Quarterly Report (10-q)

Share Name	Share Symbol	Market	Type
Aridis Pharmaceuticals Inc (CE)	USOTC:ARDS	OTCMarkets	Common Stock

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	0.000001			0.000001	0.000001	0.000001	1,000	00:00:00

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

o 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.)

5941 Optical Ct.
San Jose, California		95138
(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 x No o

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 x No o

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 o		Accelerated filer o

Non-accelerated filer x		Small reporting company x

		Emerging growth company x

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. o

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

The number of shares of the registrant’s common stock, $0.0001 par value per share, outstanding at October 31, 2019 was 8,912,227.

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		Page

PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)	4

	Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2019 and 2018 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Controls and Procedures	31

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 6.	Exhibits	32

Signatures		33

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Aridis Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	September 30, 2019			December 31, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	17,330		$	24,237
Accounts receivable	—			1,660
Other receivables	10,601			438
Prepaid expenses and other current assets	3,159			2,012
Total current assets	31,090			28,347
Property and equipment, net	1,075			1,271
Intangible assets, net	34			38
Equity method investment	50			960
Other assets	2,118			995
Total assets	$	34,367		$	31,611
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,125		$	2,331
Accrued liabilities	2,863			2,944
Deferred revenue	2,538			22
Total current liabilities	8,526			5,297
Deferred revenue	17,064			—
Total liabilities	25,590			5,297
Commitments and contingencies (Note 11)
Stockholders’ equity:
Series A convertible preferred stock (par value $0.0001; 60,000,000 shares authorized; zero shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively)	—			—
Common stock (par value $0.0001; 100,000,000 shares authorized; shares issued and outstanding: 8,912,227 and 8,104,757, as of September 30, 2019 and December 31, 2018, respectively)	1			1
Additional paid-in capital	103,897			97,401
Accumulated deficit	(95,121		)	(71,088		)
Total stockholders’ equity	8,777			26,314
Total liabilities and stockholders’ equity	$	34,367		$	31,611

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenue:
Grant revenue	$	—		$	1,022		$	1,022		$	1,367
Operating expenses:
Research and development	6,011			6,907			19,782			17,418
General and administrative	1,384			735			4,638			2,489
Total operating expenses	7,395			7,642			24,420			19,907
Loss from operations	(7,395		)	(6,620		)	(23,398		)	(18,540		)
Other income (expense):
Interest and other income, net	90			119			275			262
Change in fair value of warrant liability	—			(1,388		)	—			1,632
Equity in net loss from equity method investment	(282		)	(20		)	(910		)	(20		)
Net loss	$	(7,587	)	$	(7,909	)	$	(24,033	)	$	(16,666	)
Preferred dividends	$	—		$	(5	)	$	—		$	(1,357	)
Net loss available to common stockholders	$	(7,587	)	$	(7,914	)	$	(24,033	)	$	(18,023	)
Weighted-average shares outstanding used in computing net loss available to common stockholders:
Basic	8,694,104			4,019,459			8,304,510			1,469,623
Diluted	8,694,104			4,019,459			8,304,510			1,469,623
Net loss per common share:
Basic	$	(0.87	)	$	(1.97	)	$	(2.89	)	$	(11.34	)
Diluted	$	(0.87	)	$	(1.97	)	$	(2.89	)	$	(11.34	)
Net loss per share available to common stockholders:
Basic	$	(0.87	)	$	(1.97	)	$	(2.89	)	$	(12.26	)
Diluted	$	(0.87	)	$	(1.97	)	$	(2.89	)	$	(12.26	)

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and

Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

	Three Months Ended September 30, 2019 (unaudited)
	Series A Convertible						Additional					Total
	Preferred Stock			Common Stock			Paid-In		Accumulated			Stockholders’
	Shares	Amount		Shares	Dollars		Capital		Deficit			Equity
Balances at June 30, 2019	—	$	—	8,107,290	$	1	$	98,395	$	(87,534	)	$	10,862
Issuance of common stock in private placement, net of issuance costs	—	—		801,820	—		4,958		—			4,958
Exercise of stock options	—	—		3,117	—		9		—			9
Stock-based compensation	—	—		—	—		535		—			535
Net loss	—	—		—	—		—		(7,587		)	(7,587		)
Balances as of September 30, 2019	—	$	—	8,912,227	$	1	$	103,897	$	(95,121	)	$	8,777

	Three Months Ended September 30, 2018 (unaudited)
	Series A Convertible								Additional						Total
	Preferred Stock					Common Stock			Paid-In			Accumulated			Stockholders’
	Shares		Amount			Shares	Dollars		Capital			Deficit			Equity (Deficit)
Balances at June 30, 2018	36,196,193		$	74,202		166,373	$	—	$	(14,285	)	$	(57,735	)	$	(72,020	)
Series A convertible preferred stock dividends ($0.92 per share)	669,647		1,358			—	—		(1		)	(5		)	(6		)
Conversion of Series A convertible preferred stock into common stock upon initial public offering	(36,865,840	)	(75,560		)	5,744,586	1		75,559			—			75,560
Issuance of common stock upon initial public offering, net of issuance costs	—		—			2,192,824	—		25,079			—			25,079
Reclassification of warrant liability to equity upon initial public offering	—		—			—	—		10,236			—			10,236
Stock-based compensation	—		—			—	—		428			—			428
Net loss	—		—			—	—		—			(7,909		)	(7,909		)
Balances as of September 30, 2018	—		$	—		8,103,783	$	1	$	97,016		$	(65,649	)	$	31,368

	Nine Months Ended September 30, 2019 (unaudited)
	Series A Convertible						Additional					Total
	Preferred Stock			Common Stock			Paid-In		Accumulated			Stockholders’
	Shares	Amount		Shares	Dollars		Capital		Deficit			Equity
Balances at December 31, 2018	—	$	—	8,104,757	$	1	$	97,401	$	(71,088	)	$	26,314
Issuance of common stock in private placement, net of issuance costs	—	—		801,820	—		4,958		—			4,958
Exercise of stock options	—	—		5,650	—		17		—			17
Stock-based compensation	—	—		—	—		1,521		—			1,521
Net loss	—	—		—	—		—		(24,033		)	(24,033		)
Balances as of September 30, 2019	—	$	—	8,912,227	$	1	$	103,897	$	(95,121	)	$	8,777

	Nine Months Ended September 30, 2018 (unaudited)
	Series A Convertible								Additional						Total
	Preferred Stock					Common Stock			Paid-In			Accumulated			Stockholders’
	Shares		Amount			Shares	Dollars		Capital			Deficit			Equity (Deficit)
Balances at December 31, 2017	36,196,193		$	74,202		166,373	$	—	$	(15,140	)	$	(47,626	)	$	(62,766	)
Series A convertible preferred stock dividends ($0.92 per share)	669,647		1,358			—	—		(1		)	(1,357		)	(1,358		)
Conversion of Series A convertible preferred stock into common stock upon initial public offering	(36,865,840	)	(75,560		)	5,744,586	1		75,559			—			75,560
Issuance of common stock upon initial public offering, net of issuance costs	—		—			2,192,824	—		25,079			—			25,079
Reclassification of warrant liability to equity upon initial public offering	—		—			—	—		10,236			—			10,236
Stock-based compensation	—		—			—	—		1,283			—			1,283
Net loss	—		—			—	—		—			(16,666		)	(16,666		)
Balances as of September 30, 2018	—		$	—		8,103,783	$	1	$	97,016		$	(65,649	)	$	31,368

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended September 30,
	2019			2018
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(24,033	)	$	(16,666	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	253			200
Stock-based compensation expense	1,521			1,283
Equity in net loss from equity method investment	910			—
Change in fair value of preferred stock warrants	—			(1,632		)
Changes in operating assets and liabilities:
Accounts receivable	1,660			(800		)
Other receivables	(162		)	—
Prepaid expenses and other current assets	(1,605		)	(1,160		)
Other assets	(547		)	305
Accounts payable	394			827
Accrued liabilities	200			1,789
Deferred revenue	9,580			433
Net cash used in operating activities	(11,829		)	(15,421		)
Cash flows from investing activities:
Purchase of property and equipment	(53		)	(677		)
Net cash used in investing activities	(53		)	(677		)
Cash flows from financing activities:
Proceeds from issuance of common stock, net	4,958			25,079
Proceeds from stock option exercises	17			—
Net cash provided by financing activities	4,975			25,079
Net decrease in cash and cash equivalents	(6,907		)	8,981
Cash and cash equivalents at:
Beginning of period	24,237			25,096
End of period	$	17,330		$	34,077
Supplemental cash flow disclosures:
Cash paid for taxes	$	2		$	1
Supplemental noncash financing activities:
Preferred stock dividends accrued	$	—		$	1,357
Investment in equity method investment	$	—		$	1,000
Reclassificaiton of warrant liability into equity	$	—		$	10,236

See accompanying notes to the condensed consolidated financial statements (unaudited).

