What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-03-01 compared with 2021-03-01 · 272 added, 274 removed, 795 unchanged (41% of the section changed)

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Evaluation of Disclosure Controls and Procedures

and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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

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

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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.

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

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

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and its Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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.

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, 2021 and 2020, 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, 2021, and the related notes and our report dated February 28, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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San Diego, California

March 1, 2021

February 28, 2022

Changes in Internal Control Over Financial Reporting.

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44, LLC, dated November 13, 2020.

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

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

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44, LLC, dated February 25, 2021.

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

Employment Agreement, dated as of June 13, 2019, between the Company and Joseph Payne.

Incorporated by reference to Exhibit 10.1 to Form 8-K12B filed on June 14, 2019 (File No.

Employment Agreement, dated as of June 13, 2019, between the Company and Andy Sassine.

Incorporated by reference to Exhibit 10.2 to Form 8-K12B filed on June 14, 2019 (File No.

Employment Agreement, dated as of June 13, 2019, between the Company and Dr.

Padmanabh Chivukula.

Incorporated by reference to Exhibit 10.3 to Form 8-K12B filed on June 14, 2019 (File No.

2021 Inducement Equity Incentive Plan.

Incorporated by reference to Exhibit 4.1 to Form S-8 filed on October 20, 2021 (File No.

Fifth Amendment to Loan and Security Agreement, dated October 27, 2021, by and between Arcturus Therapeutics, Inc.

and Western Alliance Bank.

Incorporated by reference to Exhibit 10.34 to Form 10-Q filed on November 9, 2021 (File No.

Lease, by and between Arcturus Therapeutics, Inc.

and TPSC IX, LLC, dated September 29, 2021.

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

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

and ARE-SD Region No.

44, LLC, dated February 25, 2021.

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

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

and Vinbiotech Research and Manufacture Joint Stock Company.

Incorporated by reference to Exhibit 10.32 to Quarterly Report on Form 10-Q filed on August 10, 2021 (File No.

Framework Drug Substance Supply Agreement, signed July 29, 2021 and effective July 30, 2021, by and between Arcturus Therapeutics, Inc.

and Vinbiotech Research and Manufacture Joint Stock Company.

Incorporated by reference to Exhibit 10.33 to Quarterly Report on Form 10-Q filed on August 10, 2021 (File No.

Arcturus Therapeutics Holdings Inc.

Severance Policy for Executives.

Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 26, 2021 (File No.

Consent of Independent Registered Public Accounting Firm

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ARCTURUS THERAPEUTICS HOLDINGS INC.

March 1, 2021

February 28, 2022

/s/ Joseph E.

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President, Chief Executive Officer and Director

March 1, 2021

February 28, 2022

(principal executive officer)

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Chairman of the Board

March 1, 2021

February 28, 2022

Peter Farrell

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Director and Chief Financial Officer

March 1, 2021

February 28, 2022

Andrew Sassine

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Magda Marquet

March 1, 2021

February 28, 2022

Magda Marquet

/s/ James Barlow

March 1, 2021

February 28, 2022

/s/ Edward Holmes

March 1, 2021

February 28, 2022

Edward Holmes

/s/ Karah Parschauer

March 1, 2021

Karah Parschauer

/s/ Jing Marantz

February 28, 2022

Vice President of Finance and Corporate Controller

March 1, 2021

February 28, 2022

(principal accounting officer)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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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.

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.

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, 2021, 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 February 28, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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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.

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

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.

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San Diego, California

March 1, 2021

February 28, 2022

ARCTURUS THERAPEUTICS HOLDINGS INC.

