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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the other sections of this Annual Report, including our consolidated financial statements and notes thereto included elsewhere. This discussion contains a number of forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in the Annual Report, particularly in Item 1A – “Risk Factors.” The forward-looking statements made in this Annual Report are made only as of the date hereof.

Company Overview

We are a clinical-stage biotechnology company primarily focused on the development of oral recombinant vaccines based on our Vector-Adjuvant-Antigen Standardized Technology (“VAAST”) proprietary oral vaccine platform. Our oral vaccines are designed to generate broad and durable immune responses that may protect against a wide range of infectious diseases and may be useful for the treatment of chronic viral infections and cancer. Our investigational vaccines are administered using a room temperature-stable tablet, rather than by injection.

We are developing prophylactic vaccine candidates that target a range of infectious diseases, including norovirus (a widespread cause of acute gastro-intestinal enteritis), SARS-CoV-2 (the virus that causes coronavirus disease 2019 (“COVID-19”)), and seasonal influenza. Several Phase 1 human studies with our norovirus vaccine candidates have been successfully completed. A Phase 2 challenge study evaluating safety and clinical efficacy of our GI.1 norovirus vaccine candidate is currently ongoing. A Phase 2 dose-ranging study evaluating the safety and immunogenicity of our bivalent GI.1 and GII.4 norovirus vaccine candidate is currently ongoing. We have completed a Phase 1 clinical trial for our first COVID-19 vaccine candidate and reported that the study met its primary and secondary endpoints. The first part of a Phase 2 study with our second COVID-19 vaccine candidate that commenced in late 2021 has been completed. We have also initiated preclinical work on novel COVID-19 vaccine constructs that seek to create a potent pan-betacoronavirus vaccine candidate that would respond to SARS-CoV-2 and also other betacoronaviruses (such as SARS-CoV-1 and MERS-CoV). Data indicating that our monovalent H1 influenza vaccine candidate protected participants against H1 influenza infection as well as a leading marketed injectable vaccine in a Phase 2 challenge study was published in 2020 (Lancet ID). In addition, we have generated preclinical data for a prophylactic vaccine candidate targeting respiratory syncytial virus (“RSV”) (a common cause of respiratory tract infection) and of our first therapeutic vaccine candidate targeting cervical cancer and dysplasia caused by human papillomavirus (“HPV”).

Vaxart Biosciences, Inc. was originally incorporated in California under the name West Coast Biologicals, Inc. in March 2004 and changed its name to Vaxart, Inc. (“Private Vaxart”) in July 2007, when it reincorporated in the state of Delaware. On February 13, 2018, Private Vaxart completed a reverse merger (the “Merger”) with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Private Vaxart survived as a wholly owned subsidiary of Aviragen. Under the terms of the Merger, Aviragen changed its name to Vaxart, Inc. and Private Vaxart changed its name to Vaxart Biosciences, Inc.

The Company re-qualified as a smaller reporting company ("SRC") as of December 31, 2022, and, therefore, is no longer subject to the requirements for auditor attestation for internal control over financial reporting ("ICFR").

Financial Operations Overview

Revenue

Revenue from Customer Service Contracts

We earned revenue from an amended fixed price customer service contract of $13,000 in the year ended December 31, 2021, for which the contract is now completed.

Non-Cash Royalty Revenue Related to Sale of Future Royalties

In April 2016, Aviragen sold certain royalty rights related to Inavir in the Japanese market for $20.0 million to HealthCare Royalty Partners III, L.P. (“HCRP”). We pay HCRP the first $3 million plus 15% of the next $1 million of royalties earned in annual periods ending on March 31. At the time of the Merger, the estimated future benefit to HCRP was remeasured at fair value and was estimated to be $15.9 million, which we account for as a liability and amortize using the effective interest method over the remaining estimated life of the arrangement. The estimated future benefit was remeasured as of December 31, 2022 and 2021 when the fair value was estimated to be $5.0 million and $10.6 million, respectively, resulting in a revaluation gain of $7.0 million in the year ended December 31, 2022 and $3.8 million in the year ended December 31, 2021. Even though we do not retain the related royalties under the transaction, as the amounts are remitted to HCRP, we will continue to record revenue related to these royalties until the amount of the associated liability and related interest is fully amortized.

Research and Development Expenses

Research and development expenses represent costs incurred on conducting research, such as developing our tablet vaccine platform, and supporting preclinical and clinical development activities of our tablet vaccine candidates. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:

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● facilities, depreciation and allocated overhead expenses.

We do not allocate our internal expenses to specific programs. Our employees and other internal resources are not directly tied to any one research program and are typically deployed across multiple projects. Internal research and development expenses are presented as one total.

We have incurred significant external costs for CROs that conduct clinical trials on our behalf, and for CMOs that manufacture our tablet vaccine candidates, although these costs have decreased in 2022 since we now perform the majority of our manufacturing activities in-house. We have captured these external costs for each vaccine program. We do not allocate external costs incurred on preclinical research or process development to specific programs.

The following table shows our period-over-period research and development expenses, identifying external costs that were incurred in each of our vaccine programs and, separately, on preclinical research and process development (in thousands):

Year Ended December 31,

External program costs:

All other programs 129 —

Total research & development costs $ 81,054 $ 48,749

We expect to incur significant research and development expenses in 2023 and beyond as we advance our tablet vaccine candidates into and through clinical trials, pursue regulatory approval of our tablet vaccine candidates and prepare for a possible commercial launch, all of which will also require a significant investment in manufacturing and inventory related costs. To the extent that we enter into licensing, partnering or collaboration agreements, a significant portion of such costs may be borne by third parties.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for our tablet vaccine candidates. The probability of successful commercialization of our tablet vaccine candidates may be affected by numerous factors, including clinical data obtained in future trials, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our tablet vaccine candidates.

General and Administrative Expense

General and administrative expenses consist of personnel costs, insurance, allocated expenses and expenses for outside professional services, including legal, audit, accounting, public relations, market research and other consulting services. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of rent, depreciation and other facilities related expenses.

Results of Operations

The following table presents period-over-period changes in selected items in the consolidated statements of operations and comprehensive loss (in thousands, except percentages):

Year Ended December 31,

Provision for income taxes 67 (37 )% 107

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Total Revenues

The following table summarizes the period-over-period changes in our revenues for years ended December 31 (in thousands, except percentages):

Revenue from customer service contracts $ — (100 )% $ 13

Non-cash royalty revenue related to sale of future royalties 107 (88 )% 879

Revenue from Customer Service Contracts

We earned revenue from customer service contracts of $13,000 in the year ended December 31, 2021. This revenue was recognized from a fixed price contract executed in July 2019, as amended, for a total of $617,000, which we have now completed. We recognized no revenue from customer service contracts in the year ended December 31, 2022.

Non-cash Royalty Revenue Related to Sale of Future Royalties

For the year ended December 31, 2022, non-cash royalty revenue related to sale of future royalties was $107,000, compared to $879,000 for the year ended December 31, 2021. Non-cash royalty revenue of up to $3.3 million may be earned in each year ending on March 31. In the year ended December 31, 2021, we recognized the $493,000 for the year ended March 31, 2021, and $386,000 related to the year ending March 31, 2022. In the year ended December 31, 2022, we recognized $85,000 related to the year ended March 31, 2022, plus $22,000 related to the year ended March 31, 2023.

Total Operating Expenses

The following table summarizes the period-over-period changes in our operating expenses for years ended December 31 (in thousands, except percentages):

Research and Development

For the year ended December 31, 2022, research and development expenses was $81.1 million, an increase of $32.3 million, or 66%, compared to $48.7 million for the year ended December 31, 2021. The increase was primarily due to increased personnel costs, including stock-based compensation and facilities allocation related to headcount increases, higher in-house manufacturing costs, increased clinical trial expenses related to our norovirus vaccine candidate and higher depreciation, partially offset by a decrease in CMO costs related to our COVID-19 vaccine candidates.

We expect to incur significant research and development expenses for manufacturing and clinical trials related to our norovirus vaccine candidates in 2023.

General and Administrative

For the year ended December 31, 2022, general and administrative expenses was $29.4 million, an increase of $7.5 million, or 34%, compared to $21.9 million for the year ended December 31, 2021. The principal reasons for the increase in 2022 are the cost of settling shareholder litigation, increased personnel costs, including non-cash stock-based compensation expense not related to award modifications, and increases in legal and other professional fees, partially offset by the absence of a one-off non-cash expense for modifying the terms of outstanding options awarded to our former Chairman of the Board.

Impairment of Intangible Assets

Impairment of intangible assets of $4.3 million and $3.0 million represents the partial impairment as of December 31, 2022 and 2021, respectively, of developed technology related to royalty revenue receivable, for Inavir flu vaccine in Japan which we have lowered our projections, principally due to increased quarantining, social distancing and mask wearing due to the COVID-19 pandemic.