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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”) 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 San Jose, California. We are a late-stage biopharmaceutical company focused on developing new breakthrough therapies for infectious diseases and addressing the growing problem of antibiotic resistance. The Company has a deep, 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 (unaudited) 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 Rule 10-01 of 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 (unaudited) have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying condensed consolidated financial statements (unaudited) reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. These condensed consolidated financial statements (unaudited) 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 March 28, 2019.

The condensed consolidated financial statements (unaudited) include the accounts of the Company and its two wholly-owned subsidiaries, Aridis Biopharmaceuticals, Inc. 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.

Certain prior period amounts have been reclassified to conform to current period presentation.

Reverse Stock Split

On August 3, 2018, the Company effected a 1 for 6.417896 reverse stock split of the Company’s common stock. The par value and the number of authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split. All common stock share and per-share amounts for all periods presented in this Quarterly Report on Form 10-Q have been adjusted retroactively to reflect the reverse stock split.

Going Concern

The Company has suffered recurring losses from operations since inception and negative cash flows from operating activities during the nine months ended September 30, 2019 and the year ended December 31, 2018. At September 30, 2019, the Company had cash and cash equivalents of $17.3 million, working capital of $22.6 million and an accumulated deficit of $95.1 million. In October 2019, the Company received an upfront payment of $10 million in connection with executing a license agreement in September 2019 (see Note 6). Management expects to incur additional operating losses in the foreseeable future as the Company continues its product development programs. The Company believes that its current available cash and cash equivalents, along with the additional cash received in October 2019 from the license agreement, will not be sufficient to fund its planned expenditures and meet the Company’s obligations for at least the one-year period following its financial statement issuance date.

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Our expenses and resulting cash burn during the nine months ended September 30, 2019, were largely due to costs associated with launching the Phase 3 study of AR-301 for the treatment of ventilator associated pneumonia (VAP) caused by the Staphylococus aureus bacteria and the Phase 2 study of AR-105 for the treatment of VAP caused by the Pseudomonas aeruginosa bacteria. The AR-301 study startup phase contains a disproportionately high percentage of total study expenses which have been largely completed. The Company plans to fund its losses from operations and capital funding needs through current cash on hand and future debt and 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. The Company may be unable to secure additional financing or other sources of funding on acceptable terms, or at all. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its 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 accompanying condensed consolidated financial statements (unaudited) 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 within one year after the date that the financial statements are issued. The condensed consolidated financial statements (unaudited) 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 (unaudited) 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 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, revenue recognition, allowance for doubtful accounts, long-lived assets, income taxes, assumptions used in the Black-Scholes-Merton (“BSM”) model to calculate the fair value of stock-based compensation, Monte Carlo Simulation (“MSM”) model to calculate the fair value of warrants, deferred tax asset valuation allowances, valuation of the Company’s common and convertible preferred stock, fair value assumptions used in the valuation of warrants, preclinical study and clinical trial accruals and various accrued liabilities. Actual results could differ from those estimates.

Concentration of 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.

For the three and nine months ended September 30, 2019 and 2018, one customer accounted for 100% of total revenue. This customer is located in the United States. As of September 30, 2019, there was no accounts receivable. As of December 31, 2018, two customers accounted for 60% and 40% of total accounts receivable.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of checking account and money market account balances.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable 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, 2019 and December 31, 2018, there were no allowances for doubtful accounts.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Maintenance and repairs are charged to

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expense as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the 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 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 have been no such impairments of long-lived assets as of September 30, 2019 and December 31, 2018.

Revenue Recognition

Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method. Under this method, results for reporting periods beginning after January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 605, Revenue Recognition (“ASC 605”). ASC 606 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. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity 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 a performance obligation. 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.

The Company enters into licensing and development agreements which are within the scope of ASC 606, under which it may collaborate with third parties to research, develop, manufacture and commercialize its product candidates. The terms of these arrangements may include payment to the Company of one or more of the following: nonrefundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products.

As part of the accounting for customer arrangements, the Company must use significant 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 stand-alone selling price for each performance obligation identified in the contract for the allocation of 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 as described further below.

The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. In developing the stand-alone 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 validates the stand-alone selling price for performance obligations by evaluating whether changes in the key assumptions used to determine the stand-alone selling prices will have a significant effect on the allocation of transaction price between multiple performance obligations. The Company records any amounts received prior to satisfying the revenue recognition criteria as deferred revenue. Amounts recognized as revenue, but not yet received or invoiced are recorded within other receivables on the condensed consolidated balance sheet.

Cystic Fibrosis Foundation Development Agreement

The Development Program Letter Agreement (the “CFF Agreement”) with the Cystic Fibrosis Foundation (CFF or CF Foundation) is within the scope of ASC 606. Under the CFF Agreement, CFF made an upfront payment of $200,000 and will make milestone payments to the company as certain milestones defined in the agreement are met. The Company has determined that there is one performance obligation under the CFF Agreement. Hence, the entire estimated transaction price is allocated to this combined performance obligation and is recognized as revenue by measuring progress using the input (cost-to-cost) method, limited by the variable consideration attributed to the probable completion of certain milestones as defined in the agreement.

For the three months ended September 30, 2019 and 2018, grant revenue from the CF Foundation totaled approximately $0 and $1.0 million , respectively, and for the nine months ended September 30, 2019 and 2018, totaled approximately $1.0 million and $1.4 million , respectively. All grant revenue was derived from our award agreement with the CF Foundation.

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Serum License Agreement

In July 2019, the Company and Serum International B.V. (“SIBV”), an affiliate of Serum Institute of India Private Limited, entered into an option agreement which granted SIBV the option to license multiple programs from the Company and access the Company’s MabIgX® platform technology for asset identification and selection. The Company received an upfront cash payment of $5 million upon execution of this option agreement. In connection with the option agreement, SIBV made an equity investment whereby the Company issued 801,820 shares of its restricted common stock in a private placement to SIBV for total gross proceeds of $10 million.

In September 2019, the Company and Serum AMR Products (“SAMR”), a party under common ownership of SIBV, entered into a License, Development and Commercialization Agreement (the “License Agreement”). Pursuant to the License Agreement, the Company was to receive upfront payments totaling $15 million, of which $5 million was received in July 2019 through the option agreement referred to above, and may receive milestone payments and royalty-based payments from SAMR if certain milestones and sales levels as defined in the License Agreement are met. See Note 6 for details of the License Agreement.

Given the equity investment by SIBV was negotiated in conjunction with the option agreement, which resulted in the execution of the License Agreement, all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based on their fair value. See Note 9. The Company allocated the estimated net proceeds received from the sale of the restricted common stock and upfront payment from the License Agreement of approximately $24.2 million accordingly:

· the Company recorded approximately $19.6 million to deferred revenue based on the $15 million from upfront payments under the License Agreement and approximately $4.6 million from the equity allocation;

· the Company capitalized approximately $1.0 million to contract costs which is included in long term other assets, which consists of approximately $0.4 million issuance costs from the equity allocation and approximately $0.6 million in other direct costs to obtain the License Agreement; and

· the Company recorded approximately $5.0 million, which represented the fair value of the restricted common stock issued of $5.4 million, net of $0.4 of issuance costs, to stockholders’ equity within the Company’s condensed consolidated balance sheet (unaudited) as of September 30, 2019.

In accordance with ASC 606, the Company determined that no performance obligations were satisfied as of September 30, 2019, and therefore, no revenue related to the License Agreement was recognized for the nine months ended September 30, 2019. The Company is in the process of evaluating the number of performance obligations, the transaction price, the allocation of the transaction price to each performance obligation and the expected timing of when the Company would satisfy each performance obligation.

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. While the Company has not completed its evaluation of the License Agreement under ASC 606, the Company has estimated the classification between current and noncurrent deferred revenue related to the License Agreement within its condensed consolidated balance sheet (unaudited) at September 30, 2019. See Note 6 for details of the License Agreement.

Costs for Collaborative Arrangements

Costs incurred under collaborative arrangements include personnel costs, laboratory supplies, and fees paid to third parties. These amounts are included in research and development in the accompanying condensed consolidated statement of operations. For the three and nine months ended September 30, 2018, the Company incurred expenses of $170,000 and $488,000, respectively, related to its collaborative arrangement. The Company did not incur any expenses related to its collaborative arrangement during the three and nine months ended September 30, 2019 due to the termination of the Company’s collaborative arrangement in 2018.

Research and Development

We recognize research and development expenses as they are 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.

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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.

Stock-Based Compensation

Effective January 1, 2019, the Company early adopted Accounting Standards Update (“ASU”) No. 2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. The Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values, which the Company determines using the BSM option pricing 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.

