Vaxart Inc

NOTE6.**** **Liabilities Related to Sale of Future Royalties

In* April 2016,Aviragen entered into a Royalty Interest Acquisition Agreement (the “RIAA”) with HealthCare Royalty Partners III, L.P. (“HCRP”). Under the RIAA, HCRP made a $20.0 million cash payment to Aviragen in consideration for acquiring certain royalty rights (“Royalty Rights”) related to the approved product Inavir in the Japanese market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and a commercialization agreement that the Company entered into with Daiichi Sankyo. Per the terms of the RIAA, during thefirst* royalty interest period of* April 1, 2016through March 31, 2025,HCRP is entitled to thefirst* $3.0 million and any cumulative remaining shortfall amount plus 15% of the next $1.0 million in royalties earned in each year commencing on* April 1,with any excess revenue being retained by the Company. Further, during thesecond* royalty interest period beginning* April 1, 2025and ending on December 24, 2029,HCRP is entitled to thefirst* $2.7 million and any cumulative remaining shortfall amount, plus 15% of the next $1.0 million in royalties, with any excess revenue being retained by the Company. A shortfall occurs when, during an annual period ending on* March 31st, for thefirst* royalty interest period of* April 1, 2016through March 31, 2025,the Company’s royalty payments fall below $3.0 million; and $2.7 million for thesecond* royalty interest period of* April 1, 2025and ending on December 24, 2029,excluding the period of April 1, 2028through December 24, 2029.In the event there shall remain any cumulative remaining shortfall amount as of December 24, 2029,*any royalties received from Daiichi Sankyo subsequently by the Company would be payable to HCRP until the cumulative remaining shortfall amount has been paid.

For avoidance of doubt, the RIAA states, in the event there is a remaining cumulative remaining shortfall amount as of* December 24, 2029,the Company shallnot* be obligated to pay HCRP any royalty payment beyond what the Company is paid from Daiichi Sankyo. The cumulative remaining shortfall amount is the aggregate amount of the remaining shortfall for each annual period, which was $6.0 million and $7.0 million as of* June**30,* 2024 and* December 31, 2023,*respectively.

Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the RIAA, this transaction was accounted for as a liability that is being amortized using the effective interest method over the life of the arrangement. The Company hasno obligation to pay any amounts to HCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. To record the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement and the payments that will be passed through to HCRP over the life of this agreement. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cash interest expense using an estimated effective interest rate. The royalties earned in each period that will be passed through to HCRP are recorded as non-cash royalty revenue related to sale of future royalties, with any excessnot subject to pass-through being recorded as royalty revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to sale of future royalties is commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company adjusts the amortization of the liability and interest rate. As a result of this accounting, even though the Company doesnot retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability, including the related interest, is fully amortized.

The following table shows the activity within the liability account during thesix months ended* June 30,* 2024 (in thousands):

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NOTE7**.Leases**

The Company has obtained the right of use for office and manufacturing facilities undersix operating lease agreements with initial terms exceedingone year. The lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise.

In* September 2021,the Company executed a lease for a facility in South San Francisco, California, with an initial term expiring on March 31, 2029.This lease hastwo* separate components,one commenced in thethird quarter of2022 and the other in thefirst quarter of2023, resulting in an additional right of use asset of $15.0 million and $3.1 million, respectively.

As of* June 30, 2024*, the weighted average discount rate for operating leases with initial terms of more thanone year was 9.8% and the weighted average remaining term of these leases was 4.7 years. Discount rates were determined using the Company’s marginal rate of borrowing at the time each lease was executed or extended.

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than12 months as of* June 30, 2024* (in thousands):

The Company is also required to pay for operating expenses related to the leased space. The operating expenses are incurred separately and werenot included in the present value of lease payments. Operating lease expenses for thethree andsix months ended* June**30,* 2024 and2023, are summarized as follows (in thousands):

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NOTE8**. Commitments and Contingencies**

As of* June 30, 2024*, the Company had approximately $3.2 million of non-cancelable purchase commitments, principally for contract manufacturing and clinical services which are expected to be paid within the next year. In addition, the Company has operating lease commitments as detailed in Note7.

