Vaxxinity Inc.
08/11/2022 | Press release | Distributed by Public on 08/11/2022 04:44
Quarterly Report for Quarter Ending June 30, 2022 (Form 10-Q)
vaxx-20220630
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
June 30, 2022
-OR-
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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 filedall reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subjectto such filing requirements for the past 90
days. Yes
☒
No
☐
Indicate by check mark whether the registrant has submittedelectronically every Interactive Data File required to be submittedpursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was requiredto submit such files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large acceleratedfiler, 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 touse the extended transition period for complying with anynew 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 August 10, 2022, the registrant had
112,149,705
shares of $0.0001 par value Class A common stock outstandingand
13,874,132
shares of $0.0001 par value
Class B common stock outstanding.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form10-Q contains forward-looking statements. Forward-looking statements are neither historical factsnor
assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of
ourbusiness,futureplansandstrategiesandotherfutureconditions.Insomecases,youcanidentifyforward-lookingstatements
becausetheycontainwordssuchas"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 statementsare subject toknown and unknownrisks and uncertainties,many of whichmay be beyondour control.
Wecaution youthat forward-lookingstatements are notguarantees offuture performance oroutcomes and thatactual performance
and outcomes maydiffer materiallyfrom those madein or suggestedby the forward-lookingstatements containedin this Quarterly
Report. In addition, even if our results ofoperations, financial condition and cash flows, and the development of themarkets 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 ordevelopments in subsequent periods. New factors emerge fromtime to time that maycause our business
not to developas we expect,and it is notpossible for usto predict allof them. Factorsthat could causeactual results andoutcomes
to differ from those reflectedin forward-looking statements include, among others,the following:
•the prospects of UB-612and other product candidates,including the timing ofdata from our clinicaltrials for UB-612
and other product candidates and our abilityto obtain and maintain regulatory approval for ourproduct candidates;
•our ability to develop and commercializenew products and product candidates;
•our ability to leverage our VaxxinePlatform;
•the rate and degree of market acceptance of ourproducts and product candidates;
•ourstatus asa clinical-stagecompanyandestimatesof ouraddressablemarket,marketgrowth,futurerevenue,
expenses, capital requirements and ourneeds 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 manageour future growth effectively;
•competitive companies and technologiesand our industry and our ability to compete;
•our and ourcollaborators', includingUnited Biomedical's("UBI"), abilityand willingness toobtain, maintain,defend
and enforce ourintellectual property protectionfor our proprietaryand collaborative productcandidates, and thescope
of such protection;
•theperformanceofthirdpartysuppliersandmanufacturersandourabilitytofindadditionalsuppliersand
manufacturers;
•our abilityand thepotential tosuccessfully manufactureour productcandidates forpre-clinical use,for clinicaltrials
and on a larger scale for commercialuse, if approved;
•theabilityandwillingnessofourthird-partycollaborators,includingUBI,tocontinueresearchanddevelopment
activities relating to our product candidates;
•general economic, political, demographic and business conditionsin the United States, Taiwanand other jurisdictions;
•the potential effects of governmentregulation, including regulatory developmentsin the United
States and other jurisdictions;
•ability to obtain additional financingin future offerings;
•expectations about market trends;and
•theeffectsoftheRussia-UkraineconflictandtheCOVID-19pandemiconbusinessoperations,theinitiation,
development and operation of our clinical trials and patient enrollment of ourclinical trials.
Wediscuss manyof thesefactors ingreater detailunder Item1A. "RiskFactors" inour AnnualReport onForm 10-Kfor the
year endedDecember 31,2021. Theserisk factorsare notexhaustive andother sectionsof thisreport mayinclude additional
factors whichcould adverselyimpact ourbusiness andfinancial performance.Given theseuncertainties,you shouldnot place
undue reliance on these forward-lookingstatements.
Youshould readthis QuarterlyReport andthe documentsthat we referencein this QuarterlyReport andhave filed asexhibits
completely and with the understanding that our actualfuture results may be materially different from what weexpect. We qualify
all ofthe forward-lookingstatementsin thisQuarterlyReportby thesecautionarystatements.Exceptas requiredby law,we
undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events
or otherwise.
As usedin thisQuarterly Reporton Form10-Q, unlessotherwise specifiedor thecontext otherwiserequires, theterms "we,"
"our," "us," the"Company" refer toVaxxinity,Inc. andits subsidiaries.All brand namesor trademarksappearing in thisQuarterly
Report are the property of their respective owners.
4
Table ofContents
Page
PART I-Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
5
Condensed Consolidated Statements of Operations
6
Condensed Consolidated Statements of Stockholders' Equity and Convertible Preferred Stock
7
Condensed Consolidated Statements of Cash Flows
9
Notes to Condensed Consolidated Financial Statements
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
34
Item 4. Controls and Procedures
34
PART II-Other Information
Item 1. Legal Proceedings
36
Item 1A. Risk Factors
36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
36
Item 6. Exhibits
36
Signature
38
5
PARTI - FINANCIAL INFORMATION
Item 1. Financial Statements.
VAXXINITY,INC.
CONDENSED CONSOLIDATEDBALANCE SHEETS
(in thousands, except share and per share amounts)
June 30,
December 31,
2022
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
109,066
$
144,885
Restricted cash
4,708
172
Amounts due from related parties
400
393
Prepaid expenses and other current assets
7,848
8,851
Total current assets
122,022
154,301
Property and equipment, net
12,898
12,372
Long-term deposits
2,076
-
Total assets
$
136,996
$
166,673
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
338
$
3,192
Amounts due to related parties
16,724
19,407
Accrued expenses and other current liabilities
11,844
4,519
Notes payable
384
376
Total current liabilities
29,290
27,494
Other liabilities
Notes payable, net of current portion
10,129
10,323
Other long-term liabilities
236
237
Total liabilities
39,655
38,054
Commitments and contingencies (Note 16)
Preferred stock: $
0.0001
par value,
50,000,000
shares authorized at June 30, 2022 and December31, 2021
-
-
Stockholders' equity:
Class A common stock, $
0.0001
par value;
1,000,000,000
shares authorized,
112,129,705
and
111,518,094
shares issued and
outstanding at June 30, 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 June
30, 2022 and December 31, 2021
-
-
Additional paid-in capital
362,059
357,822
Accumulated deficit
(264,996)
(229,481)
Total stockholders' equity
97,341
128,619
Total liabilities and stockholders' equity
$
136,996
$
166,673
The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.
6
VAXXINITY,INC.
CONDENSED CONSOLIDATEDSTATEMENTSOF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Revenue
$
-
$
-
$
-
$
17
Cost of revenue
-
1,927
-
1,928
Gross profit
-
(1,927)
-
(1,911)
Operating expenses:
Research and development
10,664
19,020
22,142
30,709
General and administrative
6,560
5,846
13,246
14,430
Total operating expenses
17,224
24,866
35,388
45,139
Loss from operations
(17,224)
(26,793)
(35,388)
(47,050)
Other (income) expense:
Interest expense
105
109
210
620
Interest income
(75)
(2)
(80)
(2)
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
(2)
8
(3)
16
Other (income) expense
28
115
127
11,880
Net loss
$
(17,252)
$
(26,908)
$
(35,515)
$
(58,930)
Net loss per share, basic and diluted
$
(0.14)
$
(0.39)
$
(0.28)
$
(0.86)
Weighted averagecommon shares outstanding, basic and
diluted
125,948,595
68,702,833
125,829,764
68,627,943
The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.
7
VAXXINITY,INC.
CONDENSED CONSOLIDATEDSTATEMENTSOF 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 $
81
-
-
-
-
-
-
-
-
-
-
-
-
15,365,574
122,843
122,843
Balance at June 30, 2021
-
$
-
-
$
-
-
$
-
-
$
-
-
$
-
62,223,095
$
128,439
15,365,574
$
122,843
$
251,282
The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.
8
VAXXINITY,INC.
CONDENSED CONSOLIDATEDSTATEMENTSOF 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
611,611
-
-
-
-
-
233
-
233
Stock-based compensation expense
-
-
-
-
-
-
4,004
-
4,004
Net loss
-
-
-
-
-
-
-
(35,515)
(35,515)
Balance at June 30, 2022
112,129,705
$
278
13,874,132
$
-
-
$
-
$
362,059
$
(264,996)
$
97,341
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
27,855
-
-
-
-
-
10
-
10
Vesting of restricted stock
15,405
-
-
-
-
-
-
-
-
Issuance of common stock upon stock grant
485,837
-
-
-
-
-
103
-
103
Reclassification of Class A common stock to Class B common stock
(2,874,984)
-
2,874,984
-
-
-
-
-
-
Retirement of treasury stock upon reorganization
(3,169,093)
-
-
-
3,169,093
23
(23)
-
-
Stock-based compensation expense
-
-
-
-
-
-
4,139
-
4,139
Net loss
-
-
-
-
-
-
-
(58,930)
(58,930)
Balance at June 30, 2021
54,845,543
$
272
13,874,133
$
-
-
$
-
$
8,911
$
(151,236)
$
(142,053)
The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.
9
VAXXINITY,INC.
CONDENSED CONSOLIDATEDSTATEMENTSOF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended June 30,
2022
2021
Cash flows from operating activities:
Net loss
$
(35,515)
$
(58,930)
Adjustments to reconcile net loss to net cash used in operatingactivities:
Depreciation expense
725
565
Amortization of debt issuance costs
27
235
Stock-based compensation expense
4,004
4,242
Non-cash consulting expense
-
258
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
(7)
(11)
Prepaid expenses and other current assets
1,003
(12,089)
Long-term deposits
(2,076)
-
Deferred offering costs
-
(532)
Accounts payable
(2,854)
4,865
Amounts due to related parties
(2,683)
5,257
Accrued expenses and other current liabilities
7,326
1,418
Other long-term liabilities
(1)
(2,502)
Net cash used in operating activities
(30,051)
(45,952)
Cash flows from investing activities:
Purchase of property and equipment
(1,252)
-
Net cash used in investing activities
(1,252)
-
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
(213)
(96)
Proceeds from issuance of simple agreement for future equity
-
2,900
Proceeds from issuance of Series B convertible preferred stock,net of issuance costs
-
122,843
Proceeds from exercise of stock options
233
10
Net cash provided by financing activities
20
125,657
Increase (decrease) in cash, cash equivalents, and restrictedcash
(31,283)
79,705
Cash, cash equivalents, and restricted cash at beginning ofperiod
145,057
31,198
Cash, cash equivalents, and restricted cash at end of period
$
113,774
$
110,903
Supplemental Disclosure
Cash paid for interest
$
185
$
126
Noncash Financing Activities
Exchange of Series Seed, Series Seed-1, Series Seed-2, SeriesA-1 and Series A-2 for Series A preferredstock
$
-
$
62,475
Conversion of simple agreement for future equity into Series Apreferred stock
$
-
$
2,205
Conversion of convertible notes payable into Series Apreferred stock
$
-
$
27,545
Conversion of notes payable with related parties into SeriesA preferred stock
$
-
$
35,600
Conversion of warrant liability into Series A preferred stock
$
-
$
614
Retirement of treasury stock upon reorganization
$
-
$
23
The accompanying notes are an integral partof these unaudited condensed consolidated financial statements.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
10
1. Nature of the Business
Vaxxinity,Inc.,aDelawarecorporation("Vaxxinity,"andtogetherwithitssubsidiaries,the"Company"),wasformedthroughthe
combination oftwo separate businessesthat originatedfrom United Biomedical,Inc. ("UBI")in two separatetransactions: aspin-out
from UBI in2014 ofoperations focused ondeveloping chronic diseaseproduct candidates thatresulted in UnitedNeuroscience ("UNS"),
and a second spin-outfrom UBI in 2020 ofoperations focused on thedevelopment of a COVID-19vaccine that resulted inC19 Corp.
("COVAXX").On February 2, 2021,Vaxxinitywas incorporated for thepurpose of reorganizingand combining UNS andCOVAXX
and on March 2, 2021, did so byacquiring all of the outstanding equity interestsof UNS and COVAXXpursuant to a contribution and
exchangeagreement(the"ContributionandExchangeAgreement")wherebytheexistingequityholdersofUNSandCOVAXX
contributed their equity interests in each of UNS and COVAXXin exchange for equity in Vaxxinity(the "Reorganization").
The Company is abiotechnology company currently focused ondeveloping product candidates for humanuse in the fieldsof neurology,
pain, cardiovascular diseases and coronaviruses utilizing its "VaxxinePlatform"-a peptide vaccine technology first developed by UBI
and subsequently refinedover the lasttwo decades. TheCompany is engagedin the developmentand commercializationof rationally
designed prophylacticand therapeuticvaccines tocombat chronicdisorders andinfectious diseaseswith largeglobal unmetmedical
need. UBI is a significant shareholder of the Company and, therefore, considereda related party.
The Companyis subjectto risks anduncertainties commonto early-stagecompanies inthe biotechnologyindustry including,but not
limitedto,uncertaintyofproductdevelopmentandcommercialization,lackofmarketingandsaleshistory,developmentbyits
competitors of newtechnological innovations, dependence onkey personnel, marketacceptance of products, productliability, protection
of proprietary technology,ability to raise additionalfinancing, and compliancewith government regulations. Ifthe Company does not
successfully commercialize any of itsproduct candidates, it willbe unable to generaterecurring product revenue orachieve profitability.
