UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31,September 30, 2018

OR

For the transition period from _______ to

Commission file number:001-37769

VBI VACCINES INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:617-830-3031

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

VBI VACCINES INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31,September 30, 2018

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “will”, “may,” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of anticipated products; anticipated expenses; and projected financial results. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections described under the sections in this Quarterly Report on Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2017 annual report on the Form 10-K filed with the Securities and Exchange Commission on February 26, 2018. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Unless otherwise stated or the context otherwise requires, the terms “VBI,” “we,” “us,” “our” and the “Company” refer to VBI Vaccines Inc. and its subsidiaries.

Unless indicated otherwise, all references to the U.S. Dollar, Dollar or $ are to the United States Dollar, the legal currency of the United States of America and all references to € mean Euros, the legal currency of the European Union. We may also refer to NIS, which is the New Israeli Shekel, the legal currency of Israel, and the Canadian Dollar or CAD, which is the legal currency of Canada.

Except for per share amounts or as otherwise specified to be in millions, amounts presented are stated in thousands.

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

See accompanying Notes to Condensed Consolidated Financial Statements

VBI Vaccines Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, except share and per share amounts)

1. NATURE OF BUSINESS AND CONTINUATION OF BUSINESS

Corporate Overview

VBI Vaccines Inc. (the “Company” or “VBI”) was incorporated under the laws of British Columbia, Canada on April 9, 1965.

The Company and its wholly-owned subsidiaries, VBI Vaccines (Delaware) Inc., a Delaware corporation (“VBI DE”); VBI DE’s wholly-owned subsidiary, Variation Biotechnologies (US), Inc., a Delaware corporation (“VBI US”); Variation Biotechnologies Inc. a Canadian company and the wholly-owned subsidiary of VBI US (“VBI Cda”); and SciVac Ltd. an Israeli company (“SciVac”) are collectively referred to as the “Company”, “we”, “us”, “our” or “VBI”.

The Company’s registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with its principal office located at 222 Third Street, Suite 2241, Cambridge, MA 02142. In addition, the Company has manufacturing facilities located in Rehovot, Israel and research facilities located in Ottawa, Ontario, Canada.

Principal Operations

VBI is a commercial-stage, biopharmaceutical company developing next generation vaccines to address unmet needs in infectious disease and immuno-oncology. We currently manufacture ourOur lead product, Sci-B-Vac, is a third generation Hepatitis B (“HBV”) vaccine for adults, children and newborns, which is approved for use in Israel and 1410 other countries. Sci-B-Vac has not yet been approved by the U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the “EMA”) or Health Canada. VBI is currently conducting a global Phase III clinical program for Sci-B-Vac to obtain FDA, EMA and Health Canada market approvals for commercial sale of Sci-B-Vac in the United States, the European Union (the “EU”),Europe and Canada, respectively. Our wholly-owned subsidiary in Rehovot, Israel, currentlySciVac Ltd., manufactures and sells Sci-B-Vac.

We areVBI is also developing technologies that seek to enhance vaccine protection in large, underserved markets. These include anadvancing a pipeline of enveloped “Virus Like Particle” or “eVLP” vaccinevirus-like particle (“eVLP”) vaccines, developed with our eVLP platform technology that allows for the design of enveloped virus-like particle vaccines that closely mimic the structure of the target viruses. VBI is advancing a pipeline of eVLP vaccines, withWe have lead programs in humanboth infectious diseases, with our congenital cytomegalovirus (“CMV”), vaccine candidate, and in immuno-oncology, with our glioblastoma multiforme (“GBM”) vaccine candidate. CMV is an infection that, while common, can lead to serious complications in babiesnewborns and people with weakweakened immune systems, and is involved in the progression of glioblastoma multiforme (“GBM”), whichGBM is a common and aggressive form of brain cancer.

Liquidity and Going Concern

The Company has a limited operating history and faces a number of risks, including but not limited to, uncertainties regarding the success of the development and commercialization of its products, demand and market acceptance of the Company’s products and reliance on major customers. The Company anticipates that it will continue to incur significant operating costs and losses in connection with the development of its products.

The Company has an accumulated deficit of $156,226$188,325 as of March 31,September 30, 2018 and cash outflows from operating activities of $8,578$37,983 for the threenine months ended March 31,September 30, 2018.

The Company will require significant additional funds to conduct clinical and non-clinical trials, achieve regulatory approvals, and, subject to such approvals, commercially launch its products. The Company plans to finance future operations with existing cash reserves. Additional financing, if required, could be a combination of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings, or revenues from potential collaborations, if any. There is no assurance the Company will manage to obtain these sources of financing, if required. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The Company’s fiscal year ends on December 31 of each calendar year. The accompanying unaudited condensed consolidated financial statements have been prepared in U.S. dollars (“USD”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), for interim reporting. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”), have been condensed or omitted pursuant to such rules and regulations. The December 31, 2017 consolidated balance sheet in this document was derived from the audited consolidated financial statements and does not include all of the disclosures required by U.S. GAAP. The condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 10-K”), as filed with the SEC on February 26, 2018.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: SciVac, VBI DE, VBI US and VBI Cda. Intercompany balances and transactions between the Company and its subsidiaries are eliminated in the condensed consolidated financial statements.

