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Item 9A. Controls and Procedures

2024-03-14 compared with 2023-03-29 · 387 added, 415 removed, 618 unchanged (56% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives.

In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may

become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As of December 31, 2022, our management, with the participation of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Exchange Act Rules 13a-15(f) and 15(d) -15(f) as a process designed by, or under the supervision of, our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

generally accepted accounting principles.

Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

In adopting the 2013 Framework, management assessed the applicability of the principles within each component of internal control and determined whether or not they have been adequately addressed within the current system of internal control and adequately documented.

Based on this assessment, management, under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on those criteria.

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure.

Our Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of December 31, 2023, and, based on their evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to the material weaknesses in internal control over financial reporting, described below.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

GAAP and includes those policies and procedures that:

(1) pertain to the maintenance of records that accurately and fairly reflect our transactions and the dispositions of our assets;

(2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with appropriate authorizations;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management, under the supervision of and with the participation of the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023.

In making this assessment, management used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“the COSO criteria”).

Based on our assessment under the COSO criteria, management concluded that our system of internal control over financial reporting was not effective due to the material weaknesses described below.

However, after giving full consideration to the material weaknesses, and the additional analyses and other procedures we performed to ensure that our consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”), our management has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As part of our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023, management identified the following material weaknesses:

(1) a material weakness related to information technology general controls (“ITGCs”) that support our financial reporting processes;

and (2) a material weakness related to revenue recognition.

Management determined that we did not maintain effective controls over (i) user access to ensure appropriate segregation of duties and adequately restrict user and privileged access to financial applications, programs and data to the appropriate personnel;

(ii) program change management for financial applications to ensure that information technology (“IT”) program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately;

and (iii) IT operations controls to ensure that critical interface jobs are monitored.

As a result, our related IT dependent manual and application controls that rely upon the affected ITGCs, or information coming from IT systems with affected ITGCs, were also deemed ineffective.

Further, management determined that certain control activities within the area of revenue did not operate effectively, specifically controls over the review of costs incurred in satisfaction of our performance obligations under collaboration arrangements.

Notwithstanding the identified material weaknesses, management does not believe that the deficiencies had an adverse effect on our reported operating results or financial condition, and management has determined that the financial statements and other information included in this report and other periodic filings present fairly in all material respects our financial condition and results of operations at and for the periods presented.

Our independent registered public accounting firm, Ernst & Young LLP, has issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2023, which is included in Item 8 of this Annual Report on Form 10-K.

Management’s Plan to Remediate the Material Weaknesses

Our remediation efforts are ongoing and we will continue our initiatives to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively.

We are committed to making the necessary changes and improvements to our system of controls to address the material weaknesses in internal control over financial reporting described above.

Our renewed emphasis of designing and implementing improved processes and controls will involve but is not limited to the following:

• Expand available resources with experience designing and implementing control activities, including ITGCs and automated controls, both by hiring internally and the use of third-party consultations and specialists.

• Adjust access profiles in IT systems and relevant software, and adjust access review controls accordingly.

• Refine the control to identify access profiles in IT systems and software that result in risks of segregation of duties.

• Perform ongoing training with control performers to improve documentation that supports effective control activities, including evidence over the completeness and accuracy of information produced by the Company.

• Add additional technical accounting resource to review our revenue accounting along with financial disclosures for collaboration arrangements on a quarterly basis.

We are in the process of implementing the remediation activities as of the date of this report and believe that upon completion, we will have strengthened our ITGCs, and controls related to accounting for collaboration arrangements to address and successfully remediate the identified material weaknesses.

However, control weaknesses are not considered remediated until new internal controls have been operational for a period of time, are tested, and management concludes that these controls are operating effectively.

We expect to complete the remediation activities as early as practicable in the fiscal year 2024.

We will continue to monitor the effectiveness of these remediation measures, and we will make any changes to the design of this plan and take such other actions that we deem appropriate given the circumstances.

Changes in Internal Control over Financing Reporting

Other than the changes associated with the material weaknesses and remediation actions noted above, there have been no changes to our internal control over financial reporting that occurred during the year ended December 31, 2023.

Inherent Limitations on Effectiveness of Disclosure Controls and Procedures, and Internal Controls Over Financial Reporting

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Arcturus Therapeutics Holdings Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Arcturus Therapeutics Holdings Inc.

and its subsidiaries’ internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, Arcturus Therapeutics Holdings Inc.

and its subsidiaries (the Company) has not maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

The following material weaknesses have been identified and included in management’s assessment.

The Company did not design and maintain effective controls over information technology general controls (ITGCs) for information systems and applications that are relevant to the preparation of the consolidated financial statements.

Specifically, the ITGCs in the areas of access and program change over information technology (IT) systems that support the Company’s financial reporting processes were not designed and operating effectively, and as result, the related IT dependent manual and application controls that rely upon the affected ITGCs, or information coming from IT systems with affected ITGCs, are also ineffective.

The Company has also identified that certain control activities within the area of revenue did not operate effectively, specifically controls over the review of costs incurred in satisfying its performance obligations on collaboration arrangements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders‘ equity and cash flows, for each of the three years in the period ended December 31, 2023.

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated March 14, 2024, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

San Diego, California

March 14, 2024

Changes in Internal Control Over Financial Reporting.

An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the year ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

Rule 10b5-1 Trading Plans

For the year ended December 31, 2023, none of our directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" (as defined in Item 408 of Regulation S-K of the Exchange Act) intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act, other than as follows:

Padmanabh Chivukula , Chief Scientific Officer and Chief Operating Officer , cancelled an existing Rule 10b5-1trading arrangement on November 18, 2023.

Chivukula's trading arrangement provided for the sale of up to an aggregate of 100,000 shares of common stock.

Subsequent to this, Dr.

Chivukula entered into a new Rule 10b5-1 trading arrangement on December 14, 2023 .

The new trading arrangement provides for the sale of up to an aggregate of 152,000 shares, until September 15, 2025 .

Kummerfeld , Senior Vice President, Corporate Controller and Principal Accounting Officer , modified an existing Rule 10b5-1trading arrangement on August 24, 2023.

Kummerfeld's trading arrangement provides for the exercise of up to an aggregate of 36,064 options to purchase common stock and subsequent sale of such underlying shares of common stock, until August 23, 2024 .

On February 20, 2024, Mr.

Kummerfeld, informed the Company that he will resign from his position, effective March 15, 2024, to pursue another opportunity.

There were no "non-Rule 10b5-1 trading arrangements" (as defined in Item 408 of Regulation S-K of the Exchange Act) adopted or terminated during the year ended December 31, 2023 by our directors and officers.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Exhibit Index

Controlled Equity Offering℠

Sales Agreement, dated as of December 23, 2022 by and between Cantor Fitzgerald & Co, Wells Fargo Securities, LLC and Arcturus Therapeutics Holdings Inc.

Controlled Equity Offering℠ Sales Agreement, dated as of December 23, 2022 by and between Cantor Fitzgerald & Co, Wells Fargo Securities, LLC and Arcturus Therapeutics Holdings Inc.

Incorporated by reference to Exhibit 1.2 to Registration Statement on Form S-3 filed on December 23, 2022 (File No.

Amendment No.

1 to Controlled Equity Offering℠ Sales Agreement by and between Cantor Fitzgerald & Co, Wells Fargo Securities, LLC, William Blair & Company, L.L.C., and Arcturus Therapeutics Holdings Inc.

Incorporated by reference to Exhibit 1.1 to Form 8-K filed on August 7, 2023 .

Certificate of Incorporation.

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Bylaws of Arcturus Therapeutics Holdings Inc.

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3, filed with the SEC on May 8, 2020 (File No.

Description of Registrant’s Securities.

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3, filed with the SEC on May 8, 2020 (File No.

Description of Registrant’s Securities.

Form of Indemnification Agreement.

Incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020 (File No.

Amended and Restated 2019 Omnibus Equity Incentive Plan.

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Amended and Restated Compensation Policy for Company Office Holders.

Incorporated by reference to Exhibit 99.2 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on July 27, 2018 (File No.

Loan and Security Agreement, dated October 12, 2018, by and between Western Alliance Bank and Arcturus Therapeutics, Inc.

Incorporated by reference to Exhibit 10.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on October 15, 2018 (File No.

Amended and Restated Amendment to Development and Option Agreement, dated as of September 28, 2018, by and between CureVac AG and Arcturus Therapeutics Inc.

Incorporated by reference to Exhibit 99.2 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on October 1, 2018 (File No.

Research Collaboration and License Agreement, by and between Arcturus Therapeutics, Inc.

and Janssen Pharmaceuticals, Inc., dated October 18, 2017.

Incorporated by reference to Exhibit 4.7 to Form 20-F filed on May 14, 2018 (File No.

Incorporated by reference to Exhibit 10.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on October 15, 2018 (File No.

Research and Exclusive License Agreement, by and between Arcturus Therapeutics, Inc.

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Incorporated by reference to Exhibit 10.16 to Form 10-Q filed on August 14, 2019.

Development and Option Agreement, by and between Arcturus Therapeutics, Inc.

and CureVac AG, dated January 1, 2018, as amended May 3, 2018.

Incorporated by reference to Exhibit 4.12 to Form 20-F filed on May 14, 2018 (File No.

Third Amendment to Development and Option Agreement, by and between Arcturus Therapeutics, Inc.

and CureVac AG, dated July 26, 2019.

Incorporated by reference to Exhibit 10.20 to Form 10-Q filed on August 14, 2019 (File No.

License Agreement, by and between Arcturus Therapeutics, Inc., as successor-in-interest to Marina Biotech, Inc., and Protiva Biotherapeutics Inc., dated as of November 28, 2012.

