Arcturus Therapeutics Holdings Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures 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. 90 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 91 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. 92 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. 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. 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. 93 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 year ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. 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: • Dr. Padmanabh Chivukula , Chief Scientific Officer and Chief Operating Officer , cancelled an existing Rule 10b5-1trading arrangement on November 18, 2023. Dr. 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 . • Keith C. Kummerfeld , Senior Vice President, Corporate Controller and Principal Accounting Officer , modified an existing Rule 10b5-1trading arrangement on August 24, 2023. Mr. 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. 94 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable. 95 PART III Item 10. Directors, Executive Off icers and Corporate Governance Information required by this item will be contained in our Definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2023. Such information is incorporated herein by reference. Item 11. Executiv e Compensation Information required by this item will be contained in our Definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2023. Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Own ers and Management and Related Stockholder Matters Information required by this item will be contained in our Definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2023. Such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item will be contained in our Definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2023. Such information is incorporated herein by reference. Item 14. Principal Accoun ting Fees and Services Information required by this item will be contained in our Definitive Proxy Statement for our 2024 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2023. Such information is incorporated herein by reference. 96 PART IV Item 15. Exhibits, Financ ial Statement Schedules (a) (1) The information required by this item is included in Item 8 of Part II of this Annual Report.; (2) Financial statement schedules not listed above have been omitted because information required to be set forth therein is not applicable, not required, or the information required by such schedules is shown in the consolidated financial statements or the notes thereto. (3) See the exhibit index preceding the signature pages to this Annual Report, which is incorporated by reference herein. (b) See the exhibit index preceding the signature pages to this Annual Report, which is incorporated by reference herein. (c) Not applicable. Item 16. Form 10-K Summary None. 97 Exhibit Index Exhibit Number Description 1.1 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. 333269003). 1.2 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 . 3.1 Certificate of Incorporation. Incorporated by reference to Annex B to the proxy statement/prospectus which forms part of the Registration Statement on Form S-4 filed on March 18, 2019 (File No. 333-230353). 3.2 Certificate of Amendment, dated November 25, 2020. Incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 25, 2020 (File No. 001-38942). 3.3 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. 333-238139). 4.1* Description of Registrant’s Securities. 10.1† 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. 001-38942). 10.2† Amended and Restated 2019 Omnibus Equity Incentive Plan. Incorporated by reference Exhibit 4.3 to the Registration Statement on Form S-8 filed on August 5, 2020 (File No. 001-38942). 10.3† Arcturus Therapeutics Ltd. 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. 001-35932). 10.4** 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. 001-35932). 10.5** Research and Exclusive License Agreement, by and between Arcturus Therapeutics, Inc. and Synthetic Genomics, Inc., effective October 24, 2017. Incorporated by reference to Exhibit 4.8 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.6** Research Collaboration and License Agreement, by and between Arcturus Therapeutics, Inc. and Ultragenyx Pharmaceutical Inc., entered into as of October 26, 2015, as amended October 17, 2017 and April 20, 2018. Incorporated by reference to Exhibit 4.10 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.7** Third Amendment to Research Collaboration and License Agreement, by and between Arcturus Therapeutics, Inc. and Ultragenyx Pharmaceutical Inc., effective June 18, 2019. Incorporated by reference to Exhibit 10.2 to Form 8-K filed on June 20, 2019 (File No. 001- 38942). 