UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

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

For the transition period from _______ to

Commission file number: 001-37769

VBI VACCINES INC.

(Exact name of registrant as specified in its charter)

British Columbia, Canada		N/A
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

222 Third Street, Suite 2241

Cambridge, Massachusetts

02142

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 617-830-3031

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Share, no par value per share	VBIV	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Shares, no par value per share		254,195,435
(Class)		Outstanding at May 7, 2021

VBI VACCINES INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED March 31, 2021

TABLE OF CONTENTS

		Page

PART I - FINANCIAL INFORMATION		5

Item 1.	Condensed Consolidated Financial Statements	5

	Condensed Consolidated Balance Sheets - March 31, 2021 (unaudited) and December 31, 2020	5

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020 (unaudited)	6

	Condensed Consolidated Statements of Stockholders’ Equity for three months ended March 31, 2021 and 2020 (unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II - OTHER INFORMATION		37

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosure	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

Signatures		39

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “will,” “may,” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers, and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Quarterly Report on Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 annual report on the Form 10-K filed with the Securities and Exchange Commission on March 2, 2021. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

●	the timing of, and our ability to, obtain and maintain regulatory approvals for our clinical trials, products, and pipeline candidates;
●	the timing and results of our ongoing and planned clinical trials for products and pipeline candidates;
●	the amount of funds we require for our prophylactic and therapeutic pipeline candidates;
●	the potential benefits of strategic partnership agreements and our ability to enter into strategic partnership arrangements;
●	the impact of the ongoing COVID-19 pandemic on our clinical studies, research programs, manufacturing, business plan, regulatory review including site inspections, and the global economy;
●	our ability to effectively execute and deliver our plans related to commercialization, marketing, manufacturing capabilities and strategy;
●	our ability to maintain a good relationship with our employees;
●	the suitability and adequacy of our office, manufacturing, and research facilities and our ability to secure term extensions or expansions of leased space;
●	our ability to manufacture, or to have manufactured, any products we develop at a commercially viable scale to the standards and requirements of regulatory agencies;
●	the ability of our vendors and suppliers to manufacture and deliver materials that meet regulatory agency and our standards and requirements to meet planned timelines and milestones;
●	any disruption in the operations of our Rehovot, Israel manufacturing facility where we manufacture all of our clinical and commercial supplies of our 3-antigen prophylactic hepatitis B vaccine and clinical supplies of our hepatitis B immunotherapeutic, VBI-2601;
●	our compliance with all laws, rules, and regulations applicable to our business and products;
●	our ability to continue as a going concern;
●	our history of losses;
●	our ability to generate revenues and achieve profitability;
●	emerging competition and rapidly advancing technology in our industry that may outpace our technology;
●	customer demand for our products and pipeline candidates;
●	the impact of competitive or alternative products, technologies, and pricing;
●	general economic conditions and events and the impact they may have on us and our potential customers;
●	our ability to obtain adequate financing in the future on reasonable terms, as and when we need it;
●	our ability to implement network systems and controls that are effective at preventing cyber-attacks, malware intrusions, malicious viruses, and ransomware threats;
●	our ability to secure and maintain protection over our intellectual property;
●	our ability to maintain our existing licenses with licensors of intellectual property, or obtain new licenses for intellectual property;

●	changes to legal and regulatory processes for biosimilar approval and marketing that could reduce the duration of market exclusivity for our products;
●	our success at managing the risks involved in the foregoing items;
●	our ability to maintain compliance with the NASDAQ Capital Market’s listing standards; and
●	other factors discussed in this Form 10-Q.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless otherwise stated or the context otherwise requires, the terms “VBI,” “we,” “us,” “our,” and the “Company” refer to VBI Vaccines Inc. and its subsidiaries.

Unless indicated otherwise, all references to the U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America and all references to € mean Euros, the legal currency of the European Union. We may also refer to NIS, which is the New Israeli Shekel, the legal currency of Israel, and the Canadian Dollar or CAD, which is the legal currency of Canada.

Except for share and per share amounts or as otherwise specified to be in millions, amounts presented are stated in thousands.

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

	March 31, 2021			December 31, 2020
		(unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	108,226		$	93,825
Short-term investments		25,333			25,276
Accounts receivable, net		172			77
Inventory, net		2,165			2,152
Prepaid expenses		1,086			1,569
Other current assets		8,577			9,142
Total current assets		145,559			132,041

NON-CURRENT ASSETS
Other long-term assets		782			639
Property and equipment, net		10,199			10,721
Right of use assets		1,337			1,554
Intangible assets, net		62,736			62,156
Goodwill		2,283			2,261
Total non-current assets		77,337			77,331

TOTAL ASSETS	$	222,896		$	209,372

CURRENT LIABILITIES
Accounts payable	$	1,668		$	3,734
Other current liabilities		20,390			12,415
Current portion of deferred revenues		882			255
Current portion of lease liability		885			944
Total current liabilities		23,825			17,348

