UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38630

Aridis Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		47-2641188
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

983 University Avenue, Bldg. B
Los Gatos, California		95032
(Address of principal executive offices)		(Zip Code)

(408) 385-1742

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Title of each class:		Trading Symbol(s)		Name of each exchange on which registered:
Common Stock		ARDS		The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Small reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, $0.0001 par value per share, outstanding at October 31, 2022 was 20,804,800.

Table of Contents

		Page

	PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	4

	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2022 and 2021 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 4.	Controls and Procedures	40

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

Signatures		43

PART I — FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	September 30,			December 31,
	2022			2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,886		$	18,098
Restricted cash		747			1,388
Other receivables		248			237
Contract costs		1,986			1,967
Prepaid asset		3,768			2,700
Total current assets		8,635			24,390
Property and equipment, net		974			1,357
Right-of-use assets, net		1,532			—
Intangible assets, net		18			22
Restricted cash, non-current		500			500
Contract costs, non-current		78			96
Other assets		383			431
Total assets	$	12,120		$	26,796
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	4,230		$	5,240
Accrued liabilities		8,494			6,464
Lease liabilities		526			—
Deferred revenue		20,386			20,838
Note payable		831			696
Notes payable (at fair value)		7,795			—
Other liabilities		15			110
Total current liabilities		42,277			33,348
Deferred revenue, non-current		737			913
Lease liabilities, non-current		1,430			—
Notes payable, non-current (at fair value)		3,499			5,282
Other liabilities		—			363
Total liabilities		47,943			39,906
Commitments and contingencies (Note 13)
Stockholders’ deficit:
Preferred stock (par value $0.0001; 60,000,000 shares authorized; zero shares issued and outstanding as of September 30, 2022 and December 31, 2021)		—			—
Common stock (par value $0.0001; 100,000,000 shares authorized; 17,701,592 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)		2			2
Additional paid-in capital		153,454			152,183
Accumulated deficit		(189,279	)		(165,295	)
Total stockholders’ deficit		(35,823	)		(13,110	)
Total liabilities and stockholders’ deficit	$	12,120		$	26,796

See accompanying notes to the condensed consolidated financial statements.

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

	2022			2021			2022			2021
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenue:
Grant revenue	$	399		$	515		$	1,878		$	548
Operating expenses:
Research and development		6,118			19,842			18,916			29,370
General and administrative		1,693			1,699			5,535			5,337
Total operating expenses		7,811			21,541			24,451			34,707
Loss from operations		(7,412	)		(21,026	)		(22,573	)		(34,159	)
Other income (expense):
Interest income (expense), net		(27	)		1			(267	)		2
Other income, net		23			23			68			52
Gain on extinguishment of Paycheck Protection Program loan		—			—			—			722
Change in fair value of note payable		(823	)		—			(1,212	)		—
Net loss	$	(8,239	)	$	(21,002	)	$	(23,984	)	$	(33,383	)
Deemed dividends	$	—		$	(3,141	)	$	—		$	(4,127	)
Net loss available to common stockholders	$	(8,239	)	$	(24,143	)	$	(23,984	)	$	(37,510	)
Weighted-average common shares outstanding used in computing net loss per share available to common stockholders, basic and diluted		17,701,592			12,454,119			17,701,592			11,314,058
Net loss per share to common stockholders, basic and diluted	$	(0.47	)	$	(1.94	)	$	(1.35	)	$	(3.32	)

See accompanying notes to the condensed consolidated financial statements.