Incorporated by reference to Exhibit 4.14 to Form 20-F/A filed on July 10, 2018 (File No.

Patent Assignment and License Agreement, by and between Arcturus Therapeutics, Inc.

and Marina Biotech, Inc., dated as of August 9, 2013.

Incorporated by reference to Exhibit 4.15 to Form 20-F filed on May 14, 2018 (File No.

Share Exchange Agreement, dated as of February 11, 2019, by and between Arcturus Therapeutics Ltd.

and Arcturus Therapeutics Holdings Inc.

Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 18, 2019 (File No.

Amended and Restated Joint Venture, Research Collaboration and License Agreement, dated as of July 14, 2018 by and between Arcturus Therapeutics, Inc.

and Providence Therapeutics, Inc.

Incorporated by reference to Exhibit 10.14 to the Company’s Amendment No.

1 to Annual Report on Form 10-K for the year ended December 31, 2018 filed on April 10, 2019 (File No.

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44, LLC dated February 1, 2020.

Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020 (File No.

Acceptance Letter, dated March 4, 2020, by and between Arcturus Therapeutics Holdings Inc.

and the Economic Development Board of Singapore.

Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020 (File No.

Manufacturing Support Agreement, dated November 7, 2020, by and between Arcturus Therapeutics Holdings Inc.

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44, LLC, dated November 13, 2020.

Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 1, 2020 (File No.

Third Amendment to Lease, by and between Arcturus Therapeutics, Inc.

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44, LLC, dated February 25, 2021.

Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 1, 2020 (File No.

Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 1, 2021 (File No.

Arcturus Therapeutics Holdings Inc.

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Incorporated by reference to Exhibit 10.35 to Form 10-Q filed on November 9, 2021 (File No.

Third Amendment to Lease, by and between Arcturus Therapeutics, Inc.

and ARE-SD Region No.

44, LLC, dated February 25, 2021.

Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 1, 2020 (File No.

Technology License and Technical Support Agreement, signed July 29, 2021 and effective July 30, 2021, by and between Arcturus Therapeutics, Inc.

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and the Economic Development of Singapore.

Incorporated by reference to Exhibit 10.41 to Annual Report on Form 10-K filed on March 29, 2023 (File No.

Credit Agreement dated April 21, 2023, by and between Arcturus Therapeutics, Inc.

and Wells Fargo Bank, National Association.

Incorporated by reference to Exhibit 10.28 to Quarterly Report on Form 10-Q filed on May 9, 2023 (File No.

Security Agreement dated April 21, 2023, by and between Arcturus Therapeutics, Inc.

and Wells Fargo Bank, National Association.

Incorporated by reference to Exhibit 10.29 to Quarterly Report on Form 10-Q filed on May 9, 2023 (File No.

Revolving Line of Credit Note dated April 21, 2023, by and between Arcturus Therapeutics, Inc.

and Wells Fargo Bank, National Association.

Incorporated by reference to Exhibit 10.30 to Quarterly Report on Form 10-Q filed on May 9, 2023 (File No.

Amendment Number One to Collaboration and License Agreement, dated August 3, 2023, by and between Arcturus Therapeutics, Inc.

and Seqirus Inc.

Incorporated by reference to Exhibit 10.31 to Quarterly Report on Form 10-Q filed on November 14, 2023 (File No.

Amendment No.

4 to Letter Agreement, dated September 25, 2023, by and between Arcturus Therapeutics, Inc.

and the Cystic Fibrosis Foundation.

Incorporated by reference to Exhibit 10.32 to Quarterly Report on Form 10-Q filed on November 14, 2023 (File No.

Arcturus Therapeutics Holdings, Inc.

Insider Trading Policy

Consent of Independent Registered Public Accounting Firm

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The following financial statements and footnotes from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 formatted in Inline Extensible Business Reporting Language (Inline XBRL):

Arcturus Therapeutics Holdings, Inc.

Clawback Policy

The following financial statements and footnotes from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 formatted in Inline Extensible Business Reporting Language (Inline XBRL):

101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH Inline XBRL Taxonomy Extension Schema

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB Inline XBRL Taxonomy Extension Label Linkbase

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase

Cover Page Interactive Data File (embedded within the Inline XBRL document)

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March 13, 2024

Vice President of Finance and Corporate Controller

Senior Vice President of Finance and Corporate Controller

March 13, 2024

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Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Changes in Stockholders’

Equity for the Years ended December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Cash Flows for the Years ended December 31, 2023, 2022 and 2021

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We have audited the accompanying consolidated balance sheets of Arcturus Therapeutics Holdings Inc.

and its Subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 14, 2024 expressed an adverse opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting.

As part of our audits, we are required to obtain an understanding of internal controls over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued research and development expenses

Clinical trial accruals

Description of the Matter

At December 31, 2022, the Company incurred $147.8 million for research and development expenses and accrued $4.5 million for clinical trial expenses.

For the year ended December 31, 2023, the Company incurred $192.1 million for research and development expenses and accrued $2.3 million for clinical trial expenses at December 31, 2023.

As described in Note 2 to the consolidated financial statements, the Company records accruals for estimated costs of research and development activities, including for third party contractors, laboratories, participating clinical trial sites and others.

1 unchanged sentence

Estimates are determined by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

Auditing management’s accounting for accrued research and development expenses, was especially challenging as evaluating the progress or stage of completion of the activities under the Company’s research and development agreements is dependent upon information from internal clinical personnel and third party service providers and involves a high volume of data which is tracked in spreadsheets and other end user computing programs.

Auditing management’s accounting for clinical trial accruals, was especially challenging as evaluating the progress or stage of completion of the activities under the Company’s clinical trial agreements is dependent upon information from internal clinical personnel and third party service providers and involves a high volume of data which is tracked in spreadsheets and other end user computing programs.

How We Addressed the Matter in Our Audit

To test the Company’s accrued research and development expenses, we obtained supporting evidence of the research and development activities performed for significant clinical trials.

To assess the appropriate measurement of accrued research and development costs, our audit procedures included, among others, obtaining and inspecting significant agreements and agreement amendments, evaluating the Company’s documentation of trial timelines, confirming amounts incurred to-date with third-party service providers, and testing a sample of transactions and comparing the costs against related invoices and contracts.

To test the Company’s clinical trial accruals, we evaluated evidence of the research and development activities performed for significant clinical trials.

To assess the appropriate measurement of clinical trial accruals, our audit procedures included, among others, obtaining and inspecting significant agreements and agreement amendments, evaluating the Company’s documentation of trial timelines, confirming amounts incurred to-date with third-party service providers, and testing a sample of transactions and comparing the costs against related invoices and contracts.

We also tested a sample of subsequent payments to evaluate the completeness of the accrued expenses and compared the results to the current year accrual.

/s/ Ernst & Young, LLP

We have served as the Company’s auditor since 2018.

San Diego, California

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AND ITS SUBSIDIARIES

CONSOLIDATED BA LANCE SHEETS

CONSOLIDATED BALANCE SHEETS

As of December 31,

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Cash and cash equivalents

Restricted cash

Accounts receivable

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Operating lease right-of-use asset, net

Equity-method investment

Non-current restricted cash

Liabilities and Stockholders’

Liabilities and Stockholders’ Equity

Current liabilities:

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Deferred revenue, net of current portion

Long-term debt, net of current portion

Operating lease liability, net of current portion

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Total liabilities

Stockholders’

Stockholders’ equity:

Common stock:

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Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

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Total operating expenses

Income (loss) from operations

(Loss) income from operations

(Loss) gain from equity-method investment

(Loss) gain from foreign currency

Finance expense, net

Net income (loss) before income taxes

Finance income (expense), net

Gain on debt extinguishment

Net (loss) income before income taxes

Provision for income taxes

Net income (loss)

Earnings (loss) per share:

Weighted-average shares used in calculation of earnings (loss) per share:

Comprehensive income (loss):

Net income (loss)

Comprehensive income (loss)

The accompanying notes are an integral part of these consolidated financial statements.

Net (loss) income

(Loss) earnings per share:

Weighted-average shares used in calculation of (loss) earnings per share:

Comprehensive (loss) income:

Net (loss) income

Comprehensive (loss) income:

ARCTURUS THERAPEUTICS HOLDINGS INC.

AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

Stockholders’

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Stockholders’

(in thousands)

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Balance at December 31, 2022

Share-based compensation

Issuance of common stock upon exercise of stock options

Issuance of common stock under equity plans

Balance at December 31, 2023

The accompanying notes are an integral part of these consolidated financial statements.

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Operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Depreciation and amortization

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Loss (gain) from equity-method investment

Gain on debt extinguishment

Foreign currency transaction loss (gain)

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Lease liabilities

Net cash provided by (used in) operating activities

Net cash (used in) provided by operating activities

Investing activities

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Financing activities

Proceeds from long-term debt, net of lender fees

Proceeds from debt

Proceeds from exercise of stock options

Proceeds from issuance of common stock under equity plans

Principal payments on debt

Payments on debt obligations

Net cash (used in) provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of year

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Arcturus Therapeutics Holdings Inc.

(the “Company”

or "Arcturus") is a global late-stage clinical messenger RNA medicines company focused on the development of infectious disease vaccines and significant opportunities within liver and respiratory rare diseases.

The Company became a clinical stage company during 2020 when it announced that its Investigational New Drug (“IND”) application for ornithine transcarbamylase (“OTC”) deficiency and its Clinical Trial Application (“CTA”) for candidate LUNAR-COV19 were approved by applicable health authorities.

(the “Company” or "Arcturus") is a clinical messenger RNA medicines company focused on the development of infectious disease vaccines and significant opportunities within liver and respiratory rare diseases.

Recent Developments

See “Note 3 Revenue –

CSL Seqirus”

for further information on the agreement with Seqirus, Inc.