In the opinion of management, these condensed consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the periods presented. The results for the periods presented are not necessarily indicative of results to be expected for the full year or for any future periods.

Reclassification

Certain prior year amounts have been reclassified to conform with the current quarter presentation and were not material to our condensed consolidated financial statements.

Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the 2017 10-K, and there have been no changes to the Company’s significant accounting policies during the threenine months ended March 31,September 30, 2018, other than revenue recognition discussed below.

Revenue recognition

Revenues consist primarily of product sales of vaccines and research services. We apply the five-step model outlined in Accounting Standards Codification Topic 606, Revenue from Contracts from Customers (ASC 606). Revenue is recognized when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). We adopted ASC 606 effective January 1, 2018. As a result, we have changed our accounting for revenue recognition. We applied ASC 606 using the modified retrospective method and there was no material impact to our consolidated financial statements related to the adoption of ASC 606.

Foreign currency

The functional and reporting currency of the Company is the USD. Each of the Company’s subsidiaries determines its own respective functional currency based on the primary economic environment that it operates in, and this currency is used to separately measure each entity’s financial position and operating results.

Assets and liabilities of foreign operations with a different functional currency from that of the Company are translated at the closing rate at the end of each reporting period. Profit or loss items are translated at average exchange rates for all the relevant periods. All resulting translation differences are recognized as a component of accumulated other comprehensive loss (income).(loss) income.

Foreign exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved, are included in the condensed consolidated statements of operations.

Use of Estimates

Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate estimates used in the preparation of the condensed consolidated financial statements for reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. The significant areas of estimation include determining the deferred tax valuation allowance, estimating accrued clinical expenses, the inputs in determining the fair value of the in-process research and development (“IPR&D”) and goodwill as part of the annual impairment analysis, the inputs in determining the fair value of equity-based awards and warrants issued as well as the values ascribed to assets acquired and liabilities assumed in business combinations. Actual results may differ from estimates made.

Goodwill and In-Process Research and Development

The Company’s intangible assets determined to have indefinite useful lives including IPR&D and goodwill, are tested for impairment annually, or more frequently if events or circumstances indicate that the assets might be impaired. Such circumstances could include but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach. Subsequently (if necessary after step zero), if the carrying value of a reporting unit exceeded its fair value an entity shouldimpairment would be recorded. We would perform itsour goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Under Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, Step 2 from the goodwill impairment test has been eliminated and goodwill impairment is measured as the excess of the carrying amount of the reporting unit over its fair value. The Company has established August 31^st31st as the date for its annual impairment test of goodwill. There was no goodwill impairment determined as a result of the Company’s annual testing on August 31, 2018. The fair value of the Company, which consists of a single reporting unit, included in the impairment test was determined using the closing market stock price of VBI as of August 31, 2018.

The goodwill is in VBI Cda and the change in carrying value from December 31, 2017 relates to currency translation adjustments which decreased goodwill by $243$247 for the three-monthnine-month period ended March 31,September 30, 2018.

The costs of rights to IPR&D projects acquired in an asset acquisition are expensed in the consolidated statements of operations unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in connection with research and development agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical products.

IPR&D acquired in a business combination is capitalized as an intangible asset and tested for impairment at least annually until commercialization, after which time the IPR&D is amortized over its estimated useful life. The impairment test compares the carrying amount of the IPR&D asset to its fair value. If the carrying amount exceeds the fair value of the asset, such excess is recorded as an impairment loss. There was no IPR&D impairment determined as a result of the Company’s annual testing on August 31, 2018. The fair value of the IPR&D assets included in the impairment test on August 31, 2018 was determined using the income approach method and is considered Level 3 in the fair value hierarchy. Some of the more significant estimates and assumptions inherent in the estimate of the fair value of IPR&D assets include the amount and timing of costs to develop the IPR&D into viable products, the amount and timing of future cash inflows, the discount rate and the probability of technical and regulatory success applied to the cash flows. The discount rate used was 13.5%  and the cumulative probability of technical and regulatory success to achieve approval to market the products ranged from approximately 6% to 25%.  

The change in carrying value from December 31, 2017 relates to currency translation adjustments which decreased IPR&D by $1,735 for the nine-month period ended September 30, 2018.

Fair value measurements of financial instruments

Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures.

The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3 — Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

Financial instruments recognized in the condensed consolidated balance sheet consist of cash, accounts receivable, other current assets, accounts payable and other current liabilities. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.