In the ordinary course of business, the Company enters into agreements that* mayinclude indemnification provisions. Pursuant to such agreements, the Company mayindemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising fromthird*-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions isnot determinable. The Company has also entered into indemnification agreements with certain officers and directors which provide, among other things, that the Company will indemnify and advance expenses incurred in connection with certain actions, suits or proceedings to such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she* maybe required to pay in actions or proceedings which he or she is or may*be made a party by reason of his or her position as a director, officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware law and the Company’s Bylaws. The Company currently has directors’ and officers’ insurance.

From time to time the Company* may*be involved in legal proceedings arising in connection with its business. Based on information currently available, the Company believes that the amount, or range, of reasonably possible losses in connection with any pending actions against it in excess of established reserves, in the aggregate, is indeterminable to its consolidated financial condition or cash flows. However, any current or future dispute resolution or legal proceeding, regardless of the merits of any such proceeding, could result in substantial costs and a diversion of management’s attention and resources that are needed to run the Company successfully, and could have a material adverse impact on its business, financial condition and results of operations.

In* Augustand September 2020,two substantially similar securities class actions were filed in the U.S. District Court for the Northern District of California. Thefirst action, titledHimmelberg v. Vaxart, Inc. et al. was filed on August 24, 2020.Thesecond* action, titledHovhannisyan v. Vaxart, Inc. et al. was filed on* September 1, 2020 (together, the “Putative Class Action”). By Order dated September 17, 2020,thetwo* actions were deemed related. On* December 9, 2020,*the court appointed lead plaintiffs and lead plaintiffs’ counsel.

On* January 29, 2021,lead plaintiffs filed their consolidated amended complaint. On July 8, 2021,all defendants moved to dismiss the consolidated amended complaint. On May 14, 2021,the court granted lead plaintiffs’ request to amend the consolidated amended complaint and denied defendants’ motions to dismiss as moot. On June 10, 2021,lead plaintiffs filed afirst* amended consolidated complaint, and on* August 9, 2021,lead plaintiffs filed a correctedfirst* amended consolidated complaint. Thefirst amended consolidated complaint, as corrected, named certain of Vaxart’s current and former executive officers and directors, as well as Armistice Capital, LLC (“Armistice”), as defendants. It claimedthree violations of federal civil securities laws; violation of Section10(b) of the Exchange Act and SEC Rule10b-5, as against the Company and all individual defendants; violation of Section20(a) of the Exchange Act, as against Armistice and all individual defendants; and violation of Section20A of the Exchange Act against Armistice. Thefirst amended consolidated complaint, as corrected, alleged that the defendants violated securities laws by misstating and/or omitting information regarding the Company’s development of a norovirus vaccine, the vaccine manufacturing capabilities of a business counterparty, and the Company’s involvement with Operation Warp Speed (“OWS”); and by engaging in a scheme to inflate Vaxart’s stock price. Thefirst amended consolidated complaint sought certification as a class action for similarly situated shareholders and sought, among other things, an unspecified amount of damages and attorneys’ fees and costs. On* July 8, 2021,all defendants moved to dismiss thefirst* amended consolidated complaint. By Order dated* December 22, 2021,the court granted the motion to dismiss by Armistice with leave to amend and otherwise denied the motions to dismiss. On July 27, 2022,lead plaintiffs filed a notice announcing that they had reached a partial settlement (the “Partial Settlement”) to resolve all claims against the Company and its current or former officers and/or directors in their capacity as officers and/or directors of the Company (the “Settling Defendants”). Pursuant to the Partial Settlement, the Company agreed to a settlement amount of $12.0 million with$2.0* million to be paid by the Company and the remainder to be paid by the Company’s insurers. On* November 2, 2022,the Company paid the $2.0 million settlement amount with respect to the Putative Class Action pursuant to the terms of the settlement agreement reached in that case. On November 14, 2022,lead plaintiffs filed asecond* amended consolidated class action complaint that purported to include new allegations to support claims against Armistice. By Orders dated* January 25, 2023,*the court approved the Partial Settlement and entered judgment dismissing with prejudice all claims asserted in the Putative Class Action against the Settling Defendants.

