Arcturus Therapeutics Holdings Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated 79 and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of December 31, 2020, our management, with the participation of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act Rules 13a-15(f) and 15(d) -15(f) as a process designed by, or under the supervision of, our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2020, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). In adopting the 2013 Framework, management assessed the applicability of the principles within each component of internal control and determined whether or not they have been adequately addressed within the current system of internal control and adequately documented. Based on this assessment, management, under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included herein. 80 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, 2020, 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, Arcturus Therapeutics Holdings Inc. and its Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. 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, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders‘ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Diego, California March 1, 2021 81 Changes in Internal Control Over Financial Reporting. An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 82 PART III Item 10. Directors, Executive Officers and Corporate Governance Information required by this item will be contained in our Definitive Proxy Statement for our 2021 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2020. Such information is incorporated herein by reference. Item 11. Executive Compensation Information required by this item will be contained in our Definitive Proxy Statement for our 2021 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2020. Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item will be contained in our Definitive Proxy Statement for our 2021 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2020. 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 2021 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2020. Such information is incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information required by this item will be contained in our Definitive Proxy Statement for our 2021 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2020. Such information is incorporated herein by reference. 83 PART IV Item 15. Exhibits, Financial 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. 84 Exhibit Index Exhibit Number Description 1.1 Underwriting Agreement, dated December 7, 2020, by and among Arcturus Therapeutics Holdings Inc., Piper Sandler & Co., Guggenheim Securities, LLC and Wells Fargo Securities, LLC. Incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on December 8, 2020 (File No. 001-38942). 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** Amended and Restated Amendment to Development and Option Agreement, dated as of September 28, 2018, by and between CureVac AG and Arcturus Therapeutics Inc. Incorporated by reference to Exhibit 99.2 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on October 1, 2018 (File No. 001-35932). 10.6** Research Collaboration and License Agreement, by and between Arcturus Therapeutics, Inc. and Janssen Pharmaceuticals, Inc., dated October 18, 2017. Incorporated by reference to Exhibit 4.7 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.7** 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). 10.8** Research Agreement, by and between Arcturus Therapeutics, Inc. and Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited, effective December 6, 2016, as amended December 21, 2017. Incorporated by reference to Exhibit 4.9 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.9** 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). 85 Exhibit Number Description 10. 10 * * 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). 10.11** 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). 10.12** 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. 10.13** Development and Option Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated January 1, 2018, as amended May 3, 2018. Incorporated by reference to Exhibit 4.12 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.14** Third Amendment to Development and Option Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated July 26, 2019. Incorporated by reference to Exhibit 10.20 to Form 10-Q filed on August 14, 2019 (File No. 001-38942). 10.15** Co-Development and Co-Commercialization Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated January 1, 2018. Incorporated by reference to Exhibit 4.13 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.16 Termination Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated July 26, 2019. Incorporated by reference to Exhibit 10.21 to Form 10-Q filed on August 14, 2019 (File No. 001-38942). 10.17** 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). 10.18** Patent Assignment and License Agreement, by and between Arcturus Therapeutics, Inc. and Marina Biotech, Inc., dated as of August 9, 2013. Incorporated by reference to Exhibit 4.15 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.19 Share Exchange Agreement, dated as of February 11, 2019, by and between Arcturus Therapeutics Ltd. and Arcturus Therapeutics Holdings Inc. Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 18, 2019 (File No. 001-35932). 10.20** 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). 10.21** Research Collaboration Agreement, dated as of March 8, 2019 by and between Arcturus Therapeutics, Inc. and Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited. Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 18, 2019 (File No. 001-35932). 10.22 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). 86 Exhibit Number Description 10.23 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). 10.24** 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). 10.25** Supply Agreement, dated August 17, 2020, by and between Arcturus Therapeutics, Inc. and the Israeli Ministry of Health. Incorporated by reference to Exhibit 10.32 to Quarterly Report on Form 10-Q filed on November 9, 2020 (File No. 001-38942). 10.26** 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). 10.27 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). 10.28† 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). 10.29* Second Amendment to Lease, by and between Arcturus Therapeutics, Inc. and ARE-SD Region No. 44, LLC, dated November 13, 2020. 10.30* Third Amendment to Lease, by and between Arcturus Therapeutics, Inc. and ARE-SD Region No. 44, LLC, dated February 25, 2021. 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. 101* The following financial statements and footnotes from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 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 87 Exhibit Number Description 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 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. 88 SIGNATURES 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 1, 2021 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 1, 2021 Joseph E. Payne (principal executive officer) /s/ Dr. Peter Farrell Chairman of the Board March 1, 2021 Dr. Peter Farrell /s/ Andrew Sassine Director and Chief Financial Officer March 1, 2021 Andrew Sassine (principal financial officer) /s/ Dr. Magda Marquet Director March 1, 2021 Dr. Magda Marquet /s/ James Barlow Director March 1, 2021 James Barlow /s/ Edward Holmes Director March 1, 2021 Edward Holmes /s/ Karah Parschauer Director March 1, 2021 Karah Parschauer /s/ Keith C. Kummerfeld Vice President of Finance and Corporate Controller March 1, 2021 Keith C. Kummerfeld (principal accounting officer) 89 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2020, 2019 and 2018 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2020, 2019 and 2018 F-6 Consolidated Statements of Cash Flows for the Years ended December 31, 2020, 2019 and 2018 F-7 Notes to Consolidated Financial Statements F-8 F-1 Report of Independent Registered 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, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 1, 2021 expressed an unqualified opinion thereon. Adoption of ASU No. 2016-02 As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for lease arrangements in the year ended December 31, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases , and the related amendments. 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 Accrued research and development expenses Description of the Matter At December 31, 2020, the Company incurred $57.8 million for research and development expenses and accrued $4.1 million for clinical trial expenses. As described in Note 2 to the consolidated financial statements, the Company records accruals for estimated costs of research and development activities, including contract services for clinical trials and related clinical manufacturing costs in connection with early discovery efforts. 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 accrued research and development expenses, for which the Company has either not been invoiced or has not received information on the actual costs incurred, was especially challenging as evaluating the progress or stage of completion of the activities under the Company’s research and development agreements is dependent upon information from internal clinical personnel and third party service providers and involves a high volume of data which is tracked in spreadsheets and other end user computing programs. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the accounting for accrued research and development expenses. For example, we tested controls over management’s assessment and measurement of estimated accrued costs, including data inputs for study progress and remaining stages of completion under each study. To test the Company’s accrued research and development expenses, we obtained supporting evidence of the research and development activities performed for significant clinical trials. We attended internal clinical trial and project status meetings with accounting and clinical project managers to inspect the status of significant research and development activities. To assess the appropriate measurement of accrued research and development costs, our audit procedures included, among others, obtaining and inspecting significant agreements and agreement amendments, evaluating the Company’s documentation of trial timelines, 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 1, 2021 F-3 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except par value information) As of December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 462,895 $ 71,353 Accounts receivable 2,125 2,179 Prepaid expenses and other current assets 2,769 758 Total current assets 467,789 74,290 Property and equipment, net 3,378 2,349 Operating lease right-of-use asset, net 5,182 5,134 Equity-method investment — 263 Non-current restricted cash 107 107 Total assets $ 476,456 $ 82,143 Liabilities and stockholders’ equity Current liabilities : Accounts payable $ 10,774 $ 5,793 Accrued liabilities 20,639 7,134 Deferred revenue 18,108 8,397 Total current liabilities 49,521 21,324 Deferred revenue, net of current portion 12,512 15,182 Long-term debt, net of current portion 13,845 14,995 Operating lease liability, net of current portion 4,025 4,850 Total liabilities 79,903 56,351 Stockholders’ equity: Common stock: $ 0.001 par value; 60,000 shares authorized and 26,192 shares issued and outstanding at December 31, 2020; 30,000 shares authorized and 15,138 shares issued and outstanding at December 31, 2019 26 15 Additional paid-in capital 540,343 97,445 Accumulated deficit ( 143,816 ) ( 71,668 ) Total stockholders’ equity 396,553 25,792 Total liabilities and stockholders’ equity $ 476,456 $ 82,143 The accompanying notes are an integral part of these consolidated financial statements. F-4 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share data) Year Ended December 31, 2020 2019 2018 Collaboration revenue $ 9,539 $ 20,789 $ 15,753 Operating expenses: Research and development, net 57,846 33,640 16,982 General and administrative 23,217 12,662 20,582 Total operating expenses 81,063 46,302 37,564 Loss from operations ( 71,524 ) ( 25,513 ) ( 21,811 ) Loss from equity-method investment ( 263 ) ( 32 ) ( 302 ) Finance (expense) income, net ( 361 ) ( 446 ) 328 Net loss ( 72,148 ) ( 25,991 ) ( 21,785 ) Net loss per share, basic and diluted $ ( 3.55 ) $ ( 2.15 ) $ ( 2.16 ) Weighted-average shares outstanding, basic and diluted 20,305 12,069 10,069 Comprehensive loss: Net loss $ ( 72,148 ) $ ( 25,991 ) $ ( 21,785 ) Unrealized gain on short-term investments — — 3 Comprehensive loss $ ( 72,148 ) $ ( 25,991 ) $ ( 21,782 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands) Additional Accumulated Other Total Common Stock Paid-In Comprehensive Accumulated Stockholders’ Shares Amount Capital Loss Deficit Equity BALANCE - December 31, 2017 10,699 $ 212 $ 56,674 $ ( 3 ) $ ( 23,089 ) $ 33,794 Net loss — — — — ( 21,785 ) ( 21,785 ) Unrealized gain on short-term investments — — — 3 — 3 Share-based compensation — — 1,259 — — 1,259 Issuance of common stock upon exercise of stock options 63 2 369 — — 371 BALANCE – December 31, 2018 10,762 214 58,302 — ( 44,874 ) 13,642 Net loss — — — — ( 25,991 ) ( 25,991 ) Share-based compensation — — 1,982 — — 1,982 Redomiciliation share exchange ( 43 ) ( 203 ) 203 — — — Issuance of common stock to Ultragenyx, net of issuance costs 2,400 2 15,543 — — 15,545 Issuance of common stock, net of issuance costs 1,995 2 21,276 — — 21,278 Issuance of common stock upon exercise of stock options 24 — 139 — — 139 Effect of adoption of ASU 2014-09 — — — — ( 803 ) ( 803 ) BALANCE – December 31, 2019 15,138 15 97,445 — ( 71,668 ) 25,792 Net loss — — — — ( 72,148 ) ( 72,148 ) Share-based compensation — — 6,764 — — 6,764 Issuance of common stock to Ultragenyx on option exercise 600 1 9,599 — — 9,600 Issuance of common stock, net of issuance costs 10,059 10 423,809 — — 423,819 Issuance of common stock upon exercise of stock options 395 — 2,726 — — 2,726 BALANCE – December 31, 2020 26,192 $ 26 $ 540,343 $ — $ ( 143,816 ) $ 396,553 The accompanying notes are an integral part of these consolidated financial statements. F-6 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2020 2019 2018 OPERATING ACTIVITIES: Net loss $ ( 72,148 ) $ ( 25,991 ) $ ( 21,785 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 882 684 582 Share-based compensation expense 6,764 1,982 1,259 Loss from equity-method investment 263 25 302 Other non-cash expenses 162 873 38 Changes in operating assets and liabilities: Accounts receivable 54 2,302 ( 4,001 ) Prepaid expenses and other assets ( 2,011 ) ( 120 ) 421 Accounts payable 4,812 3,155 578 Accrued liabilities 11,320 1,675 1,687 Deferred revenue 7,041 8,970 159 Net cash used in operating activities ( 42,861 ) ( 6,445 ) ( 20,760 ) INVESTING ACTIVITIES: Acquisition of property and equipment ( 1,742 ) ( 818 ) ( 1,478 ) Purchases of short-term investments — — ( 6,594 ) Proceeds from maturities of short-term investments — — 30,206 Net cash (used in) provided by investing activities ( 1,742 ) ( 818 ) 22,134 FINANCING ACTIVITIES: Proceeds from long-term debt, net of lender fees — 4,945 9,872 Proceeds from exercise of stock options 2,726 139 332 Proceeds from exercise of stock option by Ultragenyx and issuance of common stock and option, net of issuance costs, to Ultragenyx 9,600 15,545 — Proceeds from issuance of common stock, net of issuance costs 423,819 21,278 — Net cash provided by financing activities 436,145 41,907 10,204 NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 391,542 34,644 11,578 Cash, cash equivalents and restricted cash at beginning of year 71,460 36,816 25,238 Cash, cash equivalents and restricted cash at end of year $ 463,002 $ 71,460 $ 36,816 Year Ended December 31, 2020 2019 2018 Supplemental disclosure of cash flow information: Cash paid for interest $ 751 $ 691 $ 146 Non-cash investing activities Right-of-use asset obtained in exchange for lease liabilities $ 1,360 $ 5,868 $ — Sale of intangible assets for equity-method investment $ — $ — $ 590 Purchase of property and equipment in accounts payable $ 169 $ 240 $ 30 Release of repurchase liability for restricted shares $ — $ — $ 39 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”) is a global clinical-stage messenger RNA medicines company focused on 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 was deemed allowed to proceed by the U.S. Food and Drug Administration (“FDA”), and its Clinical Trial Application (“CTA”) candidate LUNAR-COV19 was approved to proceed by the Singapore Health Sciences Authority. The financial statements for periods prior to June 17, 2019 , the effective date of the Redomiciliation, relate to Arcturus Therapeutics Ltd. and for the periods from and after June 17, 2019 relate to Arcturus Therapeutics Holdings Inc. Recent Developments See “Note 3 Revenue – Other Agreements” for further information on the agreement with and non-refundable payment of $ 12.5 million from the Israeli Ministry of Health. See “Note 7 Debt – Manufacturing Support Agreement” for further information on the $ 46.6 million funded by the Singapore Economic Development Board in January 2021. See “Note 8 Stockholders’ Equity – Underwritten Public Offerings of Common Stock” for further information on the Company’s recent public offerings with net proceeds of approximately $ 423.8 million. Liquidity The Company has incurred significant operating losses since its inception. As of December 31, 2020 and 2019, the Company had an accumulated deficit of $ 143.8 million and $ 71.7 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, 2020, the Company has funded its operations principally with the proceeds from the sale of capital stock and revenues earned through collaboration agreements. Through underwritten public offerings, the Company raised net proceeds of $ 423.8 million during fiscal year 2020, after deducting underwriting discounts, commissions, and offering expenses. 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. F-8 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 represents cash required to be set aside as security for lease payments and to maintain a letter of credit for the benefit of the landlord for the Company’s offices. At December 31, 2020 and 2019, the Company had restricted cash of $ 107,000 in conjunction with property leases in San Diego, California, and such restriction is expected to be removed at the end of the lease term in 2025 . 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 F-9 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued receivables if collectability is no longer reasonably assured. Estimates for allowances for doubtful accounts are determined based on existing contractual obligations, historical payment patterns, and individual customer circumstances. The Company reevaluates such reserves on a regular basis and adjusts its reserves as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve. No reserves have been recorded as of December 31, 20 20 or 201 9 . 