The carrying amounts of the Company’s long-term assets approximate their respective fair values.

At March 31,September 30, 2018 and December 31, 2017, the fair value of our outstanding debt, which is considered level 3 in the fair value hierarchy, is estimated to be approximately $15,306$15,639  and $15,157, respectively.

3. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 also requires entities to disclose sufficient information, both quantitative and qualitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Our adoption of this ASU effective, January 1, 2018, did not have a material impact on our condensed consolidated financial statements and footnote disclosures.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. This update will change the income statement impact of equity investments held by an entity; disclosures related to fair value of financial instruments and presentation of financial assets and liabilities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities must apply the standard using a cumulative-effect adjustment as of the beginning of the fiscal year of adoption. Except for certain early application guidance, early adoption is not permitted. We adopted this ASU effective January 1, 2018 and are no longer required to disclose the fair value assumptions in determining the fair value of the long-term debt in the footnote disclosures.

Recently Issued Accounting Standards, not yet Adopted

Leases

In February 2016 the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2016-02: Leases. The ASU introduces a lessee model that results in most leases impacting the balance sheet. The ASU addresses other concerns related to the current leaseslease model. Under ASU 2016-02, lessees will be required to recognize for all leases with terms longer than 12 months, at the commencement date of the lease, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. While we continue

In July 2018, the FASB issued ASU 2018-10 “Codification Improvements to evaluateTopic 842, Leases”.  This ASU affects narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of adopting this guidanceinitial direct costs on our consolidatedrate implicit in the lease, and failed sale and leaseback transactions. 

The Company will implement ASC 842 retrospectively with an application date of January 1, 2019 through a cumulative-effect adjustment to opening retained earnings while the comparative period presented in the financial statements and relatedfootnote disclosures we expect our operating leases, as disclosedwill continue to be in Note 11,accordance with Topic 840 – Leases. The Company will be subjectuse the package of practical expedients relating to: 1) the need to re-assess expired or existing contracts that are or contain leases; 2) the new standard. We will recognize right-of-useneed to reassess lease classification for any expired or existing leases; and 3) the need the reassess initial direct costs for existing leases.

The Company anticipates that with the adoption of this standard, recognition of right-of use assets and operating lease liabilities in the range of $1,500 to $1,800 will be recorded on ourits consolidated balance sheets upon adoption, whichsheet. There will increase our total assets and liabilities.be no impact on opening retained earnings.

Compensation – Stock Compensation

In June 2018, the FASB issued ASU 2018-07: Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, early adoption is permitted but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the impact this new guidance will have on its financial statements and related disclosures.

Intangibles – Goodwill and Other, Internal-Use Software

In August 2018, the FASB issued ASU 2018-15: Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. This ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact this new guidance will have on its financial statements and related disclosures.

4. INVENTORY, NET

Inventory is stated at the lower of cost or market and consists of the following:

5. PROPERTY AND EQUIPMENT

During the nine months ended September 30, 2018 the Company recorded an impairment of $278 related to certain leasehold improvements and manufacturing equipment no longer being utilized in the business as a result of the modernization and capacity increases of our manufacturing facility. The amount represented the remaining net book value of these assets. The impairment is included in general and administrative on the condensed consolidated statements of operations and comprehensive loss.

6. INTANGIBLES

The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives.

Amortization related to the IPR&D assets will not begin amortizing until the Company commercializes its products.

6.7. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

7.8. LOSS PER SHARE OF COMMON SHARES

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common shares outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, and stock options, which would result in the issuance of incremental shares of common shares unless such effect is anti-dilutive. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as their effect would be anti-dilutive. These potentially dilutive securities are more fully described in Note 9,10, Stockholders’ Equity and Additional Paid-in Capital.

The following potentially dilutive securities outstanding at March 31,September 30, 2018 and 2017 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

8.9. LONG-TERM DEBT – RELATED PARTY

As at March 31,September 30, 2018 and the December 31, 2017, the long-term debt is as follows:

On May 6, 2016, the Company through VBI DE assumed a term loan facility with Perceptive Credit Holdings, LP, a related party, (the “Lender”) in the amount of $6,000 (the “Facility”). On December 6, 2016, the Company amended the Facility (the “Amended Facility”) and raised the Lender’s commitment amount to $13,200, which was combined withincluding the remaining balance from the Facility of $1,800. On July 17, 2018, the Company amended the Amended Facility (the “Second Amended Facility”) to extend the period the Company is required to pay only the interest on the loan from May 31, 2018 to December 31, 2018 and to extend the expiration date of certain warrants to purchase 363,771 common shares issued to the Lender with an original issue date of July 25, 2019 to December 6, 2021. The Company accounted for this as a debt modification, and as a result of the extension of the warrant expiration date in connection with the Second Amended Facility, the debt discount was increased by $386. This amount represents the incremental fair value of the modified warrants.