Prior to the completion of the Company’s initial public offering of common stock on August 16, 2018, due to the absence of a public market trading for the Company’s common stock, it was necessary to estimate the fair value of the common stock underlying the Company’s stock-based awards when performing fair value calculations.

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 positions 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.

Comprehensive Loss

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

Loss Per Share

Basic loss per common share is calculated by dividing net loss available to common shareholders for the period by the weighted-average number of common shares outstanding during the period. For diluted loss per share calculation purposes, the net loss available to commons shareholders is adjusted to add back any preferred stock dividends reflected in the condensed consolidated statement of operations for the respective periods.

The following potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

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	Three and Nine Months Ended
	September 30,
	2019	2018
	(unaudited)	(unaudited)
Stock options to purchase common stock	1,415,169	789,401
Common stock warrants	1,733,322	1,966,930
	3,148,491	2,756,331

JOBS Act Accounting Election

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to take advantage of this provision and, as a result, we will adopt the extended transition period available under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided under the JOBS Act.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in ASC 605 and creates a new topic, ASC 606. In 2015 and 2016, the FASB issued additional ASUs related to ASC 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, and licensing, and they include other improvements and practical expedients. Companies have the option of applying this new guidance retrospectively to each prior reporting period presented (the full retrospective method) or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application (the modified retrospective method).

The Company only had one contract, the CFF Agreement, within the scope of ASC 606 as of the adoption date. The cumulative-effect of adopting ASC 606 on January 1, 2019, using the modified retrospective method, was immaterial. The most significant changes under ASC 606 relate to the Company’s determination of transaction price at inception and each reporting period, the revenue recognition pattern under step (v) above for the CFF Agreement as well as treatment of variable consideration in the form of milestone payments. Under ASC 605, the Company recognized revenue under the milestone method up to the limit of the prior approval funding amounts, and when the Company determined that it had earned the right to receive the recognized portion according to the terms of the grant awarded. Upfront payment of $200,000 was recognized straight-line over the term of the contract as the Company believed the upfront fee related to services performed throughout the contract period and the upfront fee did not represent a substantive milestone within the agreement. Under ASC 606, the Company is recognizing the revenue allocated to the one performance obligation measuring progress using the input (cost-to-cost) method, limited by the variable consideration attributed to the probable completion of certain milestones as defined in the agreement.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which is intended to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For public entities, ASU 2018-07 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2018-07 is effective for the Company for the year ending on December 31, 2020, and all interim periods within. Early adoption is permitted. The Company early adopted this standard on January 1, 2019. The adoption of this standard did not have a material effect on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which provides clarification to ASU 2016-02. These ASUs (collectively, the new lease standard) require an entity to recognize a lease liability and a right-of-use asset on the balance sheet for leases with lease terms of more than twelve months. Lessor accounting is largely unchanged, while lessees will no longer be provided with a source of off-balance sheet financing. Initial guidance required the adoption of the new lease standard using the modified retrospective transition method. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842)—Targeted Improvements, which allows entities to elect an

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optional transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoptions rather than in the earliest period presented. In March 2019, FASB issued ASU 2019-01, Codification improvements, which provides clarification on implementation issued associated with adopting ASU 2016-02. ASU 2019-01 enhances the guidance in ASC 842 surrounding the fair value of underlying assets for lessors, presentation of sales-type and direct financing leases on the statement of cash flows, and transition guidance surrounding accounting changes and error corrections. This guidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As a result of Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company for the year ended December 31, 2020, and all interim periods within. In July 2019, the FASB voted to issue proposals that would delay the effective date for adopting the leasing standard updates to Topic 842 for private companies, not-for-profit organizations, and smaller reporting companies. If the proposed adoption date deferral is passed, ASU 2016-02 would be effective for the Company for the year ended December 31, 2021, and all interim periods within, due to its option to defer the adoption of new accounting standards under the JOBS Act. Early adoption is permitted. While the Company continues to review its current accounting policies and practices to identify potential differences that would result from applying the new guidance, the Company expects that its non-cancellable operating lease commitments with a term of more than twelve months will be subject to the new guidance and recognized as right-of-use assets and operating lease liabilities on the Company’s condensed consolidated balance sheets upon adoption. The Company expects to elect transitional practical expedients such that the Company will not need to reassess whether contracts are leases and will retain lease classification and initial direct costs for leases existing prior to the adoption of the new lease standard.

3. Fair Value Disclosure

The carrying value of the Company’s cash and cash equivalents, prepaid expenses and other current assets, other assets, accounts payable, and accrued liabilities approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level I	Unadjusted quoted prices in active markets for identical assets or liabilities;
Level II	Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices 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 III	Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

There were no fair value measurements as of September 30, 2019.

	Fair Value at December 31, 2018
($ in thousands)	Total		Level 1		Level 2		Level 3
Assets:
Deferred charge related to stock options	$	455	$	—	$	455	$	—
Totals	$	455	$	—	$	455	$	—
Liabilities:
Stock option liability	$	455	$	—	$	455	$	—
Totals	$	455	$	—	$	455	$	—

4. Balance Sheet Components

Property and Equipment, net

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

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	September 30,			December 31,
	2019			2018
	(unaudited)
Lab equipment	$	1,790		$	1,737
Computer equipment and software	25			25
Total property and equipment	1,815			1,762
Less: Accumulated depreciation	(740		)	(491		)
Property and equipment, net	$	1,075		$	1,271

Depreciation expense was approximately $86,000 and $73,000 for the three months ended September 30, 2019 and 2018, respectively, and approximately $249,000 and $196,000 for the nine months ended September 30, 2019 and 2018, respectively.

Intangible Assets, net

Intangible assets, net consist of the following (in thousands):

	September 30,			December 31,
	2019			2018
	(unaudited)
Licenses	$	81		$	81
Less: Accumulated amortization	(47		)	(43		)
Intangible assets, net	$	34		$	38

Amortization expense was approximately $1,000 for both the three month periods ended September 30, 2019 and 2018, respectively, and approximately $4,000 for both the nine month periods ended September 30, 2019 and 2018, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	September 30,		December 31,
	2019		2018
	(unaudited)
Research and development services	$	2,376	$	2,179
Stock option liability	—		455
Payroll related expenses	224		254
Professional services	263		56
Accrued liabilities	$	2,863	$	2,944

5. Equity Method Investment

On February 11, 2018, the Company entered into a joint venture agreement (the “JV Agreement”) with Shenzen Hepalink Pharmaceutical Group Co., Ltd., a related party, principal shareholder of the Company, and a Chinese entity (“Hepalink”), for developing and commercializing products for infectious diseases. Under the terms of the JV Agreement, the Company is obligated to contribute $1 million and the license of its technology relating to the Company’s AR-101 and AR-301 product candidates for use in the joint venture entity (the “JV Entity”) in the territories of the Republic of China, Hong Kong, Macau and Taiwan (the “Territory”) and initially owns 49% of the JV Entity. On July 2, 2018, the JV Entity received final approval from the government of the Peoples Republic of China.

On August 6, 2018, the Company entered into an amendment to the JV Agreement with Hepalink whereby the Company agreed to additionally contribute an exclusive, revocable, and royalty-free right and license to its AR-105 product candidate in the Territory. Pursuant to the JV Agreement and the amendment, Hepalink initially owns 51% of the JV Entity and is obligated to contribute the equivalent of $7.2 million to the JV Entity. Additionally, Hepalink is obligated to make an additional equity investment of $10.8 million or more at the time of the JV Entity’s first future financing.

The Company evaluated the accounting for the JV Agreement entered into noting that it did not meet the accounting definition of a joint venture and instead meets the definition of a variable interest entity. The Company concluded that it is not the primary beneficiary of the JV Entity and therefore is not required to consolidate the entity. This conclusion was based on the fact that

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the equity-at-risk is insufficient to support operations without additional investment and that the Company does not hold decision-making power over activities that significantly impact the JV Entity’s operations. The Company accounted for its investment in the JV Entity as an equity method investment. The Company recorded the equity method investment at $1 million which represents the Company’s contribution into the JV Entity. The Company’s license contributed to the JV Entity was recorded at its carryover basis of $0. For the three and nine months ended September 30, 2019, the Company recognized approximately $282,000 and $910,000 losses, respectively. For both the three- and nine-month periods ended September 30, 2018, the Company recognized approximately $20,000 losses from the operations of the JV Entity. The Company did not start to recognize any losses from the operations of the JV Entity until the third quarter of 2018 as the JV operations had not started until the third quarter of 2018. As of September 30, 2019 and December 31, 2018, the Company’s equity method investment in the JV Entity was approximately $50,000 and $960,000, respectively.