10.8** Letter Agreement, by and between Arcturus Therapeutics, Inc. and the Cystic Fibrosis Foundation, dated May 16, 2017. Incorporated by reference to Exhibit 4.11 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 98 Exhibit Number Description 10.9** Amendment No. 2 to Letter Agreement, by and between Arcturus Therapeutics, Inc. and the Cystic Fibrosis Foundation, dated August 1, 2019. Incorporated by reference to Exhibit 10.16 to Form 10-Q filed on August 14, 2019. 10.10** 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. 001-35932). 10.11** 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. 001-35932). 10.12 Lease Agreement, by and between Arcturus Therapeutics, Inc. and ARE-SD Region No. 44, LLC, dated October 4, 2017. Incorporated by reference to Exhibit 4.6 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.13 First Amendment to Lease Agreement, by and between Arcturus Therapeutics Holdings Inc. and ARE-SD Region No. 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. 001-38942). 10.14** 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. 001-38942). 10.15** Manufacturing Support Agreement, dated November 7, 2020, by and between Arcturus Therapeutics Holdings Inc. and the Economic Development Board of Singapore. Incorporated by reference to Exhibit 10.33 to Quarterly Report on Form 10-Q filed on November 9, 2020 (File No. 001-38942). 10.16 Fourth Amendment to Loan and Security Agreement, dated December 1, 2020, by and between Arcturus Therapeutics, Inc. and Western Alliance Bank. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 7, 2020 (File No. 001-38942). 10.17† 2020 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 4.3 to Form S-8 filed on August 5, 2020 (File No. 001-38942). 10.18 Second Amendment to Lease, by and between Arcturus Therapeutics, Inc. and ARE-SD Region No. 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. 001-38942). 10.19 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, 2021 (File No. 001-38942). 10.20† Arcturus Therapeutics Holdings Inc. Severance Policy for Executives. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 26, 2021 (File No. 001-38942). 10.21† Employment Agreement, dated as of June 13, 2019, between the Company and Joseph Payne. Incorporated by reference to Exhibit 10.1 to Form 8-K12B filed on June 14, 2019 (File No. 001-38942) 10.22† Employment Agreement, dated as of June 13, 2019, between the Company and Andy Sassine. Incorporated by reference to Exhibit 10.2 to Form 8-K12B filed on June 14, 2019 (File No. 001-38942) 99 Exhibit Number Description 10.23† Employment Agreement, dated as of June 13, 2019, between the Company and Dr. Padmanabh Chivukula. Incorporated by reference to Exhibit 10.3 to Form 8-K12B filed on June 14, 2019 (File No. 001-38942) 10.24† 2021 Inducement Equity Incentive Plan. Incorporated by reference to Exhibit 4.1 to Form S-8 filed on October 20, 2021 (File No. 333-260391). 10.25 Fifth Amendment to Loan and Security Agreement, dated October 27, 2021, by and between Arcturus Therapeutics, Inc. and Western Alliance Bank. Incorporated by reference to Exhibit 10.34 to Form 10-Q filed on November 9, 2021 (File No. 001-38942). 10.26 Lease, by and between Arcturus Therapeutics, Inc. and TPSC IX, LLC, dated September 29, 2021. Incorporated by reference to Exhibit 10.35 to Form 10-Q filed on November 9, 2021 (File No. 001-38942). 10.27 Technology License and Technical Support Agreement, signed July 29, 2021 and effective July 30, 2021, by and between Arcturus Therapeutics, Inc. and Vinbiotech Research and Manufacture Joint Stock Company. Incorporated by reference to Exhibit 10.32 to Quarterly Report on Form 10-Q filed on August 10, 2021 (File No. 001-38942). 10.28 Framework Drug Substance Supply Agreement, signed July 29, 2021 and effective July 30, 2021, by and between Arcturus Therapeutics, Inc. and Vinbiotech Research and Manufacture Joint Stock Company. Incorporated by reference to Exhibit 10.33 to Quarterly Report on Form 10-Q filed on August 10, 2021 (File No. 001-38942). 10.29 Sixth Amendment to Loan and Security Agreement, dated April 19, 2022, by and between Arcturus Therapeutics, Inc. and Western Alliance Bank. Incorporated by reference to Exhibit 10.36 to Quarterly Report on Form 10-Q filed on May 9, 2022 (File No. 001-38942). 10.30† Amended and Restated 2019 Omnibus Equity Incentive Plan, as amended. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on June 24, 2022 (File No. 001-38942). 10.31** Study Support Agreement effective October 31, 2022 by and between Arcturus Therapeutics, Inc. and Vinbiocare Biotechnology Joint Stock Company. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 4, 2022 (File No. 001-38942). 10.32** Cost Reimbursement Contract dated August 31, 2022, by and between Arcturus Therapeutics Holdings Inc. and Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services. Incorporated by reference to Exhibit 10.36 to Quarterly Report on Form 10-Q filed on November 9, 2022 (File No. 001-38942). 10.33** Collaboration and License Agreement, dated November 1, 2022, by and between Arcturus Therapeutics Holdings Inc. and CSL Limited. Incorporated by reference to Exhibit 10.38 to Quarterly Report on Form 10-Q filed on November 9, 2022 (File No. 001-38942). 