UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31,June 30, 2023

OR

Commission File Number: 001-38630

Aridis Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

(408) 385-1742

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

The number of shares of the registrant’s common stock, $0.0001 par value per share, outstanding at June 2,30, 2023 was 36,077,532.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANICAL STATEMENTS (UNADUITED)

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

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

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

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

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(In thousands, except share amounts)

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

Aridis Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

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

Aridis Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business and Basis of Presentation

Organization

Aridis Pharmaceuticals, Inc. (the “Company” or “we” or “our” or “us”) was established as a California limited liability corporation in 2003. The Company converted to a Delaware C corporation on May 21, 2014. Our principal place of business is in Los Gatos, California. We are a late-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 complemented by a fully human monoclonal antibody discovery platform technology. The Company’s suite of anti-infective monoclonal antibodies offers opportunities to profoundly alter the current trajectory of increasing antibiotic resistance and improve the health outcome of many of the most serious life-threatening infections particularly in hospital settings.

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements include the amounts of the Company and our wholly owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and applicable rules 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 have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the preceding fiscal year included in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on May 22, 2023.

The condensed consolidated financial statements include the accounts of the Company and its two wholly-owned subsidiaries, Aridis Biopharmaceuticals, LLC and Aridis Pharmaceuticals, C.V. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period. The accompanying condensed consolidated balance sheet at March 31,June 30, 2023 has been derived from the audited balance sheet at December 31, 2022 contained in the above referenced Form 10-K.

COVID-19

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

Going Concern

The Company has had recurring losses from operations since inception and had negative cash flows from operating activities during the threesix months ended March 31,June 30, 2023, and the year ended December 31, 2022. Management expects to incur operating losses and negative cash flows from operations in the foreseeable future as the Company continues its product development programs. The forecasted outflow of cash for at least a one-year period from the expected condensed consolidated financial statement issuance date, is in excess of the cash available on-hand.

The Company’s research and development expenses and resulting cash burn during the threesix months ended March 31,June 30, 2023, were largely due to costs associated with customary study closure activities associated with the recently completed Phase 3 study of AR-301 for the treatment of ventilator associated pneumonia (“VAP”) caused by the Staphylococcus aureus bacteria, the Phase 1/2 study of AR-501 for the treatment of chronic lung infections associated with cystic fibrosis, and the activities associated with the Phase 3 study of AR-320 for the prevention of S. aureus VAP. Current development activities are focused on AR-301, AR-320, and AR-501. However, going forward in the secondthird quarter of 2023, we expect our expenses associated with the AR-301 and AR-320 programs to significantly decrease until the clinical development activities resume.

The Company plans to fund its cash flow needs through current cash on hand and future debt and/or equity financings which we may obtain through one or more public or private equity offerings, debt financings, government or other third-party funding, strategic alliances and licensing or collaboration arrangements. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its research and development programs or future commercialization efforts, which could adversely affect its future business prospects and its ability to continue as a going concern. The Company believes that its current available cash and cash equivalents, including cash received in MarchAugust 2023 from equity raise proceeds, will not be sufficient to fund its planned expenditures and meet the Company’s obligations for at least the one-year period following its consolidated financial statement issuance date. In the absence of equity or debt financing, or other capital sources, including grant funding, potential collaborations or other strategic transactions, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs on or before June 30,October 31, 2023.

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

2. Summary of Significant Accounting Policies

Use of Estimates

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

Concentrations

Credit Risk

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

Customer Risk

There wasThe Company recognized $45,000 in grant revenue from one customer during the three months ended June 30, 2023, and $1.1 million in grant revenue from three customers during the six months ended June 30, 2022, each individually comprising 5%, 16% and 79% of grant revenue for the three months ended March 31, 2023 each individually beingsix-month period accounting for 55%%, of total revenue. The Company recognized $170.3% and 78% million and $1.21.5 million in grant revenue from three customers during the three and six months ended March 31,June 30, 2022, each individually beingcomprising 1017%%, 2428%% and 6655%% of grant revenue for the six-month period accounting for 100100%% of total revenue. As of March 31, 2023, and December 31, 2022, there were no accounts receivable.