NON-CURRENT LIABILITIES
Lease liability, net of current portion		462			619
Long-term debt, net of debt discount		15,940			16,329
Liabilities for severance pay		542			522
Deferred revenues, net of current portion		2,118			2,849
Total non-current liabilities		19,062			20,319

COMMITMENTS AND CONTINGENCIES (NOTE 14)		-

STOCKHOLDERS’ EQUITY
Common shares (unlimited authorized; no par value) (March 31, 2021 - issued and outstanding 254,195,435; December 31, 2020 - issued and outstanding 247,039,010)		427,048			403,528
Additional paid-in capital		77,618			75,530
Accumulated other comprehensive income		1,608			1,265
Accumulated deficit		(326,265	)		(308,618	)
Total stockholders’ equity		180,009			171,705

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	222,896		$	209,372

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

	2021			2020
	Three Months Ended March 31
	2021			2020

Revenues	$	301		$	415

Operating expenses:
Cost of revenues		2,412			2,577
Research and development		6,839			3,193
General and administrative		6,747			4,058
Total operating expenses		15,998			9,828

Loss from operations		(15,697	)		(9,413	)

Interest expense, net of interest income (including related party - see Note 9)		(1,812	)		(582	)
Foreign exchange (loss) gain		(138	)		1,637
Loss before income taxes		(17,647	)		(8,358	)

Income tax expense		-			-

NET LOSS	$	(17,647	)	$	(8,358	)

Other comprehensive income (loss)		343			(6,653	)

COMPREHENSIVE LOSS	$	(17,304	)	$	(15,011	)

Net loss per share of common shares, basic and diluted	$	(0.07	)	$	(0.05	)

Weighted-average number of common shares outstanding, basic and diluted		251,292,761			178,289,746

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

	Number of Common Shares		Share Capital		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity

BALANCE AS OF DECEMBER 31, 2020		247,039,010	$	403,528	$	75,530	$	1,265		$	(308,618	)	$	171,705

Common shares issued in financing transactions, net of share issuance costs		5,752,068		21,417		-		-			-			21,417
Common shares issued upon exercise of warrants		34,494		52		-		-			-			52
Common shares issued upon of conversion of long-term debt		1,369,863		2,000		-		-			-			2,000
Stock-based compensation		-		51		2,088		-			-			2,139
Net loss		-		-		-		-			(17,647	)		(17,647	)
Unrealized holding gains on short-term investments		-		-		-		(54	)		-			(54	)
Currency translation adjustments		-		-		-		397			-			397
BALANCE AS OF MARCH 31, 2021		254,195,435	$	427,048	$	77,618	$	1,608		$	(326,265	)	$	180,009

BALANCE AS OF DECEMBER 31, 2019		178,257,199	$	284,965	$	66,430	$	(752	)	$	(262,388	)	$	88,255

Stock-based compensation		118,471		131		1,056		-			-			1,187
Net loss		-		-		-		-			(8,358	)		(8,358	)
Currency translation adjustments		-		-		-		(6,653	)		-			(6,653	)
BALANCE AS OF MARCH 31, 2020		178,375,670	$	285,096	$	67,486	$	(7,405	)	$	(270,746	)	$	74,431

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	2021			2020
	For the Three Months Ended March 31
	2021			2020

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(17,647	)	$	(8,358	)
Adjustments to reconcile net loss to cash and cash equivalents used in operating activities:
Depreciation and amortization		446			406
Stock-based compensation		2,139			1,187
Amortization of debt discount		1,611			239
Inventory reserve		122			874
Interest accrued on short-term investments		(111	)		-
Net change in operating working capital items:
Change in accounts receivable		(100	)		62
Change in inventory		(214	)		(468	)
Change in prepaid expenses		486			(30	)
Change in other current assets		616			188
Change in other long-term assets		(152	)		(4	)
Change in operating right of use assets		270			230
Change in accounts payable		(2,114	)		227
Change in deferred revenues		(103	)		(211	)
Change in other current liabilities		8,376			(1,761	)
Payments made on operating lease liabilities		(269	)		(229	)
Net cash flows used in operating activities		(6,644	)		(7,648	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(556	)		(133	)
Net cash flows used in investing activities		(556	)		(133	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares for cash		22,113			-
Share issuance costs		(541	)		-
Proceeds from issuance of common shares for cash, upon exercise of warrants		52			-
Repayment of long-term debt		-			(600	)
Net cash flows provided by (used in) financing activities		21,624			(600	)

Effect of exchange rates on cash and cash equivalents		(23	)		(29	)

CHANGE IN CASH AND CASH EQUIVALENTS, FOR THE PERIOD		14,401			(8,410	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		93,825			44,213

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	108,226		$	35,803

Supplementary information:
Interest paid	$	403		$	475
Non-cash investing and financing activities:
Common shares issued upon conversion of debt		2,000			-
Capital expenditures included in accounts payable and other current liabilities		119			10
Share issuance costs included in other current liabilities		155			-
Unrealized holding gains on short term investment		(54	)		-

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, except share and per share amounts)

1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS

Corporate Overview

VBI Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on April 9, 1965.