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Accrued liabilities

Current portion of long-term debt

Deferred revenue

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$ 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

60,000 shares authorized;

26,372 shares issued and outstanding at December 31, 2021 and 26,192 shares issued and outstanding at December 31, 2020

Additional paid-in capital

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Year Ended December 31,

Collaboration revenue

Operating expenses:

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Loss from operations

Loss from equity-method investment

Finance (expense) income, net

Gain (loss) from equity-method investment

Foreign currency transaction gain

Finance expense, net

Net loss per share, basic and diluted

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Comprehensive loss:

Unrealized gain on short-term investments

Comprehensive loss

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AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

Accumulated Other

Comprehensive

Stockholders’

BALANCE – December 31, 2018

Unrealized gain on short-term

Share-based compensation

Issuance of common stock upon exercise of stock options

BALANCE – December 31, 2018

Share-based compensation

Redomiciliation share exchange

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BALANCE – December 31, 2020

Share-based compensation

Issuance of common stock related to acquired in-process research and development

Issuance of common stock upon exercise of stock options

Issuance of common stock under equity plans

BALANCE – December 31, 2021

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

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Share-based compensation expense

Loss from equity-method investment

Acquired in-process research and development expense

(Gain) loss from equity-method investment

Foreign currency transaction gain

Other non-cash expenses

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Acquisition of property and equipment

Purchases of short-term investments

Proceeds from maturities of short-term investments

Net cash (used in) provided by investing activities

Net cash used in investing activities

FINANCING ACTIVITIES:

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Proceeds from exercise of stock options

Proceeds from issuance of common stock under equity plans

Proceeds from exercise of stock option by Ultragenyx and issuance of common stock and option, net of issuance costs, to Ultragenyx

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Net cash provided by financing activities

NET INCREASE IN CASH, CASH EQUIVALENTS

AND RESTRICTED CASH

NET (DECREASE) INCREASE IN CASH, CASH

EQUIVALENTS AND RESTRICTED CASH

Cash, cash equivalents and restricted cash at beginning of year

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Right-of-use asset obtained in exchange for lease liabilities

Sale of intangible assets for equity-method investment

Acquisition of in-process research and development through issuance of common stock

Purchase of property and equipment in accounts payable

Release of repurchase liability for restricted shares

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

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

The financial statements for periods prior to June 17, 2019 , the effective date of the Redomiciliation, relate to Arcturus Therapeutics Ltd.

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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.

See “Note 3 Revenue – Vinbiocare” for further information on the agreements with Vinbiocare, a member of Vingroup Joint Stock Company (“Vinbiocare”), whereby the Company will provide technical expertise and support services to Vinbiocare to assist in the build out of a manufacturing facility in Vietnam.

The Company has incurred significant operating losses since its inception.

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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.

From the Company’s inception through the year ended December 31, 2021, the Company has funded its operations principally with the proceeds from the sale of capital stock and funds received from collaboration agreements.

During fiscal year 2021, the Company received a term loan of $ 46.6 million from Economic Development Board of the Republic of Singapore as well as an upfront payment of $ 40.0 million from Vinbiocare to assist with funding a phase 3 clinical trial in Vietnam.

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.

At December 31, 2021, the Company’s balance of cash and cash equivalents, including restricted cash, was $ 372.6 million.

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

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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 .

At December 31, 2021 and 2020, the Company had restricted cash of $ 2.1 million and $ 0.1 million in conjunction with property leases in San Diego, California, and such restriction is expected to be removed at the end of the lease term.

Fair Value Measurements

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The Company considers receivables past due based on the contractual payment terms.

The Company reserves for specific

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

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

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

Arcturus Therapeutics Holdings Inc.

1 unchanged sentence

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.

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

No reserves have been recorded as of December 31, 20 2 1 or 20 20 .

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

There 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.

There were two customers that comprised 100 % of the total accounts receivable balance at December 31, 2021 and one customer that comprised 100 % of the total accounts receivable balance at December 31, 2020.

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

For the year ended December 31, 2020, there were four customers that collectively represented 94 % 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.

Joint Ventures, Equity Method Investments and Variable Interest Entities

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

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

(see the following paragraph for further details) and a 12 % ownership in Vallon Pharmaceuticals, Inc.

(see “ Note 12, Related Party Transactions” for further details).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company accounts for its investment in the JV Entity using the equity method of accounting as specified in ASC 323 , Investments — Equity Method and Joint Ventures .

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

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

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

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

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

Property and Equipment, net

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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 other comprehensive loss in the years ended December 31, 2021, 2020 or 2019.

There was no income tax effect related to unrealized losses for the years ended December 31, 2021, 2020 or 2019.

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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

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.

Topic 606 provides a unified model to determine how revenue is recognized and the Company applied the standard 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:

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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.

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

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

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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.

