Arcturus Therapeutics Holdings Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may 76 deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of December 31, 2021, our management, with the participation of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act Rules 13a-15(f) and 15(d) -15(f) as a process designed by, or under the supervision of, our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). In adopting the 2013 Framework, management assessed the applicability of the principles within each component of internal control and determined whether or not they have been adequately addressed within the current system of internal control and adequately documented. Based on this assessment, management, under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included herein. 77 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Arcturus Therapeutics Holdings Inc. Opinion on Internal Control over Financial Reporting We have audited Arcturus Therapeutics Holdings Inc. and its Subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Arcturus Therapeutics Holdings Inc. and its Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 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, 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Diego, California February 28, 2022 78 Changes in Internal Control Over Financial Reporting. An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 79 PART III Item 10. Directors, Executive Officers and Corporate Governance Information required by this item will be contained in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2021. Such information is incorporated herein by reference. Item 11. Executive Compensation Information required by this item will be contained in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2021. Such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item will be contained in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2021. Such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item will be contained in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2021. Such information is incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information required by this item will be contained in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2021. Such information is incorporated herein by reference. 80 PART IV Item 15. Exhibits, Financial Statement Schedules (a) (1) The information required by this item is included in Item 8 of Part II of this Annual Report.; (2) Financial statement schedules not listed above have been omitted because information required to be set forth therein is not applicable, not required, or the information required by such schedules is shown in the consolidated financial statements or the notes thereto. (3) See the exhibit index preceding the signature pages to this Annual Report, which is incorporated by reference herein. (b) See the exhibit index preceding the signature pages to this Annual Report, which is incorporated by reference herein. (c) Not applicable. Item 16. Form 10-K Summary None. 81 Exhibit Index Exhibit Number Description 1.1 Underwriting Agreement, dated December 7, 2020, by and among Arcturus Therapeutics Holdings Inc., Piper Sandler & Co., Guggenheim Securities, LLC and Wells Fargo Securities, LLC. Incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on December 8, 2020 (File No. 001-38942). 3.1 Certificate of Incorporation. Incorporated by reference to Annex B to the proxy statement/prospectus which forms part of the Registration Statement on Form S-4 filed on March 18, 2019 (File No. 333-230353). 3.2 Certificate of Amendment, dated November 25, 2020. Incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 25, 2020 (File No. 001-38942). 3.3 Bylaws of Arcturus Therapeutics Holdings Inc. Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3, filed with the SEC on May 8, 2020 (File No. 333-238139). 4.1* Description of Registrant’s Securities. 10.1† Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020 (File No. 001-38942). 10.2† Amended and Restated 2019 Omnibus Equity Incentive Plan. Incorporated by reference Exhibit 4.3 to the Registration Statement on Form S-8 filed on August 5, 2020 (File No. 001-38942). 10.3† Arcturus Therapeutics Ltd. Amended and Restated Compensation Policy for Company Office Holders. Incorporated by reference to Exhibit 99.2 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on July 27, 2018 (File No. 001-35932). 10.4** Loan and Security Agreement, dated October 12, 2018, by and between Western Alliance Bank and Arcturus Therapeutics, Inc. Incorporated by reference to Exhibit 10.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on October 15, 2018 (File No. 001-35932). 10.5** Amended and Restated Amendment to Development and Option Agreement, dated as of September 28, 2018, by and between CureVac AG and Arcturus Therapeutics Inc. Incorporated by reference to Exhibit 99.2 to the Company’s Report of Foreign Private Issuer on Form 6-K filed on October 1, 2018 (File No. 001-35932). 10.6** Research Collaboration and License Agreement, by and between Arcturus Therapeutics, Inc. and Janssen Pharmaceuticals, Inc., dated October 18, 2017. Incorporated by reference to Exhibit 4.7 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.7** Research and Exclusive License Agreement, by and between Arcturus Therapeutics, Inc. and Synthetic Genomics, Inc., effective October 24, 2017. Incorporated by reference to Exhibit 4.8 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.8** Research Agreement, by and between Arcturus Therapeutics, Inc. and Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited, effective December 6, 2016, as amended December 21, 2017. Incorporated by reference to Exhibit 4.9 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.9** Research Collaboration and License Agreement, by and between Arcturus Therapeutics, Inc. and Ultragenyx Pharmaceutical Inc., entered into as of October 26, 2015, as amended October 17, 2017 and April 20, 2018. Incorporated by reference to Exhibit 4.10 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 82 Exhibit Number Description 10. 10 * * Third Amendment to Research Collaboration and License Agreement, by and between Arcturus Therapeutics, Inc. and Ultragenyx Pharmaceutical Inc., effective June 18, 2019. Incorporated by reference to Exhibit 10.2 to Form 8-K filed on June 20, 2019 (File No. 001- 38942). 10.11** Letter Agreement, by and between Arcturus Therapeutics, Inc. and the Cystic Fibrosis Foundation, dated May 16, 2017. Incorporated by reference to Exhibit 4.11 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.12** Amendment No. 2 to Letter Agreement, by and between Arcturus Therapeutics, Inc. and the Cystic Fibrosis Foundation, dated August 1, 2019. Incorporated by reference to Exhibit 10.16 to Form 10-Q filed on August 14, 2019. 10.13** Development and Option Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated January 1, 2018, as amended May 3, 2018. Incorporated by reference to Exhibit 4.12 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.14** Third Amendment to Development and Option Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated July 26, 2019. Incorporated by reference to Exhibit 10.20 to Form 10-Q filed on August 14, 2019 (File No. 001-38942). 10.15** Co-Development and Co-Commercialization Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated January 1, 2018. Incorporated by reference to Exhibit 4.13 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.16 Termination Agreement, by and between Arcturus Therapeutics, Inc. and CureVac AG, dated July 26, 2019. Incorporated by reference to Exhibit 10.21 to Form 10-Q filed on August 14, 2019 (File No. 001-38942). 10.17** License Agreement, by and between Arcturus Therapeutics, Inc., as successor-in-interest to Marina Biotech, Inc., and Protiva Biotherapeutics Inc., dated as of November 28, 2012. Incorporated by reference to Exhibit 4.14 to Form 20-F/A filed on July 10, 2018 (File No. 001-35932). 10.18** Patent Assignment and License Agreement, by and between Arcturus Therapeutics, Inc. and Marina Biotech, Inc., dated as of August 9, 2013. Incorporated by reference to Exhibit 4.15 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 10.19 Share Exchange Agreement, dated as of February 11, 2019, by and between Arcturus Therapeutics Ltd. and Arcturus Therapeutics Holdings Inc. Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 18, 2019 (File No. 001-35932). 10.20** Amended and Restated Joint Venture, Research Collaboration and License Agreement, dated as of July 14, 2018 by and between Arcturus Therapeutics, Inc. and Providence Therapeutics, Inc. Incorporated by reference to Exhibit 10.14 to the Company’s Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 2018 filed on April 10, 2019 (File No. 001-35932). 10.21** Research Collaboration Agreement, dated as of March 8, 2019 by and between Arcturus Therapeutics, Inc. and Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited. Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 18, 2019 (File No. 001-35932). 10.22 Lease Agreement, by and between Arcturus Therapeutics, Inc. and ARE-SD Region No. 44, LLC, dated October 4, 2017. Incorporated by reference to Exhibit 4.6 to Form 20-F filed on May 14, 2018 (File No. 001-35932). 83 Exhibit Number Description 10.23 First Amendment to Lease Agreement, by and between Arcturus Therapeutics Holdings Inc. and ARE-SD Region No. 44, LLC dated February 1, 2020. Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020 (File No. 001-38942). 10.24** Acceptance Letter, dated March 4, 2020, by and between Arcturus Therapeutics Holdings Inc. and the Economic Development Board of Singapore. Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020 (File No. 001-38942). 10.25** Supply Agreement, dated August 17, 2020, by and between Arcturus Therapeutics, Inc. and the Israeli Ministry of Health. Incorporated by reference to Exhibit 10.32 to Quarterly Report on Form 10-Q filed on November 9, 2020 (File No. 001-38942). 10.26** Manufacturing Support Agreement, dated November 7, 2020, by and between Arcturus Therapeutics Holdings Inc. and the Economic Development Board of Singapore. Incorporated by reference to Exhibit 10.33 to Quarterly Report on Form 10-Q filed on November 9, 2020 (File No. 001-38942). 10.27 Fourth Amendment to Loan and Security Agreement, dated December 1, 2020, by and between Arcturus Therapeutics, Inc. and Western Alliance Bank. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 7, 2020 (File No. 001-38942). 10.28† 2020 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 4.3 to Form S-8 filed on August 5, 2020 (File No. 001-38942). 10.29 Second Amendment to Lease, by and between Arcturus Therapeutics, Inc. and ARE-SD Region No. 44, LLC, dated November 13, 2020. Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed on March 1, 2020 (File No. 001-38942). 10.30 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. 001-38942). 10.31 Employment Agreement, dated as of June 13, 2019, between the Company and Joseph Payne. Incorporated by reference to Exhibit 10.1 to Form 8-K12B filed on June 14, 2019 (File No. 001-38942) 10.32 Employment Agreement, dated as of June 13, 2019, between the Company and Andy Sassine. Incorporated by reference to Exhibit 10.2 to Form 8-K12B filed on June 14, 2019 (File No. 001-38942) 10.33 Employment Agreement, dated as of June 13, 2019, between the Company and Dr. Padmanabh Chivukula. Incorporated by reference to Exhibit 10.3 to Form 8-K12B filed on June 14, 2019 (File No. 001-38942) 10.34 2021 Inducement Equity Incentive Plan. Incorporated by reference to Exhibit 4.1 to Form S-8 filed on October 20, 2021 (File No. 333-260391). 10.35 Fifth Amendment to Loan and Security Agreement, dated October 27, 2021, by and between Arcturus Therapeutics, Inc. and Western Alliance Bank. Incorporated by reference to Exhibit 10.34 to Form 10-Q filed on November 9, 2021 (File No. 001-38942). 10.36 Lease, by and between Arcturus Therapeutics, Inc. and TPSC IX, LLC, dated September 29, 2021. Incorporated by reference to Exhibit 10.35 to Form 10-Q filed on November 9, 2021 (File No. 001-38942). 84 Exhibit Number Description 10.37 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. 001-38942). 10.38 Technology License and Technical Support Agreement, signed July 29, 2021 and effective July 30, 2021, by and between Arcturus Therapeutics, Inc. and Vinbiotech Research and Manufacture Joint Stock Company. Incorporated by reference to Exhibit 10.32 to Quarterly Report on Form 10-Q filed on August 10, 2021 (File No. 001-38942). 10.39 Framework Drug Substance Supply Agreement, signed July 29, 2021 and effective July 30, 2021, by and between Arcturus Therapeutics, Inc. and Vinbiotech Research and Manufacture Joint Stock Company. Incorporated by reference to Exhibit 10.33 to Quarterly Report on Form 10-Q filed on August 10, 2021 (File No. 001-38942). 10.40 Arcturus Therapeutics Holdings Inc. Severance Policy for Executives. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 26, 2021 (File No. 001-38942). 23.1* Consent of Independent Registered Public Accounting Firm 24.1* Power of Attorney (included on the signature page of this Annual Report). 31.1* Certification by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 31.2* Certification by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 31.3* Certification by Principal Accounting Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3* Certification of Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101* The following financial statements and footnotes from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 formatted in Inline Extensible Business Reporting Language (Inline XBRL): 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Certain confidential portions of this exhibit have been redacted from the publicly filed document because such portions are (i) not material and (ii) would be competitively harmful if publicly disclosed. 85 Exhibit Number Description † Management compensatory plan, contract or arrangement. 86 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . ARCTURUS THERAPEUTICS HOLDINGS INC. Date: February 28, 2022 By: /s/ Joseph E. Payne Name: Joseph E. Payne Title: President, Chief Executive Officer and Director The undersigned officers and directors of Arcturus Therapeutics Holdings Inc., hereby severally constitute and appoint Joseph E. Payne and Dr. Padmanabh Chivukula, and each of them individually, with full power of substitution and resubstitution, as their true and lawful attorneys and agents, to do any and all acts and things in their name and behalf in their capacities as directors and officers and to execute any and all instruments for them and in their names in the capacities indicated below, which said attorneys and agents, may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for them or any of them in their names in the capacities indicated below, any and all amendments hereto, and they do hereby ratify and confirm all that said attorneys and agents, or either of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Joseph E. Payne President, Chief Executive Officer and Director February 28, 2022 Joseph E. Payne (principal executive officer) /s/ Dr. Peter Farrell Chairman of the Board February 28, 2022 Dr. Peter Farrell /s/ Andrew Sassine Director and Chief Financial Officer February 28, 2022 Andrew Sassine (principal financial officer) /s/ Dr. Magda Marquet Director February 28, 2022 Dr. Magda Marquet /s/ James Barlow Director February 28, 2022 James Barlow /s/ Edward Holmes Director February 28, 2022 Edward Holmes /s/ Jing Marantz Director February 28, 2022 Jing Marantz /s/ Keith C. Kummerfeld Vice President of Finance and Corporate Controller February 28, 2022 Keith C. Kummerfeld (principal accounting officer) 87 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2021, 2020 and 2019 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2021, 2020 and 2019 F-6 Consolidated Statements of Cash Flows for the Years ended December 31, 2021, 2020 and 2019 F-7 Notes to Consolidated Financial Statements F-8 F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Arcturus Therapeutics Holdings Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Arcturus Therapeutics Holdings Inc. and its Subsidiaries (the Company) as of December 31, 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 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Accrued