The Company and its wholly-owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies, Inc. a Canadian company and the wholly-owned subsidiary of VBI US (“VBI Cda”); and SciVac Ltd. an Israeli company (“SciVac”); SciVac Hong Kong Limited (“SciVac HK”) and VBI Vaccines B.V a Netherlands company (“VBI BV”), are collectively referred to as the “Company”, “we”, “us”, “our”, or “VBI”.

The Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal office located at 222 Third Street, Suite 2241, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.

Principal Operations

VBI is a biopharmaceutical company driven by immunology in the pursuit of powerful prevention and treatment of disease. Through its innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology, VBI develops vaccine candidates that mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system. VBI is committed to targeting and overcoming significant infectious diseases, including hepatitis B, coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including glioblastoma (“GBM”). VBI is headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.

The ongoing COVID-19 pandemic has materially negatively affected and continues to affect the global economy, and there is continued severe uncertainty about the duration and intensity of the impacts of the pandemic. As a result, the Company’s business and results of operations have also been adversely affected and could continue to be adversely affected by COVID-19 which has necessitated restricting the number of personnel in the Company’s research laboratories and manufacturing facility at any given point in time, and has slowed recruitment to clinical trials. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies, our research programs, the recoverability of our assets, and our manufacturing; however, the COVID-19 pandemic may disrupt or delay our business operations, including with respect to efforts relating to potential business development transactions, and it could disrupt the marketplace which could have an adverse effect on our operations.

Liquidity and Going Concern

The Company has a limited operating history and faces a number of risks, including but not limited to, uncertainties regarding the success of the development and commercialization of its products, demand and market acceptance of the Company’s products, and reliance on major customers. The Company anticipates that it will continue to incur significant operating costs and losses in connection with the development of its products.

The Company had an accumulated deficit of $326,265 as of March 31, 2021 and cash outflows from operating activities of $6,644 for the three months ended March 31, 2021.

The Company will require significant additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and, subject to such approvals, commercially launch its products. The Company plans to finance future operations with existing cash and cash equivalent reserves. Additional financing may be obtained from the issuance of equity securities, the issuance of additional debt, structured asset financings, and/or revenues from potential business development transactions, if any. There is no assurance the Company will manage to obtain these sources of financing, if required. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

On March 9, 2021, the Company and Coalition for Epidemic Preparedness Innovations (“CEPI”) announced a partnership (“CEPI Funding Agreement”) to develop eVLP vaccine candidates against SARS-COV-2 variants, including the B.1.351 variant, also known as 501Y.V2, first identified in South Africa. CEPI will provide up to $33,018 to support the advancement of VBI-2905, a monovalent eVLP candidate expressing the pre-fusion form of the spike protein from the B.1.351 strain, through Phase I clinical development. This funding will also support preclinical expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology. The preclinical expansion is intended to develop clinic-ready vaccine candidates capable of addressing emerging variants. See more information on the CEPI Funding Agreement in Note 12.

On July 31, 2020, the Company entered into an Open Market Sale Agreement^SM with Jefferies LLC (“Jefferies”), pursuant to which the Company may offer and sell its common shares having an aggregate price of up to $125 million from time to time through Jefferies, acting as agent or principal (the “ATM Program”). Common shares are offered pursuant to a sales agreement prospectus included in the Company’s automatic shelf registration on Form S-3 filed with the United States Securities and Exchange Commission (“SEC”) on July 31, 2020. During the three months ended March 31, 2021, the Company issued 5,752,068 common shares under the ATM Program, for total gross proceeds of $22,113 at an average price of $3.84. The Company incurred $696 of share issuance costs related to the common shares issued resulting in net proceeds of $21,417. As of March 31, 2021, $38,202 of common shares remained available for issuance under the ATM Program.

Financial instruments recognized in the condensed consolidated balance sheet consist of cash and cash equivalents, short-term investments, accounts receivable, other current assets, accounts payable, and other current liabilities. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.

The carrying amounts of the Company’s long-term assets approximate their respective fair values.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the SEC, for interim reporting. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. The December 31, 2020 consolidated balance sheet in this document was derived from the audited consolidated financial statements. The condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form 10-Q”) does not include all of the disclosures required by U.S. GAAP and should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”), as filed with the SEC on March 2, 2021.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: SciVac, SciVac HK, VBI DE, VBI US, VBI Cda, and VBI BV. Intercompany balances and transactions between the Company and its subsidiaries are eliminated in the condensed consolidated financial statements. Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

In the opinion of management, these condensed consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the periods presented. The results for the periods presented are not necessarily indicative of results to be expected for the full year or for any future periods.

Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2020 10-K, and there have been no changes to the Company’s significant accounting policies during the three months ended March 31, 2021, other than the polices discussed below.

CEPI Funding Agreement

Cash received in advance from the CEPI Funding Agreement is included in cash and cash equivalents on the condensed consolidated balance sheet, however, it is restricted as to its use until the relevant expenses are incurred. The cash received is recognized as deferred funding, included in other current liabilities on the condensed consolidated balance sheet, and recognized as a reduction in the related expense when incurred. As of March 31, 2021 the amount of cash included in cash and cash equivalents on the condensed consolidated balance sheets is $8,107. See more information on CEPI Funding Agreement in Note 12.

3. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

None

Recently Issued Accounting Standards, not yet Adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which will simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. Specifically, the new standard will remove the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It will also remove certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and will simplify the diluted earnings per share calculation for convertible instruments. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted but no earlier than fiscal periods beginning after December 15, 2020, including interim periods within those fiscal years. This ASU can be applied either through a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact this new guidance will have on its condensed consolidated financial statements and related disclosures.

4. INVENTORY, NET

Inventory consists of the following:

SCHEDULE OF INVENTORY

	March 31, 2021		December 31, 2020
Finished goods	$	-	$	-
Work-in-process		505		390
Raw materials		1,660		1,762
Inventory, net	$	2,165	$	2,152

5. OTHER CURRENT ASSETS

Other current assets consisted of the following:

SCHEDULE OF OTHER CURRENT ASSETS

	March 31, 2021		December 31, 2020
Government receivables	$	6,096	$	7,830
Other current assets		2,481		1,312
Total other current assets	$	8,577	$	9,142

6. INTANGIBLE ASSETS AND GOODWILL

			March 31, 2021
	Gross Carrying Amount		Accumulated Amortization			Cumulative Impairment Charge			Cumulative Currency Translation		Net Book Value
Patents	$	669	$	(606	)	$	-		$	39	$	102
In Process Research & Development (“IPR&D”) assets		61,500		-			(300	)		1,434		62,634
	$	62,169	$	(606	)	$	(300	)	$	1,473	$	62,736

			December 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Cumulative Impairment Charge			Cumulative Currency Translation		Net Book Value
Patents	$	669	$	(590	)	$	-		$	44	$	123
IPR&D assets		61,500		-			(300	)		833		62,033
	$	62,169	$	(590	)	$	(300	)	$	877	$	62,156

The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives.

The change in carrying value for IPR&D assets from December 31, 2020 relates to currency translation adjustments which increased by $601 for the three-month period ended March 31, 2021.

SCHEDULE OF GOODWILL

March 31, 2021

Gross

Carrying

Amount

Cumulative

Impairment
Charge

Cumulative
Currency

Translation

Net Book
Value

Goodwill

8,714

(6,292

)

(139

)

2,283

December 31, 2020

Gross
Carrying
Amount

Cumulative

Impairment
Charge

Cumulative
Currency

Translation

Net Book
Value

Goodwill

8,714

(6,292

)

(161

)

2,261

The change in carrying value for goodwill from December 31, 2020 relates to currency translation adjustments which increased by $22 for the three-month period ended March 31, 2021.

7. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

SCHEDULE OF OTHER CURRENT LIABILITIES

	March 31, 2021		December 31, 2020
Accrued research and development expenses (including clinical trial accrued expenses)	$	6,423	$	5,842
Accrued professional fees		2,080		1,547
Payroll and employee-related costs		1,918		3,844
Deferred government grants		1,417		825
Deferred funding		8,107		-
Other current liabilities		445		357
Total other current liabilities	$	20,390	$	12,415

8. LOSS PER SHARE OF COMMON SHARES

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, and stock options, which would result in the issuance of incremental shares of common shares unless such effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more fully described in Note 10, Stockholders’ Equity and Additional Paid-in Capital.

The following potentially dilutive securities outstanding at March 31, 2021 and 2020 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

	March 31, 2021		March 31, 2020
Warrants		3,163,172		2,618,824
Stock options and restricted stock units		18,139,335		10,894,792
K2 conversion feature		1,369,863		-
		22,672,370		13,513,616

9. LONG-TERM DEBT

As of March 31, 2021, and December 31, 2020, the long-term debt is as follows:

SCHEDULE OF LONG-TERM DEBT

	March 31, 2021		December 31, 2020
Long-term debt, net of debt discount of $3,450 ($5,061 at December 31, 2020)	$	15,940	$	16,329
Less: current portion, net of debt discount of $0 ($0 at December 31, 2020)		-		-
Long-term debt	$	15,940	$	16,329