On* October 23, 2020,a complaint was filed in the U.S. District Court for the Southern District of New York, entitledRoth v. Armistice Capital LLC, et al.* The complaint names Armistice and certain Armistice-related parties as defendants, asserting a violation of Exchange Act Section16(b) and seeking the disgorgement of short-swing profits. The complaint purports to bring the lawsuit on behalf of and for the benefit of the Company and names the Company as a “nominal defendant” for whose benefit damages are sought. Following discovery, a motion for summary judgment was filed by Armistice and the Armistice-related party defendants to dismiss the complaint. On* March 27, 2024,the court granted the motion for summary judgment and dismissed all claims in the complaint in their entirety. On April 11, 2024,the Plaintiff timely filed a notice of appeal of the court’s decision to the Second Circuit Court of Appeals, commencing appellate proceedings. In June 2024,Plaintiff filed a motion to the court of appeals to stay the appeal pending efforts to re-instate the complaint in the district court, which was granted by the court of appeals. In July 2024,*Plaintiff filed a motion with the district court seeking to set aside the judgment and to re-instate the complaint, which is currently under consideration by that court.

On* January 8, 2021,a purported shareholder, Phillip Chan, commenced apro se* lawsuit in the U.S. District Court for the Northern District of California titledChan v. Vaxart, Inc. et al. (the “Opt-Out Action”), opting out of the consolidated Himmelberg v. Vaxart, Inc. et al. and Hovhannisyan v. Vaxart, Inc. et al. class actions, (together, the “Putative Class Action”). Because this complaint is nearly identical to an earlier version of a complaint filed in the Putative Class Action, the Opt-Out Action has been stayed while the Putative Class Action is pending.

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NOTE*9***. Stock****holders’ Equity**

The Company is authorized to issue 5,000,000 shares of preferred stock, $0.0001 par value per share. The Company’s board of directors* may,without further action by the stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of5,000,000* shares of preferred stock inone or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which* maybe greater than the rights of our common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deterring or preventing a change of control or other corporate action. No shares of preferred stock are currently outstanding, and the Company hasno* present plan to issue any shares of preferred stock.

As of* June30,* 2024, the Company was authorized to issue 350,000,000 shares of common stock, $0.0001 par value per share, which includes an increase of 100,000,000 on* June11,* 2024, when the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock from 250,000,000 to 350,000,000 shares. Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled toone vote per share on matters to be voted on by stockholders. Holders of common stock are entitled to receive such dividends, if any, as* maybe declared from time to time by the Company’s board of directors at its discretion out of funds legally available therefor. Inno* event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically. As of* June 30, 2024*, no dividends had been declared by the board of directors.

In* June**2024,* the Company entered into an underwriting agreement with Oppenheimer & Co. Inc., relating to the issuance and sale by the Company in an underwritten registered direct offering of 50,000,000 shares of the Company’s common stock, at a price of $0.80 per share. The gross proceeds to the Company from such offering were $40.0 million, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, the net proceeds were $37.6 million.

In* January**2024,* the Company entered into the2024 Securities Purchase Agreement with RA Capital Healthcare Fund, L.P. pursuant to which 15,384,615 shares of the Company's common stock were sold to RA Capital Healthcare Fund, L.P. at an offering price of $0.65 per share pursuant to the Company’s2023 Shelf Registration. The gross proceeds from the2024 Securities Purchase Agreement were $10.0 million and, after deducting offering expenses, the net proceeds were $9.9 million.

In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied. There areno sinking fund provisions applicable to the common stock.

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

The approved increase of reserved common stock for2019 Equity Incentive Plan and2022 Employee Stock Purchase Plan is detailed in Note10.