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 was one customer that comprised 100 % of the total accounts receivable balance at December 31, 2020 and one customer that comprised 98 % of the total accounts receivable balance at December 31, 2019. For the year ended December 31, 2020, the Company’s top four customers collectively represented 94 % of the Company’s total revenue. For the year ended December 31, 2019, there were four customers that collectively represented 91 % of the Company’s total revenue. Intangible Assets Held for Sale and Equity Method Investment At the end of the second quarter of 2018, the Company completed the sale of its intangible assets related to the ADAIR technology. Pursuant to the asset purchase agreement for ADAIR, the Company received a 30 % ownership interest in the common stock of Vallon Pharmaceuticals, Inc. (“Vallon”), which was then a privately held company, in consideration for the sale of the ADAIR technology. As the Company’s Chief Executive Officer holds a seat on the investee’s board of directors, the Company has the ability to exercise significant influence over the operating and financial policies of this investee; therefore, the Company accounts for this investment as an equity-method investment. The Company accounts for its share of the earnings or losses of the investee with a reporting lag of three months, as the financial statements of the investee are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis. 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, 2020, 2019 and 2018. 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. Other comprehensive loss represents unrealized losses on the Company’s marketable securities. There was no income tax effect related to unrealized losses for the years ended December 31, 2020, 2019 or 2018. Revenue Recognition Effective January 1, 2019 , the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), using the modified retrospective transition method. Topic 606 provides a unified model to determine how revenue is recognized and the Company applied the standard F-10 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued to collaborative research and technology agreements that were in progress as of the effective date, January 1, 2019. 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. The terms of the Company’s collaborative research and development agreements include license fees, upfront payments, milestone payments, reimbursement for research and development activities, option exercise fees, and royalties on sales of commercialized products. Arrangements that include upfront payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs obligations under these arrangements. 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. See “Note 3, Collaboration Revenue” for specific details surrounding the Company’s collaboration arrangements. Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (“Topic 842”), which requires lessees to recognize most leases on the balance sheet as lease liabilities with corresponding right-of-use assets and to disclose key information about leasing arrangements. The Company adopted Topic 842 on its effective date in the first quarter of 2019 using a modified retrospective approach. The Company elected the available package of practical expedients upon adoption, which allowed it to carry forward historical assessments of whether existing agreements contained a lease and the classification of existing operating leases. See “Note 11, Commitments and Contingences” 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 or services are received. 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. Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial. F-11 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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. 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. 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, 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. 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) 2020 2019 2018 Cash and cash equivalents $ 462,895 $ 71,353 $ 36,709 Non-current Restricted cash 107 107 107 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 463,002 $ 71,460 $ 36,816 Income Tax Expense Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at the applicable tax rates, along with net operating loss and tax credit carryovers. The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. Management has considered estimated taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. Based upon the weight of available evidence, which includes the Company’s historical operating performance and limited potential to utilize tax credit carryforwards, the Company has determined that total deferred tax assets should be fully offset by a valuation allowance. 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. F-12 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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 Loss per Share Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive shares of common stock for the years ended December 31, 2020, 2019 and 2018 are comprised of stock options. No dividends were declared or paid during the reporting periods. Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application of Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted in any interim period for which financial statements have not yet been made available for issuance. The Company is currently evaluating the effect ASU 2019-12 will have on its consolidated financial statements and related disclosures. NOTE 3. Collaboration Revenue The Company has entered into license agreements and collaborative research and development arrangements with pharmaceutical and biotechnology companies. Under these arrangements, the Company is entitled to receive license fees, upfront payments, milestone payments if and when certain research and development milestones or technology transfer milestones are achieved, royalties on approved product sales and reimbursement for research and development activities. The Company’s costs of performing these services are included within research and development expenses. The Company’s milestone payments are typically defined by achievement of certain preclinical, clinical, and commercial success criteria. 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. F-13 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued The following table presents changes during the year ended December 31, 2020 in the balances of contract assets, including receivables from collaborative partners, and contract liabilities, including deferred revenue. (in thousands) Contract Assets BALANCE - December 31, 2019 $ 2,179 Additions for revenue recognized from billings 4,030 Deductions for cash collections ( 4,084 ) BALANCE - December 31, 2020 $ 2,125 (in thousands) Contract Liabilities BALANCE - December 31, 2019 $ 23,579 Additions for advanced billings 16,579 Deductions for promised services provided in current period ( 9,538 ) BALANCE – December 31, 2020 $ 30,620 The following table summarizes the Company’s collaboration revenues for the periods indicated (in thousands). Approximately $ 1.0 million, $ 7.0 million and $ 5.0 million of total collaboration revenue represents revenue derived from foreign countries for the years ended December 31, 2020, 2019 and 2018, respectively. For the Year Ended December 31, (Dollars in thousands) 2020 2019 2018 Collaboration Partner – Janssen $ 2,964 $ 2,912 $ 1,232 Collaboration Partner – Ultragenyx 3,983 5,862 6,794 Collaboration Partner – CureVac 1,006 6,611 4,427 Collaboration Partner – SGI 256 3,518 1,402 Other 1,330 1,886 1,898 Total collaboration revenue $ 9,539 $ 20,789 $ 15,753 The following paragraphs provide information on the nature and purpose of these collaboration arrangements. Collaboration Partner – Janssen In October 2017, the Company entered into a research collaboration and license agreement with Janssen (the “2017 Agreement”) to collaborate on developing candidates for treating HBV with RNA therapeutics. The 2017 Agreement allocated discovery, development, funding obligations, and ownership of related intellectual property among the Company and Janssen Pharmaceuticals, Inc. (“Janssen”). The Company received an upfront payment of $ 7.7 million and may receive preclinical, development and sales milestone payments of up to $ 56.5 million, as well as royalty payments on any future licensed product sales. The next potential milestone to be achieved relates to demonstrating in vivo efficacy and safety. Janssen began reimbursing the Company for research costs during the first quarter of 2019 upon the completion of the first of three research periods. Janssen may also pay option exercise fees within the $ 1.0 million to $ 5.0 million range per target. Janssen will pay royalties as a low to mid-single digit percentage of net sales of licensed products, subject to reduction on a country-by-country and licensed-product-by-licensed-product basis and subject to certain events, such as expiration of program patents. In addition, the 2017 Agreement includes an exclusivity period. In evaluating the 2017 Agreement in accordance with Accounting Standards Codification (“ASC”) Topic 606, the Company concluded that the contract