VBI Vaccines (VBIVQ) 10-Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

OR

☐ 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	242,052,726
(Class)	Outstanding at October 30, 2020

VBI VACCINES INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED September 30, 2020

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION		6
Item 1.	Condensed Consolidated Financial Statements	6
	Condensed Consolidated Balance Sheets - September 30, 2020 (unaudited) and December 31, 2019	6
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months and nine months ended September 30, 2020 and 2019 (unaudited)	7
	Condensed Consolidated Statements of Stockholders’ Equity for three months and nine months ended September 30, 2020 and 2019 (unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
PART II - OTHER INFORMATION		38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosure	42
Item 5.	Other Information	42
Item 6.	Exhibits	42
Signatures		44

2

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 2019 annual report on the Form 10-K filed with the Securities and Exchange Commission on March 5, 2020. 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 infectious disease and immuno-oncology pipeline candidates;

● the potential benefits of strategic partnership agreements and our ability to enter into strategic partnership arrangements;

● the impact of the recent COVID-19 pandemic on our clinical studies, research programs, manufacturing, business plan, and the global economy;

● our ability to effectively execute and deliver our plans related to commercialization, marketing and 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 to the standards and requirements of regulatory agencies;

● the ability of our vendors 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 manufacturing facility where we manufacture all of our clinical and commercial supplies of Sci-B-Vac and clinical supplies of VBI-2601;

● our compliance with all laws, rules, and regulations applicable to our business and products;

● our ability to continue as a going concern;

3

● 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.

4

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.

5

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

	September 30, 2020			December 31, 2019
		(unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	95,158		$	44,213
Short-term investments		25,220			-
Accounts receivable, net		27			201
Inventory, net		1,542			1,075
Prepaid expenses		2,293			1,024
Other current assets		2,153			450
Total current assets		126,393			46,963
NON-CURRENT ASSETS
Other long-term assets		622			620
Property and equipment, net		9,577			10,195
Right of use assets		1,642			1,459
Intangible assets, net		59,168			60,756
Goodwill		2,152			2,208
Total non-current assets		73,161			75,238
TOTAL ASSETS	$	199,554		$	122,201
CURRENT LIABILITIES
Accounts payable	$	3,356		$	1,127
Other current liabilities		9,338			12,261
Current portion of deferred revenues		408			882
Current portion of lease liability		848			642
Current portion of long-term debt, net of debt discount - related party		-			14,845
Total current liabilities		13,950			29,757
NON-CURRENT LIABILITIES
Lease liability, net of current portion		798			817
Long-term debt, net of debt discount		15,862			-
Liabilities for severance pay		485			463
Deferred revenues, net of current portion		2,653			2,909
Total non-current liabilities		19,798			4,189
COMMITMENTS AND CONTINGENCIES (NOTE 13)		-			-
STOCKHOLDERS’ EQUITY
Common shares (unlimited authorized; 0 par value) (September 30, 2020 - issued and outstanding 242,039,480; December 31, 2019 - issued and outstanding 178,257,199)		387,718			284,965
Additional paid-in capital		74,084			66,430
Accumulated other comprehensive loss		(2,740	)		(752	)
Accumulated deficit		(293,256	)		(262,388	)
Total stockholders’ equity		165,806			88,255
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	199,554		$	122,201

See accompanying Notes to Condensed Consolidated Financial Statements

6

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

		Three Months Ended September 30, 2020			Three Months Ended September 30, 2019			Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Revenues		$	298		$	647		$	897		$	1,647
Operating expenses:
Cost of revenues			2,111			1,977			6,747			5,319
Research and development			4,478			5,401			10,035			21,989
General and administrative			5,562			9,412			13,520			16,570
Total operating expenses			12,151			16,790			30,302			43,878
Loss from operations			(11,853	)		(16,143	)		(29,405	)		(42,231	)
Interest expense, net of interest income (including related party - see Note 8)			(742	)		(626	)		(2,006	)		(1,672	)
Foreign exchange (loss) gain			(402	)		607			543			(35	)
Loss before income taxes			(12,997	)		(16,162	)		(30,868	)		(43,938	)
Income tax expense			-			-			-			-
NET LOSS		$	(12,997	)	$	(16,162	)	$	(30,868	)	$	(43,938	)
Other comprehensive income (loss)			1,696			(1,165	)		(1,988	)		2,308
COMPREHENSIVE LOSS		$	(11,301	)	$	(17,327	)	$	(32,856	)	$	(41,630	)
Net loss per share of common shares, basic and diluted		$	(0.06	)	$	(0.15	)	$	(0.15	)	$	(0.44	)
	��
Weighted-average number of common shares outstanding, basic and diluted			234,709,403			105,742,073			210,044,126			99,627,345

See accompanying Notes to Condensed Consolidated Financial Statements

7

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, 2019		178,257,199	$	284,965		$	66,430	$	(752	)	$	(262,388	)	$	88,255
Stock-based compensation		118,471		131			1,056		-			-			1,187
Common shares issued in financing transaction, net of issuance costs		-		-			-		-			-			-
Warrants issued in connection with financing transactions		-		-			-		-			-			-
Conversion feature issued in debt financing transaction		-		-			-		-			-			-
Common shares issued upon exercise of warrants		-		-			-		-			-			-
Common shares issued up on exercise of options		-		-			-		-			-			-
Net loss		-		-			-		-			(8,358	)		(8,358	)
Unrealized holding gains (losses) on short-term investments		-		-			-		-			-			-
Warrant modification in connection with debt amendment		-		-			-		-			-			-
Common shares issued in financing transaction		-		-			-		-			-			-
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
BALANCE AS OF APRIL 1, 2020		178,375,670	$	285,096		$	67,486	$	(7,405	)	$	(270,746	)	$	74,431
Common shares issued in financing transaction, net of issuance costs		52,272,726		53,894			-		-			-			53,894
Warrants issued in connection with financing transactions		-		(453	)		1,634		-			-			1,181
Conversion feature issued in debt financing transaction		-		-			2,577		-			-			2,577
Stock-based compensation		-		91			983		-			-			1,074
Net loss		-		-			-		-			(9,513	)		(9,513	)
Currency translation adjustments		-		-			-		2,969			-			2,969
BALANCE AS OF JUNE 30, 2020		230,648,396	$	338,628		$	72,680	$	(4,436	)	$	(280,259	)	$	126,613
BALANCE AS OF JULY 1, 2020		230,648,396	$	338,628		$	72,680	$	(4,436	)	$	(280,259	)	$	126,613
Common shares issued in financing transaction, net of issuance costs		10,840,334		47,163			-		-			-			47,163
Common shares issued upon exercise of warrants		550,000		1,837			-		-			-			1,837
Common shares issued up on exercise of options		750		1			-		-			-			1
Stock-based compensation		-		89			1,404		-			-			1,493
Net loss		-		-			-		-			(12,997	)		(12,997	)
Unrealized holding gains on short-term investments		-		-			-		125			-			125
Currency translation adjustments		-		-			-		1,571			-			1,571
BALANCE AS OF SEPTEMBER 30, 2020		242,039,480	$	387,718		$	74,084	$	(2,740	)	$	(293,256	)	$	165,806
BALANCE AS OF DECEMBER 31, 2018		97,343,777	$	246,417		$	63,449	$	(4,158	)	$	(207,575	)	$	98,133
Stock-based compensation		318,110		431			831		-			-			1,262
Warrant modification in connection with debt amendment		-		-			179		-			-			179
Net loss		-		-			-		-			(14,606	)		(14,606	)
Currency translation adjustments		-		-			-		1,727			-			1,727
BALANCE AS OF MARCH 31, 2019		97,661,887	$	246,848		$	64,459	$	(2,431	)	$	(222,181	)	$	86,695
BALANCE AS OF APRIL 1, 2019		97,661,887	$	246,848		$	64,459	$	(2,431	)	$	(222,181	)	$	86,695
Stock-based compensation		95,312		428			554		-			-			982
Net loss		-		-			-		-			(13,170	)		(13,170	)
Currency translation adjustments		-		-			-		1,746			-			1,746
BALANCE AS OF JUNE 30, 2019		97,757,199	$	247,276		$	65,013	$	(685	)	$	(235,351	)	$	76,253
BALANCE AS OF JULY 1, 2019		97,757,199	$	247,276		$	65,013	$	(685	)	$	(235,351	)	$	76,253
Common shares issued in financing transaction		80,500,000		37,415			-		-			-			37,415
Stock-based compensation		-		201			675		-			-			876
Net loss		-		-			-		-			(16,162	)		(16,162	)
Currency translation adjustments		-		-			-		(1,165	)		-			(1,165	)
BALANCE AS OF SEPTEMBER 30, 2019		178,257,199	$	284,892		$	65,688	$	(1,850	)	$	(251,513	)	$	97,217

See accompanying Notes to Condensed Consolidated Financial Statements

8

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	For the Nine Months Ended September 30, 2020			For the Nine Months Ended September 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(30,868	)	$	(43,938	)
Adjustments to reconcile net loss to cash and cash equivalents used in operating activities:
Depreciation and amortization		1,218			798
Stock-based compensation		3,754			3,120
Amortization of debt discount		1,102			753
Impairment of goodwill		-			6,292
Interest accrued on short-term investments		(95	)		-
Net change in operating working capital items:
Change in accounts receivable		173			(127	)
Change in inventory		(458	)		(427	)
Change in prepaid expenses		(1,267	)		(175	)
Change in other current assets		(1,676	)		(510	)
Change in other long-term assets		(3	)		6
Change in operating right of use assets		724			768
Change in accounts payable		2,167			(3,129	)
Change in deferred revenues		(646	)		(1,300	)
Change in other current liabilities		(3,962	)		(1,545	)
Payments made on operating lease liabilities		(718	)		(768	)
Net cash flows used in operating activities		(30,555	)		(40,182	)
INVESTING ACTIVITIES
Purchase of short-term investments		(25,000	)		-
Purchase of property and equipment		(468	)		(3,487	)
Net cash flows used in investing activities		(25,468	)		(3,487	)
FINANCING ACTIVITIES
Proceeds from issuance of common shares for cash		106,269			40,250
Share issuance costs		(4,919	)		(2,756	)
Proceeds from issuance of common shares for cash, upon exercise of warrants		1,837			-
Proceeds from issuance of common shares for cash, upon exercise of stock options		1			-
Proceeds from debt financing		20,000			-
Debt issuance costs		(1,021	)		-
Repayment of long-term debt		(15,300	)		-
Net cash flows provided by financing activities		106,867			37,494
Effect of exchange rates on cash and cash equivalents		101			(79	)
CHANGE IN CASH AND CASH EQUIVALENTS FOR THE PERIOD		50,945			(6,254	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		44,213			59,270
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	95,158		$	53,016
Supplementary information:
Interest paid	$	1,187		$	1,539
Non-cash investing and financing activities:
Warrant modification in connection with debt amendment		-			179
Warrants issued in connection with financing activities		1,634			-
K2 conversion feature in connection with financing activities		2,577			-
Capital expenditures included in accounts payable and other current liabilities		(86	)		(132	)
Share issuance costs included in other current liabilities		(293	)		(79	)
Unrealized holding gains on short term investment		(125	)		-

See accompanying Notes to Condensed Consolidated Financial Statements

9

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 a wholly-owned subsidiary of VBI US (“VBI Cda”); SciVac Ltd. an Israeli company (“SciVac”), and SciVac Hong Kong Limited (“SciVac HK”) 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.

Principal Operations

VBI is a commercial-stage, biopharmaceutical company developing a next generation of vaccines to address unmet needs in infectious disease and immuno-oncology. We are advancing the prevention and treatment of hepatitis B, with: (1) the only 3-antigen hepatitis B vaccine, Sci-B-Vac, which is approved for use and commercially available in Israel, and recently completed a pivotal Phase III program in the United States, Europe, and Canada; and (2) VBI-2601 (BRII-179), an immunotherapeutic candidate in development in collaboration with Brii Biosciences Limited (“Brii Bio”) for a functional cure for chronic hepatitis B. Our enveloped virus-like particle (“eVLP”) platform technology enables the development of eVLP vaccines that closely mimic the target virus to elicit a potent immune response. Our lead eVLP program candidates include VBI-1901, a glioblastoma (“GBM”) vaccine immunotherapeutic candidate, VBI-1501, our prophylactic cytomegalovirus (“CMV”) vaccine candidate, and VBI-2900, our prophylactic coronavirus vaccine program. Our coronavirus vaccine program includes both (1) VBI-2901, a trivalent pan-coronavirus vaccine candidate expressing the SARS-CoV-2 (COVID-19), SARS-CoV (SARS), and MERS-CoV (MERS) spike proteins; and (2) VBI-2902, a monovalent vaccine candidate expressing the SARS-CoV-2 (COVID-19) spike protein. We are headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada. Our manufacturing site in Rehovot, Israel produces Sci-B-Vac and VBI-2601 while our eVLP vaccine candidates are manufactured using contract development and manufacturing organizations located in the United States and Canada.