Other Income (Expense)

The following table summarizes the period-over-period changes in our non-operating income for years ended December 31 (in thousands, except percentages):

Gain on remeasurement of future royalty liability 6,960 84 % 3,789

Foreign exchange loss, net (6 ) 500 % (1 )

For the year ended December 31, 2022, we recorded net non-operating income of $6.9 million, compared to net non-operating income of $2.4 million in 2021.

The gain on remeasurement of future royalty liability in 2022 arose due to the lowered projections of amounts payable to HCRP, as royalties from Inavir flu vaccine in Japan have declined since the start of the COVID-19 pandemic and we lowered our projections, principally due to increased quarantining, social distancing and mask wearing due to the COVID-19.

Non-cash interest expense related to sale of future royalties, which relates to accounting for sums that will become payable to HCRP for royalty revenue earned from Inavir as debt, was $1.3 million in 2022, down from the $1.5 million in 2021, as the outstanding balance due to HCRP has been paid down and remeasured. We project a further reduction in 2023 following the revaluation of our liability to HCRP.

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Provision for Income Taxes

The following table summarizes the period-over-period changes in our provision for income taxes for years ended December 31 (in thousands, except percentages):

Foreign withholding tax on royalty revenue $ 5 (89 )% $ 44

Foreign taxes payable on intercompany interest 59 (5 )% 62

State income taxes 3 200 % 1

Provision for income taxes $ 67 (37 )% $ 107

A significant portion of the provision for income taxes in the years ended December 31, 2022 and 2021, respectively, is foreign taxes payable on intercompany interest in 2022 and foreign withholding tax on royalty revenue earned on sales of Inavir in Japan for 2022 and 2021. Our foreign withholding tax on royalty revenue earned on sales of Inavir in Japan, which is potentially recoverable as a foreign tax credit but expensed because we record a 100% valuation allowance against our deferred tax assets. The amount of income tax expense recorded is directly proportional to Inavir royalties, including the portion that we pass through to HCRP, and has declined in line with reductions in royalty revenue. In addition, we incurred charges for state income taxes in the United States.

Liquidity and Capital Resources

Our primary source of financing is from the sale and issuance of common stock and common stock warrants in public offerings, along with proceeds from the exercise of warrants. In the past, we have also obtained funds from the issuance of secured debt and preferred stock and from collaboration agreements. In October 2020 we entered into an Open Market Sale Agreement (the “October 2020 ATM”), under which we could sell shares of our common stock having an aggregate offering price of up to $250 million. Having sold shares under the October 2020 ATM for aggregate gross proceeds of $133.4 million, we terminated the October 2020 ATM in September 2021 and entered into a Controlled Equity Offering Sales Agreement (the “September 2021 ATM”), under which we may offer and sell, from time to time through sales agents, shares of our common stock having an aggregate offering price of up to $100 million. We will incur direct expenses and pay sales commissions of up to 3.0% of gross proceeds from the sale of shares under the September 2021 ATM.

As of December 31, 2022, we had $95.7 million of cash, cash equivalents, restricted cash and marketable securities. Since then, we have received net proceeds of $1.5 million from the sale of common stock under the September 2021 ATM through March 14, 2023. There is approximately $79.0 million in net proceeds still available to us under the September 2021 ATM. In light of the recent situation affecting Silicon Valley Bank, N.A. (“SVB”), including the Federal Deposit Insurance Corporation takeover of SVB, the Company decided to move any cash or other deposits previously held at SVB to larger financial institutions. We have access to all of our cash and other deposits previously held at SVB. We do not anticipate any material impact on our financial condition or operations as a result of SVB’s circumstances.

In the first quarter of 2023, the Company decided to primarily focus on advancing its norovirus oral vaccine candidate and postponed initiating a SARS-CoV-2 human challenge study. The Company also implemented a restructuring plan to reduce operating costs and better align its workforce with the needs of its business. The plan resulted in a reduction of approximately 27% of the Company’s workforce.

We believe our existing funds (including funds already received in 2023) are sufficient to fund us for at least one year from the date of issuance of this Annual Report. To continue operations thereafter, we expect that we will need to raise further capital, through the sale of additional securities or otherwise. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, most notably our ability to successfully commercialize our products and services.

We may fund a significant portion of our ongoing operations through partnering and collaboration agreements which, while reducing our risks and extending our cash runway, will also reduce our share of eventual revenues, if any, from our vaccine candidates. We may be able to fund certain activities with assistance from government programs. The sale of additional equity would result in additional dilution to our stockholders. We may also fund our operations through debt financing, which would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market vaccine candidates that we would otherwise prefer to develop and market ourselves. Any of these actions could harm our business, results of operations and prospects.

Our future funding requirements will depend on many factors, including the following:

● the timing and costs of our planned clinical trials of our product candidates;

● the amount and timing of royalties received on sales of Inavir;

● the number and characteristics of product candidates that we pursue;

● the outcome, timing and costs of seeking regulatory approvals;

● the extent to which we in-license or acquire other products and technologies.

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Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Year Ended December 31,

Net cash used in operating activities $ (94,779 ) $ (59,832 )

Net cash used in investing activities (20,415 ) (49,097 )

Net cash provided by financing activities 17,462 125,804

Net Cash Used in Operating Activities

We experienced negative cash flow from operating activities in 2022, and 2021 in the amounts of $94.8 million, and $59.8 million, respectively. The cash used in operating activities in 2022 was due to cash used to fund a net loss of $107.8 million and an increase in working capital of $4.7 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, stock-based compensation, impairment of intangible assets, gain on remeasurement of future royalty liability and non-cash interest expense related to sale of future royalties. The cash used in operating activities in 2021 was due to cash used to fund a net loss of $70.5 million and an increase in working capital of $2.1 million, partially offset by adjustments for net non-cash income related to depreciation and amortization, stock-based compensation, non-cash interest expense related to sale of future royalties and non-cash revenue related to sale of future royalties totaling $12.8 million.

Net Cash Used in Investing Activities

In 2022, we used $10.8 million to purchase marketable securities, net of maturities. In 2021, we used $4.8 million for a business acquisition and $39.1 million to purchase marketable securities, net of maturities. We used $9.6 million and $5.2 million in the years ended December 31, 2022 and 2021, respectively, to purchase property and equipment.

Net Cash Provided by Financing Activities

In 2022, we received $17.2 million from the sale of common stock under the September 2021 ATM and $0.2 million from the exercise of stock options. In 2021, we received $122.2 million from the sale of common stock under the October 2020 ATM, $1.9 million from the exercise of common stock warrants and $1.7 million from the exercise of stock options.

Contractual Obligations and Commercial Commitments

We have the following contractual obligations and commercial commitments as of December 31, 2022 (in thousands):

Contractual Obligation Total < 1 Year 1 - 3 Years 3 - 5 Years > 5 Years

Long Term Debt, HCRP. Under an agreement executed in 2016, we are obligated to pay HCRP the first $3 million plus 15% of the next $1 million of royalty revenues that we earn for sales of Inavir in each year ending on March 31. See Note 7 to the Consolidated Financial Statements in Part II, Item 8 for further details.

Operating leases. Operating lease amounts include future minimum lease payments under all our non-cancellable operating leases with an initial term in excess of one year, including a total of $13.0 million for one lease that has been executed and the majority of the leased space commenced. See Note 8 to the Consolidated Financial Statements in Part II, Item 8 for further details.

Purchase obligations. These amounts include an estimate of all open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers for which we have not received the goods or services. We consider all open purchase orders, which are generally enforceable and legally binding, to be commitments, although the terms may afford us the option to cancel based on our business needs prior to the delivery of goods or performance of services.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Accrued Research and Development Expenses

We record accrued expenses for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided and include the costs incurred but not yet invoiced within other accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations and comprehensive loss. These costs can be a significant component of our research and development expenses.

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We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates.

Intangible Assets

Intangible assets acquired in the Merger were initially recorded at their estimated fair values of $20.3 million for developed technology related to Inavir which was, until it was revalued, being amortized on a straight-line basis over the estimated period of future royalties of 11.75 years and $1.8 million for the developed technology related to Relenza which was fully amortized as of December 31, 2022 and 2021. The developed technology related to Inavir was revalued at $5.0 million as of December 31, 2022, resulting in an impairment loss of $4.3 million being recorded. These valuations were prepared by an independent third party based on discounted cash flows of estimated future revenue streams, which are highly subjective. The fair value, as reassessed as of December 31, 2022, is being amortized on a straight-line basis over the remaining period of future royalties of 6.9 years.

