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

For the transition period from _________________ to _________________

Commission File Number: 001-36581

Vascular Biogenics Ltd.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: +972-8-9935000

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

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, 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.

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 ☒

As of May 15,August 11, 2023, the registrant had 70,500,11777,640,467 ordinary shares, par value NIS 0.01 par value per share, outstanding.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that relate to future events or our future financial performance, which express the current beliefs and expectations of our management. Such statements involve a number of known and unknown risks, uncertainties and other factors that could cause our actual future results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include all statements that are not historical facts and can be identified by words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” and similar expressions or phrases. We have based these forward-looking statements largely on our management’s current expectations and future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Forward-looking statements include, but are not limited to, express or implied statements about:

All forward-looking statements involve risks, assumptions and uncertainties. You should not rely upon forward-looking statements as predictors of future events. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on March 14, 2023, including, among other things, the following:

These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.

All of the forward-looking statements we have included in this Quarterly Report are based on information available to us on the date of this Quarterly Report. We undertake no obligation, and specifically decline any obligation, to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report might not occur.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

VASCULAR BIOGENICS LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

VASCULAR BIOGENICS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS

(UNAUDITED)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

VASCULAR BIOGENICS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ EQUITY

(UNAUDITED)

*Less than $1

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

VASCULAR BIOGENICS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ EQUITY

(UNAUDITED)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

VASCULAR BIOGENICS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ EQUITY

(UNAUDITED)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

VASCULAR BIOGENICS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

VASCULAR BIOGENICS LTD.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – GENERAL

Vascular Biogenics Ltd. (“VBL” or the “Company”) is a biopharmaceutical company that has historically focused on developing targeted therapies for immune-inflammatory diseases and cancer. VBL’s goal has been to provide differentiated targeted therapeutics to address the underlying cause of diseases where treatment options are limited.

VBL’s sole product candidate, VB-601, is a targeted antibody for immune-inflammatory applications that has shown disease-modifying activity across multiple preclinical models including multiple sclerosis, rheumatoid arthritis, non-alcoholic steatohepatitis (“NASH”) and inflammatory bowel disease. VB-601 was developed using VBL’s monocyte targeting technology (“MTT”) and is designed to specifically inhibit monocyte migration. In October 2022, VBL submitted an application to the Israel Ministry of Health and institutional review board (“IRB”) for a first-in-human Phase 1 trial evaluating VB-601 in healthy volunteers. Production of current good manufacturing practice grade material of VB-601 for the Phase 1 trial was completed using a third party vendor. Initiation of this trial is subject to the progress and outcome of VBL’s corporate strategic process, and VBL plans to monetize this asset prior to or concurrent with the Merger rather than pursue further clinical development internally. On June 30, 2023, VBL entered into a non-binding term sheet, as amended, for the proposed sale of the VB-601 Asset. However, as discussed below, there is no guarantee that VBL will be successful in completing the proposed transaction for VB-601 or that it will be able to otherwise monetize this asset.

In May 2023, VBL received an additional €1.4 million ($1.5 million) in grant funding from the EIC under the previously awarded ofra-vec grant.

Proposed Merger with Notable Labs, Inc.

On February 22, 2023, VBL entered into a Merger Agreement (the “Merger Agreement”) with Notable Labs, Inc., a Delaware corporation (“Notable”), and Vibrant Merger Sub, Inc., a Delaware corporation and VBL’s direct, wholly-owned subsidiary, pursuant to which, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Notable will be merged with and into Merger Sub at the effective time (“Effective Time”), with Notable continuing after the merger as the surviving corporation and VBL’s wholly-owned subsidiary (such transaction, the “Merger”). The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