TheCompany'sproductcandidatesareindevelopmentandwillrequiresignificantadditionalresearchanddevelopmentefforts,
including extensive pre-clinical and clinical testing andregulatory approval prior to commercialization. These efforts require significant
amounts ofadditional capital, adequatepersonnel and infrastructureand extensive compliance-reporting capabilities.There can beno
assurance thatthe Company'sresearch anddevelopment willbe successfullycompleted, thatadequate protectionfor theCompany's
intellectual propertywill beobtained, thatany productsdeveloped willobtain necessarygovernment regulatoryapproval orthat any
approved products will be commercially viable.Even if the Company's product development efforts aresuccessful, 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 March2, 2021,in accordancewith theContribution andExchange Agreement,(i) alloutstanding sharesof UNSand COVAXX
preferred stock andcommon stock werecontributed to Vaxxinity and exchanged forlike sharesof stock inVaxxinity,(ii) the outstanding
options topurchase sharesof UNS andCOVAXXcommon stockwere terminatedand substitutedwith optionsto purchaseshares of
common stock in Vaxxinity,(iii) the outstanding warrant to purchase shares of COVAXXcommon stock was cancelled and exchanged
for a warrant to acquire common stock in Vaxxinityand (iv) each outstanding Reorganization Convertible Note (as defined below) was
contributed to Vaxxinityand the holders of such notes received Series A preferred stock in Vaxxinity.In particular:
•
Each UNS common share and convertible preferred share was exchangedfor
0.2191
shares of Vaxxinitycommon stock or
Series A preferred stock, as applicable;
•
Each share of COVAXXcommon and convertible preferred stock was exchanged for
3.4233
shares of Vaxxinitycommon
stock or Series A preferred stock, as applicable (and prior to the closing of the Reorganization,all the holders of outstanding
COVAXXSAFEs agreed to convert such SAFEs into shares of Series A-3 preferredstock of COVAXX,which shares were
then exchanged for shares of Vaxxinity'sSeries A preferred stock);
•
The Reorganization Convertible Notes were exchangedfor an aggregate of
4,047,344
shares of Vaxxinity'sSeries A
preferred stock; and
•
Each outstanding option of both UNS and COVAXXto purchase common shares of UNS or COVAXXwas terminated and
substituted with an option to purchase shares of Class A common stock ofVaxxinity.Each outstanding UNS option was
exchanged based on a conversion ratio of
0.2191
. Each outstanding COVAXXoption was exchanged based on a conversion
ratio of
3.4233
.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
11
All parties tothe Contributionand ExchangeAgreement intendedthat the contributionof outstanding equityinterests to Vaxxinityin
exchange for Vaxxinity'scommon stock and preferred stock be treated asan integrated transaction for U.S. federalincome tax purposes
that is governed by Section 351(a) of the Internal Revenue Code of 1986, as amended.
The Reorganizationwas determinedto be acommon controltransaction, sothe carryingvalues of allcontributed assetsand assumed
liabilitiesremainedunchangedandthefinancialinformationforallperiodsinthefinancialstatementspresentedpriortothe
Reorganization are presented on a consolidated basis.
Reverse Stock Split
On October 29,2021, theCompany effectuateda reverse stocksplit of 1-for-
1.556
(the "Stock Split")of the Company'sClass A and
Class B commonstock pursuant toan amendment tothe Company'sAmended and RestatedCertificate of Incorporationapproved by
the Company'sboard of directorsand stockholders.As a resultof theStock Split, theCompany alsoadjusted theshare and pershare
amountsassociatedwithits optionsandwarrantstopurchase sharesofits commonstock.Theseunauditedcondensedconsolidated
financialstatementsincludingthenoteshavebeenretroactivelyadjustedtoreflecttheStockSplitforallperiodspresented.Any
fractional shares that would have resulted from the Stock Split have been rounded downto 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. OnNovember 18, 2021the Company helda subsequent closing forthe issuance of anadditional
537,711
shares of Class A
common stock pursuantto a30-day option grantedto theunderwriters to purchaseup to anadditional
900,000
shares of ClassA common
stock atthe IPOprice, lessunderwritingdiscounts andcommissions. Theaggregate netproceeds tothe Companyfrom theoffering,
after deducting underwriting discountsand commissions andother offering expenses payableby the Company, was approximately$
71.1
million. Upon the closingof the IPO, all previouslyoutstanding shares of the Company'sredeemable convertible preferredstock 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
As ofJune 30,2022,the Companyhad$
109.1
millionof cashandcash equivalents.As ofJune 30,2022,the Companyalso hada
Restricted Cash balanceof $
4.7
million of which$
4.6
million is restrictedfor the reimbursementof certain researchand development
expenses related toour UB-612COVID-19 vaccine program.Todate, the Companyhas primarily financedits operations throughthe
sale of convertiblepreferred stock andcommon stock, borrowingsunder promissory notes(including ConvertibleNotes), a portion of
whichhasbeenraisedfromrelatedpartyentities,andgrantsfromfoundationssuchastheCoalitionforEpidemicPreparedness
Innovations (CEPI)and theMichael J.Fox Foundation(MJFF). TheCompany hasexperienced significantnegative cashflows from
operations since inception, and incurreda net loss of $
35.5
million for the six monthsended June 30, 2022. Net cashused in operating
activities for the six months ended June 30, 2022 was $
30.1
million. In addition, as of June 30, 2022, the Company has an accumulated
deficit of$
265.0
million. TheCompany expectsto incursubstantial operatinglosses andnegative cashflows fromoperations forthe
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 andcapital expenditure requirements for at least the next 12 months.
In orderto continueto fundfuture researchand developmentactivities, theCompanywill needto seekadditional capital.This may
occur throughstrategic alliances,licensing arrangements,grants and/orfuture publicor privatedebt orequity financings.Additional
funding may notbe available onterms the Companyfinds acceptable orat all. If theCompany is unableto obtain sufficientcapital to
continue to advanceits programs, the Companywould be forcedto delay,limit, reduce or terminateits product developmentor future
commercialization effortsor grant rightsto third partiesto develop andmarket product candidatesthat the Companywould otherwise
prefer to develop and market itself.
Theaccompanyingunauditedcondensedconsolidatedfinancialstatementshavebeenpreparedonagoingconcernbasis,which
contemplatestherealizationofassetsandsatisfactionofliabilitiesintheordinarycourseofbusiness.Theunauditedcondensed
consolidatedfinancialstatementsdonotincludeanyadjustmentsrelatingtotherecoverabilityandclassificationofrecordedasset
amounts or the amounts and classification of liabilities that might result from the outcomeof the uncertainties described above.
2. Summary of Significant Accounting Policies
Basis of presentation
Theaccompanyinginterimunauditedcondensedconsolidatedfinancialstatementshavebeenpreparedusinggenerallyaccepted
accounting principles in the United States of America (GAAP)and pursuant to the rules and regulations of the UnitedStates Securities
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
12
and Exchange Commission ("SEC") for interim financialreporting. The unaudited condensed consolidated financialstatements for the
periods presented include the accounts of UNS and COVAXX that were parties to the Contribution and Exchange Agreement. All share
and per shareamounts, as originallyrecorded by eachentity,have been convertedto a numberof shares andper share amountsusing
the conversion ratios determined under the Contribution and Exchange Agreementand the Stock Split ratio.
These interimcondensed consolidatedfinancial statementsare unauditedand, inthe opinionof management,include alladjustments
(consisting of normalrecurring adjustments andaccruals) necessary tofairly present theresults of the interimperiods. The condensed
consolidated balance sheet at December 31, 2021, has been derived from theaudited financial statements at that date. Operating results
for the three and sixmonths ended June 30, 2022 andcash flows for the six monthsended June 30, 2022 arenot necessarily indicative
of theresults thatmay beexpected forthe fiscalyear endedDecember 31,2022 orany otherfuture period.Certain informationand
footnotedisclosuresnormallyincludedinannualfinancialstatementspreparedinaccordancewithaccountingprinciplesgenerally
accepted inthe UnitedStates ("U.S.GAAP") havebeen omitted inaccordance withthe rules andregulations forinterim reportingof
the SEC. These interim unaudited condensed financial statements should be read in conjunction with the financialstatements 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, wedetermine the classification as
eitheroperatingleasesorfinancingleases.OperatingleasesareincludedinOperatingleaseright-of-useassetsandOperatinglease
liabilities in our Condensed Consolidated Balance Sheets.
Lease recognition occursat the commencement dateand lease liability amountsare based on the presentvalue of lease paymentsover
the lease term. Our leaseterms may include optionsto extend or terminate thelease when it is reasonablycertain that we will exercise
thatoption.If aleasedoes notprovideinformationto determinean implicitinterest rate,weuse ourincrementalborrowingratein
determining the present value oflease payments. Right-of-use (ROU) assets representour right to use an underlyingasset 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 priorto the commencementdate and excludelease incentives received.Operating lease expenseis recognized ona 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 oftitle or purchase optionreasonably certain of exercise.Lease agreements withboth lease and nonleasecomponents, are
generally accounted for together as a single lease component.The Company has elected to apply the short-term expedient to leaseswith
a lease term of 12 months or less, which does not subject the leases to capitalization.
Related party transactions
The Company has a RelatedParty policy which defines related parties,and assigns oversight responsibility for relatedparty transactions
totheCompany'sAuditCommittee.TheCommitteereviewsinadvancerelatedpartytransactions,andconsidersmultiplefactors,
including the proposed aggregatevalue of thetransaction, or, in thecase of indebtedness,the amount ofprincipal that wouldbe involved,
the benefitsto theCompany ofthe proposedtransaction, theavailability ofother sourcesof comparableproducts orservices, andan
assessment ofwhether theproposed transactionis on termsthat are comparableto the termsavailable toor from, asthe case maybe,
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 unauditedcondensed consolidated financial statements are disclosed in
ourannualfinancialstatementsfortheyearendedDecember 31,2021.TherehavebeennochangestotheCompany'ssignificant
accounting policies during the three and six months ended June 30, 2022.
Recently issued accounting pronouncements
From timeto time,new accountingpronouncements areissued bythe FASBor otherstandard settingbodies andare adoptedby the
Companyasofthespecifiedeffectivedate.Unlessotherwisediscussed,theCompanybelievesthattheimpactofrecentlyissued
standards that are not yet effective will not have a material impact onits financial position or results of operations upon adoption.
Recently adopted accounting standards
InJuly2018,theFASBissuedASUNo.2018-11,Leases(Topic842):TargetedImprovements("ASU2018-11").ASU2018-11
provided an alternative method in addition to the modified retrospective transition method for ASU No. 2016-02, Leases: Amendments
to the FASBAccounting Standards Codification ("ASU2016-02"),issued in February 2016. UnderASU 2018-11, anentity may elect
to initiallyapply thenew leasestandard atthe adoptiondate andrecognize acumulative-effect adjustmentto theopening balanceof
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
13
retained earnings in theperiod of adoption. UnderASU 2016-02, a lease is requiredto recognize assets and liabilitieswith lease terms
of more thantwelve months. ASU2016-02 is effective fornonpublic business entitiesand public entitieseligible to beSmaller Reporting
Companies for fiscal years beginning after December 15, 2021.
The Companyadopted thenew standardon January1, 2022using themodified retrospectiveapproach. TheCompany haselected to
apply thetransition methodthat allows companiesto continueapplying theguidance under thelease standardin effectat that timein
the comparativeperiods presentedin the condensedfinancial statementsand recognizea cumulative-effectadjustment tothe opening
balance of accumulated deficit on the date of adoption. The Company has elected to combine lease components (for example fixed rent
payments)withnon-leasecomponents(forexample,common-areamaintenancecosts)onourfacility,labequipmentandCRO
embeddedleaseasset classes.TheCompanyalsoelectedthe "packageof practicalexpedients",whichpermitstheCompanynotto
reassess under the new standard the Company'sprior conclusions about lease identification, lease classificationand initial direct costs.
In addition, the Company also elected the short-termlease practical expedients allowed under the standard. Lastly, the Company did not
elect thepractical expedientallowing theuse-of-hindsightwhich wouldrequire theCompany toreassess thelease termof itsleases
based on all facts and circumstances through the effective date.
Results for reportingperiod beginning afterJanuary 1, 2022are presented underthe new standard,while prior periodamounts are not
adjustedandcontinuetobereportedundertheaccountingstandardsineffectforthepriorperiod.Uponadoptionof thenewlease
standard, on January1, 2022, theCompany was notentered into anyleases subject toASC 842 anddid not capitalizea ROU assetor
lease liability.
3. Fair ValueMeasurements
The Company's money market accounts are shown atfair value based on unadjusted quotedmarket prices in active markets foridentical
assets.
The followingtable presentsinformation aboutthe Company'sfinancial instrumentsmeasured atfair valueon arecurring basisand
indicate the level of the fair value hierarchy used to determine such fair values (inthousands):
June 30, 2022
Level 1
Level 2
Level 3
Total
Assets:
Money market account
$
109,010
$
-
$
-
$
109,010
Total assets
$
109,010
$
-
$
-
$
109,010
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 and six months ended June 30, 2022 and the yearended 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):
June 30,
December 31,
2022
2021
Prepaid materials and supplies
$
3,524
$
3,517
Deposits
2,218
4,379
Clinical prepayments
1,746
614
Other
360
341
$
7,848
$
8,851
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
14
The Company's prepaid material and supplies related to enzyme-linked immunosorbent assay ("ELISA") testproduction, of which $
1.0
million was paid to a relatedparty and $
2.5
million related to materials to beutilized during its Phase 3 COVID-19 vaccineclinical trial.
