three months ended March 31, 2022
 
and 2021 was $
0.3
 
million.
 
 
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in
 
thousands):
March 31,
December 31,
2022
2021
Accrued external research and development
$
3,498
$
1,501
Accrued bonuses
1,200
2,294
Accrued professional fees and other
1,055
692
Accrued interest
31
32
$
5,784
$
4,519
7. Other Long-Term
 
Liabilities
Other long-term liabilities consisted of the following (in thousands):
March 31,
December 31,
2022
2021
Accrued tax provision
236
236
Accrued rent
1
$
236
$
237
As of March 31, 2022 and December 31, 2021, approximately $
0.2
 
million of the accrued tax provision relates to penalties and interest
the Company
 
may be
 
subject to
 
paying for
 
late filing
 
fees related
 
to a
 
foreign subsidiary.
 
The Company
 
expects these
 
amounts to
 
be
forgiven but has accrued for them until the statute of limitations expires
 
and it is appropriate to write them off.
 
8. 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 “Reorganization Convertible
 
Notes”) for $
2.0
 
million in aggregate proceeds,
 
received in three tranches.
 
The 2018
Related
 
Notes
 
bore
 
simple
 
interest
 
at
 
an
 
annual
 
rate
 
of
5
%
 
and
 
contain
 
a
 
number
 
of
 
provisions
 
addressing
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
15
During the three months ended March 31, 2021, the Company recognized interest expense of less than
 
$
0.1
 
million on the 2018 Related
Notes.
2019 Executive Note
In November 2019, the Company borrowed $
0.1
 
million from its Chief Executive Officer (the “2019 Executive Note”). No formal loan
agreement was executed. The Company
 
has elected to accrue interest at
 
an annual rate of
5
%, 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.
 
The activity of the 2018 Related Notes and 2019 Executive Note is as follows (in thousands):
 
2018 Related Notes and 2019 Executive Note
Related Party
Principal
Accrued
Interest
Balance
December 31, 2020
$
2,100
$
194
$
2,294
Accrued interest
18
18
Conversion
(2,000)
(205)
(2,205)
March 31, 2021
$
100
$
7
$
107
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 $
11.5
 
million, with an annual interest rate of
3.4
% and a maturity date of June
 
9, 2025. Principal and interest payments
 
are payable
monthly in the amount
 
of $
0.07
 
million with a
 
final payment of $
9.4
 
million at maturity. The 2025 Note
 
is guaranteed by the
 
co-founders
of the Company. In addition, the Company
 
incurred debt issuance costs of $
0.3
 
million, which are being amortized over the term of the
loan. There are no financial covenants associated with the 2025 Note.
 
The carrying value of the 2025 Note is as follows (in thousands):
 
March 31,
December 31,
2022
2021
Principal
$
10,776
$
 
10,883
Unamortized debt issuance cost
(170)
(184)
Carrying amount
10,606
10,699
Less: current portion
(380)
(376)
Note payable, net of current portion and debt issuance cost
$
10,226
$
10,323
As of March 31, 2022, the remaining principal payments for the 2025
 
Note, are as follows (in thousands):
 
Amount
2022
$
322
2023
444
2024
458
2025
9,552
$
10,776
Interest expense
 
associated with the
 
2025 Note was
 
$
0.1
 
million for each
 
of the three
 
months ended
 
March 31, 2022
 
and 2021. As
 
of
March 31, 2022,
 
accrued interest of
 
less than $
0.1
 
million was included
 
in accrued expenses
 
and other liabilities
 
in the accompanying
condensed consolidated balance sheets as of March 31, 2022 (unaudited)
 
and December 31, 2021.
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
16
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
 
$
0.3
 
million (the “PPP
 
Loan”), pursuant
 
to the Paycheck
 
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
March 31, 2021, 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.
9. Convertible Preferred Stock
In connection with
 
the Reorganization, each
 
UNS convertible preferred share
 
was exchanged for
0.2191
 
shares of Vaxxinity
 
preferred
stock and
 
each share of
 
COVAXX
 
convertible preferred
 
stock was exchanged
 
for
3.4233
 
shares of Vaxxinity
 
preferred stock.
 
During
the first
 
and second
 
quarters of
 
2021, the
 
Company raised
 
gross proceeds
 
of $
122.8
 
million in
 
connection with
 
its Series
 
B preferred
stock financing. The
 
Company issued a total
 
of
15,365,574
 
shares at a price
 
of $
8.00
 
per share. All shares
 
of the Company’s
 
Series B
preferred stock converted
 
into shares
 
of the Company’s Class
 
A common stock
 
concurrently with
 
the closing
 
of the initial
 
public offering.
 
As of March 31, 2022 and
 
December 31, 2021, Vaxxinity’s
 
Amended and Restated Certificate
 
of Incorporation authorized
50,000,000
shares of
 
preferred stock
 
with a
 
par value
 
of $
0.0001
 
per share.
 
There were
 
no shares
 
of preferred
 
stock outstanding
 
as of
 
March 31,
2022 and December 31, 2021.
 
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
60,360,523
 
shares
 
of
Vaxxinity’s
 
Class A common
 
stock and
10,999,149
 
shares of Vaxxinity’s
 
Class B common
 
stock. Each
 
UNS share of
 
common stock
was exchanged
 
for
0.2191
 
shares of Vaxxinity
 
common stock and
 
each share of
 
COVAXX
 
common stock
 
was exchanged for
3.4233
shares of Vaxxinity
 
common stock.
 
As
 
of
 
March 31,
 
2022
 
and
 
December
 
31,
 
2021,
 
Vaxxinity’s
 
Amended
 
and
 
Restated
 
Certificate
 
of
 
Incorporation
 
authorized
1,100,000,000
 
shares of common
 
stock with a
 
par value of $
0.0001
 
per share, of
 
which
1,000,000,000
 
shares have been designated
 
as
Class A common stock and
100,000,000
 
shares have been designated as Class B common stock.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
17
The Company has reserved shares of common stock for issuance for the following
 
purposes:
 
March 31,
December 31,
2022
2021
Options issued and outstanding
20,274,077
21,387,909
Options available for future grants
6,727,691
7,209,538
Warrants issued and
 
outstanding
1,928,020
1,928,020
28,929,788
30,525,467
11.
 
Stock-Based Compensation
Stock Options
As of March 31, 2022 there were options for
13,911,622
 
shares of Class A stock outstanding and options for
6,362,455
 
shares of Class
B stock outstanding,
 
of which
8,466,456
 
Class A and
4,897,414
 
Class B shares were
 
exercisable, respectively.
 