10.34* ** Manufacturing Support Agreement Termination Letter, dated March 23, 2023, by and between Arcturus Therapeutics, Inc. 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. 001-38942). 10.35** 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. 001-38942) . 100 Exhibit Number Description 10.36** 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. 001-38942) . 10.37** 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. 001-38942) . 10.38** 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. 001-38942) . 10.39** 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. 001-38942) 19.1* Arcturus Therapeutics Holdings, Inc. Insider Trading Policy 23.1* Consent of Independent Registered Public Accounting Firm 24.1* Power of Attorney (included on the signature page of this Annual Report). 31.1* Certification by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 31.2* Certification by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 31.3* Certification by Principal Accounting Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3* Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1* Arcturus Therapeutics Holdings, Inc. Clawback Policy 101* 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 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Certain confidential portions of this exhibit have been redacted from the publicly filed document because such portions are (i) not material and (ii) would be competitively harmful if publicly disclosed. † Management compensatory plan, contract or arrangement. 101 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . ARCTURUS THERAPEUTICS HOLDINGS INC. Date: March 13, 2024 By: /s/ Joseph E. Payne Name: Joseph E. Payne Title: President, Chief Executive Officer and Director The undersigned officers and directors of Arcturus Therapeutics Holdings Inc., hereby severally constitute and appoint Joseph E. Payne and Dr. Padmanabh Chivukula, and each of them individually, with full power of substitution and resubstitution, as their true and lawful attorneys and agents, to do any and all acts and things in their name and behalf in their capacities as directors and officers and to execute any and all instruments for them and in their names in the capacities indicated below, which said attorneys and agents, may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for them or any of them in their names in the capacities indicated below, any and all amendments hereto, and they do hereby ratify and confirm all that said attorneys and agents, or either of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Joseph E. Payne President, Chief Executive Officer and Director March 13, 2024 Joseph E. Payne (principal executive officer) /s/ Dr. Peter Farrell Chairman of the Board March 13, 2024 Dr. Peter Farrell /s/ Andrew Sassine Director and Chief Financial Officer March 13, 2024 Andrew Sassine (principal financial officer) /s/ Dr. Magda Marquet Director March 13, 2024 Dr. Magda Marquet /s/ James Barlow Director March 13, 2024 James Barlow /s/ Edward Holmes Director March 13, 2024 Edward Holmes /s/ Jing Marantz Director March 13, 2024 Jing Marantz /s/ Dr. John Markels Director March 13, 2024 Dr. John Markels /s/ Keith C. Kummerfeld Senior Vice President of Finance and Corporate Controller March 13, 2024 Keith C. Kummerfeld (principal accounting officer) 1 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 1 Consolidated Balance Sheets as of December 31, 2023 and 2022 F- 4 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2023, 2022 and 2021 F- 5 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2023, 2022 and 2021 F- 6 Consolidated Statements of Cash Flows for the Years ended December 31, 2023, 2022 and 2021 F- 7 Notes to Consolidated Financial Statements F- 8 F- 1 Report of Independent Regist ered Public Accounting Firm To the Stockholders and the Board of Directors of Arcturus Therapeutics Holdings Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Arcturus Therapeutics Holdings Inc. 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 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 audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. 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. F- 2 Clinical trial accruals Description of the Matter 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. 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. 