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EXCEL - IDEA: XBRL DOCUMENT - PLURISTEM THERAPEUTICS INCFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 - PLURISTEM THERAPEUTICS INCexhibit_31-1.htm
EX-32.2 - EXHIBIT 32.2 - PLURISTEM THERAPEUTICS INCexhibit_32-2.htm
EX-32.1 - EXHIBIT 32.1 - PLURISTEM THERAPEUTICS INCexhibit_32-1.htm
EX-31.2 - EXHIBIT 31.2 - PLURISTEM THERAPEUTICS INCexhibit_31-2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
Form 10-Q
 
(Mark One)
 
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from
__________ to __________
 
Commission file number  001-31392
 
PLURISTEM THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)

Nevada
98-0351734
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)

MATAM Advanced Technology Park, Building No. 5, Haifa, Israel  31905
(Address of principal executive offices)

011-972-74-7107171
(Registrant’s telephone number)
 
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 past 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 o

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 registration was required to submit and post such files).    
 
Yes x    No o
 
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer o                        Accelerated filer x
Non-accelerated filer o                          Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o    No x

State the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 59,883,919 shares of common stock issued and outstanding as of October 29, 2013.

 
 

 
 
PART I  - FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013

(Unaudited)
 
 

 
 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
INTERIM CONENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2013

 U.S. DOLLARS IN THOUSANDS

(Unaudited)
 
INDEX
 
 
 
 

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. Dollars in thousands

     
September 30,
2013
   
June 30,
2013
 
 
Note
 
Unaudited
       
ASSETS
             
               
CURRENT ASSETS:
             
               
Cash and cash equivalents
    $ 8,603     $ 9,007  
Short term bank deposits
      24,047       31,449  
Restricted cash and restricted short-term deposits
      753       316  
Marketable securities
3
    16,016       13,441  
Other current assets
      3,049       872  
Total current assets
      52,468       55,085  
                   
LONG-TERM ASSETS:
                 
                   
Long-term deposits and restricted deposits
      311       421  
Severance pay fund
      1,020       905  
Property and equipment, net
      11,663       11,866  
Other long-term assets
      21       39  
Total long-term assets
      13,015       13,231  
                   
Total assets
    $ 65,483     $ 68,316  
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
 
F - 2

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. Dollars in thousands (except share and per share data)

     
September 30,
2013
   
June 30,
2013
 
 
Note
 
Unaudited
       
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
               
CURRENT LIABILITIES
             
               
Trade payables
    $ 2,880     $ 2,837  
Accrued expenses
      1,003       1,040  
Deferred revenues
      379       379  
Advance payment from United Therapeutics
      356       393  
Other accounts payable
      1,113       1,272  
Total current liabilities
      5,731       5,921  
                   
LONG-TERM LIABILITIES
                 
                   
Deferred revenues
      3,131       3,226  
Accrued severance pay
      1,173       1,023  
Other long-term liabilities
      657       680  
Total long-term liabilities
      4,961       4,929  
                   
COMMITMENTS AND CONTINGENCIES
5
               
                   
STOCKHOLDERS’ EQUITY
                 
                   
Share capital:
6
               
     Common stock  $0.00001 par value:
     Authorized: 100,000,000 shares
     Issued and outstanding:  59,852,793 shares as of September 30, 2013, 59,196,617 shares as of June 30, 2013
      -(* )     -(* )
Additional paid-in capital
      145,794       144,109  
Accumulated deficit
      (91,657 )     (86,902 )
Other comprehensive income
      654       259  
Total stockholders' equity
      54,791       57,466  
                   
Total liabilities and stockholders' equity
    $ 65,483     $ 68,316  

(*)
Less than $1.
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
 
F - 3

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
U.S. Dollars in thousands (except share and per share data)

   
Three months ended September 30,
 
   
2013
   
2012
 
             
Revenues
  $ 95     $ 195  
Cost of revenues
    (3 )     (6 )
Gross profit
    92       189  
Operating expenses:
               
Research and development expenses
    (5,497 )     (3,748 )
Less participation by the Office of the Chief Scientist and other parties
    2,374       1,050  
Research and development expenses, net
    (3,123 )     (2,698 )
General and administrative expenses
    (1,829 )     (1,681 )
Total operating expenses
    (4,952 )     (4,379 )
Operating loss
    (4,860 )     (4,190 )
                 
Financial income, net
    105       195  
                 
Net loss
  $ (4,755 )   $ (3,995 )
                 