Stock-Based Compensation

We measure the fair value of all stock option awards to employees, non-executive directors and consultants on the grant date, and record the fair value of these awards, net of estimated forfeitures, as compensation expense over the service period. The fair value of options is estimated using the Black-Scholes valuation model and the expense recorded is affected by subjective assumptions regarding a number of variables, as follows:

Expected term – This represents the period that our stock-based awards granted are expected to be outstanding and is determined using the simplified method (the arithmetic average of its original contractual term and its average vesting term). We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock-based awards. Based on the weighted average applied to options awarded in 2022, a notional 10% decrease in expected term would have reduced the fair value and the related compensation expense by approximately 2.2%.

Expected volatility – This is a measure of the amount by which our common stock price has fluctuated or is expected to fluctuate. Since the beginning of 2020 we have measured volatility based on the historical volatility of our own stock over the retrospective period corresponding to the expected term of the options on the measurement date. Based on the weighted average applied to options awarded in 2022, a notional 10% decrease in expected volatility (from 126% to 113%) would have reduced the fair value and the related compensation expense by approximately 4.3%.

Risk-free interest rate – This is based on the U.S. Treasury yield curve on the measurement date corresponding with the expected term of the stock-based awards.

Expected dividend – We have not made any dividend payments and do not plan to pay dividends in the foreseeable future. Therefore, we use an expected dividend yield of zero.

Forfeiture rate – This is a measure of the amount of awards that are expected to not vest and is reassessed quarterly. An increase in the estimated forfeiture rate will cause a small decrease to the related compensation expense early in the service period, but since the final expense recorded for each award is the number of options vested times their grant date fair value, it has no impact on the total expense recorded.

Recently Issued Accounting Pronouncements

See the “Recent Accounting Pronouncements” in Note 2 to the Consolidated Financial Statements in Part II, Item 8 for information related to the issuance of new accounting standards in 2022, none of which have had, or are expected to have, a material impact on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

The primary objective of our investment activities is to preserve principal while at the same time maximize the income we receive from our investments without significantly increasing risk. All our cash is denominated in U.S. dollars and held either in bank accounts or money market funds that presently earn very little interest. Interest rates are sufficiently low that we believe a 1% increase in the borrowing base rate would result in a negligible increase, if any, in the interest we could earn on our cash deposits.

Exchange Rate Sensitivity

Our royalty revenue, which is calculated in U.S. dollars, is based on sales in Japanese yen, so a 1% increase in the strength of the U.S. dollar against the yen would lead to a 1% reduction in royalty revenue. All our other revenue and substantially all of our expenses, assets and liabilities are denominated in U.S. dollars and, as a result, we have not experienced significant foreign exchange gains recently and do not anticipate that foreign exchange gains or losses will be significant in the near future.

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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements Page

Consolidated Balance Sheets 92

Consolidated Statements of Operations and Comprehensive Loss 93

Consolidated Statements of Stockholders’ Equity 94

Consolidated Statements of Cash Flows 95

Notes to the Consolidated Financial Statements 97

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Vaxart, Inc.

Opinion on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Vaxart, Inc. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework (2013) issued by the COSO.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accrued Clinical and Manufacturing Expenses - Refer to Note 2 to the consolidated financial statements

Critical Audit Matter Description

The Company recognizes costs it incurs for preclinical studies, clinical trials, and manufacturing activities as research and development expenses based on its evaluation of its third-party service providers’ progress toward completion of specific tasks. Payment timing may differ significantly from the period in which the costs are recognized as expense. Costs for services incurred that have not yet been paid are recognized as accrued expenses.

In estimating the vendors’ progress toward completion of specific tasks, the Company uses data such as patient enrollment, clinical site activations or vendor information of actual costs incurred. This data is obtained through reports from and discussions with Company personnel and third-party service providers as to the progress or state of completion of trials, or the completion of services.

Given the number of ongoing preclinical study and clinical trial activities and the subjectivity involved in estimating clinical trial and manufacturing expenses, auditing the accrued clinical and manufacturing expenses involved especially subjective judgment, thereby causing us to determine that the matter is a critical audit matter.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to accrued preclinical studies, clinical trials and manufacturing expenses included the following, among others:

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Impairment of Intangible Asset and Revaluation of Liability Related to Sale of Future Royalties – Refer to Notes 2, 5 and 7 to the consolidated financial statements

Critical Audit Matter Description

Management utilizes expected future cash flow models as significant inputs into their assessment over the impairment of finite-lived intangible assets and in the determination of the liability related to the sale of future royalties pursuant to a Royalty Interest Acquisition Agreement with HCRP (the “HCRP Agreement”). These models are dependent upon management’s estimates of future cash flows and other factors, including future economic conditions. The Company’s consolidated balance for finite-lived intangible assets and liability related to sale of future royalties were $5.0 million and $5.7 million as of December 31, 2022, respectively. During the year ended December 31, 2022, the Company evaluated the finite-lived intangible assets and recognized impairment charges of $4.3 million. Additionally, the Company recorded a gain of $7.0 million on a revaluation of the liability related to the sale of future royalties. The impairment and revaluation were based on revised royalty projections and discount rate assumptions that were used in the impairment assessment of the intangible asset underlying the liability.

We identified the impairment assessment of the intangible asset and the revaluation of the liability related to the sale of future royalties as a critical audit matter. The principal considerations for our determination that this is a critical audit matter are the significant judgments made by management in the impairment assessment of the intangible asset and the revaluation of the related liability. A high degree of auditor judgment, effort, and subjectivity was required to perform procedures and evaluate management’s assumptions related to its current estimates of future royalties expected to be paid over the life of the HCRP Agreement.

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How the Critical Audit Matter Was Addressed in the Audit

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of intangible assets and the development of assumptions used to estimate fair value. These procedures also included, among others, testing management’s process for developing the estimate, which included evaluating the appropriateness of the method related to cash flow projections for intangible assets and future royalties; testing the completeness and accuracy of underlying data used in the estimates; and evaluating the reasonableness of significant assumptions including future sales, long-term growth rates, and future economic conditions. Evaluating these assumptions involved evaluating whether the assumptions used were reasonable considering (i) historical performance, (ii) industry and economic forecasts and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

/s/ WithumSmith+Brown, PC

We have served as the Company's auditor since 2019.

San Francisco, California

March 15, 2023

PCAOB ID Number 100

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Consolidated Balance Sheets

(In thousands, except share and per share amounts)

Assets

Current assets:

Cash, cash equivalents and restricted cash $ 46,013 $ 143,745

Accounts receivable 20 71

Prepaid expenses and other current assets 3,714 2,609

Long-term investments — 16,210

Liabilities and Stockholders’ Equity

Current liabilities:

Deferred grant revenue 2,000 —

Other accrued current liabilities 8,084 5,064

Current portion of operating lease liability 2,228 1,011

Current portion of liability related to sale of future royalties 95 836

Operating lease liability, net of current portion 19,477 11,997

Other long-term liabilities 231 171

Commitments and contingencies (Note 9)

Stockholders’ equity:

Accumulated other comprehensive loss (299 ) (74 )

Total liabilities and stockholders’ equity $ 153,847 $ 221,168

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

Year Ended December 31,

Revenue:

Revenue from customer service contracts $ — $ 13

Non-cash royalty revenue related to sale of future royalties 107 879

Operating expenses:

Impairment of intangible assets 4,254 3,005

Other income (expense):

Non-cash interest expense related to sale of future royalties (1,305 ) (1,480 )

Gain on remeasurement of future royalty liability 6,960 3,789

Foreign exchange loss, net (6 ) (1 )

Provision for income taxes 67 107

Net loss per share – basic and diluted $ (0.84 ) $ (0.58 )

Comprehensive loss:

Unrealized loss on available-for-sale investments, net of tax (225 ) (74 )

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

Accumulated

Additional Other Total

Common Stock Paid-in Accumulated Comprehensive Stockholders’

Shares Amount Capital Deficit Loss Equity

Issuance of common stock upon exercise of options 1,070,921 — 1,745 — — 1,745

Stock-based compensation — — 8,867 — — 8,867

Unrealized losses on available-for-sale investments — — — — (74 ) (74 )

Issuance of common stock upon exercise of common stock warrants 5,000 — 2 — — 2

Issuance of common stock upon exercise of options 180,336 — 223 — — 223

Unrealized losses on available-for-sale investments — — — — (225 ) (225 )

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 5,805 4,208

Accretion of (discount) premium on investments (163 ) 85

Impairment of intangible assets 4,254 3,005

Gain on remeasurement of future royalty liability (6,960 ) (3,789 )

Non-cash interest expense related to sale of future royalties 1,305 1,480

Non-cash revenue related to sale of future royalties (151 ) (1,098 )

Change in operating assets and liabilities:

Accounts receivable 51 263

Prepaid expenses and other assets (3,783 ) (1,800 )

Deferred grant revenue 2,000 —

Net cash used in operating activities (94,779 ) (59,832 )

Cash flows from investing activities:

Purchase of property and equipment (9,601 ) (5,157 )

Acquisition of business, net of cash acquired — (4,829 )

Proceeds from maturities of investments 44,200 5,700

Net cash used in investing activities (20,415 ) (49,097 )

Cash flows from financing activities:

Proceeds from issuance of common stock upon exercise of stock options 223 1,745

Net cash provided by financing activities 17,462 125,804

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows (continued)

(In thousands)

Year Ended December 31,

Supplemental disclosure of non-cash investing and financing activity:

The following table presents a reconciliation of the Company's cash, cash equivalents and restricted cash in the Company's consolidated balance sheets:

December 31,

Restricted cash 2,000 —

The accompanying notes are an integral part of these consolidated financial statements.