At the Effective Time, each outstanding share of Notable capital stock will be converted into the right to receive VBL ordinary shares, as set forth in the Merger Agreement. Under the exchange ratio formula in the Merger Agreement, immediately following the Effective Time, the former Notable securityholders are expected to own approximately 76% of VBL ordinary shares outstanding on a fully diluted basis and subject to adjustment and securityholders of VBL as of immediately prior to the Effective Time are expected to own approximately 24% of the VBL ordinary shares outstanding on a fully diluted basis and subject to adjustment. Under certain circumstances further described in the Merger Agreement, the ownership percentages may be adjusted upward or downward based on the level of VBL’s Net Cash (as defined in the Merger Agreement) relative to Target Net Cash (as defined in the Merger Agreement)net cash at the closing of the Merger, and the terms and net proceeds of Notable’s pre-closing financing, and the capitalization of VBL and Notable. There can be no assurances as to VBL’s level of Net Cashnet cash between the signing of the Merger Agreement and the closing of the Merger.

The Merger Agreement contains a customary “no-shop” provision under which neither VBL nor Notable is permitted to (i) solicit any alternative acquisition proposals, (ii) furnish any non-public information to any person in connection with or in response to any alternative acquisition proposal, (iii) engage in any negotiations or discussions with any person with respect to any alternative acquisition proposal, (iv) approve, endorse or recommend any alternative acquisition proposal, or (v) execute or enter into any agreement relating to any alternative acquisition proposal. The “no-shop” provision is subject to certain exceptions that permit the board of directors of either party to comply with its fiduciary duties, which, under certain circumstances, would enable VBL or Notable to provide information to, and enter into discussions or negotiations with, third parties in response to any alternative acquisition proposals.

The Merger Agreement contains customary representations, warranties and covenants made by Notable and VBL, including representations relating to obtaining the requisite approvals of the securityholders of Notable and VBL, agreements relating to indemnification of directors and officers, and covenants relating to Notable’s and VBL’s conduct of their respective businesses between the date of signing the Merger Agreement and the Effective Time.

The Merger Agreement provides each of VBL and Notable with specified termination rights, and further provides that, upon termination of the Merger Agreement under specified circumstances, the terminating party may be required to pay the other party a termination fee of $2,500,000. In addition, in connection with certain terminations of the Merger Agreement, VBL may be required to pay Notable’s out-of-pocket fees and expenses up to $500,000, or Notable may be required to pay VBL’s out-of-pocket fees and expenses up to $500,000.

The Merger Agreement provides that, immediately following the Effective Time, the board of directors of the combined organization will consist of up to seven directors, with one director designated by VBL. Upon the closing of the transaction, the combined organization will be led by Notable’s chief executive officer and executive management team. In connection with the Merger, VBL will seek to amend its articles of association to: (i) effect an increase of VBL’s registered share capital and/or effect a reverse split of VBL ordinary shares at a ratio to be determined; (ii) change VBL’s name to “Notable Labs, Ltd.”; and (iii) make other such changes as mutually agreeable to VBL and Notable.

VBL’s and Notable’s obligations to consummate the Merger are subject to the satisfaction or waiver of customary closing conditions, including, among others, obtaining the requisite approval of VBL’s shareholders, obtaining the requisite approval of Notable’s stockholders, proceeds of Notable’s pre-closing financing, net of certain specified expenses, not being less than $5,000,000 and VBL’s Net Cashnet cash not being less than $15,000,000.

In connection with the execution of the Merger Agreement, VBL and Notable entered into shareholder support agreements with VBL’s current directors and executive officers who currently collectively beneficially own or control an aggregate of approximately 2.5% of the outstanding VBL ordinary shares. These shareholder support agreements provide that, among other things, each of the shareholders has agreed to vote or cause to be voted all of its VBL ordinary shares beneficially owned by such shareholder in favor of the issuance of VBL ordinary shares in the Merger at the VBL shareholder meeting to be held in connection with the Merger.

Although VBL has entered into the Merger Agreement and intends to consummate the proposed Merger, there is no assurance that VBL will be able to successfully consummate the proposed Merger on a timely basis, or at all. If, for any reason, the proposed Merger is not completed, VBL will reconsider its strategic alternatives and could pursue other courses of action.