The total principal amount of the loan under the Amended Facility outstanding at March 31,September 30, 2018, including the $300 exit fee discussed below, is $15,300. BorrowingsThe principal amount of the loan made under the Amended Facility are secured by all of VBI assets. The principal on theSecond Amended Facility accrues interest at an annual rate equal to the greater of (a) one-month LIBOR (subject to a 5.00% cap) or (b) 1.00%, plus the Applicable Margin. The Applicable Margin will be 11.00%. The first eighteen months areCompany was required to only pay interest only.initially until May 31, 2018, which date has been extended to December 31, 2018, pursuant to the Second Amended Facility. The interest rate as of March 31,September 30, 2018 was 12.88%13.125%. Upon the occurrence of an event of default, and during the continuance of an event of default, the Applicable Margin, defined above, will be increased by 4.00% per annum. This term loan facility matures December 6, 2019 and includes both financial and non-financial covenants, including a minimum cash balance requirement. The Company was in compliance with these covenants as of March 31,September 30, 2018. Pursuant to the Amended Facility, the Company agreed to appoint a representative of Perceptive Creditthe lender on ourthe Company’s board of directors (the “Board”) who iswas also a portfolio manager of the Company’s largest shareholder, effectiveshareholder. Effective January 2018, Perceptive Credit’sthe Lender���s representative resigned from our Board.

The Company’s obligations under the Second Amended Facility are secured on a senior basis by a lien on substantially all of the assets of the Company and its U.S.subsidiaries and Canadian subsidiaries andare guaranteed by the Company and its U.S. and Canadian subsidiaries. The Second Amended and Restated Credit AgreementFacility also contains customary events of default.

The total debt discount of $3,453$3,839 is being charged to interest expense using the effective interest method over the term of the debt. As of March 31,September 30, 2018, and December 31, 2017, the unamortized debt discount is $1,864$1,616 and $2,163. The Company recorded $299 and $288

Interest expense, net of interest expense related to the amortization of the debt discount duringincome recorded in the three and nine months ended March 31,September 30, 2018 and 2017 respectively.was as follows:

Total related party interest expense, including the amortization of the debt discount, was $773 and $738 for the three months ended March 31, 2018 and 2017, respectively. Such amounts are included in Interest expense, net in the accompanying condensed consolidated statements of operations and comprehensive loss.

The following table summarizes the future principal payments that the Company expects to make fordue under long-term debt:

9.10. STOCKHOLDERS’ EQUITY AND ADDITIONAL PAID-IN CAPITAL

Stock option plans

The Company’s stock option plans are approved by and administered by the Company’s Board and its Compensation Committee. The Board designates, in connection with recommendations from the Compensation Committee, eligible participants to be included under the plan, and designates the number of options, exercise price and vesting period of the new options.

2006 VBI US Stock Option Plan

No further options will be issued under the 2006 VBI US Stock Option Plan (the “2006 Plan”). As at March 31,September 30, 2018, there were 1,140,053 options outstanding under the 2006 Plan.

2013 Stock Incentive Plan

No further options will be issued under the 2013 Equity Incentive Plan (the “2013 Plan”). As at March 31,September 30, 2018, there were 4,6133,460 options outstanding under the 2013 Plan.

2014 Equity Incentive Plan

No further options will be issued under the 2014 Equity Incentive Plan (the “2014 Plan”). As at March 31,September 30, 2018, there were 645,222614,878 options outstanding under the 2014 Plan.

2016 VBI Equity Incentive Plan

The 2016 VBI Equity Incentive Plan (the “2016 Plan”) is a rolling incentive plan that sets the number of common shares issuable under the 2016 Plan, together with any other security-based compensation arrangement of the Company, at a maximum of 10% of the aggregate common shares issued and outstanding on a non-diluted basis at the time of any grant under the 2016 Plan. The 10% maximum is inclusive of options granted under all equity incentive plans. The 2016 Plan is an omnibus equity incentive plan pursuant to which the Company may grant equity and equity-linked awards to eligible participants in order to promote the success of the Company following the VBI-SciVac Merger by providing a means to offer incentives and to attract, motivate, retain and reward persons eligible to participate in the 2016 Plan. Grants under the 2016 Plan include a grant or right consisting of one or more options, stock appreciation rights (“SARs”), restricted share units (“RSUs”), performance share units (“PSUs”), shares of restricted stock or other such award as may be permitted under the 2016 Plan. As at March 31,September 30, 2018, there were 1,639,1141,871,044 options and 531,547325,113 stock awards outstanding under the 2016 Plan.

The aggregate number of common shares remaining available for issuance for awards under this planthe 2016 Plan total 1,936,4961,724,229 at March 31,September 30, 2018.