("CSL Seqirus"), whereby CSL Seqirus and the Company will collaborate on research and development, manufacturing and global commercialization of vaccines.

See “Note 3 Revenue – CSL Seqirus” for further information on the agreement with Seqirus, Inc.

("CSL Seqirus"), whereby CSL Seqirus and the Company continue to collaborate on research and development, manufacturing and global commercialization of vaccines.

The Company has incurred significant operating losses since its inception.

As of December 31, 2023 and 2022, the Company had an accumulated deficit of $ 367.9 million and $ 338.1 million, respectively.

The Company’s activities since inception have consisted principally of research and development activities, general and administrative activities, and raising capital.

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before the Company achieves sustainable revenues and profit from operations.

From the Company’s inception through the year ended December 31, 2022 , the Company has funded its operations principally with the proceeds from the sale of capital stock, revenues earned through collaboration agreements and proceeds from long-term debt.

During fiscal year 2022, the Company received an upfront payment of $ 200.0 million as part of its collaboration agreement with CSL Seqirus for the research, manufacture and global commercialization of self-amplifying mRNA vaccines against COVID-19, influenza and three other respiratory infectious diseases.

At December 31, 2022, the Company’s balance of cash and cash equivalents, including restricted cash, was $ 394.0 million.

The Company’s activities since inception have consisted principally of research and development activities, general and administrative activities, and raising capital.

From the Company’s inception through the year ended December 31, 2023 , the Company has funded its operations principally with the proceeds from revenues earned through collaboration agreements, including the $ 200.0 million upfront payment received from CSL Seqirus during 2022, the sale of capital stock and proceeds from long-term debt.

During fiscal year 2023, the Company received milestone payments totalin g $ 147.9 million f rom CSL Seqirus .

Additionally, the Company received milestone payments of $ 23.8 million from CSL Seqirus subsequent to December 31, 2023.

At December 31, 2023 , the Company’s balance of cash and cash equivalents, including restricted cash, was $ 348.9 million.

Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these consolidated financial statements were available to be issued.

There can be no assurance that the Company will be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

Notes to Consolidated Financial Statements — Continued

Summary of Significant Accounting Policies

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GAAP), which requires management to make estimates and assumptions regarding the valuation of certain debt and equity instruments, the equity method investment, share-based compensation, accruals for liabilities, income taxes, revenue and deferred revenue, leases, expense accruals, and other matters that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, actual results could materially differ from those estimates.

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.

The Company and its chief operating decision-maker view the Company’s operations and manage its business in one operating segment which is the research and development of medical applications for the Company’s nucleic acid-focused technology.

Cash and Cash Equivalents

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Restricted cash

Restricted cash represents cash required to be set aside as security for lease payments and to maintain a letter of credit for the benefit of the landlord for the Company’s offices.

Restricted cash includes collateral pledged and held at the Company’s securities accounts pursuant to a security agreement with Wells Fargo Bank, National Association (“Wells Fargo”) (Note 7).

At December 31, 2023, such collateral amounted to $ 55.0 million.

Restricted cash also includes cash required to be set aside as security for lease payments and to maintain a letter of credit for the benefit of the landlord for the Company’s offices.

At December 31, 2023 and 2022, the Company had restricted cash of $ 1.9 million and $ 2.1 million in conjunction with property leases in San Diego, California, and such restriction is expected to be removed at the end of the lease term.

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Observable inputs are inputs that market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available under the circumstances.

The hierarchy consists of three levels.

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The Company reserves for specific receivables if collectability is no longer reasonably assured.

Estimates for allowances for doubtful accounts are determined based on existing contractual obligations, historical payment patterns, and individual customer circumstances.

The Company reevaluates such reserves on a regular basis and adjusts its reserves as needed.

Estimates for allowances for doubtful accounts are

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

receivable is deemed to be uncollectible, such balance is charged against the reserve.

Notes to Consolidated Financial Statements — Continued

determined based on existing contractual obligations, historical payment patterns, and individual customer circumstances.

The Company reevaluates such reserves on a regular basis and adjusts its reserves as needed.

Once a receivable is deemed to be uncollectible, such balance is charged against the reserve.

No reserves have been recorded as of December 31, 2023 or 2022 .

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The Company limits its exposure to credit loss by placing its cash and cash equivalents with high credit quality financial institutions in instruments with short maturities.

There were two customers that comprised 100 % of the total accounts receivable balance at December 31, 2022 and two customers that comprised 100 % of the total accounts receivable balance at December 31, 2021.

For the year ended December 31, 2022, the Company’s top five customers collectively represented 99 % of the Company’s total revenue.

For the year ended December 31, 2021, there were four customers that collectively represented 99 % of the Company’s total revenue.

There were two customers that comprised 100 % of the total accounts receivable balance at December 31, 2023 and 2022.

For the year ended December 31, 2023, the Company’s top three customers collectively represented 99 % of the Company’s total revenue.

For the year ended December 31, 2022, the Company's top five customers collectively represented 99 % of the Company’s total revenue.

For the year ended December 31, 2021, there were four customers that collectively represented 99 % of the Company’s total revenue.

Joint Ventures, Equity Method Investments and Variable Interest Entities

Investments for which the Company exercises significant influence, but does not have control are accounted for under the equity method.

Equity method investment activity is related to a 49 % joint venture with Axcelead, Inc.

(see the following paragraph for further details) and a 6 % ownership in Vallon Pharmaceuticals, Inc.

(see “

Note 12, Related Party Transactions”

for further details).

The Company’s share of the investees results is presented as either income or loss from equity method investees in the accompanying consolidated statements of operations and comprehensive income (loss).

In April 2021, Arcturus and Axcelead, Inc., a company existing under the laws of Japan (“Axcelead”), formed a joint venture entity, named Arcalis, Inc.

(“JV Entity”), which operates as a corporation under the laws of Japan.

Axcelead is an integrated drug discovery solutions provider to the pharmaceutical industry in Japan.

On July 1, 2017, Axcelead became the successor to a portion of the drug discovery research department of Takeda Pharmaceutical Company Limited.

The goal of the JV Entity is to be a contract development and manufacturing organization focused on mRNA manufacturing that would provide manufacturing services to the Company and also to third parties.

The joint venture includes a shareholders agreement setting forth initial funding of the JV Entity and rights of the shareholders, including certain approval rights of Arcturus.

As part of the joint venture, the Company entered into a License and Technology Transfer Agreement with the JV Entity, pursuant to which Arcturus grants to JV Entity a nonexclusive license to certain intellectual property for use at the JV Entity’s facilities, and obligates Arcturus to conduct certain technology transfer activities.

The Company consolidates variable interest entities (“VIEs”) where it has been determined that the Company is the primary beneficiary of those entities’

Management believes that power is shared between Arcturus and Axcelead, as unrelated parties.

The consent of each of the parties is substantive and is required to make the decisions about the JV Entity’s significant activities.

Management does not believe that Arcturus has the power to direct the activities of the JV Entity that most significantly impact the JV Entity’s economic performance.

Therefore, the Company concluded it is not required to consolidate the JV Entity under the VIE model.

The equity method of accounting is applicable for the JV Entity as the Company does not own more than 50 % of voting power, but has influence over the operation and financial policies of the investee.

The Company accounts for its investment in the JV Entity using the equity method of accounting as specified in ASC 323, Investments —

Equity Method and Joint Ventures .

Under ASC 323, equity method investments are recorded initially at cost.

The Company’s initial investment in the JV Entity totaled $ 9.2 million.

However, the JV Entity paid the Company back the initial investment of $ 9.2 million as an upfront fee/consideration for the License and Technology Transfer Agreement.

In substance, there was no cash consideration paid by the Company for its 49 % equity interest in the JV Entity.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

Equity method investment activity is related to the Company's joint venture in ARCALIS, Inc.

with Axcelead, Inc.

The Company’s share of the investees’ results is presented as either income or loss from equity method investees in the accompanying consolidated statements of operations and comprehensive income (loss).

Property and Equipment, net

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Long-lived assets, including property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable.

The determinants used for this evaluation include management’s estimate of an asset’s ability to generate positive income from operations and positive cash flow in future periods, as well as the strategic significance of the assets to the Company’s business objectives.

The Company did no t recognize any impairment losses for the years ended December 31, 2022 and 2021 .

The Company did no t recognize any impairment losses for the years ended December 31, 2023, 2022 or 2021.

Comprehensive Income/Loss

Comprehensive income/loss is defined as the change in stockholders’

equity during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive income/loss is defined as the change in stockholders’ equity during a period from transactions and other events and circumstances from non-owner sources.

There was no other comprehensive loss in the years ended December 31, 2023, 2022 or 2021.

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Revenue Recognition

At contract inception, the Company analyzes the collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808).

At contract inception, the Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808).

For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration reflect a vendor-customer relationship and are therefore within the scope of ASC 606.

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and (v) recognize revenue when, or as, the company satisfies a performance obligation.

The terms of the Company’s revenue agreements include license fees, upfront payments, milestone payments, reimbursement for research and development activities, option exercise fees, consulting and related technology transfer fees and royalties on sales of commercialized products.

Arrangements that include upfront payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs obligations under these arrangements.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

The event-based milestone payments represent variable consideration, and the Company uses the most likely amount method to estimate this variable consideration because the Company will either receive the milestone payment or will not, which makes the potential milestone payment a binary event.

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A performance obligation is a promise in a contract to transfer a distinct good or service to the collaborative partner and is the unit of account in Topic 606.

A contract’s transaction price is allocated to each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied.

For performance obligations that are recognized over time, the Company measures the progress using an input method.

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The Company estimates the amount of effort expended, including the time estimated it will take to complete the activities, or costs incurred in a given period, relative to the estimated total effort or costs to satisfy the performance obligation.