The Company recognized $19.6 million in license revenue (non-cash) from one customer during the three and six months ended June 30, 2023, and no license revenue during the three and six months ended June 30, 2022.

Accounts receivable from one customer were $0.2 million as of June 30, 2023, and $1.0 million as of December 31, 2022.

Cash, Cash Equivalents and Restricted Cash

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

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

Schedule of Cash, Cash Equivalents Andand Restricted Cash

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivables are recorded at the invoiced amount and do not bear interest. The Company considers the creditworthiness 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 March 31,June 30, 2023, and December 31, 2022, there were $zero0.2 million and $1.0 million in accounts receivable, respectively, and no allowances for doubtful accounts.

Operating Leases

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

As the implicit rate in the Company’s leases is generally unknown, the Company used its incremental borrowing rate of 66%% based on the information available at the lease commencement date in determining the present value of future lease payments. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses over the reasonably assured lease term. The Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for any lease and non-lease components as a single lease component.

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

Property and Equipment

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

Intangible Assets

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

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment is measured by the excess of the carrying amount of the assets over fair value less the costs to sell the assets, generally determined using the projected discounted future net cash flows arising from the asset. There have been no such impairments of long-lived assets during the period ended March 31,June 30, 2023 and approximately $227,000 in impairment of lab equipment during the period ended December 31, 2022.

Revenue Recognition

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

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

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

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

Contract Assets

The incremental costs of obtaining a contract under ASC 606 (i.e., costs that would not have been incurred if the contract had not been obtained) are recognized as an asset in the Company’s condensed consolidated balance sheets if the Company expects to recover them (see Note 6). Capitalized costs will be amortized to the respective expenses using a systematic basis that mirrors the pattern in which the Company transfers control of the goods and service to the customer. At each reporting date, the Company determines whether the capitalized costs to obtain a contract are impaired by comparing the carrying amount of the asset to the remaining amount of consideration that the Company received and expects to receive less the costs that relate to providing services under the relevant contract. Capitalized contract assets were zero at June 30, 2023 and $2.1 million at March 31, 2023 and December 31, 2022. For the threesix months ended March 31,June 30, 2023, and 2022, there was no amortization of the contract assets. As of June 30, 2023 $2.1 million of contract assets and there have been no impairments aswere impaired in connection with the termination of March 31, 2023.a license agreement.

Deferred RevenueContract Liabilities

Amounts received prior to satisfying the above revenue recognition criteria, or in which the Company has an unconditional right to payment, are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. The Company has estimated the classification between current and noncurrent deferred revenue related to the respective license agreement within its condensed consolidated balance sheets at March 31,June 30, 2023, and December 31, 2022 (see Note 6).

Research and Development

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

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.

Stock-Based Compensation

The Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values, which the Company determines using the 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.

Income Taxes

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

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

Other Comprehensive Income

Other comprehensive income increasedis derived from $5,051,000 for the year ended December 31, 2022 to $5,912,000 for the quarter ended March 31, 2023 . This relates to the change in credit risk calculated by our fair value option valuation forin connection with the Note Purchase Agreements with Streeterville Capital, LLC. Accumulated other comprehensive income increased from $5.1 million at December 31, 2022 to $6.5 million at June 30, 2023.

LossEarnings (Net Loss) Per Share

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

For the three and six months ended March 31,June 30, 2023 and 2022, there is no difference in the number of shares used to compute basic and diluted net lossearnings (net loss) per share duewere 36.1 million shares and 33.3 million shares, respectively. For the three and six months ended June 30, 2023 the number of shares used to the Company’s net loss position.compute diluted earnings (net loss) per share were 36.6 million shares and 33.9 million shares, respectively. The following table presents the computation of the basic and diluted net loss per share to common stockholders (in thousands, except share and per share data):

Schedule of Computation of Thethe Basic Andand Diluted Net Loss Per Share

The following potentially dilutive securities were excluded from the computation of diluted net lossearnings (net loss) per share for the periods presented because including them would have been antidilutive:

Schedule of Potentially Dilutive Securities Werewere Excluded From Thefrom the Computation of Diluted Net Loss Per Share

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.

