UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

☐	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.)

160 Second Street, Floor 3
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 Shares, 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		28,682,275
(Class)		Outstanding at May 15, 2024

VBI VACCINES INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

TABLE OF CONTENTS

		Page

PART I - FINANCIAL INFORMATION		5

Item 1.	Condensed Consolidated Financial Statements	5

	Condensed Consolidated Balance Sheets – March 31, 2024 (unaudited) and December 31, 2023	5

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023 (unaudited)	6

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended March 31, 2024 and 2023 (unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	47

PART II - OTHER INFORMATION		47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	49

Signatures		50

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 2023 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2024. 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;

●	our ability to achieve and sustain commercial success of PreHevbrio in the United States (“U.S.”) and PreHevbri in Europe;

●	the timing and results of our ongoing and planned clinical trials for products and pipeline candidates;

●	the amount of funds we require for our prophylactic and therapeutic pipeline candidates;

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

●	our ability to manufacture, or to have manufactured, our 3-antigen hepatitis B vaccine and our pipeline candidates, at a commercially viable scale to the standards and requirements of regulatory agencies;

●	our ability to complete the Brii Transactions on a timely basis;

●	the impact of the COVID-19 endemic and its effects on our clinical studies, research programs, manufacturing, business plan, regulatory review including site inspections, and the global economy;

●	our ability to effectively execute and deliver our plans related to commercialization, marketing, manufacturing capabilities and strategy;

●	our ability to retain and maintain a good relationship with our current employees, and our ability to competitively attract new employees with relevant experience and expertise;

●	the suitability and adequacy of our office, manufacturing, and research facilities and our ability to secure term extensions or expansions of leased space;

●	the ability of our vendors and suppliers to manufacture and deliver materials in a timely manner that meet regulatory agency and our standards and requirements to meet planned timelines and milestones;

●	any disruption in the operations of our Rehovot, Israel manufacturing facility where we manufacture all of our clinical and commercial supplies of our 3-antigen hepatitis B vaccine and clinical supplies of our hepatitis B immunotherapeutic, VBI-2601;

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

●	our ability to continue as a going concern;

●	our history of losses;

●	our ability to generate revenues and achieve profitability;

●	emerging competition and rapidly advancing technology in our industry that may outpace our technology;

●	customer demand for our 3-antigen hepatitis B vaccine 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, if, 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 ability to regain and maintain compliance with the NASDAQ Capital Market’s (“Nasdaq”) listing standards;

●	our success at managing the risks involved in the foregoing items; and

●	other factors discussed in this Form 10-Q.

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

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

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

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

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

	March 31, 2024			December 31, 2023
	(unaudited)
CURRENT ASSETS
Cash	$	12,595		$	23,685
Accounts receivable, net		227			-
Inventory, net		9,944			8,499
Prepaid expenses		1,601			2,284
Other current assets		1,994			1,763
Total current assets		26,361			36,231

NON-CURRENT ASSETS
Other long-term assets		1,206			1,178
Property and equipment, net		9,088			9,665
Right of use assets		1,947			2,248
Intangible assets, net		35,734			36,499
Goodwill		1,107			1,130
Total non-current assets		49,082			50,720

TOTAL ASSETS	$	75,443		$	86,951

CURRENT LIABILITIES
Accounts payable	$	8,871		$	6,431
Other current liabilities		9,528			10,284
Current portion of deferred revenues		9,619			7,276
Current portion of lease liability		831			976
Current portion of long-term debt, net of debt discount		48,745			50,769
Total current liabilities		77,594			75,736

NON-CURRENT LIABILITIES
Deferred revenues, net of current portion		1,608			1,832
Lease liability, net of current portion		1,136			1,295
Liabilities for severance pay		572			561
Total non-current liabilities		3,316			3,688