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Notes to the Consolidated Financial Statements

NOTE 1. Organization and Nature of Business

General

Vaxart Biosciences, Inc. was originally incorporated in California in March 2004, under the name West Coast Biologicals, Inc. The Company changed its name to Vaxart, Inc. (“Private Vaxart”) in July 2007, and reincorporated in the state of Delaware. In February 2018, Private Vaxart completed a business combination with Aviragen Therapeutics, Inc. (“Aviragen”), pursuant to which Aviragen merged with Private Vaxart, with Private Vaxart surviving as a wholly-owned subsidiary of Aviragen (the “Merger”). Pursuant to the terms of the Merger, Aviragen changed its name to Vaxart, Inc. (together with its subsidiaries, the “Company” or “Vaxart”) and Private Vaxart changed its name to Vaxart Biosciences, Inc.

On October 13, 2020, the Company entered into the Open Market Sale Agreement, (the “October 2020 ATM”) pursuant to which it could offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $250 million. The Company incurred direct expenses of approximately $0.3 million in connection with filing a prospectus supplement, dated October 13, 2020, with the U.S. Securities and Exchange Commission (the “SEC”), and paid sales commissions of up to 4.5% of gross proceeds from the sale of shares.

In the year ended December 31, 2021, the Company sold an additional 13,239,839 shares under the October 2020 ATM for gross proceeds of $127.9 million which, after deducting sales commissions and expenses, resulted in net proceeds under the October 2020 ATM of $122.2 million. As of December 31, 2022 and 2021, a total of 13,932,490 shares had been issued and sold under the October 2020 ATM since its inception for gross proceeds of $133.4 million which, after deducting sales commissions and expenses, resulted in net proceeds of $127.1 million.

On September 13, 2021, the October 2020 ATM was terminated and on September 15, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “September 2021 ATM”), pursuant to which it may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $100 million. The Company filed a prospectus supplement with the SEC on September 16, 2021, and will pay sales commissions of up to 3.0% of gross proceeds from the sale of shares. As of December 31, 2022, 8,419,700 shares were issued and sold under the September 2021 ATM for gross proceeds of $18.0 million, which, after deducting sales commissions and expenses incurred to date, resulted in net proceeds of $17.2 million.

The Company’s principal operations are based in South San Francisco, California, and it operates in one reportable segment, which is the discovery and development of oral recombinant protein vaccines, based on its proprietary oral vaccine platform.

NOTE 2. Summary of Significant Accounting Policies

Basis of Presentation, Liquidity and Going Concern – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”), assuming the Company will continue as a going concern.

The Company is a clinical-stage biotechnology company with no product sales. Its primary source of capital is from the sale and issuance of common stock and common stock warrants. At December 31, 2022, the Company had cash, cash equivalents, restricted cash, and investments of $95.7 million. A substantial doubt has been raised with regard to the ability of the Company to continue as a going concern as the Company experienced negative cash flow from operating activities of $94.8 million in 2022 and had no committed source of debt or equity financing.

Subsequent to December 31, 2022, the Company decided to prioritize development of its norovirus oral vaccine candidate (see Note 15). As a result of the prioritization, the Company projects it has enough cash runway into the second quarter of 2024.

The Company will be dependent upon raising additional capital through placement of its common stock, notes or other securities, borrowings, or entering into a partnership with a strategic party in order to implement its business plan. There can be no assurance that the Company will be successful raising additional capital in order to continue as a going concern.

The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Basis of Consolidation – The consolidated financial statements include the financial statements of Vaxart, Inc. and its subsidiaries. All significant transactions and balances between Vaxart, Inc. and its subsidiaries have been eliminated in consolidation.

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities (including accrued clinical and manufacturing accruals described within this Note 2), revenues and expenses and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results and outcomes could differ from these estimates and assumptions.

Foreign Currencies – Foreign exchange gains and losses for assets and liabilities of the Company’s non-U.S. subsidiaries for which the functional currency is the U.S. dollar are recorded in foreign exchange gain or loss, net within other income and (expenses) in the Company’s consolidated statements of operations and comprehensive loss. The Company has no subsidiaries for which the local currency is the functional currency.

Cash, Cash Equivalents and Restricted Cash – The Company considers all highly liquid debt investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents, which may consist of amounts invested in money market funds, corporate bonds and commercial paper, are stated at fair value. The Company’s restricted cash includes refundable advance payments received as of December 31, 2022 and 2021 of $2.0 million and zero, respectively.

Investments – Excess cash balances may be invested in marketable debt securities. All investments that are readily convertible to known amounts of cash with stated maturities greater than three months when purchased are classified as investments.

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. Marketable debt securities are classified and accounted for as available-for-sale. After consideration of the Company’s objectives to preserve capital, as well as its liquidity requirements, it may sell these debt securities prior to their stated maturities. These securities are carried at fair value and unrealized gains and losses, net of taxes, are reported as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which are recorded within other income (expense). Any realized gains or losses on the sale of marketable debt securities are determined on a specific identification method, and such gains and losses are recorded as a component of other income (expense). Available-for-sale investments are classified as either current or non-current assets based on each instrument’s underlying effective maturity date and whether the Company has the intent and ability to hold the investment for a period of greater than 12 months. Marketable securities with remaining maturities of 12 months or less are classified as current and are reported as short-term investments in the consolidated balance sheets. Marketable securities with remaining maturities of more than 12 months for which the Company has the intent and ability to hold the investment for more than 12 months are classified as non-current and are included in long-term investments in the consolidated balance sheets.

Securities are evaluated for impairment at the end of each reporting period. Impairment is evaluated considering numerous factors, including whether a decline in fair value below the amortized cost basis is due to credit-related factors or non-credit-related factors, the financial condition and near-term prospects of the issuer, and intent and ability to hold the investment to allow for an anticipated recovery in fair value. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit-related is recognized in other comprehensive loss, net of applicable taxes.

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Notes to the Consolidated Financial Statements

Concentration of Credit Risk – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, restricted cash and available-for-sale investments. The Company places its cash, cash equivalents, restricted cash and available-for-sale investments at financial institutions that management believes are of high credit quality. The Company is exposed to credit risk in the event of default by the financial institutions holding the cash, cash equivalents and restricted cash to the extent such amounts are in excess of the federally insured limits. Losses incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating.

Accounts Receivable – Accounts receivable arise from the Company’s royalty revenue receivable for sales, net of estimated returns, of Inavir and are reported at amounts expected to be collected in future periods. An allowance for uncollectible accounts will be recorded based on a combination of historical experience, aging analysis and information on specific accounts, with related amounts recorded as a reserve against revenue recognized. Account balances will be written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has provided no allowance for uncollectible accounts as of December 31, 2022 and 2021.

Property and Equipment – Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in other income and (expenses) in the period realized.

The useful lives of the property and equipment are as follows:

Laboratory equipment (in years) 5

Office and computer equipment (in years) 3

Leasehold improvements Shorter of remaining lease term or estimated useful life

Goodwill and Other Intangible Assets – Goodwill, which represents the excess of the purchase price over the fair value of assets acquired, is not amortized. Intangible assets comprise developed technology and intellectual property. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over useful life of 11.75 years for developed technology and 20 years for intellectual property.

Impairment of Long-Lived Assets – The Company reviews its long-lived assets, including property and equipment, goodwill and intangible assets with finite lives, for impairment in the fourth quarter of each year, and more frequently whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. When indications of impairment are present and the estimated undiscounted future cash flows from the use of these assets is less than the assets’ carrying value, the related assets will be written down to fair value. The Company assessed its developed technology as impaired in the years ended December 31, 2022 and 2021 (see Note 7).

Accrued Clinical and Manufacturing Expenses – The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided and includes the costs incurred but not yet invoiced within other accrued liabilities in the balance sheets and within research and development expense in the consolidated statements of operations and comprehensive loss. These costs can be a significant component of the Company’s research and development expenses.