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

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

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

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

Payments made

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

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.

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Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial.

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.

The Company recognizes share-based compensation for equity awards granted to employees, consultants, officers and directors as an expense on the statements of operations and comprehensive loss.

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

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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.

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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.

The Company records a valuation allowance against its deferred tax assets

Arcturus Therapeutics Holdings Inc.

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Notes to Consolidated Financial Statements — Continued

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.

The Company is required to file federal and state income tax returns in the United States and various other state jurisdictions.

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

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

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

The Company adopted this standard effective January 1, 2021 .

The adoption of this standard did not have an impact on the Company’s Consolidated Financial Statements.

Net Loss per Share

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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.

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

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

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

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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.

The Company cannot guarantee the achievement of these milestones due to risks associated with preclinical and clinical activities required for development of nucleic acid medicine-based therapeutics and vaccines.

Arcturus Therapeutics Holdings Inc.

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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.

The following table presents changes during the year ended December 31, 2021 in the balances of contract assets, including receivables from collaborative partners, consulting and related technology transfer partners, and contract liabilities, including deferred revenue.

(in thousands)

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BALANCE – December 31, 2021

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.

The following table summarizes the Company’s revenue for the periods indicated (in thousands).

Approximately $ 5.0 million, $ 1.0 million and $ 7.0 million of total revenue represents revenue derived from foreign countries for the years ended December 31, 2021, 2020 and 2019, respectively.

For the Year Ended December 31,

(Dollars in thousands)

Collaboration Partner – Janssen

Collaboration Partner – Ultragenyx

Collaboration Partner – CureVac

Collaboration Partner – SGI

Total collaboration revenue

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.

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.

(in thousands)

Total revenue

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

Arcturus Therapeutics Holdings Inc.

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Notes to Consolidated Financial Statements — Continued

From June 11, 2021 through August 2, 2021, the Company entered into a series of agreements with Vinbiocare, a member of Vingroup Joint Stock Company (collectively the “Vinbiocare Agreement”), whereby the Company will provide technical expertise and support services to Vinbiocare to assist in the build out of a mRNA drug product manufacturing facility in Vietnam.

Such expertise shall include a specified level of access to the Company’s personnel and drug substance necessary to validate the successful set up of the facility.

Under the terms of the arrangements, the Company will also provide a specified number of doses of ARCT-154 for use by Vinbiocare in a phase 3 clinical study within Vietnam.

The Company received an upfront payment in aggregate of $ 40.0 million and subsequent to achieving emergency use authorization, the Company will receive low single digit payments per dose for drug substance and related royalties.

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

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

The four performance obligations include (i) consulting to support the build out of the manufacturing facility and technical transfer, (ii) shipment of 80 grams of drug substance to validate the manufacturing facility, (iii) the sale of 2,500 vials of drug product to support the phase 3 clinical trial and (iv) consulting to support the phase 3 clinical trial and related regulatory filings.

For each performance obligation, the Company estimated the standalone selling price based on cost plus margin for drug substance and drug product as well as estimated headcount and full-time equivalent (“FTE”) rates for consulting services to support the phase 3 clinical trial, the build out of the manufacturing facility and the technology transfer.

As of December 31, 2021, the transaction price consists of upfront consideration received and budgeted reimbursable out-of-pocket costs to support the build out of the manufacturing facility and technology transfer.

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

The drug substance and drug product performance obligations are recognized at the point in time the goods are transferred.

The consulting performance obligations are recognized over a period of time based on the percentage of services rendered, meaning actual costs incurred divided by total costs budgeted to satisfy the performance obligation.

Any consideration related to sales-based royalties will be recognized when the drug product is manufactured as they are constrained.

The revenue recognized in 2021 relates to consulting to support the build out of the manufacturing facility and technical transfer, the sale of 2,500 vials of drug product to support the phase 3 clinical trial and consulting to support the phase 3 clinical trial.

Total deferred revenue as of December 31, 2021 for the Vinbiocare agreement was $ 37.2 million.

For Janssen Pharmaceuticals, Inc.

(“Janssen”), Ultragenyx Pharmaceutical Inc.