As of March
 
31, 2022,
the maximum number of stock options awards available for future issuance
 
under the Company’s plans is
6,727,691
.
The following table summarizes stock option activity during the three
 
months ended March 31, 2022:
 
Number of Stock
Options
Outstanding
Weighted Price
Per Share
Weighted
Contractual
Term
 
(years)
Aggregate
Intrinsic Value
(in thousands)
Balance at December 31, 2021
21,387,909
$
5.25
7.4
$
49,684
Granted
303,086
5.36
Exercised
(842,938)
(3.89)
Forfeited
(573,980)
(5.16)
Balance at March 31, 2022
20,274,077
$
5.31
7.5
$
32,167
Options vested and exercisable at March 31, 2022
13,363,870
$
4.46
7.1
$
27,022
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the
common stock for those options that had exercise prices lower than the fair
 
value of the common stock as of March 31, 2022.
The intrinsic value of options exercised during the three months ended
 
March 31, 2022 was $
3.6
 
million.
The weighted-average grant-date fair value per share of options granted
 
during the three months ended March 31, 2022 was $
4.02
.
Restricted Stock
The following table summarizes the Company’s
 
restricted stock activity for the three months ended March 31, 2022:
 
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Unvested at December 31, 2021
$
Issued
300,000
3.76
Unvested at March 31, 2022
300,000
$
3.76
Stock-based compensation expense recognized on vested restricted stock
 
was immaterial for the three months ended March 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
18
Stock-Based Compensation Expense
The
 
Company
 
recorded
 
stock-based
 
compensation
 
expense
 
in
 
the
 
following
 
expense
 
categories
 
in
 
the
 
accompanying
 
unaudited
condensed consolidated statements of operations (in thousands):
Three Months Ended March 31,
2022
2021
General and administrative
$
1,371
$
3,167
Research and development
807
273
Total stock-based
 
compensation expense
$
2,178
$
3,440
As of
 
March 31, 2022,
 
total unrecognized
 
compensation cost
 
related to
 
the unvested
 
stock-based awards
 
was $
24.2
 
million, which
 
is
expected to be recognized over a weighted average period of
3.0
 
years.
12. Income Taxes
The Company computes its
 
expected annual effective
 
income tax rate in accordance
 
with ASC 740 and makes
 
changes on a quarterly
basis,
 
as
 
necessary,
 
based
 
on
 
certain
 
factors
 
such
 
as
 
changes
 
in
 
forecasted
 
annual
 
pre-tax
 
income;
 
changes
 
to
 
actual
 
or
 
forecasted
permanent book to tax differences; impacts from tax audits with state, federal or foreign tax authorities; impacts from tax law changes;
or change in judgment as to the realizability of deferred tax assets. The Company identifies items which are unusual and non-recurring
in nature and treats these
 
as discrete events. The tax effect of
 
discrete items is recorded in
 
the quarter in which the discrete
 
events occur.
 
The Company’s
 
effective tax rate for the
 
three months ended March 31, 2022
 
and 2021 was
0.00
%, due primarily to its uncertainty of
realizing a benefit from net operating losses incurred during the period.
In assessing
 
the realizability
 
of deferred
 
tax assets,
 
management considers
 
whether it
 
is more
 
likely than
 
not that
 
some or
 
all of
 
the
recorded deferred
 
tax assets will
 
be realized.
 
The ultimate
 
realization of
 
deferred tax
 
assets is dependent
 
on the
 
generation of
 
future
taxable income in the periods in which those temporary differences become deductible.
 
Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning strategies in
 
making this assessment.
 
Based on these items
and the consecutive years of pretax losses (resulting from impairment), management determined that enough uncertainty
 
exists relative
to
 
the
 
realization
 
of
 
the
 
deferred
 
income
 
tax
 
asset
 
balances
 
to
 
warrant
 
the
 
application
 
of
 
a
 
full
 
valuation
 
allowance
 
for
 
all
 
taxing
jurisdictions.
The Company files
 
income tax returns
 
in the U.S.
 
federal and various
 
state and local
 
jurisdictions. The Company
 
also files returns
 
in
numerous foreign jurisdictions
 
that have varied
 
years remaining open
 
for examination, but
 
generally the statute
 
of limitations is three
to four years from when the return is filed. As of March 31, 2022, the Company
 
currently has no ongoing audits.
The
 
Company
 
has
 
US
 
net
 
operating
 
loss
 
(“NOL”)
 
carryforwards
 
for
 
federal
 
and
 
state
 
income
 
tax
 
purposes.
 
Use
 
of
 
the
 
NOL
carryforwards is limited under Section
 
382 of the Internal Revenue Code,
 
as we have had a change in ownership
 
of more than 50% of
our capital
 
stock over
 
a three-year
 
period as
 
measured under
 
Section 382
 
of the
 
Internal Revenue
 
Code. These
 
complex changes
 
of
ownership rules generally
 
focus on ownership changes
 
involving shareholders owning
 
directly or indirectly
 
5% or more of
 
our stock,
including certain public “groups” of
 
shareholders as set forth under Section
 
382 of the Internal Revenue Code,
 
including those arising
from
 
new stock
 
issuances and
 
other
 
equity transactions.
 
Some of
 
these NOL
 
carryforwards
 
will expire
 
if they
 
are not
 
used within
certain periods. At this time,
 
we consider it more
 
likely than not that
 
we will not have
 
sufficient taxable income
 
in the future that
 
will
allow us to realize these NOL carryforwards.
 
13. Net Loss Per Share
The Company’s unvested restricted
 
common shares have been excluded from the computation of basic net loss per
 
share.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
19
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 March 31, 2022
 
and March 31, 2021
 
because including them
would have had an anti-dilutive effect:
 
March 31,
March 31,
2022
2021
Options and RSUs issued and outstanding
20,574,077
19,712,504
Warrants issued and
 
outstanding stock
1,928,020
128,702
22,502,097
19,841,206
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 March 31, 2022, the Company had remaining prepayments to CROs of $
3.1
 
million and remaining prepayments to CMOs of $
2.6
million for activities
 
associated with the conduct
 
of its clinical
 
trials and for
 
the production of
 
the Company’s anticipated vaccine product
candidate.
 
Michael J. Fox Foundation Grant
 
On November 3,
 
2021, the Company
 
was awarded a
 
grant from the
 
Michael J. Fox
 
Foundation for Parkinson’s
 
Research (“MJFF”) in
the amount of $
0.8
 
million to be used
 
in a project for
 
the exploration of markers
 
for target engagement
 
in individuals immunized
 
with
UB-312, an
 
active
a
-Synuclein immunotherapy.
 
The Company
 
will oversee
 
sample management,
 
sample preparation
 
(IgG fractions)
and
 
distribution,
 
as
 
well
 
as
 
characterize
 
the
 
binding
 
properties
 
of
 
the
 
antibodies
 
against
 
pathological
 
forms
 
of
 
aSyn.
 
As
 
funding
 
is
expected to be
 
utilized over a
 
two-year period, as
 
cash is
 
received, the amount
 
expected to the
 
utilized within twelve
 
months is
 
recognized
to short-term
 
restricted cash/deposits,
 
with a
 
corresponding short-term
 
accrued liability,
 
which is
 
released as
 
the related
 
expenses are
offset. The Company recognizes
 
payments from MJFF as a
 
reduction of research and development
 
expenses, in the same period
 
as the
expenses that the
 
grant is intended
 
to reimburse
 
are incurred.
 
The remaining balance
 
of cash
 
received is recognized
 
to long-term
 
restricted
cash/deposits, with a corresponding long-term accrued liability. As of
 
March 31, 2022, the
 
balance of short-term restricted cash/deposits
and the corresponding
 
short-term accrued liability
 
was $
0
 
and the balance
 
of long-term restricted
 
cash/deposits and the
 
corresponding
long-term accrued liability
 
was $
0
. For
 
the three months
 
ended March 31,
 
2022, the Company
 
did not recognize
 
any reduction of
 
research
and development expenses for amounts reimbursed through the grant.
Lease Agreements
 
The Company has short-term leases resulting in $
0.1
 
million short-term lease expense and less than $
0.1
 
million variable lease expense
during the three months ended March 31, 2022. As of March 31, 2022, the
 
Company has not entered into any finance lease agreements
or operating lease agreements resulting in the capitalization of a ROU asset or
 
lease liability.
License Agreements
 
In August 2021,
 
Vaxxinity
 
entered into a
 
license agreement (the
 
“Platform License Agreement”)
 
with UBI and
 
certain of its
 
affiliates
that
 
expanded
 
intellectual
 
property
 
rights
 
previously
 
licensed
 
under
 
previously
 
issued
 
license
 
agreements
 
with
 
UBI.
 