The Company estimates the amount of services provided through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. The Company makes significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, it adjusts its accrued estimates. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed, the number of subjects enrolled, and the rate of enrollment may vary from its estimates and could result in the Company reporting amounts that are too high or too low in any particular period. The Company’s accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from contract research organizations and other third-party service providers. To date, the Company has not experienced any material differences between accrued costs and actual costs incurred.

Leases – The Company records operating leases as right-of-use assets and operating lease liabilities in its consolidated balance sheets for all operating leases with terms exceeding one year. Right-of-use assets represent the right to use an underlying asset for the lease term, including extension options considered reasonably certain to be exercised, and operating lease liabilities to make lease payments. Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term. To the extent that lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the lease commencement date to determine the present value of lease payments. The expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in operating expenses in the Company’s consolidated statement of operations and comprehensive loss. The Company has elected to not separate lease and non-lease components of facilities leases, whereas non-lease components of equipment leases are accounted for separately from lease components.

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Notes to the Consolidated Financial Statements

Revenue Recognition – The Company recognizes revenue when it transfers control of promised goods or services to its customers, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition, the Company performs the following five steps:

(i) identification of the promised goods or services in the contract;

Revenue from royalties earned as a percentage of sales, including milestone payments based on achieving a specified level of sales, where a license is deemed to be the predominant item to which the royalties relate, is recognized as revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied), as required under the sales- and usage-based royalty exception.

Revenue from contracts with customers is recognized ratably, based on costs incurred, as the Company provides promised services to its customers in amounts that reflect the consideration that the Company expects to receive for those services.

In 2022, the Company accepted a grant to perform research and development work for the Bill & Melinda Gates Foundation (BMGF). The Company recognizes revenue under research contracts only when a contract has been executed and the contract price is fixed or determinable. Revenue from the BMGF grant is recognized in the period during which the related costs are incurred and the related services are rendered, provided that the applicable conditions under the contract have been met. Costs of contract revenue are recorded as a component of operating expenses in the consolidated statements of operations and comprehensive loss. The Company recognized no revenue from the BMGF Grant in the year ended December 31, 2022. The $2.0 million received from the BMGF is recorded as deferred grant revenue.

Under cost reimbursable contracts, the Company recognizes revenue as allowable costs are incurred and the fixed fee is earned. Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel, and approved overhead and indirect costs. Fixed fees under cost reimbursable contracts are earned in proportion to the allowable costs incurred in performance of the work relative to total estimated contract costs, with such costs incurred representing a reasonable measurement of the proportional performance of the work completed.

Payments to the Company under cost reimbursable contracts, such as this contract, are provisional payments subject to adjustment upon annual audit by the government. Management believes that revenue for periods not yet audited has been recorded in amounts that are expected to be realized upon final audit and settlement. When the final determination of the allowable costs for any year has been made, revenue and billings may be adjusted accordingly in the period that the adjustment is known.

Research and Development Costs – Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits, stock-based compensation, consultant fees, third-party costs for conducting clinical trials and the manufacture of clinical trial materials, certain facility costs and other costs associated with clinical trials. Payments made to other entities are under agreements that are generally cancelable by the Company. Advance payments for research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related services are performed.

Stock-Based Compensation – Stock-based compensation arrangements include stock option grants and restricted stock units (“RSU”s) awards under our equity incentive plans, as well as shares issued under our Employee Stock Purchase Plan (“ESPP”), through which employees may purchase our common stock at a discount to the market price. Stock-based compensation is measured at the grant date for all stock-based awards made to employees and non-employees based on the fair value of the awards, net of estimated forfeitures. Compensation expense for purchases under the ESPP is recognized based on the fair value of the award on the date of offering. The fair value of these awards is estimated using the Black-Scholes valuation model. The expected term of each option is estimated by taking the arithmetic average of its original contractual term and its average vesting term.

Net Income (Loss) Per Share – Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, without consideration of potential common shares.

Diluted net income (loss) per common share is computed giving effect to all potential dilutive common shares, comprising common stock issuable upon exercise of stock options, warrants, RSUs and ESPP. The Company uses the treasury-stock method to compute diluted income (loss) per share with respect to its stock options, warrants, RSUs and ESPP. For purposes of this calculation, options, warrants, RSUs and ESPP plan grants to purchase common stock are considered to be potential common shares and are only included in the calculation of diluted net income per share when their effect is dilutive. In the event of a net loss, the effects of all potentially dilutive shares are excluded from the diluted net loss per share calculation as their inclusion would be antidilutive.

Recent Accounting Pronouncements

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

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Notes to the Consolidated Financial Statements

NOTE 3. Business Combination

On November 30, 2021, the Company closed its acquisition of Kindred BioSciences, Inc.’s GMP manufacturing line in Burlingame, California in exchange for $4.8 million in cash. The transaction was accounted for as a business combination and the Company incurred transaction related expenses totaling $82,000, which were recorded within general and administrative expenses in the consolidated statement of operations in the year ended December 31, 2021.

The fair value of the assets acquired in connection with the acquisition are as follows (in thousands):

Property and equipment $ 321

Total purchase price $ 4,829

In addition, the Company paid $671,000 in prepaid rent in connection with the modification of the pre-existing embedded lease at the Burlingame facility (see Note 8).

Goodwill, which represents the excess of the purchase price over the fair value of assets acquired, is attributable primarily to the expected cost savings of manufacturing internally, as opposed to outsourcing, and the assembled workforce. All of the goodwill is expected to be deductible for income tax purposes.

NOTE 4. Fair Value of Financial Instruments

Fair value accounting is applied for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued liabilities that approximate fair value due to their relatively short maturities.

Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.

The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The following table sets forth the fair value of the Company’s financial assets that are measured on a recurring basis as of December 31, 2022 and 2021 (in thousands):

Level 1 Level 2 Level 3 Total

Financial assets:

Corporate debt securities — 2,488 — 2,488

Level 1 Level 2 Level 3 Total

Financial assets:

Corporate debt securities — 6,464 — 6,464

The Company held no financial liabilities measured on a recurring basis as of December 31, 2022 or 2021, or in the years ended December 31, 2022 and 2021.

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Notes to the Consolidated Financial Statements

NOTE 5. Balance Sheet Components

(a)Cash, Cash Equivalents, Restricted Cash and Investments

Cash, cash equivalents, restricted cash and investments consisted of the following (in thousands):

Amortized Gross Unrealized Estimated Cash, Cash Equivalents Short-Term Long-Term

Cost Gains Losses Fair Value and Restricted Cash Investments Investments

Amortized Gross Unrealized Estimated Cash and Cash Short-Term Long-Term

Cost Gains Losses Fair Value Equivalents Investments Investments

(b)Accounts Receivable

Accounts receivable comprises royalties receivable of $20,000 and $71,000 as of December 31, 2022 and 2021, respectively. The Company has provided no allowance for uncollectible accounts as of December 31, 2022 and 2021.

(c)Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

Office and computer equipment 1,078 481

Less: accumulated depreciation (3,272 ) (1,305 )

Depreciation expense was $1,967,000, and $732,000 the years ended December 31, 2022 and 2021, respectively. There were no impairments of the Company’s property and equipment recorded in the years ended December 31, 2022 or 2021.

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Notes to the Consolidated Financial Statements

(d) Right-of-Use Assets, Net

Right-of-use assets, net comprises facilities of $25.7 million and $13.2 million as of December 31, 2022 and 2021, respectively. The right of use of one of the Company’s leased premises in California commenced in 2022, resulting in an additional $15.0 million right of use asset recorded (see Note 8).

(e)Intangible Assets, Net

Intangible assets comprise developed technology, intellectual property and, until it was considered fully impaired, in-process research and development. Intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over useful life of 11.75 years for developed technology and 20 years for intellectual property. As of December 31, 2022, developed technology and intellectual property had remaining lives of 6.9 and 5.0 years, respectively. Intangible assets consist of the following (in thousands):

Intellectual property 80 80

Less: accumulated amortization (60 ) (56 )

Intangible asset amortization expense was $1.3 million and $1.7 million for the years ended December 31, 2022 and 2021, respectively. Due to a decline in royalties earned since the outbreak of COVID-19 (see Note 7), developed technology was assessed as partially impaired as of December 31, 2022 and 2021, and accordingly impairment charges of $4.3 million and $3.0 million, respectively, were recorded within operating expenses.

As of December 31, 2022, the estimated future amortization expense by year is as follows (in thousands):

Year Ending December 31, Amount

(f) Goodwill

Goodwill, which represents the excess of the purchase price over the fair value of assets acquired, comprises $4.5 million for both years ended December 31, 2022 and 2021. For the year ended December 31, 2022 there was no change in Goodwill and for the year ended December 31, 2021, the only activity was the 2021 acquisition as further described in Note 4. As of December 31, 2022 and 2021, there have been no indicators of impairment.