COMMITMENTS AND CONTINGENCIES (NOTE 16)		-			-

STOCKHOLDERS’ EQUITY (DEFICIT)
Common shares (unlimited authorized; no par value) (March 31, 2024 issued and outstanding – 25,236,766; December 31, 2023 issued and outstanding – 23,918,983)		455,057			454,214
Additional paid-in capital		108,010			107,431
Accumulated other comprehensive income		31,811			28,327
Accumulated deficit		(600,345	)		(582,445	)
Total stockholders’ equity (deficit)		(5,467	)		7,527

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	75,443		$	86,951

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

	2024			2023
	Three Months Ended March 31
	2024			2023

Revenues, net	$	1,214		$	485

Operating expenses:
Cost of revenues		2,724			3,559
Research and development		2,571			3,151
Sales, general and administrative		7,671			13,284
Total operating expenses		12,966			19,994

Loss from operations		(11,752	)		(19,509	)

Interest expense, net of interest income		(1,818	)		(1,429	)
Foreign exchange loss		(4,330	)		(6,813	)
Loss before income taxes		(17,900	)		(27,751	)

Income tax expense		-			-

NET LOSS		(17,900	)	$	(27,751	)

Other comprehensive income		3,484			6,599

COMPREHENSIVE LOSS	$	(14,416	)	$	(21,152	)

Net loss per share of common shares, basic and diluted	$	(0.73	)	$	(3.22	)

Weighted-average number of common shares outstanding, basic and diluted		24,584,798			8,608,539

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share amounts)

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

BALANCE AS OF DECEMBER 31, 2023		23,918,983	$	454,214	$	107,431	$	28,327	$	(582,445	)	$	7,527

Common shares issued for cash, net of issuance costs		1,317,783		843		-		-		-			843
Stock-based compensation		-		-		579		-		-			579
Net loss		-		-		-		-		(17,900	)		(17,900	)
Currency translation adjustments		-		-		-		3,484		-			3,484
BALANCE AS OF MARCH 31, 2024		25,236,766		455,057		108,010		31,811		(600,345	)		(5,467	)

BALANCE AS OF DECEMBER 31, 2022		8,608,539	$	442,312	$	90,020	$	21,440	$	(489,609	)	$	64,163

Stock-based compensation		-		10		2,001		-		-			2,011
Net loss		-		-		-		-		(27,751	)		(27,751	)
Currency translation adjustments		-		-		-		6,599		-			6,599
BALANCE AS OF MARCH 31, 2023		8,608,539	$	442,322	$	92,021	$	28,039	$	(517,360	)	$	45,022

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	2024			2023
	For the Three Months Ended March 31
	2024			2023

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(17,900	)	$	(27,751	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		493			508
Stock-based compensation		579			2,011
Amortization of debt discount		476			470
Inventory reserve		657			263
Change in operating right of use assets		397			333
Unrealized foreign exchange loss		4,222			6,895
Net change in operating working capital items:
Change in accounts receivable		(238	)		(185	)
Change in inventory		(2,223	)		(599	)
Change in prepaid expenses		677			(118	)
Change in other current assets		(260	)		4,089
Change in other long-term assets		6			28
Change in accounts payable		2,509			(3,204	)
Change in deferred revenues		(232	)		11
Change in other current liabilities		(533	)		(4,073	)
Payments made on operating lease liabilities		(400	)		(334	)
Net cash flows used in operating activities		(11,770	)		(21,656	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(151	)		(534	)
Net cash flows used in investing activities		(151	)		(534	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of commons shares for cash		868			-
Share issuance costs		(25	)		-
Net cash flows provided by financing activities		843			-

Effect of exchange rates on cash		(12	)		(47	)

CHANGE IN CASH FOR THE PERIOD		(11,090	)		(22,237	)

CASH, BEGINNING OF PERIOD		23,685			62,629

CASH, END OF PERIOD	$	12,595		$	40,392

Supplementary information:
Interest paid	$	1,565		$	1,437
Non-cash investing and financing activities:
Promissory note issued by Brii Biosciences Limited assigned to K2 HealthVentures		2,500			-
Capital expenditures included in accounts payable and other current liabilities		45			120
Share issuance costs included in other current liabilities		67			67