As
 
part
 
of
 
the
agreement, Vaxxini
 
ty obtained a worldwide,
 
sublicensable (subject to certain
 
conditions), perpetual, fully paid-up,
 
royalty-free license
to
 
research,
 
develop,
 
make,
 
have
 
made,
 
utilize,
 
import,
 
export,
 
market,
 
distribute,
 
offer
 
for
 
sale,
 
sell,
 
have
 
sold,
 
commercialize
 
or
otherwise exploit peptide-based vaccines in the field of all human prophylactic and therapeutic uses, except for such vaccines related to
human immunodeficiency
 
virus (HIV), herpes
 
simplex virus (HSE)
 
and Immunoglobulin E
 
(IgE). The patents
 
and patent applications
licensed under the
 
Platform License Agreement
 
include claims directed
 
to a CpG delivery
 
system, artificial T
 
helper cell epitopes
 
and
certain designer
 
peptides and
 
proteins utilized
 
in UB-612.
 
As described
 
above, in
 
consideration for
 
the Platform
 
License Agreement,
the Company issued to UBI a warrant to purchase Class A common stock (the
 
“UBI Warrant”).
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
20
The Company considered ASC 805, “Business Combinations” (“ASC 805”) and ASC 730,
 
“Research and Development” (“ASC 730”)
in determining how to account
 
for the issuance of the
 
Class A common stock warrants. The
 
Class A common stock warrants
 
were issued
to a related party in exchange for a license agreement.
 
The majority of the voting interests in the related party
 
and that of the Company
were held
 
by a
 
group of
 
immediate family
 
members, at
 
the time
 
of the
 
transaction, and
 
as such the
 
transaction constitutes
 
a common
control transaction,
 
which requires
 
the license
 
to be
 
accounted for
 
at the
 
carrying value
 
in the
 
books of
 
the transferor.
 
As the
 
related
party did not have any basis in the assets licensed, there was no accounting impact for the Company.
Indemnification Agreements
 
In the
 
ordinary course
 
of business,
 
the Company
 
may provide
 
indemnification of
 
varying scope
 
and terms
 
to employees,
 
consultants,
vendors, lessors,
 
business partners
 
and other
 
parties with
 
respect to
 
certain matters
 
including, but
 
not limited
 
to, losses
 
arising out
 
of
breach of such agreements
 
or from intellectual property
 
infringement claims made by
 
third parties. In addition,
 
the Company has entered
into indemnification
 
agreements with
 
members of
 
its board
 
of directors
 
and executive
 
officers that
 
will require
 
the Company,
 
among
other things, to indemnify them
 
against certain liabilities that may
 
arise by reason of their status
 
or service as directors or
 
officers. The
maximum potential amount
 
of future payments the
 
Company could be
 
required to make under
 
these indemnification agreements
 
is, in
many cases, unlimited. To
 
date, the Company has not incurred any material costs as a result of such
 
indemnifications. The Company is
not aware of any
 
indemnification arrangements that
 
could have a material effect
 
on its financial position,
 
results of operations, or
 
cash
flows, and it has not accrued any liabilities related to such obligations as of March
 
31, 2022 and December 31, 2021.
 
Legal Proceedings
 
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. As of March 31,
2022 and December 31, 2021, the Company was not a party to any material
 
legal matters or claims.
 
15. Benefit Plans
In
 
March
 
2018,
 
the
 
Company
 
established
 
a
 
defined
 
contribution
 
savings
 
plan
 
under
 
Section
 
401(k)
 
of
 
the
 
Code.
 
This
 
plan
 
covers
substantially all
 
U.S. employees
 
who meet
 
minimum age
 
and service
 
requirements and
 
allows participants
 
to defer
 
a portion
 
of their
annual compensation on a pre-tax basis. The Company does not make matching
 
contributions to the Plan.
The Company offers
 
its Ireland-based employees
 
a Personal Retirement Savings
 
Account (“PRSA”) that allows
 
participants to defer a
portion of their annual compensation. The
 
Company provides contributions equal to
4
% of each participant’s annual salary. During both
of the three months ended March 31, 2022 and 2021, the Company contributed less than
 
$
0.1
 
million to PRSA accounts.
16. Related Party Transactions
The Company has related party arrangements with UBI
 
and a number of its
 
affiliated companies listed namely, United Biomedical, Inc.,
Asia (“UBI-Asia”), UBI Pharma, Inc. (“UBI-P”), United BioPharma,
 
Inc (“UBP”) and UBI IP Holding (“UBI-IP”).
As of March 31, 2022
 
UBI owned
44
% of the Company’s stock. The majority of
 
the voting interests in both UBI
 
and the Company were
held by a group of immediate family members,
 
and as such the entities are under common control.
Total amounts
 
due to related parties were $
16.8
 
million and $
19.4
 
million as of March 31,
 
2022 and December 31,
 
2021, respectively.
Total amounts
 
due from related parties were $
0.4
 
million and $
0.4
 
million as of March 31, 2022 and
 
December 31, 2021, respectively.
 
Total service fees incurred
 
were $
0.8
 
million and $
8.7
 
million for the three months ended March 31, 2022 and 2021, respectively.
 
Taiwan
 
Centers for Disease Control Grant (“Taiwan
 
CDC”)
 
UBI-Asia, which is responsible for applying for and managing grants on our behalf under the
 
COVID-19 program, was awarded a grant
by the Taiwan
 
CDC for COVID-19
 
vaccine development.
 
The Company
 
contracted with UBI-Asia
 
to conduct a
 
two-phase study of
 
a
COVID-19 vaccine
 
clinical trial in
 
Taiwan.
 
The grant provides
 
that costs incurred
 
to complete the
 
two phases of
 
the clinical trial
 
will
be reimbursed based on the achievement of certain milestones as provided
 
in the agreement.
The Company provides administrative
 
services to UBI-IP.
 
Under the arrangement, the
 
Company issues vendor payments
 
and provides
technical services mostly for
 
legal services on behalf
 
UBI-IP.
 
The Company bills UBI-IP
 
for services based on
 
the costs incurred with
no markup.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
VAXXINITY,
 
INC.
NOTES TO THE CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
 
21
Total related party operating
 
activity, including the activity described
 
above, are as follows (in thousands):
March 31,
December 31,
2022
2021
Consolidated balance sheet
Assets
Prepaid expenses and other current assets
$
3,546
$
3,517
Amounts due from related parties
399
393
Property and equipment, net
299
337
Liabilities
Amounts due to related parties
16,787
19,407
Accrued expenses
168
Three Months Ended March 31,
2022
2021
Operating expenses
Research and development
Services provided by related parties
784
10,633
Taiwan CDC grant reimbursement
 
from related party
(2,417)
General and administrative
Services provided by related parties
507
17. Subsequent Events
The Company has
 
evaluated subsequent events
 
and has concluded
 
that no events
 
or transactions have
 
occurred that require
 
disclosure
in the accompanying consolidated financial statements,
 
except as follows:
Coalition for Epidemic Preparedness Innovations (“CEPI”)
 
Grant
In April
 
2022, the
 
Company entered
 
into an
 
agreement with
 
the Coalition
 
for Epidemic
 
Preparedness Innovations
 
(“CEPI”) whereby
CEPI has agreed to provide funding of up to US$
9.25
 
million to co-fund a Phase 3 clinical trial of Vaxxinity’s
 
next generation UB-612
COVID-19 vaccine candidate
 
as a heterologous –
 
or ‘mix-and-match’ – booster dose.
 