Asset Sale- Modi’in Facility

On February 15, 2023, VBL entered into a purchase agreement providing for the sale of VBL’s rights to the Modi’in manufacturing facility, along with certain tangible assets and equipment located therein for $7.1 million. In addition, VBL accrued a liability for a potential payment to the Israeli Innovation Authority (“IIA”) as a result of the sale, which was recorded against the capital gain. VBL intends to use the proceeds from the asset sale to meet the $15.0 million minimum Net Cashnet cash closing condition provided in the Merger Agreement and are disposing of such rights in contemplation of the Merger (although completion of such asset sale is not a condition to the Merger). There can be no guarantee that VBL will have sufficient funds to satisfy the minimum Net Cashnet cash closing required pursuant to the Merger Agreement. VBL completed the asset sale on March 9, 2023 and retained the right to use a portion of the space for a nominal fee until MayAugust 31, 2023, with a potential extension of an additional month. During the six months ended June 30, 2023, we recorded a gain on sale (net of fees paid to the IIA) resulting from the facility sale and other fixed asset sales of approximately $0.4 million.

Proposed Sale of VB-601 Asset

On June 30, 2023, VBL entered into a non-binding term sheet with Wellbeing Group Ltd. (“Wellbeing”) (as amended on July 25, 2023, the “VB-601 Offer”) for the proposed sale of the VB-601 Asset to Wellbeing, or one of its assignees, for total consideration of up to $5 million plus royalties (the “VB-601 Asset Sale”). The VB-601 Offer consists of a $250,000upfront cash payment to be paid upon closing, up to a total of $4.75 million in clinical and commercial milestones, and a low to mid single digit percentage tiered royalty on annual net sales above $50 million. The VB-601 Offer includes a 90-day exclusivity period and other reasonable and customary closing conditions for a transaction of this type and nature. Wellbeing intends to form a new company and recruit Prof. Harats, Dr. Feige, and Mr. Backenroth (“Interested Parties”) as investors and partners to manage the company and develop VB-601 due to their historical knowledge of the program. Due to the involvement of the Interested Parties in the entity that will be moving forward with and developing the VB-601 Asset, the transaction is considered a related party transaction, and requires audit committee and board of directors approval and execution of definitive documentation. VBL’s board of directors also resolved that the closing of the VB-601 Asset Sale would be subject to the separate approval of the VBL shareholders at the VBL special meeting. The Interested Parties recused themselves from negotiations between VBL and Wellbeing regarding the VB-601 Offer. The VB-601 Asset Sale would be expected to close immediately prior to or concurrent with the Merger, however, it is not a condition to the closing of the Merger.

Nasdaq Listing

In August 2022, VBL received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”), notifying VBL that the Company’s listed securities did not maintain the minimum bid price requirement of $1.00 per ordinary share for continued listing on the Nasdaq Global Market for a period of 30 consecutive business days as required under Nasdaq Listing Rule 5450(a)(1). The Nasdaq deficiency letter does not result in the immediate delisting of VBL’s ordinary shares, and the Company’s ordinary shares will continue to trade uninterrupted under the symbol “VBLT.” Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), VBL had a compliance period of 180 calendar days, or until February 27, 2023, to regain compliance with Nasdaq’s minimum bid price requirement. If at any time during the compliance period, the Company’s ordinary shares had a closing bid price of at least $1.00 for 10 consecutive business days, Nasdaq would have provided the Company with a written confirmation of compliance and the matter would have closed. The Company did not regain compliance by February 27, 2023, requested the transfer of its listing to the Nasdaq Capital Market and received an additional 180 day period to regain compliance, or until August 28, 2023. Further, under Nasdaq Listing Rules 5810(c)(1) and 5810(c)(3)(A)(iii), if VBL’s trading price falls below $0.10 for ten consecutive trading days, the Company will receive a Staff Delisting Determination providing for automatic suspension and delisting. Upon a Staff Delisting Determination, VBL can appeal in writing to be granted an exception to remain listed for up to an additional 180 day period to regain compliance if the Hearings Panel believes the Company will be able to regain compliance with the $1.00 minimum bid price requirement within that timeframe. If the Company does not regain compliance with the bid price requirement by the end of the second compliance period, if its trading price falls below $0.10 for ten consecutive trading days, or if it is not granted an additional extension by the Hearings Panel after the second compliance period ends on August 28, 2023, VBL’s ordinary shares would be subject to delisting.