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(In thousands, except share amounts)

	Shares		Amount		Capital		Deficit			Deficit
	Three Months Ended September 30, 2022 (unaudited)
					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
Balances as of June 30, 2022		17,701,592	$	2	$	153,105	$	(181,040	)	$	(27,933	)
Stock-based compensation		—		—		349		—			349
Net loss		—		—		—		(8,239	)		(8,239	)
Balances as of September 30, 2022		17,701,592	$	2	$	153,454	$	(189,279	)	$	(35,823	)

	Three Months Ended September 30, 2021 (unaudited)
	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
Balances as of June 30, 2021		11,234,480	$	1	$	121,995	$	(135,483	)	$	(13,487	)
Issuance of common stock, pre-funded warrants and warrants in registered direct offering, net of issuance costs		1,300,000		—		23,294		—			23,294
Issuance of common stock in connection with license agreement		884,956		—		6,460		—			6,460
Deemed dividends		634,600		—		—		—			—
Stock-based compensation		—		—		580		—			580
Net loss		—		—		—		(21,002	)		(21,002	)
Balances as of September 30, 2021		14,054,036	$	1	$	152,329	$	(156,485	)	$	(4,155	)

	Nine Months Ended September 30, 2022 (unaudited)
					Additional					Total
	Common Stock				Paid-In		Accumulated			Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
Balances as of December 31, 2021		17,701,592	$	2	$	152,183	$	(165,295	)	$	(13,110	)
Issuance of common stock for consulting services		—		—		3		—			3
Stock-based compensation		—		—		1,161		—			1,161
Stock options issued in exchange for accrued liability		—		—		107		—			107
Net loss		—		—		—		(23,984	)		(23,984	)
Balances as of September 30, 2022		17,701,592	$	2	$	153,454	$	(189,279	)	$	(35,823	)

	Nine Months Ended September 30, 2021 (unaudited)
	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Deficit
Balances as of December 31, 2020		10,065,727	$	1	$	114,420	$	(123,102	)	$	(8,681	)
Issuance of common stock, pre-funded warrants and warrants in registered direct offerings, net of issuance costs		2,337,405		—		29,711		—			29,711
Issuance of common stock in connection with license agreement		884,956		—		6,460		—			6,460
Deemed dividends		759,389		—		—		—			—
Issuance of common stock for consulting services		5,000		—		33		—			33
Exercise of stock options		1,559		—		5		—			5
Stock-based compensation		—		—		1,700		—			1,700
Net loss		—		—		—		(33,383	)		(33,383	)
Balances as of September 30, 2021		14,054,036	$	1	$	152,329	$	(156,485	)	$	(4,155	)

See accompanying notes to the condensed consolidated financial statements.

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

	2022			2021
	Nine Months Ended
	September 30,
	2022			2021
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(23,984	)	$	(33,383	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		387			278
Asset impairment		33			—
Stock-based compensation		1,161			1,700
Issuance of common stock in connection with license agreement		—			6,460
Issuance of common stock in exchange for consulting services		3			33
Gain on extinguishment of Paycheck Protection Program loan		—			(722	)
Change in fair value of note payable		1,212			—
Non-cash debt issuance expense		250			—
Changes in operating assets and liabilities:
Accounts receivable		—			(1,000	)
Other receivables		(11	)		335
Prepaid asset		(132	)		5
Other assets		47			—
Lease liabilities		(19	)		—
Accounts payable		(1,010	)		824
Accrued liabilities and other liabilities		2,121			5,311
Deferred revenue		(628	)		952
Net cash used in operating activities		(20,570	)		(19,207	)
Cash flows from investing activities:
Purchase of property and equipment		(33	)		(573	)
Net cash used in investing activities		(33	)		(573	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net		—			29,764
Proceeds from note payable		5,000			—
Payments on note payable		(450	)		—
Net proceeds from financing of insurance premium		(800	)		—
Proceeds from stock option exercises		—			5
Net cash provided by financing activities		3,750			29,769
Net (decrease) increase in cash, cash equivalents and restricted cash		(16,853	)		9,989
Cash, cash equivalents and restricted cash at:
Beginning of period		19,986			8,732
End of period	$	3,133		$	18,721
Supplemental cash flow disclosures:
Cash paid for taxes	$	5		$	2
Supplemental noncash investing and financing activities:
Property and equipment additions	$	—		$	119
Right-of-use assets obtained with corresponding lease liability	$	1,877		$	—
Stock options issued in exchange for accrued liability	$	107		$	—
Deemed dividends	$	—		$	4,127
Insurance financing	$	935

See accompanying notes to the condensed consolidated financial statements.