(g) Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):

Accrued clinical and manufacturing expenses 2,413 986

Accrued professional and consulting services 691 556

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Notes to the Consolidated Financial Statements

NOTE 6. Revenue

Royalty agreement

The Company generates royalty revenue from the sale of Inavir in Japan, pursuant to a collaboration and license agreement that Aviragen entered into with Daiichi Sankyo Company, Limited (“Daiichi Sankyo”), in 2009. In September 2010, laninamivir octanoate was approved for sale by the Japanese Ministry of Health and Welfare for the treatment of influenza in adults and children, which Daiichi Sankyo markets as Inavir. Under the agreement, the Company currently receives a 4% royalty on net sales of Inavir in Japan. The last patent related to Inavir is set to expire in December 2029 in Japan, at which time royalty revenue will cease. The royalty revenue related to Inavir recognized in 2022 and 2021, was nil. In addition, the Company recognized non-cash royalty revenue related to sale of future royalties (see Note 7) of $107,000 and $879,000 in 2022 and 2021, respectively. Both the royalty revenue and the non-cash royalty revenue related to sale of future royalties have been subjected to a 5% withholding tax in Japan, for which $5,000 and $44,000 was included in income tax expense in the years ended December 31, 2022 and 2021, respectively.

NOTE 7. Liabilities Related to Sale of Future Royalties

In April 2016, Aviragen entered into a Royalty Interest Acquisition Agreement (the “RIAA”) with HealthCare Royalty Partners III, L.P. ("HCRP"). Under the RIAA, HCRP made a $20.0 million cash payment to Aviragen in consideration for acquiring certain royalty rights (“Royalty Rights”) related to the approved product Inavir in the Japanese market. The Royalty Rights were obtained pursuant to the collaboration and license agreements (the “License Agreement”) and a commercialization agreement that the Company entered into with Daiichi Sankyo. Per the terms of the RIAA, HCRP is entitled to the first $3.0 million plus 15% of the next $1.0 million in royalties earned in each year commencing on April 1, with any excess revenue being retained by the Company.

Under the relevant accounting guidance, due to a limit on the amount of royalties that HCRP can earn under the RIAA, this transaction was accounted for as a liability that is being amortized using the effective interest method over the life of the arrangement. The Company has no obligation to pay any amounts to HCRP other than to pass through to HCRP its share of royalties as they are received from Daiichi Sankyo. To record the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received under the License Agreement and the payments that will be passed through to HCRP over the life of this agreement. Consequently, the Company imputes interest on the unamortized portion of the liability and records non-cash interest expense using an estimated effective interest rate. The royalties earned in each period that will be passed through to HCRP are recorded as non-cash royalty revenue related to sale of future royalties, with any excess not subject to pass-through being recorded as royalty revenue. When the pass-through royalties are paid to HCRP in the following quarter, the imputed liability related to sale of future royalties is commensurately reduced. The Company periodically assesses the expected royalty payments, and to the extent such payments are greater or less than the initial estimate, the Company adjusts the amortization of the liability and interest rate. As a result of this accounting, even though the Company does not retain HCRP’s share of the royalties, it will continue to record non-cash revenue related to those royalties until the amount of the associated liability, including the related interest, is fully amortized.

The following table shows the activity within the liability account during the year ended December 31, 2022 (in thousands):

Total liability related to sale of future royalties, start of year $ 11,522

Non-cash royalty revenue paid to HCRP (151 )

Non-cash interest expense recognized 1,305

Revaluation gain recognized (6,960 )

Total liability related to sale of future royalties, end of year 5,716

Current portion (95 )

Long-term portion $ 5,621

Due to a decline in royalties earned since the outbreak of COVID-19, the amount expected to be payable to HCRP was revalued as of December 31, 2022 and 2021, and the resulting gain on revaluation of debt of $7.0 million and $3.8 million were recorded within other income and expenses, respectively.

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Notes to the Consolidated Financial Statements

NOTE 8. Leases

The Company has obtained the right of use for office and manufacturing facilities under six operating lease agreements with initial terms exceeding one year and has two operating lease agreements for facilities and one for manufacturing equipment with initial terms of one year or less.

The Company obtained the right of use of real estate located in South San Francisco, California, in November 2020 under a lease that was scheduled to terminate on September 30, 2025, which has been extended until March 31, 2029, with no additional extension option. The Company obtained the right of use of another property also located in South San Francisco, California, in June 2015 that was scheduled to terminate on April 30, 2020, with a five-year extension option that the Company exercised in July 2019, extending the lease until April 30, 2025, which has been further extended until March 31, 2029, with an option to extend for an additional eight years. In addition, 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, with an option to extend for an additional eight years. This lease includes a component for which tenant improvements that were substantially completed in the three months ended September 30, 2022, when the lease for this component was deemed to have commenced for accounting purposes. It also includes a component for which tenant improvements, estimated to cost approximately $2.3 million, are estimated to be completed in the first quarter of 2023. These will be recorded within right-of-use assets in the condensed consolidated balance sheet when they are substantially completed and this component of the lease is deemed to have commenced for accounting purposes. In addition, the Company had the right of use of a facility located in South San Francisco, California, under a lease that, following extensions, was terminated on December 31, 2022, with no extension option. Further, the Company has the right of use of a facility located in South San Francisco, California, under a lease that terminates on March 30, 2029, with a five-year renewal option. The Company also has the right of use of two facilities in Burlingame, California, under leases that terminate on May 31, 2025, both of which have two30-month extension options. The Company has also identified two short-term embedded leases for the rental of facilities in South San Francisco, California and Lodi, Wisconsin and one short-term lease for equipment. The lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise.

As of December 31, 2022, the weighted average discount rate for operating leases with initial terms of more than one year was 9.80% and the weighted average remaining term of these leases was 6.10 years. Discount rates were determined using the Company’s marginal rate of borrowing at the time each lease was executed or extended.

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than twelve months as of December 31, 2022 (in thousands):

Year Ending December 31, Amount

Less: imputed interest (7,687 )

Present value of future minimum payments 21,705

Current portion of operating lease liability (2,228 )

Operating lease liability, net of current portion $ 19,477

The Company has future obligations of $29.4 million for facilities. The Company presently has no finance leases.

Certain operating lease agreements for facilities include non-lease costs, such as common area maintenance, which are recorded as variable lease costs. Operating lease expenses for the years ended December 31, 2022 and 2021, including variable lease costs for one lease that has not yet commenced for accounting purposes (see below), are summarized as follows (in thousands):

Year Ended December 31,

Lease cost

Sublease income - (36 )

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Notes to the Consolidated Financial Statements

NOTE 9. Commitments and Contingencies

(a)Purchase Commitments

As of December 31, 2022, the Company had approximately $7.9 million of non-cancelable purchase commitments, principally for contract manufacturing and clinical services and leasehold improvements which are expected to be paid within the next year. In addition, the Company has operating lease commitments as detailed in Note 8 and a further commitment for an operating lease with unpaid rental payments totaling $0.4 million payable by March 31, 2029, which has been executed but has not yet commenced, for which we expect to spend a net total of approximately $2.3 million on leasehold improvements, of which $1.1 million has already been expended and $1.2 million is included within non-cancelable purchase commitments, which will be recorded as right-of-use assets when the lease commences.

(b)Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has also entered into indemnification agreements with 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 may be 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.

(c)Litigation

From time to time the Company may be involved in legal proceedings arising in connection with its business. Based on information currently available, the Company believes that the amount, or range, of reasonably possible losses in connection with any pending actions against it in excess of established reserves, in the aggregate, is 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.

On August 4, 2020, a purported shareholder derivative complaint was filed in the Superior Court of California, San Mateo County, entitled Godfrey v. Latour, et al. An amended complaint was filed on September 4, 2020 and the case was re-named Ennis v. Latour, et al. A second amended complaint was filed on November 25, 2020. A third amended complaint was filed on June 11, 2021. The third amended complaint named certain current and former Vaxart directors as defendants, asserting claims against them for breach of fiduciary duty, unjust enrichment, and waste and seeking, among other things, an award of unspecified damages, certain equitable relief, and attorneys’ fees and costs. The third amended complaint also asserted claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty against Armistice Capital, LLC (“Armistice”). The third amended complaint challenged certain stock options granted to certain of the Company’s officers and directors in June 2020; certain alleged statements and omissions made in the Company’s April 24, 2020, proxy statement; and certain amendments to two warrants held by Armistice, as disclosed on June 8, 2020. The third amended complaint purported to bring the lawsuit derivatively on behalf of and for the benefit of the Company and named the Company as a “nominal defendant” against which no damages were sought. On August 31, 2021, the Company and certain of its directors (the “Vaxart Defendants”), as well as all other defendants, filed demurrers to the third amended complaint. By Order dated November 17, 2022, the court sustained the defendants’ demurrers without leave to amend, and the time for plaintiffs to appeal has since lapsed.

In August and September 2020, two substantially similar securities class actions were filed in the U.S. District Court for the Northern District of California. The first action, titled Himmelberg v. Vaxart, Inc. et al. was filed on August 24, 2020. The second action, titled Hovhannisyan v. Vaxart, Inc. et al. was filed on September 1, 2020 (together, the “Putative Class Action”). By Order dated September 17, 2020, the two 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 a first amended consolidated complaint, and on August 9, 2021, lead plaintiffs filed a corrected first amended consolidated complaint. The first amended consolidated complaint, as corrected, named certain of Vaxart’s current and former executive officers and directors, as well as Armistice, as defendants. It claimed three violations of federal civil securities laws; violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5, as against the Company and all individual defendants; violation of Section 20(a) of the Exchange Act, as against Armistice and all individual defendants; and violation of Section 20A of the Exchange Act against Armistice. The first 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. The first 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 the first 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 a second 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, entitled Roth v. Armistice Capital LLC, et al. The complaint names Armistice and certain Armistice-related parties as defendants, asserting a violation of Exchange Act Section 16(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.

On January 8, 2021, a purported shareholder, Phillip Chan, commenced a pro se lawsuit in the U.S. District Court for the Northern District of California titled Chan v. Vaxart, Inc. et al. (the “Opt-Out 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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Notes to the Consolidated Financial Statements

NOTE 10. Stockholders’ Equity

(a)Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock, $0.0001 par value per share. The Company’s board of directors may, without further action by the stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 5,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of 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 has no present plan to issue any shares of preferred stock.

(b)Common Stock

As of December 31, 2022, the Company was authorized to issue 250,000,000 shares of common stock, $0.0001 par value per share, which includes an increase of 100,000,000 on August 4, 2022, 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 150,000,000. Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders. Holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically. As of December 31, 2022, no dividends had been declared by the board of directors.

In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied. There are no sinking fund provisions applicable to the common stock.

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

RSUs issued and outstanding 808,310 —

(c)Warrants

The Company has the following warrants outstanding as of December 31, 2022, all of which contain standard anti-dilution protections in the event of subsequent rights offerings, stock splits, stock dividends or other extraordinary dividends, or other similar changes in the Company’s common stock or capital structure, and none of which have any participating rights for any losses:

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 $1.10 and $2.50 and those exercisable for $3.125 expiring in February 2025 shall be entitled to receive cash consideration equal to a Black-Scholes valuation, as defined in the warrant. If such Fundamental Transaction is not within the Company’s control, the 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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NOTE 11. Equity Incentive Plans

On April 23, 2019, the Company’s stockholders approved the adoption of the 2019 Equity Incentive Plan (the “2019 Plan”), under which the Company is authorized to issue incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (RSUs), other stock awards and performance awards that may be settled in cash, stock, or other property. The 2019 Plan is designed to secure and retain the services of employees, directors and consultants, provide incentives for the Company’s employees, directors and consultants to exert maximum efforts for the success of the Company and its affiliates, and provide a means by which employees, directors and consultants may be given an opportunity to benefit from increases in the value of the Company’s common stock. Following adoption of the 2019 Plan, all previous plans were frozen, and on forfeiture, cancellation and expiration, awards under those plans are not assumed by the 2019 Plan.

The aggregate number of shares of common stock authorized for issuance under the 2019 Plan was initially 1,600,000 shares, which was increased through an amendment to the 2019 Plan adopted by the Company’s stockholders (a “Plan Amendment”) on June 8, 2020, to 8,000,000, by a Plan Amendment on June 16, 2021, to 16,900,000, and by a Plan Amendment on August 4, 2022, to 28,900,000. Further amendments to the 2019 Plan to increase the share reserve would require stockholder approval. Awards that are forfeited or canceled generally become available for issuance again under the 2019 Plan. Awards have a maximum term of ten years from the grant date and may vest over varying periods, as specified by the Company’s board of directors for each grant.

During the year ended December 31, 2022, the Company granted 850,061 RSUs awards to employees which vest annually over four years, subject to each employee’s continued service relationship with the Company, and 29,500 RSUs to directors which vest annually over three years and 35,717 RSUs to directors which vest on the earlier of the day before the next annual meeting of stockholders and the anniversary of the grant date, subject to each director’s continued service on the Board. The related compensation cost, which is based on the grant date fair value of the Company’s common stock multiplied by the number of RSUs granted, is recognized, net of estimated forfeitures, as an expense ratably over the service period.

A summary of stock option and RSU transactions in each of the two years ended December 31, 2022 and 2021 is as follows:

Weighted Weighted

Shares Number of Option Average Number of RSU Average

Available Options Exercise RSUs Grant Date

For Grant Outstanding Price Outstanding Fair Value

Authorized under 2019 Plan Amendment 8,900,000 — $ — — $ —

As of December 31, 2022, there were 14,725,261 options outstanding with a weighted average exercise price of $4.48, a weighted average remaining term of 6.60 years and an aggregate intrinsic value of $148,000. Of these options, 5,881,798 were vested, with a weighted average exercise price of $3.88, a weighted average remaining term of 5.35 years and an aggregate intrinsic value of $133,000.

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 December 31, 2022, based on the Company’s common stock closing price of $0.96, which would have been received by the option holders had all their in-the-money options been exercised as of that date.

The Company received $223,000 for the 180,336 options exercised during the year ended December 31, 2022, which had an intrinsic value of $481,000, $1.7 million for the 1,070,921 options exercised during the year ended December 31, 2021, which had an intrinsic value of $6.2 million.

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Notes to the Consolidated Financial Statements

The weighted average grant date fair value of options awarded in the years ended December 31, 2022 and 2021, was $4.10 and $6.49, respectively. Fair values were estimated using the following assumptions:

Year Ended December 31,

Dividend yield — % — %

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 was as follows (in thousands):

Year Ended December 31,

Total stock-based compensation $ 13,587 $ 8,867

Effective June 16, 2021, the Company modified the terms of outstanding options awarded to its former Chairman of the Board, Wouter W. Latour, such that the vesting of 100,000 options that would otherwise have been forfeited was accelerated. Further, the post-termination exercise period for all his vested and outstanding options as of the termination date was extended from three months to the earlier of the expiry of their ten-year term and June 16, 2023. The Company recorded a charge for the incremental increase in fair value of $1.3 million, which was included in stock-based compensation expense within general and administrative expenses in the three months ended June 30, 2021.

As of December 31, 2022, the unrecognized stock-based compensation cost related to outstanding stock options and RSUs expected to vest was $28.1 million, which the Company expects to recognize over an estimated weighted average period of 2.9 years.

On August 4, 2022, the 2022 Employee Stock Purchase Plan (the “2022 ESPP”) was approved by the Company’s stockholders. The Company reserved 1,800,000 shares of the Company’s common stock for purchase under the ESPP. The ESPP has a 6-month offering period comprised of one purchase period. The purchase price of the stock is equal to 85% of the lesser of the market value of such shares at the beginning of the 6-month offering period or the end of such offering period. No ESPP shares were issued or outstanding during the year ended December 31, 2022, accordingly 1,800,000 shares were available and reserved for issuance under the ESPP.

The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model. The weighted average estimated fair value for shares issued under our ESPP in fiscal years 2022 was $0.46 per share, with the assumptions of 0.5 expected term (in years), 84.66% expected volatility, 4.60% risk-free interest rate, and 0% expected dividend yield. Stock-based compensation expense related to the ESPP for the year ended December 31, 2022 was nil.

NOTE 12. Benefit Plan

The Company provides a tax-qualified employee savings and retirement plan commonly known as a 401(k) plan (the “Plan”), which covers the Company’s eligible employees. Pursuant to the Plan, employees may elect to defer their current compensation up to the IRS annual contribution limit of $20,500 for calendar year 2022 and $19,500 for calendar year 2021. Employees age 50 or over may elect to contribute an additional $6,500 annually for 2022 and 2021.

Employees direct their contributions, which vest immediately, across a series of mutual funds. In the years ended December 31, 2022 and 2021, the Company matched employee contributions up to 3% of each employee’s eligible earnings, vesting immediately. The Company’s matching contributions totaled $658,000 and $288,000 in the years ended December 31, 2022 and 2021, respectively. The costs of administering the Plan totaled $19,000 and $14,000 in the years ended December 31, 2022 and 2021, respectively.