As of June 30, 2023, VBL wrote-off all remaining fixed assets and related accumulated depreciation and recorded an impairment loss of $0.3 million on the fixed assets.

Since inception, VBL has incurred significant losses, and it expects to continue to incur significant expenses and losses for at least the next several years. As of March 31,June 30, 2023, VBL had an accumulated deficit of $297.0297.9 million and cash and cash equivalents short-term bank deposits and restricted bank deposits of approximately $26.524.3 million. Based on its current cash resources, and successful implementation of its reduction in workforce, VBL believes its current cash will be sufficient to fund estimated operating expenses and capital expenditure requirements for at least 12 months from the date of the filing of these financial statements. VBL is undertaking a review of its strategic options and any transactions resulting from such review may impact this projection. Further, its losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of its potential future clinical trials, the receipt of payments under any future collaboration agreements it may enter into, its expenditures on other research and development activities, as well as any strategic options it may pursue. VBL may seek to raise more capital to pursue additional activities, including through a combination of private and public equity offerings, debt, government grants, strategic collaborations and licensing arrangements. Additional financing may not be available when VBL needs it or may not be available on terms that are favorable to VBL.

If VBL is unable to raise additional funds through equity or debt financings or through strategic alliances when needed or conclude any strategic transaction for its assets to maximize shareholder value, it may be required to delay, limit, reduce or terminate its product development efforts or cease operations altogether. Failure to obtain additional financing will have a material, adverse impact on the Company’s business operations and there can be no assurance that VBL will be able to obtain the needed financing to achieve its goals on acceptable terms or at all.

NOTE 2 – BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements of VBL have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for the fair statement of the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, VBL Inc. (U.S.-based subsidiary).

These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2022, filed by VBL with the U.S. Securities and Exchange Commission (the “SEC”) on March 14, 2023. The comparative balance sheet at December 31, 2022 has been derived from the audited financial statements at that date.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

The accounting policies and calculation methods applied in the preparation of the condensed consolidated interim financial statements are consistent with those applied in the preparation of the annual financial statements as of December 31, 2022 and for the year then ended.

Net Loss Per Share

VBL complies with accounting and disclosure requirements of FASB Accounting Standards Codification (“ASC”) Topic 260, ““Earnings Per Share.” Basic loss per ordinary share of common stock is computed by dividing the net loss by the weighted average number of ordinary shares outstanding (including fully vested pre-funded warrants and fully vested restricted stock units (“RSUs”)) during the period.

Potentially dilutive securities have been excluded from VBL’s computation of net loss per share as such securities would have been anti-dilutive. There were 7,500,0455,334,440 ordinary shares underlying outstanding options and RSUs at March 31,June 30, 2023, and 13,274,22110,459,480 ordinary shares underlying outstanding options and RSUs and warrants at March 31,June 30, 2022.

NOTE 4 – SHAREHOLDERS’ EQUITY

a.Ordinary Shares

The Company has 200 million ordinary shares, NIS 0.01 par value per share, authorized as of March 31,June 30, 2023. Each ordinary share is entitled to one voting right. Ordinary share owners are entitled to dividends when funds are legally available and declared by the Company’s board of directors.

b. Warrants

There were no outstanding warrants as of March 31, 2023 and December 31, 2022.

c. Pre-funded Warrants

In April 2021, the Company issued 8,050,000pre-funded warrants in lieu of ordinary shares in an underwritten public offering at a price per share of $1.89. The pre-funded warrants are exercisable for $0.01 per share and have no expiration date. As of March 31,June 30, 2023, none of the pre-funded warrants have been exercised.

d.Stock based compensation

There were no grants of stock-based compensation during the three months ended March 31, See Note 6 below for information on pre-funded warrants exercised subsequent to June 30, 2023.

ce.. Restricted Stock Units

During the threesix months ended March 31,June 30, 2023, 750,000 restricted stock units vested.vested and were exercised into ordinary shares at an exercise price of 0.01 NIS.

