UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2018March 31, 2019

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 or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, andfiler,” “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 JUNE 30, 2018March 31, 2019

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 20172018 annual report on the Form 10-K filed with the Securities and Exchange Commission on February 26, 2018.25, 2019. 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 share and 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”) and SciVac Hong Kong Limited (“SciVac HK”) 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 our product, Sci-B-Vac a third generation prophylactic Hepatitis B (“HBV”) vaccine for adults, children and newborns, which is approved for use in Israel and 10 other countries. Sci-B-Vac has not yet been approved by the U.S.United States 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 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, currently manufactures and sells Sci-B-Vac. We are also developing a protein-based immunotherapeutic for treatment of Hepatitis B in collaboration with Brii Biosciences Limited (“Brii Bio”).

We are also developing technologiesa pipeline of products that seek to enhance vaccine protectiontarget unmet medical needs in large, underserved markets.infectious disease and oncology. These include an “enveloped Virusprograms are developed using VBI’s proprietary technology, the enveloped “Virus Like Particle” or “eVLP” vaccine platform, that allows for the design of enveloped virus-like particle vaccines that closely mimic the target viruses. VBI is advancing a pipeline ofVBI’s lead eVLP vaccines, with lead programs inare targeting human cytomegalovirus (“CMV”), an infection that while common, can lead to serious complications inin; newborns, andsolid organ transplant recipients, people with weakened immune systems, and is involvedpresent in the progression of glioblastoma multiforme (“GBM”), which is aan aggressive form of adult 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 $172,957$222,181 as of June 30, 2018March 31, 2019 and cash outflows from operating activities of $24,527$14,020 for the sixthree months ended June 30, 2018.March 31, 2019.

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, couldwill be a combination of proceeds from the issuance of equity securities, the issuance of additional debt, structured asset financings, orand 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.

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.

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, 20172018 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.statements. The condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q (this “Form 10-Q”) does not include all of the disclosures required by U.S. GAAP and 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, 20172018 (the “2017“2018 10-K”), as filed with the SEC on February 26, 2018.25, 2019.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: SciVac, VBI DE, VBI US, VBI Cda and VBI Cda.SciVac HK. 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 20172018 10-K, and there have been no changes to the Company’s significant accounting policies during the sixthree months ended June 30, 2018,March 31, 2019, other than revenue recognitionaccounting for leases discussed below.

Revenue recognitionLeases

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

The Company determines if an arrangement is recognized when control of the promised products or services is transferred toa lease at inception.  For the Company’s customers, inoperating leases, the right-of-use (“ROU”) assets represents the Company’s right to use an amount that reflectsunderlying asset for the considerationlease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Since the lease agreements do not provide an implicit rate, 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, 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 closingestimated an incremental borrowing 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).

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 fairpresent 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)lease payments. Operating lease expense is recognized on 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 pricestraight-line basis over the fair value oflease term, subject to any changes in the net tangiblelease or expectations regarding the terms. Variable lease costs such as operating costs 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 impairment would be recorded. We would perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The Company has established August 31^st as the date for its annual impairment test of goodwill.

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 $413 for the six-month period ended June 30, 2018.

The costs of rights to IPR&D projects acquired in an asset acquisitionproperty taxes 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.

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.

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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 June 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 $15,579 and $15,157, respectively.

incurred. See also Note 3.

3. NEW ACCOUNTING PRONOUNCEMENTS

Recently IssuedAdopted Accounting Standards, not yet AdoptedPronouncements

Leases

In February 2016, the FinancialFASB issued Accounting Standards BoardUpdate No. 2016-02, Leases (Topic 842) (“FASB”) issued ASU 2016-02: Leases. The ASU introduces a lessee model that results in most2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases impactingfor both lessees and lessors. On January 1, 2019, the balance sheet. The ASU addresses other concerns relatedCompany adopted the new lease standard using the optional transition method under which comparative financial information will not be restated and continue to apply the current lease model. Under ASU 2016-02, lessees will be required to recognize for all leases with terms longer than 12 months, at the commencement dateprovisions of the previous 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 assetstandard in its annual disclosures for the comparative periods. In addition, the new 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 to evaluate the effect of adopting this guidance on our consolidated financial statements and related disclosures, including the usestandard provides a number of optional practical expediants, we expect our operating leases, as disclosedexpedients in Note 12, will be subjecttransition. The Company elected the package of practical expedients. As such, the Company did not have to the new standard. We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which will increase our total assets and liabilities.