6. License Agreement

In July 2019, the Company and SIBV entered into an option agreement which granted SIBV the option to license multiple programs from the Company and access the Company’s MabIgX® platform technology for asset identification and selection. The Company received an upfront cash payment of $5 million upon execution of this option agreement. In connection with the option agreement, SIBV made an equity investment whereby the Company issued 801,820 shares of its restricted common stock in a private placement to SIBV for total gross proceeds of $10 million, and after deducting commissions of approximately $0.8 million, the net proceeds were approximately $9.2 million. See Note 9.

In September 2019, the Company entered into a License Agreement with SAMR, a wholly owned subsidiary of SIBV, in which the Company granted to SAMR multiple exclusive license programs, the Company’s MabIgX® platform technology for identification, selection and development of up to five product candidates, and manufacturing rights. As the Company had an unconditional right to the consideration under the License Agreement, it recorded a $10 million receivable which is included in other receivables and the corresponding contract liability was recorded to deferred revenue within its condensed consolidated balance sheet (unaudited) at September 30, 2019. The Company received the $10 million upfront cash payment in October 2019, which is in addition to the $5 million that was initially received by the Company in July 2019 upon entering into the option agreement. The Company may receive milestone payments and royalty-based payments as certain milestones and sales levels as defined in the License Agreement are met. Given the equity investment by SIBV was negotiated with the option agreement, which then resulted in the execution of the License Agreement, all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based on their fair value. See Note 2.

7. Warrants

Common Stock Warrant Expense

In November 2015, an engagement letter was effectuated with the Company’s former Vice Chairman of the Board of Directors. Under the terms of the engagement, upon being appointed the Company’s Vice Chairman and the closing of a minimum of $25 million in gross proceeds from sales of its Series A convertible preferred stock under a private placement memorandum, the Vice Chairman would receive 234,860 common stock warrants. On December 12, 2016, both of the aforementioned conditions had been met and the Company issued 234,860 common stock warrants at an exercise price of $14.50 per share.

The fair value of the warrants was determined using a Monte Carlo simulation method which calculates the estimated value based on running numerous simulations and analyzing the various outcomes. The total fair value of the award was approximately $661,000 and is being amortized over the five-year vesting period. On August 13, 2019, this board member was not up for re-election at the annual shareholder’s meeting, therefore the vesting of the common stock warrants ceased on August 13, 2019 resulting in the cancellation of 109,601 warrants. For the three months ended September 30, 2019 and 2018, the Company recorded stock-based compensation expense of approximately $16,000 and $33,000, respectively, and for the nine months ended September 30, 2019 and

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2018, the Company recorded stock-based compensation expense of approximately $82,000 and $99,000, respectively, related to these warrants.

8. Convertible Preferred Stock

In connection with the IPO, the holders of a majority of the Series A Preferred Stock approved the mandatory conversion of the Series A Preferred Stock into one share of common stock for every 6.417896 shares of Series A Preferred Stock which converted immediately prior to the consummation of the IPO. Upon conversion, a total of 5,744,586 shares of common stock were issued for the converted Series A Preferred Stock which includes accrued dividends upon conversion. All warrants to purchase Series A Preferred Stock became warrants to purchase common stock, adjusted for the 1 for 6.417896 shares reverse stock split.

9. Common Stock

In July 2019, the Company and SIBV, entered into an option agreement which granted SIBV the option to license multiple programs from the Company and access the Company’s MabIgX® platform technology for asset identification and selection. In connection with the option agreement, SIBV made an equity investment whereby the Company issued 801,820 shares of its restricted common stock to SIBV in a private placement for total gross proceeds of $10 million, and after deducting commissions of approximately $0.8 million, the net proceeds were approximately $9.2 million. Under the arrangement, the Company did not register the common stock purchased by SIBV with the Securities and Exchange Commission and has no contractual obligation to register the shares. Therefore, the common stock is subject to restrictions on transfer, including but not limited to a minimum holding period of at least six months. In September 2019, the Company entered into a License Agreement with SAMR, a wholly owned subsidiary of SIBV. See Note 6 for details of the License Agreement.

Given the equity investment by SIBV was negotiated with the option agreement, which then resulted in the execution of the License Agreement, all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based on their fair value. The Company measured the fair value of the restricted common stock issued to SIBV based upon a Black-Scholes valuation to measure the lack of marketability discount. The Black-Scholes valuation used the following assumptions: expected term of one year, expected volatility of 84%, risk-free interest rate of 1.94%, and dividend yield of 0%. The Company allocated the estimated net proceeds received from the sale of the restricted common stock and upfront payment from the License Agreement of approximately $24.2 million accordingly:

As of September 30, 2019 (unaudited), the Company had reserved the following common stock for future issuance:

Shares reserved for exercise of outstanding warrants to purchase common stock		1,733,322
Shares reserved for exercise of outstanding options to purchase common stock		1,415,169
Shares reserved for issuance of future options		168,359
Total		3,316,850

10. Stock-Based Compensation

In May 2014, the Company adopted, and the shareholders approved, the 2014 Equity Incentive Plan (the “2014 Plan”). Under the 2014 Plan, 233,722 shares of the Company’s common stock have been reserved for the issuance of stock options to employees, directors, and consultants, under terms and provisions established by the Board of Directors. Under the terms of the 2014 Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive and nonstatutory stock options may not be less than 110% of fair market value. The terms of options granted under the 2014 Plan may not exceed ten years.

In addition, the 2014 Plan contains an “evergreen” provision allowing for an annual increase in the number of shares of our common stock available for issuance under the 2014 Plan on the first day of each fiscal year beginning in fiscal year 2015. The annual increase in the number of shares shall be equal to the greater of:

· 77,908 shares of our common stock; or

· Such number of shares that are equal to the number of shares sufficient to cause the option pool to equal 20% of the issued and outstanding common stock of the Company, provided, however, that if on any calculation date the number of shares equal to 20% of the total issued and outstanding shares of common stock is less than the number of shares of common stock available for issuance under the 2014 Plan, no change will be made to the aggregate number of shares of

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common stock issuable under the 2014 Plan for that year (such that the aggregate number of shares of common stock available for issuance under the 2014 Plan will never decrease).

The number of shares, terms, and vesting periods are determined by the Company’s Board of Directors or a committee thereof on an option by option basis. Options generally vest ratably over service periods of up to four years and expire ten years from the date of grant.

The fair value of the options granted during the periods presented were estimated using the following assumptions:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Expected term (in years)	6.25	6.25	6.25	6.25
Expected volatility	79%	77% - 78%	78% - 95%	77% - 79%
Risk-free interest-rate	1.59% - 1.92%	2.87% - 2.99%	1.59% - 2.67%	2.22% - 2.99%
Dividend yield	0%	0%	0%	0%

Stock option activity for the nine months ended September 30, 2019 is represented in the following table:

			Options Outstanding
	Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price
Balances at December 31, 2018	—		825,205		$	12.15
Additional shares reserved	763,973		—		—
Options granted	(661,374	)	661,374		8.74
Options exercised	—		(5,650	)	2.89
Options cancelled	65,760		(65,760	)	10.10
Balances at September 30, 2019	168,359		1,415,169		$	10.32

The Company recognized stock compensation related to stock options as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Research and development	$	168	$	159	$	539	$	439
General and administrative	351		235		900		745
Total	$	519	$	394	$	1,439	$	1,184

As of September 30, 2019, the Company had unrecognized stock-based compensation related to stock options of approximately $5.6 million. As of September 30, 2019, the intrinsic value of all vested options and outstanding options was approximately $0.6 million and $0.6 million, respectively.

11. Commitments and Contingencies

Leases

The Company leases office and lab space in San Jose, California under an operating lease arrangement which can be terminated at any time with 90 days’ notice. The Company recognizes rent expense as incurred. The Company recognized rent expense of approximately $82,000 and $78,000 for the three months ended September 30, 2019 and 2018, respectively, and approximately $245,000 and $233,000 for the nine months ended September 30, 2019 and 2018, respectively.

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Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may incur charges in the future as a result of these indemnification obligations.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

From time to time, the Company may be involved in various legal proceedings, claims and litigation arising in the ordinary course of business. As of September 30, 2019 and December 31, 2018, there were no pending legal proceedings.

Grant Income

The Company receives various grants that are subject to an audit by the grantors or their representatives. Such audits could result in requests for reimbursement for expenditures disallowed under the terms of the grant; however, management believes that these disallowances, if any, would be immaterial.

Cystic Fibrosis Foundation Agreement

In December 2016, the Company received an award for up to $2,902,097 from the CFF to advance research on potential drugs utilizing inhaled gallium citrate anti-infective. In November 2018, the CFF increased the award to $7,466,000. Under the award agreement, the CFF will make payments to the Company as certain milestones are met. The award agreement also contains a provision whereby if the Company spends less on developing a potential drug utilizing inhaled gallium citrate anti-infective than the Company actually receives under this award agreement, the Company will be required to return the excess portion of the award to the CFF. At the end of any reporting period, if the Company determines that the cumulative amount spent on this program is less than the cumulative cash received from the CFF, the Company will record the excess amount received as a liability.

In the event that development efforts are successful and the Company commercialized a drug from these related development efforts, the Company may be subject to pay to CFF a one-time amount equal to nine times the actual award received. Such amount shall be paid in not more than five annual installments, as follows: within ninety days of the end of the calendar year in which the First Commercial Sale occurs, and within ninety days of the end of each subsequent calendar year until the amount is paid. The Company shall pay 15% of Net Sales for that calendar year up to the amount of the award (except that in the fifth installment, if any, the Company shall pay the remaining unpaid portion of the awarded amount).

In the event that Aridis licenses rights to the product in the field to a third party, sells the product, or consummates a change of control transaction prior to the first commercial sale, the Company shall pay to CFF an amount equal to 15% of the amounts received by Aridis and its shareholders in connection with a Disposition Transaction (whether paid upfront or in accordance with subsequent milestones and whether paid in cash or property) up to nine times the actual award received. The payment shall be made within sixty days after the closing of such a transaction.

12. Related Parties

On February 11, 2018, the Company entered into a Joint Venture (“JV”) Agreement with Hepalink which is a related party and principal shareholder in the Company, pursuant to which the Company formed a JV Entity for developing and commercializing products for infectious diseases in the greater China territories. It was agreed by the parties that the Company shall be reimbursed for certain legal and contract manufacturing expenses related to the clinical drug supply for a Phase 3 clinical study of AR-301 and the clinical drug supply for a clinical study of AR-105. As of September 30, 2019 and December 31, 2018, the Company recorded approximately $451,000 and $360,000, respectively, in other receivables on the condensed consolidated balance sheet for amounts owed to the Company by the JV Entity under this arrangement. The Company expects the amounts to be collectable and as a result, no reserve for uncollectability was established.

13. Subsequent Events

In October 2019, the Company received an upfront payment of $10 million from SAMR pursuant to the License Agreement (see Note 6).

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our operations and business prospects are always subject to risks and uncertainties including, among others:

· the timing of regulatory submissions;

· our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;

· approvals for clinical trials may be delayed or withheld by regulatory agencies;

· preclinical and clinical studies will not be successful or confirm earlier results or meet expectations or meet regulatory requirements or meet performance thresholds for commercial success;

· risks relating to the timing and costs of clinical trials, the timing and costs of other expenses;

· risks associated with obtaining funding from third parties;

· management and employee operations and execution risks;

· loss of key personnel;

· competition;

· risks related to market acceptance of products;

· intellectual property risks;

· assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches;

· risks associated with the uncertainty of future financial results;

· our ability to attract collaborators and partners; and

· risks associated with our reliance on third party organizations.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The condensed consolidated financial statements (unaudited) included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2018, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-K filed with the SEC on March 28, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

All dollar amounts in this discussion and analysis are to the nearest thousand unless otherwise noted.

Overview

We are a late-stage biopharmaceutical company focused on the discovery and development of non-antibiotic anti-infectives. A significant focus is on targeted immunotherapy using fully human monoclonal antibodies, or mAbs, to treat life-threatening infections. mAbs represent an innovative treatment approach that harnesses the human immune system to fight infections and are designed to overcome the deficiencies associated with current therapies, such as rise in drug resistance, short duration of response, negative impact on the human microbiome, and lack of differentiation among the treatment alternatives. The majority of our product candidates are derived by employing our differentiated antibody discovery platform called MabIgX. Our proprietary product pipeline is comprised of fully human mAbs targeting specific pathogens associated with life-threatening bacterial infections, primarily hospital-acquired pneumonia, or HAP, and ventilator-associated pneumonia, or VAP.

Our lead product candidate, AR-301 has exhibited promising preclinical data and Phase 1/2a clinical data from a Phase 1/2a clinical study in patients. AR-301 targets the alpha toxin produced by gram-positive bacteria Staphylococcus aureus , or S. aureus, a common pathogen associated with HAP and VAP. In contrast to other programs targeting S. aureus toxins, we are developing AR-301 as a treatment of pneumonia, rather than prevention of S. aureus colonized patients from progression to pneumonia. We initiated a Phase 3 pivotal trial evaluating AR-301 for the treatment of HAP and VAP, and expect to report top-line results in early 2021.

To complement and diversify our portfolio of targeted monoclonal antibodies, we are developing a broad spectrum small molecule non-antibiotic anti-infective gallium citrate (AR-501). AR-501 is being developed in collaboration with the Cystic Fibrosis Foundation (CFF) as a chronic inhaled therapy to treat lung infections in cystic fibrosis. AR-501 has been granted by the FDA Orphan Drug, Fast Track and Qualified Infectious Disease Product (QIDP) designations, and during the third quarter of 2019, the European Medicines Agency (EMA) granted the program Orphan Drug Designation. We initiated a Phase 1/2a clinical trial of the inhalable formulation of gallium citrate, which is being evaluated for the treatment of chronic lung infections associated with cystic fibrosis. We expect to report data from the Phase 1 portion of the trial into which healthy subjects were enrolled in the first half of 2020 and the Phase 2a portion with cystic fibrosis subjects in the second quarter of 2021.

In September 2019, we reported results for our global Phase 2 clinical trial evaluating our product candidate AR-105, a fully human IgG1 monoclonal antibody for the treatment of VAP caused by gram-negative Pseudomonas aeruginosa (P. aeruginosa). The completed study did not meet its primary endpoint of demonstrating superiority in clinical cure rates on Day 21 compared to placebo. Furthermore, there was a statistically significant imbalance in all-cause mortality, as well as serious adverse event (SAE) rates between treatment groups that favored placebo. However, no SAE or mortality in the study was deemed to be drug related by the study investigators or the study’s data monitoring committee. While no further development resources will be allocated towards AR-105, we will continue to analyze the full data set to better understand these top-line results. AR-105 has a different mechanism of action, directed against a different bacteria, and evaluated in a different patient population as compared to AR-301.

To date, we have devoted substantially all of our resources to research and development efforts relating to our therapeutic candidates, including conducting clinical trials and developing manufacturing capabilities, in-licensing related intellectual property, protecting our intellectual property and providing general and administrative support for these operations. We have generated revenue from our payments under our collaboration strategic research and development contracts and federal awards and grants, as well as awards and grants from not-for-profit entities and fee for service to third party entities. Since our inception, we have funded our operations primarily through these sources and the issuance of common stock, convertible preferred stock and debt securities.

We have incurred losses in most years since our inception. Our net losses were approximately $24.0 million for the nine months ended September 30, 2019 and $22.1 million for the year ended December 31, 2018. As of September 30, 2019, we had an

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accumulated deficit of approximately $95.1 million. As of September 30, 2019, we had $17.3 million of cash and cash equivalents. Substantially all our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, strengthening our manufacturing capabilities, and from general and administrative costs associated with our operations.

On August 16, 2018, we completed an initial public offering or “IPO” of our common stock, in which we sold and issued 2,000,000 shares, plus 192,824 shares subsequently sold pursuant to the partial exercise by the underwriters of their over-allotment option, at an issuance price of $13.00 per share, less underwriting discounts and commissions. As a result of the IPO and the exercise of the underwriters’ over-allotment option, we received total net proceeds of approximately $25.1 million, net of underwriting and other offering expenses. Our expenses and resulting cash burn during the nine months ended September 30, 2019, were largely due to costs associated with launching the Phase 3 study of AR-301 for the treatment of VAP caused by the Staphylococus aureus bacteria and the Phase 1/2 study of AR-501 for the treatment of chronic lung infections associated with cystic fibrosis. These studies’ startup phases, which contain a disproportionately high percentage of total study expenses, have been largely completed.

In July 2019, we issued and sold 801,820 shares of restricted common stock in a private placement to Serum International B.V. (“SIBV”), an affiliate of Serum Institute of India Private Limited, and received total gross proceeds of $10 million, and after deducting commissions of approximately $0.8 million, the net proceeds were approximately $9.2 million. In addition, we received an upfront cash payment of $5 million upon the execution of an option agreement with SIBV and received an additional upfront payment of $10 million in October 2019 in connection with a license agreement it executed in September 2019. We believe that our current available cash and cash equivalents, along with the additional cash received in October 2019, will not be sufficient to fund our planned expenditures and meeting our obligations for at least the one-year period following our financial statements issuance date.

We have not yet achieved commercialization of our products and have a cumulative net loss from our operations. We will continue to incur net losses for the foreseeable future. Our condensed consolidated financial statements (unaudited) have been prepared assuming that we will continue as a going concern. We will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through the sale of equity and/or debt securities. Historically, our principal sources of cash have included proceeds from grant funding, fees for services performed, issuances of convertible debt and the sale of our preferred stock. Our principal uses of cash have included cash used in operations. We expect that the principal uses of cash in the future will be for continuing operations, funding of research and development including our clinical trials and general working capital requirements.

Substantially all our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, building our manufacturing capabilities, and from general and administrative costs associated with our operations.

We anticipate that our expenses will increase substantially if and as we:

· continue enrollment in our ongoing clinical trials;

· initiate new clinical trials;

· seek to identify, assess, acquire and develop other products, therapeutic candidates and technologies;

· seek regulatory and marketing approvals in multiple jurisdictions for our therapeutic candidates that successfully complete clinical studies;

· establish collaborations with third parties for the development and commercialization of our products and therapeutic candidates;

· make milestone or other payments under our agreements pursuant to which we have licensed or acquired rights to intellectual property and technology;

· seek to maintain, protect, and expand our intellectual property portfolio;

· seek to attract and retain skilled personnel;

· incur the administrative costs associated with being a public company and related costs of compliance;

· create additional infrastructure to support our operations as a commercial stage public company and our planned future commercialization efforts; and

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· experience any delays or encounter issues with any of the above.

We expect to continue to incur significant expenses and increasing losses for at least the next several years. Accordingly, we anticipate that we will need to raise additional capital in order to obtain regulatory approval for, and the commercialization of our therapeutic candidates. Until such time that we can generate meaningful revenue from product sales, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any approved therapies or products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could adversely affect our business, financial condition and results of operations.

Financial Overview

Reverse Stock Split

On August 3, 2018, we effected a 1 for 6.417896 reverse stock split of our common stock. The par value and the number of authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split. All common stock share and per-share amounts for all periods presented in this Quarterly Report on Form 10-Q have been adjusted retroactively to reflect the reverse stock split.

Initial Public Offering

On August 13, 2018, our registration statement on Form S-1 relating to our initial public offering of our common shares (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). The IPO closed on August 16, 2018 and we issued and sold 2,000,000 common shares at a public offering price of $13.00 per share. Gross proceeds totaled $26.0 million and net proceeds totaled $22.8 million after deducting underwriting discounts and commissions of $1.8 million and other offering expenses of approximately $1.4 million. The underwriters of the IPO partially exercised their over-allotment option, and on August 30, 2018 we issued and sold 192,824 common shares at a public offering price of $13.00 per share for gross proceeds totaling approximately $2.5 million and net proceeds of approximately $2.3 million after deducting underwriting discounts and commissions of approximately $0.2 million.

In connection with the IPO, the holders of a majority of the Series A Preferred Stock approved the mandatory conversion of the Series A Preferred Stock into one share of common stock for every 6.417896 shares of Series A Preferred Stock which converted immediately prior to the consummation of the IPO. Upon conversion, a total of 5,744,586 shares of common stock were issued for the converted Series A Preferred Stock which includes the accrued dividends upon conversion. All warrants to purchase Series A Preferred Stock became warrants to purchase common stock, adjusted for the 1 for 6.417896 shares reverse stock split.

Revenue

Our sources of revenue are grants and contract services provided to third party entities related to research and development activities under specific agreements with such granting authorities and third parties. As there is a contractually agreed upon price, and collectability from the granting authorities or other entities is reasonably assured, revenue for these services are earned according to the terms of the respective agreements, usually as progress is made throughout the term of the agreement or as certain material milestones are met. Primarily all our revenue to date has been derived from our previously held contracts with the National Institutes of Health, our collaboration agreement with GlaxoSmithKline Biologicals S.A., (GSK) and our continuing grant agreement with the Cystic Fibrosis Foundation (CF Foundation or CFF).

Cystic Fibrosis Foundation Development Agreement

Under the Development Program Letter Agreement (the “CFF Agreement”) with CFF, entered into in December 2016, we recognized revenue of $0 and $1.0 million for the three months ended September 30, 2019 and 2018, respectively, and recognized $1.0 million and $1.4 million for the nine months ended September 30, 2019 and 2018, respectively. We adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) on January 1, 2019. The cumulative-effect of adopting ASC 606 on January 1, 2019, using the modified retrospective method, was immaterial. Under ASC 606, we are recognizing revenue over the expected research and development period using the input (cost-to-cost) method, limited by the variable consideration attributed to the probable completion of certain milestones as defined in the agreement. For the foreseeable future, we expect substantially all of our revenue will be generated from our grant with CFF, and any other collaborations or agreements we may enter into.

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Serum License Agreement

In July 2019, we entered into an option agreement with SIBV which granted SIBV the option to license multiple programs from us and access our MabIgX® platform technology for asset identification and selection. We received an upfront cash payment of $5 million upon execution of this option agreement. In connection with the option agreement, SIBV made an equity investment whereby we issued 801,820 shares of our restricted common stock in a private placement to SIBV for total gross proceeds of $10 million.

In September 2019, we entered into a License, Development and Commercialization Agreement (the “License Agreement”) with Serum AMR Products (“SAMR”), a party under common ownership of SIBV. Pursuant to the License Agreement, we were to receive upfront payments totaling $15 million, of which $5 million was received in July 2019 through the option agreement referred to above, and may receive milestone payments and royalty-based payments from SAMR if certain milestones and sales levels as defined in the License Agreement are met.

Given the equity investment by SIBV was negotiated in conjunction with the option agreement, which resulted in the execution of the License Agreement, all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based on their fair value. We allocated the estimated net proceeds received from the sale of the restricted common stock and upfront payment from the License Agreement of approximately $24.2 million accordingly:

· we recorded approximately $19.6 million to deferred revenue based on the $15 million from upfront payments under the License Agreement and approximately $4.6 million from the equity allocation;

· we capitalized approximately $1.0 million to contract costs which is included in long term other assets, which consists of approximately $0.4 million issuance costs from the equity allocation and approximately $0.6 million in other direct costs to obtain the License Agreement; and

· we recorded approximately $5.0 million, which represented the fair value of the restricted common stock issued of $5.4 million, net of $0.4 of issuance costs, to stockholders’ equity within our condensed consolidated balance sheet (unaudited) as of September 30, 2019.

In accordance with ASC 606, we determined that no performance obligations were satisfied as of September 30, 2019, and therefore, no revenue related to the License Agreement was recognized for the nine months ended September 30, 2019. We are in the process of evaluating the number of performance obligations, the transaction price, the allocation of the transaction price to each performance obligation and the expected timing of when we would satisfy each performance obligation.

We expect that any revenue we generate for the foreseeable future will fluctuate from period to period as a result of the timing of when performance obligations and variable consideration criteria under the contract are satisfied.

Research and Development Expenses

We recognize research and development expenses as they are 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;

· 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. Nonrefundable 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.

We plan to increase our research and development expenses for the foreseeable future as we continue to develop our therapeutic programs, and subject to the availability of additional funding, further advance the development of our therapeutic candidates for additional indications and begin to conduct clinical trials. We typically use our employee and infrastructure resources across multiple research and development programs, and accordingly we have not historically allocated resources specifically to our individual clinical programs.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our therapeutic candidates is highly uncertain. 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 therapeutic candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of costs related to executive, finance, corporate development and administrative support functions, including stock-based compensation expenses and benefits for personnel in general and administrative functions. Other significant, general and administrative expenses include rent, accounting and legal services, obtaining and maintaining patents or other intellectual property rights, the cost of various consultants, occupancy costs, insurance premiums and information systems costs.

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We expect that our general and administrative expenses will increase as we continue to operate as a public company, continue to conduct our clinical trials and prepare for commercialization. We believe that these increases will likely include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel to support product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures, and similar requirements applicable to public companies.

Interest and Other Income, Net

Interest and other income, net consists primarily of interest on our cash balances.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements (unaudited), which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows:

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 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, revenue recognition, long lived assets, income taxes, assumptions used in the Black Scholes Merton (“BSM”) model to calculate the fair value of stock based compensation, Monte Carlo Simulation (“MSM”) model to calculate the fair value of warrants, deferred tax asset valuation allowances, valuation of the Company’s common and convertible preferred stock, fair value assumptions used in the valuation of warrants, preclinical study and clinical trial accruals and various accrued liabilities. Actual results could differ from those estimates.

Revenue Recognition

Effective January 1, 2019, we adopted ASC 606, using the modified retrospective transition method. Under this method, results for reporting periods beginning after January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 605. ASC 606 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. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity 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 a performance obligation. We only apply 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, we assess the goods or services promised within each contract, determines those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

We enter into licensing and development agreements which are within the scope of ASC 606, under which it may collaborate with third parties to research, develop, manufacture and commercialize its product candidates. The terms of these arrangements may

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include payment to us of one or more of the following: nonrefundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products.

As part of the accounting for customer arrangements, we must use significant 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 stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. We use judgment to determine whether milestones or other variable consideration should be included in the transaction price as described further below.

The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. In developing the stand-alone price for a performance obligation, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We validate the stand-alone selling price for performance obligations by evaluating whether changes in the key assumptions used to determine the stand-alone selling prices will have a significant effect on the allocation of transaction price between multiple performance obligations. We record any amounts received prior to satisfying the revenue recognition criteria as deferred revenue. Amounts recognized as revenue, but not yet received or invoiced are recorded within other receivables on the condensed consolidated balance sheet.

We only had one contract within the scope of ASC 606 upon adoption, the CFF Agreement. Under the CFF Agreement, CFF made an upfront payment of $200,000 and has and will make milestone payments to us as certain milestones defined in the agreement are met. We have determined that there is one performance obligation under the CFF Agreement. Hence, the entire transaction price is allocated to this combined performance obligation and is recognized as revenue by measuring progress using the input (cost-to-cost) method, limited by the variable consideration attributed to the probable completion of certain milestones as defined in the agreement.

Total grant revenue derived from our award agreement with the CF Foundation for the three months ended September 30, 2019 and 2018, was approximately $0 and $1.0 million, respectively, and for the nine months ended September 30, 2019 and 2018, was approximately $1.0 million and $1.4 million, respectively.

Stock-Based Compensation

Effective January 1, 2019, we early adopted ASU 2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. We recognize compensation expense for all stock-based awards based on the grant-date estimated fair values, which we determine using the BSM option pricing model, on a straight-line basis over the requisite service period for the award. We account for forfeitures as they occur.

Due to the absence of a public market trading for our common stock prior to going public in August of 2018, it was necessary to estimate the fair value of the common stock underlying our stock-based awards when performing fair value calculations. The estimated fair value of our common stock was determined using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants, or AICPA, Practice Aid: Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Fair Value of Common Stock

Prior to our initial public offering in August of 2018, to assist our board of directors with the determination of the exercise price of our stock options and the fair value of the common stock underlying the options, we obtained third-party valuations of our common stock as of various dates since we began granting options, with concluded fair values between $2.89 per share and $17.91 per share. Our board of directors considered the fair values of the common stock derived in the third-party valuations as one of the factors it considered when setting the exercise prices for options granted. The valuations were performed in accordance with applicable elements of the AICPA Practice Aid. The AICPA Practice Aid identifies various available methods for allocating enterprise value

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across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the AICPA Practice Aid, we considered the following methods:

· Option Pricing Method. Under the option pricing method, or OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options.

· Probability-Weighted Expected Return Method. Under the probability-weighted expected return method, or PWERM, common equity value is based upon an analysis of various future outcomes, such as an initial public offering, or IPO, merger or sale, dissolution, or continued operation as a private enterprise until a later exit date. The future allocated value is based upon the probability-weighted present values of expected future investment returns, considering each of the possible outcomes available to the enterprise, as well as the rights of each security class.

Our board of directors also considered a range of objective and subjective factors and assumptions in estimating the fair value of our common stock on the date of grant, including: progress of our research and development efforts; our operating results and financial condition, including our levels of available capital resources; rights and preferences of our common stock compared to the rights and preferences of our other outstanding equity securities; our stage of development and material risks related to our business; our commercial success in regard to our catheter sales; the achievement of enterprise milestones; the valuation of publicly-traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; equity market conditions affecting comparable public companies; the likelihood of achieving a liquidity event for the shares of common stock, such as an initial public offering given prevailing market and biotechnology sector conditions; and that the grants involved illiquid securities in a private company. Following the closing of our public offering in August 2018, the fair value of our common stock is determined based on the closing price of our common stock on The Nasdaq Capital Market on the date immediately prior to the date of grant.

Income Taxes

We account 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 bases 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. For the three and nine months ended September 30, 2019 and 2018, no income tax expense or benefit was recognized, primarily due to a full valuation allowance recorded against the net deferred tax asset.

We assess 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 positions sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. At each balance sheet date, unresolved uncertain tax positions must be reassessed, and we 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.

Going Concern

We assess and determine our ability to continue as a going concern under the provisions of ASC Topic 205-40, Presentation of Financial Statements—Going Concern, which requires us to evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that our annual and interim financial statements are issued. Certain additional financial statement disclosures are required if such conditions or events are identified. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting.

Determining the extent, if any, to which conditions or events raise substantial doubt about our ability to continue as a going concern, or the extent to which mitigating plans sufficiently alleviate any such substantial doubt, as well as whether or not liquidation is imminent, requires significant judgment by us. We have determined that there is substantial doubt about our ability to continue as a going concern for at least the one-year period following our financial statements issuance date, which have been prepared assuming that we will continue as a going concern. We have not made any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of us to continue as a going concern.

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Results of Operations

Comparison of the Three Months Ended September 30, 2019 and 2018

The following table summarizes our results of operations for the three months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended September 30,
	2019			2018			Change $
Grant revenue	$	—		$	1,022		$	(1,022	)
Operating expenses:
Research and development	6,011			6,907			(896		)
General and administrative	1,384			735			649
Total operating expenses	7,395			7,642			(247		)
Loss from operations	(7,395		)	(6,620		)	(775		)
Other income (expense):
Interest and other income, net	90			119			(29		)
Change in fair value of warrant liability	—			(1,388		)	1,388
Equity in net loss from equity method investment	(282		)	(20		)	(262		)
Net loss	$	(7,587	)	$	(7,909	)	$	322

Grant Revenue. Grant revenue decreased by $1.0 million from $1.0 million for the three months ended September 30, 2018 to none for the three months ended September 30, 2019 primarily due to the recognition of revenue by us related to the achievement of a milestone under the grant award from the CFF during the third quarter of 2018 and none during the third quarter of 2019.

Research and Development Expenses. Research and development expenses decreased by approximately $0.9 million from $6.9 million for the three months ended September 30, 2018 to $6.0 million for the three months ended September 30, 2019 due primarily to a decrease in spending on clinical trial activities for the Phase 2 study of our AR-105 program, which ended during the second quarter of 2019, and a decrease in spending on toxicology studies related to our AR-501 program, partially offset by an increase in spending on clinical trial activities for our AR-301 program and an increase in spending on the Ph 1/2a clinical trial of our AR-501 program which was initiated in the fourth quarter of 2018.

General and Administrative Expenses. General and administrative expenses increased by approximately $649,000 from $0.7 million for the three months ended September 30, 2018 to $1.4 million for the three months ended September 30, 2019 due primarily to an increase in personnel related expenses, including stock-based compensation, an increase in patent related fees, and an increase in directors’ and officers’ liabilities insurance expense.

Interest and Other Income, Net. Interest and other income, net decreased by approximately $29,000 from $119,000 for the three months ended September 30, 2018 to $90,000 for the three months ended September 30, 2019 due primarily due to a lower average cash balance.

Change in Fair Value of Warrant Liability. Change in fair value of warrant liability increased by approximately $1.4 million from a loss of $1.4 million for the three months ended September 30, 2018 to none for the three months ended September 30, 2019 due to our Series A convertible preferred stock being converted into common stock upon our IPO in August 2018.

Equity in Net Loss of Equity Method Investment. Loss from equity method investment increased by $262,000 from $20,000 for the three months ended September 30, 2018 to $282,000 for the three months ended September 30, 2019 due to our share of loss from our minority interest calculated under the equity method.

Comparison of the Nine Months Ended September 30, 2019 and 2018

The following table summarizes our results of operations for the nine months ended September 30, 2019 and 2018 (in thousands):

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	Nine Months Ended September 30,
	2019			2018			Change $
Grant revenue	$	1,022		$	1,367		$	(345	)
Operating expenses:
Research and development	19,782			17,418			2,364
General and administrative	4,638			2,489			2,149
Total operating expenses	24,420			19,907			4,513
Loss from operations	(23,398		)	(18,540		)	(4,858		)
Other income (expense):
Interest and other income, net	275			262			13
Change in fair value of warrant liability	—			1,632			(1,632		)
Equity in net loss from equity method investment	(910		)	(20		)	(890		)
Net loss	$	(24,033	)	$	(16,666	)	$	(7,367	)

Grant Revenue. Grant revenue decreased by $345,000 from $1.4 million for the nine months ended September 30, 2018 to $1.0 million for the nine months ended September 30, 2019. The decrease is primarily due to recognizing certain additional milestones related to the grant award from the CFF during the nine months ended September 2018.

Research and Development Expenses. Research and development expenses increased by approximately $2.4 million from $17.4 million for the nine months ended September 30, 2018 to $19.8 million for the nine months ended September 30, 2019 due primarily to an increase in spending on clinical trial activities and drug manufacturing for our AR-301 program and an increase in spending on the Ph 1/2a clinical trial of our AR-501 program which was initiated in the fourth quarter of 2018, partially offset by a decrease in spending on clinical trial activities and drug manufacturing for our AR-105 program and a decrease in spending on toxicology studies related to our AR-501 program.