research and development expenses Description of the Matter At December 31, 2021, the Company incurred $173.8 million for research and development expenses and accrued $8.7 million for clinical trial expenses. As described in Note 2 to the consolidated financial statements, the Company records accruals for estimated costs of research and development activities, including contract services for clinical trials and related clinical manufacturing costs in connection with early discovery efforts. Clinical trial activities performed by third parties are accrued and expensed based upon estimates of the proportion of work completed over the life of the individual clinical trial and patient enrollment rates in accordance with agreements established with Clinical Research Organizations (“CROs”) and clinical trial sites. Estimates are determined by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. Auditing management’s accounting for accrued research and development expenses, for which the Company has either not been invoiced or has not received information on the actual costs incurred, was especially challenging as evaluating the progress or stage of completion of the activities under the Company’s research and development agreements is dependent upon information from internal clinical personnel and third party service providers and involves a high volume of data which is tracked in spreadsheets and other end user computing programs. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the accounting for accrued research and development expenses. For example, we tested controls over management’s assessment and measurement of estimated accrued costs, including data inputs for study progress and remaining stages of completion under each study. To test the Company’s accrued research and development expenses, we obtained supporting evidence of the research and development activities performed for significant clinical trials. We attended internal clinical trial and project status meetings with accounting and clinical project managers to inspect the status of significant research and development activities. To assess the appropriate measurement of accrued research and development costs, our audit procedures included, among others, obtaining and inspecting significant agreements and agreement amendments, evaluating the Company’s documentation of trial timelines, confirming amounts incurred to-date with third-party service providers, and testing a sample of transactions and comparing the costs against related invoices and contracts. We also tested a sample of subsequent payments to evaluate the completeness of the accrued expenses and compared the results to the current year accrual. /s/ Ernst & Young, LLP We have served as the Company’s auditor since 2018. San Diego, California February 28, 2022 F-3 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except par value information) As of December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 370,492 $ 462,895 Accounts receivable 3,367 2,125 Prepaid expenses and other current assets 5,102 2,769 Total current assets 378,961 467,789 Property and equipment, net 5,643 3,378 Operating lease right-of-use asset, net 5,618 5,182 Equity-method investment 515 — Non-current restricted cash 2,077 107 Total assets $ 392,814 $ 476,456 Liabilities and stockholders’ equity Current liabilities : Accounts payable $ 10,058 $ 10,774 Accrued liabilities 23,523 19,389 Current portion of long-term debt 22,474 1,250 Deferred revenue 43,482 18,108 Total current liabilities 99,537 49,521 Deferred revenue, net of current portion 19,931 12,512 Long-term debt, net of current portion 40,633 13,845 Operating lease liability, net of current portion 4,502 4,025 Total liabilities 164,603 79,903 Stockholders’ equity: Common stock: $ 0.001 par value; 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 26 26 Additional paid-in capital 575,675 540,343 Accumulated deficit ( 347,490 ) ( 143,816 ) Total stockholders’ equity 228,211 396,553 Total liabilities and stockholders’ equity $ 392,814 $ 476,456 The accompanying notes are an integral part of these consolidated financial statements. F-4 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share data) Year Ended December 31, 2021 2020 2019 Revenue $ 12,359 $ 9,539 $ 20,789 Operating expenses: Research and development, net 173,760 57,846 33,640 General and administrative 41,451 23,217 12,662 Total operating expenses 215,211 81,063 46,302 Loss from operations ( 202,852 ) ( 71,524 ) ( 25,513 ) Gain (loss) from equity-method investment 515 ( 263 ) ( 32 ) Foreign currency transaction gain 584 — — Finance expense, net ( 1,921 ) ( 361 ) ( 446 ) Net loss ( 203,674 ) ( 72,148 ) ( 25,991 ) Net loss per share, basic and diluted $ ( 7.74 ) $ ( 3.55 ) $ ( 2.15 ) Weighted-average shares outstanding, basic and diluted 26,317 20,305 12,069 Comprehensive loss: Net loss $ ( 203,674 ) $ ( 72,148 ) $ ( 25,991 ) Comprehensive loss $ ( 203,674 ) $ ( 72,148 ) $ ( 25,991 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands) Additional Total Common Stock Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity BALANCE – December 31, 2018 10,762 $ 214 $ 58,302 $ ( 44,874 ) $ 13,642 Net loss — — — ( 25,991 ) ( 25,991 ) Share-based compensation — — 1,982 — 1,982 Redomiciliation share exchange ( 43 ) ( 203 ) 203 — — Issuance of common stock to Ultragenyx, net of issuance costs 2,400 2 15,543 — 15,545 Issuance of common stock, net of issuance costs 1,995 2 21,276 — 21,278 Issuance of common stock upon exercise of stock options 24 — 139 — 139 Effect of adoption of ASU 2014-09 — — — ( 803 ) ( 803 ) BALANCE – December 31, 2019 15,138 $ 15 $ 97,445 $ ( 71,668 ) $ 25,792 Net loss — — — ( 72,148 ) ( 72,148 ) Share-based compensation — — 6,764 — 6,764 Issuance of common stock to Ultragenyx on option exercise 600 1 9,599 — 9,600 Issuance of common stock, net of issuance costs 10,059 10 423,809 — 423,819 Issuance of common stock upon exercise of stock options 395 — 2,726 — 2,726 BALANCE – December 31, 2020 26,192 $ 26 $ 540,343 $ ( 143,816 ) $ 396,553 Net loss — — — ( 203,674 ) ( 203,674 ) Share-based compensation — — 28,915 — 28,915 Issuance of common stock related to acquired in-process research and development 75 — 5,000 — 5,000 Issuance of common stock upon exercise of stock options 92 — 902 — 902 Issuance of common stock under equity plans 13 — 515 — 515 BALANCE – December 31, 2021 26,372 $ 26 $ 575,675 $ ( 347,490 ) $ 228,211 The accompanying notes are an integral part of these consolidated financial statements. F-6 ARCTURUS THERAPEUTICS HOLDINGS INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2021 2020 2019 OPERATING ACTIVITIES: Net loss $ ( 203,674 ) $ ( 72,148 ) $ ( 25,991 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,193 882 684 Share-based compensation expense 28,915 6,764 1,982 Acquired in-process research and development expense 5,000 — — (Gain) loss from equity-method investment ( 515 ) 263 25 Foreign currency transaction gain ( 577 ) — — Other non-cash expenses 3,382 162 873 Changes in operating assets and liabilities: Accounts receivable ( 1,242 ) 54 2,302 Prepaid expenses and other assets ( 2,333 ) ( 2,011 ) ( 120 ) Accounts payable ( 769 ) 4,812 3,155 Accrued liabilities 2,783 11,320 1,675 Deferred revenue 32,794 7,041 8,970 Net cash used in operating activities ( 135,043 ) ( 42,861 ) ( 6,445 ) INVESTING ACTIVITIES: Acquisition of property and equipment ( 3,406 ) ( 1,742 ) ( 818 ) Net cash used in investing activities ( 3,406 ) ( 1,742 ) ( 818 ) FINANCING ACTIVITIES: Proceeds from long-term debt, net of lender fees 46,599 — 4,945 Proceeds from exercise of stock options 902 2,726 139 Proceeds from issuance of common stock under equity plans 515 — — Proceeds from exercise of stock option by Ultragenyx and issuance of common stock and option, net of issuance costs, to Ultragenyx — 9,600 15,545 Proceeds from issuance of common stock, net of issuance costs — 423,819 21,278 Net cash provided by financing activities 48,016 436,145 41,907 NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 90,433 ) 391,542 34,644 Cash, cash equivalents and restricted cash at beginning of year 463,002 71,460 36,816 Cash, cash equivalents and restricted