The Phase 3 trial,
 
which began in the
 
US earlier
this year, is evaluating
 
the ability of UB-612
 
to boost COVID-19 immunity against
 
the original strain and multiple
 
variants of concern
including Omicron - in people aged 16 years or older,
 
who have been previously immunized with an authorized COVID-19 vaccine.
The
 
Company
 
will
 
also
 
be
 
performing
 
further
 
manufacturing
 
scale-up
 
work
 
to
 
enable
 
readiness
 
for
 
a
 
pivotal
 
trial
 
and
 
potential
commercialization. If successful, a portion of the
 
released doses of the commercial product
 
will be delivered to the COVID-19 Vaccines
Global Access (“COVAX”)
 
consortium for distribution to developing countries at low cost.
Lease
In April 2022, the Company entered into
 
a facility lease agreement for an
 
additional
4,419
 
square feet of space in New
 
York, New York.
The lease is
 
estimated to commence
 
in April 2022
 
and expire March
 
2029
 
with no option
 
to renew.
 
The lease will
 
be recognized
 
and
measured in accordance with ASC 842 guidance.
 
 
22
Item 2. Management’s Discussion and Analysis of
 
Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and
 
results of operations should be rea
 
d
 
together with our unaudited
condensed consolidated financial statements and related
 
notes and other financial information appearing elsewhere
 
in this Quarterly
Report. We
 
intend for this discussion to provide you with information that
 
will assist you in understanding our unaudited condensed
consolidated financial statements, the changes in key items in those unaudited
 
condensed consolidated financial statements from
period to period and the primary factors that accounted for those changes.
Some of the information contained in this discussion and
analysis or set forth elsewhere in this Quarterly
 
Report, including information with respect to
 
our plans and strategy for our business
and related financing, includes forward
 
-looking statements that involve risks, uncertainties and assumptions.
 
See the section of this
Quarterly Report titled “Special Note Regarding
 
Forward-Looking Statements” for a discussion of
 
forward-looking statements. As a
result of many factors, including those factors set forth
 
in the “Risk Factors” section of this Quarterly Report, our actual results
 
could
differ materially from management’s
 
expectations and the results described in or implied by
 
the forward-looking statements contained
in the following discussion and analysis.
Overview
Vaxxinity
 
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 needs.
 
While vaccines
 
have traditionally
been unable
 
to effectively
 
and safely
 
combat chronic
 
diseases, we
 
believe our
 
platform could
 
overcome the
 
traditional hurdles
 
facing
vaccines in this area.
 
Our Vaxxine
 
Platform relies on a synthetic peptide
 
vaccine technology first developed by
 
UBI and subsequently
refined over the last
 
two decades. We
 
believe our vaccines have
 
the potential to combat
 
conditions that have not
 
yet been successfully
treated, or which have primarily
 
been addressed with monoclonal antibodies
 
(“mAbs”) which, while generally
 
effective, are extremely
costly and cumbersome to administer,
 
and thus have limited accessibility.
 
Our pipeline primarily consists of five programs focused
 
on
chronic disease, particularly
 
neurodegenerative disorders, in
 
addition to other
 
neurology and cardiovascular
 
indications. Given the
 
global
COVID-19 pandemic and our Vaxxine
 
Platform’s applicability to infectious disease, we
 
are also opportunistically advancing a product
candidate that addresses SARS-CoV-2.
We separated our business from UBI
 
through two transactions:
 
a spin-out from UBI
 
in 2014 of
 
operations focused on
 
developing chronic
disease product candidates that resulted
 
in UNS, and a second spin-out
 
from UBI in 2020 of operations
 
focused on the development of
a COVID-19 vaccine that resulted in COVAXX.
 
On February 2, 2021, Vaxxinity
 
was incorporated for the purpose of reorganizing and
combining UNS and
 
COVAXX
 
and did so on
 
March 2, 2021 through
 
the Reorganization. The
 
Reorganization was determined
 
to be a
common control transaction,
 
so the
 
carrying values of
 
all contributed assets
 
and assumed liabilities
 
remained unchanged and
 
the financial
information for all
 
periods in this
 
section of the
 
financial statements presented
 
prior to the
 
Reorganization are presented on
 
a consolidated
basis. Unless the context
 
requires otherwise, in this section
 
we use the terms
 
“Vaxxinity,”
 
“we,” “us” and “our”
 
to refer to our
 
operations
(including through UNS and COVAXX)
 
both prior to and after the Reorganization.
Since our spin-out transactions
 
from UBI, we have
 
focused on organizing
 
and staffing our business,
 
business planning, raising
 
capital,
developing our Vaxxine
 
Platform and pipeline candidates,
 
identifying and testing
 
potential product candidates
 
and conducting clinical
trials. We have also
 
developed a SARS CoV-2
 
antibody ELISA test, which received an EUA from the FDA in January 2021.
Our current pipeline consists of six programs from early to late-stage
 
development, including five programs focused on chronic disease.
Our
 
neurodegenerative
 
chronic
 
disease
 
pipeline
 
has
 
three
 
primary
 
programs:
 
UB-311,
 
our
 
leading
 
neurology
 
product
 
candidate,
 
in
development for
 
Alzheimer’s Disease
 
(“AD”); UB-312,
 
in development
 
for Parkinson’s
 
Disease (“PD”)
 
and other
 
synucleinopathies;
and an anti-tau product candidate
 
which has the potential to
 
address multiple neurodegenerative conditions, including AD. Additionally,
we have
 
two other
 
primary
 
programs
 
focused on
 
chronic
 
disease: UB-313,
 
which
 
targets
 
CGRP to
 
prevent
 
migraines; and
 
our anti-
PCSK9 program,
 
which targets
 
hypercholesterolemia to
 
reduce the risk
 
of cardiac
 
events. Through
 
our Vaxxine
 
Platform, we
 
believe
we may be able to
 
address a wide range of
 
other chronic diseases, including chronic diseases
 
that are or could potentially
 
be successfully
treated by mAbs, which increasingly dominate the treatment paradigm
 
for many chronic diseases.
In addition
 
to our
 
chronic
 
disease pipeline,
 
given
 
our
 
Vaxxine
 
Platform’s
 
applicability
 
to infectious
 
disease and
 
the global
 
need
 
for
additional vaccines to address
 
SARS-CoV-2, we are advancing an infectious disease
 
product candidate. We have reported interim
 
results
of our
 
UB-612 Phase
 
1, Phase
 
2, and
 
Phase 1
 
extension clinical
 
trials. An
 
EUA application
 
for UB-612
 
was denied
 
by the
 
TFDA in
August 2021.
 
We
 
are pursuing
 
accelerated pathways
 
to authorization
 
with regulators
 
in multiple
 
jurisdictions, including
 
high income
countries and LMICs, based on a Phase 3 heterologous booster trial of UB-612
 
that began in the first half of 2022.
To
 
date, our revenue
 
has been generated
 
from the modest
 
sales of our
 
ELISA test and
 
the sale of
 
an option to
 
negotiate a license
 
with
UNS (which option
 
has expired). As
 
a result,
 
our ability to
 
generate revenue sufficient to
 
achieve profitability will
 
depend on the
 
eventual
regulatory approval, and
 
commercialization of one
 
or more of
 
our product candidates.
 
