VBLT Vascular Biogenics Ltd

NOTE 1 – ORGANIZATION

Description of Business

Notable Labs, Inc. (“Notable” or the “Company”) and its wholly owned subsidiary is an emerging tech-bio therapeutics company dedicated to the development and commercialization of a predictive precision medicine platform and products that treat various forms of cancer. The Company was incorporated in Delaware in June 2014 and is located in Foster City, California.

Merger with Vascular Biogenics, Ltd.

On February 22, 2023, Notable entered into a Merger Agreement (the “Merger Agreement”) with Vascular Biogenics, Ltd., an Israeli corporation (“VBL”), and Vibrant Merger Sub, Inc., a Delaware corporation and VBL’s direct, wholly-owned subsidiary, pursuant to which, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Notable merged with and into Merger Sub at the effective time (“Effective Time”), with Notable continuing after the merger as the surviving corporation and VBL’s wholly-owned subsidiary (such transaction, the “Merger”).

On October 16, 2023, Notable closed the Merger with VBL. In conjunction with the Merger, the Company changed its name from “Vascular Biogenics Ltd.” to “Notable Labs, Ltd.” (the “Name Change”).

At the Effective Time, each outstanding share of Notable capital stock was converted into the right to receive VBL ordinary shares, under the exchange ratio formula in the Merger Agreement, with former Notable securityholders owning approximately 75.2% of Notable Labs, Ltd.’s ordinary shares outstanding on a fully diluted basis, and the securityholders of VBL owning approximately 24.8% of Notable Labs, Ltd.’s ordinary shares outstanding on a fully diluted basis.

Also on October 16, 2023, in connection with, and prior to completion of, the Merger, the Company effected a 1-for-35 reverse share split (the “Reverse Share Split”) of its ordinary shares, of a nominal value of NIS 0.35 each (“Ordinary Shares”).

Following the completion of the Merger, the business of Notable became the business conducted by the Company, which is a clinical-stage platform therapeutics company developing predictive precision medicines for patients with cancer.

Upon closing of the Merger, the board of directors of the Company consists of seven directors, with one director designated by VBL. Following the closing of the Merger, the Company is being led by Notable’s chief executive officer and executive management team.

Since incorporation through September 30, 2023, Notable Labs, Ltd. and its subsidiaries (hereinafter referred to as “the Post-Merger Company”) incurred losses and negative cash flows from operations mainly attributable to its development efforts and has an accumulated deficit. The Post-Merger Company has financed its operations primarily through the issuance of Preferred Shares and Simple Agreements for Future Equity (“SAFE”) shares and through the cash inflow as a result of the Merger completed on October 16, 2023. As of the issuance date of these consolidated financial statements, Notable Labs, Ltd.’s cash and investments provide sufficient resources to fund its operations through at least the next 12 months. In order to develop and commercialize any future product candidates if they are granted regulatory approval, Notable Labs, Ltd. is required to obtain further funding through public or private offerings, debt financings, collaboration, licensing arrangements or other sources. Adequate additional funding may not be available to Notable Labs, Ltd. on acceptable terms, or at all. If Notable Labs, Ltd. is unable to raise capital when needed or on attractive terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.

 NOTE 2 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Notable have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. These unaudited interim condensed consolidated financial statements should therefore be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2022. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for the fair statement of the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year.

The condensed consolidated financial statements include the accounts of Notable and its wholly owned subsidiary, all of which are denominated in US dollars. All intercompany balances and transactions have been eliminated in consolidation.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

The accounting policies and calculation methods applied in the preparation of the unaudited condensed consolidated interim financial statements are consistent with those applied in the preparation of the annual financial statements as of December 31, 2022 and for the year then ended.

NOTE 4 – FAIR VALUE MEASUREMENTS

There were no transfers between Levels 1, 2, or 3 during the nine months ended September 30, 2023 and the year ended December 31, 2022. Additionally, there were no cash equivalents or marketable securities held as of September 30, 2023 or December 31, 2022.

The value of the warrants was based on the estimated value of the warrant using the Black-Scholes model as of September 30, 2023. The following assumptions were used in determining the fair value of the warrants:

In connection with the Merger Agreement, the Company entered into SAFEs with certain investors by which the Company received $4.3 million of gross proceeds and a Series D Preferred Stock Purchase Agreement (the “Series D Purchase Agreement”). Under the terms of the Series D Purchase Agreement, the SAFE holders will exchange their respective SAFEs for 6,118,198 shares of Series D-1 Preferred Stock at the time when all conditions precedent to the closing of the Merger contained in the Merger Agreement, shall have been satisfied or waived and all other conditions precedent in the Series D Purchase Agreement have been satisfied or waived. In the event the Merger does not close, the SAFE holders will not have their funds returned. The value of the SAFE notes was based on the conversion value of the SAFE notes as of September 30, 2023.