New Accounting Pronouncements

ASU 2016-02 - Accounting for Lease Obligation (“ASU 2016-02”)

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842). This guidance requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 establishes a right-of-use model (ROU) that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. The Company adopted this standard effective January 1, 2022, as required, retrospectively through a cumulative effect adjustment. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits the Company not to reassess, under ASU 2016-02, prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected to utilize the short-term lease recognition exemption for all leases that qualify. This means, for those short-term leases that qualify, the Company will not recognize ROU assets or lease liabilities. The Company also elected to separate lease and non-lease components for facility leases. Adoption of this guidance resulted in the recognition of lease liabilities of $2.3 million, based on the present value of the remaining minimum rental payments under current leasing standards for the Company’s applicable existing office space operating lease, with corresponding ROU assets of $1.9 million as of adoption date on January 1, 2022.

3. Fair Value Disclosure

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:

The following tables set forth the fair value of the Company’s consolidated financial instruments that were measured at fair value on a recurring basis as of March 31,June 30, 2023 and December 31, 2022 (in thousands):

 Schedule of Fair Value on Recurring Basis

The change in the estimated fair value of the Level 3 liability is summarized below:

 Schedule of Estimated Fair Value

Streeterville Note

The fair value of the Streeterville Note as of March 31,June 30, 2023 amounting to $2.04.7 million, was based on the weighted average discounted expected future cash flows representing the terms of the note, discounting them to their present value equivalents. This was classified as Level 3 fair value in the fair value hierarchy due to the use of unobservable inputs, including the Company’s own credit risk.

The Company determined and performed the valuations of the Streeterville Note with the assistance of an independent valuation service provider. On a quarterly basis, the Company considers the main Level 3 inputs used as follows:

The following table summarizes the quantitative information about the significant unobservable inputs used in Level 3 fair value measurement for the periods ended March 31,June 30, 2023 and December 31, 2022:

 Schedule of Unobservable Inputs in Fair Value Measurement

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. The Company has elected the fair value option for calculating the value of its Notes Payable and are classified as Level 3. The carrying value of the Company’s cash and cash equivalents, restricted cash, prepaid assets and other current assets, other assets, accounts payable, accrued liabilities, and insurance financing note payable approximate fair value due to the short-term nature of these items.

4. Balance Sheet Components

Property and Equipment, net

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

 Schedule of Property and Equipment, Net

Depreciation expense was approximately $86,00061,000 and $482,000130,000 for the three months ended March 31,June 30, 2023 and 2022, respectively.respectively, and approximately $147,000 and $261,000 for the six months ended June 30, 2023 and 2022.

Intangible Assets, net

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

 Schedule of Intangible Assets, Net

Amortization expense was approximately $1,0002,000 for botheach of the three month periods ended March 31,June 30, 2023 and 2022, and approximately $3,000 for each of the six month periods ended June 30, 2023 and 2022.

Licenses

Broad Institute of MIT and Harvard — Non-Exclusive Manufacturing License Agreement

In January 2021, we entered into a non-exclusive manufacturing licensing agreement with the Broad Institute of MIT and Harvard (the “Broad Institute”) to make and manufacture CRISPR Modified Cell Lines, CRISPR Modified Animals and CRISPR Modified Plants. These license rights permit the non-exclusive use of the CRISPR Technology for the creation of and improvement of yield from protein and mAb production cell lines, which is one of the core components of the APEX^TM mAb discovery and manufacturing production technology.

Pursuant to this agreement, the Company is obligated to pay to the Broad Institute an issue fee of $25,000, an annual license maintenance fee of $50,000 in 2022, and fees of $100,000 in December 2023 and each year thereafter. Additionally, the Company is obligated to pay a royalty of 77%% of all service income received from a customer for the manufacture, sale or transfer of CRISPR modified cell line, CRISPR Modified Animals and CRISPR Modified Plants or end products, as well as 0.50.5%% of end product net sales from use of any commercialized product that contains any small or large molecule made through the use of a CRISPR modified cell line, CRISPR Modified Animals and CRISPR Modified Plants. The term of the license agreement continues until all patents and filed patent applications, included within the licensed Broad Institute patents, have expired or been abandoned.