On May 22, 2020, the Company (along with its subsidiary VBI Cda) entered into the Loan Agreement with K2 HealthVentures LLC and any other lender from time to time party thereto (the “Lenders”) pursuant to which we received the first tranche secured term loan of $20 million (the “First Tranche Term Loan”). The Lenders agreed to make available the following additional tranches subject to the following conditions and upon the submission of a loan request by the Company: (1) up to $10 million available between January 1, 2021 and April 30, 2021 upon achievement of certain milestones (the “Second Tranche Term Loan”), (2) $10 million available between the closing date and December 31, 2021, subject to achievement of a certain U.S. Food and Drug Administration approval (the “Third Tranche Term Loan”), and (3) a final tranche of up to $10 million that can be made available any time prior to June 30, 2022, subject to the advance of the Third Tranche Term Loan, satisfactory review by the administrative agent of our financial and operating plan, and approval by the Lenders’ investment committee (the “Fourth Tranche Term Loan”). Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to $4 million of the secured term loan into common shares of the Company at a conversion price of $1.46 per share (“K2 conversion feature”) until the maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2 million of the secured term loan into 1,369,863 common shares at a conversion price of $1.46. The Lenders have the ability to convert an additional $2 million at the Lenders’ option.

The Administrative Agent has determined that sufficient Second Tranche Milestones have been satisfied to enable the Company to request draw down of the Second Tranche Term Loan up to the Second Tranche Maximum Amount (as such terms are defined in the Loan Agreement). The Company and the Lenders are in the process of amending the Loan Agreement to extend the Second Tranche Availability Period.

In connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 625,000 common shares (the “K2 Warrant”) at an exercise price of $1.12 (the “Warrant Price”). The number of common shares issuable pursuant to the K2 Warrant, at any given time, is determined by the aggregate original principal amount of the loans advanced at that time pursuant to the Loan Agreement multiplied by 3.5% and divided by the Warrant Price. If the full $50 million available in all K2 tranches is advanced pursuant to the Loan Agreement, up to 1,562,500 common shares will be issuable pursuant to the K2 Warrant. The K2 Warrant may be exercised either for cash or on a cashless “net exercise” basis and expires on May 22, 2030.

The total proceeds attributed to the K2 Warrant was $1,181 based on the relative fair value of the K2 Warrant as compared to the sum of the fair values of the K2 Warrant, K2 conversion feature and debt. The effective conversion price of the K2 conversion feature of $1.52 was determined to be less than the fair value of the underlying common stock at the date of commitment, resulting in a beneficial conversion feature (“BCF”) at that date. The intrinsic value of the BCF was $2,577 and recorded to additional paid-in capital. The K2 warrant and the K2 conversion feature resulted in the debt being issued at a discount. The Company also incurred $1,021 of debt issuance costs and is required to make a final payment equal to 6.95% of the aggregate original secured term loan principal on the maturity date of the term loan, or upon earlier prepayment of the term loans in accordance with the Loan Agreement, resulting in an additional discount of $1,390. The total initial debt discount is $6,169.

Upon receipt of additional funds under the Loan Agreement, additional common shares will be issuable pursuant to the K2 Warrant as determined by the principal amount of the additional funds advanced multiplied by 3.5% and divided by the Warrant Price, and the final payment will increase by 6.95% of the funds advanced.

The total principal amount of the loan under the Loan Agreement outstanding at March 31, 2021, including the $1,390 final payment discussed above, is $19,390. The principal amount of the loan made under the Loan Agreement accrues interest at an annual rate equal to the greater of (a) 8.25% or (b) prime rate plus 5.00%. The interest rate as of March 31, 2021 was 8.25%. The Company is required to pay only interest until July 1, 2022. If there is no Event of Default (as defined in the Loan Agreement) and a Third Tranche Term Loan of $10 million is made upon the achievement of a certain milestone then the interest only period is extended to January 1, 2023. The effective interest rate on the remaining loan of $18,000, excluding the final payment, is 18.14%.

Upon the occurrence of an Event of Default, and during the continuance of an Event of Default, the applicable rate of interest, described above, will be increased by 5.00% per annum. The secured term loan maturity date is June 1, 2024, and the Loan Agreement includes both financial and non-financial covenants. The Company was in compliance with these covenants as of March 31, 2021.

The obligations under the Loan Agreement are secured on a senior basis by a lien on substantially all of the assets of the Company and its subsidiaries other than intellectual property. The subsidiaries of the Company, other than VBI Cda and SciVac HK, are guarantors of the obligations of the Company and VBI Cda under the Loan Agreement. The Loan Agreement also contains customary events of default.

The total initial debt discount related to the Loan Agreement with K2 HealthVentures LLC and the term loan facility with Perceptive Credit Holdings, LP is $6,169 and $4,018, respectively. As of March 31, 2021, and December 31, 2020, the unamortized debt discount was $3,450 and $5,061 respectively. The debt discount is being charged to interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss using the effective interest method over the term of the debt.