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

March 31, 2024 and 2023

(in thousands, except share and per share amounts)

1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS

Corporate Overview

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

The Company and its wholly owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies, Inc., a Canadian company and the wholly owned subsidiary of VBI US (“VBI Cda”); SciVac Ltd., an Israeli company (“SciVac”); SciVac Hong Kong Limited, a company incorporated pursuant to the Companies Ordinance (Chapter 622 of the Laws of HongKong) and a wholly owned subsidiary (“SciVac HK”); and VBI Vaccines B.V, a Netherlands company and a wholly owned subsidiary (“VBI BV”), are collectively referred to as the “Company”, “we”, “us”, “our”, or “VBI”.

The Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal office located at 160 Second Street, Floor 3, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.

Principal Operations

VBI is a commercial-stage biopharmaceutical company driven by immunology in the pursuit of prevention and treatment of disease. Through its innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology and a proprietary mRNA-launched eVLP (“MLE”) platform technology, VBI develops vaccine candidates that mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system. VBI is committed to targeting and overcoming significant infectious diseases, including hepatitis B (“HBV”), COVID-19 and coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including glioblastoma (“GBM”). VBI is headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.

Partnership with Brii Bio

On July 5, 2023, the Company announced the expansion of its hepatitis B partnership with Brii Biosciences Limited (“Brii Bio”). Through (i) a Collaboration and License Agreement (the “Collaboration Agreement”), dated July 5, 2023, by and between the Company and Brii Bio, and (ii) the Amended and Restated Collaboration and License Agreement (the “A&R Collaboration Agreement, and together with the Collaboration Agreement, the “Brii Collaboration Agreements”), dated July 5, 2023, by and between the Company and Brii Bio, Brii Bio expanded its exclusive license to VBI-2601 to global rights and acquired an exclusive license for PreHevbri in Asia Pacific (“APAC”), excluding Japan. As part of this collaboration, Brii Bio paid the Company an upfront payment of $15,000 consisting of a $3,000 equity investment in a concurrent registered direct offering, $5,000 as an advance payment for the clinical and commercial manufacture and supply of VBI-2601 and PreHevbri and any related manufacturing expenditures pursuant to a supply agreement (the “Supply Agreement”) dated July 5, 2023, by and between the Company and Brii Bio, and $7,000 as a non-refundable upfront payment pursuant to the Brii Collaboration Agreements. In addition, pursuant to the Letter Agreement (the “Letter Agreement”), dated July 5, 2023, by and among the Company, SciVac, and Brii Bio, the Company also granted to Brii Bio a security interest, subject to a Subordination Agreement between Brii Bio and K2 HealthVentures LLC (“K2HV”), in all of its respective right, title, and interest in and to all intellectual property, know-how, and licenses to the extent related to PreHevbri and VBI-2601, and all proceeds of the foregoing, in order to secure performance of all of the Company’s obligations under the Brii Collaboration Agreements, the Supply Agreement, and the Loan Agreement (each as defined herein).

On February 13, 2024, the Company entered into a series of agreements with Brii Bio, pursuant to which, subject to achievement of certain activities, we would receive up to $33,000 in consideration from Brii Bio, consideration which will be used to correspondingly reduce our obligations due under the Loan and Guaranty Agreement (“Loan Agreement”).

Rehovot Purchase Agreement

On February 13, 2024, the Company and SciVac entered into a purchase agreement (the “Rehovot Purchase Agreement”) with Brii Bio Israel Ltd (“Brii Israel”), a wholly-owned subsidiary of Brii Bio, prior to the closing, and joined as a party to the agreement prior to the closing as the purchaser, and Brii Biosciences, Inc, a Delaware corporation, pursuant to which, upon achievement of certain activities and closing of the transactions contemplated by the Rehovot Purchase Agreement, subject to the terms and conditions therein, SciVac will sell to Brii Israel certain assets, including SciVac and its affiliates’ interest and rights in certain leases with respect to the vaccine manufacturing facility in Israel, for an aggregate purchase price of $10,000, which is then required to be paid to K2 HealthVentures (“K2HV”) pursuant to the terms of the Fourth Amendment (as defined below).