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.

10

Liquidity and Going Concern

The Company 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 $293,256 as of September 30, 2020 and cash outflows from operating activities of $30,555 for the nine months ended September 30, 2020.

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 near term future operations with existing cash and cash equivalents reserves. Additional financing may be obtained from the issuance of equity securities, the issuance of additional debt, structured asset financings, government grants or other subsidies, 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.

In April 2020, the Company closed an underwritten public offering of 52,272,726 common shares at a price of $1.10 per share for total gross proceeds of $57,500. The Company incurred $3,606 of share issuance costs related to the offering resulting in net cash proceeds of $53,894 and costs related to the issuance of warrants to purchase 705,000 common shares to National Securities Inc. (“National”) or its designees as consideration for National providing financial advisory services in connection with the offering. The warrants issued to National or its designees (“National Warrants”) are exercisable immediately upon issuance and terminate three years following issuance and have an exercise price of $1.50 per share.

In May 2020, the Company refinanced its existing term loan facility with Perceptive Credit Holdings, LP and entered into a Loan and Guaranty Agreement (the “Loan Agreement”) with K2 HealthVentures LLC for net proceeds of $4.5 million. The refinanced long-term debt has a maturity date of June 1, 2024. See Note 8 for more details.

On July 21, 2020, we issued 550,000 common shares upon exercise of warrants at an exercise price of $3.34 for gross proceeds of $1,837.

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 third quarter of 2020, the Company issued 10,840,334 common shares under the ATM Program, for total gross proceeds of $48,769 at an average price of $4.4988. The Company incurred $1,606 of shares issuance costs related to the common shares issued resulting in net proceeds of $47,163. As of September 30, 2020, approximately $76,231 of common shares remained available for issuance under the ATM Program.

On July 3, 2020, the Company and the National Research Council of Canada (“NRC”) signed a contribution agreement as represented by its Industrial Research Assistance Program (“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. Grants of CAD $235 are recognized in the statement of operations and comprehensive loss for the three and nine months ended September 30, 2020.

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 the Strategic Innovation Fund (“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. Grants of CAD $731 are recognized in the statement of operations and comprehensive loss for the three and nine months ended September 30, 2020. In connection with execution of the Contribution Agreement, the Company obtained a consent of K2 HealthVentures LLC, as administrative agent for the lenders and a lender, pursuant to the Loan Agreement. Pursuant to the consent, certain events of default that result in contributions made under the Contribution Agreement in excess of $500 becoming due and payable could result in an event of default under the Loan Agreement. See Note 8 for more details on the Loan Agreement.

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, 2019 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, 2019 (the “2019 10-K”), as filed with the SEC on March 5, 2020.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: VBI DE, VBI US, VBI Cda, SciVac, and SciVac HK. Intercompany balances and transactions between the Company and its subsidiaries are eliminated in the condensed consolidated financial statements.

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.

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Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2019 10-K, and there have been no changes to the Company’s significant accounting policies during the nine months ended September 30, 2020, other than the polices discussed below.

Cash and cash equivalents

Cash and cash equivalents include cash investments in interest-bearing accounts and term deposits which can readily be redeemed for cash or are issued for terms of three months or less from the date of acquisition.

Short-term investments

Short-term investments consist of redeemable short-term investments held with Schedule 1 Canadian banks for maturity terms greater than 3 months but less than a year from the date of acquisition. Short-term investments were initially classified as available for sale and were measured at fair value whereby unrealized holding gains or losses on these investments are reported in other comprehensive income or loss and accrued interest income was recognized in interest expense, net of interest income in the condensed consolidated statement of operations and comprehensive loss.

On September 30, 2020 we re-assessed the classification of our short-term investment and we determined that the short-term investment shall be classified as held to maturity. The transfer on September 30, 2020 occurred at fair value with the unrealized holding gains remaining in other comprehensive income or loss. The unrealized holding gains will be amortized over the remaining life of the security until April 2021.

Our short-term investments are considered level 2 in the fair value hierarchy. The fair value of the short-term investment was determined using the market approach method and the inputs include comparable market interest rates at September 30, 2020.

Government Grants

Government grants are recognized in the statement of operations and comprehensive loss in the same period as the relevant expenses, in compliance with the agreement, as a reduction in the related expense or reduce the carrying value of the asset being acquired.

3. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Intangibles – Goodwill and Other, Internal-Use Software

In August 2018, the FASB issued ASU 2018-15: Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Our adoption of this ASU, effective January 1, 2020, was applied prospectively and did not have a material impact on our condensed consolidated financial statements and the related footnote disclosures.

Recently Issued Accounting Standards, not yet Adopted

None

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4. INVENTORY, NET

Inventory is stated at the lower of cost or market and consists of the following:

SCHEDULE OF INVENTORY 

	September 30, 2020		December 31, 2019
Finished goods	$	-	$	58
Work-in-process		374		237
Raw materials		1,168		780
Inventory, net	$	1,542	$	1,075

5. INTANGIBLE ASSETS AND GOODWILL

The Company’s intangible assets determined to have indefinite useful lives including In-Process Research and Development (“IPR&D”) and goodwill, are tested for impairment annually, or more frequently if events or circumstances indicate that the assets might be impaired. Such circumstances could include but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company has established August 31st as the date for its annual impairment test of IPR&D and goodwill.

The costs of rights to IPR&D projects acquired in an asset acquisition are expensed in the consolidated statements of operations unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in connection with research and development agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical products.

The IPR&D assets, which consist of the CMV and GBM programs, were acquired in a business combination, capitalized as an intangible asset and are tested for impairment at least annually until commercialization, after which time the IPR&D will be amortized over its estimated useful life. The impairment test compares the carrying amount of the IPR&D asset to its fair value. If the carrying amount exceeds the fair value of the asset, such excess is recorded as an impairment loss. There was no IPR&D impairment determined as a result of the Company’s annual testing on August 31, 2020. The fair value of the IPR&D assets included in the impairment test was determined using the income approach method and is considered Level 3 in the fair value hierarchy. Some of the more significant estimates and assumptions inherent in the estimate of the fair value of IPR&D assets include the amount and timing of costs to develop the IPR&D into viable products, the amount and timing of future cash inflows, the discount rate and the probability of technical and regulatory success applied to the cash flows. The discount rate used was 11% and the cumulative probability of technical and regulatory success to achieve approval to market the products ranged from approximately 6% to 17%.

SCHEDULE OF INTANGIBLE ASSETS INCLUDING CUMULATIVE IMPAIRMENT AND CUMULATIVE CURRENCY TRANSLATION 

			September 30, 2020
	Gross Carrying Amount		Accumulated Amortization			Cumulative Impairment Charge			Cumulative Currency Translation			Net Book Value
Patents	$	669	$	(569	)	$	-		$	31		$	131
IPR&D assets		61,500		-			(300	)		(2,163	)		59,037
	$	62,169	$	(569	)	$	(300	)	$	(2,132	)	$	59,168

			December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Cumulative Impairment Charge			Cumulative Currency Translation			Net Book Value
Patents	$	669	$	(521	)	$	-		$	30		$	178
IPR&D assets		61,500		-			(300	)		(622	)		60,578
	$	62,169	$	(521	)	$	(300	)	$	(592	)	$	60,756

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, 2019 relates to currency translation adjustments which decreased by $1,541 for the nine-month period ended September 30, 2020.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach. Subsequently (if necessary, after step zero), if the carrying value of a reporting unit exceeded its fair value an impairment would be recorded. We would perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. There was no goodwill impairment determined as a result of the Company’s annual testing on August 31, 2020. The fair value of the Company, which consists of a single reporting unit, included in the impairment test was determined using the closing market stock price of VBI as of August 31, 2020.

SCHEDULE OF GOODWILL 

			September 30, 2020
	Gross Carrying Amount		Cumulative Impairment Charge			Cumulative Currency Translation			Net Book Value
Goodwill	$	8,714	$	(6,292	)	$	(270	)	$	2,152

			December 31, 2019
	Gross Carrying Amount		Cumulative Impairment Charge			Cumulative Currency Translation			Net Book Value
Goodwill	$	8,714	$	(6,292	)	$	(214	)	$	2,208

The change in carrying value for goodwill from December 31, 2019 relates to currency translation adjustments which decreased by $56 for the nine-month period ended September 30, 2020.

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6. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

SCHEDULE OF OTHER CURRENT LIABILITIES 

	September 30, 2020		December 31, 2019
Accrued research and development expenses (including clinical trial accrued expenses)	$	6,377	$	9,247
Accrued professional fees		958		446
Payroll and employee-related costs		1,632		2,184
Other current liabilities		371		384
Total Other current liabilities	$	9,338	$	12,261

7. 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 9, Stockholders’ Equity and Additional Paid-in Capital.

The following potentially dilutive securities outstanding at September 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

SCHEDULE OF ANTIDILUTIVE WEIGHTED AVERAGE SHARES OUTSTANDING 

	September 30, 2020		September 30, 2019
Warrants		3,398,824		2,618,824
Stock options and equity awards		12,580,297		6,814,104
K2 conversion feature		2,739,726		-
		18,718,847		9,432,928

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8. LONG-TERM DEBT

As of September 30, 2020, and December 31, 2019, the long-term debt is as follows:

SCHEDULE OF LONG-TERM DEBT 

	September 30, 2020		December 31, 2019*
Long-term debt, net of debt discount	$	15,862	$	14,845	*
Less: current portion, net of debt discount		-		14,845	*
Long-term debt	$	15,862	$	-	*

* 2019 long term debt was due to Perceptive Credit Holdings LP, a related party.

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 have 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”).

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 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 secured term loan principal outstanding 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 debt discount is $6,169. See Note 9 for more detail on assumptions used in the valuation of the K2 Warrant.

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 September 30, 2020, including the $1,390 final payment discussed above, is $21,390. 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 September 30, 2020 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.

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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 September 30, 2020.

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.

Approximately $14.5 million of the proceeds received were used to repay the Company’s existing loan facility with Perceptive Credit Holdings, LP, a related party (“Perceptive”), which was due on June 30, 2020. The early repayment resulted in a loss on extinguishment of debt of $84, which is included in interest expense, net of interest income on the condensed consolidated statement of operations and comprehensive loss.

On May 6, 2016, the Company through VBI US assumed a term loan facility with Perceptive in the amount of $6,000 (the “Facility”). On December 6, 2016, the Company amended the Facility (the “Amended Credit Facility”) and raised Perceptive commitment amount to $13,200, which was combined with the remaining balance from the Facility of $1,800. In connection with the Amended Credit Facility, on December 6, 2016, the Company issued to Perceptive two warrants; the first warrant to purchase 363,771 shares of the Company’s common shares at an exercise price of $4.13, and the second warrant to purchase 1,341,282 shares of the Company’s common shares at an exercise price of $3.355. The total proceeds attributed to the warrants was $2,793 based on the relative fair value of the warrants as compared to the sum of the fair values of the warrants and debt. This resulted in the debt being issued at a discount. The Company incurred $360 of debt issuance costs and was required to pay an exit fee of $300 upon full repayment of the debt resulting in additional debt discount. Following the Amended Credit Facility and the warrant issuance, the total debt discount was $3,453.

On July 17, 2018, the Company amended the Amended Credit Facility (the “Second Amendment”) to extend the period the Company was required to pay only the interest on the loan from May 31, 2018 to December 31, 2018 and to extend the expiration date of certain warrants to purchase 363,771 common shares issued to Perceptive with an original expiration date of July 25, 2019 to December 6, 2021. The Company accounted for this as a debt modification, and as a result of the extension of the warrant expiration date in connection with the Second Amendment, the debt discount was increased by $386. This amount represents the incremental fair value of the modified warrants.

On January 31, 2019, the Company further amended the Amended Credit Facility (the “Third Amendment”) to i) extend the period the Company was required to pay only the interest on the loan from December 31, 2018 to January 31, 2020, ii) extend the maturity of the term loan to June 30, 2020, and iii) reduce the exercise price on certain warrants to purchase common shares issued to Perceptive to $2.75 from $4.13 for 363,771 warrants issued on July 25, 2014, and for 363,771 warrants issued on December 6, 2016, and from $3.355 for 1,341,282 warrants issued on December 6, 2016. The Company has accounted for this as a debt modification, and as a result of the amendment to the exercise price in connection with the Third Amendment, the debt discount was increased by $179. This amount represents the incremental fair value of the modified warrants.

The total debt discount related to the Loan Agreement of $6,169 is being charged to interest expense using the effective interest method over the term of the debt.

At September 30, 2020 and December 31, 2019, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy, is estimated to be approximately $17,644 and $15,272, respectively.

Interest expense, net of interest income recorded in the three and nine months ended September 30, 2020 and 2019 was as follows:

SCHEDULE OF INTEREST EXPENSE 

	2020			2019			2020			2019
	Three months ended September 30						Nine months ended September 30
	2020			2019			2020			2019
Interest expense	$	422		$	509		$	1,330		$	1,539
Amortization of debt discount		468			245			1,102			753
Interest income		(148	)		(128	)		(426	)		(620	)
Total interest expense, net of interest income	$	742		$	626		$	2,006		$	1,672

Interest expense and amortization of debt discount for the three months ended September 30, 2020 does not include any amounts incurred to a related party.

Interest expense and amortization of debt discount for the nine months ended September 30, 2020 includes $723 and $461, respectively, incurred to a related party.

Interest expense and amortization of debt discount for the three and nine months ended September 2019 was fully incurred to a related party.

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

SCHEDULE OF FUTURE PRINCIPAL OF LONG-TERM DEBT 

	Principal payments on Loan Agreement and final payment
Remaining 2020	$	-
2021		-
2022		4,683
2023		9,978
2024		6,729
Total	$	21,390

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9. STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL

Stock option plans

The Company’s stock option plans are approved by and administered by the Company’s 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

No further options will be issued under the 2006 VBI US Stock Option Plan (the “2006 Plan”). As of September 30, 2020, there were 993,666 options outstanding under the 2006 Plan.

2013 Equity Incentive Plan

No further options will be issued under the 2013 Equity Incentive Plan (the “2013 Plan”). As of September 30, 2020, there were 0 options outstanding under the 2013 Plan.

2014 Equity Incentive Plan

No further options will be issued under the 2014 Equity Incentive Plan (the “2014 Plan”). As of September 30, 2020, there were 521,242 options outstanding under the 2014 Plan.

2016 VBI Incentive Plan

The 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 10% maximum is inclusive of options granted under all equity incentive plans. 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 September 30, 2020, there were 10,896,937 options and 168,452 stock awards outstanding under the 2016 Plan.

The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan total 10,321,347 at September 30, 2020.

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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, 2019		6,471,708		$	2.79
Granted		5,960,900		$	1.93
Exercised		(750	)		1.64
Forfeited		(20,013	)	$	1.94
Balance outstanding at September 30, 2020		12,411,845		$	2.38
Exercisable at September 30, 2020		5,567,736		$	2.86

Information relating to RSUs is as follow:

SCHEDULE OF RESTRICTED STOCK UNITS 

	Number of Stock Awards			Weighted Average Fair Value at Grant Date
Unvested shares outstanding at December 31, 2019		157,997		$	2.77
Granted		125,000		$	1.46
Vested		(107,044	)		2.83
Forfeited		(7,501	)	$	1.53
Unvested shares outstanding at September 30, 2020		168,452		$	1.81

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:

SCHEDULE OF FAIR VALUE OF OPTIONS GRANTED BY USING BLACK-SCHOLES OPTION PRICING ASSUMPTIONS 

	2020			2019
Volatility		91.47	%		118.62	%
Risk free interest rate		1.20	%		2.46	%
Expected term in years		5.81			5.78
Expected dividend yield		0.00	%		0.00	%
Weighted average fair value per option	$	1.41		$	1.45

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 and nine months ended September 30, 2020 and 2019 was as follows:

SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE

	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Research and development	$	309	$	184	$	770	$	629
General and administrative		1,170		675		2,947		2,439
Cost of revenues		14		17		37		52
Total stock-based compensation expense	$	1,493	$	876	$	3,754	$	3,120

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Warrants

In April 2020, the Company engaged National to provide financial advisory services in connection with the offering. As consideration for such services, the Company issued to National or its designees warrants to purchase up to an aggregate of 705,000 common shares, subject to the terms and conditions set forth in the form of warrant agreement. The National Warrants are exercisable immediately upon issuance and terminate three years following issuance and have an exercise price of $1.50 per share.

On May 22, 2020, in connection with the Loan Agreement, as described in Note 8, the Company issued a warrant, the K2 Warrant, to purchase up to an aggregate of 625,000 common shares, subject to terms and conditions set forth in the form of warrant agreement. The K2 Warrant expires on May 22, 2030 and has an exercise price of $1.12 per share.

On July 21, 2020, the Company issued 550,000 common shares upon exercise of warrants at an exercise price of $3.34 for gross proceeds of $1,837.

The value attributed to the National Warrants and the K2 Warrant were based on the Black-Scholes option pricing model by applying the following assumptions:

SCHEDULE OF FAIR VALUE OF WARRANTS GRANTED BY USING BLACK-SCHOLES OPTION PRICING ASSUMPTIONS

	National Warrants			K2 Warrant
Volatility		103.13	%		95.00	%
Risk free interest rate		0.26	%		0.66	%
Expected term in years		3			10
Expected dividend yield		0.00	%		0.00	%
Fair value per warrant	$	0.64		$	2.25

Activity related to the warrants is as follows:

SCHEDULE OF WARRANT ACTIVITY

	Number of Warrants			Weighted Average Exercise Price
Balance outstanding at December 31, 2019		2,618,824		$	2.87
Issued		1,330,000			1.32
Exercised		(550,000	)	$	3.34
Balance outstanding at September 30, 2020		3,398,824		$	2.19

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10. REVENUES AND DEFERRED REVENUE

Revenue is comprised of the following:

SCHEDULE OF REVENUE COMPRISED 

	Three months ended September 30				Nine months ended September 30
	2020		2019		2020		2019
Product revenues	$	15	$	168	$	213	$	365
R&D service revenues		283		479		684		1,282
Total revenue	$	298	$	647	$	897	$	1,647

The following table presents revenues expected to be recognized in the future related to performance obligations, based on current estimates, that are unsatisfied at September 30, 2020:

SUMMARY OF REVENUE EXPECTED TO BE RECOGNIZED IN FUTURE RELATED TO PERFORMANCE OBLIGATIONS 

	Total		Current portion to September 30, 2021		Remaining portion thereafter
Product revenues	$	469	$	-	$	469
R&D service revenues		2,592		408		2,184
Total	$	3,061	$	408	$	2,653

The following table presents changes in the deferred revenue balance for the nine months ended September 30, 2020:

SUMMARY OF CHANGES IN DEFERRED REVENUE 

Balance at December 31, 2019	$	3,791
Amounts invoiced and revenue deferred		11
Recognition of deferred revenue		(657	)
Currency translation		(84	)
Balance at September 30, 2020	$	3,061
Short Term	$	408
Long Term	$	2,653

Collaboration and License Agreement – Brii Bio

On December 4, 2018, we entered into a Collaboration and License Agreement with Brii Bio (the “Collaboration and License Agreement”), 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.

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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 million 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 $3.6 million (based on the Company’s common stock price on December 4, 2018). The remaining $7.4 million, 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 $4.8 million of the transaction price using an estimated selling price based on an expected cost plus a margin approach and the remaining transaction price of $2.6 million was allocated to the VBI-2601 (BRII-179) license using the residual method.

In addition, the Company is also eligible to receive an additional $117.5 million 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.

On December 4, 2018, the Company recognized the VBI-2601 (BRII-179) license when it was granted as it was determined to be distinct and Brii Bio was able to use and benefit from the license. 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 September 30, 2020, R&D services related to Brii Bio that remain unsatisfied are $2.4 million, out of the $ 3.1 million 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.

11. COLLABORATON ARRANGEMENTS

GlaxoSmithKline Biologicals S.A. (“GSK”)

On September 10, 2019, we entered into a Clinical Collaboration and Supported Study 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 I/IIa clinical study to incorporate the AS01_B adjuvant.

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 second study arm will be expensed as incurred in Research and Development expenses; costs for the three and nine months ended September 30, 2020 are $149 and $485 respectively. Costs for the three and nine months ended September 30, 2019 were de-minimis.

National Research Council of Canada (“NRC”)

On March 31, 2020, we 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.

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 and nine months ended September 30, 2020 are $131 and $395 respectively.

Brii Biosciences Limited

On December 4, 2018, we entered into the Collaboration and License Agreement with Brii Bio, as described in Note 10.

12. INCOME TAXES

The Company operates in U.S., Israel, and Canadian tax jurisdictions. Its income is subject to varying rates of tax, and losses incurred in one jurisdiction cannot be used to offset income taxes payable in another.

The Company determines its annual effective tax rate at the end of each interim period based on the year to date period results. Since the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 26.50% in the determination of the estimated annual effective tax rate.

The Company’s effective tax rate on loss before tax for the three and nine months ended September 30, 2020 of 0.0% (0.0% for the three and nine months ended September 30, 2019) differs from the Canadian statutory rate of 26.50% primarily due to recording a valuation allowance on the Canadian deferred tax assets in excess of the remaining Canadian deferred tax liability and the effect of recording a valuation allowance against deferred tax assets in all other jurisdictions.

The Company maintains a valuation allowance on all of its deferred tax assets. A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

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13. 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 actions 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 Sci-B-Vac discovered in July 2015; that Sci-B-Vac was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about Sci-B-Vac 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 Sci-B-Vac in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in thousands) ($546,207). 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 Sci-B-Vac was marketed in Israel without sufficient evidence establishing its safety; and that Sci-B-Vac 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 a second preliminary hearing held on May 13, 2020 to discuss document disclosure. The next preliminary hearing is scheduled to be held on December 3, 2020.

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, had an initial term ending on December 31, 2019 with the option to extend the term for two periods of three years. Effective September 5, 2019, the term of the lease was extended until December 31, 2022, with an option to extend the lease for one additional period of three years.

Effective April 30, 2020, the Company entered into the seventh amendment to the lease agreement for the office facilities in Cambridge, Massachusetts, which extends the lease for a term of three years expiring on April 30, 2023 with no option to extend, and for a base rent of $25 per month, subject to a 3% annual increase. The Company recognized a right of use asset of $769.

Options to extend are not recognized as part of the lease liabilities or recognized as right to use assets. There are no residual value guarantees, no variable lease payments, and no restrictions or covenants imposed by leases. The discount rate used in measuring the lease liabilities and right of use assets was determined by reviewing our incremental borrowing rate at the initial measurement date.

SCHEDULE OF LEASE COST AND OTHER INFORMATION

Lease cost:
Operating lease costs:
Three months ended September 30, 2020	$	316
Nine months ended September 30, 2020		897
Other information:
Weighted average remaining lease term		1.94 years
Weighted average discount rate		12%

Operating lease costs are included in general and administrative (“G&A”) expenses in the statement of operation and comprehensive loss.

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The following table summarizes future undiscounted cash payments reconciled to the lease liabilities:

SUMMARY OF FUTURE UNDISCOUNTED CASH PAYMENTS RECONCILED TO LEASE LIABILITIES

Year ending December 31
Remaining 2020	$	248
2021		1,001
2022		472
2023		104
Total	$	1,825
Effect of discounting		(179	)
Total lease liability	$	1,646
Less: current portion (to September 30, 2021)		(848	)
Long term lease liability	$	798

14. SEGMENT INFORMATION

The Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker. The CEO evaluates the performance of the Company and allocates resources based on the information provided by the Company’s internal management system at a consolidated level. The Company has determined that it has only one operating segment.

Revenues from external customers are attributed to geographic areas based on location of the contracting customers:

SCHEDULE OF REVENUES FROM EXTERNAL CUSTOMERS

	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Israel	$	48	$	134	$	198	$	287
China / Hong Kong		250		467		646		1,245
Europe		0		46		53		115
Total	$	298	$	647	$	897	$	1,647

There was 0 revenue attributed to our country of domicile, Canada, for the three and nine months ended September 30, 2020 and 2019.

15. SUBSEQUENT EVENTS

Effective as of September 4, 2020, the Company entered into a further lease agreement for additional office space at its research facility in Canada, the term of which will commence on October 1, 2020 until April 30, 2023. The Company will recognize a right of use asset and lease liability of approximately $66 on October 1, 2020.

On October 21, 2020, the Company incorporated VBI Vaccines B.V. in the Netherlands.

On October 22, 2020, the Company issued 100,000 options to an existing employee pursuant to the 2016 Plan. Twenty-five percent of the granted options vest and become exercisable on the one-year anniversary of grant date, with the remaining 75% vesting and becoming exercisable on a monthly basis over 24 months. The granted options expire on October 22, 2030.

During October 2020, the Company issued 13,246 common shares upon exercise of warrants at an exercise price of $1.50 for gross proceeds of $20.

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

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements included in our 2019 10-K as filed with the SEC.

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

Overview

We are a commercial-stage, biopharmaceutical company developing a next generation of vaccines to address unmet needs in infectious disease and immuno-oncology. We are advancing the prevention and treatment of hepatitis B, with: (1) the only 3-antigen hepatitis B vaccine, Sci-B-Vac, which is approved for use and commercially available in Israel, and recently completed a pivotal Phase III program in the United States, Europe, and Canada; and (2) VBI-2601 (BRII-179), an immunotherapeutic candidate in development in collaboration with Brii Biosciences Limited (“Brii Bio”) for a functional cure for chronic hepatitis B. Our enveloped virus-like particle (“eVLP”) platform technology enables the development of eVLP vaccines that closely mimic the target virus to elicit a potent immune response. Our lead eVLP program candidates include VBI-1901, a glioblastoma (“GBM”) vaccine immunotherapeutic candidate, VBI-1501, our prophylactic cytomegalovirus (“CMV”) vaccine candidate, and VBI-2900, our prophylactic coronavirus vaccine program. Our coronavirus vaccine program includes both (1) VBI-2901, a trivalent pan-coronavirus vaccine candidate expressing the SARS-CoV-2 (COVID-19), SARS-CoV (SARS), and MERS-CoV (MERS) spike proteins; and (2) VBI-2902, a monovalent vaccine candidate expressing the SARS-CoV-2 (COVID-19) spike protein. We are headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada. Our manufacturing site in Rehovot, Israel produces Sci-B-Vac and VBI-2601 while our eVLP vaccine candidates are manufactured using contract development and manufacturing organizations (“CDMO”) located in the United States and Canada.

Product Pipeline – Lead Program Candidates

Program: Indication		Current Development Stage
Hepatitis B Portfolio:
●	Sci-B-Vac: Prophylactic Hepatitis B	Phase III Completed
●	VBI-2601: Therapeutic Hepatitis B	Phase Ib/IIa
eVLP Platform Portfolio:
●	VBI-1901: Therapeutic CMV-Associated Cancers (GBM)	Phase I/IIa
●	VBI-2900: Prophylactic Coronavirus	Pre-clinical
●	VBI-1501: Prophylactic CMV	Phase I Completed

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A summary of these programs and recent developments follows.

Hepatitis B Portfolio

Sci-B-Vac: 3-antigen Prophylactic Hepatitis B Vaccine

Sci-B-Vac is a 3-antigen prophylactic hepatitis B vaccine, which is approved for use and commercially available in Israel, and recently completed its pivotal Phase III program in the United States, Europe, and Canada. In contrast to other commercially available hepatitis B vaccines, which contain only one surface antigen (the S antigen) of hepatitis B, Sci-B-Vac contains all three of the hepatitis B surface antigens: the S antigen, the pre-S1 antigen, and the pre-S2 antigen. Published data demonstrate that T cell responses to the pre-S1 and pre-S2 antigens can further boost responses to the S antigen, resulting in a more immunogenic response. Moreover, Sci-B-Vac is distinguished from other commercially available hepatitis B vaccines because it is produced in mammalian cells (Chinese hamster ovary “CHO” cells) rather than in yeast.

Sci-B-Vac has not yet been approved for use by the United States Food and Drug Administration (“FDA”), European Medicines Agency (“EMA”), United Kingdom Medicines and Healthcare products, Regulatory Agency (“MHRA”); or Health Canada. The recently completed global Phase III clinical program was designed to support applications for FDA, EMA, MHRA, and Health Canada regulatory approvals for commercial sale of Sci-B-Vac in the United States, Europe, United Kingdom, and Canada, respectively. Our wholly-owned subsidiary, SciVac Ltd., in Rehovot, Israel, manufactures and sells Sci-B-Vac.

On June 17, 2019, we announced positive top-line results from the randomized, double-blind, controlled pivotal Phase III study, PROTECT, designed to evaluate the efficacy and safety of a 10µg dose of Sci-B-Vac compared with a 20µg dose of the standard of care vaccine, Engerix-B. The study, which enrolled a total of 1,607 adults, of which 81% were age ≥ 45 years, met both of its co-primary endpoints: (1) non-inferiority of seroprotection rate (“SPR”) of Sci-B-Vac (91.4%) vs. Engerix-B (76.5%) in all subjects age ≥ 18 years, 4 weeks after 3^rd vaccination (SPR difference: 14.9%; 95% confidence interval (“CI”) [11.2%, 18.5%]); and (2) superiority of SPR of Sci-B-Vac (89.4%) vs. Engerix-B (73.1%) in subjects age ≥ 45 years, 4 weeks after 3^rd vaccination (SPR difference: 16.4%; 95% CI [12.2%, 20.7%]). Moreover, the SPR of Sci-B-Vac compared to Engerix-B was higher in all key subgroup analyses of adults age ≥ 18 years, including by age, gender, body mass index (“BMI”), diabetic status, and smoking status, four weeks after 3^rd vaccination.

On January 9, 2020 we reported positive top-line results from CONSTANT, the second pivotal Phase III study, designed to assess lot-to-lot manufacturing consistency of Sci-B-Vac, and to compare the safety and immunogenicity of Sci-B-Vac to Engerix-B. The CONSTANT Phase III study, which enrolled 2,838 adults, age 18-45 years, met both the primary and secondary endpoints. The primary endpoint of the CONSTANT study was assessing manufacturing consistency of Sci-B-Vac, the study evaluated the vaccine immune response, as measured by geometric mean concentration (“GMC”) of antibodies across three independent, consecutively-manufactured lots of Sci-B-Vac, four weeks after the third vaccination. A secondary endpoint of the CONSTANT study demonstrated non-inferiority of SPR of Sci-B-Vac (99.3%) vs. Engerix-B (94.8%), one month after completion of the full course of vaccination (SPR difference: 4.49%; 95% CI [2.90%, 6.63%] – up from 90.4% for Sci-B-Vac and 51.6% for Engerix-B at day 168, after only two vaccinations. In addition to demonstrating non-inferiority, the SPR achieved with Sci-B-Vac compared to Engerix-B was higher after both two and three vaccinations. Together with the positive safety and immunogenicity results from the PROTECT Phase III study, we expect these data to comprise the basis for the regulatory submissions in the United States, Europe, and Canada.

An exploratory analysis in CONSTANT also compared the SPR after two doses of Sci-B-Vac (90.4%) to the SPR after three doses of Engerix-B (94.8%) (SPR difference: -4.3%; 95% CI [-6.48%, -1.90%]). As per the commonly-used statistical margin of non-inferiority for hepatitis B vaccines, defined as the lower limit of the 95% CI being above -10%, this analysis demonstrated non-inferiority after two doses of Sci-B-Vac (at day 168) compared with three doses of Engerix-B (at day 196). Similarly, at these time points, preliminary data from the integrated immunogenicity analysis of both the PROTECT and CONSTANT studies in subjects age 18-45 years demonstrate a difference in SPR of -4.2%; 95% CI [-6.38%, -1.99%]. The two versus three dose comparison is not part of the regulatory approval process and will not be included in the expected indication we will seek, but we believe it contributes to the robust immunogenicity profile of Sci-B-Vac.

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The safety and tolerability seen in CONSTANT and PROTECT studies were consistent with the known safety profile of Sci-B-Vac. No new safety risks were identified, and no safety signals were observed in either study cohort. The integrated safety data analysis from both the PROTECT and CONSTANT studies is underway.

The completed Phase III studies are expected to support the Biologics License Application (“BLA”) to the FDA, the Marketing Authorization Application (“MAA”) to the EMA and the United Kingdom MHRA, and the New Drug Submission (“NDS”) to Health Canada. Based on pre-BLA discussions with the FDA and EMA that took place in the second and third quarters of 2020, respectively, we plan to submit applications for regulatory approvals in the United States, Europe, United Kingdom, and Canada beginning the fourth quarter of 2020.

VBI-2601: Hepatitis B Immunotherapeutic Candidate

VBI-2601 (BRII-179) is our novel, recombinant, protein-based immunotherapeutic candidate in development for the treatment of chronic hepatitis B infection, a disease that affects more than 250 million people worldwide. Chronic hepatitis B infection can lead to cirrhosis of the liver, hepatocellular cancer, and other liver disease, making it a life-threatening global health problem. VBI-2601 (BRII-179) is formulated to induce broad immunity against hepatitis B virus, including T-cell immunity which plays an important role in controlling hepatitis B infection.

On December 6, 2018, we announced that we had entered into a Collaboration and License Agreement (“License Agreement”) with Brii Bio, pursuant to which, among other things, subject to terms and conditions set forth in the License Agreement, we and Brii Bio agreed to collaborate on the development of a hepatitis B recombinant protein-based immunotherapeutic candidate in China, Hong Kong, Taiwan, and Macau (the “Licensed Territory”), and to conduct a Phase Ib/IIa collaboration clinical trial for the purpose of comparing VBI-2601 (BRII-179) with a novel composition developed jointly with Brii Bio.

On November 14, 2019, we announced initiation of enrollment in a Phase Ib/IIa Study of VBI-2601 (BRII-179) in patients with chronic hepatitis B infection. The Phase Ib/IIa clinical study of VBI-2601 (BRII-179) is a randomized, controlled study designed to assess the safety, tolerability, antiviral and immunological activity of VBI-2601 (BRII-179). The study is designed as a two-part dose-escalation study assessing different dose levels of VBI-2601 (BRII-179) with and without an immunomodulatory adjuvant and is expected to enroll up to 65 patients. Initial human proof-of-concept data from the clinical study is anticipated in the fourth quarter of 2020. The study is sponsored by Brii Bio and is being conducted at multiple study sites in New Zealand, Australia, Thailand, South Korea, Hong Kong SAR, and China.

eVLP Platform Portfolio

Our proprietary eVLP technology enables the synthetic manufacture of an “enveloped” virus-like particle, or “eVLP”. Many viruses are “enveloped” in that they are surrounded by a lipid bilayer membrane. Such viruses display antigenic proteins on the surface of their “envelope” which can be targets for vaccine development. The ability to synthetically manufacture an “enveloped” virus-like particle is different from previously developed VLP technologies, which did not include the lipid bilayer membrane, and thus these technologies were unable to express antigenic proteins within an “envelope” as they occur in nature.

VBI-1901: Cancer Vaccine Immunotherapeutic Candidate

Our cancer vaccine immunotherapeutic program, VBI-1901, targets CMV proteins present in tumor cells. CMV is associated with a number of solid tumors including GBM, breast cancer, and pediatric medulloblastoma. We initiated dosing in a multi-center Phase I/IIa clinical study evaluating VBI-1901, in combination with granulocyte-macrophage colony stimulating factor (“GM-CSF”), in patients with recurrent GBM in January 2018. Enrollment in Part A of the study was completed in December 2018. In April 2019, the independent data safety monitoring board completed reviews of all safety data from our fully-enrolled Part A portion of the Phase I/IIa trial in recurrent GBM subjects, which included 6 subjects in each of 3 different dose cohorts. The data safety monitoring board unanimously recommended the continuation of the study without modification and had no safety concerns about any of the 3 dose levels of VBI-1901. On April 23, 2019, we announced that, based on safety and immunogenicity data, the highest dose tested in Part A of the ongoing Phase I/IIa study in recurrent GBM patients, 10µg, was selected as the optimal dose level to test in Part B of the study. Where Part A was designed as a dose-escalation phase to assess safety, tolerability, and to define the optimal dose level of VBI-1901, Part B is a subsequent extension phase of the optimal dose level defined in Part A.

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On September 10, 2019, we entered into a Clinical Collaboration and Supported Study Agreement (“Collaboration Agreement”) with GlaxoSmithKline Biologicals S.A. (“GSK”) 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 I/IIa clinical study. Part B is now a two-arm open-label study, enrolling 20 first recurrent GBM patients to receive VBI-1901 in combination with either granulocyte-macrophage colony-stimulating factor (“GM-CSF”) or AS01_B as immunomodulatory adjuvants. Enrollment of the 10 patients in the VBI-1901 with GM-CSF arm was completed in March 2020. Enrollment of the 10 patients in the VBI-1901 with AS01_B was completed in October 2020.

In the high-dose cohort of Part A, vaccine response correlated with tumor response, with all three vaccine responders demonstrating stable disease for greater than 12 weeks. Two patients in the high-dose cohort of Part A experienced a 60% reduction in the size of primary tumor. VBI-1901 also induced and expanded robust T cell responses in these two patients. For patients who were vaccines responders, the 12-month overall survival (“OS”) rate was 83% (n = 5/6), compared to 33% (n = 3/9) for vaccine non-responders in Part A. Similarly, among patients evaluable for response and survival in Part A, vaccine responders saw a 6.25-month improvement in median OS (14.0 months) compared to vaccine non-responders (7.75 months).

On June 22, 2020 we announced additional emerging data from the ongoing Phase I/IIa study of VBI-1901 which suggests that patients with a normal baseline of CD4+/CD8+ T cell ratio may be more likely to experience delayed progression or tumor reduction, reflected as a tumor response. Five out of the six tumor responses seen to-date, including a recently confirmed partial response, defined as a tumor reduction of more than 50% per the Response Assessment in Neuro-Oncology criteria, suggest that the biomarker may predict patients most likely to respond to, and derive clinical benefit from, treatment with VBI-1901.

VBI-1901 continues to be safe and well tolerated at all doses tested, with no safety signals observed.

Based on the data seen to-date, VBI is exploring a randomized, controlled, registrational clinical study for the next phase of development, which, subject to approval from regulatory bodies, could begin in 2021. Immunologic and tumor data from the Phase I/IIa Part B study arm of VBI-1901 in combination with GSK’s AS01B adjuvant systems is expected in the fourth quarter of 2020.

VBI-2900: Prophylactic Coronavirus Vaccine Program

On March 31, 2020, we announced a collaboration with the National Research Council of Canada (“NRC”), Canada’s largest federal research and development organization, to develop a coronavirus vaccine candidate. The collaboration combines VBI’s viral vaccine expertise, eVLP technology platform, and coronavirus antigens with the NRC’s uniquely designed SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development.

On August 5, 2020, we announced that we have been awarded up to a CAD$56 million contribution from the Strategic Innovation Fund (“SIF”), established by the Government of Canada, to support the Company’s coronavirus vaccine development program through Phase II clinical studies. This award is governed by the terms of a Contribution Agreement (the “Contribution Agreement”), dated September 16, 2020, with Her Majesty The Queen in Right of Canada, as represented by the Minister of Industry, pursuant to which our subsidiary, Variation Biotechnologies Inc., is obligated to develop a novel, broadly reactive coronavirus vaccine against COVID-19, SARS, and MERS, and/or a monovalent vaccine targeting only COVID-19 through Phase II studies. We agreed to complete such project in or before the first quarter of 2022, which will be conducted exclusively in Canada, except as permitted otherwise under certain circumstances.

On August 26, 2020, we announced data from the three preclinical studies conducted to enable selection of optimized clinical candidates for the Company’s coronavirus vaccine program. As a result of these studies, VBI has selected two vaccine candidates, with the potential to be one or two-dose vaccines, to take into adaptive Phase I/II human clinical studies: (1) VBI-2901, a trivalent pan-coronavirus vaccine candidate expressing the SARS-CoV-2 (COVID-19), SARS-CoV (SARS), and MERS-CoV (MERS) spike proteins; and (2) VBI-2902, a monovalent vaccine candidate expressing the SARS-CoV-2 (COVID-19) spike protein. The initial clinical study of the first candidate (VBI-2902) is expected to begin around year-end 2020, subject to regulatory approval.

VBI-1501: Prophylactic CMV Vaccine Candidate

CMV may cause severe infections in newborn children (congenital CMV) and may also cause serious infections in people with weakened immune systems, such as solid organ or bone marrow transplant recipients. Our prophylactic CMV vaccine candidate uses the eVLP platform to express a modified form of the CMV glycoprotein B (“gB”) antigen and is adjuvanted with alum, an adjuvant used in FDA-approved products.

In May 2018, we announced positive top-line results from the randomized, placebo-controlled Phase I study of VBI-1501. The final Phase I study results demonstrated that VBI-1501 was safe and well-tolerated at all doses, with and without the adjuvant alum. The highest dose of VBI-1501, 2.0µg, with alum, elicited CMV-neutralizing antibodies against fibroblast cell infection in 100% of subjects after the third vaccination, up from 81% of subjects after the second vaccination, inducing titers comparable to those observed in patients protected as a result of natural infection. Neutralizing antibodies against epithelial cell infection were also seen in 31% of subjects after the third vaccination of VBI-1501 2.0µg with alum. The data also showed the formulation of the vaccine with alum enhanced antibody titers. The highest dose of VBI-1501 tested, 2.0µg with alum, contains approximately 10-fold less antigen content than that used in several other VLP-based vaccines or in previous CMV vaccine candidates developed by other companies.

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On December 20, 2018 we announced plans for a Phase II clinical study evaluating VBI-1501 following positive discussions with Health Canada. We received similarly positive guidance from the FDA in July 2019. The Phase II study is expected to assess the safety and immunogenicity of dosages of VBI-1501 up to 20µg with alum. We are currently evaluating the timing of the Phase II study.

We may also seek to in-license clinical-stage vaccines or vaccine-related technologies that we believe complement our product and pipeline portfolio, in addition to technologies that may supplement our therapeutic vaccination efforts in immuno-oncology.

At present, our operations are focused on:

● preparing marketing authorization applications for Sci-B-Vac in the United States, Europe, and Canada;

● preparing for commercialization of Sci-B-Vac in the United States, Europe, and Canada, where we may obtain regulatory approval;

● conducting the Phase I/IIa clinical study of our GBM vaccine immunotherapeutic candidate, VBI-1901;

● continuing our development and scaling up production processes for our two prophylactic coronavirus vaccine candidates VBI-2901 and VBI-2902 using a CDMO located in Canada;

● seeking regulatory approval to conduct clinical trials of VBI-2901 and VBI-2902;

● developing VBI-2601 (BRII-179), our protein-based immunotherapeutic candidate for treatment of chronic hepatitis B, in collaboration with Brii Bio;

● ensuring our recently modernized manufacturing facility in Rehovot, Israel obtains all required regulatory approvals;

● preparation for further development of VBI-1501, our preventative CMV vaccine candidate;

● continuing the research and development (“R&D”) of our pipeline candidates, including the exploration and development of new pipeline candidates;

● implementing operational, financial, and management information systems, including through third party partners, to support our commercialization activities;

● maintaining, expanding, and protecting our intellectual property portfolio; and

● developing our internal systems and processes for regulatory affairs and compliance.

VBI’s revenue generating activities have been the sale of Sci-B-Vac product in markets where it is approved or on a named patient basis where it is not approved, though those markets have generated a limited number of sales to-date, various business development transactions, and R&D services generating fees. VBI has incurred significant net losses and negative operating cash flows since inception and expects to continue incurring losses and negative cash flows from operations as we carry out planned clinical, regulatory, R&D, sales, and manufacturing activities with respect to the advancement of our Sci-B-Vac and new pipeline candidates. As of September 30, 2020, VBI had an accumulated deficit of approximately $293.3 million and stockholders’ equity of approximately $165.8 million. Our ability to maintain our status as an operating company and to realize our investment in our In-Process Research and Development (“IPR&D”) assets, which consist of our CMV and GBM programs, is dependent upon obtaining adequate cash and cash equivalents to finance our clinical development, manufacturing, our administrative overhead and our research and development activities, and ultimately to profitably monetize our IPR&D. We plan to finance near term future operations with existing cash and cash equivalents reserves. We expect that we will need to secure additional financing to finance our business plans, which may be a combination of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings, government grants or subsidies, and revenues from potential business development transactions, if any. There is no assurance we will manage to obtain these sources of financing, if required. These factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern. The 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 we be unable to continue as a going concern.

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We have incurred operating losses since inception, have not generated significant product sales revenue and have not achieved profitable operations. We incurred net losses of $12,997 and $30,868 for the three and nine months ended September 30, 2020, respectively, and we expect to continue to incur substantial losses in future periods. We anticipate that we will continue to incur substantial operating expenses as we continue our research and development, clinical studies, and as we take steps to commercialize our product. These include expenses related to:

● preparing marketing authorization applications for Sci-B-Vac in the United States, Europe, and Canada;

● preparing for commercialization of Sci-B-Vac in the United States, Europe, and Canada, where we may obtain approval;

● continuing the research and development of our pipeline candidates, including further development of VBI-1901, our cancer vaccine immunotherapeutic candidate, VBI-2601 (BRII-179), our hepatitis B immunotherapeutic candidate, VBI-2900, our coronavirus vaccine program, and VBI-1501, our prophylactic CMV vaccine candidate;

● seeking regulatory approval to conduct clinical trials of VBI-2901 and VBI-2902;

● developing and scaling up production processes for VBI-2901 and VBI-2902 to meet the supply requirements for clinical trials;

● manufacturing Sci-B-Vac, obtaining, and maintaining required regulatory approvals at our recently modernized manufacturing facility in Rehovot, Israel;

● maintaining, expanding, and protecting our intellectual property portfolio;

● hiring additional clinical, manufacturing, and scientific personnel or contractors;

● implementing operational, financial, and management information systems, and adding human resources support, including additional personnel, to support our product development; and

● developing our internal systems and processes for regulatory affairs and compliance.

In addition, we have incurred and will continue to incur significant expenses as a public company, which subjects us to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules and regulations of the NASDAQ Capital Market, and the Canadian securities regulators.

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Long Term Debt

On May 22, 2020, we (along with our subsidiary VBI Cda) entered into a Loan and Guaranty Agreement (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 us: (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. FDA 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 have 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”).

In connection with the Loan Agreement, on May 22, 2020, we 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 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.

As a result of the K2 Warrant and K2 conversion feature, the debt was issued at a discount of $3,758. We also incurred, in the quarter ended June 30, 2020, $1,021 of debt issuance costs and are required to make a final payment equal to 6.95% of the aggregate secured term loan principal outstanding 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 debt discount is $6,169.

The total principal amount of the loan under the Loan Agreement outstanding at September 30, 2020, including the $1,390 final payment discussed above, is $21,390. 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 September 30, 2020 was 8.25%. We are 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.

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.

Research and Development Services

Pursuant to an agreement with the Israel Innovation Authority (formerly the Office of the Chief Scientist of Israel), we are required to make services available for the biotechnology industry in Israel. These services include relevant activities for development and manufacturing of therapeutic proteins according to international standards and Good Manufacturing Practice (“GMP”) quality level suitable for toxicological studies in animals. Service activities include analytics/bio analytics methods for development and process development of therapeutic proteins starting with a candidate clone through manufacturing.

These R&D services are primarily marketed to the Israeli research community in academia and Israeli biotechnology companies in the life sciences lacking the infrastructure or experience in the development and production of therapeutic proteins to the standards and quality required for clinical trials for human use. In the first nine months of 2020, we provided services to biotechnology companies including analytical development.

In addition, pursuant to the License Agreement with Brii Bio we provide R&D services to Brii Bio as part of the development of VBI-2601 (BRII-179).

Modernization and Capacity Increases of Our Manufacturing Facility

In 2018, we temporarily closed our manufacturing facility in Rehovot, Israel, for modernization and capacity increase. We re-commenced operations in May 2019 and the review of the modernization and the capacity increase by the Israeli Ministry of Health (“IMoH”) occurred in December of 2019. We received our certificate of GMP compliance from the IMoH on January 27, 2020. In addition to the GMP compliance certification, the IMoH will also need to review and approve the process validation submission, and provide approval for us to sell Sci-B-Vac manufactured at the modernized facility. We increased the capacity of our manufacturing facility to be able to supply commercial quantities of Sci-B-Vac upon FDA, and/or EMA, and/or MHRA, and/or Health Canada approval, and to supply clinical supplies of VBI-2601 (BRII-179).

Third Party License and Assignment Agreements

We currently are dependent on licenses from third parties for certain of our key technologies, including the license granted pursuant to an agreement between Savient Pharmaceuticals Inc. and SciGen Ltd dated June 2004, as subsequently amended (the “Ferring License Agreement”) and a license from L’Universite Pierre et Marie Curie, now Sorbonne Université (“UPMC”), Institut National de la Santé et de la Recherche Médicale (“INSERM”) and L’école Normale Supérieure de Lyon. Under the Ferring License Agreement, we are committed to pay Ferring royalties equal to 7% of net sales (as defined therein) of HBsAg “Product” (as defined therein). Under an Assignment Agreement between FDS Pharm LLP and SciGen Ltd., dated February 14, 2012 (the “SciGen Assignment Agreement”), we are required to pay royalties to SciGen Ltd. equal to 5% of net sales (as defined in the Ferring License Agreement) of Product. Under the Ferring License Agreement and the SciGen Assignment Agreement, we originally were to pay royalties on a country-by-country basis until the date 10 years after the date of commencement of the first royalty year in respect of such country. In April 2019, we exercised our option to extend the Ferring License Agreement in respect of all the countries that still make up the territory for an additional 7 years by making a one-time payment to Ferring of $100. Royalties under the Ferring License Agreement and SciGen Assignment Agreement will continue to be payable for the duration of the extended license periods. Under our license agreement with UPMC and other licensors relating to eVLP technology, we have an exclusive license to a family of patents that is expected to expire in the United States in 2022 and 2021 in other countries. Under this agreement, we are required to pay UPMC between 0.75% to 1.75% of net sales and certain lump-sum milestone payments. UPMC is also a co-owner of the patent family covering our VBI-1501 CMV vaccine and we are currently negotiating extension of our existing license to cover this patent family.

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Financial Overview

Overall Performance

We had net losses of approximately $12,997 and $16,162 for the three months ended September 30, 2020 and 2019, respectively, and $30,868 and $43,938 for the nine months ended September 30, 2020 and 2019 respectively. We had an accumulated deficit of $293,256 at September 30, 2020. We had $95,158 of cash and cash equivalents and $25,220 of short-term investments and net working capital of approximately $112,443 as of September 30, 2020.

Cost of revenues

Cost of revenues consist primarily of costs incurred for manufacturing the Sci-B-Vac vaccine, which includes cost of materials, consumables, supplies, contractors, and manufacturing salaries. Certain cost of revenues related to the temporary closure of the manufacturing facility, during the modernization and capacity increase, of approximately $348 was allocated to G&A expenses in the nine-months ended September 30, 2019. These costs were not present for the nine-months ended September 30, 2020.

Research and Development Expenses

R&D expenses consist primarily of costs incurred for the development of Sci-B-Vac; VBI-1901, our GBM vaccine immunotherapeutic candidate; VBI-1501, our CMV candidate; VBI-2601 (BRII-179); and VBI-2900 our coronavirus vaccine program, which include:

● the cost of acquiring, developing and manufacturing clinical study materials, and other consumables and lab supplies used in our pre-clinical studies;

● expenses incurred under agreements with contractors or CDMOs or Contract Research Organizations to advance the vaccines into and through completion of clinical studies; and

● employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense.

We expense R&D costs when we incur them.

General and Administrative Expenses

G&A expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants, including stock-based compensation, impairment charges, and travel expenses. Other general and administrative expenses include professional fees for legal, patent protection, consulting and accounting services, commercialization costs, travel and conference fees, board of directors meeting costs, scientific and commercial advisory board meeting costs, rent, maintenance of facilities, depreciation, office supplies, information technology costs and expenses, insurance, and other general expenses. G&A expenses are expensed when incurred.

We expect that our general and administrative expenses will increase in the future as a result of adding employees and scaling our operations commensurate with advancing clinical candidates, commercializing products, and continuing to support a public company infrastructure. These increases will likely include increased costs for insurance, hiring of additional personnel, board committees, outside consultants, investor relations, lawyers, and accountants, among other expenses.

Interest Expense, net of interest income

Interest expense is associated with our long-term debt as discussed in Note 8 of the Notes to the Condensed Consolidated Financial Statements.

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Results of Operations

Three and nine Months Ended September 30, 2020 Compared to the Three and nine Months Ended September 30, 2019

All dollar amounts stated below are in thousands, unless otherwise indicated.

	Three months ending September 30
	2020			2019			Change $			Change %
Revenues	$	298		$	647		$	(349	)		(54	)%
Expenses:
Cost of revenues		2,111			1,977			134			7	%
Research and development		4,478			5,401			(923	)		(17	)%
General and administrative		5,562			9,412			(3,850	)		(41	)%
Total operating expenses		12,151			16,790			(4,639	)		(28	)%
Loss from operations		(11,853	)		(16,143	)		4,290			(27	)%
Interest expense, net of interest income		(742	)		(626	)		(116	)		19	%
Foreign exchange (loss) gain		(402	)		607			(1,009	)		(166	)%
Loss before income taxes		(12,997	)		(16,162	)		3,165			(20	)%
Income tax expense		-			-			-			-
NET LOSS	$	(12,997	)	$	(16,162	)	$	3,165			(20	)%

	Nine months ending September 30
	2020			2019			Change $			Change %
Revenues	$	897		$	1,647		$	(750	)		(46	)%
Expenses:
Cost of revenues		6,747			5,319			1,428			27	%
Research and development		10,035			21,989			(11,954	)		(54	)%
General and administrative		13,520			16,570			(3,050	)		(18	)%
Total operating expenses		30,302			43,878			(13,576	)		(31	)%
Loss from operations		(29,405	)		(42,231	)		12,826			(30	)%
Interest expense, net of interest income		(2,006	)		(1,672	)		(334	)		20	%
Foreign exchange gain (loss)		543			(35	)		578			(1,651	)%
Loss before income taxes		(30,868	)		(43,938	)		13,070			(30	)%
Income tax expense		-			-			-			-
NET LOSS	$	(30,868	)	$	(43,938	)	$	13,070			(30	)%

Revenues

Revenues for the three months ended September 30, 2020 decreased by $349 or 54% due to a decrease in product revenue of Sci-B-Vac during the three months ended September 30, 2020 compared to three months ended September 30, 2019. In addition, we experienced a decrease in R&D services revenue for VBI-2601, our hepatitis B immunotherapeutic candidate, being developed in collaboration with Brii Bio, as fewer manufacturing and non-clinical research services were required in the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

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Revenues for the nine months ended September 30, 2020 decreased by $750 or 46% primarily due to a decrease in R&D services revenue as discussed above.

Revenues by Geographic Region

	Three months ending September 30
	2020		2019		$ Change			% Change
Revenue in Israel	$	48	$	134	$	(86	)		(64	)%
Revenues in China / Hong Kong		250		467		(217	)		(46	)%
Revenue in Europe		-		46		(46	)		(100	)%
Total Revenues	$	298	$	647	$	(349	)		(54	)%

	Nine months ending September 30
	2020		2019		$ Change			% Change
Revenue in Israel	$	198	$	287	$	(89	)		(31	)%
Revenues in China / Hong Kong		646		1,245		(599	)		(48	)%
Revenue in Europe		53		115		(62	)		(54	)%
Total Revenues	$	897	$	1,647	$	(750	)		(46	)%

Cost of Revenues

Cost of revenues for the three months ended September 30, 2020 was $2,111 as compared to $1,977 for the three months ended September 30, 2019. The increase in the cost of revenues of $134 or 7% is due to increased labor costs.

Cost of revenues for the nine months ended September 30, 2020 was $6,747 as compared to $5,319 for the nine months ended September 30, 2019. The increase in the cost of revenues of $1,428 or 27% is due to the re-commencement of manufacturing, subsequent to the temporary closure of our manufacturing facility in Rehovot, which occurred in May 2019, and increased labor costs as discussed above.

Research and Development Expenses

R&D expenses for the three months ended September 30, 2020 were $4,478 as compared to $5,401 for the three months ended September 30, 2019. The decrease in R&D expenses of $923 or 17% is mainly the result of the decrease in the costs related to the Sci-B-Vac Phase III clinical studies. During the three months ended September 30, 2020 both of the Sci-B-Vac Phase III clinical studies were complete whereas during the three months ended September 30, 2019 the PROTECT study topline data was released (mid- June 2019) and the CONSTANT study was nearing completion. The decrease in R&D expenses was offset by increased expenses related to analytical development and manufacturing associated with our vaccine candidates during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

R&D expenses for the nine months ended September 30, 2020 were $10,035 as compared to $21,989 for the nine months ended September 30, 2019. The decrease in R&D expenses of $11,954 or 54%, is mainly the result of the decrease in the costs related to the Sci-B-Vac Phase III clinical studies. During the nine months ended September 30, 2020, both of the Sci-B-Vac Phase III clinical studies were complete whereas during the nine months ended September 30, 2019 both studies were ongoing with the PROTECT topline data being released mid- June 2019. The decrease in R&D expenses was offset by increased analytical development and manufacturing associated with our vaccine candidates as discussed above.

General and Administrative Expenses

G&A expenses for the three months ended September 30, 2020 were $5,562 as compared to $9,412 for the three months ended September 30, 2019. The G&A expense decrease of $3,850 or 41% is a result of the impairment charge relating to goodwill incurred in the three months ended September 30, 2019 that did not re-occur in the three months ended September 30, 2020, offset by an increase in commercialization activities related to Sci-B-Vac and increased insurance costs during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

G&A expenses for the nine months ended September 30, 2020 were $13,520 as compared to $16,570 for the nine months ended September 30, 2019. The G&A expense decrease of $3,050 or 18% resulted from the items discussed above.

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Loss from Operations

The net loss from operations for the three months ended September 30, 2020 was $11,853 as compared to $16,143 for the three months ended September 30, 2019. The $4,290 decrease in the net loss from operations resulted from the items discussed above.

The net loss from operations for the nine months ended September 30, 2020 was $29,405 as compared to $42,231 for the nine months ended September 30, 2019. The $12,826 decrease in the net loss from operations resulted from the items discussed above.

Interest Expense, net of interest income

Interest expense, net of interest income has increased by $116 and $334 for the three and nine months ended September 30, 2020 compared to September 30, 2019, respectively. This is largely due to the amortization of the debt discount which increased as a result of the debt financing that occurred during the nine months ended September 30, 2020.

Foreign Exchange Gain (Loss)

The foreign exchange loss of $402 and gain of $543 for the three and nine months ended September 30, 2020, respectively, and the foreign exchange gain of $607 and foreign exchange loss of $35 for the three and nine months ended September 30, 2019, respectively, are a result of the changes in the foreign currency exchange rates (NIS and CAD) in which the foreign currency transactions were denominated for each of those periods.

Net Loss

Net loss of $12,997 and $30,868 for the three and nine months ended September 30, 2020, respectively compared to $16,162 and $43,938 for the three and nine months ended September 30, 2019, respectively resulted from the items discussed above.

Liquidity and Capital Resources

	September 30, 2020			December 31, 2019			$ Change			% Change
Cash and cash equivalents	$	95,158		$	44,213		$	50,945			115	%
Current Assets		126,393			46,963			79,430			169	%
Current Liabilities		13,950			29,757			(15,807	)		(53	)%
Working Capital		112,443			17,206			95,237			554	%
Accumulated Deficit	$	(293,256	)	$	(262,388	)	$	(30,868	)		12	%

As of September 30, 2020, we had cash and cash equivalents of $95,158 as compared to $44,213 as of December 31, 2019. As of September 30, 2020, we had working capital of $112,443 as compared to working capital of $17,206 at December 31, 2019. Working capital is calculated by subtracting current liabilities from current assets.

The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2019 contains an explanatory paragraph regarding our ability to continue as a going concern. VBI has incurred significant net losses and negative operating cash flows since inception and expects to continue incurring losses and negative cash flows from operations as we carry out our planned clinical, regulatory, R&D, sales, and manufacturing activities with respect to the advancement of our Sci-B-Vac and new pipeline candidates. As of September 30, 2020, VBI had an accumulated deficit of approximately $293.3 million and stockholders’ equity of approximately $165.8 million. Our ability to maintain our status as an operating company and to realize our investment in our IPR&D assets is dependent upon obtaining adequate cash and cash equivalents to finance our clinical development, manufacturing, our administrative overhead and our research and development activities. We plan to finance near term future operations with existing cash and cash equivalents reserves. We expect that we will need to secure additional financing to finance our business plans, which may be a combination of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings, government grants or subsidies, and revenues from potential business development transactions, if any. There is no assurance we will manage to obtain these sources of financing. The accompanying financial statements have been prepared assuming that we will continue as a going concern; however, the above conditions raise substantial doubt about our ability to do so. The 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 we be unable to continue as a going concern. Our long-term success and ability to continue as a going concern is dependent upon obtaining sufficient capital to fund the research and development of our products, to bring about their successful commercial release, to generate revenue, and, ultimately, to attain profitable operations, or, alternatively, to advance our products and technology to such a point that they would be attractive candidates for acquisition by others in the industry.

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We will require additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and, subject to such approvals, commercially launch our products, and will need to secure additional financing in the future to support our operations and to realize our investment in our IPR&D assets. We base this belief on assumptions that are subject to change, and we may be required to use our available cash and cash equivalent resources sooner than we currently expect. Our actual future capital requirements will depend on many factors, including the progress and results of our ongoing clinical trials, the duration and cost of discovery and preclinical development, laboratory testing and clinical trials for our pipeline candidates, the timing and outcome of regulatory review of our products, obtaining regulatory approvals for our recently modernized manufacturing facility in Rehovot, Israel, product sales outside of Israel, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the number and development requirements of other pipeline candidates that we pursue, and the costs of commercialization activities, including product marketing, sales, and distribution.

We expect to finance our future cash needs through public or private equity offerings, potential additional proceeds from the long-term debt from the Lenders pursuant to the Loan Agreement, debt financings, government grants or subsidies, structured asset financings, or business development transactions. In addition to the First Tranche Term Loan, the Lenders agreed to make available subject to the conditions discussed above and upon the submission of a loan request by the Company, the Second Tranche Term Loan, the Third Tranche Term Loan, and the Fourth Tranche Term Loan. Pursuant to the Contribution Agreement, we will receive up to CAD $55,976 as government grant to support the development of the Company’s coronavirus vaccine program, though Phase II clinical studies. We may need to raise additional funds more quickly if one or more of our assumptions prove to be incorrect or if we choose to expand our product development efforts more rapidly than we presently anticipate. We may also decide to raise additional funds even before we need them if the conditions for raising capital are favorable. Additional equity, debt, structured asset financing, government grants or subsidies, or business development transactions may not be available on acceptable terms, if at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our R&D programs, reduce our planned commercialization efforts or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain pipeline candidates that we might otherwise seek to develop or commercialize independently.

To the extent we raise additional capital by issuing equity securities or obtaining borrowings convertible into equity, ownership dilution to existing stockholders will result and future investors may be granted rights superior to those of existing stockholders. The incurrence of indebtedness or debt financing would result in increased fixed obligations and could also result in covenants that would restrict our operations. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business, and other factors beyond our control. The ongoing COVID-19 pandemic has caused an unstable economic environment globally. Disruptions in the global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Current economic conditions have been, and continue to be, volatile. Continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business.

In April 2020, we closed an underwritten public offering of 52,272,726 common shares at a price of $1.10 per share for total gross proceeds of $57,500. We incurred $3,606 of share issuance costs related to the offering resulting in net cash proceeds of $53,894.

In May 2020, we refinanced our existing term loan facility with Perceptive Credit Holdings, LP and entered into the Loan Agreement with K2 HealthVentures LLC for net proceeds of $4.5 million.

On July 21, 2020, we issued 550,000 common shares upon exercise of warrants at an exercise price of $3.34 for gross proceeds of $1,837.

On July 31, 2020, we entered into an Open Market Sale Agreement^SM with Jefferies LLC (“Jefferies”), pursuant to which we may offer and sell our 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 our automatic shelf registration on Form S-3 filed with the SEC on July 31, 2020. During the third quarter of 2020, the Company issued 10,840,334 common shares under the ATM Program, for total gross proceeds of $48,769 at an average price of $4.4988. The Company incurred $1,606 of share issuance costs related to the common shares issued resulting in net proceeds of $47,163. As of September 30, 2020, approximately $76,231 of common shares remained available for issuance under the ATM Program.

Net cash used in Operating Activities

We incurred net losses of $30,868 and $43,938 in the nine months ended September 30, 2020 and 2019, respectively. We used $30,555 and $40,182 in cash for operating activities during the nine months ended September 30, 2020 and 2019, respectively. The decrease in cash outflows is largely as a result of the completion of the Sci-B-Vac Phase III clinical studies.

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Net cash used in Investing Activities

Cash flows used in investing activities increased from $3,487 for the nine months ended September 30, 2019 to $25,468 for the nine months ended September 30, 2020. We purchased short-term investments from the cash proceeds received from the issuance of common shares which occurred in April 2020.

Net cash provided by Financing Activities

Net cash provided by financing activities increased by $69,373 during the nine months ended September 30, 2020 due to proceeds received from the issuance of common shares and the term loan pursuant to the Loan Agreement, both offset by issuance costs and the repayment of the credit facility with Perceptive Credit Holdings, LP. Cash received from financing activities were $37,494 for the nine months ended September 30, 2019 which related to the issuance of common shares.

Our long-term success and ability to continue as a going concern is dependent upon obtaining sufficient capital to fund the research and development of its products, to bring about their successful commercial release, to generate revenue, and, ultimately, to attain profitable operations, or, alternatively, to advance our products and technology to such a point that they would be attractive candidates for acquisition by others in the industry.

To date, we have been able to obtain financing as and when it was needed; however, there is no assurance that financing will be available in the future, or if it is, that it will be available at acceptable terms.

Off-Balance Sheet Arrangements

As of September 30, 2020, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies during the nine months ended September 30, 2020. Critical accounting policies and the significant accounting estimates made in accordance with such policies are regularly discussed with the Audit Committee of the Company’s board of directors. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of the Financial Condition and Results of Operations” included in Item 7, as well as in our consolidated financial statements and the footnotes thereto, included in our 2019 10-K.

Trends, Events and Uncertainties

As with other companies that are in the process of commercializing novel pharmaceutical products, we will need to successfully manage normal business and scientific risks. Research and development of new technologies is, by its nature, unpredictable. We cannot assure you that our technology will be adopted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. In addition, the impact of the ongoing COVID-19 pandemic and its resurgence is currently indeterminable and rapidly evolving, and has adversely affected and may continue to adversely affect our operations and the global economy. Furthermore, other than as discussed in this report, we have no committed source of financing and may not be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations.

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Other than as discussed above and elsewhere in this Form 10-Q, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

Recent Accounting Pronouncements

See Note 3 of Notes to the Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer and Head of Business Development (our principal financial and accounting officer), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer and Head of Business Development have concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer and Head of Business Development, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we 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 actions 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 Sci-B-Vac discovered in July 2015; that Sci-B-Vac was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac failed to provide accurate information about Sci-B-Vac 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 Sci-B-Vac in Israel from April 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in thousands) ($546,207). 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 Sci-B-Vac was marketed in Israel without sufficient evidence establishing its safety; and that Sci-B-Vac 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 a second preliminary hearing held on May 13, 2020 to discuss document disclosure. The next preliminary hearing is scheduled to be held on December 3, 2020.

Item 1A. Risk Factors

The following description of risk factors includes any material changes to risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on March 5, 2020. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results, and stock price.

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

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Risks Related to Our Product Development

Our pursuit of coronavirus vaccine candidates is at an early stage. We may be unable to produce a vaccine that successfully treats the virus in a timely manner, if at all.

In response to the global pandemic of coronavirus, on March 30, 2020, we entered into a Collaborative Research Agreement with the NRC pursuant to which we collaborated on certain activities to advance development of our trivalent pan-coronavirus vaccine candidate targeting COVID-19, SARS and MERS and monovalent coronavirus vaccine candidate targeting COVID-19. Our development of the vaccine candidates is in the pre-clinical stage, and we may be unable to develop a vaccine that successfully and safely protects against the viruses in a timely manner, if at all. Furthermore, even if we successfully develop a vaccine, we may encounter difficulties developing and scaling up manufacturing processes suitable for production of sufficient supply for our clinical trials or for commercialization. Due to the number of COVID-19 vaccine candidates in clinical trials, we may also encounter difficulty locating clinical sites with capacity to conduct clinical trials, and therefore, we may experience delays in initiating clinical trials of our vaccine candidate. We are also committing financial resources and personnel to the development of a coronavirus vaccine which may cause delays in or otherwise negatively impact our other development programs, despite uncertainties surrounding the longevity and extent of coronavirus as a global health concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate or against which our vaccine, if developed, may not be partially or fully effective. In addition, other parties may be successful in producing a more efficacious vaccine or other treatment for COVID-19 which will reduce or eliminate the commercial opportunity for our vaccine candidates and may also lead to the diversion of potential future governmental and quasi-governmental funding away from us and toward other companies, which could have a material adverse effect on our operations.

We rely on government grants or subsidies to contribute to our coronavirus vaccine development program. If we are unable to satisfy our contractual obligations or meet expected deadlines, the development of the coronavirus vaccine candidates may be extended, delayed, modified or terminated and we may be required to repay all or part of the grants or subsidies.

On September 16, 2020, we signed the Contribution Agreement with Her Majesty the Queen in Right of Canada, as represented by the Minister of Industry (“ISED”) whereby ISED agrees to contribute up to CAD $56 million from the SIF to support the development of our coronavirus vaccine program, VBI-2900, though Phase II clinical studies (the “Project”). We agreed to complete the Project in or before the first quarter of 2022, which will be conducted exclusively in Canada, except as permitted otherwise under certain circumstances. In an event of default, subject to a rectification period available in certain circumstances, among other things, the Minister may (i) suspend or terminate its contribution to the Project, (ii) require repayment of all or part of the contribution paid by the Minster, together with interest from the day of demand at the interest rate set forth in the Contribution Agreement, (iii) terminate the Contribution Agreement and (iv) post a notice on a Government of Canada website disclosing such event of default. As a result, if we default on our obligations under the Contribution Agreement, we may not have sufficient funds available to continue the development of our coronavirus vaccine program, and we cannot be certain that we will be able to obtain additional capital to fund the program. In addition, we may be required to repay the grants made under the Contribution Agreement, which would harm our business, financial condition and results of operations.

Furthermore, in connection with execution of the Contribution Agreement, we obtained a consent of K2 HealthVentures LLC, as administrative agent for the lenders and a lender, pursuant to the Loan Agreement, dated May 22, 2020. Pursuant to such consent, certain events of default that result in contributions made under the Contribution Agreement in excess of $500,000 becoming due and payable could result in an event of default under the Loan Agreement.

Government involvement may limit the commercial success of our coronavirus vaccine candidates.

The coronavirus pandemic has been classified as a pandemic by public health authorities, and it is possible that one or more government entities may take actions that directly or indirectly have the effect of abrogating some of our rights or opportunities. In particular, the Government of Canada has announced that foreign investments into Canada will be subject to enhanced review under the Investment Canada Act, particularly foreign direct investments in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians or to the government. If we were to develop a coronavirus vaccine, the economic value of such a vaccine to us could be affected by these measures.

Various government entities, including the U.S., Israeli, and Canadian governments, are offering incentives, grants, and contracts to encourage additional investment by commercial organizations into preventative and therapeutic agents against coronavirus, which may have the effect of increasing the number of competitors and/or providing advantages to known competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market share, if any, for our coronavirus vaccine even if we succeed in developing one.

Furthermore, government grants and subsidies may limit our ability to develop and manufacture our coronavirus vaccine candidates in the most efficient way. For example, under the terms of the Contribution Agreement, we are required to conduct Phase II studies of our coronavirus vaccine program in Canada, unless permitted otherwise. As a result of such limitations, we may be unable to pursue the most efficient or profitable path in developing our coronavirus vaccine program.  

The ongoing coronavirus pandemic has caused interruptions or delays of our business plan and may have a significant adverse effect on our business.