Activity related to stock options is as follows:

Information relating to restricted stock units is as follow:

In determining the amount of stock-based compensation the Company used the Black-Scholes option pricing model to establish the fair value of options granted by applying the following weighted average assumptions:

The fair value of the options is recognized as an expense on a straight-line basis over the vesting period and forfeitures are accounted for when they occur. The total stock-based compensation expense recorded in the three and nine months ended March 31,September 30, 2018 and 2017 was as follows:

10.11. INCOME TAXES

The Company operates in U.S., Israel and Canadian tax jurisdictions. Its income is subject to varying rates of tax, and losses incurred in one jurisdiction cannot be used to offset income taxes payable in another.

The Company determines its annual effective tax rate at the end of each interim period based on the year to date period results. Since the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 26.00% in the determination of the estimated annual effective tax rate.

The Company’s effective tax rate on loss before tax for the three and nine months ended March 31,September 30, 2018 of 0% (4.78% -0.00% and 0.00% (0% and 1.5%, respectively for the three and nine months ended September 30, 2017) differs from the Canadian statutory rate of 26.00% primarily due to recording a valuation allowance on the Canadian deferred tax assets in excess of the remaining Canadian deferred tax liability and the effect of recording a valuation allowance against deferred tax assets in all other jurisdictions.

The Company maintains a valuation allowance on all of its deferred tax assets. A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

11.12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome. As at March 31,

On September 13, 2018, the Company believes that it maintains adequate insurance coverage for any such litigation matters arisingtwo unidentified minors filed, through their parents, a claim in the normal courseDistrict Court of business.the central district in Israel against our subsidiary SciVac Ltd., alleging, among other things, defects in certain batches of Sci-B-Vac discovered in July 2015; that Sci-B-Vac was approved for use in children and infants in Israel without sufficient evidence establishing its safety; that SciVac Ltd. failed to provide accurate information about Sci-B-Vac to consumers and that each child suffered side effects from the vaccine. The claim was filed together with a motion seeking approval of a class action on behalf of 428,000 children vaccinated with Sci-B-Vac in Israel from April, 2011 and seeking damages in a total amount of NIS 1,879,500,000 (not in thousands).

SciVac Ltd. believes this matter to be without merit and intends to oppose this motion and otherwise defend this matter vigorously.

Operating Leases

The Company has entered into various non-cancelable lease agreements for its office, lab and manufacturing facilities. These arrangements expire at various times through 2022. Rent expense for the three months ended March 31,September 30, 2018 and 2017 was $216$242 and $217,$233, respectively and for the nine months ended September 30, 2018 and 2017 was $721 and $689, respectively.

The future annual minimum payments under these leases is as follows:

On February 28, 2018 VBI DE signed a two-year term extension, which included additional office space, related to the office space in Cambridge, MA committing it to approximately $461 of rent payments which has been included in the above table.

12.13. SEGMENT INFORMATION

The Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker. The CEO evaluates the performance of the Company and allocates resources based on the information provided by the Company’s internal management system at a consolidated level. The Company has determined that it has only one operating segment.

Revenues from external customers are attributed to geographic areas based on location of the contracting customers:

There was no revenue attributed to our country of domicile, Canada, for the three and nine months ended March 31,September 30, 2018 and 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this Form 10-Q and with our audited consolidated financial statements included in our annual report on Form2017 10-K for the year ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission (the “SEC”).SEC.

Except for per share amounts or as otherwise specified to be in millions, amounts presented are stated in thousands.

Overview

We are a commercial-stage, biopharmaceutical company developing next generation vaccines to address unmet needs in infectious disease and immuno-oncology. We currently manufacture ourOur lead product, Sci-B-Vac, is a third-generation hepatitis B vaccine, which is approved for use in Israel and 1410 other countries. Sci-B-Vac has not yet been approved for use by the FDA, EMA or HeathHealth Canada. The Sci-B-Vac vaccine has demonstrated safety and efficacy in nearlyover 500,000 patients in currently licensed markets. Several clinical trials have shown rapid and high rates of seroprotection with Sci-B-Vac. The Phase IV clinical study, conducted in Israel in order to qualify a new in-house reference standard for regulatory and quality control purposes, was successfully completed. We are currently enrolling patients in aA pivotal Phase III clinical program is ongoing, the results of which are intended to support regulatory and marketing authorization application submissions to obtain FDA, EMA, and Health Canada market approvals for commercial sale of Sci-B-Vac in the U.S., Europe, and Canada respectively.The program consists of two concurrent Phase III studies – a safety and immunogenicity study (“PROTECT”) and a lot-to--lot consistency study (“CONSTANT”).  Top-line data from PROTECT are expected mid-year 2019, and top-line data from CONSTANT are expected around the 2019 year-end. Our wholly-owned subsidiary in Rehovot, Israel, currentlySciVac Ltd., manufactures and sells Sci-B-Vac.