In July 2018, the FASB issued ASU 2018-10 “Codification Improvementsreassess whether expired or existing contracts are or contain a lease; did not have to Topic 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 inreasses the lease lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an indexclassifications 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 classifed as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment inreasses the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit inassociated with expired or existing leases.

The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption under which the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease and failed salenon-lease components.

On January 1, 2019, the Company recognized ROU assets and leaseback transactions.  The Company is currently evaluating the impact this ASU will havelease liabilities of $1,653 on its implementation of ASU 2016-02.

consolidated balance sheet.

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. Our adoption of this ASU, effective January 1, 2019, did not have a material impact on our condensed consolidated financial statements and footnote disclosures.

Recently Issued Accounting Standards, not yet Adopted

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 condensed consolidated financial statements and related disclosures.

4. INVENTORY, NET

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

5. PROPERTYINTANGIBLES AND EQUIPMENTGOODWILL

During the three and six months ended June 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 renovation 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.

The change in carrying value for IPR&D assets from December 31, 2018 relates to currency translation adjustments which decreased by $1,217 for the three-month period ended March 31, 2019.

The goodwill is in VBI Cda and the change in carrying value from December 31, 2018 relates to currency translation adjustments which decreased goodwill by $173 for the three-month period ended March 31, 2019.

7.6. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

8.7. 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 10,9, Stockholders’ Equity and Additional Paid-in Capital.

The following potentially dilutive securities outstanding at June 30,March 31, 2019 and 2018 and 2017 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

9.8. LONG-TERM DEBT – RELATED PARTY

As at June 30, 2018March 31, 2019 and the December 31, 2017,2018, the long-term debt is as follows:

On May 6, 2016, the Company through VBI DEUS 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 Credit Facility”) and raised the Lender’s commitment amount to $13,200, includingwhich was combined with the remaining balance from the Facility of $1,800. On July 17, 2018, the Company amended the Amended Credit Facility (the “Second Amended Facility”Amendment”) 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 issueexpiration 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.

On January 31, 2019, the Company further amended the Amended Credit Facility (the “Third Amendment”) to i) extend the period the Company is required to pay only the interest on the loan from December 31, 2018 to the Amortization Commencement Date (which is defined as the later of July 31, 2019 and, if Sci-B-Vac Phase III clinical trial endpoints are achieved by June 30, 2019, January 31, 2020), ii) extend the maturity of the term loan to June 30, 2020 and iii) reduce the exercise price on certain warrants to purchase common shares issued to the Lender to $2.75 from $4.13 for 363,771 warrants issued on July 25, 2014 and for 363,771 warrants issued on December 6, 2016 and from $3.355 for 1,341,282 warrants issued on December 6, 2016. The Company has accounted for this as a debt modification, and as result of the amendment to the exercise price in connection with the Third Amendment, the debt discount was increased by $179. This amount represents the incremental fair value of the modified warrants.

The total principal amount of the loan under the Amended Credit Facility outstanding at June 30, 2018,March 31, 2019, including the $300 exit fee discussed below, is $15,300. The principal amount of the loan made under the Second Amended Credit 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 Company was required to only pay interest initially until May 31, 2018, which date has beenwas extended to December 31, 2018, pursuant to the Second Amended Facility.Amendment and further extended to the Amortization Commencement Date pursuant to the Third Amendment. The interest rate as of June 30, 2018March 31, 2019 was 13%13.50%. Upon the occurrence of an eventEvent of default,Default (as defined in the Amended Credit Facility), 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 maturesmaturity date has been extended from December 6, 2019 to June 30, 2020 and includes both financial and non-financial covenants, including a minimum cash balance requirement. The Company was in compliance with these covenants as of June 30, 2018.March 31, 2019. Pursuant to the Amended Credit Facility, the Company agreed to appoint a representative ofthat the lender onLender shall designate an individual who would be appointed to the Company’s board of directors (the “Board”) who. The Lender’s designee was also a portfolio manager of the Company’s largest shareholder. Effective January 2018, the Lender’s representativedesignee resigned from our Board.

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

The total debt discount of $3,453$4,018 is being charged to interest expense using the effective interest method over the term of the debt. As of June 30, 2018,March 31, 2019, and December 31, 2017,2018, the unamortized debt discount is $1,573$1,198 and $2,163. The Company recorded $289$1,274, respectively.

At March 31, 2019 and $298December 31, 2018, the fair value of interest expense relatedour outstanding debt, which is considered level 3 in the fair value hierarchy, is estimated to the amortization of the debt discount during the three months ended June 30, 2018be approximately $15,354 and 2017, respectively and $589 and $586 for the six months ended June 30, 2018 and 2017,$14,975, respectively.

Interest expense, net of interest income recorded in the three and six months ended June 30,March 31, 2019 and 2018 and 2017 was as follows:

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

10.9. 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 June 30, 2018,March 31, 2019, there were 1,140,0531,112,696 options outstanding under the 2006 Plan.

2013 StockEquity Incentive Plan

No further options will be issued under the 2013 Equity Incentive Plan (the “2013 Plan”). As at June 30, 2018,March 31, 2019, there were 3,460 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 June 30, 2018,March 31, 2019, there were 645,222604,474 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 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 June 30, 2018,March 31, 2019, there were 1,632,6065,277,962 options and 378,487379,403 stock awards outstanding under the 2016 Plan.

The aggregate number of common shares remaining available for issuance for awards under the 2016 Plan total 1,932,3231,396,061 at June 30, 2018.

March 31, 2019.

Activity related to stock options is as follows:

Information relating to restricted stock unitsRSUs 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 six months ended June 30,March 31, 2019 and 2018 and 2017 was as follows:

10. REVENUES AND DEFERRED REVENUE

Pursuant to the Collaboration and License Agreement, the Company is responsible for the R&D services and Brii Bio is responsible for costs relating to the clinical trials for the Licensed Territory.

The initial consideration of the Collaboration and License Agreement consisted of a $11 million non-refundable upfront payment. As part of Collaboration and Licences Agreement, the Company and Brii Bio entered into a stock purchase agreement. Under the terms of the stock purchase agreement, the Company issued to Brii Bio 2,295,082 shares of its common stock valued at $3.6 million (based on the Company’s common stock price on December 4, 2018). The remaining $7.4 million, deemed to be the initial transaction price, was allocated to two performance obligations: i) the VBI-2601 license and ii) R&D services. The R&D services were allocated $4.8 million of the transaction price using an estimated selling price based on a expected cost plus a margin approach and the remaining transaction price of $2.6 million was allocated to the VBI-2601 license using the residual method.

In addition, the Company is also eligible to receive an additional $117.5 million in potential regulatory and sales milestone payments, along with royalties on commercial sales in the licensed territory. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. Therefore, no variable consideration was included in the initial transaction price and no such amounts have been recognized to date.

On December 4, 2018, the Company recognized the VBI-2601 license when it was transferred and Brii Bio is able to use and benefit from the license, as it was determined to be distinct. The R&D Services will be satisfied over time as services are rendered using the “cost-to-cost” input method as this method represents the most accurate depiction of the transfer of services based on the types of costs expected to be incurred. As at March 31, 2019, R&D services that remain unsatisfied are $4.4 million.

Upon termination of the License Agreement prior to the end of the term, there is no obligation for refund and any amounts in deferred revenue related to unsatisfied performance obligations will be immediately recognized.

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%26.50% in the determination of the estimated annual effective tax rate.

The Company’s effective tax rate on loss before tax for the three and six months ended June 30, 2018March 31, 2019 of 0.0% and 0.0% (2.38% - 2017)0.00% (0.00% for the three months ended March 31, 2018) differs from the Canadian statutory rate of 26.00%26.50% 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.

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 June 30,

On September 13, 2018, the Company believes that it maintains adequate insurance coverage for any such litigation matters arisingtwo actions were brought in the normal courseDistrict Court of business.the central district in Israel naming our subsidiary SciVac as a defendant. In one claim, two minors, through their parents, allege 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 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) ($517,483). The second claim is a civil action brought by two minors and their parents against SciVac and the Israel Ministry of Health alleging, among other things, that SciVac marketed an experimental, defective, hazardous or harmful vaccine; that Sci-B-Vac was marketed in Israel without sufficient evidence establishing its safety; and that Sci-B-Vac was produced and marketed in Israel without approval of a western regulatory body. The claim seeks damages for past and future losses and expenses as well as punitive damages.

SciVac believes these matters to be without merit and intends to defend these claims vigorously.

The District Court has accepted SciVac’s motion to suspend reaching a decision on the approval of the class action pending the determination of liability under the civil action. The trial of the civil action has been scheduled to begin on September 19, 2019.

Operating Leasesleases

The Company has entered into various non-cancelable lease agreements for its office, lab and manufacturing facilities. These arrangements expirefacilities, which are classified as operating leases. The office facility lease agreement in the United States expires on April 30, 2020, with no option to extend. Our manufacturing facility lease agreement expires on January 31, 2022, which includes one five-year option to extend until January 31, 2027. The lease agreement for our research facility in Canada, which comprises of office and laboratory space, expires on December 31, 2019 with the option to extend the term for two periods of three years.

Options to extend are not recognized as part of the lease liabilities or recognized as right to use assets. There are no residual value guarantees, no variable lease payments, and no restrictions or covenants imposed by leases. The discount rate used in measuring the lease liabilities and right of use assets was determined by reviewing our incremental borrowing rate at various times through 2022. Rent expense forthe initial measurement date.

Operating lease costs are included in general and administrative (“G&A”) expenses in the statement of operation and comprehensive loss.

Operating cash flow supplemental information as of March 31, 2019:

On January 1, 2019, initial right of use ("ROU") assets of $1,653 was recognized as a non-cash asset addition with the adoption of the new lease standard. During the three months ended June 30, 2018March 31, 2019, the Company entered into a new lease agreement and 2017 was $229 and $239, respectively and forrecognized a ROU asset of $222.

The following table summarizes future undiscounted cash payments reconciled to the six months ended June 30, 2018 and 2017 was $445 and $456, respectively.lease liabilities:

ASC 840 comparative period disclosure

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.

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 six months ended June 30, 2018March 31, 2019 and 2017.2018.

14. SUBSEQUENT EVENTS

Subsequent to March 31, 2019, the Company granted 300,000 stock options to new directors and employees pursuant to the 2016 Plan. 200,000 stock options vest on a monthly basis over 36 months and 100,000 stock options vest 25% on the first anniversary of the grant date and the remainder will vest on a monthly basis over 36 months thereafter. The options automatically expire 10 years from grant date.

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 20172018 10-K as filed with the SEC.

Except for share and 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 hepatitisprophylactic Hepatitis B vaccine for use in adults, children and newborns, which is approved for use in Israel and 10 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 over 500,000 patients inWe are 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 qualifyconducting a new in-house reference standard for regulatory and quality control purposes, was successfully completed. A pivotalglobal Phase III clinical program is ongoing, the results of which are intendedfor Sci-B-Vac designed to support regulatory and marketing authorization application submissions to obtainachieve FDA, EMA, and Health Canada market approvals for commercial sale of Sci-B-Vac in the U.S.,United States, Europe, and Canada respectively. We expect to complete the clinical trial duringThe 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 year-end 2019. Our wholly-owned subsidiary in Rehovot, Israel, currentlySciVac, manufactures and sells Sci-B-Vac.

We are also developing VBI-2601, a recombinant, protein-based immunotherapeutic for treatment of Hepatitis B, a disease that affects more that 250 million people worldwide. Chronic Hepatitis B infection can lead to cirrhosis of the liver, hepatocellular cancer, and other liver disease, making it a life-threatening global health problem. VBI-2601 is uniquely formulated to induce broad immunity against Hepatitis B virus, including T-cell immunity which plays an important role in controlling Hepatitis B infection. On December 6, 2018, the Company announced that it had entered into a license and collaboration agreement (the “License Agreement”) with Brii Bio for development of a functional cure for Hepatitis B using VBI-2601.

We are also advancing a pipeline of enveloped virus-like particle (“eVLP”) vaccines,eVLP programs, developed with our eVLP platform technology that allows for the design of vaccines that closely mimic the structure of the target viruses. We have lead programs in both infectious disease,diseases, with our congenital cytomegalovirusprophylactic CMV (“CMV”VBI-1501”) vaccine candidate, and in immuno-oncology, with our glioblastoma multiformeGBM (“GBM”VBI-1901”) vaccine immunotherapeutic candidate.

CMV is an infection that, while common, can lead tomay cause severe infections in newborn children (congenital CMV) and may also cause serious complicationsinfections in newborns and people with weakened immune systems.systems, such as solid organ or bone marrow transplant recipients. In May 2018, we announced positive toplinetop-line results from our Phase I clinical study in 128 CMV-negative participants of VBI-1501, our preventative CMV vaccine candidate. The primary outcome for thisthe randomized, placebo-controlled Phase I study of VBI-1501. The final Phase I study results demonstrated that VBI-1501 was safe and well-tolerated at all doses, with and without the adjuvant alum. The highest dose of VBI-1501, 2.0 µg, with alum, elicited CMV-neutralizing antibodies against fibroblast cell infection in 100% of subjects after the third vaccination, up from 81% of subjects after the second vaccination, inducing titers comparable to those observed in patients protected as a result of natural infection. Neutralizing antibodies against epithelial cell infection were also seen in 31% of subjects after the third vaccination of VBI-1501 2.0µg with alum. The data also showed the formulation of the vaccine with alum enhanced antibody titers. The highest dose of VBI-1501 tested, 2.0µg with alum, has approximately 10-fold less antigen content than that used in several other VLP-based vaccines or in past non-VBI CMV vaccine candidates. On December 20, 2018 we announced plans for a Phase II clinical study evaluating VBI-1501 following positive discussions with Health Canada, and anticipate similar discussions with the FDA. The Phase II study is expected to assess the safety and immunogenicity of dosages of VBI-1501 up to 20µg with alum, with an anticipated study start around the secondary outcome was immunogenicity. We believeend of the positive outcomesyear. A toxicology study to support the new dose levels is underway, the results of which are required prior to the start of the clinical study.

Our GBM brain cancer vaccine candidates’ safety and the neutralizing antibody responses induced by the vaccine candidate.immunotherapeutic program, VBI-1901, targets CMV in tumor cells. CMV is virus that is associated with a number of solid tumors, including GBM. We expect to hold discussions with regulatory bodies in the second half of 2018 to determine the next stage of development. In January 2018, we initiated dosing of our GBM candidate in a multi-center Phase I/IIa clinical program.study evaluating VBI-1901 in patients with recurrent GBM in January 2018. The DSMB has completed reviews of all safety data from our fully-enrolled Part A portion of the Phase I/IIa trial in recurrent GBM subjects, which included 6 subjects in each of 3 different dose cohorts. The DSMB unanimously recommended the continuation of the study without modification and had no safety concerns about any of the 3 dose levels of VBI-1901. The final subject in the high dose cohort was enrolled in mid-December 2018. On April 23, 2019, we announced that, based on safety and immunogenicity, the highest dose tested in Part A of the study, 10mcg, has been selected as the optimal dose level to test in Part B of the study. Initiation of enrollment of the 10 patients in Part B of the study is expected mid-year 2019. We expect to havealso announced that expanded immunologic data regarding initial correlations between immunologic/biomarker analysesand tumor and clinical outcomesresponses from all three dose cohorts in Part A of the second halfstudy will be presented in a poster presentation at the American Society of 2018, with 6-month overall survival and progression-free survival expectedClinical Oncology Annual Meeting in the first half ofearly June, 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 revenue 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, various collaboration agreements, 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 vaccinepipeline candidates. As of June 30, 2018,March 31, 2019, VBI had an accumulated deficit of approximately $173$222 million and stockholders’ equity of approximately $90$87 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 $17 million and $29$15 million for the three and six months ended June 30, 2018March 31, 2019 and we expect to continue to incur substantial losses in future periods. We anticipate that ourwe will continue to incur substantial 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.

Equity Financing Activities

In 2017,2018, we raised $71.9received aggregate gross proceeds of $42.9 million from equity financingsan underwritten public offering of an aggregate of 30,665,304 common shares at a price of $1.40 per share. After deducting the underwriting discounts and commissions and offering expenses, net proceeds from the offering were $39.8 million. Net proceeds from the offering will be used to support our Sci-B-Vac, CMV, and GBM vaccine development programs, to continue the advancement of our clinical development and research (including clinical) programs and for use in other general corporate purposes. Based upon our current cash position

On December 4, 2018, we entered into a License Agreement with Brii Bio, whereby we received a total upfront payment of $11 million to collaborate on the development of a hepatitis B recombinant protein based immunotherapeutic in China, Hong Kong, Taiwan and by monitoring our discretionary expendituresMacau and to conduct a Phase II collaboration clinical trial. The License Agreement specified an allocation of $7 million of this amount as well asan equity investment in exchange for 2,295,082 common shares. The License Agreement set forth a price of $3.05 per share which was at a premium to the managementclosing market price of our clinical trial commitments$1.58 on the day of issuance, resulting in actual allocation of the fair value of the 2,295,082 shares being $3.6 million. The remaining $7.4 million of the $11 million consideration received was allocated to the sale of the license 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.services.

Since inception,

Amended Credit Facility

In 2016, the Company through VBI US assumed the Facility with the Lender, a related party, in the amount of $6,000. On December 6, 2016, the Company amended the Facility by the Amended Credit Facility and its subsidiaries collectively have raised approximately $196.6 millionthe Lender’s commitment amount to $13,200, which was combined with the remaining balance from the Facility of $1,800. On July 17, 2018, the Company amended the Amended Credit Facility by the Second Amendment 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, 2014, from 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 total equityconnection with the Second Amendment, the debt discount was increased by $386. This amount represents the incremental fair value of the modified warrants. On January 31, 2019 we further amended the Amended Credit Facility by the Third Amendment to i) extend the period we are required to pay only the interest on the loan from December 31, 2018 to the Amortization Commencement Date (which is defined as the later of July 31, 2019 and, debt financingif Sci-B-Vac Phase III clinical trial endpoints are achieved by June 30, 2019, January 31, 2020); ii) to support clinicalextend the maturity date of the term loan from December 31, 2019 to June 30, 2020 and research developmentiii) reduce the exercise price on certain warrants to purchase common shares issued to the Lender to $2.75 from $4.13 for 363,771 warrants issued on July 25, 2014 and general business operations.for 363,771 warrants issued on December 6, 2016 and from $3.355 for 1,341,282 warrants issued on December 6, 2016.

Research and Development (“R&D”) Services

Pursuant to an agreement with the Israel InnovationsInnovation 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 to the standards and quality required for clinical trials for human use. In 2017the first quarter of 2019, 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.

In addition, pursuant to the License Agreement with Brii Bio we provide R&D services to Brii Bio as part of the development of VBI-2601.

RenovationModernization and Capacity Increases of Our Manufacturing Facility

On April 22,In 2018, we temporarily closed our manufacturing facility in Rehovot, Israel, for renovationmodernization and capacity increases.increase. We intend to increase the capacity of our manufacturing facility to be able to supply commercial quantities of Sci-B-Vac for sale. We expectupon FDA, and/or EMA and/or Health Canada approval and future clinical supplies of VBI-2601. The construction related to complete this renovationthe modernization and the capacity increases by the endincrease is substantially complete. We anticipate receipt of 2018. We will recommence manufacturing operations upon receiving approval from the Israeli Ministry of HealthHealh (“IMoH”) following theirits review of the renovationmodernization and the capacity increases. During this time, we ceased and will cease manufacturing operations at our manufacturing facility.

increase, in the second half of 2019.

Financial Overview

Overall Performance

The Company had net losses of approximately $16,731$14,606 and $9,013$12,251 for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively and $28,982 and $17,651 for the six months ended June 30, 2018 and 2017, respectively. The Company has an accumulated deficit of $172,957$222,181 at June 30, 2018.March 31, 2019. The Company had $41,127$43,308 of cash at June 30, 2018March 31, 2019 and net working capital of approximately $28,582.$23,598.

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 thisthe temporary closure of the manufacturing facility of approximately $172$348 was allocated to General and Administrative Expenses in connection with the temporary closure of our manufacturing facility.G&A expenses.

Research and Development Expenses

R&D expenses consist primarily of costs incurred for the development of Sci-B-Vac, our CMV candidate, GBM vaccine immunotherapeutic candidate, and Sci-B-Vac vaccines,VBI-2601, which include:

We expense R&D costs when we incur them.

General and Administrative Expenses

General and administrativeG&A 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 administrative 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, information technology costs and expenses, insurance impairment of property and equipment, intangibles and goodwill, if any, and other general expenses, including certain cost of revenues discussed above. General and administrativeexpenses. G&A expenses are expensed when incurred.

We expect that our general and administrative expenses will increase in the future as a result of adding employees and renovation and capacity increases ofscaling our manufacturing facilityoperations commensurate with advancing clinical candidates, commercializing products and supportingcontinuing to support a public company status.infrastructure. 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 facilityAmended Credit Facility as discussed in Note 98 of the Notes to the Condensed Consolidated Financial Statements.

Results of Operations

Three and six Months Ended June 30, 2018March 31, 2019 Compared to the Three and six Months Ended June 30, 2017March 31, 2018

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