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 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 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 March 14, 2024 F- 3 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, (in thousands, except par value information) 2023 2022 Assets Current assets: Cash and cash equivalents $ 292,005 $ 391,883 Restricted cash 55,000 — Accounts receivable 32,064 2,764 Prepaid expenses and other current assets 7,521 8,686 Total current assets 386,590 403,333 Property and equipment, net 12,427 12,415 Operating lease right-of-use asset, net 28,500 32,545 Non-current restricted cash 1,885 2,094 Total assets $ 429,402 $ 450,387 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 5,279 $ 7,449 Accrued liabilities 31,881 30,232 Current portion of long-term debt — 60,655 Deferred revenue 44,829 28,648 Total current liabilities 81,989 126,984 Deferred revenue, net of current portion 42,496 20,071 Operating lease liability, net of current portion 25,907 30,216 Other non-current liabilities 497 2,804 Total liabilities 150,889 180,075 Stockholders’ equity: Common stock: $ 0.001 par value; 60,000 shares authorized; issued and outstanding shares were 26,828 at December 31, 2023 and 26,555 at December 31, 2022 27 27 Additional paid-in capital 646,352 608,426 Accumulated deficit ( 367,866 ) ( 338,141 ) Total stockholders’ equity 278,513 270,312 Total liabilities and stockholders’ equity $ 429,402 $ 450,387 The accompanying notes are an integral part of these consolidated financial statements. F- 4 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES C ONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Year Ended December 31, (in thousands, except per share data) 2023 2022 2021 Revenue: Collaboration revenue $ 157,748 $ 205,755 $ 12,359 Grant revenue 9,051 244 — Total revenue 166,799 205,999 12,359 Operating expenses: Research and development, net 192,133 147,751 173,760 General and administrative 52,871 46,071 41,451 Total operating expenses 245,004 193,822 215,211 (Loss) income from operations ( 78,205 ) 12,177 ( 202,852 ) (Loss) gain from equity-method investment — ( 515 ) 515 (Loss) gain from foreign currency ( 229 ) ( 598 ) 584 Finance income (expense), net 16,591 ( 420 ) ( 1,921 ) Gain on debt extinguishment 33,953 — — Net (loss) income before income taxes ( 27,890 ) 10,644 ( 203,674 ) Provision for income taxes 1,835 1,295 — Net (loss) income $ ( 29,725 ) $ 9,349 $ ( 203,674 ) (Loss) earnings per share: Basic $ ( 1.12 ) $ 0.35 $ ( 7.74 ) Diluted $ ( 1.12 ) $ 0.35 $ ( 7.74 ) Weighted-average shares used in calculation of (loss) earnings per share: Basic 26,628 26,445 26,317 Diluted 26,628 27,093 26,317 Comprehensive (loss) income: Net (loss) income $ ( 29,725 ) $ 9,349 ( 203,674 ) Comprehensive (loss) income: $ ( 29,725 ) $ 9,349 $ ( 203,674 ) F- 5 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Additional Total Common Stock Paid-In Accumulated Stockholders’ (in thousands) Shares Amount Capital Deficit Equity Balance at December 31, 2020 26,192 $ 26 $ 540,343 $ ( 143,816 ) $ 396,553 Share-based compensation — — 28,915 — 28,915 Issuance of common stock related to acquired in-process research and development 75 — 5,000 — 5,000 Issuance of common stock upon exercise of stock options 92 — 902 — 902 Issuance of common stock under equity plans 13 — 515 — 515 Net loss — — — ( 203,674 ) ( 203,674 ) Balance at December 31, 2021 26,372 $ 26 $ 575,675 $ ( 347,490 ) $ 228,211 Share-based compensation — — 30,611 — 30,611 Issuance of common stock upon exercise of stock options 161 1 1,729 — 1,730 Issuance of common stock under equity plans 22 — 411 — 411 Net income — — — 9,349 9,349 Balance at December 31, 2022 26,555 $ 27 $ 608,426 $ ( 338,141 ) $ 270,312 Share-based compensation — — 34,649 — 34,649 Issuance of common stock upon exercise of stock options 238 — 2,668 — 2,668 Issuance of common stock under equity plans 35 — 609 — 609 Net loss — — — ( 29,725 ) ( 29,725 ) Balance at December 31, 2023 26,828 $ 27 $ 646,352 $ ( 367,866 ) $ 278,513 The accompanying notes are an integral part of these consolidated financial statements. F- 6 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEM ENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2023 2022 2021 Operating activities Net (loss) income $ ( 29,725 ) $ 9,349 $ ( 203,674 ) Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 2,957 1,527 1,193 Share-based compensation expense 34,649 30,611 28,915 Acquired in-process research and development expense — — 5,000 Loss (gain) from equity-method investment — 515 ( 515 ) Gain on debt extinguishment ( 33,953 ) — — Foreign currency transaction loss (gain) 90 375 ( 577 ) Other non-cash expenses 502 2,173 1,990 Changes in assets and liabilities: Accounts receivable ( 29,300 ) 603 ( 1,242 ) Prepaid expenses and other current assets 1,165 ( 3,584 ) ( 2,333 ) Right-of-use assets 4,045 3,264 1,392 Accounts payable ( 2,238 ) ( 3,112 ) ( 769 ) Accrued liabilities ( 588 ) 9,443 4,134 Deferred revenue 38,606 ( 14,694 ) 32,794 Lease liabilities ( 4,309 ) ( 4,477 ) ( 1,351 ) Net cash (used in) provided by operating activities ( 18,099 ) 31,993 ( 135,043 ) Investing activities Acquisition of property and equipment ( 2,901 ) ( 7,726 ) ( 3,406 ) Net cash used in investing activities ( 2,901 ) ( 7,726 ) ( 3,406 ) Financing activities Proceeds from debt 20,000 — 46,599 Proceeds from exercise of stock options 2,668 1,730 902 Proceeds from issuance of common stock under equity plans 609 411 515 Payments on debt obligations ( 47,364 ) ( 5,000 ) — Net cash (used in) provided by financing activities ( 24,087 ) ( 2,859 ) 48,016 Net (decrease) increase in cash, cash equivalents and restricted cash ( 45,087 ) 21,408 ( 90,433 ) Cash, cash