Aridis Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business and Basis of Presentation

Organization

Aridis Pharmaceuticals, Inc. (the “Company” or “we” or “our” or “us”) was established as a California limited liability corporation in 2003. The Company converted to a Delaware C corporation on May 21, 2014. Our principal place of business is in Los Gatos, California. We are a late clinical development - stage biopharmaceutical company focused on developing new breakthrough therapies for infectious diseases and addressing the growing problem of antibiotic resistance. The Company has a diversified portfolio of clinical and pre-clinical stage non-antibiotic anti-infective product candidates that are complimented by a fully human monoclonal antibody discovery platform technology. The Company’s suite of anti-infective monoclonal antibodies offers opportunities to profoundly alter the current trajectory of increasing antibiotic resistance and improve the health outcome of many of the most serious life-threatening infections particularly in hospital settings.

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements include the amounts of the Company and our wholly owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the preceding fiscal year included in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on April 13, 2022.

The condensed consolidated financial statements include the accounts of the Company and its two wholly owned subsidiaries, Aridis Biopharmaceuticals, LLC and Aridis Pharmaceuticals, C.V. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The accompanying condensed consolidated balance sheet at December 31, 2021 has been derived from the audited balance sheet at December 31, 2021 contained in the above referenced Form 10-K.

COVID-19

The COVID-19 pandemic has caused business disruption globally. The protracted COVID-19 pandemic has continued to cause an impact on patient enrollment globally and the rate of clinical site activation. The extent of the impact of COVID-19 on the Company’s future operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, and impact on the Company’s clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact the Company’s future financial condition or results of operations is uncertain.

Going Concern

The Company had recurring losses from operations since inception and negative cash flows from operating activities during the three and nine months ended September 30, 2022 and the year ended December 31, 2021. Management expects to incur operating losses and negative cash flows from operations in the foreseeable future as the Company continues its product development programs. The forecasted outflow of cash for at least a one-year period from the expected condensed consolidated financial statement issuance date, is in excess of the cash available on-hand.

The Company’s research and development expenses and resulting cash burn during the nine months ended September 30, 2022, were largely due to costs associated with the Phase 3 study of AR-301 for the treatment of ventilator associated pneumonia (“VAP”) caused by the Staphylococcus aureus (S. aureus) bacteria, the Phase 1/2a study of AR-501 for the treatment of chronic lung infections associated with cystic fibrosis, the pre-launch activities associated with the Phase 3 study of AR-320 for the prevention of S. aureus VAP, and the preclinical development of AR-701 COVID-19 monoclonal antibodies (mAbs). Current development activities are focused on AR-301, AR-320, AR-501. We expect our expenses to continue in connection with our ongoing development activities, particularly as we continue the research, development, and clinical trials of, and seek regulatory approval for, our therapeutic candidates.

The Company plans to fund its cash flow needs through current cash on hand and future debt and/or equity financings which we may obtain through one or more public or private equity offerings, debt financings, government or other third-party funding, strategic alliances and licensing or collaboration arrangements. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its clinical research and development programs or future commercialization efforts, which could adversely affect its future business prospects and its ability to continue as a going concern. The Company believes that its current available cash and cash equivalents, including cash received in February 2022 from debt proceeds, will not be sufficient to fund its planned expenditures and meet the Company’s obligations for at least the one-year period following its condensed consolidated financial statement issuance date.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in their normal course of business. There is substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these condensed consolidated financial statements are issued. These condensed consolidated financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Such estimates include those related to the evaluation of our ability to continue as a going concern, best estimate of standalone selling price of revenue deliverables, useful life of long-lived assets, classification of deferred revenue, income taxes, assumptions used in the Black-Scholes-Merton model to calculate the fair value of stock-based compensation, deferred tax asset valuation allowances, and preclinical study and clinical trial accruals. Actual results could differ from those estimates.

Concentrations

Credit Risk

The Company’s cash and cash equivalents are maintained at financial institutions in the United States of America. Deposits held by these institutions may exceed the amount of insurance provided on such deposits.