NOTE 5 – CONTINGENT LIABILTIESLIABILITIES

The Company is committed to pay royalties to the Government of Israel (the “Government”) on proceeds from sales of products in the research and development of which the Government participates by way of grants. At the time the grants were received, successful development of the related project was not assumed. In the case of failure of the project that was partly financed by the Government, the Company is not obligated to pay any such royalties. As the Company does not foresee any revenue from these projects, it believes it is no longer obligated to pay additional royalties, except for a potential repayment of support for assets that are monetized. Under the terms of the Company’s funding from the Government, royalties of 3%-3.5% are payable on sales of products developed from projects funded up to 100% of the amount of the grant received by the Company (dollar linked) with the addition of an annual interest. As of March 31,June 30, 2023, the total additional royalty amount that may be payable by the Company, before the additional interest, is approximately $29.4 million ($38.4 million including interest). To date, the Company has paid the IIA approximately $0.61.1 million in royalties.

NOTE 6 – SUBSEQUENT EVENTS

On May 11,July 28, 2023, 7,400,000 pre-funded warrants were exercised via cashless exercise resulting in the Company filed a Form S-4 proxy statement/prospectus/information statement for the Merger, in which Merger Sub will merge with and into Notable, with Notable surviving as a wholly owned subsidiaryissuance of VBL. See Note 1 for more information on the Merger.7,140,350 ordinary shares.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated interim financial statements and related notes included in this Form 10-Q. Our audited financial statements as of and for the year ended December 31, 2022 have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP, and our unaudited condensed consolidated interim financial statements for the three and six months ended March 31,June 30, 2023, or the period, have been prepared in accordance with U.S. GAAP, “Interim Reporting,” or ASC 270.270 and Article 10 of Regulation S-X. Unless stated otherwise, comparisons included herein are made to the three and six months period ended on March 31,June 30, 2022, or the parallel period. Unless the context requires otherwise, references in this Report on Form 10-Q to the “Company”, “VBL,” “we,” “us,” and “our” refer to Vascular Biogenics Ltd. and its consolidated subsidiary. You should read the “Risk Factors” section of this Quarterly Report on Form 10-Q and the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a biopharmaceutical company that has historically focused on developing targeted therapies for immune-inflammatory diseases and cancer. Our goal is to provide differentiated targeted therapeutics to address the underlying cause of diseases where treatment options are limited. Our sole product candidate, VB-601, is a targeted antibody for immune-inflammatory applications that has shown disease-modifying activity across multiple preclinical models including multiple sclerosis, rheumatoid arthritis, non-alcoholic steatohepatitis, or NASH, and inflammatory bowel disease. VB-601 was developed using our monocyte targeting technology, or MTT, and is designed to specifically inhibit monocyte migration. In October 2022, we submitted an application to the Israel Ministry of Health and institutional review board for a first-in-human Phase 1 trial evaluating VB-601 in healthy volunteers. Production of current good manufacturing practice grade material of VB-601 for the Phase 1 trial was completed using a third party vendor. Initiation of this trial is subject to the progress and outcome of our corporate strategic process, and weWe plan to monetize this asset prior to or concurrent to the Merger (as defined below), rather than pursue clinical development internally. On June 30, 2023, we entered into a non-binding term sheet, as amended, for the sale of the VB-601 Asset to Wellbeing Group Ltd., or Wellbeing, or one of its assignees, for total cash consideration of up to $5 million plus royalties. However, there is no guarantee that we will be successful in consummating the proposed VB-601 Asset Sale, identifying any alternative strategic transaction for VB-601, or that we will be able to monetize or further develop this asset.

Proposed Merger with Notable Labs, Inc.