On June 28, 2023, Notable entered into Simple Agreements for Future Equity (the “D-2 SAFEs”) with certain investors who committed to purchase shares of Series D-2 Preferred Stock pursuant to the Series D Purchase Agreement. The D-2 SAFEs will convert into shares of Series D-2 Preferred Stock without a discount and reduce the purchase price owed by each such investor under the Series D Purchase Agreement on a dollar-for-dollar basis. In the event the Merger does not occur, the Series D-2 SAFEs will remain outstanding. Notable received approximately $2.0 million of aggregate gross proceeds from the purchasers of the D-2 SAFEs prior to June 30, 2023.

The change in the fair value of the redeemable convertible preferred stock warrant liability resulted from a reduction in the value per warrant based on the fair market valuation of the warrants as of September 30, 2023. The reduction primarily related to the price of the underlying stock being substantially less than previously expected.

The fair value of SAFE notes at issuance consists of the $4.3 million notes received in the first quarter of 2023 related to the Series D-1 Preferred Stock and the $2.0 million notes received in the second quarter of 2023 related to the Series D-2 Preferred Stock. The change in the fair value is based on the conversion values included in the SAFE notes.

NOTE 5 – BALANCE SHEET COMPONENTS

During fiscal years 2020 and 2021, the Company took advantage of the relief provisions provided by the U.S. government in response to COVID-19 under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act provides an employee retention credit (“Employee Retention Credit”), which is a refundable tax credit against certain employment taxes dependent on certain qualified wages paid to employees through fiscal year 2021. The Company qualifies for the tax credit under the CARES Act and continued to receive additional tax credits under the additional relief provisions for qualified wages through the end of 2021. The Company accounts for these labor related tax credits as a reduction to the expense that they are intended to compensate in the period in which the corresponding expense is incurred and there is reasonable assurance the Company will both receive the tax credits and comply with all conditions attached to the tax credits. As of September 30, 2023 and December 31, 2022, $0.6 million and $1.2 million, respectively, was recorded as a receivable in prepaid and other current assets. The Company received $0.7 million of the receivable in the quarter ended March 31, 2023 and believes there is reasonable assurance the remaining balance will be collected.

Property and Equipment, Net

Depreciation expense was approximately $0.1 million and $0.2 million for the three and nine months ended September 30, 2023 and $0.1 million and $0.3 million for the three and nine months ended September 30, 2022.

Investment in SAFE

In October 2021, the Company entered into a simple agreement for future equity (“Oncoheroes SAFE”) agreement for $1.5 million in exchange for a right to participate in a future equity financing of preferred stock to be issued by Oncoheroes Biosciences Inc. (“Oncoheroes”). Alternatively, upon a dissolution or liquidity event such as a change in control or an initial public offering, the Company is entitled to receive a portion of $1.5 million. The number of shares of preferred stock would be determined by dividing the Oncoheroes SAFE purchase amount by price per share of the preferred stock issued in the respective equity financing. The Company recorded the investment of $1.5 million as an investment in the Oncoheroes SAFE on the condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022. The investment in the Oncoheroes SAFE is treated as an investment in an equity security that the Company has elected to record at its cost less any impairment. No impairment losses have been recognized related to the investment for the three and nine months ended September 30, 2023 and 2022 (See Note 7).

Accrued Expenses and Other Current Liabilities

NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES RELATED PARTIES

For consulting services with the Chairman of the Board, the Company recorded general and administrative expenses of $91,250 and $273,750 for the three and nine months ended September 30, 2023. During the three and nine months ended September 30, 2022, the Company recorded general and administrative expenses of $60,834 and $248,601. 

NOTE 7 – CO-DEVELOPMENT AND LICENSE AGREEMENTS

Oncoheroes Agreement

In September 2021, the Company entered into an Exclusive License Agreement with Oncoheroes (the “Oncoheroes Agreement”) whereby the Company obtained worldwide exclusive development and commercialization rights in the small molecule volasertib for uses relating to certain types of cancer in adults. Under the terms of the Oncoheroes Agreement, Oncoheroes retains the right to develop and commercialize volasertib for cancers not licensed to the Company.