(“Ultragenyx”) and CureVac AG (“CureVac”), the Company evaluated the respective agreement in accordance with Accounting Standards Codification (“ASC”) Topic 606.

The Company concluded that the contract counterparty is a customer.

The Company identified all promised goods/services within each agreement, and concluded that the promised goods/services are incapable of being distinct and consequently do not have any value on a standalone basis.

Accordingly, the promised goods/services within each agreement were determined to represent a single performance obligation.

Lastly, the Company concluded that any options to select additional collaboration targets and to license rights to selected targets were not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated.

Arcturus Therapeutics Holdings Inc.

and its Subsidiaries

Notes to Consolidated Financial Statements — Continued

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

In October 2021, the LUNAR-HBV program reached an incremental milestone based on demonstration of in vivo efficacy and safety for which Janssen paid the Company $ 1.0 million.

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 will pay royalties of 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.

As of December 31, 2021, 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 12 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.

The development milestone achieved in October 2021 was included in the transaction price during the fourth quarter of 2021.

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

Total deferred revenue as of December 31, 2021 and 2020 for Janssen was $ 6.3 million and $ 5.9 million, respectively.

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

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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.

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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, 2021 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.

As of December 31, 2021, Ultragenyx is working to identify and enroll patients in a Phase 1/2 study.

On June 18, 2019, Arcturus and Ultragenyx amended the collaboration agreement for a third time (“Amendment 3”).

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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

Specifically for

Arcturus Therapeutics Holdings Inc.

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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.

Amendment 3, management determined the transaction price to be $ 14.4 million.

These restrictions have since expired.

As of December 31, 2021, the transaction price included the upfront consideration received, option payments, exclusivity extension payments and additional consideration received pursuant to Amendment 3.

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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.

Amendment 3 was deemed a contract modification and accounted for as part of the original Ultragenyx Agreement.

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

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Total deferred revenue at December 31, 2021 and December 31, 2020 from Ultragenyx was $ 5.5 million and $ 9.2 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”).

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

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

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.

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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

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, 2021, the transaction price included the upfront consideration received.

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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

As of December 31, 2021, no adjustments were made to the transaction price.

Arcturus Therapeutics Holdings Inc.

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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.

Total deferred revenue as of December 31, 2021 and December 31, 2020 for CureVac was $ 1.4 million and $ 2.3 million, respectively .

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.

Subsequent to December 31, 2021, the Company entered into an agreement with a pharmaceutical company, whereby the pharmaceutical company agreed to fund up to $ 25 million for a clinical trial for a LUNAR-COV19 vaccine candidate as a booster.

Israeli Ministry of Health

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

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

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Notes to Consolidated Financial Statements — Continued

Balance S heet D etails

Accrued liabilities consisted of the following as of December 31, 2020 and 2019.

Balance Sheet Details

Accrued liabilities consisted of the following:

(in thousands)

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Current portion of operating lease liability

Current portion of long-term debt

Clinical accruals

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Leasehold improvements

Construction in progress

Less accumulated depreciation and amortization

Property and equipment, net

Depreciation and amortization expense was $ 882,000 , $ 684,000 and $ 582,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

Depreciation and amortization expense was $ 1.2 million , $ 0.9 million and $ 0.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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.

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

The EDB has agreed to an extension of the reconciliation period to March 31, 2022 with unused funds as of such date to be subsequently returned within thirty days, subject to any further agreed upon extension of the reconciliation date.

The parties are in continued negotiations with respect to amendments of the Singapore Loan terms.

Under current terms, (i) the Company will provide a quarterly reconciliation report within forty-five days of each financial quarter end, (ii) the Company will provide a projection of expenditures through March 31, 2022 followed by an audited statement of actual expenditures through March 31, 2022 by June 30, 2022, (iii) the Company will 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, (iv) and the obligation to repay the Singapore Loan will be secured by an interest in the raw materials and manufacturing equipment purchased by the Company with the funds from the Singapore Loan in form and substance satisfactory to the EDB in its sole discretion.

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

As of December 31, 2021, the Company has reported a portion of the Singapore Loan as current to reflect a potential principal repayment of approximately 20.9 million Singapore dollars (US $ 15.2 million) in fiscal year 2022 based on amounts not used toward the manufacture of ARCT-021.