The Rehovot Purchase Agreement contains representations and warranties of SciVac and Brii Israel that are typical for transactions of this type. The Rehovot Purchase Agreement also contains covenants on the part of the Company that are typical for transactions of this type.

The closing of the transactions pursuant to the Rehovot Purchase Agreement are subject to the terms and conditions therein, including closing conditions that are typical for transactions of this type and the Company’s completion of the Essential Activities (as defined below). Closing will not occur prior to June 30, 2024.

Brii Purchase Agreement

On February 13, 2024, the Company and VBI Cda entered into a Purchase Agreement with Brii Bio (the “Brii Purchase Agreement”), pursuant to which, upon achievement of certain activities, the Company and VBI Cda will sell, transfer, convey and assign to Brii Bio, substantially all of the intellectual property related to VBI-2601 owned by the Company and VBI Cda, for a secured promissory note in the principal amount up to $10,000 (the “Note”) to be issued by Brii Bio, which is then required to be assigned to K2HV pursuant to the terms of the Fourth Amendment (as defined below), in exchange for a reduction in the Company’s obligations under the Loan Agreement equal to the initial principal amount of the Note. The Note was issued to Brii Bio on February 13, 2024. The initial principal amount of the Note is $2,500, which shall be increased by an aggregate amount equal to $7,500 upon the Company’s obtaining applicable consents under the license agreement between Savient Pharmaceuticals Inc. and SciGen Ltd dated June 2004 and subsequently amended and restated effective September 1, 2021 (the “Amended and Restated Ferring License Agreement”).

Brii Side Letter

On February 13, 2024, the Company and Brii Bio entered into a side letter (the “Side Letter”) setting forth certain essential and additional priority activities to transfer manufacturing responsibility for clinical supply and commercial supply of VBI-2601 and PreHevbri for the Brii Territories set forth in the Side Letter (the “Essential Activities”) the Company is required to complete as a condition to the entry into the License Agreement (as defined below) and consummation of the transactions pursuant to the Rehovot Purchase Agreement. As of March 31, 2024, the Essential Activities were still in progress and not yet completed. The principal amount of the Note shall increase up to $18,000 upon completion of the Essential Activities and the Company’s obligations under the Loan Agreement shall be reduced by a corresponding amount.

Brii License Agreement

Upon completion of the Essential Activities pursuant to the Side Letter, VBI Cda and Brii Bio will enter into a license agreement (the “Brii License Agreement”) pursuant to which Brii Bio shall issue a secured promissory note in the amount of $5,000 as consideration for a perpetual, royalty-free, milestone-free, sublicensable, fully-paid, and exclusive license to the GBM program (VBI-1901) for development and commercialization in the APAC region (excluding Japan), which such note is then required to be assigned to K2HV pursuant to the terms of the Fourth Amendment. The entry by VBI Cda and Brii Bio into the Brii License Agreement is subject to the Company completing the Essential Activities.

Loan Agreement and Forbearance Agreement with K2HV

On each of January 9, 2024, January 23, 2024, and February 6, 2024, as discussed in Note 9, the Loan Parties entered into extensions to the Forbearance Agreement. Additionally, on February 13, 2024, as discussed in Note 9, the Loan Parties entered into the Fourth Amendment.

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 and commercialization of its products.

The Company has an accumulated deficit of $600,345 and cash of $12,595 as of March 31, 2024. Cash flows used in operating activities were $11,770 for the three months ended March 31, 2024.