equivalents and restricted cash, beginning of year 393,977 372,569 463,002 Cash, cash equivalents and restricted cash, end of year $ 348,890 $ 393,977 $ 372,569 Year Ended December 31, 2023 2022 2021 Supplemental disclosure of cash flow information Cash paid for interest $ 2,127 $ 813 $ 684 Non-cash investing activities Right-of-use assets acquired through operating leases $ — $ 30,191 $ 1,828 Acquisition of in-process research and development through issuance of common stock $ — $ — $ 5,000 Purchase of property and equipment in accounts payable and accrued expenses $ 68 $ 573 $ 53 The accompanying notes are an integral part of these consolidated financial statements. F- 7 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization Description of Business Arcturus Therapeutics Holdings Inc. (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. 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. 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 continue to collaborate on research and development, manufacturing and global commercialization of vaccines. Liquidity 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, 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 — Continued Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of Arcturus Therapeutics Holdings Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (U.S. 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 Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date of purchase. Restricted cash 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. Fair Value Measurements Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. 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. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounts Receivable Accounts receivable are recorded at the net invoice value and are non-interest bearing. The Company considers receivables past due based on the contractual payment terms. The Company reserves for specific receivables if collectability is no longer reasonably assured. Estimates for allowances for doubtful accounts are F- 9 Arcturus Therapeutics Holdings Inc. and its Subsidiaries 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 . Concentration of Credit Risk and Significant Customers Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. 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, 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 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 Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized using the straight-line method over the respective useful lives of the assets, ranging from three to five years . Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. 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, 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. There was no other comprehensive loss in the years ended December 31, 2023, 2022 or 2021. There was no income tax effect related to unrealized losses for the years ended December 31, 2023, 2022 , or 2021. Revenue Recognition 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. The Company determines revenue recognition for arrangements within the scope of Topic 606 by performing the following five steps: (i) identify the contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the company satisfies a performance obligation. F- 10 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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. 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. The most likely amount method requires the Company to determine the likelihood of earning the milestone payment. Given the high degree of uncertainty around achievement of these milestones, the Company determines the milestone amounts to be fully constrained and does not recognize revenue until the uncertainty associated with these payments is resolved. The Company will recognize revenue from sales-based royalty payments when or as the sales occur. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. 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. The input methods used are based on the effort expended or costs incurred toward the satisfaction of the performance obligation. 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 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. Leases The Company determines if an arrangement is a lease at inception. Lease right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. For operating leases with an initial term greater than 12 months, the Company recognizes operating lease right-of-use assets and operating lease liabilities based on the present value of lease payments over the lease term at the commencement date. Operating lease right-of-use assets are comprised of the lease liability plus any lease payments made and excludes lease incentives. Lease terms include options to renew or terminate the lease when the Company is reasonably certain that the renewal option will be exercised or when it is reasonably certain that the termination option will not be exercised. For the Company's operating leases, if the interest rate used to determine the present value of future lease payments is not readily determinable, the Company estimates its incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in similar economic environments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to not separate lease and non-lease components. See “Note 11, Commitments and Contingencies” for specific details surrounding the Company’s leases. Research and Development Costs, net All research and development costs are expensed as incurred. 