The Singapore Loan accrues interest at a rate of 4.5 % per annum 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

Arcturus Therapeutics Holdings Inc.

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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.

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.

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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.

The Singapore Loan is forgivable if the Company has not obtained regulatory approval by the final repayment date and net sales of the LUNAR-COV19 vaccine candidate are less than $ 100 million.

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.

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 Agreement”), to exclude the Specified Assets from Western Alliance Bank’s lien on certain assets of the Company.

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

As of December 31, 2021, the debt balance was adjusted to reflect the current exchange rate resulting in a debt balance of $ 46.0 million and a net foreign currency transaction gain of $ 0.6 million for the year ended December 31, 2021.

The Company also recorded interest expense of $ 1.9 million for the year ended December 31, 2021.

Lastly, the Company was in compliance with all covenants under the Singapore Loan and related commitments.

Long-term debt with Western Alliance Bank

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will make monthly payments of interest only until October 1, 2021 .

The Fourth Amendment was executed in connection with the Singapore Loan.

In October of 2021, the Company and the Bank entered into a Fifth Amendment to Loan Agreement that provides for a six month extension to the interest only period which moves the first principal payment to May 1, 2022 .

Arcturus Therapeutics, Inc.

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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.

Arcturus Therapeutics Holdings Inc.

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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:

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, 2021, the Company was in compliance with all covenants under the Loan Agreement.

Principal payments, including the final payment due at repayment, on the long-term debt are as follows:

Year Ending December 31,

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Stockholders’ Equity

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.

Alexion Pharmaceuticals License Agreement

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

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

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

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

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

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

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

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, 2021, 2020 and 2019 as they were anti-dilutive totaled 1,261,112 , 1,157,175 and 138,377 , 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

For the year ended December 31, 2019, the calculation of the weighted-average number of shares outstanding excludes 622,667 unvested restricted common shares held by founders of the Company.

During the year ended 2020, the remaining milestones under the founder share agreements were achieved and the related restricted common shares fully vested.

Share-Based Compensation

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

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

On October 20, 2021, the Company filed a Form S-8 with the United States Securities and Exchange Commission to register 1,000,000 awards.

As of December 31, 2021, a total of 756,300 shares remain available for future issuance under the 2021 Plan, subject to the terms of the 2021 Plan.

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 .

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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.

The first accumulation period under the 2020 Plan commenced on August 17, 2020 and ended on the purchase date, August 13, 2021, at which point 12,601 shares of common stock were purchased.

The next accumulation period commenced on August 16, 2021.

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-based compensation expense recognized under the 2020 Plan was $ 0.3 million and $ 0.1 million for 2021 and 2020, respectively.

Share Options

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The fair value of the options vested during the years ended December 31, 2021, 2020 and 2019 was $ 28.4 million, $ 4.2 million and $ 1.9 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 3.6 million, $ 20.2 million and $ 0.1 million, respectively.

Share-based compensation expenses included in the Company’s statements of operations and comprehensive loss for the years ended December 31, 2021, 2020 and 2019 were:

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Notes to Consolidated Financial Statements — Continued

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:

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

For the Year Ended December 31,

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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):

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

Beginning balance of unrecognized tax benefits

Settlement of prior period tax positions

Increase for prior period tax positions

(Decrease) increase for prior period tax positions

Increase for current period tax positions

Ending balance of unrecognized tax benefits

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.

Amounts in the summary rollforward would no t impact our effective tax rate as the Company maintains a full valuation on its net deferred tax assets.

The Company is subject to taxation and files income tax returns in the United States, 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 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.

As of December 31, 2021, 2020 and 2019, there are unrecognized tax benefits of $ 2.4 million, $ 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, 2021, 2020 and 2019 .

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Notes to Consolidated Financial Statements — Continued

The significant components of deferred income taxes at December 31, 2020 and 2019:

The significant components of deferred income taxes are as follows:

(in thousands)

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Deferred revenue

Basis difference in equity investments

Depreciation and amortization

Lease liability

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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 net operating loss carryover includes $ 242.2 million of net operating losses generated in 2018 and after.

Federal net operating losses generated in 2018 and after carryover indefinitely and may generally be used to offset up to 80 % of future taxable income.