We have not yet obtained
 
any regulatory approvals
for our pipeline product candidates.
 
23
We
 
have
 
principally
 
funded
 
our operations
 
through financing
 
transactions.
 
Through
 
March 31, 202
 
2, we
 
received gross
 
proceeds
 
of
$306.1
 
million
 
in
 
connection with
 
various
 
financial
 
instruments,
 
including
 
the
 
sale of
 
preferred
 
and
 
common
 
stock, the
 
issuance
 
of
promissory
 
notes (including
 
convertible promissory
 
notes (“Convertible
 
Notes”)), the
 
entry into
 
simple agreements
 
for future
 
equity
(“SAFEs”), and proceeds from our initial public offering.
 
Costs associated with research and development are the most significant component of our expenses. These costs can vary greatly from
period to period depending on the timing
 
of various trials for our product
 
candidates. We expect our allocated research and development
costs and
 
general and
 
administrative expenses to
 
increase over time
 
as we
 
expand the
 
number of
 
product candidates that
 
we are
 
advancing
and to incur increased costs as a result of operating as a public company.
 
Further, we anticipate incurring greater
 
selling and marketing
expenses if
 
we commercialize
 
any of
 
our product
 
candidates in
 
the future.
 
Our product
 
candidates are
 
in clinical
 
stage or
 
pre-clinical
stage development,
 
and we have
 
generated limited
 
revenue to date
 
and have incurred
 
significant operating
 
losses since inception.
 
Net
losses were $18.3 million and $32.0 million for the
 
three months ended March 31, 2022 and 2021, respectively.
 
As of March 31, 2022,
we had an accumulated deficit
 
of $247.7 million. We expec
t our expenses and
 
capital requirements will increase
 
over time in connection
with our planned operations, which include:
continuing pre-clinical studies, existing clinical trials, or initiating new
 
clinical trials for product candidates UB-311,
 
UB-312,
UB-313, our COVID-19 product candidate and other product candidates;
hiring additional clinical, quality control, medical, scientific and other technical personnel
 
to support clinical and research and
development programs;
expanding operational, financial and management systems
 
and infrastructure, expanding our facilities
 
and increasing personnel
to support operations;
undertaking actions to meet the requirements and demands of being
 
a public company;
maintaining, expanding and protecting our intellectual property portfolio;
seeking regulatory approvals for any product candidates that successfully complete
 
clinical trials; and
undertaking pre-commercialization activities to establish sales, marketing
 
,
 
pharmacovigilance and distribution capabilities for
any product candidates for which we may receive regulatory approval in
 
regions where we elect to commercialize products
on our own or jointly with third parties.
As of
 
the date
 
of this
 
Report, we
 
expect our
 
existing cash
 
and cash
 
equivalents will
 
be sufficient
 
to fund
 
our operating
 
expenses and
capital expenditure requirements for at least the next 12
 
months. We also
 
believe that cash and cash equivalents on
 
hand will enable us
to fund our operating expenses
 
and capital requirements into the
 
second half of 2023.
 
Thereafter, our viability will depend on our
 
ability
to raise additional capital to finance operations, to
 
successfully commercialize our product candidates and/or to enter into
 
collaborations
with third
 
parties for
 
the development
 
of our
 
product candidates.
 
If we
 
are unable
 
to do
 
any of
 
the foregoing,
 
we would
 
be forced
 
to
delay,
 
limit, reduce or
 
terminate our product
 
candidate development or
 
future commercialization
 
efforts. Our
 
estimates are based
 
on a
variety of assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than expected. See “—
Liquidity and Capital Resources.”
 
Business Update Regarding COVID-19 Pandemic
In March
 
2020, the
 
World
 
Health Organization
 
declared the
 
COVID-19 outbreak
 
a pandemic.
 
The onset
 
of the
 
pandemic led
 
to our
institutional
 
prioritization
 
of
 
COVID-19
 
vaccine
 
development
 
efforts,
 
which
 
correlated
 
to
 
a
 
decline
 
in
 
research
 
and
 
development
expenditures for our chronic
 
disease product candidates.
 
To date,
 
our operations have not
 
been negatively impacted
 
by the COVID-19
pandemic in a material manner. However,
 
at this time, we cannot predict the specific extent, duration or full impact that the COVID-19
pandemic will
 
have on
 
our financial
 
condition and
 
operations, but
 
the development
 
of clinical
 
supply materials
 
could be
 
delayed and
enrollment of patients in our studies may be delayed or suspended, as hospitals and
 
clinics in areas where we are conducting trials shift
resources to cope with the COVID-19 pandemic
 
and may limit access or close facilities due to the COVID-19
 
pandemic. Additionally,
if our
 
trial participants
 
are unable
 
to travel
 
to our
 
clinical study
 
sites as a
 
result of
 
quarantines or
 
other restrictions
 
resulting from
 
the
COVID-19 pandemic, we may experience
 
higher drop-out rates or
 
delays in our clinical
 
studies. The impact of
 
the COVID-19 pandemic
on
 
our
 
financial
 
performance
 
will
 
depend
 
on
 
future
 
developments,
 
including
 
the
 
duration
 
and
 
spread
 
of
 
the
 
pandemic
 
and
 
related
governmental advisories and restrictions. These developments and the impact of the COVID-19
 
pandemic on the financial markets and
the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or
 
the overall economy are impacted for
an extended period,
 
our results may
 
be materially adversely
 
affected. See
 
“Risk Factors—Risks Related
 
to Our Business
 
and Industry
in
 
our
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2021—The
 
ongoing
 
coronavirus
 
pandemic
 
has
 
caused
interruptions or
 
delays of our
 
business plan.
 
Delays caused by
 
the coronavirus pandemic
 
may have a
 
significant adverse effect
 
on our
business.”
 
24
Components of Our Unaudited Condensed Consolidated Results of Operations
Revenue
 
No revenue
 
was generated
 
during the
 
three months
 
ended March
 
31, 2022.
 
Revenue for
 
the three
 
months ended
 
March 31,
 
2021 was
less than
 
$0.1 million
 
and consisted
 
of commercial
 
sales of
 
our ELISA
 
tests. We
 
do not
 
expect to
 
generate any
 
meaningful revenue
unless and until we obtain
 
regulatory approval of and commercialize
 
our product candidates, and we do
 
not know when, or if, this
 
will
occur. If our development efforts for our product candidates are successful and result in commercialization, we may generate additional
revenue in
 
the future from
 
a combination of
 
product sales or
 
payments from collaboration
 
or license agreements
 
that we have
 
entered
into or may enter into with third parties. See “Risk Factors—Risks Related to the Discovery and Development of Product Candidates in
our Annual Report
 
on Form 10-K for
 
the year ended December
 
31, 2021. We
 
have incurred significant
 
losses since our inception.
 
We
expect to incur losses for the foreseeable future and may never achieve or maintain
 
profitability.”
Cost of Revenue
 
Cost of revenue consists of
 
kit production costs consisting of materials,
 
labor and overhead expenses directly related
 
to ELISA tests sold
and the costs of expired ELISA tests, which are not available for commercial sale.
 