During the three months ended March 31, 2021, as a result of the conversion of term loan to common shares, $1,161 of additional interest accretion was recognized in interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss.

At March 31, 2021 and December 31, 2020, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy, is estimated to be $18,921 and $20,117, respectively.

Interest expense, net of interest income recorded in the three months ended March 31, 2021 and 2020 was as follows:

SCHEDULE OF INTEREST EXPENSE

	2021			2020
	Three months ended March 31
	2021			2020
Interest expense	$	389		$	475
Amortization of debt discount		1,611			239
Interest income		(188	)		(132	)
Total interest expense, net of interest income	$	1,812		$	582

Interest expense and amortization of debt discount for the three months ended March 31, 2021 does not include any amounts incurred to a related party. Interest expense and amortization of debt discount for the three months ended March 31, 2020 was fully incurred to a related party.

The following table summarizes the future principal payments due under long-term debt:

	Principal payments on Loan Agreement and final payment
Remaining 2021	$	-
2022		4,215
2023		8,980
2024		6,195
Total	$	19,390

10. STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL

Stock option plans

The Company’s stock option plans are approved by and administered by the Board and its Compensation Committee. The Board designates, in connection with recommendations from the Compensation Committee, eligible participants to be included under the plan, and designates the number of options, exercise price and vesting period of the new options.

2006 VBI US Stock Option Plan

The 2006 VBI US Stock Option Plan (the “2006 Plan”), was approved by and was previously administered by the VBI US board of directors which designated eligible participants to be included under the 2006 Plan, and designated the number of options, exercise price and vesting period of the new options. The 2006 Plan was not approved by the stockholders of VBI US. The 2006 Plan was superseded by the 2014 Plan (as defined below) following the PLCC Merger and no further options will be issued under the 2006 Plan. As of December 31, 2020, there were 989,813 options outstanding under the 2006 Plan.

2014 Equity Incentive Plan

On May 1, 2014, the VBI DE board of directors adopted the VBI Vaccines Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the VBI DE’s shareholders on July 14, 2014. No further options will be issued under the 2014 Plan. As of March 31, 2021, there were 521,242 options outstanding under the 2014 Plan.

2016 VBI Equity Incentive Plan

The 2016 Plan is a rolling incentive plan that sets the number of common shares issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of 10% of the aggregate common shares issued and outstanding on a non-diluted basis at the time of any grant under the 2016 Plan. The 2016 Plan is an omnibus equity incentive plan pursuant to which the Company may grant equity and equity-linked awards to eligible participants in order to promote the success of the Company by providing a means to offer incentives and to attract, motivate, retain and reward persons eligible to participate in the 2016 Plan. Grants under the 2016 Plan include a grant or right consisting of one or more options, stock appreciation rights (“SARs”), restricted share units (“RSUs”), performance share units (“PSUs”), shares of restricted stock or other such award as may be permitted under the 2016 Plan. As of March 31, 2021, there were 16,523,250 options outstanding and 105,030 RSUs unvested under the 2016 Plan.

The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan totaled 5,920,455 at March 31, 2021.

Activity related to stock options is as follows:

SCHEDULE OF STOCK OPTIONS ACTIVITY

	Number of Stock Options			Weighted Average Exercise Price
Balance outstanding at December 31, 2020		12,507,541		$	2.38

Granted		5,540,000		$	3.15
Forfeited		(13,236	)	$	2.25

Balance outstanding at March 31, 2021		18,034,305		$	2.62

Exercisable at March 31, 2021		7,028,418		$	2.66

Information relating to RSUs is as follow:

SCHEDULE OF RESTRICTED STOCK UNITS

	Number of Stock Awards			Weighted Avg Fair Value at Grant Date
Unvested shares outstanding at December 31, 2020		129,356		$	1.62

Vested		(24,326	)	$	2.03

Unvested shares outstanding at March 31, 2021		105,030		$	1.52

In determining the amount of stock-based compensation the Company used the Black-Scholes option pricing model to establish the fair value of options granted by applying the following weighted average assumptions:

	2021			2020
Volatility		97.13	%		90.12	%
Risk free interest rate		0.54	%		1.54	%
Expected term in years		5.85			5.77
Expected dividend yield		0.00	%		0.00	%
Weighted average fair value per option	$	2.40		$	1.04

The fair value of the options is recognized as an expense on a straight-line basis over the vesting period and forfeitures are accounted for when they occur. The total stock-based compensation expense recorded in the three months ended March 31, 2021 and 2020 was as follows:

	Three months ended March 31
	2021		2020
Research and development	$	428	$	244
General and administrative		1,690		933
Cost of revenues		21		10
Total stock-based compensation expense	$	2,139	$	1,187

Warrants

Activity related to the warrants is as follows:

SCHEDULE OF WARRANT ACTIVITY

	Number of Warrants			Weighted Average Exercise Price
Balance outstanding at December 31, 2020		3,197,666		$	2.23