At December 31, 2021, the Company has federal and state research and development credit carryforwards of approximately $ 6.5 million and $ 4.6 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 $ 3.1 million as of December 31, 2021 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.

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

The Company has not completed an IRC 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.

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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

Due to the existence of the valuation allowance, limitations 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.

Arcturus Therapeutics Holdings Inc.

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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:

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Share-based compensation

Officers compensation

Research and development credits

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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.

On March 4, 2020, the Company was awarded a grant (“Grant 1”) 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 funds received have been recognized as contra research and development expense.

The parties are in continued negotiations with respect to amendments of Grant 1.

Currently, the Company is liable for certain expenses during the program and is also subject to certain conditions including the requirement to pay an agreed upon royalty rate to Duke-NUS on future net sales of the LUNAR-COV19 vaccine candidate developed with Duke-NUS in markets or jurisdictions outside of Singapore.

For the year ended December 31, 2021 and 2020, the Company recognized $ 1.3 million and $ 8.7 million, respectively, of contra expense for Grant 1.

At December 31, 2021, no amount remained in accrued expenses.

At December 31, 2020, $ 1.3 million remained in accrued expenses.

On October 2, 2020, the Company was awarded another grant (“Grant 2”) from the Singapore EDB to support the clinical development of a potential COVID-19 vaccine (ARCT-021).

The grant provides for up to S$ 9.3 million (approximately US$ 6.7 million) to support the clinical development of the vaccine candidate for costs incurred in Singapore subject to certain conditions.

The grant is 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.

The funds received are recognized as contra research and development expense as costs are incurred.

As of the year ended December 31, 2021, the Company recognized the remaining amount of the first installment as contra research and development expense for Grant 2.

The parties are in continued negotiations with respect to amendments of Grant 2.

Arcturus Therapeutics Holdings Inc.

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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.

Pursuant to the amendment, (i) CFF increased the amount it will award to advance LUNAR-CF to $ 15.0 million from approximately $ 3.2 million, (ii) the Company will provide $ 5.0 million in matching funds for remaining budgeted costs, (iii) the related disbursement schedule from CFF to Arcturus will be modified such that (a) $ 4.0 million will be disbursed upon execution of the CFF Amendment, (b) $ 2.0 million will be disbursed within 30 days of the first day of each of January, April, July and October 2020 upon Arcturus invoicing CFF to meet project goals, and (c) the last payment of $ 3.0 million less the prior award previously paid out, equaling approximately $ 2.3 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 are 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, 2021 and 2020, the Company recognized $ 3.8 million and $ 3.4 million of contra expense with $ 2.8 million and $ 6.6 million remaining in accrued expenses, respectively.

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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.

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

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

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

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

During the year ended 2021, the Company opted to extend the lease for an additional 12 months.

In September 2021, the Company entered into a non-cancellable lease agreement for office, research and development, engineering and laboratory space near its current headquarters.

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

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

The Company is expecting that it will gain access to the space in the second quarter of 2022.

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.

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Weighted-average discount rate

(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.

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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 .

Pursuant to the amended Ultragenyx Agreement, the Company 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, and in May 2020 Ultragenyx exercised the option.

During 2021, Ultragenyx sold 1,800,000 shares of common stock resulting in an ownership of 4.6 % of the outstanding common stock of Arcturus as of December 31, 2021.

For the years ended December 31, 2021, 2020 and 2019, the Company has recognized revenue of $ 3.7 million, $ 4.0 million and $ 5.9 million, respectively, related to the Ultragenyx Agreement.

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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.

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.

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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 % .

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,

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

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

The offering was at a share price of $ 8.00 , greater than the initial investment which resulted in the Company recording a gain in its equity-method investment.

Using a three month lag, the gain has been offset by losses incurred by Vallon through September 30, 2021.

Subsequent Events

Arcturus Therapeutics Holdings Inc.

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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 .

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.

Selected Quarterly Financial Data (Unaudited)

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Year Ended December 31, 2021:

Collaboration revenue

Research and development expenses, net

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Year Ended December 31, 2020:

Collaboration revenue

Research and development expenses, net

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

What changed 10-K

Item 9A. Controls and Procedures