MedImmune Limited — License Agreement

In July 2021, the Company executed a license agreement effective July 12, 2021 and entered into an amendment to the license agreement on August 9, 2021 (collectively the “MedImmune License Agreement”) with MedImmune Limited (“MedImmune”), pursuant to which MedImmune granted the Company an exclusive worldwide license for the development and commercialization of suvratoxumab, a Phase 3 ready fully human monoclonal antibody targeting the staphylococcus aureus alpha toxin (the “Licensed Product”). As consideration for the MedImmune License Agreement, the Company issued 884,956 shares of its common stock to MedImmune and a $5.0 million cash payment is due to MedImmune upon the earlier of (i) a registered direct offering in which the Company receives third-party funding or (ii) December 31, 2021. The $5.0 million liability has not been paid and therefore has been included in accrued liabilities within the Company’s consolidated balance sheet at December 31, 2022 and March 31,June 30, 2023.

As additional consideration, the Company will pay MedImmune milestone payments upon the achievement of certain regulatory approvals, for one licensed product, up to a total aggregate amount of $30.0 million and sales related milestone payments of up to $85.0 million. To date, no milestones have been achieved and no milestone payments have been made pursuant to this agreement. MedImmune is entitled to royalty payments based on aggregate net sales ranging from 12.512.5%% to 15% dependent on net sales volume. Further, until delivery of an interim data readout, or an interim futility analysis, from the first Phase 3 clinical study for any indication, MedImmune has a right of first negotiation regarding any commercial rights that the Company intends to sub-license. The term of the MedImmune License Agreement continues until the expiration of the last royalty term for the last licensed product as defined in the license agreement.

On March 20^th, 2023, the Company received a written notice from MedImmune that it has terminated that certain License Agreement by and between MedImmune and the Company dated as of July 12, 2021, and as amended by Amendment No. 1 to License Agreement, dated as of August 9, 2021 (the “License Agreement”), pursuant to Section 9.2.1 of the License Agreement for non-payment of the Upfront Cash Payment which was due on December 31, 2021. The notice states that such termination shall be effective on March 30, 2023. As a result of the termination, the on-going AR-320-003 Phase 3 clinical study must behas been put on hold. The Company does not agree that it is in material breach of the License Agreement. Based on the failure of MedImmune to assist in the necessary technology transfer pursuant to Section 3.5.2 of the License Agreement. The Company notified MedImmune on March 24, 2023 that it was in material breach of Section 3.5.2 and requested that the material breach be cured as soon as possible.

Accrued Liabilities

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 Schedule of Accrued Liabilities

5. Equity Method Investment

On February 11, 2018, the Company entered into a joint venture agreement (the “JV Agreement”) with Shenzhen Hepalink Pharmaceutical Group Co., Ltd., a related party, principal shareholder of the Company, and a Chinese entity (“Hepalink”), to develop and commercialize products for infectious diseases. Under the terms of the JV Agreement, the Company contributed $1.0 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 company named Shenzhen Arimab BioPharmaceuticals Co., Ltd. (the “JV Entity”) in the territories of the Republic of China, Hong Kong, Macau and Taiwan (the “Territory”) and initially owns 4949%% of the JV Entity. On July 2, 2018, the JV Entity received final approval from the government of the People’s Republic of China. 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 (see Note 11).

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 5151%% 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 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 $1.0 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.

The Company recognized no losses from the operations of the JV Entity for the three and six months ended March 31,June 30, 2023 and 2022, respectively. As of March 31,June 30, 2023 and December 31, 2022, the Company’s equity method investment in the JV Entity was $0.

On August 21, 2023, Aridis Pharmaceuticals, Inc. (the “Company”) sent written notice to Shenzhen Arimab Biopharmaceuticals Co., Ltd. (“Arimab”) stating that as of August 21, 2023, the Amended and Restated Technology License and Collaboration Agreement between Arimab, a joint venture of the Company and Shenzhen Hepalink Pharmaceutical Group Co., Ltd. dated as of August 6, 2018 (the “Agreement”) would terminate pursuant to Section 11.2 of the Agreement.