Customer Risk

There was $0.4 million and $1.9 million in revenue from three customers for the three and nine months ended September 30, 2022, each individually contributing 27%, 34% and 39% of revenue for the nine-month period accounting for 100% of total revenue. For the three months ended September 30, 2021, one customer accounted for 81% of total revenue and the other customer accounted for 19% of total revenue, and for the nine months ended September 30, 2021, one customer accounted for 76% of total revenue and the other customer accounted for 24% of total revenue. All customers are located in the United States. There was no accounts receivable as of September 30, 2022 and December 31, 2021.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of checking account and money market fund account balances. Restricted cash consists of deposits for a letter of credit that the Company has provided to secure its obligations under its facility lease as well as grant funds identified for the specific grant project.

The following table provides a reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets which, in aggregate, represent the amount reported in the condensed consolidated statements of cash flows (in thousands):

	September 30,		December 31,
	2022		2021
Cash and cash equivalents	$	1,886	$	18,098
Restricted cash- current		747		1,388
Restricted cash – long-term		500		500
Total cash, cash equivalents and restricted cash	$	3,133	$	19,986

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivables are recorded at the invoiced amount and do not bear interest. The Company considers the credit worthiness of its customers but does not require collateral in advance of a sale. The Company evaluates collectability and maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio when necessary. The allowance is based on the Company’s best estimate of the amount of losses in the Company’s existing accounts receivable, which is based on customer creditworthiness, facts and circumstances specific to outstanding balances, and payment terms. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2022 and December 31, 2021, there was no accounts receivable and no allowance for doubtful accounts.

Operating Leases

The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and lease incentives and initial direct costs incurred, as applicable.

As the implicit rate in the Company’s leases is generally unknown, the Company used its incremental borrowing rate of 6% based on the information available at the lease commencement date in determining the present value of future lease payments. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses over the reasonably assured lease term. The Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for any lease and non-lease components as a single lease component.

Prior to adoption of Accounting Standards Codification (“ASC”) 842, Leases as of January 1, 2022, the Company evaluated leases at their inception as either operating or capital leases, and renewal or expansion options, rent holidays, leasehold improvement allowances and other incentives on such lease agreements. The Company recognized operating lease costs on a straight-line basis over the term of the agreement.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years for lab equipment and computer equipment and software, and over the shorter of the lease term or useful life for leasehold improvements. Maintenance and repairs are charged to expense as incurred, and costs of improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the condensed consolidated balance sheet and any resulting gain or loss is reflected in the condensed consolidated statement of operations in the period realized.

Intangible Assets

Intangible assets are recorded at cost and amortized over the estimated useful life of the asset. Intangible assets consist of licenses with various institutions whereby the Company has rights to use intangible property obtained from such institutions.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment is measured by the excess of the carrying amount of the assets over fair value less the costs to sell the assets, generally determined using the projected discounted future net cash flows arising from the asset. There was no impairments of long-lived assets during the three months ended September 30, 2022 and December 31, 2021. There were no asset impairments during the three months ended September 30, 2022 and there was approximately $33,000 in impairments of long-lived assets during the nine months ended September 30, 2022.

Revenue Recognition

The Company recognizes revenue based on ASC 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. See Note 6 for details of the development and license agreements.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue at a point in time, or over time, as the entity satisfies performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

As part of the accounting for customer arrangements, the Company must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis. In developing the standalone price for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company recognizes revenue as or when the performance obligations under the contract are satisfied. The Company receives payments from its customers based on payment schedules established in each contract. The Company records any amounts received prior to satisfying the revenue recognition criteria as deferred revenue on its condensed consolidated balance sheets. Amounts recognized as revenue, but not yet received or invoiced are recorded within other receivables on the condensed consolidated balance sheet. Amounts are recorded as other receivables on the condensed consolidated balance sheet when our right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of a majority of the promised goods or services to the customer will be one year or less.