counterparty, Janssen, is a customer. The Company identified the following promised goods/services as of the inception of the 2017 Agreement: (i) research services, (ii) license to use Arcturus technology and (iii) participation in a joint research committee. The Company concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a standalone basis. Accordingly, they are determined to represent a single performance obligation. The Company concluded that Janssen’s options to select additional collaboration targets and to license rights to selected targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated. F-14 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued As of December 31, 2020, the remaining transaction price consisting of upfront consideration received and budgeted reimbursable out-of-pocket costs, is expected to be recognized using an input method over the remaining research period of 21 months. None of the development and commercialization milestones were included in the transaction price as they are outside the control of the Company and contingent upon success in future clinical trials and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur, provided that the reported sales are reliably measurable, and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to Janssen and therefore have also been excluded from the transaction price. Total deferred revenue as of December 31, 2020 and December 31, 2019 for Janssen was $ 5.9 million and $ 5.9 million, respectively. Collaboration Partner – Ultragenyx In October 2015 the Company entered into a research collaboration and license agreement with Ultragenyx (the “Ultragenyx Agreement”), whereby Arcturus granted to Ultragenyx a co-exclusive license to certain Arcturus technology, which is in effect only during the reserve target exclusivity term as discussed in the following paragraphs. This collaboration agreement was amended in 2017, 2018 and during the second quarter of 2019. During the initial phase of the collaboration, the Company will design and optimize therapeutics for certain rare disease targets. Ultragenyx has the option under the Ultragenyx Agreement to add additional rare disease targets during the collaborative development period. Additionally, during the collaborative development period, the Company will participate with Ultragenyx in a joint steering committee. The Ultragenyx Agreement also includes an initial exclusivity period with an option to extend such period. As part of the Ultragenyx Agreement and related amendments, Ultragenyx has paid $ 27.9 million in upfront fees, exclusivity extension fees and additional consideration. Ultragenyx also reimburses the Company for all internal and external development costs incurred. Pursuant to the Ultragenyx Agreement, Ultragenyx is required to make additional payments upon exercise of the Ultragenyx expansion option or exclusivity extension (if any) and if Ultragenyx achieves certain, clinical, regulatory and sales milestones, then the Company is eligible to receive royalty payments . For each development target for which Ultragenyx exercises its option, Ultragenyx will pay the Company a one-time option exercise fee that increases based upon the number of development targets selected by Ultragenyx and ranges from $ 0.5 million to $ 1.5 million. During the fourth quarter of 2020, Ultragenyx exercised its option to move forward with Preclinical Candidate Designation for its development target, Glycogen Storage Disease III, and paid an option fee to the Company of $ 0.5 million which was partially recognized as revenue during the quarter through a cumulative catch-up to the transaction price. The current potential development, regulatory and commercial milestone payments for the existing development targets as of December 31, 2020 are $ 138.0 million. Ultragenyx will pay royalties as a single-digit percentage of net sales on a product-by-product and country-by-country basis during the applicable royalty term. As of December 31, 2020, Ultragenyx has not yet reached the clinical phase of the contract. On June 18, 2019, Arcturus and Ultragenyx amended the collaboration agreement for a third time (“Amendment 3”). As part of Amendment 3, the total number of targets was increased from 10 to 12 , and reserve targets will be exclusively reserved for Ultragenyx with no fees for four years after execution of the amendment. An equity component was also added as part of Amendment 3 wherein Ultragenyx purchased 2.4 million shares of common stock at a premium price. Along with the equity purchase, Ultragenyx received an option to purchase 0.6 million additional shares of common stock at $ 16.0 per share. In May 2020, the option was exercised. The consideration received from Ultragenyx as a result of Amendment 3 was equal to $ 30.0 million and was comprised of a $ 24.0 million common stock purchase and a $ 6.0 million upfront payment. Specifically for Amendment 3, management determined the transaction price to be $ 14.4 million. See further discussion below regarding determining the transaction price. Management determined the fair value of the premium received by using the opening stock price subsequent to execution of Amendment 3 and applying a lack of marketability discount, as the shares received by Ultragenyx were initially restricted for up to two years . In evaluating the Ultragenyx Agreement in accordance with ASC Topic 606, the Company concluded that the contract counterparty, Ultragenyx, is a customer. The Company has identified the following promised goods/services as part of the initial agreement and subsequent amendments: (i) research services, (ii) license to use Arcturus technology, (iii) exclusivity and (iv) participation in a joint steering committee. The Company concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a F-15 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued standalone basis. Accordingly, they are determined to represent a single performance obligation. The Company concluded that Ultragenyx’s options to extend exclusivity and select additional collaboration targets and to license rights to selected targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated. As of December 31, 2020, the transaction price included the upfront consideration received, option payments, exclusivity extension payments and additional consideration received pursuant to Amendment 3. The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that the consideration is outside the control of the Company and contingent upon success in future clinical trials, approval from the FDA and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to Ultragenyx and therefore have also been excluded from the transaction price. Amendment 3 was deemed a contract modification and accounted for as part of the original Ultragenyx Agreement and the Company recorded a cumulative catch-up adjustment of $ 1.1 million on the modification date. The transaction price is recognized to revenue on a straight-line basis using an input method over the 4 -year reserve target exclusivity period. The reserve target exclusivity period represents the timing over which promised goods/services will be provided. Total deferred revenue at December 31, 2020 and December 31, 2019 from Ultragenyx was $ 9.2 million and $ 12.7 million, respectively. Collaboration Partner - CureVac In January 2018 , the Company entered into a Development and Option Agreement (the “Development and Option Agreement”) with CureVac AG (“CureVac”). Under the terms of the Development and Option Agreement, the parties agreed to conduct joint preclinical development programs once CureVac makes a payment to pull down a target on the basis of which CureVac is granted options for taking a license on pre-agreed license terms to develop and commercialize certain products incorporating the Company’s patents and know-how related to LUNAR delivery technology (the “Arcturus Delivery Technology”), and CureVac patents and know-how related to mRNA technology. Subject to certain restrictions, the parties will have an undivided one-half interest in the patents and know-how developed jointly by the parties during the course of the Development and Option Agreement. Pursuant to the terms of the Development and Option Agreement, CureVac will have a number of target options to co-develop from a reserved target list to enter into licenses under the Arcturus Delivery Technology with respect to the development, manufacture and commercialization of licensed products (which can include products identified for development by the Company, unless the Company is permitted by the terms of the Development and Option Agreement to place such products on a restricted list). A separate notice and fee will be required for each license agreement. If the target to which the license agreement relates is chosen by the parties for co-development under the Co-Development Agreement (as defined below and discussed in the following paragraph) the license agreement will terminate, as such programs will be covered under the Co-Development Agreement discussed below, and therefore CureVac will be given a credit for any exercise fees, milestone payments already paid and all other payments made in relation to the license agreement towards future such payments incurred with respect to future licenses under the Arcturus Delivery Technology. Prior to expiration of the initial term of eight years (which was subsequently amended, as discussed below), the Development and Option Agreement also includes