Under the terms of the agreement, the Company is obligated to make additional clinical and regulatory milestone payments up to a total of $8.0 million, plus tiered royalties from the mid-single digits up to mid-teens on net sales. In the event the Company grants a sublicense of rights, the Company will need to pay Oncoheroes a high single digit percentage of any upfront payment obtained from such sublicenses. No milestones have been met during the three and nine months ended September 30, 2023 and 2022, and the Company did not make any royalty payments as the related product has not been approved for commercialization.

The Company also entered a SAFE agreement with Oncoheroes in October 2021 for $1.5 million recorded in the investment in SAFE on the balance sheet, as discussed in Note 5.

CicloMed Agreement

In July 2021, the Company entered into a Co-Development and Profit-Sharing Agreement with CicloMed LLC (“CicloMed”) (the “CicloMed Agreement”) regarding use of the Company’s precision oncology diagnostic test in the research and development of CicloMed’s CicloProx product for the treatment of acute myeloid leukemia. Under the terms of the co-development agreement, CicloMed holds the primary responsibility for executing clinical trial operations while Notable is primarily focused on optimizing Notable’s predictive precision medicine platform. Both parties will equally share the costs associated with the on-going clinical trial incurred after the effective date. In the event a CicloProx product is commercially developed and sold, the parties will share in the net proceeds. The Company accrued amounts relative to this agreement and based on the agreement received a benefit of $0.2 million and $0 million for the three and nine months ended September 30, 2023 and an expense $0.1 million and $0.2 million for the three and nine months ended September 30, 2022, as research and development expense related to this agreement.

NOTE 8 – SIMPLE AGREEMENTS FOR FUTURE EQUITY NOTES

The Company entered into Simple Agreements for Future Equity (the “SAFEs”) with certain investors, during the nine months ended September 30, 2023, by which the Company received $4.3 million of gross proceeds and a Series D Preferred Stock Purchase Agreement (the “Series D Purchase Agreement”). Under the terms of the Series D Purchase Agreement, the SAFE holders will exchange their respective SAFEs for 6,118,198 shares of Series D-1 Preferred Stock at the time when all conditions precedent to the closing of the Merger contained in the Merger Agreement, shall have been satisfied or waived and all other conditions precedent in the Series D Purchase Agreement have been satisfied or waived. In the event the Merger does not close, the SAFE holders will not have their funds returned. Additionally, under the Series D Purchase Agreement, certain investors committed to purchase, and the Company agreed to issue, 5,891,911 shares of Series D-2 Preferred Stock to such investors in exchange for $6.0 million, the closing of which will take place at the time all conditions precedent to the closing of the Merger contained in the Merger Agreement, shall have been satisfied or waived and all other conditions precedent in the Series D Purchase Agreement shall have been satisfied or waived. The SAFEs were recorded as a liability at issuance and subject to remeasurement at each reporting date, with changes in fair value recorded in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

On June 28, 2023, Notable entered into Simple Agreements for Future Equity (the “D-2 SAFEs”) with certain investors who committed to purchase shares of Series D-2 Preferred Stock pursuant to the Series D Purchase Agreement. The D-2 SAFEs will convert into shares of Series D-2 Preferred Stock without a discount and reduce the purchase price owed by each such investor under the Series D Purchase Agreement on a dollar-for-dollar basis. In the event the Merger does not occur, the Series D-2 SAFEs will remain outstanding. Notable received approximately $2.0 million of aggregate gross proceeds from the purchasers of the D-2 SAFEs prior to June 30, 2023.

NOTE 9 – INCOME TAXES

As of January 1, 2023, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during the three and nine months ended September 30, 2023 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and nine months ended September 30, 2023, and there was no accrual for uncertain tax positions as of September 30, 2023. Tax years from 2019 through 2022 remain subject to examination by major tax jurisdictions.

There is no income tax benefit for the losses for the three and nine months ended September 30, 2023 and 2022, since management has determined that the realization of the net tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.

NOTE 10 – LEASES

In February 2023, the Company entered into a finance lease for equipment with a value of $405,000 along with a service contract with a value of $181,000. The finance lease is being accounted in accordance with FASB ASC 842, Leases, and the service contract is expensed over the term of the lease.

In April 2023, the Company extended the lease for its facilities in Foster City, California. The term of the lease is extended beginning in June 2023 to May 2027. The Company has the right to terminate the lease effective as of March 2025 upon providing four months of notice and four months of base rent for the year of the notice as an early lease termination fee. The weighted average incremental borrowing rate is 6.0%. Total lease payments from June 2023 through May 2027 will be approximately $2.2 million.