Loss per share:
               
Basic and diluted net loss per share
  $ (0.08 )   $ (0.08 )
                 
Weighted average number of shares used  in computing basic and diluted net loss per share
        59,254,132           47,833,654  
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 
F - 4

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
U.S. Dollars in thousands
 
   
Three months ended September 30,
 
   
2013
   
2012
 
             
Net loss
  $ (4,755 )   $ (3,995 )
Other comprehensive income (loss):
               
Changes in unrealized gain on available-for-sale marketable securities
    537       229  
Reclassification adjustment for gains realized in net  loss
    (142 )     -  
Other comprehensive income
    395       229  
Total comprehensive loss
  $ (4,360 )   $ (3,766 )
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
 
F - 5

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED STATEMENTS OF CHANGES IN  EQUITY (UNAUDITED)
U.S. Dollars in thousands (except share and per share data)
   
Common Stock
   
Additional Paid-in
   
Accumulated Other Comprehensive
   
Accumulated
   
Total Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Deficit
   
Equity
 
Balance as of July 1, 2012
    46,448,051     $ (* )   $ 103,619     $ (130 )   $ (65,747 )   $ 37,742  
Issuance of common stock and warrants related to September 2012 public offering,  net of issuance costs of $2,694
    9,200,000       (* )     34,106       -       -       34,106  
Exercise of options by employees and consultants
    94,332       (* )     146       -       -       146  
Exercise of warrants by investors and finders
    975,622       (* )     1,229       -       -       1,229  
Stock based compensation to employees, directors and non-employee consultants
    539,225       (* )     1,336       -       -       1,336  
Stock based compensation to contractor
    -       -       1,400       -       -       1,400  
Other comprehensive income
    -       -       -       229       -       229  
Net loss
    -       -       -       -       (3,995 )     (3,995 )
                                                 
Balance as of September 30, 2012
    57,257,230     $ (* )   $ 141,836     $ 99     $ (69,742 )   $ 72,193  
 
(*)  Less than $1
                                               
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
 
F - 6

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED STATEMENTS OF CHANGES IN  EQUITY (UNAUDITED)
U.S. Dollars in thousands (except share and per share data)
   
Common Stock
   
Additional Paid-in
   
Accumulated Other Comprehensive
   
Accumulated
   
Total Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Income
   
Deficit
   
Equity
 
Balance as of July 1, 2013
    59,196,617     $ (* )   $ 144,109     $ 259     $ (86,902 )   $ 57,466  
Exercise of options  and warrants by employees and consultants
    5,905       (* )     -       -       -       -  
Exercise of warrants by investors and finders
    448,082       (* )     509       -       -       509  
Stock based compensation to employees, directors and non-employee consultants
    202,189       (* )     1,176       -       -       1,176  
Other comprehensive income
    -       -       -       395       -       395  
Net loss
    -       -       -       -       (4,755 )     (4,755 )
                                                 
Balance as of September 30, 2013
    59,852,793     $ (* )   $ 145,794     $ 654     $ (91,657 )   $ 54,791  
 
(*)  Less than $1
           
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
 
F - 7

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
U.S. Dollars in thousands
   
Three months ended September 30,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
             
Net loss
  $ (4,755 )   $ (3,995 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:
               
                 
Depreciation
    461       130  
Stock-based compensation to employees, directors and non-employee consultants
    1,176       1,063  
Stock compensation to investor relations consultants
    -       273  
Increase in other accounts receivable
    (2,150 )     (746 )
Increase in prepaid expenses
    (7 )     (483 )
Decrease (increase) in trade payables
    247       988  
Increase  in other accounts payable and  accrued expenses
    160       30  
Increase (decrease) in deferred revenues
    (474 )     (195 )
Increase (decrease) in advance payment from United Therapeutics
    (37 )     (617 )
Linkage differences and Increase (decrease) interest on short and long-term deposit and restricted lease deposit
    (168 )     (37 )
Accretion of discount, amortization of premium and changes in accrued interest from marketable securities
    559       43  
Loss (gain) from sale of investments of available-for-sale marketable securities
    (142 )     15  
Accrued severance pay, net
    35       9  
Net cash used in operating activities
  $ (5,095 )   $ (3,522 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
                 