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 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. Some of these contractors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used or rendered. F- 11 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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. 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. 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 The Company recognizes share-based compensation for equity awards granted to employees, consultants, officers and directors as an expense on the statements of operations and comprehensive income (loss). 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. 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. The expected volatility of stock options is based upon the historical volatility of a peer group of publicly traded companies. The Company has not declared or paid any dividends and does not currently expect to do so in the foreseeable future. The risk-free interest rates used are based on the implied yield currently available in United States Treasury securities at maturity with a term equivalent to the expected term of the stock options. The effect of forfeited awards is recorded when the forfeiture occurs. Statement of Cash Flows The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of such amounts shown in the consolidated statement of cash flows: As of December 31, (in thousands) 2023 2022 2021 Cash and cash equivalents $ 292,005 $ 391,883 $ 370,492 Restricted cash - current 55,000 — — Non-current Restricted cash 1,885 2,094 2,077 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 348,890 $ 393,977 $ 372,569 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 F- 12 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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. 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. The Company is required to file federal and state income tax returns in the United States and various other state jurisdictions. The Company also files income tax returns in the foreign countries in which it operates. 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. Net Income (Loss) per Share Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents. 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 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. Recently Issued Accounting Standards Not Yet Adopted From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the consolidated financial statements and disclosures. NOTE 3. Revenue 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, 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. Clinical milestones may, for example, include successful enrollment of the first patient in or completion of Phase 1, 2 and 3 clinical trials, and commercial milestones are often tiered based on net or aggregate sale amounts. The Company cannot guarantee the achievement of these milestones due to risks associated with preclinical and clinical activities required for development of nucleic acid medicine-based therapeutics and vaccines. The following table presents changes in the balances of receivables and contract liabilities related to strategic collaboration agreements during the year ended December 31, 2023: (in thousands) December 31, 2022 Additions Deductions December 31, 2023 Contract Assets: Accounts receivable $ 2,764 $ 205,746 $ ( 176,446 ) $ 32,064 Contract Liabilities: Deferred revenue $ 48,719 $ 205,405 $ ( 166,799 ) $ 87,325 F- 13 Arcturus Therapeutics Holdings Inc. and its Subsidiaries 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, (in thousands) 2023 2022 2021 Collaboration revenue: CSL Seqirus $ 154,264 $ 154,425 $ — Vinbiocare — 24,571 4,364 Janssen 660 9,201 3,129 Ultragenyx 1,837 3,739 3,700 Israel Ministry of Health — 12,500 — Other 987 1,319 1,166 Total collaboration revenue $ 157,748 $ 205,755 $ 12,359 Grant revenue: BARDA $ 9,051 $ 244 $ — Total grant revenue $ 9,051 $ 244 $ — The following paragraphs provide information regarding the nature and purpose of the Company’s most significant revenue arrangements. CSL Seqirus 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. 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, 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. F- 14 Arcturus Therapeutics Holdings Inc. and its Subsidiaries 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 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 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. Vinbiocare 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 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. 