On February 22, 2023, we entered into a Merger Agreement, or the Merger Agreement, with Notable Labs, Inc., or Notable, and Vibrant Merger Sub, Inc., or Merger Sub, pursuant to which, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Notable will be merged with and into Merger Sub (which transaction is referred to throughout this Quarterly Report as the Merger) at the effective time, or the Effective Time, with Notable continuing after the Merger as the surviving corporation and our wholly-owned subsidiary. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

At the Effective Time, each outstanding share of Notable capital stock will be converted into the right to receive our ordinary shares, par value NIS 0.01 per share, or Ordinary Shares, as set forth in the Merger Agreement. Under the exchange ratio formula in the Merger Agreement, immediately following the Effective Time, the former Notable securityholders are expected to own approximately 76% of the Ordinary Shares outstanding on a fully diluted basis and subject to adjustment, and our securityholders as of immediately prior to the Effective Time are expected to own approximately 24% of the Ordinary Shares outstanding on a fully diluted basis and subject to adjustment. Under certain circumstances further described in the Merger Agreement, the ownership percentages may be adjusted upward or downward based on the level of VBL’s Net Cash (as defined in the Merger Agreement) relative to Target Net Cash (as defined in the Merger Agreement) at the closing of the Merger, the terms and net proceeds of Notable’s pre-closing financing, and our capitalization and that of Notable. There can be no assurances as to our level of Net Cash between the signing of the Merger Agreement and the closing of the Merger.

The Merger Agreement also states that, immediately following the Effective Time, the board of directors of the combined organization will consist of up to seven directors, with one director designated by us. Upon the closing of the transaction, the combined organization will be led by Notable’s chief executive officer and executive management team. In connection with the Merger, we will seek to amend our articles of association to: (i) effect an increase of our registered share capital and/or effect a reverse split of our Ordinary Shares at a ratio to be determined; (ii) change our name to “Notable Labs, Ltd.”; and (iii) make other such changes as mutually agreeable to Notable and us.

While the accounting treatment of the Merger is not yet finalized, it is expected to be a reverse asset acquisition accounted for as a reverse recapitalization, as our assets at the time of the closing of the Merger are expected to be primarily cash and cash equivalents, and nominal non-operating assets, and the historical financial statements of Notable will be our historical financial statements upon completion of the Merger.

Although we have entered into the Merger Agreement and intend to consummate the proposed Merger, there is no assurance that we will be able to successfully consummate the proposed Merger on a timely basis, or at all. If, for any reason, the proposed Merger is not completed, we will reconsider our strategic alternatives and could pursue one or more of the following courses of action:

Sale of Assets in theAsset Sale- Modi’in Facility

On February 15, 2023, we entered into an Asset Purchase Agreement, or the Asset Purchase Agreement, providing for the sale of our rights to our former Modi’in manufacturing facility, along with certain tangible assets and equipment located therein for $7.1 million. We intend to use the proceeds from the asset sale to meet the $15.0 million minimum Net Cash closing condition provided in the Merger Agreement and are disposing of such rights in contemplation of the Merger (although completion of such asset sale is not a condition to the Merger). There can be no guarantee that we will have sufficient funds to satisfy the minimum Net Cash closing required pursuant to the Merger Agreement. We completed the asset sale on March 9, 2023 and retained the right to use a portion of the space for a nominal fee until MayAugust 31, 2023, with a potential extension of an additional month. During the six months ended June 30, 2023, we recorded a gain on sale (net of fees paid to the IIA) resulting from the facility sale and other fixed asset sales of approximately $0.4 million.