In December 2019, a strain of coronavirus, SARS-CoV-2, was reported to have surfaced in Wuhan, China, and on March 12, 2020, the World Health Organization declared COVID-19, disease caused by SARS-CoV-2, to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada, China, and Israel, have imposed unprecedented restrictions on travel, quarantines, and other public health safety measures. We and Brii Bio are conducting a Phase Ib/IIa clinical study of VBI-2601 (BRII-179) at multiple study sites located in New Zealand, Australia, Thailand, South Korea, Hong Kong SAR, and China, and we have an ongoing Phase I/IIa study for our GBM brain cancer vaccine immunotherapeutic program, VBI-1901, at various hospitals in the United States. In addition, we manufacture Sci-B-Vac and VBI-2601 at our manufacturing facility located in Israel, and we carry out research activities at our laboratories in Ottawa, Canada, which are operating in isolated groups to reduce exposure risk and with fewer employees on site due to the COVID-19 pandemic. Our manufacturing facility in Israel and CDMOs that we engage to manufacture our eVLP vaccine candidates are dependent on sourcing raw materials from third party suppliers. The COVID-19 pandemic has impacted lead times and availability of many raw materials, which may adversely impact our ability to manufacture products in a timely manner. The extent to which the pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted. The enrollment of patients at some of the clinical sites in our studies was suspended and may again be suspended, and enrollment of patients at other clinical sites may be suspended or delayed as hospitals and clinics where we are conducting clinical trials reallocate resources and limit access to or close clinical facilities due to the COVID-19 pandemic. Additionally, if our trial participants are unable to travel to or visit to our clinical study sites as a result of quarantines or other restrictions resulting from the COVID-19 pandemic, we will experience higher drop-out rates or delays in our clinical studies. Government-imposed quarantines and restrictions may also require us to temporarily close our clinical sites, research laboratories, or manufacturing facility. Furthermore, if we determine that our trial participants may suffer from exposure to COVID-19 as a result of their participation in our clinical trials, we may voluntarily close certain clinical sites as a safety measure until we reasonably believe that the likelihood of exposure has subsided. As a result, our expected development timelines for VBI-2601 (BRII-179), VBI-1901, our coronavirus candidates, and possibly our regulatory timelines for Sci-B-Vac, may be negatively impacted. We cannot predict the ultimate impact of the COVID-19 pandemic as consequences of such an event are highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies, our research programs, and our manufacturing; however, the ongoing COVID-19 pandemic may disrupt or delay our business operations, further divert the attention and efforts of the medical community to coping with COVID-19 and disrupt the marketplace in which we operate, which could have a material adverse effect on our operations.

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Moreover, the various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the coronavirus has had, and may continue to have, an adverse effect on the global markets and global economy generally, including on the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other aspects of the global economy. There have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. The COVID-19 pandemic could disrupt our business and operations, interrupt our sources of supply, hamper our ability to raise additional funds or sell our securities, and continue to slow down the global economy.

If a supplier of our raw materials and certain reagents fails to provide sufficient quantities to us, we may not be able to obtain an alternative supply on a timely or acceptable basis.

We rely on a single source for our supply of some of our raw materials and certain reagents required for the manufacture of Sci-B-Vac and VBI-2601. We do not have a written or oral agreement with these single sources of supply, as all orders are handled through individual purchase orders or on an order-by-order basis. Alternative sources from which we can obtain our supply of most of these materials exist. However, we may not be able to find alternative suppliers in a timely manner that would provide supplies of these raw materials or reagents at acceptable quantities and prices, if at all. Any interruption in the supply of these materials would disrupt our ability to manufacture Sci-B-Vac or VBI-2601 for further development, current and future clinical trials, and commercial manufacturing, and could have a material adverse effect on our business, commercialization of Sci-B-Vac and VBI-2601 and future profit margins, if any.

We do not manufacture any of our raw materials nor do we plan to develop any capacity to do so. Instead, we rely on multiple sources to supply our raw materials so that we can manufacture sufficient quantities of Sci-B-Vac and VBI-2601 at our manufacturing facility in Israel and sufficient quantities of our eVLP vaccine candidates at CDMOs. The COVID-19 pandemic has impacted lead times and availability of many raw materials, which may adversely impact our ability to manufacture products in a timely manner. Some of the countries of origin of our raw materials are not the same as our drug manufacturing location. Any disruption in supply of raw materials from a qualified supplier could result in significant delays with our manufacturing, clinical trials, BLA filing, BLA approval or commercial sale of the finished product due to contract delays, the need to manufacture new raw materials, out of specification raw materials, the need for import and export permits, and the failure of the newly sourced raw materials to perform to the standards of the previously sourced raw materials. These delays could have a material adverse effect on our business and future profit margins, if any.

If we are successful in producing a vaccine against COVID-19 and/or SARS and/or MERS, we may need to devote significant resources to its scale-up and development including for use by the Canadian or the U.S. government.

In the event that the preclinical and clinical trials for our coronavirus vaccine candidates are perceived to be successful, we may need to work toward the large scale technical development, manufacturing scale-up and larger scale deployment of this potential vaccine through a variety of U.S. government mechanisms such as an Expanded Access Program or an Emergency Use Authorization program or Canadian government programs. In this case we may need to divert significant resources to this program, which would require diversion of resources from our other programs. In addition, since the path to licensure of any vaccine against coronavirus is unclear, if use of the vaccine is mandated by the Canadian or the U.S. government, we may have a widely used vaccine in circulation in Canada, the United States or another country prior to our full validation of the overall long-term safety and efficacy profile of our vaccine platform and technology. Unexpected safety issues in these circumstances could lead to significant reputational damage for us and our technology platform going forward and other issues, including delays in our other programs, the need for re-design of our clinical trials and the need for significant additional financial resources. Also, under the Contribution Agreement, if we are unable to provide a sufficient Canada-sourced supply of the COVID-19 vaccine, the Minster may require us to grant a license on commercially reasonable terms to use our intellectual property to the extent necessary to ensure such supply. This provision may inhibit us from pursuing more profitable means of manufacturing and commercializing our COVID-19 vaccine.

Risks Related to Our Business

Our internal computer systems, or those of our third-party vendors, collaborators, or other contractors may be subject to various federal and state confidentiality and privacy laws in the United States and abroad and could sustain system failures, security breaches, or other disruptions, any of which could have a material adverse effect on our business.

Numerous international, national, federal, provincial and state laws, including state privacy laws (such as the California Consumer Privacy Act, or “CCPA”), state security breach notification and information security laws, and federal and state consumer protection laws govern the collection, use, and disclosure of personal information. In addition, most healthcare providers who may, in future, prescribe and dispense our products in the United States and research institutions in the United States with whom we collaborate for our sponsored clinical trials are “covered entities” subject to privacy and security requirements under Health Care Insurance and Accountability Act of 1996 (“HIPAA”). Among other things, the Health Information Technology for Economic and Clinical Health Act (“HITECH”) makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors, or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. Certain of our clinical sites or collaborators could be subject to a wide range of penalties and sanctions under HIPAA, including criminal penalties if they knowingly obtain or disclose individually identifiable health information maintained by a covered entity in a manner that is not authorized or permitted by HIPAA. Failure to comply with current and future privacy laws and regulations could result in governmental enforcement actions (including the imposition of significant penalties), criminal and civil liability, and/or adverse publicity that negatively affects our business.

Moreover, we rely on our internal and third-party provided information technology systems and applications to support our operations and to maintain and process company information including personal information, confidential business information and proprietary information. Furthermore, we generate intellectual property that is central to the future success of the business and transmit certain amounts of confidential information. Additionally, we collect, store and transmit confidential information of collaborators, employees or other third-party contractors. We have experienced in the past, and may experience in the future, cybersecurity incidents, threats and intrusions. Incidents, threats and intrusions may require remediation to protect sensitive information, including our intellectual property and personal information, and our overall business. The continually changing threat landscape of cybersecurity today makes our systems potentially vulnerable to service interruptions, system errors or to security breaches from inadvertent or intentional actions by our employees, partners, and vendors, and from attacks by malicious third parties, including supply chain attacks originating at our third-party partners. Such attacks are of ever-increasing levels of sophistication. Attacks may be made by individuals or groups that have varying levels of expertise, some of which are technologically advanced and well-funded including, without limitation, nation states, organized criminal groups and hacktivists organizations. A breach of cybersecurity, a disruption in availability, or the unauthorized alteration of systems or data could adversely affect our business, results of operations and financial condition, or lead to the loss, theft, destruction, corruption or compromise of our information or that of our collaborators, or third-party contractors, as applicable.

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While we have invested in cybersecurity and have implemented processes and procedural controls to maintain the confidentiality and integrity of such information, there can be no guarantee that our efforts will prevent all service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect our business operations and result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal and reputational harm to our business, including legal claims and proceedings, liability under laws that protect the privacy of personal information, government enforcement actions and regulatory penalties, as well as remediation costs. While we seek to protect our information technology systems from these types of incidents, the healthcare sector continues to see a high frequency of cyberattacks and increasingly sophisticated threat actors, and our systems and the information maintained within those systems remain potentially vulnerable to data security incidents. Moreover, losses from such events may not be completely covered by insurance coverage (or may not be covered at all by any of our insurance policies depending on the circumstances). Furthermore, this insurance may not be sufficient to cover the financial, legal or reputational losses that may result from an interruption or breach of our systems.

Any of the above-described cyber or other security-related incidents may trigger notification obligations to affected individuals and government agencies, legal claims or proceedings, and liability under foreign, federal, provincial and state laws that protect the privacy and security of personal information. Our proprietary and confidential information may also be accessed. Any one of these events could cause our business to be materially harmed and our results of operations may be adversely impacted. Finally, as cyber threats continue to evolve, and privacy and cybersecurity laws and regulations continue to develop, we may need to invest additional resources to implement new compliance measures, strengthen our information security posture, or respond to cyber threats and incidents.

Risks Related to Our Capital Requirements and Financings

Our financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations in order to continue as a going concern.

In its report dated March 5, 2020, EisnerAmper LLP, our independent registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern as we have suffered recurring losses from operations and have insufficient liquidity to fund our future operations. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge out liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. As of December 31, 2019, we had $44.2 million of cash and cash equivalents, and as of September 30, 2020, we had approximately $95.2 million of cash and cash equivalents and $25.2 million of short-term investments. In order to have sufficient cash and cash equivalents to fund our operations in the future, we will need to raise additional equity or debt capital and cannot provide any assurance that we will be successful in doing so.

Risks Related to Our Common Shares

The price of our common shares has been, and may continue to be, volatile. The COVID-19 pandemic has resulted in significant financial market volatility, and its impact on the global economy remains uncertain. A continuation or worsening of the pandemic could have a material adverse impact on the market price of our common shares. This may affect the ability of our investors to sell their shares, and the value of an investment in our common shares may decline.

During the 12-month period ended October 30, 2020, our common shares traded as high as $6.93 per share and as low as $0.5311 per share. The market prices of our common shares may continue to be volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:

● future announcements about us, our collaborators or competitors, including the results of testing, technological innovations, or new products and services;

● clinical trial results;

● depletion of cash and cash equivalents reserves;

● additions or departures of key personnel;

● operating results that fall below expectations;

● announcements by us relating to any strategic relationship;

● sales of equity securities or issuance of additional debt;

● industry developments;

● changes in state, provincial, or federal regulations affecting us and our industry;

● the continued large fluctuations in major stock market indexes which causes investors to sell our common shares;

● economic, political, and other external factors; and

● period-to-period fluctuations in our financial results.

Furthermore, the stock market in general and the market for biotechnology companies, in particular, have from time to time experienced extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of the affected companies. The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent months. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common shares.

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

a) Sales of Unregistered Securities

There have been no unregistered sales of securities during the period covered by this Form 10-Q that have not been previously reported in a current report on Form 8-K. We have not made any purchases of our own securities during the time period covered by this Form 10-Q.

c) Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See the Exhibit Index following the signature page to this Form 10-Q for a list of exhibits filed or furnished with this Form 10-Q, which Exhibit Index is incorporated herein by reference.

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EXHIBIT INDEX

Exhibit No.		Description
1.1		Open Market Sale AgreementSM, dated July 31, 2020, by and between VBI Vaccines, Inc. and Jefferies LLC (incorporated by reference to Exhibit 1.2 to the registration statement on Form S-3 (SEC File No. 333-240266), filed with the SEC on July 31, 2020.
10.1*		Lease agreement dated September 4, 2020, between 310 Hunt Club Limited and Variation Biotechnologies Inc.
10.2*#		Contribution Agreement, dated September 16, 2020, by and among VBI Vaccines, Inc., Variation Biotechnologies, Inc. and Her Majesty The Queen in Right of Canada as Represented by the Minister of Industry.
31.1*		Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2*		Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
	��
32.1**		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
32.2**		Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS*		Inline XBRL Instance Document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

# Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the SEC upon its request.

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SIGNATURES

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

Date: November 2, 2020	VBI VACCINES INC.
	By:	/s/ Jeffrey Baxter
		Jeffrey Baxter President & Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Christopher McNulty
		Christopher McNulty
		Chief Financial Officer and Head of Business Development
		(Principal Financial and Accounting Officer)

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