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 F- 15 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. 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. The Company had no remaining deferred revenue as of December 31, 2023 or 2022. BARDA Grant 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. Department of Health and Human Services (HHS) for an award of up to $ 63.2 million for the development of a pandemic influenza vaccine using the Company's STARR ® self-amplifying mRNA vaccine platform technology. The Company earns grant revenue for performing tasks under the agreement. The Company determined that the agreement with BARDA is not in the scope of ASC 808 or ASC 606. Applying International Accounting Standards No. 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 $ 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. NOTE 4. Fair Value Measurements The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company established a fair value hierarchy based on the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3: 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. 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 . F- 16 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued NOTE 5. Accrued Liabilities Detail Accrued liabilities consisted of the following: December 31, (in thousands) 2023 2022 Accrued compensation $ 5,918 $ 4,038 Cystic Fibrosis Foundation liability 7,633 — Income tax payable 641 1,295 Current portion of operating lease liability 4,309 3,884 Clinical trial accruals 2,333 4,531 Vinbiocare contractual liabilities 2,514 7,468 Other accrued research and development expenses 8,533 9,016 Total $ 31,881 $ 30,232 NOTE 6. Property and Equipment, Net Property and equipment, net consisted of the following: December 31, (in thousands) 2023 2022 Research equipment $ 16,046 $ 10,251 Computers and software 1,275 1,154 Office equipment and furniture 958 958 Leasehold improvements 2,655 2,491 Construction in progress 233 3,344 Total $ 21,167 $ 18,198 Less accumulated depreciation and amortization ( 8,740 ) ( 5,783 ) Property and equipment, net $ 12,427 $ 12,415 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. NOTE 7. Debt 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 F- 17 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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. 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. NOTE 8. 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. 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 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). NOTE 9. 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 F- 18 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 . 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. Share Options The following table presents the weighted-average assumptions used in the Black-Scholes valuation model by the Company in calculating the fair value of stock options granted: For the Year Ended December 31, 2023 2022 2021 Expected life (in years) 6.04 6.05 6.03 Expected volatility 76.1 % 82.1 % 73.7 % Expected dividend yield — % — % — % Risk-free interest rate 3.91 % 2.93 % 1.13 % Grant date weighted average fair value $ 18.87 $ 15.56 $ 26.71 The following table summarizes the Company’s stock option activity for the year ended December 31, 2023: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding – December 31, 2022 6,622,740 $ 34.78 8.2 years $ 10,721 Granted 2,140,206 $ 27.38 Exercised ( 237,820 ) $ 11.26 Forfeited/cancelled ( 553,999 ) $ 34.31 Outstanding – December 31, 2023 7,971,127 $ 33.55 7.9 years $ 53,295 Exercisable – December 31, 2023 3,700,692 $ 38.04 6.6 years $ 31,142 Exercisable and expected to vest – December 31, 2023 7,971,127 $ 33.55 7.9 years $ 53,295 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: F- 19 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued For the Year Ended December 31, (in thousands) 2023 2022 2021 Research and development $ 14,950 $ 14,081 $ 14,101 General and administrative 19,699 16,530 14,814 Total $ 34,649 $ 30,611 $ 28,915 NOTE 10. Income Taxes A reconciliation of (loss) income before income taxes for domestic and foreign locations is as follows: For the Year Ended December 31, (In thousands) 2023 2022 2021 United States $ ( 27,890 ) $ 10,644 $ ( 203,674 ) Foreign — — — Total (loss) income before income taxes $ ( 27,890 ) $ 10,644 $ ( 203,674 ) A reconciliation of income tax expense for the years ended December 31, 2023, 2022 and 2021 is as follows: For the Year Ended December 31, 2023 2022 2021 Current: Federal $ 1,246 $ 1,121 $ — State 589 174 — Foreign — — — Total current income tax expense $ 1,835 $ 1,295 $ — Deferred: Federal $ — $ — $ — State — — — Foreign — — — Total deferred income tax expense — — — Total income tax expense $ 1,835 $ 1,295 $ — 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, 2023 2022 2021 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 