Exercised		(34,494	)	$	1.50

Balance outstanding at March 31, 2021		3,163,172		$	2.24

11. REVENUES AND DEFERRED REVENUE

Revenue is comprised of the following:

SCHEDULE OF REVENUE COMPRISED

	Three months ended March 31
	2021		2020
Product revenues	$	167	$	180
R&D service revenues		134		235
Total revenue	$	301	$	415

The following table presents revenues expected to be recognized in the future related to performance obligations, based on current estimates, that are unsatisfied at March 31, 2021:

	Total		Current portion to March 31, 2022		Remaining portion thereafter
Product revenues	$	469	$	-	$	469
R&D service revenues		2,531		882		1,649
Total	$	3,000	$	882	$	2,118

The following table presents changes in the deferred revenue balance for the three months ended March 31, 2021:

SUMMARY OF CHANGES IN DEFERRED REVENUE

Balance at December 31, 2020	$	3,104

Recognition of deferred revenue		(128	)
Currency translation		24

Balance at March 31, 2021	$	3,000

Short Term	$	882
Long Term	$	2,118

Collaboration and License Agreement – Brii Bio

On December 4, 2018, we entered into a Collaboration and License Agreement with Brii Biosciences Limited (“Brii Bio”) (the “Collaboration and License Agreement”), amended on April 8, 2021, whereby:

	●	The Company and Brii Bio agreed to collaborate on the development of a hepatitis B recombinant protein-based immunotherapeutic in the licensed territory, which consists of China, Hong Kong, Taiwan, and Macau (collectively, the “Licensed Territory”), and to conduct a Phase Ib/IIa collaboration clinical trial for the purpose of comparing VBI-2601 (BRII-179), which is a recombinant protein-based immunotherapeutic developed by VBI for use in treating chronic hepatitis B, with a novel composition developed jointly with Brii Bio (either being the “Licensed Product”); and,

	●	The Company granted Brii Bio an exclusive royalty-bearing license to perform studies, regulatory and other activities, as may be required to obtain and maintain marketing approval of the Licensed Product in the Licensed Territory and to commercialize the Licensed Product for the diagnosis and treatment of hepatitis B in the Licensed Territory.

Pursuant to the Collaboration and License Agreement, the Company is responsible for the R&D services and Brii Bio is responsible for costs relating to the clinical trials for the Licensed Territory.

The initial consideration of the Collaboration and License Agreement consisted of a $11,000 non-refundable upfront payment. As part of the Collaboration and License Agreement, the Company and Brii Bio entered into a stock purchase agreement. Under the terms of the stock purchase agreement, the Company issued to Brii Bio 2,295,082 shares of its common stock valued at $3,626 (based on the Company’s common stock price on December 4, 2018). The remaining $7,374, deemed to be the initial transaction price, was allocated to two performance obligations: i) the VBI-2601 (BRII-179) license, and ii) R&D services. The R&D services were allocated $4,737 of the transaction price using an estimated selling price based on an expected cost plus a margin approach and the remaining transaction price of $2,637 was allocated to the VBI-2601 (BRII-179) license using the residual method.

In addition, the Company is also eligible to receive an additional $117,500 in potential regulatory and sales milestone payments, along with royalties on commercial sales in the Licensed Territory. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. Therefore, no variable consideration was included in the initial transaction price and no such amounts have been recognized to date.

The R&D Services will be satisfied over time as services are rendered using the “cost-to-cost” input method as this method represents the most accurate depiction of the transfer of services based on the types of costs expected to be incurred. As of March 31, 2021, R&D services related to Brii Bio that remain unsatisfied are $2,331, out of the $3,000 total deferred revenue.

Upon termination of the Collaboration and License Agreement prior to the end of the term, there is no obligation for refund and any amounts in deferred revenue related to unsatisfied performance obligations will be immediately recognized.

12. COLLABORATION ARRANGEMENTS

GlaxoSmithKline Biologicals S.A. (“GSK”)

On September 10, 2019, the Company entered into a Clinical Collaboration Agreement (“Collaboration Agreement”) pursuant to which we will investigate the use of GSK’s proprietary AS01_B adjuvant system in our ongoing study of VBI-1901. As a result of the Collaboration Agreement, a second study arm was added to Part B of the ongoing Phase Ib/IIa clinical study to accommodate the AS01_Badjuvant.

National Research Council of Canada (“NRC”)

On March 31, 2020, the Company announced a collaboration with the NRC, Canada’s largest federal research and development organization, to develop a pan-coronavirus vaccine candidate, targeting COVID-19, SARS, and MERS. The NRC and the Company are collaborating to evaluate and select promising coronavirus vaccine candidates. The collaboration combines the Company’s viral vaccine expertise, eVLP technology platform, and modified coronavirus antigens with the NRC’s proprietary SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development.