This approach requires the Company to make numerous estimates and use significant judgement.

If estimates or judgements change over the course of the collaboration, a cumulative catch up of revenue is recognized in the period such changes are identified.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

See “Note 3, Revenue”

for specific details surrounding the Company’s arrangements.

This approach requires the Company to make numerous estimates and use significant judgment.

If estimates or judgments change over the course of the collaboration, a cumulative catch up of revenue is recognized in the period such changes are identified.

See “Note 3, Revenue” for specific details surrounding the Company’s arrangements.

The Company determines if an arrangement is a lease at inception.

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The Company has elected the practical expedient to not separate lease and non-lease components.

See “Note 11, Commitments and Contingences”

for specific details surrounding the Company’s leases.

See “Note 11, Commitments and Contingencies” for specific details surrounding the Company’s leases.

Research and Development Costs, net

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Research and development costs consist primarily of salaries, employee benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services), in process research and development expenses and license agreement expenses, net of any grants and prelaunch inventory.

Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods are received or the services are performed.

The Company records accruals for estimated research and development costs, comprising payments for work performed by third party contractors, laboratories, participating clinical trial sites, and others.

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For the latter, the Company accrues the expenses as goods or services are used or rendered.

Clinical trial activities performed by third parties are accrued and expensed based upon estimates of the proportion of work completed over the life of the individual clinical trial and patient enrollment rates in accordance with agreements established with Clinical Research Organizations ("CROs") and clinical trial sites.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

Notes to Consolidated Financial Statements — Continued

Pre-Launch Inventory

Prior to obtaining initial regulatory approval for an investigational product candidate, the Company expenses costs relating to production of inventory as research and development expense in its consolidated statements of operations and comprehensive income (loss), in the period incurred.

When the Company believes regulatory approval and subsequent commercialization of an investigational product candidate is probable, and the Company also expects future economic benefit from the sales of the investigational product candidate to be realized, it will then capitalize the costs of production as inventory.

Share-Based Compensation

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Share-based compensation is recognized over the requisite service period of the individual awards using the straight-line attribution method, which generally equals the vesting period.

Employees and officers’

stock options have a ten-year life and generally vest 25 % on the first anniversary of the grant and in 1/36 th equal installments on each monthly anniversary thereafter, such that options are fully vested on the four-year anniversary of the date of grant.

Employees and officers’ stock options have a ten-year life and generally vest 25 % on the first anniversary of the grant and in 1/36 th equal installments on each monthly anniversary thereafter, such that options are fully vested on the four-year anniversary of the date of grant.

The exercisability and vesting periods of options granted to consultants and directors vary.

The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant.

This method requires certain assumptions be used as inputs, such as the fair value of the underlying common stock, expected term of the option before exercise, expected volatility of the Company’s common stock, expected dividend yield, and a risk-free interest rate.

The Company has limited historical stock option activity and therefore estimates the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period.

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The effect of forfeited awards is recorded when the forfeiture occurs.

Pre-Launch Inventory

Statement of Cash Flows

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Cash and cash equivalents

Restricted cash - current

Non-current Restricted cash

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Income Tax Expense

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at the applicable tax rates, along with net operating loss and tax credit carryovers.

The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized.

Management has considered estimated taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.

Based upon the weight of available evidence, which includes the Company’s historical operating performance and limited potential to utilize tax credit carryforwards, the Company has determined that total deferred tax assets should be fully offset by a valuation allowance.

Management has considered estimated taxable income and ongoing prudent and feasible tax planning strategies in assessing the

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

amount of the valuation allowance.

When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

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The Company also files income tax returns in the foreign countries in which it operates.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company.

The preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company.

Additionally, the Company follows an accounting standard addressing the accounting for uncertainty in income taxes that prescribes rules for recognition, measurement, and classification in the consolidated financial statements of tax positions taken or expected to be taken in a tax return.

In December 2019, the FASB issued an ASU 2019-12 that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2020, with early adoption permitted.

The Company adopted this standard effective January 1, 2021 .

The adoption of this standard did no t have an impact on the Company’s Consolidated Financial Statements.

Net Income (Loss) per Share

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Diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method.

Dilutive shares of common stock for the years ended December 31, 2022 and 2021 are comprised of stock options.

Dilutive shares of common stock for the year ended December 31, 2023 were comprised of stock options and restricted stock units.

Dilutive shares of stock for the years ended December 31, 2022 and 2021 were comprised of stock options.

No dividends were declared or paid during the reporting periods.

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The Company has entered into license agreements and collaborative research and development arrangements with pharmaceutical and biotechnology companies, as well as consulting, related technology transfer and product revenue agreements.

Under these arrangements, the Company is entitled to receive license fees, consulting fees, product fees, technological transfer fees, upfront payments, milestone payments if and when certain research and development milestones or technology transfer milestones are achieved, royalties on approved product sales and reimbursement for research and development activities.

The Company’s costs of performing these services are included within research and development expenses.

The Company’s milestone payments are typically defined by achievement of certain preclinical, clinical, and commercial success criteria.

Under these arrangements, the Company is entitled to receive license fees, consulting fees, product fees, technological transfer fees, upfront payments, milestone payments if and when certain research and development milestones, technology transfer milestones or success-based milestones are achieved, royalties on approved product sales and reimbursement for research and development activities.

The Company’s costs of performing these services are included within research and development expenses.

The Company’s milestone payments are typically defined by achievement of certain preclinical, clinical, and commercial success criteria.

Preclinical milestones may include in vivo proof of concept in disease animal models, lead candidate identification, and completion of IND-enabling toxicology studies.

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and its Subsidiaries

Notes to Consolidated Financial Statements —

The following table summarizes the Company’s revenue for the periods indicated.

Approximately $ 192.7 million and $ 5.0 million of total revenue represents revenue derived from foreign countries for the years ended December 31, 2022 and 2021, respectively.

Notes to Consolidated Financial Statements — Continued

The following table summarizes the Company’s revenue for the periods indicated.

Approximately $ 154.9 million, $ 192.7 million and $ 5.0 million of total revenue represents revenue derived from foreign countries for the years ended December 31, 2023, 2022 and 2021, respectively.

For the Year Ended December 31,

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Total grant revenue

The following paragraphs provide information regarding the nature and purpose of the Company’s most significant revenue arrangements.

On November 1, 2022, the Company entered into a Collaboration and License Agreement (the “CSL Collaboration Agreement”) with Seqirus, Inc.

(“CSL Seqirus”), for the global exclusive rights to research, develop, manufacture, and commercialize vaccines.

Under the terms of the CSL Collaboration Agreement, the Company will provide CSL Seqirus with an exclusive global license to its STARR self-amplifying mRNA technology, LUNAR ® lipid-mediated delivery, along with mRNA drug substance and drug product manufacturing process.

The following paragraphs provide information regarding the nature and purpose of the Company’s most significant revenue arrangements.

On November 1, 2022, the Company entered into a Collaboration and License Agreement (as amended, the “CSL Collaboration Agreement”) with Seqirus, Inc., a part of CSL Limited (“CSL Severus”), for the global exclusive rights to research, develop, manufacture, and commercialize vaccines.

Under the terms of the CSL Collaboration Agreement, the Company provides CSL Seqirus with an exclusive global license to its mRNA technology (including STARR ® ) and LUNAR ® lipid-mediated delivery, along with mRNA drug substance and drug product manufacturing process.

CSL Seqirus will lead development and commercialization of vaccines under the collaboration.

The collaboration plans to advance vaccines against SARS-CoV-2 (COVID-19), influenza, pandemic preparedness as well as three other respiratory infectious diseases.

The Company received a $ 200.0 million upfront payment and is eligible to receive over $ 1.3 billion in development milestones if all products are registered in the licensed fields and entitled to potentially receive up to $ 3.0 billion in commercial milestones based on “net sale”

of vaccines in the various fields.

In addition, the Company is eligible to receive a 40 % net profit share for COVID-19 vaccine products and up to low double-digit royalties for vaccines against flu, pandemic preparedness and three other respiratory pathogens.

In March 2023, Arcturus achieved development milestones, including milestones associated with nominating next generation vaccine candidates, resulting in $ 90.0 million due from CSL Seqirus.

In evaluating the CSL Collaboration Agreement in accordance with Accounting Standards Codification (“ASC”) Topic 606, the Company concluded that CSL Seqirus is a customer.

During 2023, the Company achieve d $ 154.2 million o f development milestones and a conditional payment related to the CSL Collaboration Agreement, of which $ 23.8 million was included in accounts receivable as of December 31, 2023.

In evaluating the CSL Collaboration Agreement in accordance with Accounting Standards Codification (“ASC”) Topic 606, the Company concluded that CSL Seqirus is a customer.

The Company identified all promised goods/services within the CSL Collaboration Agreement, and when combining certain promised goods/services, the Company concluded that there are five distinct performance obligations.

The nature of the performance obligations consists of delivery of the vaccine license, research and development services for COVID and non-COVID vaccines and regulatory activities for COVID vaccines.

For each performance obligation, the Company estimated the standalone selling price based on 1) in the case of the license, the fair value using costs to recreate plus margin method and 2) in the case of research and development services and regulatory activities, cost plus margin for estimated full-time equivalent (“FTE”) costs, direct costs including laboratory supplies, contractors, and other out-of-pocket expenses for research and development services and regulatory activities.

As of December 31, 2022, the transaction price consisted of upfront consideration received.

Additional variable consideration, including the milestones achieved in March 2023, was not included in the transaction price at December 31, 2022 because the Company could not conclude that it is probable that including the variable consideration will not result in a significant revenue reversal.

As of December 31, 2023, the transaction price consisted of upfront consideration received and milestones achieved in 2023.