an option to extend the term on an annual basis for up to three years , subject to payment by CureVac to Arcturus of a non-refundable annual extension fee. The Development and Option Agreement includes potential milestone payments from CureVac to the Company for selected targets. The current potential milestone payments for the remaining targets as of December 31, 2020 are $ 14.0 million for rare disease targets and $ 23.0 million for non-rare disease targets. CureVac will pay royalties as a percentage of net sales on a product-by-product and country-by-country basis during the applicable royalty term in the low single-digit range . As of December 31, 2020, CureVac has not yet reached the clinical phase of the contract. Pursuant to a May 2018 amendment to the Development and Option Agreement (and as amended and restated on September 28, 2018), the Company increased the number of targets available to CureVac under the Development and Option Agreement and agreed upon the license forms to be executed upon selection of the targets by CureVac. Concurrently with the Development and Option Agreement, the Company entered into a Co-Development and Co-Commercialization Agreement (the “Co-Development Agreement”) which the Company considered a combined F-16 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued contract with the Development and Option Agreement for purposes of revenue recognition. However, on February 11, 2019 , the Company announced the termination of the obligations of CureVac for the preclinical development of ARCT-810, effective as of August 4, 2019, and the re-assumption by the Company of the worldwide rights thereto. As a result, Arcturus reassumed 100 % global rights for clinical development candidate ARCT-810, a mRNA drug to treat OTC deficiency. On July 26, 2019, the Company entered into an amendment (“CureVac Amendment”) to its Development and Option Agreement with CureVac (as amended, the “Development and Option Agreement”), pursuant to which the Company and CureVac agreed to shorten the time period during which CureVac may select potential targets to be licensed from the Company from eight years to four years , and to reduce the overall number of maximum targets that may be reserved and licensed. In connection with the July 2019 CureVac Amendment, the Company and CureVac also entered into a Termination Agreement (the “Termination Agreement”) terminating the January 1, 2018 Co-Development Agreement between the Company and CureVac. Pursuant to the Termination Agreement, CureVac agreed to make a one-time payment to Arcturus in the amount of $ 4.0 million, which was made in July 2019. In evaluating the CureVac Development and Option Agreement and Co-Development Agreement in accordance with ASC Topic 606, the Company concluded that the contract counterparty, CureVac, is a customer. The Company has identified the following promised goods/services as part of the initial agreement with CureVac and subsequent amendments: (i) research services, (ii) license to use Arcturus technology, (iii) exclusivity and (iv) participation in a joint steering committee. The Company concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a standalone basis. Accordingly, they are determined to represent a single performance obligation. The Company concluded that CureVac’s options to extend the research term and options to select additional collaboration targets and to license rights to selected targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated. As of December 31, 2020, the transaction price included the upfront consideration received. The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to CureVac and therefore have also been excluded from the transaction price. For the year ended December 31, 2020, no adjustments were made to the transaction price. The upfront consideration of $ 5.0 million was recorded as deferred revenue in the Company’s balance sheet upon receipt and is currently being recognized as revenue on a straight-line basis using an input method over the remaining 31 month contractual term as of December 31, 2020. As a result of Amendment 3, the Company recorded a cumulative catch up adjustment of $ 0.4 million on the modification date, July 26, 2019. Total deferred revenue as of December 31, 2020 and December 31, 2019 for CureVac was $ 2.3 million and $ 3.2 million, respectively. Collaboration Partner – Synthetic Genomics The Company entered into a Research and Exclusive License Agreement with Synthetic Genomics, Inc. (“SGI”) during the fourth quarter of 2017. Under the agreement, the Company granted SGI an exclusive license certain of our technology to research, develop and sell products for diseases excluding all respiratory disease viruses other than influenza. Revenue related to this agreement is made up of labor reimbursements and sublicense revenue. The sublicense revenue is calculated as a percentage of all cash payments received by SGI from any sublicense for a LUNAR product, in the mid 10 % to 20 % range, less payments made to third parties to obtain the right to practice intellectual property used to develop or necessary to make, use, or sell all or part of licensed LUNAR product. Under certain circumstances, the Company will be owed a percentage ranging from 5 % to 10 % of amounts received by SGI should they enter into agreements. As part of the agreement, SGI paid an upfront fee of $ 0.2 million upon contract execution which is creditable against any payments to Arcturus. Therefore, the upfront fee was fully deferred upon the receipt of funds. As of December 31, 2020, there is no consideration included in the transaction price as all forms of consideration included in the agreement are fully constrained. As it relates to FTE reimbursements, the Company F-17 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued will recognize revenue as the services are performed and recognized $ 0.2 million and $ 1.2 million for the years ended December 31, 2019 and 2018, respectively. No FTE revenue was recognized by the Company for the year ended December 31, 2020. Additionally, sublicensee consideration is fully constrained until the subsequent sublicence by SGI occurs. The Company recognized a sublicense revenue amount of $ 0.3 million and $ 3.3 million for the year s ended December 31, 2020 and 2019 , respectively, as SGI sublicensed the technology to multiple parties. Other Agreements Other Collaboration Revenue The remaining revenue from smaller collaboration agreements and material transaction agreements primarily relates to the agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”). Under the agreement with Takeda, the Company recognized $ 1.0 million and $ 1.3 million of upfront payment amortization during the years ended December 31, 2020 and 2019, respectively, related to research and development activities. The current agreement was entered into on March 18, 2019 and is expected to be completed during fiscal year 2021. Israeli Ministry of Health On August 17, 2020, the Company entered into an agreement with the Israeli Ministry of Health (“MOH”) to supply the Company’s COVID-19 vaccine candidate to Israel (the “Israel Supply Agreement”) subject to certain conditions, including applicable regulatory approvals. In October 2020, and in association with the Israel Supply Agreement, the Company received a non-refundable payment of $ 12.5 million from the MOH which is included in deferred revenue as of December 31, 2020. This payment of $ 12.5 million is associated with a specified clinical trial milestone and serves as an initial reserve payment for a specified number of doses of the LUNAR-COV19 vaccine candidate pursuant to the Israel Supply Agreement. As a result of the making of this payment, the MOH became bound to purchase an initial quantity of 500,000 reserved vaccine doses, as set forth in and subject to the terms and conditions of the Israel Supply Agreement. 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, and accrued liabilities approximate their respective fair values due to their relative short maturities. The carrying amounts of long-term debt for the amount drawn on the Company’s debt facility approximates fair value as the interest rate is variable and reflects current market rates. As of December 31, 2020 and 2019, all assets measured at fair value on a recurring basis consisted of cash equivalents, money market funds, which were classified within Level 1 of the fair value hierarchy. The fair value of these financial instruments was measured based on quoted prices. F-18 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued NOTE 5 . Balance S heet D etails Accrued liabilities consisted of the following as of December 31, 2020 and 2019. December 31, (in thousands) 2020 2019 Accrued compensation $ 2,097 $ 1,608 Cystic Fibrosis Foundation liability 6,585 1,949 Singapore Economic Development Board liability 1,761 — Current portion of operating lease liability 1,630 827 Current portion of long-term debt 1,250 — Clinical accruals 4,067 — Other accrued research and development expenses 3,249 2,750 Total $ 20,639 $ 7,134 NOTE 6 . Property and Equipment, Net Property and equipment, net consisted of the following: December 31, (in thousands) 2020 2019 Research equipment $ 5,539 $ 3,658 Computers and software 284 271 Office equipment and furniture 574 561 Leasehold improvements 44 40 Total $ 6,441 $ 4,530 Less accumulated depreciation and amortization ( 3,063 ) ( 2,181 ) Property and equipment, net $ 3,378 $ 2,349 Depreciation and amortization