The Company will require significant additional funds to conduct clinical and non-clinical trials, achieve and maintain regulatory approvals, and commercially launch and sell our approved products. Additional financing may be obtained from the issuance of equity securities, the issuance of additional debt, government or non-governmental organization grants or 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. Based on available cash at March 31, 2024, together with the net proceeds from the April 2024 Offering (defined below), in order to continue to fund our operations, we must raise additional equity or debt capital in the near term and cannot provide any assurance that we will be successful in doing so. If we are unable to obtain additional financing in the near future, we may be required to pursue a reorganization proceeding, including under applicable bankruptcy or insolvency laws. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed 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 from this uncertainty.

ATM Program

On August 26, 2022, the Company 1) filed a registration statement on Form S-3 (File No. 333-267109), which included a base prospectus which covers the offering, issuance and sale of up to $300,000 of common shares, warrants, units and/or subscription rights; and 2) entered into an Open Market Sale Agreement with Jefferies LLC (“Jefferies”), pursuant to which the Company may offer and sell its common shares having an aggregate price of up to $125,000 from time to time through Jefferies, acting as agent or principal (the “Jefferies ATM Program”). During the three months ended March 31, 2024, the Company issued 1,317,783 common shares under the Jefferies ATM Program, for total gross proceeds of $868 at a weighted average price of $0.6589 per share. The Company incurred $25 in sales agent commissions and share issuance costs related to the common shares issued during the three months ended March 31, 2024, resulting in net proceeds of $843. The Company terminated the Jefferies ATM Program on May 9, 2024, effective as of May 10, 2024.

On April 16, 2024, upon filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, the Company became subject to General Instruction I.B.6 of Form S-3, pursuant to which in no event will the Company sell its common shares in a registered primary offering using Form S-3 with a value exceeding more than one-third of our public float in any 12 calendar month period so long as our public float remains below $75,000.

April 2024 Registered Direct Offering

On April 9, 2024, the Company entered into a securities purchase agreement (the “April 2024 Purchase Agreement”) with certain institutional investors named therein pursuant to which the Company issued and sold 2,272,728 common shares and accompanying warrants to purchase up to 2,272,728 common shares (the “April 2024 Warrants”) at a combined offering price of $0.88 per common share and accompanying April 2024 Warrant in a registered direct offering (the “April 2024 Offering”). The April 2024 Offering closed on April 11, 2024. The April 2024 Warrants have an exercise price of $0.76 per share, are immediately exercisable on the date of issuance, and expire five years following the date of issuance. Net proceeds to us from the April 2024 Offering, after deducting placement agent fees and estimated offering expenses payable by us, were approximately $1,700. In connection with the April 2024 Offering, the Company also issued to H.C. Wainwright & Co., LLC or its designees, placement agent warrants to purchase up to 136,364 common shares (the “April 2024 Placement Agent Warrants”) as compensation in connection with the April 2024 Offering. The April 2024 Placement Agent Warrants have substantially the same terms and conditions as the April 2024 Warrants, except that the April 2024 Placement Agent Warrants have an exercise price of $1.10 per share, which represents 125% of the offering price per common share and accompanying April 2024 Warrant and expire five years following the commencement of sales pursuant to the April 2024 Offering.

Nasdaq Minimum Bid Price Requirement – Extension of Compliance Period

As previously reported, on November 1, 2023, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, based upon the closing bid price of the Company’s common shares for the 30 consecutive business day period between September 19, 2023, through October 31, 2023, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until April 29, 2024 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).