On December 21, 2020, we signed an amendment to the collaboration agreement with the NRC to broaden the scope of collaboration to include certain pre-clinical evaluations, bioprocess optimization, technology transfer, and the performance of additional scale up work. The amendment also extended the expiry date of the agreement to March 15, 2022.

CEPI

On March 9, 2021, the Company and CEPI announced the CEPI Funding Agreement, to develop eVLP vaccine candidates against SARS-COV-2 variants, including the B.1.351 variant, also known as 501Y.V2, first identified in South Africa. CEPI will provide up to $33,018 to support the advancement of VBI-2905, a monovalent eVLP candidate expressing the pre-fusion form of the spike protein from the B.1.351 strain, through Phase I clinical development. This funding will also support preclinical expansion of additional multivalent vaccine candidates designed to evaluate the potential breadth of our eVLP technology. The preclinical expansion is intended to develop clinic-ready vaccine candidates capable of addressing emerging variants.

Under the terms of the CEPI Funding Agreement, among other things, the Company and CEPI agreed on the importance of global equitable access to any vaccines produced pursuant to the CEPI Funding Agreement. Any such vaccines, if approved, are expected to be procured and allocated through global mechanisms under discussion as part of the Access to COVID-19 Tools (ACT) Accelerator, an international initiative launched by the World Health Organization (“WHO”), Gavi the Vaccine Alliance, CEPI, and other global non-governmental organizations and governmental leaders in 2021.

This relationship is considered a collaborative relationship and not a customer relationship and is therefore accounted for outside the scope of ASC Topic 606. Costs associated with the collaboration will be expensed as incurred in Research and Development expenses; costs for the three months ended March 31, 2021 are $157. As of March 31, 2021 the Company received cash of $8,285 and recognized $157 as a reduction in expenses. As of March 31, 2021, the Company had $8,107 recorded as deferred funding, recorded in other current liabilities on the condensed consolidated balance sheet.

Brii Biosciences Limited

On December 4, 2018, we entered into a License Agreement with Brii Bio, as described in Note 11.

13. GOVERNMENT GRANTS

Grants recognized in research and development expenses in the consolidated statement of operations and comprehensive loss are as follows:

Industrial Research Assistance Program (“IRAP”)

On July 3, 2020, the Company and the NRC signed a contribution agreement as represented by its IRAP whereby the NRC agrees to contribute up to CAD $1,000 for the transfer and scale-up of the technical production process for our prophylactic coronavirus vaccine program.

For the three months ended March 31, 2021 the Company recognized $0 as a reduction in expenses. As of March 31, 2021, the Company had $396 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

Strategic Innovation Fund (“SIF”)

On September 16, 2020, the Company and Her Majesty the Queen in Right of Canada as represented by the Minister of Industry (“ISED”) signed a contribution agreement (the “Contribution Agreement”) for a contribution from SIF whereby ISED agrees to contribute up to CAD $55,976 to support the development of the Company’s coronavirus vaccine program, through Phase II clinical studies, for a period commencing on April 15, 2020 and ending in or before the first quarter of 2022.

For the three months ended March 31, 2021 the Company recognized $2,688 as a reduction in expenses. As of March 31, 2021, the Company had $1,021 recorded as deferred government grants, recorded in other current liabilities on the condensed consolidated balance sheet.

14. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.

On September 13, 2018, two civil claims were brought in the District Court of the central district in Israel naming our subsidiary SciVac as a defendant. In one claim, two minors, through their parents, allege, among other things: defects in certain batches of our 3-antigen prophylactic HBV vaccine discovered in July 2015; that our 3-antigen prophylactic HBV vaccine was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about our 3-antigen prophylactic HBV vaccine to consumers; and that each child suffered side effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children vaccinated with our 3-antigen prophylactic HBV vaccine in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in thousands) ($563,737). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that our 3-antigen prophylactic HBV vaccine was marketed in Israel without sufficient evidence establishing its safety; and that our 3-antigen prophylactic HBV vaccine was produced and marketed in Israel without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive damages.

SciVac believes these matters to be without merit and intends to defend these claims vigorously.

The District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the determination of liability under the civil action. Preliminary hearings for the trial of the civil action began on January 15, 2020, with subsequent preliminary hearings held on May 13, 2020 and December 3, 2020 to discuss document disclosure. The next preliminary hearing is scheduled to be held on September 13, 2021.

Operating leases

The Company has entered into various non-cancelable lease agreements for its office, lab, and manufacturing facilities, which are classified as operating leases. The office facility lease agreement in the United States expires on April 30, 2023, with no option to extend. Our manufacturing facility lease agreement expires on January 31, 2022, which includes one five-year option to extend until January 31, 2027. The lease agreement for our research facility in Canada, which comprises office and laboratory space, has a term ending

SEC Form 10-Q filed by VBI Vaccines, Inc.