expense was $ 882,000 , $ 684,000 and $ 582,000 for the years ended December 31, 2020, 2019 and 2018, respectively. NOTE 7. Debt Manufacturing Supply Agreement On November 7, 2020, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc., entered into a Manufacturing Support Agreement (the “Support Agreement”) with the Economic Development Board of the Republic of Singapore (the “EDB”). Pursuant to the Support Agreement, the EDB agreed to make a term loan of up to S$ 62.1 million to the Company, subject to the satisfaction of customary deliveries, to support the manufacture of the LUNAR-COV19 vaccine candidate (the “Singapore Loan”). The Singapore Loan and the related side letter includes certain loan covenants requiring (i) unused funds as of June 30, 2021 to be subsequently returned within thirty days, subject to the agreed upon extension of the reconciliation date, (ii) the Company to provide a quarterly reconciliation report within forty-five days of each financial quarter end, (iii) an external audit to be completed by September 26, 2021, (iv) the Company to deliver 10 grams of LUNAR-COV19 vaccine candidate suitable for use in a phase 3 trial in two shipments with a partial shipment by June 30, 2021 and a remaining shipment by September 30, 2021, (v) and the Company to provide EDB with a right of first refusal on GMP manufacturing slots of the LUNAR-COV19 vaccine candidate up to an agreed-upon maximum amount. The Company elected to borrow the full amount available under the Support Agreement of S$ 62.1 million, or $ 46.6 million as a result of applicable exchange rates, on January 29, 2021. F-19 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued The Singapore Loan accrues interest at a rate of 4 % per anum calculated on a daily basis. Subject to certain exceptions, the Singapore Loan is intended to be a limited recourse loan that will be repaid solely through a royalty payment of 10 % of net sales proceeds of the LUNAR-COV19 vaccine candidate, up to the amount of the outstanding principal and interest under the Singapore Loan. However, all unpaid principal and interest under the Singapore Loan will be due and payable five years after draw date, if net sales of the LUNAR-COV19 vaccine exceed a certain minimum threshold during this five year period or the Company obtains clearance to sell the vaccine in specified jurisdictions. Unpaid principal and interest under the Singapore Loan will also become due and payable upon an event of default under the Support Agreement. The first vaccine sales, including the amount of net sales, shall be reported to EDB within 10 days of delivery and quarterly reports of aggregate vaccine sales, including net sales proceeds shall be provided within 30 days after quarter end If, any portion of the Singapore Loan is required to be forgiven pursuant to the terms of the Support Agreement, the EDB has the right to take ownership of certain raw materials and equipment that were purchased by the Company with proceeds of the Singapore Loan (the “Specified Assets”). The Company entered into a security agreement (the “Security Agreement”) for the benefit of the EDB to provide that repayment of the Singapore Loan and related obligations are secured by a lien on the Specified Assets. In connection with the entry into the Support Agreement, the Company entered into a consent agreement with Western Alliance Bank (the “Bank”) and an amendment to the Loan and Security Agreement, dated as of October 12, 2018, between Western Alliance Bank and the Company (the “Loan”), to exclude the Specified Assets from Western Alliance Bank’s lien on certain assets of the Company. Long-term debt with Western Alliance Bank On October 12, 2018, Arcturus Therapeutics, Inc. entered into the Loan with the Bank, whereby it received $ 10.0 million. The Loan is collateralized by all of the assets of Arcturus Therapeutics, Inc., excluding intellectual property, which is subject to a negative pledge. The Loan contains customary conditions of borrowing, events of default and covenants, including covenants that restrict Arcturus Therapeutics, Inc.’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock. In addition, Arcturus Therapeutics, Inc. is required to maintain at least 100 % of its consolidated, unrestricted cash, or $ 15.0 million, whichever is lower, with the Bank . On October 30, 2019, Arcturus Therapeutics, Inc. and the Bank entered into a Third Amendment (the “Third Amendment”) to the Loan (as amended, the “Loan Agreement”). Pursuant to the amendment, the Bank agreed to make a term loan to Arcturus Therapeutics, Inc. on October 30, 2019, in the amount of $ 15.0 million (the “Term Loan”). The resulting net increase in the indebtedness of Arcturus Therapeutics, Inc. was $ 5.0 million. The Term Loan bears interest at a floating rate ranging from 1.25 % to 2.75 % above the prime rate. The amendment further provides that the Term Loan has a maturity date of October 30, 2023 . Arcturus Therapeutics, Inc. will make monthly payments of interest only until October 1, 2021 . Arcturus Therapeutics, Inc. paid a loan origination fee of $ 54,000 which was recorded as a debt discount along with the remaining loan origination fee from the Loan and is being accreted over the term of the Term Loan. In addition, Arcturus Therapeutics, Inc. is required to pay a fee of $ 525,000 upon certain change of control events. The Term Loan may be prepaid in full at any time, subject to a prepayment fee ranging from 0.50 % to 2.00 % of the prepaid principal amount depending upon the date of the prepayment. Upon maturity or prepayment (as previously discussed), Arcturus Therapeutics, Inc. will be required to pay a 2 % fee as a result of the FDA’s approval to proceed with the Company’s LUNAR-OTC program based on its IND submission. Such fee is accreted to the long-term debt balance using the effective interest method over the term of the Loan Agreement. Should an event of default occur, including the occurrence of a material adverse effect, the Company could be liable for immediate repayment of all obligations under the Loan Agreement. As of December 31, 2020, the Company was in compliance with all covenants under the Loan Agreement. F-20 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Principal payments, including the final payment due at repayment, on the long-term debt are as follows as of December 31, 2020: Year Ending December 31, 2021 $ 1,250,000 2022 7,500,000 2023 6,550,000 Total $ 15,300,000 The Company recognized interest expense related to its long-term debt of $ 0.9 million, $ 0.9 million and $ 0.2 million during the years ended December 31, 2020, 2019 and 2018, respectively. NOTE 8. Stockholders’ Equity Common Stock On November 25, 2020, the Company amended its Certificate of Incorporation to increase the number of shares of common stock it is authorized to issue from 30,000,000 shares to 60,000,000 shares. Underwritten Public Offering of Common Stock During fiscal year 2020, the Company completed three underwritten public offerings totaling 10,058,820 shares of common stock (including the underwriters’ overallotment options) at prices per share of $ 17.00 , $ 53.00 and $ 110.00 , which resulted in gross proceeds of approximately $ 452.1 million. After deducting offering costs of $ 28.3 million, the Company received net proceeds of approximately $ 423.8 million from the offerings. Equity Purchase Agreement On June 18, 2019, the Company entered into an Equity Purchase Agreement (the “Expanded Ultragenyx Agreement”) with Ultragenyx. Pursuant to the terms of the Expanded Ultragenyx Agreement, the Company sold an aggregate of 2,400,000 shares of common stock, par value $ 0.001 per share (“Common Stock”) at a price of $ 10.00 per share to Ultragenyx on June 19, 2019. Ultragenyx was restricted from selling the shares of common stock for two years subsequent to the issuance date. Pursuant to the Expanded Ultragenyx Agreement, the Company also granted Ultragenyx a two-year option (the “Option”) to purchase up to 600,000 additional shares of Common Stock at a price of $ 16.00 per share. In May 2020, Ultragenyx exercised its option to purchase 600,000 shares of the Company’s common stock at $ 16.00 per share, and the Company received proceeds of $ 9.6 million as a result of the option exercise. Net Loss per Share Dilutive securities that were not included in the calculation of diluted net loss per share for the years ended December 31, 2020, 2019 and 2018 as they were anti-dilutive totaled 1,157,175 , 138,377 and 94,000 , respectively. For the years ended December 31, 2019 and 2018, the calculation of the weighted-average number of shares outstanding excludes 622,667 unvested restricted common shares held by founders of the Company. As the remaining milestones under the founder share agreements were achieved during the year ended 2020, these restricted common shares completely vested equally during the second and third quarters of 2020 NOTE 9. Share-Based Compensation In June 2020, the stockholders of the Company approved an increase to the number of shares authorized for use in making awards under the 2019 Omnibus Equity Incentive Plan (the “2019 Plan”) by 2,400,000 shares to 5,000,000 . Accordingly, as of December 31, 2020, a total of 1,257,159 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan. F-21 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Employee Stock Purchase Plan In June 2020, the stockholders of the Company approved the 2020 Employee Stock Purchase Plan (“2020 Plan”) which provides for 600,000 shares of Company common stock reserved for future issuance. The first accumulation period under the 2020 Plan commenced on August 17, 2020. Under the 2020 Plan, eligible employees may purchase shares of the Company’s common stock at a discount annually, subject to a maximum of $ 25,000 per year. The discounted purchase price is equal to the lower of 85 % of (i) the market value per share of the common stock on the first day of the accumulation period or (ii) the market value per share of common stock on the purchase date. Share-based compensation expense recognized under the ESPP was $ 0.1 million for 2020. 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, 2020 2019 2018 Expected life (in years) 6.04 5.92 6.07 Expected volatility 72.4 % 73.9 % 73.3 % Expected dividend yield — % — % — % Risk-free interest rate 0.74 % 1.82 % 2.77 % Grant date weighted average fair value $ 42.33 $ 6.39 $ 5.38 The following table summarizes the Company’s stock option activity for the year ended December 31, 2020: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding – December 31, 2019 1,649,076 $ 7.54 Granted 2,175,184 $ 66.91 Exercised ( 394,661 ) $ 6.82 Forfeited/cancelled ( 104,886 ) $ 21.37 Outstanding – December 31, 2020 3,324,713 $ 46.03 9.02 $ 59,449 Exercisable – December 31, 2020 718,301 $ 10.11 7.95 $ 23,975 Exercisable and expected to vest – December 31, 2020 3,324,713 $ 46.03 9.02 $ 59,449 At December 31, 2020, the total unrecognized compensation cost of $ 89.8 million will be recognized over the weighted-average remaining service period of approximately 3.2 years. The fair value of the options vested during the years ended December 31, 2020, 2019 and 2018 was $ 4.2 million, $ 1.9 million and $ 1.0 million, respectively. Share-based compensation expenses included in the Company’s statements of operations and comprehensive loss for the years ended December 31, 2020, 2019 and 2018 were: For the Year Ended December 31, (in thousands) 2020 2019 2018 Research and development $ 2,670 $ 654 $ 566 General and administrative 4,094 1,328 693 Total $ 6,764 $ 1,982 $ 1,259 F-22 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued NOTE 10. Income Taxes A reconciliation of loss before income taxes for domestic and foreign locations for the years ended December 31, 2020, 2019 and 2018 is as follows: For the Year Ended December 31, (In thousands) 2020 2019 2018 United States $ ( 72,148 ) $ ( 25,922 ) $ ( 21,604 ) Foreign — ( 69 ) ( 181 ) Total loss before income taxes $ ( 72,148 ) $ ( 25,991 ) $ ( 21,785 ) 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. A reconciliation of unrecognized tax benefits for the years ended December 31, 2020 and 2019 is as follows (in millions): December 31, 2020 2019 Beginning balance of unrecognized tax benefits $ 0.4 $ 0.4 Settlement of prior period tax positions — — Increase for prior period tax positions 0.3 — Increase for current period tax positions 0.8 — Ending balance of unrecognized tax benefits $ 1.5 $ 0.4 Included in the balance of unrecognized tax benefits at December 31, 2020 and 2019 is $ 1.5 million and $ 0.4 million, respectively, that could impact the Company’s effective tax rate, if recognized, subject to a valuation allowance. None of the unrecognized tax benefits currently impact the Company’s effective tax rate due to the full valuation allowance the Company has recorded against its deferred tax assets. The Company is subject to taxation and files income tax returns in the United States, California and Israel. The Company’s tax years from 2014 to date are subject to examination by the Israeli, 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. As of December 31, 2020 and 2019, there are unrecognized tax benefits of $ 1.5 million and $ 0.4 million, respectively, for both the United States and California. There was no tax related interest or penalties recognized for the years ended December 31, 2020, 2019 and 2018. The Company does not anticipate any material changes to its unrecognized tax benefits within the next twelve months. F-23 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued The significant components of deferred income taxes at December 31, 2020 and 2019: December 31, (in thousands) 2020 2019 Deferred tax assets: Net operating loss $ 33,896 $ 15,078 Tax credits 6,278 28 Accrued liabilities 535 410 Deferred revenue 3,230 1,248 Lease liability 1,274 1,466 Share-based compensation 1,338 339 Total gross deferred tax assets 46,551 18,569 Deferred tax liabilities: Depreciation and amortization ( 69 ) ( 11 ) Right-of-use asset ( 1,168 ) ( 1,326 ) Valuation allowance ( 45,314 ) ( 17,232 ) Net deferred tax asset $ — $ — The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced. At December 31, 2020, the Company had federal and state net operating losses (“NOL”) carryforwards of approximately $ 125.8 million and $ 111.2 million, respectively. The federal NOL carryforwards begin to expire in 2034 , and the state NOL carryforwards begin to expire in 2034 . The federal net operating loss carryover includes $ 110.0 million of net operating losses generated in 2018 and after, which do not expire. The Company had foreign NOL carryforwards of approximately $ 89.0 million in the previous year which have been removed from the deferred tax assets in the current year as a result of the Company’s recent Redomiciliation. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to coronavirus disease 2019 (“COVID-19”). The CARES Act, among other things, included several significant provisions that impacted corporate taxpayers’ accounting for income taxes. Prior to the enactment of the CARES Act, the 2017 Tax Cuts and Jobs Act generally eliminated the ability to carryback net operating losses (“NOLs”), and permitted the NOLs arising in tax years beginning after December 31, 2017 to be carried forward indefinitely, limited to 80% of the taxpayer’s income. The CARES Act amended the NOL rules, suspending the 80% limitation on the utilization of NOLs generated after December 31, 2017 and before January 1, 2021. Additionally, the CARES Act allows corporate NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five taxable years preceding the taxable year of the loss. Also, the CARES Act allows companies to defer making certain payroll tax payments until future years. With the enactment of the CARES Act, the company does not expect a financial statement impact from income taxes. At December 31, 2020, the Company had federal and state research and development credit carryforwards of approximately $ 2.3 million and $ 1.9 million, respectively. The federal credit carryforwards begin to expire in 2033 , and the state credits carry forward indefinitely. Additionally, the Company has an Orphan Drug Credit of $ 3.9 million as of December 31, 2020 which will begin to expire in 2039 unless previously utilized. Pursuant to Internal Revenue Code of 1986, as amended (the “Code”) 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 not completed a Code Section 382 analysis regarding the limitation of net operating loss carryforwards and other tax attributes. There is a risk that changes in ownership have occurred since Company’s formation. If a change in ownership were to have occurred, the NOL carryforwards and other tax attributes could be limited or restricted. If limited, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations F-24 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued created by future ownership changes, if any, related to the Company’s operations in the U.S. will not impact the Company’s effective tax rate . 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, 2020 2019 2018 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 6.8 % 4.6 % 5.3 % Foreign rate differential — % 0.3 % ( 1.3 %) Share-based compensation 5.5 % ( 0.1 %) ( 0.2 %) Research and development credits 8.7 % — % — % Uncertain tax position ( 1.5 %) — % — % Change in tax rate ( 1.5 %) ( 0.1 %) — % Foreign net operating losses 28.5 % — % — % Change in valuation allowance ( 67.4 %) ( 25.1 %) ( 20.7 %) Other ( 0.1 %) 0.1 % ( 3.0 %) Permanent differences — % ( 0.7 %) ( 1.1 %) Provision for income taxes — % — % — % NOTE 11. Commitments and Contingencies COVID-19 Vaccine Development On March 4, 2020, the Company was awarded a grant (the “Grant”) from the Singapore EDB to support the co-development of a potential COVID-19 vaccine with the Duke-NUS Medical School. The Grant provides for up to S$ 14.0 million (approximately US$ 10.0 million using the exchange rate at the time the grant contract was entered into) in grants to support the development of the vaccine. The Company entered into an amendment to the Grant on September 24, 2020 to update certain delivery and milestone timelines. The Grant has been paid in full by the EDB as a result of the achievement of certain milestones related to the progress of the development of the vaccine, as set forth in the award agreement. The funds received have been recognized as contra research and development expense in proportion to the percentage covered by the EDB of the overall budget. The Company is liable for certain expenses during the program and is also subject to certain conditions including the completion of an external audit within 183 days of the conclusion of the claim period on February 20, 2021, or August 22, 2021, and delivery of 10 grams of LUNAR-COV19 vaccine candidate suitable for use in a phase 3 trial in two shipments with a partial shipment by June 30, 2021 and a remaining shipment by September 30, 2021 . Additionally, the Company is required to pay an agreed upon royalty rate to Duke-NUS on future net sales of the LUNAR-COV19 vaccine candidate in markets or jurisdictions outside of Singapore . For the year ended December 31, 2020, the Company recognized $ 8.7 million of contra expense, with $ 1.3 million remaining in accrued expenses. On October 2, 2020, the Company was awarded another grant from the Singapore EDB to support the further development of a potential COVID-19 vaccine. The grant provides for up to S$ 9.3 million (approximately US$ 6.7 million) to support the development of the vaccine candidate for costs incurred in Singapore subject to certain conditions including (i) completing an external audit within 183 days from March 31, 2021, or September 30, 2021, (ii) delivering 10 grams of LUNAR-COV19 vaccine candidate suitable for use in a phase 3 trial in two shipments with a partial shipment by June 30, 2021 and a remaining shipment by September 30, 2021 and (iii) creating an entity in Singapore which was completed during the fourth quarter of 2020. The grant will be paid in two installments upon the achievement of certain milestones related to the progress of the development of the vaccine candidate. The Company received the first installment of $ 3.6 million in the fourth quarter of 2020. The funds received have been recognized as contra research and development expense as costs are incurred. For the year ended December 31, 2020, the Company recognized $ 3.1 million of contra expense, with $ 0.5 million remaining in accrued expenses. F-25 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Cystic Fibrosis Foundation Therapeutics Funding agreement On August 1, 2019, the Company amended its Development Program Letter Agreement, dated May 16, 2017 and as amended July 13, 2018, with the Cystic Fibrosis Foundation (“CFF”). Pursuant to the amendment, (i) CFF will increase the amount it will award to advance LUNAR-CF to $ 15.0 million from approximately $ 3.2 million, (ii) the Company will provide $ 5.0 million in matching funds for remaining budgeted costs, (iii) the related disbursement schedule from CFF to Arcturus will be modified such that (a) $ 4.0 million will be disbursed upon execution of the CFF Amendment, (b) $ 2.0 million will be disbursed within 30 days of the first day of each of January, April, July and October 2020 upon Arcturus invoicing CFF to meet project goals, and (c) the last payment of $ 3.0 million less the prior award previously paid out, equaling approximately $ 2.3 million, will be disbursed upon Arcturus Sub invoicing CFF to meet good manufacturing practices and opening an Investigational New Drug (“IND”) application. The funds received from CFF will be recognized as contra research and development expense in proportion to the percentage covered by CFF of the overall budget. For the years ended December 31, 2020 and 2019, the Company recognized $ 3.4 million and $ 2.0 million of contra expense with $ 6.6 million and $ 1.9 million remaining in accrued expenses, respectively. 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 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 $ 74,000 . The lease may be extended for one five-year period at the then current market rate with annual escalations; however, the Company deemed the extension option not reasonably certain to be exercised and therefore excluded the option from the lease terms. The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $ 96,000 upon executing the lease which is included (along with additional funds required to secure the letter of credit) in the balance of non-current restricted cash. In February 2020, the Company entered into a non-cancellable operating lease agreement for office space near its current headquarters. The lease extends for 13 months from the commencement date. In conjunction with the new lease, the Company received free rent for one month . The lease may be extended for one twelve-month period, and in November 2020 the Company deemed the extension option reasonably certain to be exercised and included the option in the lease terms beginning in December 2020. In February 2021, the Company opted to extend the lease through March 2025 to coincide with the Company’s other lease term. In February 2021, the Company entered into a third non-cancellable operating lease agreement for office space near its current headquarters. The lease extends for 12 months from the commencement date with monthly base rent of approximately $ 11,000 . 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. F-26 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued As of December 31, 2020, the payments of the operating lease liability were as follows: (in thousands) Remaining Lease Payments 2021 $ 2,033 2022 1,470 2023 1,390 2024 1,432 Thereafter 314 Total remaining lease payments 6,639 Less: imputed interest ( 984 ) Total operating lease liabilities (1) $ 5,655 Weighted-average remaining lease term 3.87 years Weighted-average discount rate 8.4 % (1) Amount does not include the lease agreement and lease ammendment which were executed subsequent to December 31, 2020. 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 $ 1.9 million, $ 1.2 million and $ 1.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Note 12. Related Party Transactions Ultragenyx On June 17, 2019, Arcturus and Ultragenyx executed Amendment 3 to the Ultragenyx Agreement. Pursuant to the amended Ultragenyx Agreement, the Company also granted Ultragenyx a two-year option to purchase up to 600,000 additional shares of common stock at a price of $ 16.00 per share. Ultragenyx exercised the option in May 2020 , and as a result, owns 8.4 % of the outstanding common stock of the Company as of December 31, 2020 . For the years ended December 31, 2020, 2019 and 2018, the Company has recognized revenue of $ 4.0 million, $ 5.9 million and $ 6.8 million, respectively, related to the Ultragenyx Agreement. As of December 31, 2020 and 2019, the Company holds accounts receivable balances of negligible amounts related to the Ultragenyx Agreement. Equity-Method Investment As noted above at Note 2, in June 2018, the Company completed the sale of its intangible asset related to the ADAIR technology. Pursuant to the asset purchase agreement for ADAIR, the Company received a 30 % ownership interest in the common stock of Vallon Pharmaceuticals, Inc. (“Vallon”) in consideration for the sale of the ADAIR technology. The Company has no requirement to invest further in Vallon. During the third quarter of 2019, Vallon issued shares of its common stock at a share price greater than the initial investment which resulted in the Company recording a gain in its equity-method investment. The gain has been offset by additional losses incurred by Vallon. Vallon completed an initial public offering and began trading on The Nasdaq Stock Market under the ticker “VLON” in February 2021. Immediately after this offering, Arcturus owned 843,750 shares of Vallon, or approximately 12 %. Note 13. Litigation On December 13, 2019, a former employee of the Company filed a complaint in San Diego County Superior Court, captioned Adonary Munoz v. Arcturus Therapeutics, Inc., et al, Case No. 37-2019-00066358-CU-PO-CTL. The lawsuit alleges sexual assault by an acquaintance of one of our employees and seeks to hold the Company liable on a number of causes of action. On January 17, 2020, a second amended complaint (“SAC”) was filed seeking $ 30 million in damages, including punitive damages and damages for emotional distress. The matter is scheduled for mediation on May 5, 2021. The Company believes the allegations of Ms. Munoz in her complaint are without merit, F-27 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued and intend s to vigorously defend it sel f in the foregoing action. However, in light of the preliminary stage of the litigation, the Company is unable to estimate a potential loss or range of losses relating to this matter . Note 14. Subsequent Events 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 at a price of $ 66.92 per share. The price was determined based on the volume weighted average closing price of the Company’s common stock on The NASDAQ Global Market for the thirty trading days ending on February 17, 2021. Alexandria Lease Extension See “Note 8, Commitments and Contingences” for discussion of the lease extension. Note 15. Selected Quarterly Financial Data (Unaudited) A summary of our quarterly results is as follows: (in thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 31, 2020: Collaboration revenue $ 2,646 $ 2,322 $ 2,333 $ 2,238 Research and development expenses, net 7,917 7,944 17,699 24,286 General and administrative expenses 4,191 4,420 5,572 9,034 Loss from operations ( 9,462 ) ( 10,042 ) ( 20,938 ) ( 31,082 ) Net loss ( 9,777 ) ( 10,263 ) ( 21,004 ) ( 31,104 ) Net loss per share, basic and diluted $ ( 0.67 ) $ ( 0.55 ) $ ( 0.92 ) $ ( 1.25 ) Weighted average shares outstanding, basic and diluted 14,521 18,794 22,938 24,886 Year Ended December 31, 2019: Collaboration revenue $ 4,350 $ 10,153 $ 3,318 $ 2,968 Research and development expenses, net 7,324 7,269 7,053 11,994 General and administrative expenses 3,534 3,456 3,881 1,791 Loss from operations ( 6,508 ) ( 572 ) ( 7,616 ) ( 10,817 ) Net loss ( 6,884 ) ( 685 ) ( 7,433 ) ( 10,989 ) Net loss per share, basic and diluted $ ( 0.68 ) $ ( 0.07 ) $ ( 0.56 ) $ ( 0.76 ) Weighted average shares outstanding, basic and diluted 10,095 10,412 13,201 14,505 F-28