We are also advancing a pipeline of enveloped virus-like particle (“eVLP”) vaccines, developed with our eVLP platform technology that allows for the design of enveloped virus-like particlesvaccines that closely mimic the structure of the target viruses. We have lead programs in both infectious disease, with our congenital cytomegalovirus (“CMV”) vaccine candidate, and in immuno-oncology, with our glioblastoma multiforme (“GBM”) vaccine candidate. CMV is an infection that, while common, can lead to serious complications in babiesnewborns and people with weakweakened immune systems. In September 2016,May 2018, we completed the enrollment and initial dosing of 128 participants in theannounced positive topline results from our Phase I clinical study to evaluate itsin 128 CMV-negative participants of VBI-1501, our preventative CMV vaccine candidate. In July 2017, we announced interim data from theThe primary objective for this Phase I clinical study was safety and tolerability, and the secondary objective was immunogenicity. We believe the positive outcomes support the vaccine candidate’s safety. After the third dose, the highest dose tested of safety data through day 84VBI-1501, 2.0µg, elicited protective CMV-neutralizing antibodies against fibroblast cell infection in 100% of subjects, and against epithelial cell infection in 31% of subjects. Discussions are ongoing with regulatory bodies to determine the design of a Phase II dose-ranging study and initial immunogenicity signals in participant samples collected one month afterfor the second of three plannedCMV vaccine doses. Final data read out is anticipated mid-year 2018.candidate. In January 2018, VBIwe initiated dosing of itsour GBM candidate in a Phase I/IIa clinical program. In September 2018 the independent Data and Safety Monitoring Board (DSMB) conducted a second review, this time of all safety data from the fully-enrolled intermediate-dose patient cohort, and unanimously recommended continuation of the study without modification. We expect immunologicto announce data from ongoing biomarker analyses mid-year 2018 andregarding initial correlations between immunologic/biomarker analyses and clinical outcomes in the second halffourth quarter of 2018, with 6-month overall survival and progression-free survival data from all three dose cohorts in Phase I of the study (low, intermediate, and high), expected in the first half of 2019.

We may also seek to in-license clinical-stage vaccines or vaccine-related technologies that we believe complement our product and pipeline portfolio, in addition to technologies that may supplement our therapeutic vaccination efforts in immuno-oncology.

At present, our operations are focused on:

VBI’s incomerevenue generating activities have been the sale of Sci-B-Vac product in markets where it is approved or on a named patient basis where it is not approved, though those markets have generated a limited number of sales to-date, and R&D services generating fees. VBI has incurred significant net losses and negative operating cash flows since inception and expectexpects to continue incurring losses and negative cash flows from operations as we carry out our planned clinical, regulatory, R&D, sales and manufacturing activities with respect to the advancement of our Sci-B-Vac and new vaccine candidates. As of March 31,September 30, 2018, VBI had an accumulated deficit of approximately $156.2$188 million and stockholders’ equity of approximately $106.5$77 million. Our ability to maintain our status as an operating company is dependent upon obtaining adequate cash to finance our clinical development, manufacturing, our administrative overhead and our research and development activities. We plan to finance future operations with existing cash reserves. We expect that we will need to secure additional financing to finance our business plans, if required, which may be a combination of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings and revenues from potential collaborations, if any. There is no assurance the Company will manage to obtain these sources of financing, if required. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

We have incurred operating losses since inception, have not generated significant product sales revenue and have not achieved profitable operations. We incurred net losses of $12.3$15 million and $44 million for the three and nine months ended March 31,September 30, 2018 and we expect to continue to incur substantial losses in future periods. We anticipate that our operating expenses will increase substantially as we continue our clinical studies. These include expenses related to:

In addition, we have incurred and will continue to incur significant expenses as a public company, which subjects us to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the NASDAQ Capital Market and the Canadian securities regulators. Effective as of March 23, 2018, we voluntarily delisted our common shares from the Toronto Stock Exchange.

In 2017, we raised $71.9 million from equity financings to support our Sci-B-Vac, CMV, and GBM vaccine programs, to continue the advancement of our research (including clinical) programs, and for use in other general corporate purposes. Based upon our current cash position and by monitoring our discretionary expenditures as well as the management of our clinical trial commitments and operating costs, we believe these proceeds will be sufficient to fund our activities, including our approved capital expenditure requirements throughout 2018. We expect, however, that additional financing will be needed in the future to further support clinical, regulatory, research and development, sales and manufacturing, and general business operations.