6. Development and License Agreements

Agreement with Innovative Medicines Initiative Joint Undertaking

In March 2021, the Company entered into an agreement (the IMI JU Agreement) with the Innovative Medicines Initiative (IMI) funded consortium COMBACTE-NET to collaborate with other participants in a joint undertaking (the IMI JU) to combat bacterial resistance in Europe. The project facilitates a pan-European clinical trial network to test antibiotics and other drugs to prevent and treat various infections. This project commenced on January 1, 2013 with an initial duration of seven years. It has since been extended to October 31, 2023. The project has 46 participants including European Federation of Pharmaceutical Industries and Associations (EFPIA) companies, universities, research organizations, public bodies, non-profit groups, subject matter experts, and third parties.

The Company’s primary role in the project is to help lead a Phase 3, randomized, double-blind, placebo-controlled trial to evaluate efficacy of suvratoxumab in the prevention of S. aureus Ventilator Associated Pneumonia (VAP) in mechanically ventilated Intensive Care Unit (ICU) patients. We are acting as study sponsor for Phase 3 clinical study to be conducted and assume responsibility for ensuring that all studies are conducted according to International Conference on Harmonization (ICH) Good Clinical Practice (GCP) guidelines. This study will be conducted in approximately 200 sites distributed globally across European Union (EU) and non-EU sites (50% EU and 50% non-EU). To help facilitate these trials, we make in-kind contributions of materials and services to the project at non-EU sites.

The academic COMBACTE-NET consortium partners initially pay for all costs incurred at EU clinical sites and subsequently bills the Company for 25% of such costs. Specifically, we are billed for 25% of eligible costs during the entire fiscal year six to seven months following the fiscal year. The work at these sites is performed entirely by third-party subcontractors. As such, we reimburse the 25% at the passed-through invoice amounts. There is no reimbursement for costs incurred at non-EU sitessites.. After October 31, 2023, the Company is committed to continuing the trials whether or not a renewal is executed with the IMI JU. If no renewal is executed, the trials will continue without any form of reimbursement.

Under the IMI JU Agreement, the Company will own all results, findings, and intellectual property generated by the project and is entitled to receive any benefits these items bring. As such, these costs are deemed research and development expenditures. Considering our obligation to repay a portion of costs incurred, we determined this agreement is under the scope of ASC Subtopic 730-20, Research and Development Arrangements. Further, as the parties in the IMI JU Agreement are active participants and are exposed to significant risks and rewards dependent on the commercial success of the research, this agreement is also under the scope of ASC Topic 808, Collaborative Arrangements.

For researchResearch and development costs incurred at non-EU sites we recognize these expensesare recognized as incurred. WeThe Company recognized research and development expenses of $1.5 million and $0.5 million for the three and six months ended March 31,June 30, 2023, respectively, and approximately $5.5 million for the year ended December 31, 2022 at non-EU sites.

For researchResearch and development costs incurred at EU sites we recognize a liabilityare recognized as incurred for 25% of these costs. Research and development expenses of approximately $1.9 million and $2.3 million were incurred at EU sites for the three and six months ended March 31,June 30, 2023, respectively, and approximately $3.8 million for the year ended December 31, 2022. Of this gross expense amount, the EU has contributed services of 75%, or $1.40.3 million and $1.7 million for the three and six months ended March 31,June 30, 2023, respectively, and $2.9 million for the year ended December31, 2022. Thus, our liability presented on the accompanying condensed consolidated balance sheet is $1.41.5 million as of March 31,June 30, 2023 and $1.0 million as of December 31, 2022, and are presented within OtherAccrued Liabilities on the accompanying condensed consolidated balance sheets.

In-kind contributions we make to the program will be expensed as R&D at their fair value when made. If the fair value of an in-kind contribution we make to the IMI JU differs from its carrying amount, we will recognize a gain or loss on disposition. No gain or loss on disposition was recognized for the three monthsand six month periods ended March 31,June 30, 2023.

Cystic Fibrosis Foundation Development Agreement