Additional variable consideration was not included in the transaction price at December 31, 2023 because the Company could not conclude that it is probable that including the variable consideration will not result in a significant revenue reversal.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

Notes to Consolidated Financial Statements — Continued

The Company allocated the transaction price to the performance obligations in proportion to their standalone selling price.

The vaccine license is recognized at the point in time when it is transferred.

The vaccine license was recognized at the point in time it was transferred in 2022.

The research and development and regulatory activities performance obligations are recognized over a period of time based on the percentage of services rendered using the input method, meaning actual costs incurred divided by total costs budgeted to satisfy the performance obligation.

Any consideration related to sales-based royalties will be recognized when the amounts are probable of non-reversal, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as they are constrained and therefore have also been excluded from the transaction price.

The revenue recognized in 2022 relates to the license delivered and services performed through December 31, 2022.

Total deferred revenue as of December 31, 2022 for the CSL Collaboration Agreement was $ 45.6 million.

The revenue recognized in 2023 and 2022 relates to the license delivered, milestones achieved and services performed through December 31, 2023.

T otal deferred revenue as of December 31, 2023 and 2022 for the CSL Collaboration Agreement was $ 87.1 million and $ 45.6 million, respectively.

During 2023, the Company also received an advance payment of $ 23.6 million for the manufacturing and supply of ARCT-154 drug product.

The advance payment was for specified manufacturing runs of ARCT-154 which include the drug substance utilized, as well as the reservation fees and related manufacturing requirements.

The Company concluded that the promise to manufacture and supply ARCT-154 drug product is a customer option as part of the CSL Collaboration Agreement and is accounted for as a separate contract.

The advance payment is included in deferred revenue as of December 31, 2023 and will be recognized as revenue when the drug product is transferred to CSL Seqirus.

During 2023, the Company entered into an amendment to the CSL Collaboration Agreement, pursuant to which the Company agreed to sponsor and conduct a Phase I clinical study in the influenza field.

As part of the amendment, the Company received $ 17.5 million from CSL Seqirus.

The amendment also provides for up to $ 1.5 million in additional payments which are achievable upon meeting certain clinical milestones relating to the Phase I clinical study in the influenza field.

The Company previously concluded that the expansion of research and development support services under the CSL Collaboration Agreement represented an option that was not a material right.

Therefore the Company concluded the promise to sponsor and conduct the Phase I clinical study is a separate contract and the sole performance obligation under the new arrangement.

During the year ended December 31, 2023, the Company recognized $ 2.4 million related to the performance obligation and the remaining amount of $ 15.1 million is included in deferred revenue.

In December 2023, the Company also received an advance payment of $ 5.3 million from CSL Seqirus for manufacturing activities related to COVID-19 vaccine product.

The Company concluded that the promise to perform manufacturing activities is a customer option as part of the CSL Collaboration Agreement and is accounted for as a separate contract.

The advance payment is included in deferred revenue as of December 31, 2023 and will be recognized as revenue when the vaccine product is transferred to CSL Seqirus.

During 2021 the Company entered into certain agreements with Vinbiocare, a member of Vingroup Joint Stock Company, whereby the Company would provide technical expertise and support services to Vinbiocare to assist in the build out of a mRNA drug product manufacturing facility in Vietnam.

The Company received an upfront payment in aggregate of $ 40.0 million as part of the Vinbiocare Agreement.

In October 2022, the Company and Vinbiocare executed a letter agreement terminating the Technology License and Technical Support Agreement and the Framework Drug Substance Supply Agreement (collectively, the “License & Supply Agreements”).

The Company incurred no financial penalties in connection with the termination of the License & Supply Agreements and has no further financial obligations to Vinbiocare under these terminated agreements.

In association with the termination of the License & Supply Agreements, the Company signed in October 2022 the Study Support Agreement with Vinbiocare which provides for Vinbiocare to continue serving as the regulatory and financial sponsor of clinical studies conducted in Vietnam of ARCT-154.

In October 2022, in association with the termination of the License & Supply Agreements, the Company signed the Study Support Agreement with Vinbiocare which provides that Vinbiocare shall continue to serve as the regulatory and financial sponsor of clinical studies conducted in Vietnam of ARCT-154 pursuant to the Company’s arrangements with Vinbiocare (the “Study Support Agreement”).

To support the continuing activities of these studies, the Study Support Agreement further provides for the Company to conduct certain services and to compensate Vinbiocare to help achieve the objectives of these studies.

As of December 31, 2022, the Company reserved $ 11.8 million of the original upfront payment to be paid to Vinbiocare over the future periods pursuant to the Study Support Agreement by reclassifying a portion of the upfront payment received from Vinbiocare pursuant to the License & Supply Agreements, from deferred revenue to short-term and long-term liabilities, based on the anticipated timing of the payments to Vinbiocare, and removed that portion of the upfront payment from the transaction price of the modified arrangement.

In February 2023, the Company agreed to provide additional financial support in the amount of approximately $ 2.1 million to allow Vinbiocare to provide additional study support duties related to the ARCT-154 clinical study.

As a result, the Company reserved $ 11.8 million of the original upfront payment to be paid to Vinbiocare over the future periods pursuant to the Study Support Agreement by reclassifying a portion of the upfront payment received from Vinbiocare pursuant to the

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

License & Supply Agreements, from deferred revenue to short-term and long-term liabilities, based on the anticipated timing of the payments to Vinbiocare, and removed that portion of the upfront payment from the transaction price of the modified arrangement.

The transaction price was not adjusted for payments that are contingent upon the occurrence of future regulatory or sales-related events based on the information currently available to the Company.

In February of 2023, the Company agreed to provide additional financial support in the amount of approximately $ 2.2 million to allow Vinbiocare to provide additional study support duties related to the ARCT-154 clinical study.

As a result, the Company adjusted the transaction price which resulted in a reversal of revenue of $ 2.2 million during the year ended December 31, 2022.

The Company has concluded that is has no remaining performance obligations as of December 31, 2022, and therefore has recognized the remaining transaction price as revenue during the year ended December 31, 2022.

The Company has concluded that it has no remaining performance obligations under its prior arrangements with Vinbiocare as summarized above as of December 31, 2023.

As of December 31, 2023, the Company has accrued liabilities related to this arrangement of $ 2.5 million in current liabilities and $ 0.5 million in non-current liabilities that will be paid upon the occurrence of specified events through the first quarter of 2025.

Vinbiocare is also eligible to receive a single digit percentage of amounts from net sales, if any, of ARCT-154 (or next-generation COVID vaccine) up to a capped amount of low single digit millions.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

Company had no remaining deferred revenue as of December 31, 2022.

As of December 31, 2021, the deferred revenue balance was $ 37.2 million.

In October 2017, the Company entered into a research collaboration and license agreement with Janssen (the “2017 Agreement”) to collaborate on developing candidates for treating HBV with RNA therapeutics.

The 2017 Agreement allocated discovery, development, funding obligations, and ownership of related intellectual property among the Company and Janssen.

The Company received an upfront payment of $ 7.7 million and was reimbursed for research costs as incurred.

On October 31, 2022, Arcturus received notice of termination from Janssen Pharmaceuticals, Inc.

of the 2017 Agreement, and the termination was effective as of December 30, 2022.

The Company will not incur any penalties as a result of this termination.

As of December 31, 2022, the licenses granted to Janssen have terminated and the Company recognized approximately $ 6.0 million of upfront consideration received and a development milestone achieved in October of 2021.

T he remaining transaction price is expected to be recognized using an input method over the remaining research period of approximately three months during the wind down period.

Total deferred revenue as of December 31, 2022 and 2021 for Janssen was $ 0.4 million and $ 6.3 million, respectively.

In October 2015 the Company entered into a research collaboration and license agreement with Ultragenyx (the “Ultragenyx Agreement”), whereby Arcturus granted to Ultragenyx a co-exclusive license to certain Arcturus technology, which is in effect only during the reserve target exclusivity term as discussed in the following paragraphs.

This collaboration agreement was amended in 2017, 2018 and during the second quarter of 2019.

During the initial phase of the collaboration, the Company will design and optimize therapeutics for certain rare disease targets.

Ultragenyx has the option under the Ultragenyx Agreement to add additional rare disease targets during the collaborative development period.

The current potential development, regulatory and commercial milestone payments for the existing development targets as of December 31, 2022 are $ 138.0 million.

Ultragenyx will pay royalties as a single-digit percentage of net sales on a product-by-product and country-by-country basis during the applicable royalty term.

As of December 31, 2022, the transaction price included the upfront consideration received, option payments, exclusivity extension payments and additional consideration received pursuant to Amendment 3.

The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained.

As part of its evaluation of the constraint, the Company considered numerous factors, including that the consideration is outside the control of the Company and contingent upon success in future clinical trials, approval from the FDA and the collaborator’s efforts.

Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to Ultragenyx and therefore have also been excluded from the transaction price.

The transaction price is recognized to revenue on a straight-line basis using an input method over the 4 -year reserve target exclusivity period.

The reserve target exclusivity period represents the timing over which promised goods/services will be provided.

Total deferred revenue at December 31, 2022 and December 31, 2021 from Ultragenyx was $ 1.8 million and $ 5.5 million, respectively.

In January 2018 , the Company entered into a Development and Option Agreement (the “Development and Option Agreement”) with CureVac.

Under the terms of the Development and Option Agreement, the parties agreed to conduct joint preclinical development programs once CureVac makes a payment to pull down a target on the basis of which CureVac is granted options for taking a license on pre-agreed license terms to develop and commercialize certain products incorporating the Company’s patents and know-how related to LUNAR ® delivery technology (the “Arcturus Delivery Technology”), and CureVac patents and know-how related to mRNA technology.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

As of December 31, 2022 , the transaction price included the upfront consideration received.