Proposed Sale of VB-601 Asset

On June 30, 2023, we entered into a non-binding term sheet with Wellbeing (as amended on July 25, 2023), or the VB-601 Offer, for the sale of the VB-601 Asset to Wellbeing, or one of its assignees, for total consideration of up to $5 million plus royalties, or the VB-601 Asset Sale. The VB-601 Offer consists of a $250,000 upfront cash payment to be paid upon closing, up to a total of $4.75 million in clinical and commercial milestones, and a low to mid single digit percentage tiered royalty on annual net sales above $50 million. The VB-601 Offer includes a 90-day exclusivity period and other reasonable and customary closing conditions for a transaction of this type and nature. Wellbeing intends to form a new company and recruit Prof. Harats, Dr. Feige, and Mr. Backenroth, or the Interested Parties, as investors and partners to manage the company and develop VB-601 due to their historical knowledge of the program. Due to the involvement of the Interested Parties in the entity that will be moving forward with and developing the VB-601 Asset, the transaction is considered a related party transaction, and requires audit committee and board of directors approval and execution of definitive documentation. Our board of directors also resolved that the closing of the VB-601 Asset Sale would be subject to the separate approval of our shareholders at the VBL special meeting. The Interested Parties recused themselves from negotiations between us and Wellbeing regarding the VB-601 Offer. The VB-601 Asset Sale would be expected to close immediately prior to or concurrent with the Merger, however, it is not a condition to the closing of the Merger.

Nasdaq Listing

In August 2022, we received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market LLC, or Nasdaq, notifying us that our listed securities did not maintain the minimum bid price requirement of $1.00 per ordinary share for continued listing on the Nasdaq Global Market for a period of 30 consecutive business days as required under Nasdaq Listing Rule 5450(a)(1). The Nasdaq deficiency letter did not result in the immediate delisting of our ordinary shares, and our ordinary shares continue to trade uninterrupted under the symbol “VBLT.” Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we had a compliance period of 180 calendar days, or until February 27, 2023, to regain compliance with Nasdaq’s minimum bid price requirement. If at any time during the compliance period, our ordinary shares had a closing bid price of at least $1.00 for 10 consecutive business days, Nasdaq would have provided us with a written confirmation of compliance and the matter would have closed. We did not regain compliance by February 27, 2023, requested the transfer of our listing to the Nasdaq Capital Market and received an additional 180 day period to regain compliance, or until August 28, 2023. Further, under Nasdaq Listing Rules 5810(c)(1) and 5810(c)(3)(A)(iii), if our trading price falls below $0.10 for ten consecutive trading days, we will receive a Staff Delisting Determination providing for automatic suspension and delisting. If we do not regain compliance with the bid price requirement by the end of the second compliance period, or if our trading price falls below $0.10 for ten consecutive trading days, our ordinary shares will be subject to delisting. Because we do not expect to complete the Merger by the end of the second compliance period, we expect that we will receive a further delisting letter from Nasdaq, following which we expect that we will timely request a hearing with the Nasdaq Hearings Panel, or the Panel, at which hearing we will request a further extension with which to evidence compliance with all applicable requirements for continued listing on Nasdaq. Our timely request for a hearing will stay any suspension or delisting action pending the ultimate outcome of the hearing. Our plan to regain compliance will include the completion of the proposed Merger and reverse stock split. Notwithstanding, there can be no assurance that the Panel will grant our request for continued listing or that we will be able to evidence compliance within any extension period that may be granted by the Panel.

Financial Overview

Revenues and Cost of Revenues

Since inception, we have generated cumulative revenues of approximately $17.4 million primarily from an exclusive license agreement with NanoCarrier Co., Ltd., or NanoCarrier, for the development, commercialization, and supply of ofra-vec in Japan for all indications. In light of the determination to discontinue development of ofra-vec in all indications in the third quarter of 2022, this license agreement has been terminated and we do not expect to generate additional revenues from the achievement of new milestones or royalties under this agreement. The generated revenues comprise upfront and milestone payments. The cost of revenues associated with these revenues was approximately $1.6 million.

We do not expect to receive any revenue from VB-601 or any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products, meet regulatory milestones in relation to our existing collaborative agreements, or enter into new collaborative agreements with third parties.

Research and Development Expenses

Research and development expenses consist of costs incurred for the development of our platform technologies and product candidates. Those expenses include:

Historically, research and development activities were the primary focus of our business. Our research and development expenses have decreased significantly since the termination of the OVAL study and ofra-vec program and embarking on the strategic process that resulted in the proposed Merger and facility sale.

Research and development expenses are recognized as incurred. An intangible asset arising from the development of our product candidates is recognized if certain capitalization conditions are met. As of March 31,June 30, 2023, we did not have any capitalized development costs.

We have received grants for the ofra-vec program and another historical program from the Israeli Office of Chief Scientist, which has later transformed to the Israeli Innovation Authority, or IIA, under the Israel Encouragement of Research and Development in Industry, or the Research Law, as part of the research and development programs. The requirements and restrictions for such grants are found in the Research Law. These grants are subject to repayment through future royalty payments on any products resulting from these research and development programs that received grant funding. The total gross amount of grants actually received by us from the IIA, including accrued interest as of March 31,June 30, 2023, totaled $38.4 million. On July 19, 2023, the IIA notified us that it has closed all of the grant funded programs.

Under applicable accounting rules, grants from the IIA have been accounted for as an off-set against the related research and development expenses in our financial statements. As a result, our research and development expenses are shown on our financial statements net of the IIA grants.

In August 2022 and May 2023, we received $1.1 million and $1.5 million, respectively, as part of the grant from the European Innovation Council, or EIC, for development of ofra-vec. The grant has been accounted for as an off-set against the related research and development expenses in the financial statements. We have been approved to receive an additional $1.4 million in grant funds for project activities conducted prior to the termination of the ofra-vec project; however, there can be no assurance that we will receive these funds.

Due to the closure of our ofra-vec program, early nature of the VB-601 program, and our strategic process, we expect research and development expenses to be significantly less than prior periods.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions such as salaries, benefits and share-based compensation. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, communication expenses, and professional fees for legal services, patents and portfolio maintenance, consulting, commercialization, auditing and accounting services. Given the significant reduction in our workforce, we expect our ongoing general and administrative expenses for personnel to decrease; however, we also expect a significant increase in legal, accounting, and administrative fees related to the Merger.

Financial Expenses (Income), Net

Financial income is comprised of interest income generated from interest earned on our cash, cash equivalents and short-term bank deposits and gains and losses due to fluctuations in foreign currency exchange rates, mainly in the appreciation and depreciation of the NIS exchange rate against the U.S. dollar.

Financial expenses primarily consist of calculated interest expenses from our lease liabilities and gains and losses due to fluctuations in foreign currency exchange rates.

Taxes on Income

We have not generated taxable income since our inception and had carry forward tax losses as of December 31, 2022 of $250.5 million. We anticipate that we will be able to carry forward these tax losses indefinitely to future tax years. Accordingly, we do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses.

We recognize full valuation allowance because we do not expect taxable income.

Results of Operations

Comparison of the three month periodand six-month periods ended March 31,June 30, 2023 and 2022 (in thousands):

Revenues

Comparison of three-month periods ending June 30, 2023 and 2022

No revenues were recorded in the three months ended March 31,June 30, 2023, compared to $0.1 million for the parallel period in 2022. The decrease is due to the termination of the NanoCarrier license agreement.

CostNo cost of revenues forwere recorded in the three months ended March 31,June 30, 2023, was $0.002 million compared to $0.1 million for the parallel period.

period in 2022. The cost of revenues is attributed to the labor costs and other expenses related to the performance obligations that were delivered during the period. Cost of revenues decreased due to the reduction of labor costs associated with the NanoCarrier license agreement.

Comparison of six-month periods ending June 30, 2023 and 2022

No revenues were recorded in the six months ended June 30, 2023, compared to $0.2 million for the parallel period in 2022. The decrease is due to the termination of the NanoCarrier license agreement.

Cost of revenues for the six months ended June 30, 2023 was $0.002 million compared to $0.1 million for the parallel period. Cost of revenues is attributed to the labor costs and other expenses related to the performance obligations that were delivered during the period.

Research and development expenses, net