The Company generally withholds shares of its common stock to cover employees' portion of required tax withholdings when employee equity awards are issued or vest. These shares are valued at cost, which equals the market price of the common stock on the date of issuance or vesting. The Company had 688,331 and 507,020 treasury shares as of* June 30, 2024and December 31, 2023,*respectively.

In* April 2024,70,663 of the warrants outstanding as of March 31, 2024,expired unexercised. The following warrants were outstanding as of June 30, 2024*, all of which contain standard anti-dilution protections in the event of subsequent rights offerings, stock splits, stock dividends or other extraordinary dividends, or other similar changes in the Company’s common stock or capital structure, andnone of which have any participating rights for any losses:

In the event of a Fundamental Transaction (a transfer of ownership of the Company as defined in the warrant) within the Company’s control, the holders of the unexercised common stock warrants exercisable for $2.50 and those exercisable for $3.125 shall be entitled to receive cash consideration equal to a Black-Scholes valuation, as defined in the warrant. If such Fundamental Transaction isnot within the Company’s control, the warrant holders would only be entitled to receive the same form of consideration (and in the same proportion) as the holders of the Company’s common stock, hence these warrants are classified as a component of permanent equity.

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NOTE10**.Equity Incentive Plans**

On* April 23, 2019,the Company’s stockholders approved the adoption of the2019* Equity Incentive Plan (the*“2019* Plan”), under which the Company is authorized to issue incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), other stock awards and performance awards that* maybe settled in cash, stock, or other property. The2019* Plan is designed to secure and retain the services of employees, directors and consultants, provide incentives for the Company’s employees, directors and consultants to exert maximum efforts for the success of the Company and its affiliates, and provide a means by which employees, directors and consultants* maybe given an opportunity to benefit from increases in the value of the Company’s common stock. Following adoption of the2019* Plan, all previous plans were frozen, and on forfeiture, cancellation and expiration, awards under those plans arenot assumed by the2019 Plan.

The aggregate number of shares of common stock authorized for issuance under the2019 Plan was initially 1,600,000 shares, which was increased through an amendment to the2019 Plan adopted by the Company’s stockholders (a “Plan Amendment”) on* June 8, 2020,to 8,000,000, by a Plan Amendment on June 16, 2021,to 16,900,000, by a Plan Amendment on August 4, 2022,to 28,900,000, and by a Plan Amendment on June 11, 2024,to 43,900,000. Further amendments to the2019* Plan to increase the share reserve would require stockholder approval. Awards that are forfeited or canceled generally become available for issuance again under the2019 Plan. Awards have a maximum term often years from the grant date and* may*vest over varying periods, as specified by the Company’s board of directors for each grant.

On* February 27, 2024,the Company’s board of directors adopted the Vaxart, Inc.2024 Inducement Award Plan (the“2024* Inducement Plan”). The2024 Inducement Plan was adopted without stockholder approval pursuant to Nasdaq Listing Rule5635(c)(4) and is administered by the Compensation Committee of the board of directors or the independent members of the board of directors. The board of directors reserved 3,000,000 shares of the Company’s common stock for issuance under the2024 Inducement Plan, subject to adjustment as provided in the plan document. The terms of the2024 Inducement Plan are substantially similar to the terms of the2019 Plan, with the exception that incentive stock options* may**not* be issued under the2024 Inducement Plan and equity awards under the2024 Inducement Plan (including nonqualified stock options, restricted stock, restricted stock units, and other stock-based awards)* may*be issued only to an employee who is commencing employment with the Company or any subsidiary or who is being rehired following a bona fide interruption of employment by the Company or any subsidiary, in either case if he or she is granted such award in connection with his or her commencement of employment and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

A summary of stock option and RSU transactions in thesix months ended* June 30,* 2024, is as follows:

As of* June 30, 2024*, there were 21,699,803 options outstanding with a weighted average exercise price of $2.50, a weighted average remaining term of 7.09 years, and an aggregate intrinsic value of $35,000. Of these options,12,175,103 were vested, with a weighted average exercise price of $2.98, a weighted average remaining term of 5.55 years, and an aggregate intrinsic value of $35,000.