If our development
 
efforts in respect
 
of our current
 
pipeline of product
 
candidates are successful and
 
result in regulatory
 
approval, we
expect our
 
cost of revenue
 
will increase in
 
relative proportion
 
to the level
 
of our revenue
 
as we commercialize
 
the applicable
 
product
candidate. We
 
expect that
 
cost of
 
revenue will
 
increase in
 
absolute dollars
 
as and
 
if our
 
revenue grows
 
and will
 
vary from
 
period to
period as a percentage of revenue.
 
Research and Development Expenses
 
The design, initiation and execution of candidate discovery and development programs of our future potential product candidates is key
to our
 
success and
 
involves significant
 
expenses. Prior
 
to initiating
 
these programs,
 
project teams
 
incorporating individuals
 
from the
essential disciplines within Vaxxinity scope out the activities, timing, requirements, inclusion and exclusion
 
criteria and the primary and
secondary endpoint. Once
 
we have decided to
 
proceed, our Vaxxine
 
Platform enables the iteration
 
of drug candidates
 
in the discovery
phase through rapid, rational design
 
and formulation. After we have
 
identified drug candidates, the costs
 
of scaling the formulation from
research grade
 
to clinical
 
grade, then
 
to commercial
 
grade, typically
 
consumes significant
 
resources. In
 
addition, to
 
internal research
and development, we utilize
 
service providers, including related
 
parties, to complete activities we
 
do not have the internal
 
resources to
handle.
Research and development expenses consist primarily of costs
 
incurred for research activities, including drug
 
discovery efforts and the
development of our product candidates. We
 
expense research and development costs as incurred, which include:
expenses incurred to conduct the necessary preclinical studies and clinical
 
trials required to obtain regulatory approval;
expenses incurred under agreements with CROs that are primarily engaged in
 
the oversight and conduct of our clinical trials,
preclinical studies and drug discovery efforts and contract
 
manufacturers that are primarily engaged to provide preclinical
and clinical drug substance and product for our research and development programs;
other costs related to acquiring and manufacturing materials in connection
 
with our drug discovery efforts and preclinical
studies and clinical trial materials, including manufacturing validation
 
batches, as well as investigative sites and consultants
that conduct our clinical trials, preclinical studies and other scientific development
 
services;
payments made in cash or equity securities under third-party licensing, acquisition
 
and option agreements;
employee-related expenses, including salaries and benefits, travel and
 
stock-based compensation expense for employees
engaged in research and development functions;
costs related to compliance with regulatory requirements; and
facilities-related costs, depreciation and other expenses, which include
 
rent and utilities.
We
 
recognize
 
external
 
development
 
costs
 
based
 
on
 
an
 
evaluation
 
of
 
the
 
progress
 
to
 
completion
 
of
 
specific
 
tasks
 
using
 
information
provided to us by
 
service providers. This process
 
involves reviewing open contracts and
 
purchase orders, communicating with
 
personnel
to identify services that
 
have been performed on
 
our behalf and
 
estimating the level
 
of service performed and
 
the associated cost
 
incurred
for the service when we have not yet been invoiced or otherwise notified of actual costs. Any nonrefundable advance payments that
 
we
make for goods or services to be received in the future for use in research and development
 
activities are recorded as prepaid expenses.
 
25
Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that
the goods will be delivered or the services rendered, at which point the net remainder
 
is expensed.
We
 
rely on
 
related parties
 
for certain
 
services to
 
advance our
 
research and
 
development programs,
 
including manufacturing,
 
quality
control,
 
testing,
 
validation,
 
supply
 
services,
 
research
 
support,
 
development
 
and
 
clinical
 
functions.
 
During
 
the
 
three
 
months
 
ended
March 31, 2022 and 2021, related party expenses
 
were approximately 4% and 43% of our operating
 
expenses, respectively. We
 
expect
this reliance on related parties to continue to diminish in the future.
Where appropriate,
 
we allocate
 
our third-party
 
research
 
and development
 
expenses on
 
a program-by-program
 
basis. These
 
expenses
primarily
 
relate
 
to
 
outside
 
consultants,
 
CROs,
 
contract
 
manufacturers
 
and
 
research
 
laboratories
 
in
 
connection
 
with
 
pre-clinical
development, process
 
development, manufacturing
 
and clinical
 
development activities.
 
We
 
do not
 
allocate our
 
internal costs,
 
such as
employee costs,
 
costs associated
 
with our discovery
 
efforts, laboratory
 
supplies and
 
facilities, including
 
depreciation or
 
other indirect
costs, to
 
specific programs because
 
these costs often
 
relate to platform
 
development, to multiple
 
programs simultaneously or
 
to discovery
of new
 
programs, and
 
any such
 
allocation would
 
necessarily involve
 
significant estimates
 
and judgments
 
and, accordingly,
 
would be
imprecise. When we
 
refer to the
 
research and development
 
expenses associated with
 
a specific program,
 
these refer exclusively
 
to the
allocated
 
third-party
 
expenses
 
associated
 
with
 
that
 
product
 
candidate.
 
All
 
other
 
research
 
and
 
development
 
costs
 
are
 
referred
 
to
 
as
unallocated costs.
Product candidates in later
 
stages of clinical development
 
generally have higher development costs
 
than those in earlier
 
stages of clinical
development,
 
primarily
 
due
 
to
 
the
 
increased
 
size
 
and
 
duration
 
of
 
later-stage
 
clinical
 
trials.
 
Additionally,
 
greater
 
research
 
and
development overhead is required to support
 
broader and more rapid
 
development of our Vaxxine Platform and new product candidates.
As a result, we expect
 
that our research and development
 
expenses will increase as we continue
 
our existing and planned clinical
 
trials
and conduct
 
increased pre-clinical
 
and clinical
 
development activities,
 
including submitting
 
regulatory filings
 
for product
 
candidates,
and focus more
 
generally on
 
the development
 
of our chronic
 
disease product
 
candidates. A significant
 
driver of
 
such increases would
be the initiation
 
of our Phase 2b
 
trial for UB-311.
 
We
 
currently expect to
 
initiate a Phase 2b
 
early AD efficacy
 
trial in the second
 
half
of 2022. If we decide to advance UB-311 through the clinic
 
without a strategic partner, our costs would increase more significantly than
if we engage a partner to fund the development of UB-311.
At this
 
time, we
 
cannot reasonably
 
estimate or know
 
the nature,
 
timing and
 
costs of
 
the efforts
 
that will be
 
necessary to
 
complete the
pre-clinical and clinical development of any of our
 
product candidates or when, if ever,
 
material net cash inflows may commence from
any of our product candidates
General and Administrative Expenses
 
General
 
and
 
administrative
 
expenses
 
consist
 
primarily
 
of
 
salaries
 
and
 
benefits,
 
travel
 
and
 
stock-based
 
compensation
 
expense
 
for
personnel in
 
executive, business
 
development, finance,
 
human resources,
 
legal, information
 
technology and
 
administrative functions.
General and administrative expenses also include facility- related costs as well as insurance costs and professional fees for
 
legal, patent,
consulting, investor and public relations, accounting and audit services and other general operating expenses not otherwise classified as
research and development expenses. We
 
expense general and administrative costs as incurred.
We also anticipate
 
that our general and administrative expenses will increase
 
in the future as a result of increased costs associated
 
with
being a public company. In each case these increases will likely include increased costs related to the hiring of additional personnel and
fees to outside consultants, personnel-related
 
stock-based compensation costs, lawyers
 
and accountants, among other expenses,
 
and, in
the
 
case
 
of
 
public
 
company-related
 
expenses,
 
services
 
associated
 
with
 
maintaining
 
compliance
 
with
 
Nasdaq
 
listing
 
and
 
SEC
requirements, director and officer liability insurance costs and investor
 
and public relations costs.
Other Expense (Income)
 
Interest Expense
 
Interest expense consists
 
of (i) interest expense
 
recognized on the note
 
payable entered into during
 
June 2020 for the
 
acquisition of an
airplane
 
(the “2025
 
Note”),
 
(ii) interest
 
expense
 
recognized on
 
the Convertible
 
Notes
 
and
 
(iii)
 
interest
 
expense
 
recognized
 
on other
promissory
 
notes,
 
including
 
$0.1
 
million
 
borrowed
 
from
 
our
 
Chief
 
Executive
 
Officer
 
(the
 
“Executive
 
Note”)
 
and
 
a
 
related
 
party
Convertible Note
 
payable for
 
$2.0 million
 
in aggregate
 
proceeds that
 
was received
 
in three
 
tranches (the
 
“2018 Related
 
Notes”). The
Executive Note was repaid in full in
 
August 2021 and the 2018 Related
 
Notes were converted into Series A
 
preferred stock concurrently
with the Reorganization.
Interest Income
Interest income consists of income earned on our cash and cash equivalents.
 
 
26
Change in Fair Value
 
of Convertible Notes, SAFEs and Series A-1 Warrant
 
Liability
 
We issued a series of
 
Convertible Notes during the years 2018 through 2021,
 
a series of SAFEs during 2020 and 2021, and warrants to
purchase shares
 
of our Series
 
A-1 preferred
 
stock (“Series A-1
 
Warrants”)
 
during 2020, each
 
of which
 
were measured and
 
accounted
for at fair value. We
 
remeasured the fair value of each of the Convertible Notes, SAFEs and Series A-1 Warrants
 
at each reporting date
and recognize changes
 
in the fair
 
value in our
 
unaudited condensed
 
consolidated statements of
 
operations. Inputs to
 
the calculation of
fair value generally included market and acquisition comparable(s) as well
 
as other variables. In connection with the Reorganization, all
outstanding Convertible
 
Notes, SAFEs,
 
and Series
 
A-1 Warrants
 
were exchanged
 
for shares
 
of Series
 
A preferred
 
stock, which
 
were
subsequently exchanged into shares of Class A common stock upon closing of
 
the IPO in November 2021.
Loss on Foreign Currency
 
Translation, Net
 
Our foreign
 
subsidiaries, which are
 
wholly-owned by
 
Vaxxinity,
 
use the U.S.
 
dollar as their
 
functional currency
 
and maintain records
in
 
the
 
local
 
currency.
 
Nonmonetary
 
assets
 
and
 
liabilities
 
are
 
remeasured
 
at
 
historical
 
rates
 
and
 
monetary
 
assets
 
and
 
liabilities
 
are
remeasured at exchange rates in
 
effect at the end
 
of the reporting period. Income
 
statement accounts are remeasured at
 
average exchange
rates for the
 
reporting period.
 
The resulting gains
 
or losses are
 
included in foreign
 
currency (losses) gains
 
in the unaudited
 
condensed
consolidated financial statements.
Provision for Income Taxes
 
We have not recorded any significant amounts related to income tax but have reserved $0.6 million of unrecognized tax
 
benefits against
NOLs. We have not
 
recorded any income tax benefits for the majority of our net losses we incurred to
 
date.
 
We
 
account for
 
income taxes
 
using the
 
asset and
 
liability method,
 
which requires
 
the recognition of
 
deferred tax
 
assets and
 
liabilities
for the expected future tax
 
consequences of events that have
 
been included in the unaudited
 
condensed consolidated financial statements
or our tax returns.
 
Deferred tax assets and liabilities are
 
determined based on the difference between the
 
financial statement carrying amounts and tax basis
of existing assets and liabilities and for loss and credit carryforwards, which are measured using the enacted tax rates and laws in effect
in the years in which the differences are expected to reverse. The realization of our deferred tax assets is dependent upon the generation
of future taxable
 
income, the amount
 
and timing of which
 
are uncertain. Valuation
 
allowances are provided,
 
if, based upon the
 
weight
of available evidence, it is more likely than not that some or all of the deferred tax assets will not be
 
realized. As of March 31, 2022, we
continue to maintain
 
a full valuation allowance
 
against all of our
 
deferred tax assets based
 
on evaluation of
 
all available evidence.
 
We
file income tax returns in the U.S.
 
federal and state jurisdictions and may become subject to
 
income tax audit and adjustments by related
tax authorities. Our
 
tax return periods (for
 
entities then in existence)
 
for U.S. federal
 
income taxes for the
 
tax years since 2017
 
remain
open
 
to examination
 
under the
 
statute of
 
limitations
 
by the
 
Internal
 
Revenue
 
Service
 
and state
 
jurisdictions.
 
We
 
record
 
reserves
 
for
potential tax payments to various tax authorities related
 
to uncertain tax positions, if any. The nature of uncertain tax positions
 
is subject
to significant judgment
 
by management and
 
subject to change, which
 
may be substantial. These
 
reserves are based
 
on a determination
of whether
 
and how
 
much a
 
tax benefit
 
taken by
 
us in our
 
tax filings
 
or positions
 
is more
 
likely than
 
not to
 
be realized
 
following the
resolution
 
of
 
any
 
potential
 
contingencies
 
related
 
to
 
the
 
tax
 
benefit.
 
We
 
develop
 
our
 
assessment
 
of
 
uncertain
 
tax
 
positions,
 
and
 
the
associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes
available, estimates
 
are revised
 
and refined.
 
Differences between
 
estimates and
 
final settlement
 
may occur
 
resulting in
 
additional tax
expense. Potential
 
interest and
 
penalties associated
 
with such
 
uncertain tax
 
positions is
 
recorded as
 
a component
 
of our
 
provision for
income taxes.
 
Factors Affecting the Comparability of Our Unaudited Condensed
 
Consolidated Results of Operations
 
Reorganization
On March 2, 2021, Vaxxinity entered into the Contribution
 
and Exchange Agreement, pursuant to
 
which the outstanding equity interests
of
 
UNS
 
and
 
COVAXX
 
were
 
contributed
 
to
 
Vaxxinity
 
in
 
return
 
for
 
equity
 
interests
 
in
 
Vaxxinity,
 
resulting
 
in
 
UNS
 
and
 
COVAXX
becoming wholly owned subsidiaries of Vaxxinity.
 
Accordingly, all share and per share amounts prior to the Reorganization
 
have been
adjusted
 
to
 
reflect
 
the Reorganization.
 
As a
 
result,
 
the
 
historical
 
financial
 
information
 
between
 
January
 
1,
 
2021
 
and March
 
2,
 
2021
described in this Quarterly Report refers to the combined historical
 
financial information of UNS and COVAXX. Our operations for the
three months ended March 31, 2022 reflects the operations of Vaxxinity
 
and its subsidiaries. Our operations for the three months ended
March 31, 2021 reflects the
 
operations of UNS and COVAXX businesses on a condensed consolidated basis
 
for the period from January
1, 2021 to March 1,
 
2021 and of Vaxxinity and its subsidiaries for the remainder of that
 
three-month period. See Note 1 to our
 
unaudited
condensed consolidated financial statements included elsewhere
 
in this Quarterly Report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
Condensed Consolidated Results of Operations
Comparison of the Three Months Ended March 31, 2022
 
and 2021
The following table summarizes our unaudited condensed consolidated results of operations
 
for the three months ended March 31, 2022
and 2021, together with the dollar change in those items from period to period
 
(in thousands):
 
Three Months Ended March 31,
Change
2022
2021
$
%
Revenue
$
$
17
(17)
-100%
Costs of revenue
1
(1)
-100%
Gross (loss) profit
16
(16)
-100%
Operating expenses:
Research and development
11,478
11,688
(210)
-2%
General and administrative
6,686
8,584
(1,898)
-22%
Total operating expenses
18,164
20,272
(2,108)
-10%
Loss from operations
(18,164)
(20,256)
2,092
-10%
Other (income) expense:
Interest expense
105
511
(406)
-79%
Interest income
(5)
(5)
100%
Change in fair value of convertible notes
2,667
(2,667)
-100%
Change in fair value of simple agreements for future equity
8,365
(8,365)
-100%
Change in fair value of warrant liability
214
(214)
-100%
Loss (gain) on foreign currency translation, net
(1)
8
(9)
-113%
Other (income) expense, net
99
11,765
(11,666)
-99%
Net loss
$
(18,263)
$
(32,021)
13,758
-43%
Revenue
 
Total revenue was $— million and less
 
than $0.1 million for
 
the three months ended
 
March 31, 2022 and 2021,
 
respectively. All revenue
and comparable decreases were due
 
to sales of our ELISA tests. We
 
are not actively pursuing
 
commercialization of our ELISA tests at
this time.
Gross Margin
Gross margin was $—
 
million and less than
 
$0.1 million for the
 
three months ended March
 
31, 2022 and 2021,
 
respectively. All
 
gross
margin and comparable decreases were due to sales
 
of our ELISA tests. We
 
are not actively pursuing commercialization of our
 
ELISA
tests at this time.
Research and Development Expenses
Research
 
and
 
development
 
expenses
 
were
 
$11.5
 
million
 
and
 
$11.7
 
million
 
for
 
the
 
three
 
months
 
ended
 
March 31,
 
2022
 
and
 
2021,
respectively.
 
The $0.2 decrease was comprised of
 
a $3.9 million decrease in allocated
 
costs (i.e., costs that can be directly
 
attributed to
a specific
 
clinical program)
 
,
 
and a
 
$3.7 million
 
increase in
 
unallocated
 
costs. The
 
decrease in
 
allocated costs
 
was primarily
 
due to
 
a
decrease of $6.0 million in
 
costs related to UB-612, partially
 
offset by increases in
 
spend of $0.9 million on our
 
PCSK9 program, $0.8
million on our UB-313 migraine
 
program and $0.7 million on
 
our UB-312 Parkinson’s
 
Disease program.
 
The $3.7
 
million increase in
unallocated
 
costs was
 
driven by
 
increased salaries
 
and personnel-related
 
costs of
 
$2.6 million,
 
stock-based compensation
 
expense of
$0.5 million and $0.2 million in rent and other overhead associated with laboratory
 
space in Florida.
 
General and Administrative Expenses
General
 
and
 
administrative
 
expenses
 
were
 
$6.7
 
million
 
and
 
$8.6
 
million
 
for
 
the
 
three
 
months
 
ended
 
March 31,
 
2022
 
and
 
2021,
respectively. The $1.9 million decrease
 
was primarily due
 
to decreases in
 
professional services and
 
other expenses of
 
$1.2 million related
to our March 2021 Reorganization,
 
and decreases of $2.0 million in stock-based compensation
 
and recruiting expenses, partially offset
by increased audit fees of $0.4 million and insurance costs of $0.9 million related to being a
 
public company, and increased salaries and
personnel-related costs of $0.1 million.
 
 
28
Interest Expense
Interest expense was $0.1 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively. The $0.4 million
decrease was due to the exchange of Convertible Notes for Series A preferred
 
stock in connection with the Reorganization.
 
Interest Income
Interest income on cash was less than $0.1 million and $— million for
 
the three months ended March 31, 2022 and 2021, respectively.
Change in Fair Value
 
of Convertible Notes, SAFEs and Series A-1 Warrant
 
Liability
In connection with the Reorganization, all outstanding Convertible Notes,
 
SAFEs and Series A-1 Warrants
 
were exchanged into shares
of Series A preferred
 
stock, which were
 
subsequently exchanged
 
into shares of
 
Class A common
 
stock upon the
 
closing of the
 
IPO in
November 2021.
The $2.7 million change in fair value of the Convertible Notes recognized during the three months ended March 31, 2021 related to the
revaluation of the Convertible Notes
 
upon conversion to equity.
 
The $8.4 million change in
 
fair value of SAFEs recognized
 
during the
three months ended March 31, 2021 related to insight into the pricing of Vaxxinity’s
 
next stock issuance at a higher valuation. The $0.2
million change in fair value of Series A-1 Warrants
 
recognized during the three months ended March
 
31, 2021 related to an increase in
value of the Series A-1 preferred stock.
 
Loss on Foreign Currency Translation, Net
 
The net
 
loss of
 
foreign currency
 
translation reflected
 
a de
 
minimis increase
 
in the
 
foreign
 
exchange rate
 
for the
 
three months
 
ended
March 31, 2022 compared to the three months ended March 31, 2021.
 
Liquidity and Capital Resources
Sources of Liquidity
 
We have generated limited revenue from sales
 
of our ELISA
 
tests and have not
 
yet commercialized any of
 
our product candidates, which
are
 
in
 
various
 
phases
 
of
 
pre-clinical
 
and
 
clinical
 
development.
 
Prior
 
to
 
going
 
public
 
in
 
late
 
2021,
 
we
 
financed
 
operations
 
primarily
through the issuance of convertible
 
preferred stock, borrowings under promissory
 
notes (including Convertible Notes) and
 
the execution
of SAFEs. Through
 
December 31, 2020, we
 
received gross proceeds
 
of $99.3 million
 
in connection with
 
the issuance of
 
various financial
instruments, including the sale of preferred stock, the issuance of promissory notes (including
 
Convertible Notes), and the execution of
SAFEs. In addition,
 
we also generated
 
revenue from the
 
sale of an
 
option to negotiate
 
a license with
 
UNS (which option
 
has expired)
and the sales
 
of ELISA tests
 
in 2020 and
 
2021. During the
 
year ended December
 
31, 2021, we
 
raised a total
 
of $198.8 million,
 
which
consisted of $71.1 million
 
in net proceeds
 
from the issuance
 
of common stock in
 
connection with the
 
IPO, $122.8 million in
 
net proceeds
from the issuance
 
of Series B
 
preferred shares, $2.0
 
million in net
 
proceeds from the
 
issuance of convertible
 
debt, and $2.9
 
million in
net proceeds from the issuance of SAFEs. At March 31, 2022, we had $124.8 million in cash and cash equivalents, compared to $144.9
million as of
 
December 31, 2021. The
 
decrease in cash
 
and cash equivalents
 
balances for the periods
 
reported are primarily
 
due to the
factors described under “Cash Flows” below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
Cash Flows
The following table provides information regarding our cash flows
 
for the three months ended March 31, 2022 and 2021
 
(in thousands):
 
March 31,
December 31,
2022
2021
Balance Sheet Data:
Cash and cash equivalents
124,766
144,885
Restricted cash
78
172
Total assets
147,528
166,673
Total liabilities
34,873
38,054
Total stockholders' equity
 
(deficit)
112,655
128,619
Three Months Ended March 31,
2022
2021
Statement of Cash Flow Data:
Net cash flows used in operating activities
$
(19,514)
$
(28,241)