cash at end of year $ 372,569 $ 463,002 $ 71,460 Year Ended December 31, 2021 2020 2019 Supplemental disclosure of cash flow information: Cash paid for interest $ 684 $ 751 $ 691 Non-cash investing activities Right-of-use asset obtained in exchange for lease liabilities $ 1,828 $ 1,360 $ 5,868 Acquisition of in-process research and development through issuance of common stock $ 5,000 $ — $ — Purchase of property and equipment in accounts payable $ 53 $ 169 $ 240 The accompanying notes are an integral part of these consolidated financial statements. F-7 Arcturus Therapeutics Holdings Inc. And its Subsidiaries Notes to Consolidated Financial Statements Note 1. Organization Description of Business Arcturus Therapeutics Holdings Inc. (the “Company”) is a 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 Company became a clinical stage company during 2020 when it announced that its Investigational New Drug (“IND”) application for ornithine transcarbamylase (“OTC”) deficiency and its Clinical Trial Application (“CTA”) candidate LUNAR-COV19 were approved by applicable health authorities. The financial statements for periods prior to June 17, 2019 , the effective date of the Redomiciliation, relate to Arcturus Therapeutics Ltd. and for the periods from and after June 17, 2019 relate to Arcturus Therapeutics Holdings Inc. Recent Developments See “Note 3 Revenue – 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. Liquidity The Company has incurred significant operating losses since its inception. As of December 31, 2021 and 2020, the Company had an accumulated deficit of $ 347.5 million and $ 143.8 million, respectively. The Company’s activities since inception have consisted principally of research and development activities, general and administrative activities, and raising capital. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before the Company achieves sustainable revenues and profit from operations. From the Company’s inception through the year ended December 31, 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. There can be no assurance that the Company will be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years. F-8 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of Arcturus Therapeutics Holdings Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP), which requires management to make estimates and assumptions regarding the valuation of certain debt and equity instruments, the equity method investment, share-based compensation, accruals for liabilities, income taxes, revenue and deferred revenue, leases, expense accruals, and other matters that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, actual results could materially differ from those estimates. Segment Information Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company and its chief operating decision-maker view the Company’s operations and manage its business in one operating segment which is the research and development of medical applications for the Company’s nucleic acid-focused technology. Cash and Cash Equivalents Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date of purchase. Restricted cash Restricted cash represents cash required to be set aside as security for lease payments and to maintain a letter of credit for the benefit of the landlord for the Company’s offices. At December 31, 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 Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available under the circumstances. The hierarchy consists of three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounts Receivable Accounts receivable are recorded at the net invoice value and are non-interest bearing. The Company considers receivables past due based on the contractual payment terms. The Company reserves for specific receivables if collectability is no longer reasonably assured. Estimates for allowances for doubtful accounts are 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 F-9 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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 . Concentration of Credit Risk and Significant Customers Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company limits its exposure to credit loss by placing its cash and cash equivalents with high credit quality financial institutions in instruments with short maturities. There were two customers that comprised 100 % of the total accounts receivable balance at December 31, 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. 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. F-10 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Property and Equipment, net Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized using the straight-line method over the respective useful lives of the assets, ranging from three to five years . Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. Long-lived assets, including property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. The determinants used for this evaluation include management’s estimate of an asset’s ability to generate positive income from operations and positive cash flow in future periods, as well as the strategic significance of the assets to the Company’s business objectives. The Company did no t recognize any impairment losses for the years ended December 31, 2021, 2020 and 2019. Comprehensive Income/Loss Comprehensive income/loss is defined as the change in stockholders’ equity during a period from transactions and other events and circumstances from non-owner sources. There was no other comprehensive loss in the years ended December 31, 2021, 2020 or 2019. There was no income tax effect related to unrealized losses for the years ended December 31, 2021, 2020 or 2019. Revenue Recognition Effective January 1, 2019 , the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), using the modified retrospective transition method. Topic 606 provides a unified model to determine how revenue is recognized and the Company applied the standard to collaborative research and technology agreements that were in progress as of the effective date, January 1, 2019. The Company determines revenue recognition for arrangements within the scope of Topic 606 by performing the following five steps: (i) identify the contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the company satisfies a performance obligation. The terms of the Company’s 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. The event-based milestone payments represent variable consideration, and the Company uses the most likely amount method to estimate this variable consideration because the Company will either receive the milestone payment or will not, which makes the potential milestone payment a binary event. The most likely amount method requires the Company to determine the likelihood of earning the milestone payment. Given the high degree of uncertainty around achievement of these milestones, the Company determines the milestone amounts to be fully constrained and does not recognize revenue until the uncertainty associated with these payments is resolved. The Company will recognize revenue from sales-based royalty payments when or as the sales occur. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. A performance obligation is a promise in a contract to transfer a distinct good or service to the collaborative partner and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied. See “Note 3, Revenue” for specific details surrounding the Company’s arrangements. Leases See “Note 11, Commitments and Contingences” for specific details surrounding the Company’s leases. Research and Development Costs, net All research and development costs are expensed as incurred. Research and development costs consist primarily of salaries, employee benefits, costs associated with preclinical studies and clinical trials (including amounts paid to clinical research organizations and other professional services), in process research and development expenses and license agreement expenses, net of any grants and prelaunch inventory. Payments made F-11 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. Some of these contractors bill monthly based on actual services performed, while others bill periodically based upon achieving certain contractual milestones. For the latter, the Company accrues the expenses as goods or services are used or rendered. Clinical trial site costs related to patient enrollment are accrued as patients enter and progress through the trial. Share-Based Compensation The Company recognizes share-based compensation for equity awards granted to employees, consultants, officers and directors as an expense on the statements of operations and comprehensive loss. Share-based compensation is recognized over the requisite service period of the individual awards using the straight-line attribution method, which generally equals the vesting period. Employees and officers’ stock options have a ten-year life and generally vest 25 % on the first anniversary of the grant and in 1/36 th equal installments on each monthly anniversary thereafter, such that options are fully vested on the four-year anniversary of the date of grant. The exercisability and vesting periods of options granted to consultants and directors vary. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. This method requires certain assumptions be used as inputs, such as the fair value of the underlying common stock, expected term of the option before exercise, expected volatility of the Company’s common stock, expected dividend yield, and a risk-free interest rate. The Company has limited historical stock option activity and therefore estimates the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period. The expected volatility of stock options is based upon the historical volatility of a peer group of publicly traded companies. The Company has not declared or paid any dividends and does not currently expect to do so in the foreseeable future. The risk-free interest rates used are based on the implied yield currently available in United States Treasury securities at maturity with a term equivalent to the expected term of the stock options. The effect of forfeited awards is recorded when the forfeiture occurs. Pre-Launch Inventory Prior to obtaining initial regulatory approval for an investigational product candidate, the Company expenses costs relating to production of inventory as research and development expense in its consolidated statements of operations and comprehensive loss, in the period incurred. When the Company believes regulatory approval and subsequent commercialization of an investigational product candidate is probable, and the Company also expects future economic benefit from the sales of the investigational product candidate to be realized, it will then capitalize the costs of production as inventory. Statement of Cash Flows The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of such amounts shown in the consolidated statement of cash flows: As of December 31, (in thousands) 2021 2020 2019 Cash and cash equivalents $ 370,492 $ 462,895 $ 71,353 Non-current restricted cash 2,077 107 107 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 372,569 $ 463,002 $ 71,460 Income Tax Expense Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at the applicable tax rates, along with net operating loss and tax credit carryovers. The Company records a valuation allowance against its deferred tax assets F-12 Arcturus Therapeutics Holdings Inc. and its Subsidiaries 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. Based upon the weight of available evidence, which includes the Company’s historical operating performance and limited potential to utilize tax credit carryforwards, the Company has determined that total deferred tax assets should be fully offset by a valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made. The Company is required to file federal and state income tax returns in the United States and various other state jurisdictions. The Company also files income tax returns in the foreign countries in which it operates. The preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. Additionally, the Company follows an accounting standard addressing the accounting for uncertainty in income taxes that prescribes rules for recognition, measurement, and classification in the consolidated financial statements of tax positions taken or expected to be taken in a tax return. 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 Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive shares of common stock for the years ended December 31, 2021, 2020 and 2019 are comprised of stock options. No dividends were declared or paid during the reporting periods. NOTE 3. Revenue The Company has entered into license agreements and collaborative research and development arrangements with pharmaceutical and biotechnology companies, as well as consulting, related technology transfer and product revenue agreements. Under these arrangements, the Company is entitled to receive license fees, consulting fees, product fees, technological transfer fees, upfront payments, milestone payments if and when certain research and development milestones or technology transfer milestones are achieved, royalties on approved product sales and reimbursement for research and development activities. The Company’s costs of performing these services are included within research and development expenses. The Company’s milestone payments are typically defined by achievement of certain preclinical, clinical, and commercial success criteria. Preclinical milestones may include in vivo proof of concept in disease animal models, lead candidate identification, and completion of IND-enabling toxicology studies. Clinical milestones may, for example, include successful enrollment of the first patient in or completion of Phase 1, 2 and 3 clinical trials, and commercial milestones are often tiered based on net or aggregate sale amounts. The Company cannot guarantee the achievement of these milestones due to risks associated with preclinical and clinical activities required for development of nucleic acid medicine-based therapeutics and vaccines. F-13 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued The following table presents changes during the year ended December 31, 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) Contract Assets BALANCE - December 31, 2020 $ 2,125 Additions for revenue recognized from billings 35,152 Deductions for cash collections ( 33,910 ) BALANCE - December 31, 2021 $ 3,367 (in thousands) Contract Liabilities BALANCE - December 31, 2020 $ 30,620 Additions for advanced billings 45,152 Deductions for promised services provided in current period ( 12,359 ) BALANCE – December 31, 2021 $ 63,413 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, (in thousands) 2021 2020 2019 Vinbiocare $ 4,364 $ — $ — Janssen 3,129 2,964 2,912 Ultragenyx 3,700 3,983 5,862 CureVac 1,019 1,006 6,611 SGI — 256 3,518 Other 147 1,330 1,886 Total revenue $ 12,359 $ 9,539 $ 20,789 The following paragraphs provide information regarding the nature and purpose of the Company’s most significant revenue arrangements. F-14 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Vinbiocare 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. Janssen F-15 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued In October 2017, the Company entered into a research collaboration and license agreement with Janssen (the “2017 Agreement”) to collaborate on developing candidates for treating HBV with RNA therapeutics. The 2017 Agreement allocated discovery, development, funding obligations, and ownership of related intellectual property among the Company and Janssen. The Company received an upfront payment of $ 7.7 million and 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. 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, 2021 and 2020 for Janssen was $ 6.3 million and $ 5.9 million, respectively. Ultragenyx In October 2015 the Company entered into a research collaboration and license agreement with Ultragenyx (the “Ultragenyx Agreement”), whereby Arcturus granted to Ultragenyx a co-exclusive license to certain Arcturus technology, which is in effect only during the reserve target exclusivity term as discussed in the following paragraphs. This collaboration agreement was amended in 2017, 2018 and during the second quarter of 2019. During the initial phase of the collaboration, the Company will design and optimize therapeutics for certain rare disease targets. Ultragenyx has the option under the Ultragenyx Agreement to add additional rare disease targets during the collaborative development period. Additionally, during the collaborative development period, the Company will participate with Ultragenyx in a joint steering committee. As part of the Ultragenyx Agreement and related amendments, Ultragenyx has paid $ 27.9 million in upfront fees, exclusivity extension fees and additional consideration. Ultragenyx also reimburses the Company for all internal and external development costs incurred. Pursuant to the Ultragenyx Agreement, Ultragenyx is required to make additional payments upon exercise of the Ultragenyx expansion option or exclusivity extension (if any) and if Ultragenyx achieves certain, clinical, regulatory and sales milestones, then the Company is eligible to receive royalty payments . For each development target for which Ultragenyx exercises its option, Ultragenyx will pay the Company a one-time option exercise fee that increases based upon the number of development targets selected by Ultragenyx and ranges from $ 0.5 million to $ 1.5 million. During the fourth quarter of 2020, Ultragenyx exercised its option to move forward with Preclinical Candidate Designation for its development target, Glycogen Storage Disease III, and paid an option fee to the Company of $ 0.5 million. 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, 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”). As part of Amendment 3, the total number of targets was increased from 10 to 12 , and reserve targets will be exclusively reserved for Ultragenyx with no fees for four years after execution of the amendment. An equity component was also added as part of Amendment 3 wherein Ultragenyx purchased 2.4 million shares of common stock at a premium price. Along with the equity purchase, Ultragenyx received an option to purchase 0.6 million additional shares of common stock at $ 16.00 per share. In May 2020, the option was exercised. The consideration received from Ultragenyx as a result of Amendment 3 was equal to $ 30.0 million and was comprised of a $ 24.0 million common stock purchase and a $ 6.0 million upfront payment. Specifically for F-16 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Amendment 3, management determined the transaction price to be $ 14.4 million. 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 . 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. The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that the consideration is outside the control of the Company and contingent upon success in future clinical trials, approval from the FDA and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to Ultragenyx and therefore have also been excluded from the transaction price. Amendment 3 was deemed a contract modification and accounted for as part of the original Ultragenyx Agreement. The transaction price is recognized to revenue on a straight-line basis using an input method over the 4 -year reserve target exclusivity period. The reserve target exclusivity period represents the timing over which promised goods/services will be provided. Total deferred revenue at December 31, 2021 and December 31, 2020 from Ultragenyx was $ 5.5 million and $ 9.2 million, respectively. 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. Prior to expiration of the initial term of eight years (which was subsequently amended, as discussed below), the Development and Option Agreement also includes an option to extend the term on an annual basis for up to three years , subject to payment by CureVac to Arcturus of a non-refundable annual extension fee. The Development and Option Agreement includes potential milestone payments from CureVac to the Company for selected targets. The current potential milestone payments for the remaining targets as of December 31, 2021 are $ 14.0 million for rare disease targets and $ 23.0 million for non-rare disease targets. CureVac will pay royalties as a percentage of net sales on a product-by-product and country-by-country basis during the applicable royalty term in the low single-digit range . As of December 31, 2021, CureVac has not yet reached the clinical phase of the contract. Pursuant to a May 2018 amendment to the Development and Option Agreement (and as amended and restated on September 28, 2018), the Company increased the number of targets available to CureVac under the Development and Option Agreement and agreed upon the license forms to be executed upon selection of the targets by CureVac. 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. As of December 31, 2021, the transaction price included the upfront consideration received. The Company recognizes the reimbursement of labor and expenses as costs are incurred and none of the development and commercialization milestones were included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the collaborator’s efforts. Any consideration related to sales-based royalties will be recognized when the related sales occur as they are constrained, provided that the reported sales are reliably measurable and the Company has no remaining promised goods/services, as such sales were determined to relate predominantly to the license granted to CureVac and therefore have also been excluded from the transaction price. As of December 31, 2021, no adjustments were made to the transaction price. F-17 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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 19 month contractual term as of Dec ember 3 1 , 2021. 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 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 On August 17, 2020, the Company entered into an agreement with the Israeli Ministry of Health (“MOH”) to supply the Company’s COVID-19 vaccine candidate to Israel (the “Israel Supply Agreement”) subject to certain conditions, including applicable regulatory approvals. In October 2020, and in association with the Israel Supply Agreement, the Company received a non-refundable payment of $ 12.5 million from the MOH which is included in deferred revenue as of December 31, 2021. This payment of $ 12.5 million is associated with a specified clinical trial milestone and serves as an initial reserve payment for a specified number of doses of the LUNAR-COV19 vaccine candidate pursuant to the Israel Supply Agreement. As a result of the making of this payment, the MOH became bound to purchase an initial quantity of 500,000 reserved vaccine doses, as set forth in and subject to the terms and conditions of the Israel Supply Agreement. NOTE 4. Fair Value Measurements The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company established a fair value hierarchy based on the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3: Unobservable inputs in which little or no market data exists and are therefore determined using estimates and assumptions developed by the Company, which reflect those that a market participant would use. The carrying value of cash, restricted cash, accounts receivable, accounts payable, accrued liabilities and the Singapore loan approximate their respective fair values due to their relative short maturities. The carrying amounts of long-term debt for the amount drawn on the Company’s debt facility approximates fair value as the interest rate is variable and reflects current market rates. As of December 31, 2021 and 2020, all assets measured at fair value on a recurring basis consisted of cash equivalents, money market funds, which were classified within Level 1 of the fair value hierarchy. The fair value of these financial instruments was measured based on quoted prices. F-18 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued NOTE 5 . Balance Sheet Details Accrued liabilities consisted of the following: December 31, (in thousands) 2021 2020 Accrued compensation $ 3,578 $ 2,097 Cystic Fibrosis Foundation liability 2,777 6,585 Singapore Economic Development Board liability — 1,761 Current portion of operating lease liability 1,537 1,630 Clinical accruals 8,675 4,067 