As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the collaborator’s efforts.

Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to CureVac and therefore have also been excluded from the transaction price.

As of December 31, 2022 , no adjustments were made to the transaction price.

The upfront consideration of $ 5.0 million was recorded as deferred revenue in the Company’s balance sheet upon receipt and is currently being recognized as revenue on a straight-line basis using an input method over the remaining seven-month contractual term as of December 31, 2022.

Total deferred revenue as of December 31, 2022 and December 31, 2021 for CureVac was $ 0.5 million and $ 1.4 million, respectively.

Israeli Ministry of Health

On August 17, 2020, the Company entered into an agreement with the Israeli Ministry of Health (the “MOH”) to supply the Company’s COVID-19 vaccine candidate to Israel (the “Israel Supply Agreement”) subject to certain conditions, including applicable regulatory approvals.

In October 2020, and in association with the Israel Supply Agreement, the Company received a non-refundable payment of $ 12.5 million from the MOH.

This payment was associated with a specified clinical trial milestone and served as an initial reserve payment for a specified number of doses of the LUNAR-COV19 vaccine candidate pursuant to the Israel Supply Agreement.

As a result of making this payment, the MOH became bound to purchase an initial quantity of 500,000 reserved vaccine doses, as set forth in and subject to the terms and conditions of the Israel Supply Agreement.

Furthermore, the Israel Supply Agreement permitted termination by the MOH immediately upon written notice to Arcturus if the Company did not obtain certain regulatory approvals by December 31, 2021.

On April 14, 2022, Arcturus received notice from the MOH to terminate the Israel Supply Agreement.

Therefore, the Company recognized the payment as revenue during the second quarter of 2022 as there were no remaining performance obligations under the agreement.

No termination penalties were incurred by the Company connection therewith.

The Company had no remaining deferred revenue as of December 31, 2023 or 2022.

In August 2022, the Company entered into a cost reimbursement contract with the Biomedical Advanced Research and Development Authority ("BARDA"), a division of the Office of the Assistant Secretary for Preparedness and Response (ASPR) within the U.S.

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20 ("IAS 20"), Accounting for Government Grants and Disclosure of Government Assistance, by analogy, the Company recognizes grant revenue from the reimbursement of direct out-of-pocket expenses, overhead allocations and fringe benefits for research costs associated with the grant.

The costs associated with these reimbursements are reflected as a component of research and development expense in the Company’s consolidated statements of operations and comprehensive income (loss).

The Company recognized $ 0.2 million of revenue during the year ended December 31, 2022, which is included in revenue on the Company's consolidated statements of operations.

The Company recognized $ 9.1 million and $ 0.2 million of grant revenue during the years ended December 31, 2023 and 2022, respectively.

which is included in revenue on the Company's consolidated statements of operations.

As of December 31, 2023, the remaining available funding net of revenue earned was $ 54.1 million.

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Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

Unobservable inputs in which little or no market data exists and are therefore determined using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

The carrying value of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities and the Singapore loan approximate their respective fair values due to their relative short maturities.

The carrying amounts of long-term debt for the amount drawn on the Company’s debt facility approximates fair value as the interest rate is variable and reflects current market rates.

As of December 31, 2022 and 2021 , all assets measured at fair value on a recurring basis consisted of cash equivalents, money market funds, which were classified within Level 1 of the fair value hierarchy.

The carrying amounts of long-term debt for the amount drawn on the Company’s debt facility approximates fair value as the interest rate is variable and reflects current market rates.

The Company's assets measured at fair value on a recurring basis consisted of money market funds.

As of December 31, 2023 , the Company's had money market funds with a fair value of $ 256.1 million, which were classified within Level 1 of the fair value hierarchy.

The fair value of these financial instruments was measured based on quoted prices .

Balance Sheet Details

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

Accrued Liabilities Detail

Accrued liabilities consisted of the following:

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Current portion of operating lease liability

Clinical accruals

Clinical trial accruals

Vinbiocare contractual liabilities

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Property and equipment, net

Depreciation and amortization expense was $ 1.5 million and $ 1.2 million for the years ended December 31, 2022 and 2021, respectively.

Depreciation and amortization expense was $ 3.0 million, $ 1.5 million and $ 1.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Construction in progress is primarily comprised of research equipment not yet placed in service.

Wells Fargo Credit Agreement

On April 21, 2023, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc.

entered into a credit agreement with Wells Fargo whereby Wells Fargo will make a $ 50.0 million revolving credit line available to the Company (the “Loan”) and each Loan evidenced by a revolving line of credit note (the “Note”).

Borrowings under the agreement will bear interest at a rate of 1.00 % above either the Daily Simple SOFR or Term SOFR (as such terms are defined in the Note), with “SOFR” being the rate per annum equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York.

If an Event of Default (as defined in the agreement) occurs, then all Loans shall bear interest at a rate equal to 2.00 % above the interest rate applicable immediately prior to the occurrence of the Event of Default.

The term of the agreement is two years , with an option for one-year renewals subject to Wells Fargo approval and the Company furnishing to Wells Fargo a non-refundable commitment fee equal to 0.25 % of the Loan amount for each such renewal.

There is no penalty for terminating the facility prior to the maturity date of the Note.

As collateral, the Company has agreed to pledge $ 55.0 million in cash to be held at the Company’s securities accounts with Wells Fargo Securities, LLC, an affiliate of Wells Fargo, pursuant to a security agreement.

No amounts were outstanding as of December 31, 2023.

Manufacturing Supply Agreement

On November 7, 2020, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc., entered into a Manufacturing Support Agreement (the “Support Agreement”) with the Economic Development Board of the Republic of Singapore (the “EDB”).

Pursuant to the Support Agreement, the EDB agreed to make a term loan (the “Singapore Loan”) of S$ 62.1 million to the Company, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (ARCT-021).

The Singapore Loan accrues interest at a rate of 4.5 % per annum calculated on a daily basis.

The Company elected to borrow the full amount available under the Support Agreement of S$ 62.1 million ($ 46.6 million) on January 29, 2021.

Subsequent to year end, on March 23, 2023, the EDB agreed to an extension of the reconciliation period to March 22, 2023, with unused funds not

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

utilized for the manufacture of ARCT-021 as of such date returned to the EDB.

On March 27, 2023 the Company paid in full S$ 22.8 million ($ 17.1 million) of the outstanding balance at December 31, 2022 of $ 50.4 million.

During March 2023, the Company was forgiven the remaining portion of the Singapore Loan including accrued interest which was approximately $ 33.3 million.

The Singapore Loan was initially recorded as long-term debt at $ 46.6 million, the amount of cash proceeds at the time the Company received the funding.

As of December 31, 2022 and 2021, the debt balance including all accrued interest was adjusted to reflect the current exchange rate resulting in debt balances of $ 50.4 and $ 47.9 million, respectively.

The Company recorded a net foreign currency translation loss of $ 0.5 million for the year ended December 31, 2022 and a net foreign currency translation gain of $ 0.6 million for the year ended December 31, 2021.

The Company also recorded interest expense of $ 2.1 million and $ 1.9 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company was in compliance with all covenants under the Singapore Loan and related commitments.

As noted above, the Company no longer has debt or interest related to this agreement as of March 27, 2023.

Debt with Western Alliance Bank

On October 12, 2018, Arcturus Therapeutics, Inc.

entered into the Loan with the Bank, whereby it received $ 10.0 million.

The Loan is collateralized by all of the assets of Arcturus Therapeutics, Inc., excluding intellectual property, which is subject to a negative pledge.

The Loan contains customary conditions of borrowing, events of default and covenants, including covenants that restrict Arcturus Therapeutics, Inc.’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock.

In addition, Arcturus Therapeutics, Inc.

is required to maintain at least 100 % of its consolidated, unrestricted cash, or $ 15.0 million, whichever is lower, with the Bank.

On October 30, 2019, Arcturus Therapeutics, Inc.

and the Bank entered into a Third Amendment (the “Third Amendment”) to the Loan (as amended, the “Loan Agreement”).

Pursuant to the amendment, the Bank agreed to make a term loan to Arcturus Therapeutics, Inc.

on October 30, 2019, in the amount of $ 15.0 million (the “Term Loan”).

The resulting net increase in the indebtedness of Arcturus Therapeutics, Inc.

was $ 5.0 million.

The Term Loan bears interest at a floating rate ranging from 1.25 % to 2.75 % above the prime rate.

The amendment further provides that the Term Loan has a maturity date of October 30, 2023 .

The Loan Agreement was amended such that Arcturus Therapeutics, Inc.

made monthly payments of interest only until August 1, 2022.

Upon maturity or prepayment, Arcturus Therapeutics, Inc.

will be required to pay a 2 % fee as a result of the FDA’s approval to proceed with the Company’s LUNAR-OTC program based on its IND submission.

Such fee is accreted to the long-term debt balance using the effective interest method over the term of the Loan Agreement.

Should an event of default occur, including the occurrence of a material adverse effect, the Company could be liable for immediate repayment of all obligations under the Loan Agreement.

As of December 31, 2022, the Company was in compliance with all covenants under the Loan Agreement.

Arcturus Therapeutics, Inc.

made principal payments related to the Term Loan of $ 5.0 million during the year ended December 31, 2022.

During March 2023, the Loan was terminated and the Company paid in full the remaining principal and interest, including a $ 0.3 million fee payable upon prepayment as a result of prior FDA approval of an IND.

Note 13 Subsequent Events ”

for further information.

The Company recognized interest expense related to its long-term debt with Western Alliance Bank of $ 0.9 million and $ 0.8 million during the years ended December 31, 2022 and 2021.

Stockholders’

Notes to Consolidated Financial Statements — Continued

Republic of Singapore (the “EDB”).