NOTE 11 – EQUITY INCENTIVE PLAN AND STOCK BASED COMPENSATION EXPENSE

2015 Equity Incentive Plan

The Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”) in August 2015, which provides for the granting of ISO, NSO, and restricted shares to employees, directors, and consultants. The 2015 Plan authorized a total of 591,394 shares reserved for future issuance. Under amendments to the 2015 Plan, an additional 2,547,746 shares in 2017, 2,243,140 shares in 2019, and 500,000 shares in 2022 were authorized to be reserved for future issuance. As of September 30, 2023, there were 5,882,280 shares of common stock reserved for future issuance pursuant to the 2015 Plan.

Options under the 2015 Plan may be granted for periods of up to 10 years and at prices no less than 100% of the estimated fair value of the underlying shares of common stock on the date of grant as determined by the Board provided that the exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. The 2015 Plan requires that options be exercised no later than 10 years after the grant. Options granted to employees generally vest ratably on a monthly basis over four years, subject to cliff vesting restrictions and continuing service.

There was no restricted stock activity (RSA) under the 2015 Plan for the three and nine months ended September 30, 2023.

Stock-Based Compensation Expense

As of September 30, 2023, the total stock-based compensation expense related to stock options not yet recognized was $0.6 million and will be recognized over a weighted-average remaining period of approximately 1.4 years.

NOTE 12 – NET LOSS PER SHARE

The Company’s potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be antidilutive. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share is the same.

NOTE 13 – SUBSEQUENT EVENTS

The Company has evaluated all events occurring through November 29, 2023, the date on which the condensed consolidated financial statements were available for issuance, during which time, nothing has occurred outside the normal course of business operations that would require disclosure.

On October 16, 2023, Notable Labs, Ltd., formerly known as “Vascular Biogenics Ltd.” (the “Company” or “VBL”), completed its business combination with Notable Labs, Inc. (“Notable”) and Vibrant Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”) in accordance with the terms of the Agreement and Plan of Merger, dated as of February 22, 2023 (the “Merger Agreement”), by and among the Company, Notable and Merger Sub. Pursuant to the Merger Agreement, Merger Sub merged with and into Notable, with Notable surviving as a wholly owned subsidiary of the Company (the “Merger”). Also on October 16, 2023, in connection with, and prior to completion of, the Merger, the Company effected a 1-for-35 reverse share split (the “Reverse Share Split”) of its ordinary shares, of a nominal value of NIS 0.35 each (“Ordinary Shares”). The Company also changed its name to “Notable Labs, Ltd.” (the “Name Change”). Following the completion of the Merger, the business of Notable became the business conducted by the Company, which is a clinical-stage platform therapeutics company developing predictive precision medicines for patients with cancer. Unless otherwise noted, all references to share amounts in this Current Report on Form 8-K reflect the Reverse Share Split.

Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”) each share of Notable’s common stock, par value $0.001 per share, (“Notable Common Stock”), outstanding immediately prior to the Effective Time was converted into the right to receive approximately 0.0629 Ordinary Shares, reflecting adjustment to account for the effect of the Reverse Share Split, and also reflecting adjustment based on the Company Net Cash (as defined in the Merger Agreement) relative to Target Net Cash immediately prior to the closing of the Merger, and other adjustments.

Prior to the Closing, certain existing stockholders of Notable purchased an aggregate of approximately $10.3 million of Notable’s Series D-1 preferred shares and Series D-2 preferred shares. Prior to the Closing the Series D-1 preferred shares and Series D-2 preferred shares converted into Notable Common Stock, which were then converted into a right to receive Ordinary Shares at the Effective Time.

Immediately following the Reverse Share Split, at the Effective Time there were approximately 8,936,448 Ordinary Shares outstanding, of which the existing VBL shareholders owned approximately 2,218,299 outstanding Ordinary Shares and the former Notable shareholders owned approximately 6,718,149 outstanding Ordinary Shares. On a fully-diluted basis, the former Notable shareholders beneficially own approximately 75.2% of the VBL Ordinary Shares. The officers and directors of Notable prior to the Closing and certain Notable stockholders are subject to lock-up agreements. Pursuant to the lock-up agreements, the parties have agreed, except in limited circumstances, not to offer, pledge, sell or otherwise transfer or dispose of, directly or indirectly, or engage in swap or similar transactions with respect to the Ordinary Shares, or securities exchangeable for Ordinary Shares, for a period of 60 days following the Closing.

In addition, effective upon the Closing, the holders of unexercised Notable stock options and warrants immediately prior to the Closing were issued replacement stock options and warrants to purchase an aggregate of 255,646 Ordinary Shares.