Other accrued research and development expenses 6,956 3,249 Total $ 23,523 $ 19,389 NOTE 6 . Property and Equipment, Net Property and equipment, net consisted of the following: December 31, (in thousands) 2021 2020 Research equipment $ 6,735 $ 5,539 Computers and software 488 284 Office equipment and furniture 574 574 Leasehold improvements 44 44 Construction in progress 2,058 — Total $ 9,899 $ 6,441 Less accumulated depreciation and amortization ( 4,256 ) ( 3,063 ) Property and equipment, net $ 5,643 $ 3,378 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. NOTE 7. Debt Manufacturing Supply Agreement On November 7, 2020, the Company’s wholly-owned subsidiary, Arcturus Therapeutics, Inc., entered into a Manufacturing Support Agreement (the “Support Agreement”) with the Economic Development Board of the Republic of Singapore (the “EDB”). Pursuant to the Support Agreement, the EDB agreed to make a term loan (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 F-19 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued payment of 10 % of net sales proceeds of the LUNAR-COV19 vaccine candidate, up to the amount of the outstanding principal and interest under the Singapore Loan. However, all unpaid principal and interest under the Singapore Loan will be due and payable five years after draw date, if net sales of the LUNAR-COV19 vaccine exceed a certain minimum threshold during this five year period or the Company obtains clearance to sell the vaccine in specified jurisdictions. Unpaid principal and interest under the Singapore Loan will also become due and payable upon an event of default under the Support Agreement. The first vaccine sales, including the amount of net sales, shall be reported to EDB within 10 days of delivery and quarterly reports of aggregate vaccine sales, including net sales proceeds shall be provided within 30 days after quarter end. 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 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 On October 12, 2018, Arcturus Therapeutics, Inc. entered into the Loan with the Bank, whereby it received $ 10.0 million. The Loan is collateralized by all of the assets of Arcturus Therapeutics, Inc., excluding intellectual property, which is subject to a negative pledge. The Loan contains customary conditions of borrowing, events of default and covenants, including covenants that restrict Arcturus Therapeutics, Inc.’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of its capital stock. In addition, Arcturus Therapeutics, Inc. is required to maintain at least 100 % of its consolidated, unrestricted cash, or $ 15.0 million, whichever is lower, with the Bank . On October 30, 2019, Arcturus Therapeutics, Inc. and the Bank entered into a Third Amendment (the “Third Amendment”) to the Loan (as amended, the “Loan Agreement”). Pursuant to the amendment, the Bank agreed to make a term loan to Arcturus Therapeutics, Inc. on October 30, 2019, in the amount of $ 15.0 million (the “Term Loan”). The resulting net increase in the indebtedness of Arcturus Therapeutics, Inc. was $ 5.0 million. The Term Loan bears interest at a floating rate ranging from 1.25 % to 2.75 % above the prime rate. The amendment further provides that the Term Loan has a maturity date of October 30, 2023 . Arcturus Therapeutics, Inc. will make monthly payments of interest only until October 1, 2021 . 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. paid a loan origination fee of $ 54,000 which was recorded as a debt discount along with the remaining loan origination fee from the Loan and is being accreted over the term of the Term Loan. In addition, Arcturus Therapeutics, Inc. is required to pay a fee of $ 525,000 upon certain change of control events. The Term Loan may be prepaid in full at any time, subject to a prepayment fee ranging from 0.50 % to 2.00 % of the prepaid principal amount depending upon the date of the prepayment. Upon maturity or prepayment (as previously discussed), Arcturus Therapeutics, Inc. will be required to pay a 2 % fee as a result of the FDA’s approval to proceed with the Company’s LUNAR-OTC program based on its IND submission. Such fee is accreted to the long-term debt balance using the effective interest method over the term of the Loan Agreement. F-20 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued 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, 2022 $ 6,666,667 2023 8,633,333 Total $ 15,300,000 The Company recognized interest expense related to its long-term debt of $ 2.7 million, $ 0.9 million and $ 0.9 million during the years ended December 31, 2021, 2020 and 2019, respectively. NOTE 8. Stockholders’ Equity 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 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. NOTE 9. 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 . Accordingly, as of December 31, 2021, a total of 78,840 shares remain available for future issuance under the 2019 Plan, subject to the terms of the 2019 Plan. stock F-21 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Employee Stock Purchase Plan In June 2020, the stockholders of the Company approved the 2020 Employee Stock Purchase Plan (“2020 Plan”) which provides for 600,000 shares of Company common stock reserved for future issuance. The first accumulation period under the 2020 Plan commenced on August 17, 2020 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 2020 Plan was $ 0.3 million and $ 0.1 million for 2021 and 2020, respectively. Share Options The following table presents the weighted-average assumptions used in the Black-Scholes valuation model by the Company in calculating the fair value of stock options granted: For the Year Ended December 31, 2021 2020 2019 Expected life (in years) 6.03 6.04 5.92 Expected volatility 73.7 % 72.4 % 73.9 % Expected dividend yield — % — % — % Risk-free interest rate 1.13 % 0.74 % 1.82 % Grant date weighted average fair value $ 26.71 $ 42.33 $ 6.39 The following table summarizes the Company’s stock option activity for the year ended December 31, 2021: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding – December 31, 2020 3,324,713 $ 46.03 Granted 1,699,559 $ 41.87 Exercised ( 93,165 ) $ 9.68 Forfeited/cancelled ( 277,540 ) $ 56.37 Outstanding – December 31, 2021 4,653,567 $ 44.62 8.05 $ 47,111 Exercisable – December 31, 2021 1,613,438 $ 29.48 7.28 $ 31,322 Exercisable and expected to vest – December 31, 2021 4,653,567 $ 44.62 8.05 $ 47,111 At December 31, 2021, the total unrecognized compensation cost of $ 97.5 million will be recognized over the weighted-average remaining service period of approximately 3.0 years. The fair value of the options vested during the years ended December 31, 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: For the Year Ended December 31, (in thousands) 2021 2020 2019 Research and development $ 14,101 $ 2,670 $ 654 General and administrative 14,814 4,094 1,328 Total $ 28,915 $ 6,764 $ 1,982 F-22 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued NOTE 10. Income Taxes A reconciliation of loss before income taxes for domestic and foreign locations is as follows: For the Year Ended December 31, (In thousands) 2021 2020 2019 United States $ ( 203,674 ) $ ( 72,148 ) $ ( 25,922 ) Foreign — — ( 69 ) Total loss before income taxes $ ( 203,674 ) $ ( 72,148 ) $ ( 25,991 ) The Company accounts for income taxes in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes . The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than 50 % likelihood of being sustained. A reconciliation of unrecognized tax benefits is as follows (in millions): December 31, 2021 2020 2019 Beginning balance of unrecognized tax benefits $ 1.5 $ 0.4 $ 0.4 Settlement of prior period tax positions — — — (Decrease) increase for prior period tax positions ( 0.1 ) 0.3 — Increase for current period tax positions 1.0 0.8 — Ending balance of unrecognized tax benefits $ 2.4 $ 1.5 $ 0.4 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 policy is to recognize interest expense and penalties related to income tax matters as income tax expense. 