General and Administrative Expenses. General and administrative expenses increased by approximately $2.1 million from $2.5 million for the nine months ended September 30, 2018 to $4.6 million for the nine months ended September 30, 2019 due primarily to an increase in professional service fees, an increase in directors’ and officers’ liabilities insurance expense, an increase in personnel related expenses, including stock-based compensation, and an increase in Delaware franchise taxes and patent related fees.

Interest and Other Income, Net. Interest and other income, net increased by approximately $13,000 from $262,000 for the nine months ended September 30, 2018 to $275,000 for the nine months ended September 30, 2019 due primarily to a higher rate of return on our cash balance partially offset by a lower average cash balance.

Change in Fair Value of Warrant Liability. Change in fair value of warrant liability decreased by approximately $1.6 million from a gain of $1.6 million for the nine months ended September 30, 2018 to none for the nine months ended September 30, 2019 due to our Series A convertible preferred stock being converted into common stock upon our IPO in August 2018.

Equity in Net Loss of Equity Method Investment. Loss from equity method investment increased by $890,000 from $20,000 for the nine months ended September 30, 2018 to $910,000 for the nine months ended September 30, 2019 due to our share of loss from our minority interest calculated under the equity method.

Liquidity, Capital Resources and Going Concern

Our IPO closed on August 16, 2018 and we issued and sold 2,000,000 common shares at a public offering price of $13.00 per share. Gross proceeds totaled $26.0 million and net proceeds totaled $22.8 million after deducting underwriting discounts and commissions of $1.8 million and other offering expenses of approximately $1.4 million. The underwriters of the IPO partially exercised their over-allotment option, and on August 30, 2018, we issued and sold 192,824 common shares at a public offering price of $13.00 per share for gross proceeds totaling approximately $2.5 million and net proceeds of approximately $2.3 million after deducting underwriting discounts and commissions of approximately $0.2 million.

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In July 2019, we issued and sold 801,820 shares of restricted common stock in a private placement to SIBV and received total gross proceeds of $10 million, and after deducting commissions of approximately $0.8 million, the net proceeds were approximately $9.2 million. In addition, we received an upfront cash payment of $5 million upon the execution of an option agreement with SIBV and received an additional upfront payment of $10 million in October 2019 in connection with a License Agreement it executed in September 2019. We believe that our current available cash and cash equivalents, along with the additional cash received in October 2019, will not be sufficient to fund our planned expenditures and meeting our obligations for at least the one-year period following our financial statements issuance date.

We anticipate that we will continue to generate operating losses and use cash in operations through the foreseeable future. Management plans to finance operations through equity or debt financings or other capital sources, including potential collaborations or other strategic transactions. There is substantial doubt about our ability to continue as a going concern unless we are able to successfully raise additional capital. There can be no assurances that, in the event that we require additional financing, such financing will be available on terms which are favorable to us, or at all. If we are unable to raise additional funding to meet our working capital needs in the future, we will be forced to delay or reduce the scope of our research programs and/or limit or cease our operations.

Cash Flows

Our net cash flow from operating, investing and financing activities for the periods below were as follows (in thousands):

	Nine Months Ended September 30,
	2019			2018
Net cash provided by (used in):
Operating activities	$	(11,829	)	$	(15,421	)
Investing activities	(53		)	(677		)
Financing activities	4,975			25,079
Net decrease in cash and cash equivalents	$	(6,907	)	$	8,981

Cash Flows from Operating Activities.

Net cash used in operating activities was approximately $11.8 million for the nine months ended September 30, 2019, which was primarily due to our net loss of approximately $24.0 million, an increase of approximately $1.6 million in prepaid expenses, an increase of $0.5 million in other assets, and an increase of $0.2 million in other receivables. The cash used in operating activities was partially offset by a decrease of approximately $1.7 million in accounts receivable, an increase of approximately $9.6 million in deferred revenue, and an increase of approximately $0.4 million in accounts payable, and the non-cash charges of approximately $1.5 million related to stock-based compensation, approximately $0.9 million from the loss on our equity method investment, and approximately $0.3 million in depreciation and amortization.

Net cash used in operating activities was approximately $15.4 million for the nine months ended September 30, 2018, which was primarily due to our net loss of approximately $16.6 million, the non-cash gain of approximately $1.6 million on the change in fair value of preferred stock warrants, an increase of approximately $1.2 million in prepaid expenses, and an increase of approximately $0.8 million in accounts receivable. The cash used in operating activities was partially offset by an increase of approximately $1.8 million in accrued liabilities, and an increase of approximately $0.8 million in accounts payable, an increase of approximately $0.4 million in deferred revenue, a decrease of approximately $0.3 million in other assets, and the non-cash charges of approximately $1.3 million related to stock-based compensation and approximately $0.2 million in depreciation and amortization.

Cash Flows from Investing Activities.

Cash used in investing activities of approximately $53,000 and $677,000 during the nine months ended September 30, 2019 and 2018, respectively, was due to the purchase of equipment, primarily for diagnostic use in clinical trials.

Cash Flows from Financing Activities.

Net cash provided by financing activities of approximately $5.0 million during the nine months ended September 30, 2019 was due to net proceeds received from a private placement of our restricted common stock. Net cash provided by financing activities of approximately $25.1 million was due to net proceeds from our initial public offering (including over-allotment proceeds).

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Future Funding Requirements

To date, we have generated revenue from grants and contract services performed and the issuance of convertible preferred stock and common stock sales. We do not know when, or if, we will generate any revenue from our development stage therapeutic programs. We do not expect to generate any revenue from sales of our therapeutic candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase 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. We expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our therapeutic candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations.

Our future capital requirements will depend on many factors, including:

· the progress, costs, results and timing of our clinical trials;

· FDA acceptance, if any, of our therapies for infectious diseases and for other potential indications;

· the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;

· the number and characteristics of product candidates that we pursue, including our product candidates in preclinical development;

· the ability of our product candidates to progress through clinical development successfully;

· our need to expand our research and development activities;

· the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;

· our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

· our need and ability to hire additional management and scientific, medical and administrative personnel;

· the effect of competing technological and market developments; and

· our need to implement additional internal systems and infrastructure, including financial and reporting systems.

Until such time that we can generate meaningful revenue from the sales of approved therapies and products, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

Off-Balance Sheet Arrangements

During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the SEC.

JOBS Act Accounting Election

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longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided under the JOBS Act.

Recently Issued Accounting Pronouncements

Please refer to section “Recently Issued Accounting Pronouncements” in Note 2 of our Notes to the Condensed Consolidated Financial Statements.

Item 3. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2019, our management concluded that we had a material weakness in our internal controls resulting from one individual having almost complete responsibility, during a portion of fiscal year 2019, for the processing of financial information and from our finance department not having adequate staff to process in a timely manner complex, non-routine transactions. While we have designed and implemented, or expect to implement, measures that we believe address or will address these control weaknesses, we continue to develop our internal controls, processes and reporting systems by, among other things, hiring qualified personnel with expertise to perform specific functions, implementing software systems to manage our revenue and expenses and to allow us to budget, undertaking multi-year financial planning and analyses and designing and implementing improved processes and internal controls, including ongoing senior management review and audit committee oversight. Our efforts to remediate the identified material weakness to date include the hiring of a Vice President of Finance in November 2018 and an Executive Director of Technical Accounting and External Reporting in May 2019. With the hiring of these individuals, we have implemented controls to help strengthen our financial and accounting segregation of duties limitations previously noted. In addition, we believe we will have adequate staff to now process in a timely manner complex, non-routine transactions and are on track to complete the remediation by the end of 2019.

We expect to incur additional costs to remediate these weaknesses, primarily personnel costs and external consulting fees. We may not be successful in implementing these systems or in developing other internal controls, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operating results. Further, we will not be able to fully assess whether the steps we are taking will remediate the material weaknesses in our internal control over financial reporting until we have completed our implementation efforts and sufficient time passes in order to evaluate their effectiveness. In addition, if we identify additional material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Moreover, in the future we may engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems that could negatively affect our internal control over financial reporting and result in material weaknesses.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting other than that describes above.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2018.

Item 6. Exhibits

Exhibit No.		Description

10.1		License, Development and Commercialization Agreement between Aridis Pharmaceuticals, Inc. and Serum AMR Products, dated September 27, 2019 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 2, 2019).

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Aridis Pharmaceuticals, Inc.

Dated: November 13, 2019	By:	/s/ Vu Truong
	Vu Truong
	Chief Executive Officer
	(Principal Executive Officer)


Dated: November 13, 2019	By:	/s/ Fred Kurland
	Fred Kurland, Chief Financial Officer
	(Principal Financial Officer)

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