In 2016, through our subsidiary, Variation Biotechnologies (US), Inc., we assumed a term loan facility with Perceptive Credit Holdings, L.P. (“Perceptive”) pursuant that certain Amended and Restated Credit Agreement and Guaranty, dated December 6, 2016, as amended on September 28, 2017 (the “Existing Credit Agreement”), and we had issued that certain Amended and Restated Warrant in favor of Perceptive for the purchase of 363,771 common shares, with an original issue date of July 25, 2014. On July 17, 2018, we further amended the Existing Credit Agreement to extend the period we are required to pay only the interest on the loan made under the Existing Credit Agreement from May 31, 2018, to December 31, 2018, and also extended the term of the Perceptive’s warrant from July 25, 2019, to December 6, 2021.

Since inception, VBI and its subsidiaries collectively have raised approximately $196.6 million in total equity and debt financing to support clinical and research development and general business operations.

Research and Development (“R&D”) Services

Pursuant to an agreement with the Israel Innovations Authority (formerly the Office of the Chief Scientist of Israel), the Company is required to make services available for the biotechnology industry in Israel. These services include relevant activities for development and manufacturing of therapeutic proteins according to international standards and GMP quality level suitable for toxicological studies in animals and clinical studies (Phase I & II) in humans. Service activities include analytics/bio analytics methods for development and process development of therapeutic proteins starting with a lead candidate clone through the upstream, purification, formulation and filling processes and manufacturing for Phase I & II clinical trials.

These R&D services are primarily marketed to the Israeli research community in academia and Israeli biotechnology companies in the life sciences lacking the infrastructure or experience in the development and production of therapeutic proteins into the standards and quality required for clinical trials for human use. In 2017 the Company provided services to more than 10 biotechnology companies including analytical development, upstream development process, protein purification and formulation and filling for Phase I clinical studies.

Modernization and Capacity Increases of Our Manufacturing Facility

On April 22, 2018, we temporarily closed our manufacturing facility in Rehovot, Israel, for modernization and capacity increases. We intend to increase the capacity of our manufacturing facility to be able to supply commercial quantities of Sci-B-Vac for sale. We expect to complete this modernization and the capacity increases by the end of 2018. We will recommence manufacturing operations upon receiving approval from the Israeli Ministry of Health (“IMoH”) following their review of the modernization and the capacity increases. During this time, we ceased and will cease manufacturing operations at our manufacturing facility.

Financial Overview

Overall Performance

The Company had net losses of approximately $12,251$15,370 and $8,638$9,802 for the three months ended March 31,September 30, 2018 and 2017, respectively and $44,350 and $27,452 for the nine months ended September 30, 2018 and 2017, respectively. The Company has an accumulated deficit of $156,226$188,325 at March 31,September 30, 2018. The Company had $58,094$25,986 of cash at March 31,September 30, 2018 and net working capital of approximately $44,339.$11,395.

Cost of revenues

Cost of revenues consist primarily of costs incurred for manufacturing the Sci-B-Vac vaccine, which includes cost of materials, consumables, supplies, contractors and manufacturing salaries. Certain cost of revenues related to the temporary closure of the manufacturing facility of approximately $409 was allocated to General and Administrative Expenses.

Research and Development Expenses

R&D expenses consist primarily of costs incurred for the development of our Sci-B-Vac, CMV GBM, and Sci-B-VacGBM vaccines, which include:

We expense R&D costs when we incur them.

General and Administrative Expenses

General and administrationadministrative expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants, including stock-based compensation and travel expenses. Other general and administrationadministrative expenses include professional fees for legal, patent protection, consulting and accounting services, travel and conference fees, including board and scientific advisory board meeting costs, rent, maintenance of facilities, depreciation, office supplies and expenses, insurance, impairment of property and equipment, intangibles and goodwill, if any, and other general expenses.expenses, including certain cost of revenues discussed above. General and administrative expenses are expensed when incurred.

We expect that our general and administrationadministrative expenses will increase in the future as a result of adding employees and scalingmodernization and capacity increases of our operationsmanufacturing facility commensurate with advancing clinical candidates and continuing to supportsupporting a public company infrastructure.status. These increases will likely include increased costs for insurance, hiring of additional personnel, board committees, outside consultants, investor relations, lawyers and accountants, among other expenses.

Interest Income

Interest income consists principally of interest income earned on cash balances.

Interest Expense

Interest expense is associated with our credit facility entered into on July 25, 2014 and subsequently amended on December 6, 2016.as discussed in Note 9 of the Notes to the Condensed Consolidated Financial Statements.

Results of Operations

Three and nine Months Ended March 31,September 30, 2018 Compared to the Three and nine Months Ended March 31,September 30, 2017

All dollar amounts stated below are in thousands, unless otherwise indicated.

Revenues

Revenue for the three and nine months ended March 31,September 30, 2018 was $178,$259 and $671, respectively as compared to $127$193 and $664, respectively for the three and nine months ended March 31,September 30, 2017.

Revenue by Geographic Region

Revenue earned in Israel, Asia, North America, South America and Europe for the three and nine months ended March 31,September 30, 2018 and 2017 were insignificant.