Contract Assets

The incremental costs of obtaining a contract under ASC 606 (i.e., costs that would not have been incurred if the contract had not been obtained) are recognized as an asset in the Company’s condensed consolidated balance sheets if the Company expects to recover them (see Note 6). Capitalized costs will be amortized to the respective expenses using a systematic basis that mirrors the pattern in which the Company transfers control of the goods and service to the customer. At each reporting date, the Company determines whether or not the capitalized costs to obtain a contract are impaired by comparing the carrying amount of the asset to the remaining amount of consideration that the Company received and expects to receive less the costs that relate to providing services under the relevant contract. Capitalized contract assets were $2.1 million at September 30, 2022 and December 31, 2021. For the three and nine months ended September 30, 2022 and 2021, there was no amortization of the contract assets and there have been no impairments as of September 30, 2022.

Deferred Revenue

Amounts received prior to satisfying the above revenue recognition criteria, or in which the Company has an unconditional right to payment, are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. The Company has estimated the classification between current and noncurrent deferred revenue related to the respective license agreement within its condensed consolidated balance sheets at September 30, 2022 and December 31, 2021 (see Note 6).

Research and Development

Research and development costs are expensed to operations as incurred. Our research and development expenses consist primarily of:

	●	salaries and related overhead expenses, which include stock-based compensation and benefits for personnel in research and development functions;
	●	fees paid to consultants and contract research organizations, or CROs, including in connection with our preclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial material management and statistical compilation and analyses;
	●	costs related to acquiring and manufacturing clinical trial materials;
	●	costs related to compliance with regulatory requirements; and
	●	payments related to licensed products and technologies.

Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Non-refundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or when the services are performed. Capitalized contract assets were $2.1 million at September 30, 2022 and December 31, 2021. For the three and nine months ended September 30, 2022 and 2021, there was no amortization of the contract assets and there have been no impairments as of September 30, 2022.

Stock-Based Compensation

The Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values, which the Company determines using the Black-Scholes-Merton model, on a straight-line basis over the requisite service period for the award. The Company accounts for forfeitures as they occur.

The BSM option pricing model incorporates various highly sensitive assumptions, including the fair value of our common stock, expected volatility, expected term and risk-free interest rates. The weighted average expected life of options was calculated using the simplified method as prescribed by the SEC’s Staff Accounting Bulletin, Topic 14 (“SAB Topic 14”). This decision was based on the lack of relevant historical data due to our limited historical experience. In addition, due to our limited historical data, the estimated volatility also reflects the application of SAB Topic 14, incorporating the historical volatility of comparable companies whose stock prices are publicly available. The risk-free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was zero, as we have never declared or paid dividends and have no plans to do so in the foreseeable future.

Income Taxes

The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by the relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. At each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. The Company’s policy is to recognize interest or penalties related to income tax matters in income tax expense.

Comprehensive Loss

The Company has no items of comprehensive income or loss other than net loss.

Loss Per Share

Basic loss per share is calculated by dividing net loss for the period by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period.

There have been no dividend shares issued for the three and nine-month periods ended September 30, 2022. In March 2021 and in August 2021, the Company issued 124,789 and 634,600 dividend shares, respectively, to certain common stockholders with a fair value of approximately $986,000 and approximately $3.1 million, respectively (see Note 10) which is included in the net loss available to common stockholders for the three and nine months ended September 30, 2021 in the below table.

For the three and nine months ended September 30, 2022, the number of shares used to compute basic and diluted net loss per share due to the Company’s net loss position was 17.7 million shares for both periods. For the three and nine months ended September 30, 2021 the number of shares used to compute basic and diluted net loss per share due to the Company’s net loss position were 12.5 million shares and 11.3 million shares, respectively. The following table presents the computation of the basic and diluted net loss per share to common stockholders (in thousands, except share and per share data):

2022	2021	2022	2021
Three Months Ended		Nine Months Ended
September 30,		September 30,
2022	2021	2022	2021
(unaudited)	(unaudited)	(unaudited)	(unaudited)

SEC Form 10-Q filed by Aridis Pharmaceuticals Inc.