1.9 % 7.2 % 6.2 % Stock-based compensation ( 2.5 %) 16.1 % ( 0.4 %) Officers compensation ( 7.4 %) 21.8 % ( 1.1 %) Research and development credits 20.0 % ( 40.3 %) 2.9 % Uncertain tax positions ( 2.4 %) 9.0 % ( 0.4 %) Change in tax rate 0.2 % ( 12.6 %) ( 1.7 %) Change in valuation allowance ( 36.5 %) ( 9.4 %) ( 26.7 %) Other ( 0.3 %) ( 1.0 %) 0.2 % Permanent differences ( 0.7 %) 0.4 % — % Provision for income taxes ( 6.7 )% 12.2 % ( 0.0 )% F- 20 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued The significant components of deferred income taxes are as follows: December 31, (in thousands) 2023 2022 Deferred tax assets: Net operating loss $ 19,147 $ 47,866 Tax credits 10,723 10,460 Accrued liabilities 943 1,420 Deferred revenue 7,014 611 Inventory 15,961 9,016 Basis difference in equity investments 2,202 2,212 Depreciation and amortization — — Capitalized R&D 41,971 19,938 Right-of-use lease liability 7,233 8,200 Share-based compensation 11,618 7,201 Total gross deferred tax assets 116,812 106,924 Deferred tax liabilities: Depreciation and amortization ( 1,184 ) ( 475 ) Right-of-use asset ( 6,822 ) ( 7,826 ) Total gross deferred tax liabilities ( 8,006 ) ( 8,301 ) Valuation allowance ( 108,806 ) ( 98,623 ) Net deferred tax asset $ — $ — In assessing the realization of the deferred tax assets, the Company considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. 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, 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 $ 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 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. The Company experienced ownership changes in 2018 and 2020; however, the Company estimates that all tax attributes can be utilized. There is a risk that additional ownership changes may occur in the future. If a change in ownership occurs, the NOL carryforwards and other tax attributes could be limited or restricted. The company accounts for income taxes in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes . The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than 50 % likelihood of being sustained. F- 21 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued A reconciliation of unrecognized tax benefits is as follows (in millions): December 31, 2023 2022 Beginning balance of unrecognized tax benefits $ 2.9 $ 2.4 Settlement of prior period tax positions — — Decrease for prior period tax positions 0.1 ( 0.5 ) Increase for current period tax positions 0.6 1.0 Ending balance of unrecognized tax benefits $ 3.6 $ 2.9 Amounts in the summary rollforward would no t impact the effective tax rate as the Company maintains a full valuation on its net deferred tax assets. The Company is subject to taxation and files income tax returns in the United States, various U.S. 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. The Company does not anticipate any material changes to its unrecognized tax benefits within the next twelve months. NOTE 11. Commitments and Contingencies Cystic Fibrosis Foundation Therapeutics Funding agreement 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. Leases In October 2017, the Company entered into a non-cancellable operating lease agreement for office space adjacent to its previously occupied headquarters. The commencement of the lease began in March 2018 and the lease extends for approximately 84 months from the commencement date with a remaining lease term through March 2025. Monthly rental payments are due under the lease and there are escalating rent payments during the term of the lease. 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 $ 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 $ 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 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 F- 22 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. The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $ 2.0 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. Operating lease right-of-use asset and liability on the consolidated balance sheets represent the present value of remaining lease payments over the remaining lease terms. The Company does not allocate lease payments to non-lease components; therefore, payments for common-area-maintenance and administrative services are not included in the operating lease right-of-use asset and liability. 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, 2023, the remaining payments of the operating lease liability were as follows: (in thousands) Remaining Lease Payments 2024 $ 5,646 2025 4,019 2026 3,603 2027 3,711 Thereafter 19,572 Total remaining lease payments 36,551 Less: imputed interest ( 6,335 ) Total operating lease liabilities $ 30,216 Weighted-average remaining lease term 8.2 Weighted-average discount rate 4.8 % 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 $ 5.6 million, $ 4.7 million and $ 1.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. Note 12. Related Party Transactions 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. Note 13. Subsequent Events None. F- 23