On April 30, 2024, the Company received a letter from the Nasdaq Stock Market notifying the Company that the Company has been granted an additional 180-day period, or until October 28, 2024, to regain compliance with the Minimum Bid Price Requirement. The new compliance period is an extension of the initial Compliance Period provided for in Nasdaq’s deficiency notice to the Company, dated November 1, 2023. The Nasdaq Stock Market’s determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on Nasdaq, with the exception of the Minimum Bid Price Requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

If compliance with the Minimum Bid Price Requirement cannot be demonstrated by October 28, 2024, the Nasdaq Stock Market will provide written notification that the Company’s common shares could be delisted. In such event, Nasdaq rules permit the Company to appeal any delisting determination to a Nasdaq Hearings Panel. Accordingly, there can be no assurance that the Company will be able to regain compliance with the Nasdaq listing rules or maintain its listing on Nasdaq. The Company has not regained compliance as of the date of this Form 10-Q, and if it fails to regain compliance by October 28, 2024, its common shares will be subject to delisting by Nasdaq, which could seriously decrease or eliminate the value of an investment in the common shares and result in significantly increased uncertainty as to the Company’s ability to raise additional capital.

Financial instruments recognized in the condensed consolidated balance sheet consist of cash, 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.

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 U.S. GAAP, have been condensed or omitted pursuant to such rules and regulations. The December 31, 2023 condensed 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 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, 2023 (the “2023 10-K”), as filed with the SEC on April 16, 2024.

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

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

Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2023 10-K, and there have been no changes to the Company’s significant accounting policies during the three months ended March 31, 2024.

3. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements, not yet adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires incremental annual and quarterly disclosures about segment measures of profit or loss as well as significant segment expenditures. It also requires public entities with a single reportable segment to provide all segment disclosures required by the amendments and all existing segment disclosures in Topic 280. ASU 2023- 07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. As we have a single reportable segment, we expect the adoption of this standard to result in increased disclosures in the notes to our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) which enhances the transparency and decision usefulness of income tax disclosures. The amendments under ASU 2023-09 require public business entities to annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). ASU 2023-09 will be effective for fiscal years beginning after December 15, 2024. Public business entities are permitted to early adopt the standard for annual financial statements that have not yet been issued or made available for issuance. The Company will apply this ASU for year ended December 31, 2025, and we do not anticipate that this new guidance will have a material impact on the note disclosures going forward.

4. INVENTORY, NET

Inventory consists of the following:

SCHEDULE OF INVENTORY

	March 31, 2024		December 31, 2023
Finished goods	$	899	$	1,661
Work-in-process		3,398		2,734
Raw materials		5,647		4,104
Inventory, net	$	9,944	$	8,499

5. OTHER CURRENT ASSETS

Other current assets consisted of the following:

SCHEDULE OF OTHER CURRENT ASSETS

	March 31, 2024		December 31, 2023
Government receivables	$	1,508	$	1,268
Other current assets		486		495
Total other current assets	$	1,994	$	1,763

6. INTANGIBLE ASSETS, NET, AND GOODWILL

			March 31, 2024
	Gross				Cumulative			Cumulative
	Carrying		Accumulated		Impairment			Currency			Net Book
	Amount		Amortization		Charge			Translation			Value
IPR&D assets	$	61,500	$	-	$	(22,900	)	$	(2,866	)	$	35,734

			December 31, 2023
	Gross				Cumulative			Cumulative
	Carrying		Accumulated		Impairment			Currency			Net Book
	Amount		Amortization		Charge			Translation			Value
IPR&D assets	$	61,500	$	-	$	(22,900	)	$	(2,101	)	$	36,499

The change in carrying value for IPR&D assets from December 31, 2023, relates to currency translation adjustments which decreased by $765 for the three months ended March 31, 2024.

SCHEDULE OF GOODWILL

			March 31, 2024
	Gross		Cumulative			Cumulative
	Carrying		Impairment			Currency			Net Book
	Amount		Charge			Translation			Value
Goodwill	$	8,714	$	(7,292	)	$	(315	)	$	1,107

			December 31, 2023
	Gross		Cumulative			Cumulative
	Carrying		Impairment			Currency			Net Book
	Amount		Charge			Translation			Value
Goodwill	$	8,714	$	(7,292	)	$	(292	)	$	1,130

The change in carrying value for goodwill from December 31, 2023, relates to currency translation adjustments which decreased by $23 for the three months ended March 31, 2024.

7. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

SCHEDULE OF OTHER CURRENT LIABILITIES

	March 31, 2024		December 31, 2023
Accrued research and development expenses (including clinical trial accrued expenses)	$	1,570	$	2,018
Accrued professional fees		1,815		1,674
Payroll and employee-related costs		1,972		1,934
Deferred funding		3,166		3,601
Other current liabilities		1,005		1,057
Total other current liabilities	$	9,528	$	10,284

8. LOSS PER SHARE OF COMMON SHARES

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, and stock options, which would result in the issuance of incremental shares of common shares unless such effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more fully described in Note 9, Long-Term Debt and Note 10, Stockholders’ Equity (Deficit) and Additional Paid-in Capital.

The following potentially dilutive securities outstanding at March 31, 2024 and 2023 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

	2024		2023
	Three months ended March 31,
	2024		2023
Warrants		14,467,566		118,816
Stock options and restricted stock units		1,639,909		803,894
K2HV conversion feature		205,396		205,396
Total		16,312,871		1,128,106

9. LONG-TERM DEBT

As of March 31, 2024, and December 31, 2023, the Company’s long-term debt is as follows:

SCHEDULE OF LONG-TERM DEBT

	March 31, 2024			December 31, 2023
Long-term debt, net of debt discount of $4,454 ($4,930 at December 31, 2023)	$	48,745		$	50,769
Current portion, net of debt discount of $4,454 ($4,930 at December 31, 2023)		(48,745	)		(50,769	)
Long-term debt, net of current portion	$	-		$	-

On May 22, 2020, the Company, along with its subsidiary VBI Cda (collectively, the “Borrowers”), entered into the Loan and Guaranty Agreement (the “Loan Agreement”) with K2HV and any other lender from time-to-time party thereto (the “Lenders”). On May 22, 2020, the Lenders advanced the first tranche of term loans of $20,000. Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to $4,000 of the secured term loan into common shares of the Company at a conversion price of $43.80 per share until the original maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders, converted $2,000 of the secured term loan into 45,662 common shares at a conversion price of $43.80 per share.

On May 17, 2021, the Company entered into the First Amendment to the Loan and Guaranty Agreement (“First Amendment”) with the Lenders and received additional loan advances of $12,000.

On September 14, 2022, the Company entered into the Second Amendment to the Loan Agreement (the “Second Amendment”) with the Lenders to: (i) increase the amount of the term loans available under the Loan Agreement to $100,000 from $50,000, which term loans are available in additional tranches subject to the achievement of milestones and other customary conditions, (ii) add certain minimum net revenue covenants, (iii) extend the final maturity date for the term loans to September 14, 2026, which may be extended to September 14, 2027, under certain circumstances, and (iv) to the extent that the maturity date is extended, the term loans will begin amortizing on a monthly basis on September 14, 2026.

On September 15, 2022, the Lenders advanced to the Borrowers the Restatement First Tranche Term Loan (as defined in the Second Amendment) in an aggregate amount of $50,000 which included the refinancing of the $30,000 in term loans that were outstanding under the Loan Agreement as amended by the First Amendment. The next tranche of term loans of up to $10,000 will be available from April 1, 2024, through June 30, 2024, so long as certain milestones are achieved, no events of default under the Loan Agreement have occurred and are continuing, and the Liquidity Requirement is satisfied. The final tranche of term loans of up to $25,000 shall be available at any time from September 14, 2022, until September 14, 2026, subject to the Lender’s review of the Company’s clinical and financial plans and Lender’s investment committee approval.

Pursuant to the Second Amendment, the Lenders have the ability to convert $7,000 into common shares, by which $2,000 of the term loans shall be convertible into 45,662 common shares at a conversion price of $43.80 per share and $5,000 of the term loans shall be convertible into 159,734 common shares at a conversion price of $31.302 per share (“K2HV conversion feature”).

In connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 20,833 common shares (the “Original K2HV Warrant”) at an exercise price of $33.60 per share. On May 17, 2021, in connection with the First Amendment, the Company amended and restated the Original K2HV Warrant to purchase an additional 10,417 common shares for a total of 31,250 common shares (the “First Amendment Warrant”) with the same exercise price of $33.60 per share. On September 14, 2022, in connection with the Second Amendment and the advance of the first tranche of term loans of $50,000 by the Lenders, the Company issued the Lenders a warrant to purchase an additional 72,680 common shares (the “Second Amendment Warrant”) with a warrant exercise price of $24.08 per share. If and/or when additional tranches are advanced pursuant to the Second Amendment, the Company will issue additional warrants to purchase up to 72,680 common shares pursuant to the Second Amendment Warrant.

The First Amendment Warrant and the Second Amendment Warrant may be exercised either for cash or on a cashless “net exercise” basis. The First Amendment Warrant expires on May 22, 2030 and the Second Amendment Warrant expires on September 14, 2032.

The Company is required to make a final payment equal to 6.95% of the aggregate term loan principal on the maturity date of the term loan, or upon earlier prepayment of the term loans in accordance with the Second Amendment (the “Second Amendment Final Payment”). The final payment related to the refinanced $30,000 in term loans that were outstanding under the Loan Agreement as amended by the First Amendment of $2,224 remains and is due the earlier of June 1, 2024 or the earlier prepayment of the term loans in accordance with the Second Amendment (the “Original Final Payment”).

Upon receipt of additional funds, issuable pursuant to the various tranches, under the Second Amendment, additional common shares will be issuable pursuant to the Second Amendment Warrant as determined by the principal amount of the applicable tranche actually funded multiplied by 3.5% and divided by the warrant exercise price of $24.08, and the Second Amendment Final Payment will increase by 6.95% of the funds advanced.

On July 5, 2023, the Borrowers and K2HV entered into (i) an amendment (the “Third Amendment”) to the Loan Agreement, and (ii) an amendment to the Pledge and Security Agreement, dated May 22, 2020, by and among the Company, VBI DE, VBI Cda, K2HV, and Ankura Trust Company, LLC, as collateral trustee for the lenders, pursuant to which the parties have agreed to permit the Brii Collaboration Agreements, the Supply Agreement, and the Letter Agreement, SciVac and Brii Bio. The Company granted to K2HV a security interest in, all of its respective right, title, and interest in and to substantially all of the Company’s intellectual property. In addition, among others, any breach, default or other triggering event by the Company occurring under the Brii Collaboration Agreements resulting in Brii Bio exercising a right to terminate the Brii Collaboration Agreements, will cross default the Third Amendment.

The secured term loan maturity date is September 14, 2026, until which the Company is required to pay only interest, or if the milestone for the next tranche of the term loans has been achieved, September 14, 2027. The Loan Agreement, as amended by the Second Amendment, included both financial and non-financial covenants, including quarterly minimum Net Revenue (as defined in the Loan Agreement) targets. The Company was not in compliance with the minimum Net Revenue covenant for the measurement periods ended September 30, 2023 and December 31, 2023, and did not qualify for an exception for this covenant, which constituted an Event of Default (as defined in the Loan Agreement). In anticipation of K2HV declaring an Event of Default as a result of such failure to comply with the Net Revenue covenant, the Company began discussions with K2HV with respect to possible forbearance and other remedies. On October 27, 2023, the Borrowers and K2HV entered into an extension agreement (the “Extension Agreement”), pursuant to which the due date for the Company to deliver the compliance certificate for the period ending September 30, 2023, pursuant to the Loan Agreement, was extended from October 30, 2023, to November 6, 2023, which date was extended again from November 6, 2023, to November 13, 2023, pursuant to a subsequent letter agreement dated November 3, 2023. Pursuant to the Extension Agreement, as amended, K2HV agreed to refrain from declaring an Event of Default under the Loan Agreement and/or the Loan Documents (as defined in the Loan Agreement) prior to November 13, 2023.

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