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Notes to the Consolidated Financial Statements

NOTE 13. Income Taxes

The provision for income taxes consists of the following (in thousands):

Year Ended December 31,

Current:

Federal $ — $ —

Deferred:

Federal — —

State — —

Foreign — —

Total Deferred — —

Provision for income taxes $ 67 $ 107

The components of the deferred tax assets are as follows (in thousands):

Deferred tax assets:

Research and development tax credits 7,943 4,923

Capitalized research and development 14,260 4,016

Deferred tax assets net of valuation allowance 8,173 8,659

Deferred tax liabilities:

Depreciation on property and equipment (132 ) (26 )

Total deferred tax liabilities (8,173 ) (8,659 )

Net deferred tax assets $ — $ —

A reconciliation of the provision for income taxes with the expected provision for income taxes computed by applying the federal statutory income tax rate of 21% to the net loss before provision for income taxes:

Year Ended December 31,

U.S. federal taxes at statutory rate 21.0 % 21.0 %

State taxes (net of federal benefit) 0.1 4.0

Foreign rate differential (0.3 ) 0.3

Permanently non-deductible items (1.5 ) 0.2

Change in valuation allowance (22.0 ) (29.3 )

Tax attributes write-off due to change in control — —

Prior year true-up (0.2 ) 0.6

Provision for income taxes (0.1 )% (0.1 )%

The Company’s actual tax expense differed from the statutory federal income tax expense using a tax rate of 21% for the years ended December 31, 2022 and 2021, respectively, primarily due to foreign income taxes being taxed at different rates, nondeductible expenses, research and development tax credits, and the change in valuation allowance.

As of December 31, 2022 and 2021, the Company had net operating loss (“NOL”) carryforwards of $162.1 million and $115.9 million for federal purposes, and $85.0 million and $84.8 million for state purposes, respectively. If not utilized, these carryforwards will begin to expire in 2024 for federal, and 2028 for state purposes.

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Notes to the Consolidated Financial Statements

As of December 31, 2022, the Company also has accumulated tax losses of $6.2 million for Australia available for carryforward against future earnings, which under relevant tax laws do not expire but may not be available under certain circumstances.

As of December 31, 2022 and 2021, the Company had research and development tax credit carryforwards for federal purposes of $6.9 million and $3.1 million, respectively, and state research and development tax credit carryforwards of $7.0 million and $5.0 million, respectively. The federal research and development tax credit carryforwards will expire at various dates beginning in the year 2039. The state research and development tax credit carryforwards do not expire.

Beginning on January 1, 2022, the Tax Cuts and Jobs Act (“the Act”), enacted in December 2017, eliminated the option to deduct research and development expenditures in the current period and requires taxpayers to capitalize and amortize U.S.-based and non-U.S. based research and development expenditures over five and fifteen years, respectively. This legislation does not impact the Company's current tax obligations.

Sections 382 and 383 of the Internal Revenue Code provide for a limitation on the annual use of NOL and tax credit carryforwards following certain ownership changes that could limit the Company’s ability to utilize these carryforwards. The Company has completed an analysis to determine if such ownership changes have occurred and concluded it was more likely than not that there were changes in ownership. Due to the existence of full valuation allowance, limitations under Section 382 and 383 will not impact the Company’s effective tax rate. Further analyses will be performed prior to recognizing the benefits of any losses or credits in the financial statements.

The Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2022 and 2021. The net change in total valuation allowance was an increase of approximately $23.7 million and $20.6 million for the years ended December 31, 2022 and 2021, respectively.

The Company records unrecognized tax benefits, where appropriate, for all uncertain income tax positions. The Company recorded unrecognized tax benefits for uncertain tax positions of approximately $4.9 million and $2.4 million as of December 31, 2022 and 2021, respectively, of which none would impact the effective tax rate, if recognized, because the benefit would be offset by an increase in the valuation allowance.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Year Ended December 31,

Additions based on tax positions related to the current year 2,589 1,132

Increase (decreases) related to prior years’ tax positions (66 ) 9

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. During the year ended December 31, 2022 and 2021, the Company recognized no interest and penalties associated with unrecognized tax benefits. There are no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date.

The Company files income tax returns in the U.S, Australia, as well as with various U.S. states. The Company is subject to tax audits in all jurisdictions in which it files income tax returns. Tax audits by their very nature are often complex and can require several years to complete. There are currently no tax audits that have commenced with respect to income tax returns in any jurisdiction.

Under the tax statute of limitations applicable to the Internal Revenue Code, the Company and its U.S. subsidiary, either standalone or as part of the consolidated group, is no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for tax years before tax year 2017. Under the statute of limitations applicable to most state income tax laws, the Company is no longer subject to state income tax examinations by tax authorities for tax year before 2016 in states in which it has filed income tax returns. However, because the Company is carrying forward income tax attributes, such as net operating losses and tax credits from 2004 and earlier tax years, these attributes can still be audited when utilized on returns filed in the future. The Company is subject to foreign tax examinations by tax authorities for fiscal year 2015 and forward.

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Notes to the Consolidated Financial Statements

NOTE 14. 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):

Year Ended December 31,

No adjustment has been made to the net loss attributable to common stockholders 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:

Year Ended December 31,

Restricted stock unit to purchase common stock 460,975 —

Employee Stock Purchase Plan 392,095 —

NOTE 15. Subsequent Events

Since December 31, 2022, the Company has issued 1,362,220 shares of common stock under the September 2021 ATM (see Note 1) for net proceeds totaling $1.5 million through March 14, 2023.

Changes in the status of litigation since December 31, 2022, are included in “Note 9. Commitments and Contingencies—(c) Litigation”.

In the first quarter of 2023, the Company decided to primarily focus on advancing its norovirus oral vaccine candidate and postponed initiating a SARS-CoV-2 human challenge study. The Company also implemented a restructuring plan to reduce operating costs and better align its workforce with the needs of its business. The plan resulted in a reduction of approximately 27% of the Company’s workforce.

In light of the recent situation affecting Silicon Valley Bank, N.A. (“SVB”), including the Federal Deposit Insurance Corporation takeover of SVB, the Company decided to move any cash or other deposits previously held at SVB to larger financial institutions. We have access to all of our cash and other deposits previously held at SVB. We do not anticipate any material impact on our financial condition or operations as a result of SVB’s circumstances.

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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

On July 15, 2021, WithumSmith+Brown, PC, an independent registered public accounting firm (“Withum”), acquired certain assets of OUM & Co. LLP (“OUM”), the independent registered public accounting firm for the “Company” (the “Transaction”). As a result of this Transaction, on July 15, 2021, OUM resigned as the Company’s independent registered public accounting firm. Concurrent with such resignation, the Company, with the approval of its Audit Committee, consented to the engagement of Withum as the Company’s new independent registered public accounting firm, effective July 15, 2021.

Prior to the Transaction, the Company did not consult with Withum regarding the application of accounting principles to any specific completed or contemplated transaction or regarding the type of audit opinion that might be rendered by Withum on the Company’s financial statements, and Withum did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue.

OUM’s Report of Independent Registered Public Accounting Firm (the “Audit Report”) on the Company’s financial statements for the fiscal years ended December 31, 2020 and 2019 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.

During the years ended December 31, 2020 and 2019, and during the interim period from the end of the most recently completed fiscal year through July 15, 2021, the date of resignation, there were no “disagreements” (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304) with OUM on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of OUM would have caused it to make reference to such disagreement in its reports. During the fiscal years ended December 31, 2020 and 2019, and the subsequent interim period through July 15, 2021, there have been no “reportable events” (as such term is defined in Item 304 (a)(1)(v) of Regulation S-K).

Item 9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Inherent Limitations Over Internal Controls

Our management, including our President and Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Vaxart have been detected.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of our assessment under the framework in the Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by an independent registered public accounting firm, as stated in their report which appears below.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial statements.

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Item9B.Other Information

Relocation of Headquarters

In December 2021, our board of directors approved the relocation of the Company’s corporate headquarters and principal executive offices to South Florida. The decision to move our corporate headquarters and principal executive offices to South Florida is driven by various considerations. Among other considerations, a majority of the Company’s executive officers and a majority of the Company’s directors reside on the East Coast, including Andrei Floroiu, the Company’s Chief Executive Officer. Our board of directors determined that a corporate headquarters on the East Coast would be more accessible for meetings among the Company’s management team and meetings of the board of directors. Additionally, our board of directors determined that a corporate headquarters on the East Coast could facilitate communications and other interactions with governmental agencies in Washington, D.C., investment banks and financial services providers in New York, and potential customers and strategic partners in the United States, Europe and the Middle East. We have not yet procured office space in South Florida and intend to provide an update on the location of our corporate headquarters when we have taken action.

Resignation of Todd C. Davis from the Board of Directors

On March 14, 2023, Todd C. Davis, Chair of the Company’s board of directors and a director of the Company, notified the Company of his resignation as Chair of the board of directors and as a director, effective as of March 17, 2023. Michael J. Finney was appointed to serve as Chair of the board of directors beginning on the date of Mr. Davis’s resignation. Mr. Davis’s decision to resign was not a result of any disagreement with the Company on any matter relating to its operations, policies or practices.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.

Item 11. Executive Compensation

The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.