The Company received $21,000 for the 26,980 options exercised during thesix months ended* June 30,* 2024, which had an intrinsic value of $6,000, and received $17,000 for the 54,720 options exercised during thesix months ended* June 30, 2023,which had an intrinsic value of $31,000. The aggregate intrinsic value represents the total pre-tax value (i.e., the difference between the Company’s stock price and the exercise price) of stock options outstanding as of June 30, 2024*, based on the Company’s common stock closing price of $0.67 on* June**28,* 2024, the prior business day, which would have been received by the option holders had all their in-the-money options been exercised as of that date.

The weighted average grant date fair value of options awarded in thesix months ended* June 30,* 2024 and2023, was $1.01 and $0.78, respectively. Their fair values were estimated using the following assumptions:

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

As of* June 30, 2024*, the unrecognized stock-based compensation cost related to outstanding unvested stock options and RSUs expected to vest was $18.7 million, which the Company expects to recognize over an estimated weighted average period of 2.4 years.

On* August 4, 2022,the2022* Employee Stock Purchase Plan (the*“2022* ESPP”) was approved by the Company’s stockholders. The Company initially reserved 1,800,000 shares of the Company’s common stock for purchase under the2022 ESPP, which was increased by 1,800,000 shares through an amendment to the2022 ESPP adopted by the Company’s stockholders on* June 11, 2024,to 3,600,000 shares. The2022* ESPP generally has asix-month offering period comprised ofone purchase period. In* May 2024,the2022* ESPP had aone-time modification following the end of thesix-month offering period ended* May 31, 2024,to commence the follow-on offering period on July 1, 2024for afive*-month offering period. The purchase price of the stock is equal to85% of the lesser of the market value of such shares at the beginning of thesix-month offering period or the end of such offering period. During thesix months ended* June 30,* 2024 the Company received $0.3 million and issued 502,423 shares under the2022 ESPP. As of* June**30,* 2024, 2,362,902 shares are available and reserved for future issuance under the2022 ESPP.

The estimated fair value used for thesix-month offering period beginning* December 1, 2023and ending May 31, 2024,was $0.27 per share. The estimated fair value used for thesix*-month offering period beginning* June 1, 2023and ending November 30, 2023was $0.54 per share. The estimated fair value used for thesix*-month offering period beginning* December 1, 2022and ending May 31, 2023was $0.46 per share. As of June**30,* 2024, there wasno unrecognized stock-based compensation cost due to theone-time modification which changed the following offering period to begin on* July 1, 2024.The fair value of the2022* ESPP shares was estimated using the Black-Scholes option pricing model using the following assumptions:

NOTE11**. Net Loss**** **Per Share Attributable to Common Stockholders

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

No adjustment has been made to the net loss in thethree andsix months ended* June 30,*2024 and2023, as the effect would be anti-dilutive due to the net loss.

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

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Note 12. Subsequent Events

On* July 2, 2024,the Company received a written notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market indicating that the Company isnot* in compliance with the*$1.00* Minimum Bid Price requirement set forth in Nasdaq Listing Rule5550(a)(2) for continued listing on The Nasdaq Capital Market (the “Bid Price Requirement”).

The Notice doesnot result in the immediate delisting of the Company’s common stock from The Nasdaq Capital Market.

The Nasdaq Listing Rules require listed securities to maintain a minimum bid price of*$1.00* per share, and, based upon the closing bid price of the Company’s common stock for the30 consecutive business days for the period of* May 17, 2024through July 1, 2024,the Companyno* longer meets this requirement.

The Company intends to actively monitor the closing bid price of its common stock and is considering its options to regain compliance with the Bid Price Requirement. There can beno assurance that the Company will be able to regain compliance with the Bid Price Requirement or that the Company will otherwise remain in compliance with the other listing standards for The Nasdaq Capital Market.

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