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 . The Company does not anticipate any material changes to its unrecognized tax benefits within the next twelve months. F-23 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued The significant components of deferred income taxes are as follows: December 31, (in thousands) 2021 2020 Deferred tax assets: Net operating loss $ 69,761 $ 33,896 Tax credits 11,020 6,278 Accrued liabilities 910 535 Deferred revenue 5,098 3,230 Inventory 5,850 — Basis difference in equity investments 1,957 — Depreciation and amortization 960 — Lease liability 1,360 1,274 Share-based compensation 3,971 1,338 Total gross deferred tax assets 100,887 46,551 Deferred tax liabilities: Depreciation and amortization — ( 69 ) Right-of-use asset ( 1,265 ) ( 1,168 ) Valuation allowance ( 99,622 ) ( 45,314 ) Net deferred tax asset $ — $ — The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will be reduced. At December 31, 2021, the Company had federal and state net operating losses (“NOL”) carryforwards of approximately $ 258.0 million and $ 226.8 million, respectively. The federal NOL carryforwards begin to expire in 2034 , and the state NOL carryforwards begin to expire in 2034 . The federal net operating loss carryover includes $ 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 (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. If a change in ownership were to have occurred, the NOL carryforwards and other tax attributes could be limited or restricted. If limited, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations 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. F-24 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows: For the Year Ended December 31, 2021 2020 2019 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 6.2 % 6.8 % 4.6 % Foreign rate differential — % — % 0.3 % Share-based compensation ( 0.4 %) 5.5 % ( 0.1 %) Officers compensation ( 1.1 %) — % — % Research and development credits 2.9 % 8.7 % — % Uncertain tax position ( 0.4 %) ( 1.5 %) — % Change in tax rate ( 1.7 %) ( 1.5 %) ( 0.1 %) Foreign net operating losses — % 28.5 % — % Change in valuation allowance ( 26.7 %) ( 67.4 %) ( 25.1 %) Other 0.2 % ( 0.1 %) 0.1 % Permanent differences — % — % ( 0.7 %) Provision for income taxes — % — % — % NOTE 11. Commitments and Contingencies COVID-19 Vaccine Development 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 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. 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 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. F-25 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Cystic Fibrosis Foundation Therapeutics Funding agreement On August 1, 2019, the Company amended its Development Program Letter Agreement, dated May 16, 2017 and as amended July 13, 2018, with the Cystic Fibrosis Foundation (“CFF”). Pursuant to the amendment, (i) CFF 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. Leases In October 2017, the Company entered into a non-cancellable operating lease agreement for office space adjacent to its previously occupied headquarters. The commencement of the lease began in March 2018 and extends for approximately 84 months from the commencement date with a remaining lease term through March 2025. Monthly rental payments are due under the lease and there are escalating rent payments during the term of the lease. The Company is also responsible for its proportional share of operating expenses of the building and common areas. In conjunction with the new lease, the Company received free rent for four months and received a tenant improvement allowance of $ 74,000 . The lease may be extended for one five-year period at the then current market rate with annual escalations; however, the Company deemed the extension option not reasonably certain to be exercised and therefore excluded the option from the lease terms. The Company entered into an irrevocable standby letter of credit with the landlord for a security deposit of $ 96,000 upon executing the lease which is included (along with additional funds required to secure the letter of credit) in the balance of non-current restricted cash. In February 2020, the Company entered into a non-cancellable operating lease agreement for office space near its current headquarters. The lease extends for 13 months from the commencement date 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. The Company does not allocate lease payments to non-lease components; therefore, payments for common-area-maintenance and administrative services are not included in the operating lease right-of-use asset and liability. The Company uses its incremental borrowing rate to calculate the present value of the lease payments, as the implicit rate in the lease is not readily determinable. F-26 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued As of December 31, 2021, the payments of the operating lease liability were as follows: (in thousands) Remaining Lease Payments 2022 $ 1,987 2023 2,185 2024 2,251 Thereafter 522 Total remaining lease payments 6,945 Less: imputed interest ( 906 ) Total operating lease liabilities $ 6,039 Weighted-average remaining lease term 3.25 years Weighted-average discount rate 8.4 % Operating lease costs consist of the fixed lease payments included in operating lease liability and are recorded on a straight-line basis over the lease terms. Operating lease costs were $ 1.9 million, $ 1.9 million and $ 1.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. Note 12. Related Party Transactions Ultragenyx On June 17, 2019, Arcturus and Ultragenyx executed Amendment 3 to the Ultragenyx Agreement. Pursuant to the amended Ultragenyx Agreement, the Company 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. As of December 31, 2021 and 2020, the Company holds accounts receivable balances of negligible amounts related to the Ultragenyx Agreement. Equity-Method Investment In June 2018, the Company completed the sale of its intangible asset related to the ADAIR technology. Pursuant to the asset purchase agreement for ADAIR, the Company received a 30 % ownership interest in the common stock of Vallon Pharmaceuticals, Inc. (“ Vallon ”) in consideration for the sale of the ADAIR technology. The Company has no requirement to invest further in Vallon . Vallon completed an initial public offering and began trading on The Nasdaq Stock Market under the ticker “VLON” in February 2021. Immediately after this offering, Arcturus owned 843,750 shares of Vallon , or approximately 12 % . Based on the Company’s ownership and the Vallon board of directors seat held by an executive of Arcturus, the Company has the ability to exercise significant influence over the operating and financial policies of Vallon ; therefore, the Company accounts for this investment as an equity-method investment. The Company accounts for its share of the earnings or losses of the investee with a reporting lag of three months, as the financial statements of the investee are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis. 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. Note 13. Subsequent Events None. F-27 Arcturus Therapeutics Holdings Inc. and its Subsidiaries Notes to Consolidated Financial Statements — Continued Note 14. Selected Quarterly Financial Data (Unaudited) A summary of our quarterly results is as follows: (in thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 31, 2021: Revenue $ 2,127 $ 2,001 $ 2,437 $ 5,794 Research and development expenses, net 50,050 45,679 45,398 32,633 General and administrative expenses 9,743 10,042 10,860 10,806 Loss from operations ( 57,666 ) ( 53,720 ) ( 53,821 ) ( 37,645 ) Net loss ( 56,346 ) ( 54,581 ) ( 54,084 ) ( 38,663 ) Net loss per share, basic and diluted $ ( 2.15 ) $ ( 2.07 ) $ ( 2.05 ) $ ( 1.47 ) Weighted average shares outstanding, basic and diluted 26,243 26,323 26,338 26,359 Year Ended December 31, 2020: Revenue $ 2,646 $ 2,322 $ 2,333 $ 2,238 Research and development expenses, net 7,917 7,944 17,699 24,286 General and administrative expenses 4,191 4,420 5,572 9,034 Loss from operations ( 9,462 ) ( 10,042 ) ( 20,938 ) ( 31,082 ) Net loss ( 9,777 ) ( 10,263 ) ( 21,004 ) ( 31,104 ) Net loss per share, basic and diluted $ ( 0.67 ) $ ( 0.55 ) $ ( 0.92 ) $ ( 1.25 ) Weighted average shares outstanding, basic and diluted 14,521 18,794 22,938 24,886 F-28