Cost of Revenues

Cost of revenues for the three months ended March 31,September 30, 2018 was $1,413$801 as compared to $1,275$1,334 for the three months ended March 31,September 30, 2017. The increasedecrease in the cost of revenues of $138,$533, or 11%40%, was due to the temporary manufacturing facility closure resulting in the allocation of certain cost of revenues to general and administrative expenses.

Cost of revenues for the nine months ended September 30, 2018 was $3,281 as compared to $3,966 for the nine months ended September 30, 2017. The decrease in the cost of revenues of $685, or 17%, was a result of slightly increased revenue as well as increased headcount and salary increases.the temporary manufacturing facility closure discussed above.

Research and Development

Research and Development (“R&D&D”) expenses for the three months ended March 31,September 30, 2018 were $6,964$10,507 as compared to $4,654$5,205 for the three months ended March 31,September 30, 2017. During the three months ended March 31, 2018, the significantThe increase in the costR&D of R&D$5,302 or 102% is as a result of the increasedincrease in the costs related to the ongoing clinical studies of Sci-B-Vac, which commenced patient dosing in December 2017 and our GBM vaccine candidate, which commenced patient dosing in January 2018. This is compared to the threenine months ended March 31,September 30, 2017 whereduring which period only the CMV clinical study, was ongoing, which commenced patient dosing in June 2016 with the last visit in August 2017, was ongoing.

R&D expenses for the nine months ended September 30, 2018 were $28,385 as compared to $14,387 for the nine months ended September 30, 2017. The increase in R&D expenses of $13,998 or 97% is as a result of the increase in the costs related to the ongoing clinical studies of Sci-B-Vac and our GBM vaccine candidate, as discussed above.

General and Administrative Expenses

General and administrative (“G&A”) expenses for the three months ended March 31,September 30, 2018 were $3,425$3,493 as compared to $3,045$ 2,795 for the three months ended March 31,September 30, 2017. The G&A expense increase of $380,$698, or 12%25%, is a result of increased headcount andhuman resource expenses, including stock-based compensation expenses.expenses, and the allocation of certain cost of revenues related to the temporary facility closure, to G&A expenses, as discussed above under “Cost of Revenues.”

General and administrative (“G&A”) expenses for the nine months ended September 30, 2018 were $10,904 as compared to $8,611 for the nine months ended September 30, 2017. The G&A expense increase of $2,293, or 27%, is a result of (1) the items contributing to the increase in the G&A expenses discussed above for the three months ended September 30, 2018, (2) certain marketing expenses and the impairment loss on property and equipment that were incurred in the first half of 2018 but were not incurred in the nine months ended September 30, 2017.

Net Loss from Operations

The net loss from operations for the three months ended March 31,September 30, 2018 were $11,624was $14,542 as compared to $8,847$9,141 for the three months ended March 31,September 30, 2017. The $2,777$5,401 increase in the net loss from operations resulted from the increased cost of revenues,R&D expenses and G&A expenses, discussed above.

The net loss from operations for the nine months ended September 30, 2018 were $41,899 as compared to $26,300 for the nine months ended September 30, 2017. The $15,599 increase in the net loss from operations resulted from the increased R&D expenses and G&A expenses, discussed above.

Interest Expense, net

The interest expense, decreasenet of $165interest income decreases of $26 and $297 for the three and nine months ended September 30, 2018, respectively is largely a result of interest income of $202$129 and $509 earned on cash balances for the three and nine months ended September 30 2018, respectively as compared to minimal interest earned on cash balances for the three months ended March 31 2018 as compared to minimal interest for the threeand nine months ended March 31,September 30, 2017.

Interest paid on the long-term debt and non-cash accretion related to the debt discount were comparablewas slightly higher due to the increased interest rate for the three and nine months ended March 31,September 30, 2018 compared to the three and March 31,nine months ended September 30, 2017.

Foreign Exchange Gain (Loss)

The foreign exchange lossgain (loss) of $88$(112) and $(560) for the three and nine months ended March 31,September 30, 2018 as compared to aand the foreign exchange gain of $482 in$81 and $605 for the comparative period forthree and nine month periods ended September 30, 2017 is theare a result of the fluctuationchanges in the foreign currencies in which the foreign currency exchange ratetransactions were denominated for each of the CAD and the NIS as compared to the U.S. dollar.those periods.

Net Loss

The netNet loss increased by $3,613, or 42%, from $8,638of $15,370 and $44,350 for the three and nine months ended March 31, 2017September 30, 2018 compared to $12,251$9,802 and $27,452 for the three and nine months ended March 31, 2018. The increase in our net loss is mainly attributable toSeptember 30, 2017 are a result of the increase in our loss from operations asitems discussed above.

Liquidity and Capital Resources