Purchase of property and equipment
  $ (462 )   $ (1,978 )
Repayment of short-term deposits
    7,132       -  
Repayment (investment) in long-term deposits
    (3 )     300  
Repayment of long-term restricted deposit
    112       3  
Proceeds from sale of available-for-sale marketable securities
    1,870       313  
Proceeds from redemption of available-for-sale marketable securities
    394       -  
Investment in available-for-sale marketable securities
    (4,861 )     (1,248 )
Net cash provided by (used in) investing activities
  $ 4,182     $ (2,610 )
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
 
F - 8

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
U.S. Dollars in thousands
   
Three months ended September 30,
 
   
2013
   
2012
 
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Issuance of common stock and warrants, net of issuance costs
  $ -     $ 34,106  
Exercise of options and warrants
    509       1,388  
Net cash provided by financing activities
  $ 509     $ 35,494  
                 
Increase (decrease) in cash and cash equivalents
    (404 )     29,362  
Cash and cash equivalents at the beginning of the period
    9,007       9,389  
Cash and cash equivalents at the end of the period
  $ 8,603     $ 38,751  
             
(a) Supplemental disclosure of cash flow activities:
           
Cash paid during the period for:
           
Taxes paid due to non-deductible expenses
  $ 31     $ 3  
                 
(b) Supplemental disclosure of non-cash activities:
           
Purchase of property and equipment on credit
  $ 668     $ 78  
                 
Stock based compensation to contractor
  $ -     $ 1,400  
 
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
 
 
F - 9

 
 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 1:-GENERAL
 
a.
Pluristem Therapeutics Inc., a Nevada corporation, was incorporated on May 11, 2001. Pluristem Therapeutics Inc. has a wholly owned subsidiary, Pluristem Ltd. (the “Subsidiary”), which is incorporated under the laws of the State of Israel. Pluristem Therapeutics Inc. and the Subsidiary are referred to as "Pluristem" or the “Company”.

b.
The Company is a bio-therapeutics company developing standardized cell therapy products from human placenta for the treatment of multiple disorders. The Company has sustained operating losses and expects such losses to continue in the foreseeable future. The Company's accumulated losses aggregated to $91,657 through September 30, 2013. The Company plans to continue to finance its operations with sales of equity securities, entering into licensing technology agreements such as the United Therapeutics Corporation (“United Therapeutics”) and CHA Bio&Diostech (“CHA”) agreements, and from grants to support its R&D activity. In the longer term, the Company plans to finance its operations from revenues from sales of products.

c.
Clinical hold lift:

In June 2013, the Company received notification from the U.S. Food and Drug Administration (“FDA”) that its United States phase II Intermittent Claudication study had been placed on clinical hold due to a serious allergic reaction in a case which required hospitalization. On September 16, 2013, the Company announced that the FDA lifted the clinical hold.
 
d.
License Agreements:
 
On June 19, 2011, the Subsidiary entered into an exclusive license agreement ("the License Agreement") with United Therapeutics for the use of its PLX cells to develop and commercialize a cell-based product for the treatment of Pulmonary Hypertension ("PAH").  The License Agreement provides that United Therapeutics will receive exclusive worldwide license rights for the development and commercialization of the Company's PLX cell-based product to treat PAH.  The License Agreement provides for the following consideration payable to the Company: (i) an upfront payment of $7,000 paid in August 2011, which includes a $5,000 non-refundable upfront payment and a $2,000 advance payment on the development; (ii) up to $37,500 upon reaching certain regulatory milestones with respect to the development of a product to treat PAH; (iii) reimbursement of up to $10,000 of certain of the Company expenses if the Company establishes a manufacturing facility in North America upon meeting certain status; (iv) reimbursement of certain costs in connection with the development of the product; and (v) following commercialization of the product, royalties and the purchase of commercial supplies of the developed product from the Company at a specified margin over the Company’s cost. On August 2, 2011, the License Agreement became effective following the consent of the Office of the Chief Scientist of Israel (“OCS”) within the Israeli Ministry of Economy.
 
On June 26, 2013, the Subsidiary entered into an exclusive license and commercialization agreement (the “CHA Agreement”) with CHA Bio&Diostech (“CHA”), for conducting clinical trials and commercialization of Pluristem's PLX-PAD product in South Korea in connection with two indications: the treatment of Critical Limb Ischemia, and Intermediate Claudication (the “Indications”). Under the terms of the CHA Agreement, CHA will receive exclusive rights in South Korea for conducting clinical trials with respect to the Indications, at the sole expense of CHA. Commencement of the clinical trials is conditioned upon the receipt of the necessary regulatory approvals.  If Pluristem's products receive regulatory approvals in South Korea for marketing as treatment for the Indications, the parties will form a joint venture in order to sell, distribute and market Pluristem products for treating the Indications in South Korea. The joint venture would be owned equally by CHA and Pluristem. Pluristem would own any and all intellectual property rights to the extent conceived in connection with its products and license such rights to the joint venture.

 
F - 10

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 1:-GENERAL (CONT.)
 
In an event of lifting the clinical hold by the FDA on a study of another indication conducted by Pluristem (see Note 1c), and reaching an agreed upon development plan for conducting the clinical trials, Pluristem has agreed to issue to CHA 2,500,000 shares of its common stock in consideration for the issuance to Pluristem of 1,011,504 common shares of CHA, which reflect total consideration of approximately $10,000 for such Pluristem shares (based on the average closing price of CHA common shares over the last 30 trading days preceding the date of the agreement). Each party has agreed to hold the other party's shares for at least one year before selling any of such shares. The parties also agreed to give an irrevocable proxy to the other party’s management with respect to the voting power of the shares issued.

The CHA Agreement includes non-competition covenants by CHA for a specified period as well as customary termination and indemnification provisions, including in the event the parties do not reach an agreed upon development plan for conducting the clinical trials.
 
NOTE 2:- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
 
a.
Unaudited Interim Financial Information
 
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed).
 
 
For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013.
 
 
Operating results for the three months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014.
 
 
b.
Fair value of financial instruments:
 
 
The carrying amounts of the Company's financial instruments, including cash and cash equivalents, available-for-sale marketable securities, short-term deposits, trade payable and other accounts payable and accrued liabilities, approximate fair value because of their generally short term maturities.
 
 
The Company accounts for certain assets and liabilities at fair value under ASC 820, “Fair Value Measurements and Disclosures”. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
 
 
F - 11

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 
 
b.
Fair value of financial instruments (cont.)
 
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
 
Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data; and
 
Level 3 - Unobservable inputs which are supported by little or no market activity.
 
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company categorized each of its fair value measurements in one of these three levels of hierarchy.

Based on the fair value hierarchy, the Company classifies its marketable securities within Level 1 or Level 2. This is because the Company values its marketable securities using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The Company classifies its foreign currency derivative instruments primarily within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
 
 
c.
Derivative financial instruments
 
The Company’s derivatives are not designated as hedging accounting instruments under ASC 815, “Derivatives and Hedging”. Those derivatives consist primarily of forward and options contracts the Company uses to hedge the Company’s exposures to currencies other than the U.S. dollar. The Company recognized derivative instruments as either assets or liabilities and measures those instruments at fair value. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, the Company recognizes changes in the fair values in its statement of income in financial income, net, in the same period as the re-measurement gain and loss of the related foreign currency denominated assets and liabilities.
 
The fair value of the forward and options contracts as of September 30, 2013 and June 30, 2013 were recorded as an asset of $86 and $93, respectively.
 
 
F - 12

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 3:- MARKETABLE SECURITIES

As of September 30, 2013, all of the Company’s marketable securities were classified as available-for-sale.
 
   
September 30, 2013 (Unaudited)
   
June 30, 2013
 
   
Amortized cost
   
Gross
unrealized
gain
   
Gross
unrealized
loss
   
Fair
value
   
Amortized cost
   
Gross
unrealized
gain
   
Gross
unrealized
loss
   
Fair
value
 
Available-for-sale - matures within one year:
                                               
Stock and index linked notes
  $ 5,624     $ 361     $ (62 )   $ 5,923     $ 4,023     $ 234     $ (180 )   $ 4,077  
Government debentures – fixed interest rate
    163       24       (1 )     186       329       21       -       350  
Corporate debentures – fixed interest rate
    681       42       (6 )     717       508       30       (9 )     529  
    $ 6,468     $ 427     $ (69 )   $ 6,826     $ 4,860     $ 285     $ (189 )   $ 4,956  
Available-for-sale - matures after one year through five years:
                                                               
Government debentures – fixed interest rate
    2,387       60       (5 )     2,442       1,602       49       (12 )     1,639  
Corporate debentures – fixed interest rate
    5,069       235       (44 )     5,260       4,976       162       (77 )     5,061  
    $ 7,456     $ 295     $ (49 )   $ 7,702     $ 6,578     $ 211     $ (89 )   $ 6,700  
Available-for-sale - matures after five years through ten years:
                                                               
Government debentures – fixed interest rate
  $ 621     $ 30     $ (9 )   $ 642     $ 955     $ 45     $ (14 )   $ 986  
Corporate debentures – fixed interest rate
    817       39       (10 )     846       789       29       (19 )     799  
    $ 1,438     $ 69     $ (19 )   $ 1,488     $ 1,744     $ 74     $ (33 )   $ 1,785  
    $ 15,362     $ 791     $ (137 )   $ 16,016     $ 13,182     $ 570     $ (311 )   $ 13,441  
 
The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of September 30, 2013 and June 30, 2013, and the length of time that those investments have been in a continuous loss position:
 
   
Less than 12 months
   
12 months or greater
 
   
Fair Value
   
Gross
unrealized loss
   
Fair Value
   
Gross
unrealized loss
 
As of September 30, 2013 (Unaudited)
  $ 4,123     $ (131 )   $ 21     $ (6 )
As of June 30, 2013
  $ 5,122     $ (302 )   $ 32     $ (9 )

The Company typically invests in highly-rated securities. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company's intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment's amortized cost basis. Based on the above factors, the Company concluded that unrealized losses on all available-for-sale securities were not other-than-temporary and no credit loss was present for any of its investments. As such, the Company did not recognize any impairment charges on outstanding securities during the three months ended September 30, 2013.
 
 
F - 13

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 4:- FAIR VALUE OF FINANCIAL INSTRUMENTS
 
   
September 30, 2013
(Unaudited)
   
June 30, 2013
 
   
Level 1
   
Level 2
   
Level 1
   
Level 2
 
Marketable securities
  $ 6,238     $ 9,778     $ 6,311     $ 7,130  
Derivatives
    -       86       -       93  
Total
  $ 6,238     $ 9,864     $ 6,311     $ 7,223  
 
NOTE 5: - COMMITMENTS AND CONTINGENCIES
 
Commitments and contingencies that changed during the three months ended September 30, 2013 include the following:
 
Increase in the amount of $325 of cash pledged by the Company to secure its hedging transactions, credit line and bank guarantees.
 
NOTE 6: - STOCKHOLDERS' EQUITY
 
From July 2013 through September 2013, a total of 457,000 warrants were exercised via “cashless” exercise, resulting in the issuance of 169,082 shares of common stock to investors of the Company.  In addition, 279,000 warrants were exercised for cash and resulted in the issuance of 279,000 shares of common stock to investors of the Company. The aggregate cash consideration received was $509. In addition, in August 2013, a total of 15,000 warrants were exercised via a “cashless” exercise, resulting in the issuance of 5,905 shares of common stock to a consultant of the Company.
 
 
F - 14

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 6: - STOCKHOLDERS' EQUITY (CONT.)

 
a.
Options, warrants, restricted stock and restricted stock units to employees, directors and consultants:
 
 
1.
Options to employees and directors:
 
The Company has approved two incentive option plans from 2003 and from 2005 (the “2003 Plan" and the “2005 Plan”, and collectively, the “Plans”).

The Company accounted for its options to employees and directors under the fair value method in accordance with ASC 718, “Compensation — Stock Compensation”. A summary of the Company’s share option activity for options granted to employees and directors under the Plans is as follows:

   
Three months ended September 30, 2013 (Unaudited)
 
   
Number
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Terms (in years)
   
Aggregate Intrinsic Value Price
 
Options outstanding at beginning of period
    1,958,156     $ 4.01              
Options forfeited
    (50,000 )   $ 15.31              
Options outstanding at end of the period
    1,908,156     $ 3.73       3.82     $ 1,195  
Options exercisable at the end of the period
    1,908,156     $ 3.73       3.82     $ 1,195  
Options vested
    1,908,156     $ 3.73       3.82     $ 1,195  
 
Intrinsic value of exercisable options (the difference between the Company’s closing stock price on the last trading day in the period and the exercise price, multiplied by the number of in-the-money options) represents the amount that would have been received by the employees and directors option holders had all option holders exercised their options on September 30, 2013. This amount changes based on the fair market value of the Company’s common stock.
 
 
F - 15

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 6: - STOCKHOLDERS' EQUITY (CONT.)

 
a.
Options, warrants, restricted stock and restricted stock units to employees, directors and consultants (cont.):

 
2.
Options and warrants to non-employees:

A summary of the Company’s activity related to options and warrants to consultants is as follows:

   
Three months ended September 30, 2013 (Unaudited)
 
   
Number
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Terms (in years)
   
Aggregate Intrinsic Value Price
 
Options and warrants outstanding at beginning of period
    315,500     $ 4.40              
Options and warrants exercised
    (15,000 )     1.91              
Options and warrants outstanding at end of the period
    300,500     $ 4.56       3.97     $ 463  
                                 
Options and warrants exercisable at the end of the period
    299,000     $ 4.59       3.95     $ 458  
                                 
Options and warrants vested and expected to vest
    300,500     $ 4.56       3.97     $ 463  
 
Compensation expenses related to options and warrants granted to consultants were recorded as follows:
 
   
Three months ended
September 30,
 
   
2013
   
2012
 
   
Unaudited
 
Research and development expenses
  $ -     $ -  
General and administrative expenses
    2       18  
    $ 2     $ 18  
 
Future expenses related to options and warrants granted to consultants for an average time of approximately three months is $1.
 
 
F - 16

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 6: - STOCKHOLDERS' EQUITY (CONT.)
 
 
a.
Options, warrants, restricted stock and restricted stock units to employees, directors and consultants (cont.):
 
 
3.
Restricted stock and restricted stock units to employees and directors:
 
During the three months ended September 30, 2013, the Company did not grant restricted stock units to any of the Company's employees and directors.
 
The following table summarizes the activities for unvested restricted stock units granted to employees and directors for the three months ended September 30, 2013 (Unaudited):

   
Number
 
Unvested at the beginning of period
    1,660,525  
Granted
    -  
Forfeited
    (20,873 )
Vested
    (202,189 )
Unvested at the end of the period
    1,437,463  
Expected to vest after September 30, 2013
    1,420,189  
 
Compensation expenses related to restricted stock units granted to employees and directors were recorded as follows:
 
   
Three months ended September 30,
 
   
2013
   
2012
 
   
Unaudited
 
Research and development expenses
  $ 126     $ 317  
General and administrative expenses
    1,048       608  
    $ 1,174     $ 925  
 
 
Future expenses related to restricted stock and restricted stock units granted to employees and directors for an average time of approximately 1.75 years is $2,586.
 
 
F - 17

 
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
 
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except per share amounts)
 
NOTE 6: - STOCKHOLDERS' EQUITY (CONT.)

 
a.
Options, warrants, restricted stock and restricted stock units to employees, directors and consultants (cont.):
 
 
4.
Restricted stock and restricted stock units to consultants:
 
During the three months ended September 30, 2013, the Company did not grant any restricted stock units to consultants and service providers.
 
During the three months ended September 30, 2013, no restricted stock units held by consultants and service providers were forfeited or vested.
 
Compensation expenses related to restricted stock units granted to consultants were recorded as follows:
 
   
Three months ended September 30,
 
   
2013
   
2012
 
   
Unaudited
 
Research and development expenses
  $ -     $ 120  
General and administrative expenses
    -       273  
    $ -     $ 393  
 
 
F - 18

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

Forward - Looking Statements

This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws.  Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future financial conditions, results or projections or current expectations.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other variations thereon or comparable terminology.  These statements are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance levels of activity, or our achievements, or industry results to be materially different from those contemplated by the forward-looking statements.  Such forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and may appear elsewhere in this quarterly report on Form 10-Q and include, but are not limited to, statements regarding the following:

·
the expected development and potential benefits from our products in treating various medical conditions;
 
·
the exclusive license agreements we entered into with United Therapeutics Corporation (United) and CHA Bio&Diostech (CHA) (United Agreement and CHA Agreement, respectively) and clinical trials to be conducted according to such agreements;
 
·
the prospects of entering into additional license agreements, or other forms of cooperation with other companies and medical institutions;
 
·
achieving regulatory approvals;
 
·
consummation of comparability study for our new manufacturing facility;
 
·
developing capabilities for new clinical indications of placenta expanded cells (PLX);
 
·
the potential market demand for our products;
 
·
the implications of the clinical hold notification provided by the U.S. Food and Drug Administration (FDA) in June 2013 (Clinical Hold), which has been lifted since then;
 
·
our expectations regarding our short- and long-term capital requirements;
 
·
our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses; and
 
·
information with respect to any other plans and strategies for our business.
 
Our business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.  Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2013.  Readers are also urged to carefully review and consider the various disclosures we have made in that report.

As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “Pluristem” mean Pluristem Therapeutics Inc. and our wholly owned subsidiary, Pluristem Ltd., unless otherwise indicated or as otherwise required by the context.

 
3

 

Overview

We are a bio-therapeutics company developing standardized cell therapy products for the treatment of a variety of local and systemic diseases.  Our patented PLX (PLacental eXpanded) cells function as a drug delivery platform that releases a number of therapeutic proteins in response to various local and systemic inflammatory and ischemic signals generated by the patient. PLX cells are grown using our proprietary 3D micro-environment technology that produces an “off-the-shelf” product that requires no tissue matching prior to administration.  
 
We were incorporated as a Nevada corporation in 2001. We have a wholly owned research and development subsidiary in Israel called Pluristem Ltd. We operate in one segment, namely, the research, development and commercialization of cell therapeutics and related technologies.
 
Our strategy is to develop and produce cell therapy products for the treatment of multiple disorders using several methods of administration.  We plan to execute this strategy independently, using our own personnel, and through relationships with research and clinical institutions or in collaboration with other companies, such as United and CHA.  We have built our own Good Manufacturing Practices facility and we are planning to have in-house production capacity to grow clinical grade PLX cells in commercial quantities and to control all of our proprietary manufacturing processes.
 
RESULTS OF OPERATIONS –THREE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2012.
 
Revenues
 
Revenues for the three months ended September 30, 2013 were $95,000 as compared to revenues $195,000 for three months ended September 30, 2012.  All such revenues are derived from the United Agreement.
 
This reduction is a result of re-evaluation we did for the development period under the United Agreement. In June 2013, we received notification from the FDA that our United States phase II Intermittent Claudication study had been placed on Clinical Hold due to a serious allergic reaction in a case which required hospitalization.  In September 2013, the FDA lifted the Clinical Hold. In June 2013, following the Clinical Hold, we extended the development period for which we received funds from United from 6.5 years to 11.5 years. The license fee will be recognized on a straight line basis as revenue over the estimated development period.
 
Research and Development net
 
Research and development net costs (costs less participation and grants by the OCS and other parties), for the three months ended September 30, 2013 increased in 16% from $2,698,000 for the three months ended September 30, 2012 to $3,123,000. This increase is attributed to the material increase in our in-house research and development activity, the increase in expenses related to the clinical trials, increase in our salaries due to, among other things, an increase of 51 employees as compared to the number of employees in September 2012 and increase in our depreciation expenses. This increase was offset by an increase in the participation of the OCS this quarter which is $2,374,000 compared to the first quarter of fiscal 2012, which was $1,050,000, due to a delay in approving the 2013 OCS grant. Since the approval for the calendar year 2013 grant was received only in August 2013, we recognized in the quarter ended September 30, 2013 the OCS participation for the nine months ended September 30, 2013.
 
General and Administrative
 
General and administrative expenses for the three months ended September 30, 2013 increased by 9% from $1,681,000 for the three months ended September 30, 2012 to $1,829,000 mainly due to an increase in stock-based compensation expenses related to our employees, directors and officers, offset by a decrease in stock-based compensation expenses to investor relations consultants.
 
 
4

 
 
Financial Income, net
 
Financial income decreased from $195,000 for the three months ended September 30, 2012 to $105,000 for the three months ended September 30, 2013 mainly due to a decrease in gains from hedging instruments, as well as lower interest income on bank deposits, offset by changes in exchange rates.
 
Net Loss
 
Net loss for the three months ended September 30, 2013 was $4,755,000 as compared to a net loss of $3,995,000 for the three months ended September 30, 2012. The change was due to the decrease in revenues and increased expenses described above. Net loss per share for the three months ended September 30, 2013 and for the three months ended September 30, 2012 was $0.08.
 
For the periods ended September 30, 2013 and September 30, 2012, we had weighted average shares of common stock outstanding of 59,254,132 and 47,833,654, respectively, that were used in the computations of net loss per share for the three months. The increase in weighted average common shares outstanding reflects shares issued as part of our public offering of our common stock consummated in September 2012 and to a lesser degree a result of exercise of warrants and options and issuance of restricted stock units to employees and consultants.
 
Liquidity and Capital Resources
 
As of September 30, 2013, our total current assets were $52,468,000 and total current liabilities were $5,731,000. On September 30, 2013, we had a working capital surplus of $46,737,000, stockholders' equity of $54,791,000 and an accumulated deficit of $91,657,000. We finance our operations and plan to continue doing so from our existing cash, licensing agreements, funds from grants from the OCS and issuances of our securities.
 
Cash and cash equivalents as of September 30, 2013 amounted to $8,603,000 compared to $9,007,000 as of June 30, 2013, and compared to $38,751,000 as of September 30, 2012.  Cash balances decreased in the three months ended September 30, 2013 for the reasons presented below.
 
Operating activities used cash of $5,095,000 in the three months ended September 30, 2013, compared to $3,522,000 for the three months ended September 30, 2012. Cash used in operating activities in the three months ended September 30, 2013 primarily consisted of payments of salaries to our employees, and payments of fees to our consultants, subcontractors and professional services providers including costs of clinical studies offset by an OCS grant. The cash used in the three months ended September 30, 2012 primarily consisted of payments of salaries to our employees, and payments of fees to our consultants, subcontractors and professional services providers including costs of clinical studies offset by an OCS grant.

Investing activities provided cash of $4,182,000 in the three months ended September 30, 2013, compared to cash used of $2,610,000 for the three months ended September 30, 2012. The investing activities in the three months ended September 30, 2013 consisted primarily of withdrawal of $7,132,000 of short term deposits, offset by investing $4,861,000 in marketable securities. The investing activities in the three months ended September 30, 2012 consisted primarily of investing $1,248,000 in marketable securities and purchasing equipment and paying for the construction of our new facilities in the amount of $1,978,000.

Financing activities generated cash of $509,000 during the three months ended September 30, 2013, compared to $35,494,000 for the three months ended September 30, 2012. The cash generated in the three months ended September 30, 2013 from financing activities is from exercises of warrants by shareholders. The cash generated in the three months ended September 30, 2012 from financing activities is attributable to the proceeds from a public offering of our common stock.

During the past three months, 279,000 warrants were exercised in consideration for $509,000 in cash, and an additional 472,000 warrants were exercised on a cashless basis resulting in the net issuance of 174,987 shares of stock.

During the three months ended September 30, 2013, we received approximately $307,000 from the OCS towards our research and development expenses. According to the OCS grant terms, we are required to pay royalties at a rate of 3% - 5% on sales of products and services derived from technology developed using this and other OCS grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required. During the three months ended September 30,2013 we paid $8,625 in royalties to the OCS.
 
 
5

 
 
As of today, the currency of our financial portfolio is mainly in U.S. dollars and we use forward and options contracts in order to hedge our exposures to currencies other than the U.S. dollar. For more information, please see Item 7A. – “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K filed on September 11, 2013.

Outlook

We have accumulated a deficit of $91,657,000 since our inception in May 2001.  We do not expect to generate any revenues from sales of products in the next twelve months.  Our products will likely not be ready for sale for at least three years, if at all.  Our cash needs will increase in the foreseeable future.  We expect to generate revenues, which in the short and medium terms will unlikely exceed our costs of operations, from the sale of licenses to use our technology or products, as we have in the United Agreement.  Our management believes that we may need to raise additional funds before we have cash flow from operations that can materially decrease our dependence on our existing cash and other liquidity resources. We are continually looking for sources of funding, including non-diluting sources such as the OCS grants.

We believe that we have sufficient cash to fund our operations for at least the next 12 months.
 
 
6

 

Off Balance Sheet Arrangements
 
We have no off balance sheet arrangements.
 
Item 4.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures - We maintain a system of disclosure controls and procedures that are designed for the purposes of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO, as appropriate to allow timely decisions regarding required disclosures.
 
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO and our CFO, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended.  Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.
 
Changes in Internal Control Over Financial Reporting - There has been no change in our internal control over financial reporting during the first quarter of fiscal 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
7

 
 
PART II - OTHER INFORMATION
 
Item 6. Exhibits.
 
31.1*
Rule 13a-14(a) Certification of Chief Executive Officer.

31.2*
Rule 13a-14(a) Certification of Chief Financial Officer.

32.1**
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
   
32.2**
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
   
101 *
The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Statements of Changes in  Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
 
*Filed herewith.
 
** Furnished herewith.
 
 
8

 
 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PLURISTEM THERAPEUTICS INC.
 
By: /s/ Zami Aberman
Zami Aberman, Chief Executive Officer
(Principal Executive Officer)
Date:  November  5, 2013
 
By: /s/ Yaky Yanay
Yaky Yanay, Executive Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
Date:  November  5, 2013
 
9