The Singapore Loan accrues interest at a rate of 4.5 % per annum calculated on a daily basis.

The Company elected to borrow the full amount available under the Support Agreement of S$ 62.1 million ($ 46.6 million) on January 29, 2021.

During the first quarter of 2023, the EDB agreed to an extension of the reconciliation period to March 22, 2023, with unused funds not utilized for the manufacture of ARCT-021 as of such date returned to the EDB.

As of December 31, 2022, the outstanding balance of the Singapore Loan, which includes accrued interest, was $ 50.4 million of which the Company paid S$ 22.8 million ($ 17.1 million) in March 2023.

During the first quarter of 2023, the remaining principal portion of the Singapore Loan plus accrued interest, totaling $ 34.0 million, was forgiven and recorded as a gain on debt extinguishment in the consolidated statement of operations and comprehensive loss.

Total interest expenses related to the Singapore Loan was $ 0.5 million, $ 2.1 million and $ 1.9 million for the year ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, the Company no longer had debt or interest related to this agreement.

Termination of Agreement with Western Alliance Bank

On March 14, 2023, the Loan and Security Agreement, dated as of October 12, 2018 (as amended and supplemented, the “Western Alliance Agreement”) with Western Alliance Bank, an Arizona corporation (“Western Alliance”), was terminated (the “Termination”) upon the receipt by Western Alliance of a payoff amount of approximately $ 7.4 million from the Company.

The Western Alliance Agreement provided for a collateralized term loan in the aggregate principal amount of up to $ 15.0 million, with interest at a floating rate ranging from 1.25 % to 2.75 % above the prime rate and a maturity date of October 30, 2023 .

The payoff amount was made by the Company to Western Alliance from available cash on hand, pursuant to a payoff letter, and included payment of (i) approximately $ 7.0 million in principal and interest, (ii) $ 0.3 million fee payable upon prepayment as a result of prior FDA approval of an IND and (iii) de minimis amounts in prepayment charges and various operational fees.

The Company was released from all liens under the Western Alliance Agreement.

For the years ended December 31, 2023, 2022 and 2021, the Company recorded interest expense of $ 0.3 million, $ 0.9 million and $ 0.8 million, respectively.

Stockholders’ Equity

Earnings Per Share

Potentially dilutive securities that were not included in the calculation of diluted net loss per share for the year ended December 31, 2023 as they were anti-dilutive totaled 0.8 million.

Potent ially dilutive securities that were not included in the calculation of diluted earnings per share for the year ended December 31, 2022 as they were anti-dilutive totaled 3.7 million.

Potentially dilutive securities that were not included in the calculation of diluted net loss per share for the year ended December 31, 2021 as they were anti-dilutive totaled 1.3 million.

Alexion Pharmaceuticals License Agreement

On February 17, 2021, the Company entered into an exclusive license agreement with Alexion Pharmaceuticals, Inc.

Alexion ”) pursuant to which Alexion granted to the Company an exclusive, worldwide license to exploit certain specified Alexion patent applications.

(“Alexion”) pursuant to which Alexion granted to the Company an exclusive, worldwide license to exploit certain specified Alexion patent applications.

In accordance with the terms of the license agreement, and in exchange for the license, the Company issued 74,713 shares of its common stock to Alexion on February 19, 2021 valued at approximately $ 5.0 million.

The number of shares issued under the agreement was calculated by dividing (i) five million dollars ($5.0 million) by (ii) the volume-weighted average price per share of the Company’s common stock on the Nasdaq Global Market for the thirty (30) trading days immediately preceding the Effective Date (rounded to the nearest whole share).

The Company recorded the transaction as an asset purchase

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

as management concluded that all of the value received was related to a single identifiable asset.

The Company recorded the transaction as an asset purchase as management concluded that all of the value received was related to a single identifiable asset.

Further, the Company concluded that there was no alternative future use for the asset and recorded a charge at the closing of the transaction for the full $ 5.0 million value assigned to the shares issued in connection with the license agreement.

This non-cash charge was recorded as acquired in-process research and development expense in the statements of operations and comprehensive income (loss).

Earnings Per Share

Potentially dilutive securities that were not included in the calculation of diluted earnings per share for the year ended December 31, 2022 as they were anti-dilutive totaled 3.7 million.

Potentially dilutive securities that were not included in the calculation of diluted net loss per share for the year ended December 31, 2021 as they were anti-dilutive totaled 1.3 million.

Share-Based Compensation

In June 2022 at the Company’s 2022 Annual Meeting of Stockholders (the "2022 Annual Meeting"), the stockholders of the Company approved an amendment to the Company’s 2019 Omnibus Equity Incentive Plan (as amended, the “2019 Plan”) which, among other things, increases the aggregate number of shares authorized for use in making awards to eligible persons under the 2019 Plan by 3,750,000 shares, for a total of up to 8,750,000 shares available for issuance.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

amended, the “2019 Plan”) which, among other things, increases the aggregate number of shares authorized for use in making awards to eligible persons under the 2019 Plan by 3,750,000 shares, for a total of up to 8,750,000 shares available for issuance.

As of December 31, 2023, a total of 193,642 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan.

In October 2021, the Company adopted the 2021 Inducement Equity Incentive Plan which covers the award of up to 1,000,000 shares of common stock (the “2021 Plan”) effective as of October 15, 2021.

Approval of the Company’s stockholders will not be required as a condition to the effectiveness of the 2021 Plan for so long as the plan is in compliance with Nasdaq inducement plan rules.

In April 2022, the compensation committee of the Company’s board of directors approved a proposal to reduce the total number of shares available for future issuance under the 2021 Plan to 130,000 .

In October 2021, the Company adopted the 2021 Inducement Equity Incentive Plan which covers the award of up to 1,000,000 shares of common stock (the “2021 Plan”) effective as of October 15, 2021.

Approval of the Company’s stockholders will not be required as a condition to the effectiveness of the 2021 Plan for so long as the plan is in compliance with Nasdaq inducement plan rules.

In April 2022, the compensation committee of the Company’s board of directors approved a proposal to reduce the total number of shares available for future issuance under the 2021 Plan to 130,000 .

As of December 31, 2023, a total of 119,952 shares remain available for future issuance under the 2021 Plan, subject to the terms of the 2021 Plan.

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Grant date weighted average fair value

The following table summarizes the Company’s stock option activity for the year ended December 31, 2022:

The following table summarizes the Company’s stock option activity for the year ended December 31, 2023:

Exercise Price

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(in thousands)

Outstanding –

December 31, 2021

Outstanding – December 31, 2022

Forfeited/cancelled

Outstanding –

December 31, 2022

Exercisable –

December 31, 2022

Exercisable and expected to vest –

Outstanding – December 31, 2023

Exercisable – December 31, 2023

Exercisable and expected to vest –

December 31, 2023

At December 31, 2023 , the total unrecognized compensation cost of $ 78.8 million will be recognized over the weighted-average remaining service period of approximately 3.0 years.

The fair value of the options vested during the years ended December 31, 2023 , 2022 and 2021 wa s $ 35.3 million, $ 39.2 million and $ 28.4 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021was $ 4.3 million, $ 1.6 million and $ 3.6 million, respectively.

In August 2023, the Company granted 18,786 restricted stock units to its board of directors, when the fair value of the Company's common stock was $ 34.92 per share.

These restricted stock units will vest at the Company's 2024 annual stockholders' meeting.

Share-based compensation expenses included in the Company’s statements of operations and comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021 were:

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

At December 31, 2022 , the total unrecognized compensation cost of $ 81.8 million will be recognized over the weighted-average remaining service period of approximately 3.0 years.

The fair value of the options vested during the years ended December 31, 2022 and 2021 was $ 39.2 million and $ 28.4 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $ 1.6 million and $ 3.6 million, respectively.

Share-based compensation expenses included in the Company’s statements of operations and comprehensive income (loss) for the years ended December 31, 2022 and 2021 were:

Notes to Consolidated Financial Statements — Continued

For the Year Ended December 31,

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General and administrative

A reconciliation of income (loss) before income taxes for domestic and foreign locations is as follows:

A reconciliation of (loss) income before income taxes for domestic and foreign locations is as follows:

For the Year Ended December 31,

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United States

Total income (loss) before income taxes

Total (loss) income before income taxes

A reconciliation of income tax expense for the years ended December 31, 2023, 2022 and 2021 is as follows:

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Total income tax expense

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

For the Year Ended December 31,

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Provision for income taxes

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

The significant components of deferred income taxes are as follows:

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Due to lack of available sources of taxable income, the Company recorded a full valuation allowance against its net deferred tax assets as sufficient uncertainty exists regarding the future realization of these assets.

As of December 31, 2022 and 2021, the Company recorded a valuation allowance of $ 98.6 million and $ 99.6 million, respectively.

The valuation allowance (decreased)/increased by ($ 1.0 ) million and $ 54.3 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2023 and 2022, the Co mpany recorded a valuation allowance of $ 108.8 million and $ 98.6 million, respectively.

The valuation allowance changed by $ 10.2 million and ($ 1.0 ) million for the years ended December 31, 2023 and 2022, respectively.

At December 31, 2023, the Company has federal and state net operating losses, or NOL, carryforwards of approximately $ 27.9 million and $ 193.7 million, respectively.

The federal net operating loss carryover includes $ 156.3 million of net operating losses generated in 2018 and after which can be carried for indefinitely.

The Company has $ 0.6 million of state net operating losses that do not expire and the remaining start to expire 2038 .

The federal net operating loss carryover includes $ 27.9 million of net operating losses generated in 2018 and after which can be carried forward indefinitely.

The Company's state net operating losses start to expire 2039 .