5. Property and Equipment
Property and equipment, net consisted of the following (in thousands):
June 30,
December 31,
2022
2021
Airplane
$
11,983
$
11,983
Laboratory and computer equipment
2,791
1,831
Fixed assets not yet placed into service
464
199
Software
169
168
Facilities, furniture and fixtures
111
85
Vehicles
87
87
Total propertyand equipment
15,605
14,353
Less: accumulated depreciation
(2,707)
(1,981)
Property and equipment, net
$
12,898
$
12,372
Depreciation expensefor the threeand six monthsended June 30, 2022was $
0.4
million and $
0.7
million, respectively.Depreciation
expense for the three and six months ended June 30, 2021 was $
0.3
million and $
0.6
million, respectively.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (inthousands):
June 30,
December 31,
2022
2021
Accrued external research and development
$
7,815
$
1,501
Accrued bonuses
2,312
2,294
Accrued professional fees and other
1,687
692
Accrued interest
30
32
$
11,844
$
4,519
Accrued external research and development includes$
4.6
million in grant monies receivedfrom CEPI during the sixmonths ended June
30, 2022 not yet applied against research and development expense.
7. Other Long-TermLiabilities
Other long-term liabilities consisted of the following (in thousands):
June 30,
December 31,
2022
2021
Accrued tax provision
236
236
Accrued rent
-
1
$
236
$
237
As of June30, 2022 andDecember 31, 2021,approximately $
0.2
million ofthe accrued taxprovision relatesto penalties andinterest
the Companymay besubject topaying forlate filingfees relatedto aforeign subsidiary.The Companyexpects theseamounts tobe
forgiven but has accrued for them until the statute of limitations expiresand it is appropriate to write them off.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
15
8. Notes Payable
Notes Payable with Related Parties
In December 2018,the Company enteredinto related party convertiblenotes payable (the "2018Related Notes" and togetherwith the
Convertible Notes, the "Reorganization ConvertibleNotes") for $
2.0
million in aggregate proceeds,received in three tranches.The 2018
RelatedNotesboresimpleinterestatanannualrateof
5
%andcontainanumberofprovisionsaddressingeventsofdefaultand
prepayment. In accordance with the Contribution and Exchange Agreement, on March 2, 2021, the 2018 Related Notes were converted
into Series A preferred stock.
During each of the three and six months ended June 30, 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 Companyhas elected to accrue interest atan annual rate of
5
%, consistent with the termsand conditions
of the Convertible Notes and 2018Related Notes, which was the closestbenchmark the Company couldevaluate. 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
-
19
19
Conversion
(2,000)
(205)
(2,205)
June 30, 2021
$
100
$
8
$
108
Note Payable-Airplane
In connection withthe acquisition ofan airplane, the Companyentered into a notepayable agreement (the"2025 Note") inJune 2020
for $
11.5
million, with an annual interest rate of
3.4
% and a maturity date of June9, 2025. Principal and interest paymentsare payable
monthly in the amount of $
0.1
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 Companyincurred 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):
June 30,
December 31,
2022
2021
Principal
$
10,670
$
10,883
Unamortized debt issuance cost
(157)
(184)
Carrying amount
10,513
10,699
Less: current portion
(384)
(376)
Note payable, net of current portion and debt issuance cost
$
10,129
$
10,323
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
16
As of June 30, 2022, the remaining principal payments for the 2025 Note, areas follows (in thousands):
Amount
2022
$
216
2023
444
2024
458
2025
9,552
$
10,670
Interest expenseassociated withthe 2025Note was$
0.1
million and$
0.2
million forthe threeand sixmonths endedJune 30, 2022,
respectively.Interestexpenseassociatedwiththe 2025Notewas$
0.1
millionand$
0.2
millionforthethreeandsixmonthsended
June 30, 2021, respectively.As of June 30, 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 ofJune 30, 2022 (unaudited) and December 31, 2021.
Note Payable-Paycheck Protection Program
The Companyapplied forand receiveda loan,which isin theform ofa notedated May5, 2020,from HSBCBank USA,National
Association ("HSBC")in the aggregateamount of approximately$
0.3
million (the "PPPLoan"), pursuantto the PaycheckProtection
Program ("PPP").The PPP,established aspart ofthe CoronavirusAid, Reliefand EconomicSecurity 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
June 30, 2021, there were no events of default under the PPP Loan.
The Company paid off the PPP Loan in full, including all accruedbut unpaid interest to the repayment date, in August 2021.
9. Convertible Preferred Stock
In connection withthe Reorganization, eachUNS convertible preferred sharewas exchanged for
0.2191
shares of Vaxxinitypreferred
stock andeach share ofCOVAXXconvertible preferredstock was exchangedfor
3.4233
shares of Vaxxinitypreferred stock.During
the firstand secondquarters of2021, theCompany raisedgross proceedsof $
122.9
million inconnection withits SeriesB preferred
stock financing. TheCompany issued a totalof
15,365,574
shares at a priceof $
8.00
per share. All sharesof the Company'sSeries B
preferred stock convertedinto sharesof the Company's ClassA common stockconcurrently withthe closingof theinitial public offering.
As ofJune 30, 2022and December31, 2021,Vaxxinity'sAmended andRestated Certificateof Incorporationauthorized
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 June 30, 2022
and December 31, 2021.
10. Common Stock
As explainedin Note1, inaccordance withthe Contributionand ExchangeAgreement, onMarch 2,2021, alloutstanding sharesof
commonstockofUNSandCOVAXXwerecontributedtoVaxxinityandexchangedforanaggregateof
60,360,523
sharesof
Vaxxinity'sClass A commonstock and
10,999,149
shares of Vaxxinity'sClass B commonstock. EachUNS share ofcommon stock
was exchangedfor
0.2191
shares of Vaxxinitycommon stock andeach share ofCOVAXXcommon stockwas exchanged for
3.4233
shares of Vaxxinitycommon stock.
As of June 30, 2022 and December 31, 2021, Vaxxinity'sAmended and Restated Certificate of Incorporation authorized
1,100,000,000
shares of common stock with apar value of $
0.0001
per share, of which
1,000,000,000
shares have been designated as ClassA common
stock and
100,000,000
shares have been designated as Class B common stock.
Holders of ClassA common stock andClass B commonstock have identical rights,except with respectto voting and conversion.Except
as otherwise expressly provided in Vaxxinity'sAmended and Restated Certificate of Incorporation or Bylaws, orrequired by applicable
law,holdersof ClassA commonstock willbe entitledto onevote pershare onall matterssubmittedto avoteof stockholdersand
holders of our Class B common stock will be entitled to ten votes per share on all matters submittedto a vote of stockholders.
HoldersofClass AcommonstockandClass Bcommonstockvotetogetheras asingle classonall matterssubmittedtoavoteof
stockholders, except (i) amendmentsto Vaxxinity'sAmended and Restated Certificate ofIncorporation to increase ordecrease the par
valueofaclassofcapitalstock,inwhichcasetheapplicableclasswouldberequiredtovoteseparatelytoapprovetheproposed
amendmentand (ii)amendments toVaxxinity'sAmended andRestated Certificateof Incorporationthat alteror changethe powers,
preferences or special rightsof a class of capitalstock in a mannerthat affects its holders adversely,in which case the applicableclass
would be required to vote separately to approve the proposed amendment.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
17
Holders of commonstock are entitled toreceive, ratably,dividends as maybe declared byVaxxinity'sboard of directors outof funds
legally available therefor if the board of directors, in its discretion, determines toissue dividends.
The Company has reserved shares of common stock for issuance for the followingpurposes:
June 30,
December 31,
2022
2021
Options and RSUs issued and outstanding
20,639,861
21,387,909
Options available for future grants
6,328,932
7,209,538
Warrants issued andoutstanding
1,928,020
1,928,020
28,896,813
30,525,467
11.Stock-Based Compensation
2021 Omnibus Incentive Compensation Plan
InNovember2021,theCompanyestablishedthe2021 OmnibusIncentiveCompensationPlan(the"Plan"),whichprovidesforthe
Companytograntnonqualifiedstockoptions,incentive(qualified)stockoptions,stockappreciationrights,restrictedshareawards,
restricted stock units, performance awards, cash incentive awards and otherequity-based awards (including fully vested shares).
The maximum number of shares of common stock that can be issued under the Plan is
8,700,000
Class A shares. This number increases
automaticallyon January1 ofeach year,commencingJanuary 1,2023, bythe numberof sharesequal tothe lesserof (i)
4
% ofthe
outstandingsharesofourcommonstockontheimmediatelyprecedingDecember31,(ii)thenumberofsharesdeterminedbythe
Compensation Committee, if anysuch determination is made, and(iii) the number of shares underlyingany awards granted duringthe
preceding calendar year, net of the sharesunderlying awards canceled or forfeited under the Plan.
Stock Options
As of June 30, 2022 there were options for
13,977,406
shares of Class A stock outstanding and options for
6,362,455
shares of Class B
stock outstanding,of which
8,748,337
Class A and
4,921,089
Class B shareswere exercisable,respectively.As of June 30,2022, the
maximum number of stock options awards available for future issuanceunder the Company's plans is
6,328,932
.
The following table summarizes stock option activity during the six monthsended June 30, 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
1,024,221
3.26
Exercised
(1,013,541)
(3.40)
Forfeited
(1,058,728)
(7.36)
Balance at June 30, 2022
20,339,861
$
5.12
7.3
$
8,648
Options vested and exercisable at June 30, 2022
13,669,426
$
4.50
6.9
$
7,879
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 fairvalue of the common stock as of June 30, 2022.
The intrinsic value of options exercised during the six months endedJune 30, 2022 was $
4.4
million.
The weighted-average grant-date fair value per share of options grantedduring the six months ended June 30, 2022 was $
2.42
.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
18
Restricted Stock
The following table summarizes the Company'srestricted stock activity for the six months ended June 30, 2022:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Per Share
Unvested at December 31, 2021
-
$
-
Issued
300,000
3.76
Unvested at June 30, 2022
300,000
$
3.76
Stock-based compensation expense recognized on restricted stock wasless than $
0.1
million for the six months ended June 30, 2022.
Stock-Based Compensation Expense
TheCompanyrecordedstock-basedcompensationexpenseinthefollowingexpensecategoriesintheaccompanyingunaudited
condensed consolidated statements of operations (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
General and administrative
$
1,008
$
597
$
2,379
$
3,867
Research and development
818
205
1,625
375
Total stock-basedcompensation expense
$
1,826
$
802
$
4,004
$
4,242
As ofJune 30,2022,totalunrecognizedcompensationcostrelatedtotheunvestedstock-basedawardswas $
21.1
million,whichis
expected to be recognized over a weighted average period of
2.7
years.
12. Income Taxes
The Company computes itsexpected annual effectiveincome tax rate in accordancewith ASC 740 and makeschanges on a quarterly
basis,asnecessary,basedoncertainfactorssuchaschangesinforecastedannualpre-taxincome;changestoactualorforecasted
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 theseas discrete events. The tax effect ofdiscrete items is recorded in thequarter in which the discreteevents occur.
The Company'seffectivetax ratefor thesix monthsended June30, 2022and 2021was
0.00
%, dueprimarilyto itsuncertainty of
realizing a benefit from net operating losses incurred during the period.
In assessingthe realizabilityof deferredtax assets,management considerswhether itis morelikely thannot thatsome orall ofthe
recorded deferredtax assetswill berealized. Theultimate realizationof deferredtax assetsis dependenton thegeneration offuture
taxable income in the periods in whichthose temporary differences becomedeductible. Management considers the scheduledreversal
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 uncertaintyexists relative
totherealizationofthedeferredincometaxassetbalancestowarranttheapplicationofafullvaluationallowanceforalltaxing
jurisdictions.
The Company filesincome tax returnsin the U.S.federal and variousstate and localjurisdictions. The Companyalso files returnsin
numerous foreign jurisdictionsthat have variedyears remaining openfor examination, but generallythe statute oflimitations is three
to four years from when the return is filed. As of June 30, 2022, theCompany currently has no ongoing audits.
TheCompanyhasUSnetoperatingloss("NOL")carryforwardsforfederalandstateincometaxpurposes.UseoftheNOL
carryforwards is limited under Section382 of the Internal Revenue Code,as we have had a change in ownershipof more than 50% of
our capitalstock overa three-yearperiod asmeasured underSection 382of theInternal RevenueCode. Thesecomplex changesof
ownership rules generallyfocus on ownership changesinvolving shareholders owningdirectly or indirectly5% or more ofour stock,
including certain public "groups" ofshareholders as set forth under Section382 of the Internal Revenue Code, includingthose arising
fromnew stockissuances andotherequity transactions.Some ofthese NOLcarryforwardswill expireif theyare notused within
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
19
certain periods. At this time,we consider it morelikely than not thatwe will not havesufficient taxable incomein the future thatwill
allow us to realize these NOL carryforwards.
13. Net Loss Per Share
The Company's unvested restrictedcommon shares have been excluded from the computation of basic net loss pershare.
TheCompany'spotentiallydilutivesecurities,whichincludeoptions,unvestedrestrictedstock,convertiblenotespayableand
convertible preferred stock, havebeen excluded from the computationof diluted net loss per shareas the effect would beto reduce the
net loss per share.Therefore, the weighted averagenumber of commonshares outstanding used tocalculate both basic anddiluted net
loss per share is thesame. The Company excludedthe following potential commonshares, presented based onamounts outstanding at
each period end, from the computation of diluted net loss per share as of June 30, 2022 because including them would have had an anti-
dilutive effect:
June 30,
June 30,
2022
2021
Series A preferred stock
-
39,989,083
Series B preferred stock
-
9,875,037
Options and RSUs issued and outstanding
20,639,861
20,325,228
Warrants issued andoutstanding stock
1,928,020
128,702
22,567,881
70,318,050
14. Commitments and Contingencies
Contractual Obligations
The Companyenters intoagreements withcontract researchorganizations("CROs") toconduct clinicaltrials andpreclinical studies
and contract manufacturing organizations("CMOs") to produce vaccines and otherpotential product candidates. Contractswith CROs
and CMOs are generally cancellable, with notice, at the Company'soption.
As of June 30,2022, the Company hadremaining prepayments toCROs of $
2.8
million and remaining prepaymentsto CMOs of $
2.5
million for activitiesassociated with the conductof its clinicaltrials and forthe production ofthe Company's anticipated vaccine product
candidate.
Michael J. Fox Foundation Grant
On November 3,2021, the Companywas awarded agrant from theMichael J. FoxFoundation for Parkinson'sResearch ("MJFF") in
the amount of $
0.8
million to be usedin a project forthe exploration of markersfor target engagementin individuals immunizedwith
UB-312, anactive
a
-Synuclein immunotherapy.The Companywill overseesample management,sample preparation(IgG fractions)
anddistribution,aswellascharacterizethebindingpropertiesoftheantibodiesagainstpathologicalformsofaSyn.Asfundingis
expected to be received in tranches over a two-yearperiod, and the amounts received in each tranche areexpected to be utilized within
twelve months, the funds received are recognized as a short-term accrued liability.The Company recognizes payments from MJFF as a
reduction of research and development expenses, in the same period as theexpenses that the grant is intended to reimburse are incurred.
As of June 30, 2022, the balance of the short-term accrued liability was less than $
0.1
million. For the six months ended June 30, 2022,
the Company did not recognize any reduction of research and developmentexpenses for amounts reimbursed through the grant.
Coalition for Epidemic Preparedness Innovations ("CEPI") Grant
In April2022, theCompany enteredinto anagreement withthe Coalitionfor EpidemicPreparedness Innovations("CEPI") whereby
CEPI hasagreed toprovidefunding ofup to$9.3 millionto co-funda Phase3 clinicaltrial ofVaxxinity'snext generationUB-612
COVID-19 vaccine candidateas a heterologous- or 'mix-and-match'- booster dose. ThePhase 3 trial, whichbegan earlier this year,
is evaluating the ability of UB-612to boost COVID-19 immunity againstthe original strain and multiple variantsof concern including
Omicron - in people aged 16 years or older, whohave been previously immunized with an authorized COVID-19 vaccine.
The Company will also be performing further manufacturing scale-upwork to enable readiness for potential commercialization.Under
the terms of theagreement with CEPI, ifsuccessful, a portion ofthe released doses ofthe commercial productwill be delivered tothe
COVID-19 VaccinesGlobal Access ("COVAX")consortium for distribution to developing countries at low cost.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
20
Cash payments received in advance under the CEPI Funding Agreement are restricted as to their use until expenditures contemplated in
the funding agreement are incurred.As funding is expected to be received in tranches over an eighteen month period,and the amounts
received in each tranche are expected to the utilized within twelve months, the funds received are reflected within restricted cash with a
corresponding short-term accrued liability.The Company recognizes payments fromCEPI as a reduction of researchand development
expenses, in the same period as the expenses that thegrant is intended to reimburse are incurred. As of June 30, 2022, the balanceof the
restrictedcashandshort-termaccruedliabilitywas$
4.6
million.ForthethreeandsixmonthsendedJune30,2022,theCompany
recognized a reduction of $
1.5
million of research and development expenses.
Lease Agreements
In April 2022, theCompany entered into afacility lease agreement for
4,419
square feet of officespace in New York,New York.The
lease commenced in April 2022and will expire March 2029 withno option to renew.This lease and its terms werereviewed using the
guidance found in ASC 842.Since the lease has a non-cancellable period of one year, and after the first year both the Company and the
landlord have theoption to earlyterminate the leasefor any orno reason,the Company has electedto apply theshort-term expedient,
which does not subject the New Yorklease to capitalization.
The Company'sshort-term leasesresulted in$
0.1
million short-termlease expenseand lessthan $
0.1
million variablelease expense
during the three months endedJune 30, 2022 and $
0.2
million short-term lease expense and lessthan $
0.1
million variable lease expense
during the six months ended June 30, 2022.
License Agreements
In August 2021,Vaxxinityentered into alicense agreement (the"Platform License Agreement")with UBI andcertain of itsaffiliates
thatexpandedintellectualpropertyrightspreviouslylicensedunderpreviouslyissuedlicenseagreementswithUBI.Aspartofthe
agreement, Vaxxinity obtained a worldwide,sublicensable (subject to certainconditions), perpetual, fully paid-up,royalty-free license
toresearch,develop,make,havemade,utilize,import,export,market,distribute,offerforsale,sell,havesold,commercializeor
otherwise exploit peptide-based vaccines in the field of all human prophylactic and therapeutic uses, except for such vaccines related to
human immunodeficiencyvirus (HIV), herpessimplex virus (HSE)and Immunoglobulin E(IgE). The patentsand patent applications
licensed under thePlatform License Agreementinclude claims directedto a CpG deliverysystem, artificial Thelper cell epitopesand
certain designerpeptides andproteins utilizedin UB-612.As describedabove, inconsideration forthe PlatformLicense Agreement,
the Company issued to UBI a warrant to purchase Class A common stock (the"UBI Warrant").
The Company considered ASC 805, "Business Combinations" ("ASC 805") and ASC 730,"Research and Development" ("ASC 730")
in determining how to accountfor the issuance of theClass A common stock warrants. TheClass A common stock warrantswere issued
to a related party in exchange for a license agreement.The majority of the voting interests in the related partyand that of the Company
were heldby agroup ofimmediate familymembers, atthe timeof thetransaction, andas such thetransaction constitutesa common
control transaction,which requiresthe licenseto beaccounted forat thecarrying valuein thebooks ofthe transferor.As therelated
party did not have any basis in the assets licensed, there was no accounting impact for the Company.
Indemnification Agreements
In theordinary courseof business,the Companymay provideindemnification ofvarying scopeand termsto employees,consultants,
vendors, lessors,business partnersand otherparties withrespect tocertain mattersincluding, butnot limitedto, lossesarising outof
breach of such agreementsor from intellectual propertyinfringement claims made bythird parties. In addition,the Company has entered
into indemnificationagreements withmembers ofits boardof directorsand executiveofficers thatwill requirethe Company,among
other things, to indemnify themagainst certain liabilities that mayarise by reason of their statusor service as directors orofficers. The
maximum potential amountof future payments theCompany could berequired to make underthese indemnification agreementsis, in
many cases, unlimited. Todate, the Company has not incurred any material costs as a result ofsuch indemnifications. The Company is
not aware of anyindemnification arrangements thatcould have a material effecton its financial position,results of operations, orcash
flows, and it has not accrued any liabilities related to such obligations as of June30, 2022 and December 31, 2021.
Legal Proceedings
From time totime, the Companymay become involvedin legal proceedingsarising in the ordinarycourse of business. Asof June 30,
2022 and December 31, 2021, the Company was not a party to any materiallegal matters or claims.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
21
15. Benefit Plans
InMarch2018,theCompanyestablishedadefinedcontributionsavingsplanunderSection401(k)oftheCode.Thisplancovers
substantially allU.S. employeeswho meetminimum ageand servicerequirements andallows participantsto defera portionof their
annual compensation on a pre-tax basis. The Company does not make matchingcontributions to the Plan.
The Company offersits Ireland-based employeesa Personal Retirement SavingsAccount ("PRSA") that allowsparticipants to defer a
portion of their annual compensation. TheCompany provides contributions equal to
4
% of each participant's annual salary. During both
of the three and six months ended June 30, 2022 and 2021, the Company contributedless than $
0.1
million to PRSA accounts.
16. Related Party Transactions
The Company has related party arrangements with UBIand a number of itsaffiliated 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 June 30, 2022 UBI owned
44
% of the Company's stock. Themajority of the voting interests in both UBI and the Companywere
held by a group of immediate family members,and as such the entities are under common control.
These related parties are governed by various Master Services Agreements("MSA") detailed below.
UBI MSA - UBI provides research, development and clinical functions to the Company.There is also a purchase arrangement
with UBI for the production and shipment of the Company'sdiagnostic test kits.
UBIA MSA - UBI-Asia for manufacturing, quality control, testing, validation,and supply services.
UBP MSA - United BioPharma, Inc provide the Company with manufacturing, testing and validation.
COVID MSA ("COVIDMSA") - COVIDMSA provides that UBIacts as COVAXX'sagent with respectto matters relating
theCompany'sCOVID-19programandprovidesresearch,development,manufacturingandbackofficeadministrative
services to the Company.
COVID-19ReliefMSA-A four-companyMSAwithUBI,UBI-AsiaandUBP.TheCompanyis anexclusivelicenseeof
technologies related to diagnostics, vaccines, and therapies forCOVID-19. The MSA established the terms under which UBI-
Asiaprovidesresearch,development,testingandmanufacturingservicestotheCompanyandUBPprovidescontract
development and manufacturing services to the Company.
Totalamounts dueto relatedparties were$
16.7
million and$
19.4
million asof June30, 2022and December31, 2021,respectively.
Totalamounts duefrom relatedparties were$
0.4
million and$
0.4
million asof June 30,2022 andDecember 31,2021, respectively.
Total service fees incurredwere $
0.4
million and $
13.9
million for the three months ended June 30, 2022 and 2021, respectively.Total
service fees incurred were $
1.2
million and $
22.6
million for the six months ended June 30, 2022 and 2021, respectively.
TaiwanCenters for Disease Control Grant ("TaiwanCDC")
UBI-Asia, which is responsible for applying for and managing grants on our behalf under theCOVID-19 program, was awarded a grant
by the TaiwanCDC for COVID-19vaccine development.The Companycontracted with UBI-Asiato conduct atwo-phase study ofa
COVID-19 vaccineclinical trial inTaiwan.The grant providesthat costs incurredto complete thetwo phases ofthe clinical trialwill
be reimbursed based on the achievement of certain milestones as providedin the agreement.
The Company provides administrativeservices to UBI-IP.Under the arrangement, theCompany issues vendor paymentsand provides
technical services mostly forlegal services on behalfUBI-IP.The Company bills UBI-IPfor services based onthe costs incurred with
no markup.
VAXXINITY,INC.
NOTES TO THE CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS
22
Total related partyoperating activity, includingthe activity described above, are as follows (in thousands):
June 30,
December 31,
2022
2021
Consolidated balance sheet
Assets
Prepaid expenses and other current assets
$
3,513
$
3,517
Amounts due from related parties
400
393
Property and equipment, net
240
337
Liabilities
Amounts due to related parties
16,724
19,407
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Operating expenses
Research and development
Services provided by related parties
$
407
$
20,090
$
1,191
$
30,723
Taiwan CDC grant reimbursementfrom related party
-
(6,575)
-
(8,992)
General and administrative
Services provided by related parties
$
-
$
355
$
-
$
862
17. Subsequent Events
On July 29,2022 the Companyagreed to pay$
592,665
to settle alloutstanding claimsrelated to disputedinvoices on aclinical study
that was terminated in 2021.The agreement represents full and final settlement of all claims, rights, and demands that eachparty or its
Affiliates mayhave, and eachparty has releasedand dischargedany future actionsrelated to anyservices performed onthe cancelled
study.Thefullsettlementamountwasrecordedasachargetoresearchanddevelopmentexpenseinthethreemonthsended
June 30, 2022, and payment was made upon execution of the agreement.
23
Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations.
The following discussion and analysis of our financial conditionand results of operations should be readtogether with our unaudited
condensed consolidated financial statements and relatednotes and other financial information appearing elsewherein this Quarterly
Report. Weintend for this discussion to provide you with information thatwill assist you in understanding our unaudited condensed
consolidated financial statements, the changes in key items in those unauditedcondensed 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 QuarterlyReport, including information with respect toour 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 RegardingForward-Looking Statements" for a discussion offorward-looking statements. As a
result of many factors, including those factors set forthin the "Risk Factors" section of this Quarterly Report, our actual resultscould
differ materially from management'sexpectations and the results described in or implied bythe forward-looking statements contained
in the following discussion and analysis.
Overview
Vaxxinityis engaged in the development and commercialization of rationally designed prophylactic and therapeutic vaccines tocombat
chronicdisordersandinfectiousdiseaseswithlargeglobalunmetmedicalneeds.Vaccinesoffersignificantcost,convenienceand
accessibilityadvantagesoverotherformsoftreatment,buthavetraditionallybeenunabletoeffectivelyandsafelycombatchronic
diseases. We believe our platform may be ableto do so, expandingaccess to, and reducingcosts of, treatments across apotentially broad
spectrum of illnesses. Our VaxxinePlatform relies on a synthetic peptidevaccine technology first developed byUBI and subsequently
refined over the lasttwo decades. Webelieve our vaccines havethe potential to combatconditions that have notyet been successfully
treated, orwhich haveprimarily beenaddressed withmonoclonal antibodies("mAbs") which,while generallyeffective, arefar more
costlyandcumbersometoadminister thanvaccines,andthus aregenerallyless accessible.Our pipelineis centeredaroundchronic
disease, pursuingvalidated targetsin neurology,pain and cardiovascularindications. Wehave also leveragedour VaxxinePlatform's
applicability to infectious disease and are advancing next-generationbooster candidate for SARS-CoV-2.
We separated our business from UBIthrough two transactions:a spin-out from UBIin 2014 ofoperations focused ondeveloping chronic
disease product candidates that resultedin UNS, and a second spin-outfrom UBI in 2020 of operationsfocused on the development of
a COVID-19 vaccine that resulted in COVAXX.On February 2, 2021, Vaxxinitywas incorporated for the purpose of reorganizing and
combining UNS andCOVAXXand did so onMarch 2, 2021 throughthe Reorganization. TheReorganization was determinedto be a
common control transaction,so thecarrying values ofall contributed assetsand assumed liabilitiesremained unchanged andthe financial
information for allperiods in thissection of thefinancial statements presentedprior to theReorganization are presented ona consolidated
basis. Unless the contextrequires otherwise, in this sectionwe use the terms"Vaxxinity,""we," "us" and "our"to refer to ouroperations
(including through UNS and COVAXX)both prior to and after the Reorganization.
Since our spin-out transactionsfrom UBI, we havefocused on organizingand staffing our business,business planning, raisingcapital,
developing our VaxxinePlatform and pipeline candidates,identifying and testingpotential product candidatesand conducting clinical
trials. We have alsodeveloped a SARS CoV-2antibody ELISA test, which received an EUA from the FDA in January 2021.
Ourchronicdiseasepipelineconsistsoffiveprogramsfromearlytolate-stagedevelopment.Theseincludetwoprimaryprograms
focused on well-validated targetsof chronic disease: UB-313,which targets CGRP toprevent migraines; andVXX-401, which targets
PCSK9 to lowerLDL cholesteroland reducethe risk ofcardiac events. Weconsider theseto be potentialbest-in-class basedon their
potential enhancedconvenience, increaseddurability,and disruptiveaccessibility andcost-effectiveness.Moreover,for bothof these
programs, there is a known regulatory pathway to approval and either a surrogate marker or experimental provocation that can facilitate
and accelerate development decisions. Weare focused on progressing both of these into the clinic over thenext two quarters.
Wehave threeprograms thatcomprise ourneurodegenerative diseasepipeline: UB-311,our leadingneurology productcandidate, in
development forAlzheimer's Disease("AD"); UB-312,in developmentfor Parkinson'sDisease ("PD")and othersynucleinopathies;
andananti-tauproductcandidatewhichhasthepotentialtoaddressmultipleneurodegenerativeconditions,includingAD.These
programs havethe uniquepotential tonot only
treat
neurodegenerative diseasesbut also,depending onpotential safety,convenience
andaccessibilityadvantagesofourvaccineapproach,
prevent
neurodegenerativediseases.Realizingthattheseneurodegenerative
disease anddisease preventioncandidateswill requiresignificantly moretime andresources inconnection withregulatory approval,
we are seeking strategic partnerships and/or dedicated investment in connectionwith the further advancement of these programs.
We believe in ourVaxxinePlatform's capability to create candidates toaddress a wide range of other chronic diseases, including those
that areor couldpotentially besuccessfully treatedby mAbs,which increasinglydominate thetreatment paradigmfor manychronic
diseases.
24
In addition to our chronicdisease pipeline, we are advancingan infectious disease product candidate,UB-612, as a heterologous booster
vaccine forSARS-CoV-2.Wehave reportedresults ofour UB-612Phase 1,Phase 2,and Phase1 extensionclinical trials.An EUA
application for UB-612 wasdenied by the TFDAin August 2021. We are pursuingaccelerated pathways to authorizationwith regulators
in multiple jurisdictions,including high income countriesand LMICs, based ona global Phase 3heterologous booster trial ofUB-612
that began in the first half of 2022.
We have principally funded ouroperations through financingtransactions. Through June 30, 2022,we received grossproceeds of $306.1
million in connection with various financial instruments, includingthe sale of preferred and common stock, the issuance of promissory
notes (includingconvertible promissorynotes ("ConvertibleNotes")), theentry intosimple agreementsfor futureequity ("SAFEs"),
and proceeds from our initial public offering.Additionally, we have beenawarded grants totaling $10.1 million from the Coalitionfor
Epidemic Preparedness Innovations andthe Michael J. Fox Foundation.The Company will continue to pursuenon-dilutive sources of
financing,includinggrants,collaborationagreements,and revenuefromthesale ofourproducts.However,ourability togenerate
revenue sufficient toachieve profitability will depend onthe eventual regulatory approval, andsuccessful commercialization of one or
more of our product candidates. Todate, we have not yet obtained any regulatory approvals for our pipeline productcandidates.
Costs associated with research and development are the most significant component of our expenses. These costs can vary greatly from
period to period depending onthe timing of varioustrials for our productcandidates. We expect our general and administrative expenses
to incurincreased costsas aresult ofoperating asa publiccompany andallocated researchand developmentcosts tobe inline with
recent levels overthe next 12months and tothereafter increase overtime as weexpand the numberof product candidatesthat we are
advancing,whetherexclusivelyorwithpartners.Further,weanticipateincurringgreatersellingandmarketingexpensesifwe
commercialize any of ourproduct candidates inthe future. Our productcandidates are inclinical stage orpre-clinical stage development,
and wehave generatedlimited revenueto dateand haveincurred significantoperating lossessince inception.Net losseswere $17.3
million and$26.9 millionfor thethree monthsended June 30,2022 and2021, respectively.Net losseswere $35.5million and$58.9
million for thesix months endedJune 30, 2022 and2021, respectively.As of June 30,2022, we hadan accumulated deficitof $265.0
million. Our
expenses and capital requirements may increase over time in connection with our operations,which include:
•
continuing pre-clinical studies, existingclinical trials, and initiatingnew clinical trialsfor product candidates, including clinical
trials of UB-313 and VXX-401;
•
commercializing UB-612 and meeting post-marketing regulatorycommitments;
•
hiring additional clinical, quality control, medical, scientific and other technical personnelto support clinical and research and
development programs;
•
expanding operational, financial and management systemsand infrastructure, expanding our facilitiesand increasing personnel
to support operations;
•
maintaining, expanding and protecting our intellectual property portfolio;
•
seeking regulatory approvals for any product candidates that successfully completeclinical 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 inregions where we elect to commercialize products
on our own or jointly with third parties.
As ofthe dateof thisReport, weexpect ourexisting cashand cashequivalents willbe sufficientto fundour operatingexpenses and
capital expenditurerequirements forat leastthe next 12months. Webelieve thatcash andcash equivalentson handwill enableus to
fund our operatingexpenses and capital requirementsinto the secondhalf of 2023. Thereafter,our viability willdepend on ourability
to raise additional capital to finance operations throughdebt or equity raises, or non-dilutive sources such as grants,successful product
commercialization and/or collaborations with third parties for the developmentof our product candidates. If we are unable to do any of
the foregoing, we wouldbe forced to delay,limit, reduce or terminateour product candidate developmentor future commercialization
efforts.Our estimatesare basedon avariety ofassumptions thatmay proveto bewrong, andwe couldexhaust ouravailable capital
resources sooner than expected. See "- Liquidity and Capital Resources."
Business Update Regarding COVID-19 Pandemic
In March2020, theWorldHealth Organizationdeclared theCOVID-19 outbreaka pandemic.The onsetof thepandemic ledto our
institutionalprioritizationofCOVID-19vaccinedevelopmentefforts,whichcorrelatedtoadeclineinresearchanddevelopment
expenditures for ourchronic disease product candidates.To date,our operations have notbeen negatively impactedby 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 willhave onour financialcondition andoperations, butthe developmentof clinicalsupply materialscould bedelayed and
enrollment of patients in our studies may be delayed or suspended, as hospitals andclinics in areas where we are conducting trials shift
25
resources to cope with the COVID-19 pandemic andmay limit access or close facilities due to the COVID-19pandemic. Additionally,
if ourtrial participantsare unableto travelto ourclinical studysites as aresult ofquarantines orother restrictionsresulting fromthe
COVID-19 pandemic, we may experiencehigher drop-out rates ordelays in our clinicalstudies. The impact ofthe COVID-19 pandemic
onourfinancialperformancewilldependonfuturedevelopments,includingthedurationandspreadofthepandemicandrelated
governmental advisories and restrictions. These developments and the impact of the COVID-19pandemic on the financial markets and
the overall economy are highly uncertain and cannot be predicted. If the financial markets and/orthe overall economy are impacted for
an extended period,our results maybe materially adverselyaffected. See"Risk Factors-Risks Relatedto Our Businessand Industry
inourAnnualReportonForm10-KfortheyearendedDecember31,2021-Theongoingcoronaviruspandemichascaused
interruptions ordelays of ourbusiness plan.Delays caused bythe coronavirus pandemicmay have asignificant adverse effecton our
business."
Components of Our Unaudited Condensed Consolidated Results of Operations
Revenue
No revenuewas generatedduring thethree monthsended June30, 2022and 2021.No revenuewas generatedduring thesix months
ended June 30, 2022. Revenue forthe six months ended June 30, 2021was less than $0.1 million and consisted ofcommercial sales of
ourELISAtests.Wedonotexpecttogenerateanymeaningfulrevenueunlessanduntilweobtainregulatoryapprovalofand
commercializeourproductcandidates,andwedo notknowwhen,or if,this willoccur.If ourdevelopmenteffortsforourproduct
candidatesaresuccessfulandresultincommercialization,wemaygenerateadditionalrevenueinthe futurefromacombinationof
product sales orpayments from collaborationor license agreements thatwe have entered intoor may enterinto with third parties.See
"Risk Factors-RisksRelated tothe Discoveryand Developmentof ProductCandidates inour AnnualReport onForm 10-Kfor the
year ended December31, 2021. Wehave incurred significantlosses since ourinception. Weexpect to incurlosses for theforeseeable
future and may never achieve or maintain profitability."
Cost of Revenue
Cost of revenue consists ofkit production costs consisting of materials,labor and overhead expenses directly relatedto ELISA tests sold
and the costs of expired ELISA tests, which are not available for commercialsale.
If our developmentefforts in respectof our currentpipeline of productcandidates are successful andresult in regulatoryapproval, we
expect ourcost of revenuewill increase inrelative proportionto the levelof our revenueas we commercializethe applicableproduct
candidate. Weexpect thatcost ofrevenue willincrease inabsolute dollarsas andif ourrevenue growsand willvary fromperiod 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 oursuccess andinvolves significantexpenses. Priorto initiatingthese programs,project teamsincorporating individualsfrom the
essential disciplines within Vaxxinity scope out the activities, timing, requirements, inclusion and exclusioncriteria and the primary and
secondary endpoint. Oncewe have decided toproceed, our VaxxinePlatform enables theiteration of drugcandidates in the discovery
phase through rapid, rational designand formulation. After we haveidentified drug candidates, the costsof scaling the formulation from
research grade to clinical grade, then to commercial grade, typically consumes significant resources. In addition to internalresearch and
development,weutilizeserviceproviders,includingrelatedparties,tocompleteactivitieswedonothavetheinternalresourcesto
handle.
Research and development expenses consist primarily of costs incurredfor research activities, including drug discovery effortsand the
development of our product candidates. Weexpense research and development costs as incurred, which include:
•
expenses incurred to conduct the necessary preclinical studies and clinicaltrials required to obtain regulatory approval;
•
expenses incurred under agreements with CROs that are primarily engaged inthe oversight and conduct of our clinical trials,
preclinical studies and drug discovery efforts and contractmanufacturers 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 connectionwith our drug discovery efforts and preclinical
studies and clinical trial materials, including manufacturing validationbatches, as well as investigative sites and consultants
that conduct our clinical trials, preclinical studies and other scientific developmentservices;
•
employee-related expenses, including salaries and benefits, travel andstock-based compensation expense for employees
engaged in research and development functions;
26
•
costs related to compliance with regulatory requirements; and
•
facilities-related costs, depreciation and other expenses, which includerent and utilities.
Werecognizeexternaldevelopmentcostsbasedonanevaluationoftheprogresstocompletionofspecifictasksusinginformation
provided to us byservice providers. This processinvolves reviewing open contracts andpurchase orders, communicating withpersonnel
to identify services thathave been performed onour behalf andestimating the levelof service performed andthe associated costincurred
for the service when we have notyet been invoiced or otherwise notified of actual costs.Any advance payments that we make forgoods
or services tobe received inthe future foruse in researchand development activitiesare recorded asprepaid expenses. Suchamounts
are expensed as the related goods are delivered or the related services are performed, or until it isno longer expected that the goods will
be delivered or the services rendered, at which point the net remainder is expensed.
Werely onrelated partiesfor certainservices toadvance ourresearch anddevelopment programs,including manufacturing,quality
control, testing, validation, supply services, research support, development and clinical functions. During thesix months ended June 30,
2022 and2021, relatedparty expenseswere approximately5.4% and73.6% ofour researchand developmentexpenses, respectively.
We expect this relianceon related parties to continue to diminish in the future.
Where appropriate,we allocateour third-partyresearchand developmentexpenses ona program-by-programbasis. Theseexpenses
primarilyrelatetooutsideconsultants,CROs,contractmanufacturersandresearchlaboratoriesinconnectionwithpre-clinical
development, processdevelopment, manufacturingand clinicaldevelopment activities.Wedo notallocate ourinternal costs,such as
employee costs,costs associatedwith our discoveryefforts, laboratorysupplies andfacilities, includingdepreciation orother indirect
costs, tospecific programs becausethese costs oftenrelate to platformdevelopment, to multipleprograms simultaneously orto discovery
of newprograms, andany suchallocation wouldnecessarily involvesignificant estimatesand judgmentsand, accordingly,would be
imprecise. When werefer to theresearch and developmentexpenses associated witha specific program,these refer exclusivelyto the
allocatedthird-partyexpensesassociatedwiththatproductcandidate.Allotherresearchanddevelopmentcostsarereferredtoas
unallocated costs.
Product candidates in laterstages of clinical developmentgenerally have higher development coststhan those in earlierstages of clinical
development,primarilyduetotheincreasedsizeanddurationoflater-stageclinicaltrials.Additionally,greaterresearchand
development overhead is required to supportbroader and more rapiddevelopment of our Vaxxine Platform and new product candidates.
As a result, we expectthat our research and developmentexpenses will increase as we continueour existing and planned clinicaltrials
and conductincreased pre-clinicaland clinicaldevelopment activities,including submittingregulatory filingsfor productcandidates,
and focus moregenerally onthe developmentof our chronicdisease productcandidates. A significantdriver ofsuch increases would
be the initiation of ourPhase 2b trial for UB-311.In an effort to help mitigatecosts and use of capital,it is the Company'sintention to
advance UB-311into itsnext largescale trialwith astrategic partner.
The anticipatedtiming forthe Phase2b trialinitiation willbe
determinedonceastrategicpartnershipmaterializes. Webelievethedecisiontosharedevelopmentcostswithapartnerwillallow
Vaxxinityto focus resourceson the developmentof its otherchronic diseasecandidates, as weinitiate clinicaltrials fortwo potential
best-in-classprograms(UB-313 andVXX-401), inaddition tosupporting theanticipated launchof UB-612as aheterologousboost
option for COVID-19 (SARS-CoV-2).
At thistime, wecannot reasonablyestimate or knowthe nature,timing andcosts ofthe effortsthat will benecessary tocomplete the
pre-clinical and clinical development of any of ourproduct candidates or when, if ever,material net cash inflows may commence from
any of our product candidates
General and Administrative Expenses
Generalandadministrativeexpensesconsistprimarilyofsalariesandbenefits,travelandstock-basedcompensationexpensefor
personnel in theexecutive, business development,finance, human resources,legal, information technology andadministrative functions.
General and administrative expenses also include facility- related costs as well as insurance costs and professional fees forlegal, patent,
consulting, investor and public relations, accounting and audit services and other general operating expenses not otherwise classified as
research and development expenses. Weexpense general and administrative costs as incurred.
We also anticipate that our general and administrativeexpenses will increase inthe future ifUB-612 becomes authorized by aregulatory
authorityandcommerciallyavailable.Suchcostincreaseswilllikelyincludethehiringofadditionalpersonnelandfeestooutside
consultants,personnel-relatedstock-basedcompensationcosts,localregulatorycompliancecostsandpost-marketingcommitments,
amongotherexpenses.Wewillcontinuetoincurpubliccompany-relatedexpenses,includingservicesassociatedwithmaintaining
compliance with Nasdaq listing and SEC requirements,director and officer liability insurance and investor and public relationscosts.
27
Other Expense (Income)
Interest Expense
Interest expense consistsof (i) interest expenserecognized on the notepayable entered into duringJune 2020 for theacquisition of an
airplane(the "2025Note"),(ii) interestexpenserecognized onthe ConvertibleNotesand(iii)interestexpenserecognizedon other
promissorynotes,including$0.1millionborrowedfromourChiefExecutiveOfficer(the"ExecutiveNote")andarelatedparty
Convertible Notepayable for$2.0 millionin aggregateproceeds thatwas receivedin threetranches (the"2018 RelatedNotes"). The
Executive Note was repaid in full inAugust 2021 and the 2018 RelatedNotes were converted into Series Apreferred stock concurrently
with the Reorganization.
Interest Income
Interest income consists of income earned on our cash and cash equivalents.
Change in Fair Valueof Convertible Notes, SAFEs and Series A-1 WarrantLiability
We issued a series ofConvertible Notes during the years 2018 through 2021,a series of SAFEs during 2020 and 2021, and warrants to
purchase sharesof our SeriesA-1 preferredstock ("Series A-1Warrants")during 2020, eachof whichwere measured andaccounted
for at fair value. Weremeasured the fair value of each of the Convertible Notes, SAFEs and Series A-1 Warrantsat each reporting date
and recognize changesin the fairvalue in ourunaudited condensedconsolidated statements ofoperations. Inputs tothe calculation of
fair value generally included market and acquisition comparable(s) as wellas other variables. In connection with the Reorganization, all
outstanding ConvertibleNotes, SAFEs,and SeriesA-1 Warrantswere exchangedfor sharesof SeriesA preferredstock, whichwere
subsequently exchanged into shares of Class A common stock upon closing ofthe IPO in November 2021.
Loss on Foreign CurrencyTranslation, Net
Our foreignsubsidiaries, which arewholly-owned byVaxxinity,use the U.S.dollar as theirfunctional currencyand maintain records
inthelocalcurrency.Nonmonetaryassetsandliabilitiesareremeasuredathistoricalratesandmonetaryassetsandliabilitiesare
remeasured at exchange rates ineffect at the endof the reporting period. Incomestatement accounts are remeasured ataverage exchange
rates for thereporting period.The resulting gainsor losses areincluded in foreigncurrency (losses) gainsin the unauditedcondensed
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 taxbenefits against
NOLs. We have notrecorded any income tax benefits for the majority of our net losses we incurred todate.
Weaccount forincome taxesusing theasset andliability method,which requiresthe recognition ofdeferred taxassets andliabilities
for the expected future taxconsequences of events that havebeen included in the unauditedcondensed consolidated financial statements
or our tax returns.
Deferred tax assets and liabilities aredetermined based on the difference between thefinancial 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 taxableincome, the amountand timing of whichare uncertain. Valuationallowances are provided,if, based upon theweight
of available evidence,it is more likely thannot that some or allof the deferred taxassets will not be realized.As of June 30, 2022,we
continue to maintaina full valuation allowanceagainst all of ourdeferred tax assets basedon evaluation ofall available evidence.We
file income tax returns in the U.S.federal and state jurisdictions and may become subject toincome tax audit and adjustments by related
tax authorities. Ourtax return periods (forentities then in existence)for U.S. federalincome taxes for thetax years since 2017remain
opento examinationunder thestatute oflimitations bytheInternalRevenueServiceand statejurisdictions.Werecordreservesfor
potential tax payments to various tax authorities relatedto uncertain tax positions, if any. The nature of uncertain tax positionsis subject
to significant judgmentby management andsubject to change, whichmay be substantial. Thesereserves are basedon a determination
of whetherand howmuch atax benefittaken byus in ourtax filingsor positionsis morelikely thannot tobe realizedfollowing the
resolutionofanypotentialcontingenciesrelatedtothetaxbenefit.Wedevelopourassessmentofuncertaintaxpositions,andthe
associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes
available, estimatesare revisedand refined.Differences betweenestimates andfinal settlementmay occurresulting inadditional tax
expense. Potentialinterest andpenalties associatedwith suchuncertain taxpositions isrecorded asa componentof ourprovision for
income taxes.
28
Factors Affecting the Comparability of Our Unaudited CondensedConsolidated Results of Operations
Reorganization
On March 2, 2021, Vaxxinity entered into the Contributionand Exchange Agreement, pursuant towhich the outstanding equity interests
ofUNSandCOVAXXwerecontributedtoVaxxinityinreturnforequityinterestsinVaxxinity,resultinginUNSandCOVAXX
becoming wholly owned subsidiaries of Vaxxinity.Accordingly, all share and per share amounts prior to the Reorganizationhave been
adjustedtoreflectthe Reorganization.As aresult,thehistoricalfinancialinformationbetweenJanuary1,2021and March2, 2021
described in this Quarterly Report refers to the combined historicalfinancial information of UNS and COVAXX. Our operations for the
six months ended June 30, 2022reflects the operations of Vaxxinityand its subsidiaries. Our operationsfor the six months ended June
30, 2021reflects theoperations ofUNS andCOVAXXbusinesses ona condensedconsolidated basisfor theperiod fromJanuary 1,
2021 toMarch 1,2021 andof Vaxxinityand itssubsidiaries forthe remainderof thatsix-month period.See Note1 toour unaudited
condensed consolidated financial statements included elsewhere inthis Quarterly Report.
Condensed Consolidated Results of Operations
Comparison of the Three and Six Months Ended June 30, 2022and 2021
The following table summarizes our unaudited condensed consolidated results ofoperations for the three and sixmonths ended June 30,
2022 and 2021, together with the dollar change in those items from periodto period (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
Change
2022
2021
Change
Revenue
$
-
$
-
$
-
$
-
$
17
$
(17)
Costs of revenue
-
1,927
(1,927)
-
1,928
(1,928)
Gross (loss) profit
-
(1,927)
1,927
-
(1,911)
1,911
Operating expenses:
Research and development
10,664
19,020
(8,356)
22,142
30,709
(8,567)
General and administrative
6,560
5,846
714
13,246
14,430
(1,184)
Total operating expenses
17,224
24,866
(7,642)
35,388
45,139
(9,751)
Loss from operations
(17,224)
(26,793)
9,569
(35,388)
(47,050)
11,662
Other (income) expense:
Interest expense
105
109
(4)
210
620
(410)
Interest income
(75)
(2)
(73)
(80)
(2)
(78)
Change in fair value of
convertible notes
-
-
-
-
2,667
(2,667)
Change in fair value of simple
agreements for future equity
-
-
-
-
8,365
(8,365)
Change in fair value of
warrant liability
-
-
-
-
214
(214)
Loss (gain) on foreign
currency translation, net
(2)
8
(10)
(3)
16
(19)
Other (income) expense, net
28
115
(87)
127
11,880
(11,753)
Net loss
$
(17,252)
$
(26,908)
$
9,656
$
(35,515)
$
(58,930)
$
23,415
Revenue
Revenues for all periodspresented are negligible. Allrevenue and comparable decreaseswere due to sales ofour ELISA tests. Weare
not actively pursuing commercialization of our ELISA tests at this time.
Gross Margin
Gross margin wasnegative for the threeand six months endedJune 30, 2021. Allgross margin andcomparable decreases weredue to
sales of our ELISA tests.During the six monthsended June 30, 2021,we wrote off, tocost of revenue, $1.9 millionin expired ELISA
tests that had no commercial value, driving a significant change in gross profitpercentage.
29
Research and Development Expenses
Comparison of the three months endedJune
30, 2022 to the three months ended June 30, 2021
Researchanddevelopmentexpenseswere$10.7millionand$19.0millionforthethreemonthsendedJune 30,2022and2021,
respectively.The $8.3million decreasewas comprisedof a$13.7million decreasein allocatedcosts (i.e.,costs thatcan bedirectly
attributed to a specific clinical program),and a $5.3 million increase in unallocated costs. The decrease in allocated costs was primarily
dueto adecreaseof $16.9millionin costsrelatedto UB-612,partiallyoffsetby increasesin spendof $1.3millionon ourUB-313
migraine program, $0.7million on ourUB-312 Parkinson'sDisease program,and $0.3 millionon our VXX-401cholesterol program.
The $5.3 million increase in unallocated costs was driven by increased salaries and personnel-related costs of $3.6 million, stock-based
compensation expense of $0.6 million, and $0.1million in rent and other overhead associated with laboratory space in Florida.
Comparison of the six months ended June
30, 2022 to the six months ended June 30, 2021
Researchanddevelopmentexpenseswere$22.1millionand$30.7millionforthesixmonthsendedJune 30,2022and2021,
respectively.The $8.6million decreasewas comprisedof a$17.1million decreasein allocatedcosts (i.e.,costs thatcan bedirectly
attributed to a specific clinical program), and a $8.4 million increase in unallocated costs. The decrease in allocated costs was primarily
dueto adecreaseof $22.9millionin costsrelatedto UB-612,partiallyoffsetby increasesin spendof $2.2millionon ourUB-313
migraine program,$1.4 million onour UB-312 Parkinson'sDisease program,and $1.2 millionon our VXX-401cholesterol program.
The $8.4 million increase in unallocated costs was driven by increased salaries and personnel-related costs of $6.1 million, stock-based
compensation expense of $1.1 million, and $0.3million in rent and other overhead associated with laboratory space in Florida.
General and Administrative Expenses
Comparison of the three months endedJune
30, 2022 to the three months ended June 30, 2021
General and administrativeexpenses were$6.6 million and$5.8 millionfor thethree monthsended June 30, 2022and 2021,respectively.
The $0.8 millionincrease was primarilydue to increasesin Directors andOfficers (D&O) insurancecosts of $0.9million and salaries
and personnel-related costs of $0.7 million, partially offsetby decreases of $1.0 million consulting costs and professional services.
Comparison of the six months ended June
30, 2022 to the six months ended June 30, 2021
Generalandadministrativeexpenseswere$13.2millionand$14.4millionforthesixmonthsendedJune 30,2022and2021,
respectively.The$1.2milliondecreasewasprimarilyduetodecreasesof$1.8millioninstock-basedcompensationandrecruiting
expenses and decreases in professional services and other expensesof $1.1million related to our March 2021 Reorganization, partially
offset byincreased D&Oinsurance costsof $1.8million, salariesand personnel-relatedcosts of$1.1 million,and auditand advisory
fees of $0.7 million.
Interest Expense
Comparison of the three months endedJune
30, 2022 to the three months ended June 30, 2021
Interest expense was $0.1 million and $0.1 million for the three months endedJune 30, 2022 and 2021, respectively.
Comparison of the six months ended June
30, 2022 to the six months ended June 30, 2021
Interest expensewas $0.2million and$0.6 millionfor thesix monthsended June30, 2022and 2021,respectively.The $0.4million
decrease was due to the exchange of Convertible Notes for Series A preferredstock in connection with the Reorganization.
Interest Income
Comparison of the three months ended June
30, 2022 to the three months ended June 30, 2021
Interest income on cash was less than $0.1 million for each of the three monthsended June 30, 2022 and 2021, respectively.
Comparison of the six months ended June
30, 2022 to the six months ended June 30, 2021
Interest income on cash was less than $0.1 million for each of the six months ended June30, 2022 and 2021, respectively.
30
Change in Fair Valueof Convertible Notes, SAFEs and Series A-1 WarrantLiability
In connection with the Reorganization, all outstanding Convertible Notes,SAFEs and Series A-1 Warrantswere exchanged into shares
of Series A preferredstock, which weresubsequently exchangedinto shares ofClass A commonstock upon theclosing of theIPO in
November 2021.
The $2.7million changein fairvalue ofthe ConvertibleNotes recognizedduring thesix monthsended June 30,2021 relatedto the
revaluation of the Convertible Notesupon conversion to equity.The $8.4 million change infair value of SAFEs recognizedduring the
six monthsended June 30,2021 relatedto insightinto thepricing ofVaxxinity'snext stockissuance ata highervaluation. The$0.2
million change in fair valueof Series A-1 Warrants recognized during the sixmonths ended June 30, 2021 relatedto an increase invalue
of the Series A-1 preferred stock.
Loss on Foreign Currency Translation, Net
The netloss offoreign currencytranslation reflecteda deminimis increasein theforeignexchange ratefor thethree monthsended
June 30, 2022 compared to thethree months ended June 30, 2021and the six months endedJune 30, 2022 compared tothe six months
ended June 30, 2021.
Liquidity and Capital Resources
Sources of Liquidity
We have generated limited revenue from salesof our ELISAtests and have notyet commercialized any ofour product candidates, which
areinvariousphasesofpre-clinicalandclinicaldevelopment.Priortogoingpublicinlate2021,wefinancedoperationsprimarily
through the issuance of convertiblepreferred stock, borrowings under promissorynotes (including Convertible Notes) andthe execution
of SAFEs. ThroughDecember 31, 2020, wereceived gross proceedsof $99.3 millionin connection withthe issuance ofvarious financial
instruments, including the sale of preferred stock, the issuance of promissory notes (includingConvertible Notes), and the execution of
SAFEs. In addition,we also generatedrevenue from thesale of anoption to negotiatea license withUNS (which optionhas expired)
and the salesof ELISA testsin 2020 and2021. During theyear ended December31, 2021, weraised a totalof $198.8 million,which
consisted of $71.1 millionin net proceedsfrom the issuanceof common stock inconnection with theIPO, $122.8 million innet proceeds
from the issuanceof Series Bpreferred shares, $2.0million in netproceeds from theissuance of convertibledebt, and $2.9million in
net proceeds fromthe issuance of SAFEs.At June 30, 2022,we had $109.1million in cashand cash equivalents,compared to $144.9
million as ofDecember 31, 2021. Thedecrease in cashand cash equivalentsbalances for the periodsreported are primarilydue to the
factors described under "Cash Flows" below.
Cash Flows
The following table provides information regarding our cash flows for thesix months ended June 30, 2022 and 2021 (in thousands):
June 30,
December 31,
2022
2021
Balance Sheet Data:
Cash and cash equivalents
$
109,066
$
144,885
Restricted cash
4,708
172
Total assets
136,996
166,673
Total liabilities
39,655
38,054
Total stockholders' equity(deficit)
$
97,341
$
128,619
Six Months Ended June 30,
2022
2021
Statement of Cash Flow Data:
Net cash used in operating activities
$
(30,051)
$
(45,952)
Net cash used in investing activities
(1,252)
-
Net cash provided by financing activities
20
125,657
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(31,283)
$
79,705
31
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2022 was$30.1 million, primarily resulting from a $35.5 million
net loss, an unfavorable $0.7 millionchange in operating assets and liabilitiesand total non-cash itemsof $4.8 million. The changes in
netoperatingassetsandliabilitieswereprimarilyduetoadecreaseof$2.7millioninamountsduetorelatedparty,a$7.3million
increase in accrued expenses and other currentliabilities, a $2.9 million decrease in accountspayable and other liabilities, a $1.0 million
increase in prepaid expenses, and a $2.1 million decrease in long-term deposits. The primary non-cash adjustmentsto net loss consisted
of $4.0 million of stock-based compensation and $0.7 millionin depreciation.
Investing Activities
Net cash used ininvesting activities totaled$1.3 million forthe six monthsended June 30, 2022.The cash used ininvesting activities
consisted primarily of the acquisition of equipment.
Financing Activities
Net cash provided by financing activitieswas less than $0.1 million for thesix months ended June 30, 2022. Werepaid $0.2 million in
relation to a note payable and received $0.2 million from the exercise of stock options.
Funding Requirements
Wehave generatedapproximately $3.7million in revenuesince inceptionand haveincurred netlosses in eachreporting periodsince
inception. Wedo not expect togenerate any meaningfulrevenue unless anduntil we obtain regulatoryapproval of andcommercialize
our productcandidates. Wedo notknow when,or if,this will occur.If wedo notreceive regulatoryapproval forany ofour product
candidates, or ifwe receive approvalbut our commercializationresults fallshort of ourexpectations, we willcontinue to incursignificant
losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals
for, our product candidates and begin to commercializeany approved products.
As of thedate of thisQuarterly Report, weexpect our existingcash and cashequivalents will besufficient to fund ouroperating expenses
and capital expenditure requirements forat least the next12 months. As of June 30,2022, other than our2025 Note, we haveno material
debt obligations.
We havebased our projections of operating capitalrequirements on assumptions that mayprove to be incorrect, and we mayuse all of
our available capital resources sooner than we expect. Our future capitalrequirements will depend on many factors, which include:
•
the number of discovery and pre-clinical programs that we pursue andthe speed with which they are advanced;
•
the number, size, and nature of clinical trials that we conduct;
•
the length of time it takes for regulators to review and approve any productcandidates that successfully complete clinical
trials;
•
the timing and manner in which we manufacture our pre-clinical and clinicaldrug material, the terms on which we can have
such manufacturing completed, and the extent to which we undertake commercializationof any drug products, if approved;
•
the extent to which we establish sales, marketing, medical affairsand distribution infrastructure to commercialize any product
candidates;
•
the timing and extent to which we expand our operational, financial and managementsystems and infrastructure, and
facilities;
•
the timing and extent to which we increase our personnel to support operations,including necessary increases in headcount to
conduct and expand our clinical trials, commercialize any approved productsand support our operations as a public
company; and
•
the number of patent applications we must file and claims we must defend in orderto maintain, expand and protect our
intellectual property portfolio, and the costs of preparing, filing and prosecutingpatent applications, maintaining and
protecting our intellectual property rights.
Until such time, if ever, as wecan generate positive cash flows from operations,we expect to finance our cash needs throughpublic or
private equity offerings, strategic collaborations and debt financing. To the extent that we raise additional capital through the saleof our
Class A commonstock, convertible securities orother equity securities,shareholders' ownership interestwill be diluted andthe terms
32
of these securitiescould include liquidationor other preferencesand anti-dilution protections.In addition, debtfinancing, if available,
mayresult infixedpaymentobligationsandmayinvolve agreementsthat includerestrictivecovenantsthat limitourabilityto take
specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends.
If we raise additionalfunds through strategic collaborationsor marketing, distributionor licensing arrangementswith third parties, we
may have to relinquish valuable rights to our technologies,future revenue streams or product candidates or grant licenses onterms that
maynotbefavorabletous.Ifweareunabletoraiseadditionalfundswhenneeded,wemayberequiredtodelay,limit,reduceor
terminate our productcandidate development orfuture commercialization effortsor grant rights tothird parties to developand market
product candidates that we would otherwise prefer to develop and marketourselves.
Contract Research and Manufacturing Organizations
Werecorded accruedexpenses of$1.9 millionand $1.5million in ourbalance sheetfor expendituresincurred byCROs andcontract
manufacturers as of June 30, 2022 and December 31, 2021, respectively.
Tax-Related Obligations
Wehave reserved $0.6 millionof unrecognized tax benefitsagainst NOLs. Additionally,as of June 30, 2022,we accrued $0.2 million
in interest and penalties related to prior year tax filings.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and do notcurrently have, any off-balance sheet arrangements, as defined inthe rules and
regulations of the SEC.
Critical Accounting Policies and Estimates
The preparation of financial statementsin accordance with GAAP requiresmanagement to make estimates andassumptions that affect
the amountsreportedin ourunauditedcondensedconsolidated financialstatements andaccompanyingnotes. Managementbases its
estimates onhistorical experience,market andother conditions,and variousother assumptionsit believesto bereasonable. Although
these estimates are basedon management's best knowledge of current events and actionsthat may impact usin the future, theestimation
processis,byitsnature,uncertaingiventhatestimatesdependoneventsoverwhichwemaynothavecontrol.Inaddition,ifour
assumptions change,we mayneed torevise ourestimates, ortake othercorrective actions,either ofwhich mayalso havea material
effect on our unaudited condensed consolidated financial statements. Significant estimates containedwithin these unaudited condensed
consolidatedfinancialstatementsinclude,butarenotlimitedto,theestimatedfairvalueofourcommonstock,stock-based
compensation,incometaxvaluationallowanceandtheaccrualsofresearchanddevelopmentexpenses.Webaseourestimateson
historicalexperience,knowntrendsandothermarket-specificorotherrelevantfactorsthatwebelievetobereasonableunderthe
circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in facts and circumstances. If market and
other conditionschange fromthose thatwe anticipate,our unauditedcondensed consolidatedfinancial statementsmay bematerially
affected.
While oursignificant accountingpolicies aredescribed inmore detailin thenotes toour unauditedcondensed consolidatedfinancial
statements appearing elsewhere in this Quarterly Report, we believe that the following critical accounting policies and estimates havea
higher degree of inherent uncertainty and require our most significantjudgments.
Accrued Research and Development Expenses
As partof theprocessof preparingourunauditedcondensedconsolidatedfinancialstatements,weare requiredto estimateaccrued
research and development expenses. As we advance ourprograms, we anticipate conducting more complex clinicalstudies resulting in
greater researchand developmentexpenses, whichwill placeeven greateremphasis onthe accrual.This processinvolves reviewing
open contracts and purchase orders, communicating with our applicablepersonnel to identify services that have been performed on our
behalf and estimating the level of serviceperformed and the associated cost incurred forthe service when we havenot yet been invoiced
or otherwise notified ofactual costs. The majorityof our service providersinvoice in arrearsfor services performed, ona pre-determined
schedule or when contractual milestones are met; however, some require advance payments. We make estimates of accrued expenses as
of each balance sheet datein the unaudited condensed consolidatedfinancial statements based on factsand circumstances known to us
atthattime.Weperiodicallyconfirmtheaccuracyoftheestimateswiththeserviceprovidersandmakeadjustmentsifnecessary.
Examples of estimated accrued research and development expenses includefees paid to:
•
vendors, including research laboratories, in connection with pre-clinicaldevelopment activities;
•
CROs and investigative sites in connection with pre-clinical studies andclinical trials; and
33
•
contract manufacturers in connection with drug substance and drug productformulation of pre-clinical studies and clinical
trial materials.
Webase ourexpenses relatedto pre-clinicalstudies andclinical trialson ourestimates ofthe servicesreceived andefforts expended
pursuant to quotes and contracts with multiple research institutions and CROs that supply,conduct and manage pre-clinical studies and
clinical trials on our behalf.The financial terms of theseagreements are subject tonegotiation, vary from contractto contract and may
resultinunevenpaymentflows.Theremaybeinstancesinwhichpaymentsmadetoourvendorswillexceedthelevelofservices
provided and resultin a prepaymentof the expense.Payments under someof these contractsdepend on factorssuch as thesuccessful
enrollment of patientsand the completion ofclinical trial milestones. Inaccruing service fees, weestimate the time periodover which
services will be performedand the level ofeffort to beexpended in each period.If the actual timingof the performance ofservices or
the levelof effortvaries fromthe estimate,we adjustthe accrualor theprepaid expenseaccordingly.Although wedo notexpect our
estimates tobe materiallydifferent fromamounts actuallyincurred, ourunderstanding ofthe statusand timingof services performed
relative to the actual status and timing of services performed may vary and may result in reporting amountsthat are too high or too low
in any particular period. Todate, our estimated accruals have not differed materially from actual costs incurred.
Stock-Based Compensation
We measure all stock-based awards granted to employees, directors and non-employees based on their fairvalue on the date of thegrant
and recognize the corresponding compensation expense of those awards over the requisite service period, which isgenerally the vesting
period of the respective award.Forfeitures are accounted for asthey occur.We grantstock options and restricted stockawards that are
subject to service vesting conditions.
Weclassify stock-based compensationexpense in ourunaudited condensed consolidatedstatements of operationsin the same manner
in which the award recipient's payrollcosts are classified or in which the award recipient'sservice payments are classified.
We estimate the fair value of each stockoption grant using the Black-Scholesoption-pricing model, which requires the useof subjective
assumptionsthatcouldmateriallyimpacttheestimationoffairvalueandrelatedcompensationexpensetoberecognized.These
assumptions include (i) the expected volatility of our stockprice, (ii) the periods of time overwhich recipients are expected to hold their
options prior to exercise (expected lives), (iii) expected dividend yield on our common stock, and (iv) risk-free interest rates, whichare
basedonquotedU.S.Treasuryratesforsecuritieswithmaturitiesapproximatingtheoptions'expectedlives.Developingthese
assumptions requires the use of judgment. Both prior to and after the IPO, we lacked company-specific historical and impliedvolatility
information.Therefore,weestimateourexpectedstockvolatilitybasedonthehistoricalvolatilityofapubliclytradedsetofpeer
companies. The expected term of the Company's optionshas been determined utilizing the "simplified" method for awards that qualify
as "plain-vanilla" options. The expected term of options granted to non-employeesis equal to the contractual term of the option award.
The expected dividend yield iszero as we havenever paid dividends and donot currently anticipate paying anyin the foreseeable future.
Simple Agreement for FutureEquity
During thethree monthsended March31, 2021,we enteredinto SAFEs.The SAFEswere notmandatorily redeemable,nor didthey
require us torepurchase a fixednumber of shares.Wedetermined that theSAFEs contained a liquidityevent provision that embodied
an obligation indexedto the fair valueof the equityshares and couldrequire us tosettle the SAFEobligation by transferringassets or
cash. OurSAFEs representeda recurringmeasurement thatis classifiedwithin Level3, ofthe fairvalue hierarchy,as disclosedand
defined inNote 3in ourAnnual Reporton Form10-K forthe yearended December31, 2021,wherein fairvalue isestimated using
significant unobservableinputs, including anestimate of thenumber ofmonths to aliquidity event, volatilityrates and theestimation
of the most likely conversion feature for converting the SAFE.
The fair value of the SAFEson the date of issuance wasdetermined to equal the proceeds wereceived. The value of the SAFEs onthe
date of conversioninto Series Apreferred stockwas determined tobe equal tothe fair valueof the SeriesA preferredstock issued in
connection with the Reorganization.
Convertible Notes
Beginning in 2018, we issued Convertible Notes thatbore simple interest at annual ratesranging from 4.8% to 6%. Allunpaid principal,
together withthe accruedinterest thereon,for theConvertible Noteswere payableupon theevent ofdefault orupon maturity,which
ranged from one to three years. The Convertible Notes contained a number ofprovisions addressing automatic and optional conversion,
eventsofdefaultandprepaymentprovisions.WedeterminedthataportionoftheConvertibleNotescontainedaliquidityevent
provision, requiring them tobe measured and accountedfor at fair value at eachreporting date. Wedetermined that Convertible Notes
requiring a measurement to fair value represented a recurring measurement that was classified within Level 3of the fair value hierarchy
wherein fair value is estimated using significant unobservable inputs, as disclosed and defined in Note 3 in our Annual Report on Form
10-K for the year ended December 31, 2021.
34
TaiwanCenters for Disease Control Grant
UBIA, which is responsible for applying forand managing grants on our behalf, wasawarded a grant by the Taiwan Centers for Disease
Control ("TCDC") for COVID-19vaccine development. Thegrant provides that costsincurred to complete thetwo phases ofthe clinical
trial will be reimbursedbased on the achievementof certain milestones asdefined in the agreement.Weare entitled to reimbursement
under the TCDCgrant. At eachreporting date,we assess thestatus of allof the activitiesinvolved incompleting theclinical studyin
relationtothemilestones.Weaccountfortheamountsthathavebeenreceivedfromthe TCDCtoreimbursecostsincurredonthe
clinical studyand notexpected tobe refundedback tothe TCDCas contraresearch anddevelopment expensesin theaccompanying
unaudited condensed consolidated statement of operations.
Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk.
Weare exposedto market riskin the ordinarycourse of ourbusiness. Theserisks primarilyrelate toforeign currencyand changesin
interest rates.
Foreign Currency ExchangeRisk
WehavelimitedexposuretoforeigncurrencyexchangeriskasmostofouroperatingactivitiesareprimarilydenominatedinU.S.
dollars. We believe actual foreignexchange gains andlosses did nothave a significantimpact on ourresults of operationsfor any periods
presentedherein.The resultsoftheanalysis basedonour financialpositionas ofJune 30,2022,indicatedthat ahypothetical10%
increase or decrease in applicable foreign currency exchange rates would nothave a material effect on our financial results.
Interest Rate Risk
Weare exposedto marketrisk relatedto changesin interest rates.As ofJune 30, 2022and December31, 2021,our cashequivalents
consisted ofinterest-bearingchecking accountsand moneymarket accounts.Weissued ConvertibleNotes, whichConvertible Notes
were exchanged forSeries A preferredstock in connection withthe Reorganization.The Convertible Notesbore simple interestat the
annual rates ranging from 4.8%to 6%, with redemption termspayable at the earlier ofone year, or upon the eventof default. In addition,
the ConvertibleNotes containedprovisionsaddressingautomatic andoptionalconversion.Giventhe redemptionof theConvertible
Notes, and theshort-term nature andfixed interest rate,we believe thereis no materialexposure to interestrate risk. Additionally,the
2025 Note we entered into for the year ended December 31,2020 bears an annual interest rate of 3.4% and maturesin June 2025. Given
the fixed interestrate of the2025 Note, webelieve there isno material exposureto interest raterisk. The resultsof the analysisbased
on our financial positionas of June 30, 2022, indicated thata hypothetical 100 basis pointincrease or decrease in risk-freerates would
not have a material effect on our financial results.
Our measurement ofinterest rate risk involvesassumptions that areinherently uncertain and,as a result, cannotprecisely estimate the
impact ofchanges in interestrates on netinterest revenues.Actual results maydiffer fromsimulated results dueto balance growthor
decline andthe timing,magnitude, andfrequency ofinterest ratechanges, aswell aschanges inmarket conditionsand management
strategies, including changes in asset and liability mix.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, withthe participation ofour principal executiveofficer and principalaccounting officer,evaluated, as ofthe end of
the periodcovered bythis QuarterlyReport onForm 10-Q,the effectivenessof ourdisclosure controlsand procedures(as definedin
Rules13a-15(e)and15d-15(e)undertheExchangeAct).Indesigningandevaluatingourdisclosurecontrolsandprocedures,
managementrecognizesthatanycontrolsandprocedures,nomatterhowwelldesignedandoperated,canprovideonlyreasonable
assurance of achieving the desired control objectives. In addition,the design of disclosure controls and procedures must reflect the fact
that thereare resourceconstraints, andthat managementis requiredto applyjudgment inevaluating thebenefits ofpossible controls
and procedures relative to theircosts. Based on management'sevaluation and, our principal executiveofficer and principal accounting
officer concluded that, as of June 30, 2022, our disclosurecontrols and procedures were effective at the reasonable assurancelevel.
Changes in Internal Control over Financial Reporting
A materialweakness isa deficiency,or combinationof deficiencies,in internalcontrol overfinancial reporting,such thatthereis a
reasonablepossibilitythatamaterialmisstatementofacompany'sannualandinterimfinancialstatementswillnotbedetectedor
prevented on a timely basis.
We invested resources to remediatethe material weaknessesidentified in thepreparation of ouraudited consolidated financialstatements
for the yearended December 31,2021 and inthe preparation ofour unaudited consolidatedfinancial statements forthe quarter ended
March 31, 2022. These remediation activities involved the following:
35
•hiring additional accounting personnel with the appropriate level of skill and experiencefor public company financial reporting;
•designing and implementing a formal financial close process that includesmultiple levels of reviews of accounting entries; and
•supplementingour resourcesfor evaluatingand accountingfor complextransactions andstock optionsthrough theuse ofthird-
party advisors.
Other thanthe measuresdescribed above,there wereno changesin ourinternal controlover financialreporting (asdefined inRules
13a-15(f) and 15d-15(f) under theExchange Act) during thequarter ended June 30, 2022that have materially affected, orare reasonably
likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Ourmanagement,includingtheprincipalexecutiveofficerandprincipalfinancialandaccountingofficer,doesnotexpectthatour
disclosure controlsor ourinternal controlover financialreporting willprevent ordetect allerror andall fraud.A controlsystem, no
matter how well designed and operated, can provide only reasonable, notabsolute, assurance that the control system's objectives will be
met.Thedesignofacontrolsystemmustreflectthefactthatthereareresourceconstraints,andthebenefitsofcontrolsmustbe
considered relative totheir costs.Further, because of theinherent limitations inall control systems,no evaluation ofcontrols can provide
absolute assurance thatmisstatements due toerror or fraudwill not occuror that allcontrol issues andinstances of fraud,if any,have
been detected.The design of anysystem of controlsis based in parton certain assumptionsabout the likelihoodof future events,and
there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions.Projections of
any evaluation of theeffectiveness of controls tofuture periods are subjectto risks.Over time, controls maybecome inadequate because
of changes in conditions or deterioration in the degree of compliance with policiesor procedures.
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PARTII - OTHER INFORMATION
Item 1. Legal Proceedings.
From timeto time weare a partyto variouslitigation mattersincidental tothe conductof our business.Weare not presentlyparty to
anylegal proceedingsthe resolutionof whichwe believewouldhave amaterialadverse effecton ourbusiness, prospects,financial
condition, liquidity, resultsof operation, cash flows or capital levels.
Item 1A. Risk Factors.
As a smaller reportingcompany (as defined inRule 12b-2 of the ExchangeAct), we are not requiredto provide the information called
for by this Item 1A. Risk factors describing the major risks to our business can be found under Item 1A., "Risk Factors,"in our Annual
Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities andUse of Proceeds.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the quarterlyperiod ended June 30, 2022.
Use of Proceeds
On November15, 2021,the Companyclosed itsIPO, asdiscussed inNote 1of ourconsolidated financialstatements inthe Annual
ReportonForm10-KfortheyearendedDecember31,2021.Theaggregatenetproceedstousfromtheoffering,afterdeducting
underwriting discountsand commissionsand otheroffering expensespayable byus, wasapproximately $71.1million. Theproceeds
from our IPO have been invested primarily in money market accounts. There has been no material change in the expected use of the net
proceedsfromourIPOasdescribedinourprospectusfiledpursuanttoRule424(b)(4)undertheSecuritiesActwiththeSECon
November 12, 2021.
Item 6. Exhibits.
The following exhibitsrequired by Item 601of Regulation S-Kare filed herewithor have beenfiled previously withthe SEC asindicated
below:
Exhibit
No.
Index to Exhibits
3.1
Amended and Restated Certificate of Incorporation of Vaxxinity, Inc. to be in effect upon the completion of this
offering (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K (File No. 001-41058) filed on
3.2
Amended and Restated Bylaws of Vaxxinity, Inc. to be in effect upon the completion of this offering (incorporated by
reference to Exhibit 3.2 of our Current Report on Form 8-K (File No. 001 -41058) filed on November 17, 2021).
4.1
37
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1
Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002**
101.INS
Inline XBRL Instance Document*
101.SCH
Inline XBRL TaxonomyExtension Schema Document*
101.CAL
Inline XBRL TaxonomyExtension Calculation Linkbase Document*
101.DEF
Inline XBRL TaxonomyExtension Definition Linkbase Document*
101.LAB
Inline XBRL TaxonomyExtension Label Linkbase Document*
101.PRE
Inline XBRL TaxonomyExtension Presentation Linkbase Document*
104
Cover Page Interactive Data File (the cover page XBRL tags are embeddedwithin the Inline XBRL document).*
__________________________
*Filed herewith.
**Furnished herewith.
†Indicates management contract or compensatory plan, contract or arrangement.
§Portions of theexhibit, marked bybrackets, have beenomitted because theomitted information (i) isnot material and(ii) would
likely cause competitive harm if publicly disclosed.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf
by the undersigned, thereunto duly authorized on August 11,2022.
VAXXINITY,INC.
By:
/s/ Mei Mei Hu
Mei Mei Hu,
President and Chief Executive Officer
(Principal executive officer)
By:
/s/ Jason Pesile
Jason Pesile
Senior Vice President, Finance &Accounting
(Principal financial and accounting officer)