At December 31, 2023, the Company has federal and state research and development credit carryforwards of approximately $ 6.3 million and $ 6.6 million, respectively.

The federal credit carryforwards begin to expire in 2033 ,

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

and the state credits carry forward indefinitely.

The federal credit carryforwards begin to expire in 2037 , and the state credits carry forward indefinitely.

Additionally, the Company has an Orphan Drug Credit of $ 2.3 million as of December 31, 2023 which will begin to expire in 2042 unless previously utilized.

Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, annual use of the Company’s federal and California net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50 % occurs within a three-year period.

The Company has completed an IRC Section 382 analysis through December 31, 2023 regarding the limitation of net operating loss carryforwards and other tax attributes.

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An uncertain tax position will not be recognized if it has less than 50 % likelihood of being sustained.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

A reconciliation of unrecognized tax benefits is as follows (in millions):

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states and foreign jurisdictions.

The Company’s tax years from 2014 to date are subject to examination by the U.S., and state taxing authorities due to the carryforward of unutilized net operating losses and research and development credits.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as income tax expense.

There was no tax related interest or penalties recognized for the years ended December 31, 2023, 2022 and 2021.

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Cystic Fibrosis Foundation Therapeutics Funding agreement

On August 1, 2019, the Company amended its Development Program Letter Agreement, dated May 16, 2017 and as amended July 13, 2018, with the Cystic Fibrosis Foundation (“CFF”).

Pursuant to the amendment, (i) CFF increased the amount it will award to advance LUNAR-CF to $ 15.0 million from approximately $ 3.2 million, (ii) the Company will provide $ 5.0 million in matching funds for remaining budgeted costs, (iii) the related disbursement schedule from CFF to Arcturus will be modified such that (a) $ 4.0 million will be disbursed upon execution of the CFF Amendment, (b) $ 2.0 million will be disbursed within 30 days of the first day of each of January, April, July and October 2020 upon Arcturus invoicing CFF to meet project goals, and (c) the last payment of $ 3.0 million less the prior award previously paid out, equaling approximately $ 2.1 million.

In the first quarter of 2023, the last payment of $ 2.1 million was disbursed upon the Company invoicing CFF to meet good manufacturing practices and opening an Investigational New Drug (“IND”) application.

The funds received from CFF are recognized as contra research and development expense.

For the years ended December 31, 2022 and 2021, the Company recognized contra expense of $ 5.2 million and $ 3.8 million, respectively.

As of December 31, 2022, no accrued liability balance was held by the Company.

On September 25, 2023, the Company amended its Development Program Letter Agreement, dated May 16, 2017 and as amended July 13, 2018 and August 1, 2019, with the Cystic Fibrosis Foundation (“CFF”).

Pursuant to the amendment, (i) CFF increased the amount it will award to advance LUNAR-CF to $ 24.6 million from approximately $ 15.6 million, (ii) the Company agreed to incur at least $ 15.0 million toward activities under the research plan.

During the fourth quarter of 2023, the Company received the full payment from CFF related to the amendment.

For the years ended December 31, 2023, 2022 and 2021, the Company recognized contra expense of $ 1.4 million, $ 5.2 million and $ 3.8 million, respectively.

As of December 31, 2023, $ 7.6 million remained in accrued liabilities.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

In October 2017, the Company entered into a non-cancellable operating lease agreement for office space adjacent to its previously occupied headquarters.

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The Company is also responsible for its proportional share of operating expenses of the building and common areas.

In conjunction with the new lease, the Company received free rent for four months and received a tenant improvement allowance of $ 74,000 .

In conjunction with the new lease, the Company received free rent for four months and received a tenant improvement allowance of $ 0.1 million.

The lease may be extended for one five-year period at the then current market rate with annual escalations ;

however, the Company deemed the extension option not reasonably certain to be exercised and therefore excluded the option from the lease terms.

The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $ 96,000 upon executing the lease which is included (along with additional funds required to secure the letter of credit) in the balance of non-current restricted cash.

The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $ 0.1 million upon executing the lease which is included (along with additional funds required to secure the letter of credit) in the balance of non-current restricted cash.

In February 2020, the Company entered into a second non-cancellable operating lease agreement for office space near its current headquarters.

The lease extended for 13 months from the commencement date and included a right to extend the lease for one twelve-month period.

In February 2021, the Company opted to extend the lease through March 2025 to coincide with the lease term of the Company’s headquarters.

In February 2021, the Company entered into a third non-cancellable operating lease agreement for office space near its current headquarters.

The lease extends for 12 months from the commencement date with monthly base rent of approximately $ 11,000 .

During the third quarter of 2021, the Company opted to extend the lease for an additional 12 months .

The lease will expire during the first quarter of 2023 and the Company does not plan to extend the lease.

In February 2021, the Company opted to extend the lease through March 2025 to coincide with the lease term of the Company’s headquarters .

In September 2021, the Company entered into a fourth non-cancellable lease agreement for office, research and development, engineering and laboratory space near its current headquarters and lease term commenced during the second quarter of 2022.

The initial term of the lease will extend ten years and eight months from the date of possession, and the Company will have the right to extend the term of the lease for an additional five-year period .

When the lease term was determined for the operating lease right-of-use assets and lease liabilities, the extension option for the lease was not included.

The lease has a monthly base rent ranging from $ 268,000 to $ 360,000 which escalates over the lease term.

When the lease term was determined for the operating lease right-of-use assets and lease liabilities, the extension

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

option for the lease was not included.

The lease has a monthly base rent ranging from $ 0.3 million to $ 0.4 million which escalates over the lease term.

The Company received a free rent period of four months and also pays for various operating costs, including utilities and real property taxes.

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The Company uses its incremental borrowing rate to calculate the present value of the lease payments, as the implicit rate in the lease is not readily determinable.

As of December 31, 2022, the payments of the operating lease liability were as follows:

As of December 31, 2023, the remaining payments of the operating lease liability were as follows:

(in thousands)

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Weighted-average discount rate

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements —

Operating lease costs consist of the fixed lease payments included in operating lease liability and are recorded on a straight-line basis over the lease terms.

Operating lease costs were $ 4.7 million and $ 1.9 million for the years ended December 31, 2022 and 2021 , respectively.

Operating lease costs were $ 5.6 million, $ 4.7 million and $ 1.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Related Party Transactions

Equity-Method Investment

In June 2018, the Company completed the sale of its intangible asset related to the ADAIR technology.

Pursuant to the asset purchase agreement for ADAIR, the Company received a 30 % ownership interest in the common stock of Vallon Pharmaceuticals, Inc.

(“Vallon”) in consideration for the sale of the ADAIR technology.

The Company has no requirement to invest further in Vallon.

Vallon completed an initial public offering and began trading on The Nasdaq Stock Market under the ticker “VLON”

in February 2021.

Additionally, Vallon executed the sale of 3,700,000 shares of common stock through a private placement in May 2022 as well as an exercise of warrants for 2,960,000 shares of common stock in August and December 2022.

As a result, Arcturus owns 843,750 shares of Vallon, or approximately 6 %.

Based on the Company’s ownership and the Vallon board of directors seat held by an executive of Arcturus, the Company has the ability to exercise significant influence over the operating and financial policies of Vallon;

therefore, the Company accounts for this investment as an equity-method investment.

The Company accounts for its share of the earnings or losses of the investee with a reporting lag of three months, as the financial statements of the investee are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis.

Exercise of the aforementioned warrants in August and December of 2022 was at a share price of $ 0.94 , greater than the initial investment of $ 0.70 , resulted in the Company recording a gain in its equity-method investment.

As of December 31, 2022, the gain has been fully offset by losses incurred by Vallon.

On December 13, 2022, Vallon entered into an agreement with GRI Bio pursuant to which GRI Bio will merge with a wholly-owned subsidiary of Vallon in an all-stock transaction.

Following the closing of the merger, the combined company is expected to operate under the name “GRI Bio, Inc.”

and will focus on the development of GRI Bio’s pipeline and trade on the Nasdaq under the ticker symbol “GRI”.

The transaction is expected to close in the first quarter of 2023.

See “Note 2, Joint Ventures, Equity Method Investments and Variable Interest Entities”

for specific details surrounding the Company’s agreement with Axcelead to form the joint venture entity, Arcalis, Inc.

On December 13, 2022, Vallon Pharmaceuticals, Inc.

(“Vallon”) entered into an agreement with GRI Bio, Inc.

(“GRI Bio”) pursuant to which GRI Bio was to merge with a wholly-owned subsidiary of Vallon in an all-stock transaction.

The transaction closed in April 2023 and the Company's executive resigned from the board of directors of Vallon.

Following the closing of the merger, the combined company now operates under the name “GRI Bio, Inc.” and will focus on the development of GRI Bio’s pipeline and trade on the Nasdaq under the ticker symbol “GRI”.

Following the closing of the merger, the Company holds 28,125 shares in GRI Bio, or approximately 1 %.

Upon the closing of the merger, the Company determined that it did not have the ability to exercise significant influence over operating and financial policies of GRI Bio.

As such, the Company discontinued the equity method of accounting for its investment in GRI Bio.

See “Note 2, Joint Ventures, Equity Method Investments and Variable Interest Entities” for specific details surrounding the Company’s agreement with Axcelead to form the joint venture entity, ARCALIS, Inc.

Subsequent Events

Termination of Agreement with Western Alliance Bank

The payoff amount was made by the Company to Western Alliance from available cash on hand, pursuant to a payoff letter, and included payment of (i) approximately $ 7.02 million in principal and interest, (ii) $ 300,000 fee payable upon prepayment as a result of prior FDA approval of an IND, (iii) $ 35,000 in prepayment charges and (iv) de minimis amounts for various operational fees.

The Company was released from all liens under the Western Alliance Agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures