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EX-32.2 - CERTIFICATION - PLURISTEM THERAPEUTICS INCf10k2020ex32-2_pluristem.htm
EX-32.1 - CERTIFICATION - PLURISTEM THERAPEUTICS INCf10k2020ex32-1_pluristem.htm
EX-31.2 - CERTIFICATION - PLURISTEM THERAPEUTICS INCf10k2020ex31-2_pluristem.htm
EX-31.1 - CERTIFICATION - PLURISTEM THERAPEUTICS INCf10k2020ex31-1_pluristem.htm
EX-23.1 - CONSENT OF KOST FORER GABBAY & KASIERER, A MEMBER OF ERNST & YOUNG GLOBAL - PLURISTEM THERAPEUTICS INCf10k2020ex23-1_pluristem.htm
EX-21.1 - LIST OF SUBSIDIARIES OF THE COMPANY - PLURISTEM THERAPEUTICS INCf10k2020ex21-1_pluristem.htm
EX-10.20 - FINANCE CONTRACT BETWEEN THE EUROPEAN INVESTMENT BANK, AS LENDER, AND PLURISTEM - PLURISTEM THERAPEUTICS INCf10k2020ex10-20_pluristem.htm
EX-10.19 - AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN PLURISTEM LTD. AND CHEN FRANCO - PLURISTEM THERAPEUTICS INCf10k2020ex10-19_pluristem.htm
EX-10.18 - AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN PLURISTEM LTD. AND YAKY YANAY - PLURISTEM THERAPEUTICS INCf10k2020ex10-18_pluristem.htm
EX-10.17 - AMENDED AND RESTATED CONSULTING AGREEMENT BETWEEN PLURISTEM LTD. AND ROSE HIGH T - PLURISTEM THERAPEUTICS INCf10k2020ex10-17_pluristem.htm
EX-10.8 - SUMMARY OF DIRECTORS' ONGOING COMPENSATION - PLURISTEM THERAPEUTICS INCf10k2020ex10-8_pluristem.htm
EX-4.3 - DESCRIPTION OF SECURITIES - PLURISTEM THERAPEUTICS INCf10k2020ex4-3_pluristem.htm
EX-3.4 - AMENDED AND RESTATED BY-LAWS AS AMENDED ON SEPTEMBER 10, 2020 (MARKED) - PLURISTEM THERAPEUTICS INCf10k2020ex3-4_pluristem.htm
EX-3.3 - AMENDED AND RESTATED BY-LAWS AS AMENDED ON SEPTEMBER 10, 2020 - PLURISTEM THERAPEUTICS INCf10k2020ex3-3_pluristem.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2020

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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)
  (I.R.S. Employer
Identification No.)

 

MATAM Advanced Technology Park,
Building No. 5, Haifa, Israel
  3508409
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number  011-972-74-7108600

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock, par value $0.00001   PSTI   Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:

 

None.
(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐ No ☒

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

 

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

 

Large accelerated filer Accelerated filer ☐  Non-accelerated filer ☒ 
Smaller reporting company  Emerging growth company    

 

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. ☐

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

$62,304,077

 

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

 

25,554,668 as of September 4, 2020

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I   1
     
Item 1. Business. 1
     
Item 1A. Risk Factors. 18
     
Item 1B. Unresolved Staff Comments. 35
     
Item 2. Properties. 36
     
Item 3. Legal Proceedings. 36
     
Item 4. Mine Safety Disclosures. 36
     
PART II   37
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 37
     
Item 6. Selected financial data. 37
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 37
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 44
     
Item 8. Financial Statements and Supplementary Data. 46
     
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 47
     
Item 9A. Controls and Procedures 47
     
Item 9B. Other Information 48
     
PART III   51
     
Item 10. Directors, Executive Officers and Corporate Governance. 51
     
Item 11. Executive Compensation. 57
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters. 68
     
Item 13. Certain Relationships and Related Transactions and Director Independence. 70
     
Item 14. Principal Accounting Fees and Services 70
     
PART IV   71
     
Item 15. Exhibits. 71
     
Item 16. Form 10-K Summary. 73

 

i

 

 

Our financial statements are stated in thousands United States Dollars, or US$, and are prepared in accordance with United States Generally Accepted Accounting Principles, or U.S. GAAP.

 

In this annual report, unless otherwise specified, all dollar, amounts are expressed in U.S. dollars.

 

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

 

All information in this Annual Report on Form 10-K, or Annual Report, relating to shares or price per share reflects the 1-for-10 reverse stock split effected by us on July 25, 2019.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

The statements contained in this Annual Report that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “intends,” “plans,” “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements appear in Item 1 – “Business” and Item 7 – “Management’s discussion and Analysis of Financial Condition and Results of Operations,” (especially in the section titled “Outlook”) as well as elsewhere in this Annual Report and include, among other statements, statements regarding the following:

 

the expected development and potential benefits from our products in treating various medical conditions;

 

our plan to execute our strategy independently, using our own personnel, and through relationships with research and clinical institutions or in collaboration with other companies;

 

our entering into certain contracts with third parties;

 

the prospects of entering into additional license agreements, or other forms of cooperation with other companies and medical institutions;

 

our pre-clinical and clinical trials plans, including timing of initiation, enrollment and conclusion of trials;

 

the expected timing of the release of data from our various studies;

 

achieving regulatory approvals, including under accelerated paths;

 

receipt of future funding from the Israel Innovation Authority, or IIA, the European Union’s Horizon 2020 program, the Biomedical Advanced Research and Development Authority, or BARDA, as well as grants from other independent third parties;

 

ii

 

 

the receipt of funds pursuant to our agreement with the European Investment Bank, or the EIB Agreement and EIB, respectively, and whether we will achieve the milestones necessary to receive funds thereunder;

 

our marketing plans, including timing of marketing our product candidates, PLX-PAD and PLX-R18, and the filing of any requests for marketing authorization;

 

developing capabilities for new clinical indications of placenta expanded (PLX) cells and new products;

 

our plan for the initiation of a multinational regulated clinical trial program for the potential use of PLX cells in the treatment of patients suffering from complications associated with the COVID-19 pandemic;

 

our estimations regarding the size of the global market for our product candidates;

 

our expectations regarding our production capacity, including the use of our serum-free formulation;

 

our expectation to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity;

 

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;

 

information with respect to any other plans and strategies for our business; and

 

our expectations regarding the impact of the COVID-19 pandemic, including on our clinical trials and operations.

 

The factors discussed herein, including those risks described in Item 1A. “Risk Factors”, and expressed from time to time in our filings with the Securities and Exchange Commission, or SEC, could cause actual results and developments to be materially different from those expressed in or implied by such statements. In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this Annual Report would be interpreted differently in light of additional research, clinical and preclinical trials results. The forward-looking statements are made only as of the date of this filing, and except as required by law we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

iii

 

 

PART I

 

Item 1. Business.

 

Our Current Business

 

We are a leading developer of placenta-based cell therapy product candidates for the treatment of multiple ischemic, inflammatory and hematologic conditions. Our operations are focused on the research, development, manufacturing, conducting clinical trials and business development of cell therapeutics and related technologies.

 

We are currently enrolling patients in two Phase III studies: one for critical limb ischemia, or CLI, and another for muscle recovery following surgery for hip fracture. In addition, we are focusing on other indications such as acute radiation syndrome, or ARS, incomplete recovery following bone marrow transplantation, Steroid-Refractory Chronic Graft Versus Host Disease, or cGVHD, and intermittent claudication, or IC. We received clearance from the U.S. Food and Drug Administration, or the FDA, and the German health regulatory agency, the Paul Ehrlich Institute, or the PEI, to conduct a Phase II study evaluating PLX cells for the treatment of severe cases of the COVID-19 coronavirus, or COVID-19, complicated by Acute Respiratory Distress Syndrome, or ARDS. We have treated several patients in Israel and in the United States suffering from severe ARDS associated with COVID-19 under a compassionate use program. In addition, the FDA has cleared our Expanded Access Program, or EAP, for the use of our PLX-PAD cells to treat up to 100 patients suffering from ARDS caused by COVID-19 outside of our ongoing Phase II COVID-19 study in the U.S. We believe that each of these indications is a severe unmet medical need.

 

PLX cells are derived from a class of placental cells that are harvested from donated placenta at the time of full term healthy delivery of a baby. PLX cell products require no tissue or blood matching prior to administration. They are produced using our proprietary three-dimensional expansion technology. Our manufacturing facility complies with the European, Japanese, Israeli, South Korean and the FDA’s current Good Manufacturing Practice, or cGMP, requirements and has been inspected and approved by the European and Israeli regulators for production of PLX-PAD for late stage trials. We have also granted manufacturer/importer authorization and cGMP Certification by Israel’s Ministry of Health. If we obtain FDA and other regulatory approvals to market PLX cells, we expect to have in-house production capacity to grow PLX cells in commercial quantities. See “ – Research and Development - In-House Clinical Manufacturing” for additional information.

 

Our goal is to make significant progress with our clinical pipeline and our clinical trials in order to ultimately bring innovative, potent therapies to patients who need new treatment options. We expect to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity. Our business model for commercialization and revenue generation includes, but is not limited to, direct sale of our products, partnerships, licensing deals, and joint ventures with pharmaceutical companies.

 

We were incorporated in Nevada in 2001, and we have a wholly owned subsidiary in Israel called Pluristem Ltd. and a wholly owned subsidiary in Germany called Pluristem GmbH.

 

Scientific Background

 

Cell therapy is an emerging field within the regenerative medicine area. The characteristics and properties of cells vary as a function of tissue source and growth conditions. The human placenta from which our PLX cells are derived provides an uncontroversial source of non-embryonic, adult cells and represents an innovative approach in the cell therapy field. The different factors that PLX cells release suggest that the cells can be used therapeutically for a variety of ischemic, inflammatory, autoimmune and hematological disorders.

 

1

 

 

PLX cells do not require tissue matching prior to administration. This allows for the development of ready-to-use / “off-the-shelf” allogeneic products.

 

Our Technology

 

We develop, and intend to commercialize, cell therapy production technologies and products that are derived from the human placenta after a full term delivery of a healthy baby. Our PLX cells are adherent stromal cells, or ASCs, that are expanded using a proprietary 3D process. This system utilizes a synthetic scaffold to create an artificial 3D environment where placental-derived stromal cells can grow. Our automated proprietary 3D, cGMP approved, process enables the large-scale monitored and controlled production of reproducible, high quality cell products and is capable of manufacturing a large number of PLX doses originating from different placentas. Additionally, our current manufacturing process, which has scaled up as compared to previous years, has demonstrated batch-to-batch consistency, an important manufacturing challenge for biological products.

 

Product Candidates

 

Our primary objective is to be the leading provider of allogeneic placenta based cell therapy products that are true off-the-shelf products that do not require any matching or additional manipulation prior to administration. From the physician’s and patient’s perspective, we believe that our PLX products are comparable to any other product delivered in a vial. Our PLX products are administered using a standard needle and syringe. Our PLX products are in clinical stage development for multiple indications.

 

Our first product candidate, PLX-PAD, is currently in a Phase III multinational clinical trial in CLI, in a Phase III multinational clinical trial in recovery following surgery for hip fracture, and in a Phase II clinical trial in the treatment of severe COVID-19 cases complicated by ARDS. We have also completed Phase II multinational clinical trial in IC and a Phase I/II is currently conducted with our PLX-PAD by Tel Aviv Sourasky Medical Center (Ichilov Hospital) for the treatment of Steroid-Refractory cGVHD.

 

Our second product candidate, PLX-R18, is under development in the United States for ARS via the FDA Animal Rule regulatory pathway, as well as in a Phase I trial in the United States and Israel for incomplete hematopoietic recovery following hematopoietic cell transplantation, or HCT.

 

We developed an additional product candidate, PLX-Immune, which is under pre-clinical development for treatment of certain types of human cancer. In January 2018, we announced the publication of a peer-reviewed article in a journal which examined the effect of PLX-Immune cells on the proliferation of over 50 lines of human cancerous cells. Data showed that the PLX-Immune cells exhibited an anti-proliferative effect on a wide range of human cancer cell types, with a strong inhibitory effect on various lines of breast, colorectal, kidney, liver, lung, muscle and skin cancers. We have also conducted a pre-clinical trial of female mice harboring human triple negative breast cancer. In this study, the results showed a statistically significant reduction in tumor size as well as complete tumor remission in 30% of treated recipients.

 

We believe that using the placenta as a unique cell source, combined with our innovative research, development and high-quality manufacturing capabilities, will be the “engine” that drives this platform technology towards the successful development of additional PLX cell therapy products and indications.

 

2

 

 

Our Clinical Development Product Candidates

 

Peripheral and Cardiovascular Diseases – Peripheral and Cardiovascular Diseases – We are investigating the use of PLX-PAD cells for the treatment of peripheral arterial disease, or PAD, including IC and CLI.

 

In May 2015, our CLI clinical development program was selected for the EMA’s Adaptive Pathways Project. The goal of the project is to improve timely access for patients to new medicines. During our fiscal year ended June 30, 2017, the FDA and several EU regulatory agencies cleared our application to begin the pivotal Phase III trial of PLX-PAD cells in the treatment of CLI for patients with minor tissue loss (Rutherford Category 5) who are unsuitable for revascularization. This multinational Phase III trial is being conducted in the United States, Europe and Israel. In September 2017, we announced that the FDA granted a fast track designation to our ongoing Phase III study of PLX-PAD for the treatment of CLI. The FDA’s fast track designation is a process designed to facilitate the development and expedite the review of drug to treat serious conditions and unmet medical needs. With fast track designation, there is an increased possibility for a priority review by the FDA of PLX-PAD cells for the treatment of CLI.

 

Following the FDA’s and EMA’s advice and recommendations, we implemented the following items into the study design and the interim data readout:

 

The primary endpoint for the interim analysis will be identical to the full study endpoint, a comparison between the PLX-PAD treated group and the placebo treated group of the number of days from randomization to occurrence of major amputation of the index leg or death.

 

The full study analysis will be based on 82 events. Each event is defined as occurrence of major amputation of the index leg or death while the interim readout will be conducted based on a minimum of 45 events, which have already occurred.

 

The FDA cleared our EAP for the use of our PLX-PAD cell treatment in patients with CLI and we initiated the EAP in April 2019. Under the terms of the EAP, an initial cohort of 100 Rutherford-5 CLI patients who are ineligible for inclusion under our ongoing Phase III study protocol can be enrolled and treated.

 

We have completed two Phase I safety/dose-escalating clinical trials for CLI, one in the United States and one in Germany. These CLI trials demonstrated that no blood type or human leukocyte antigen matching is required, and that the administration of PLX-PAD cells is safe, even if two doses are administered to a patient on two different occasions. In addition, PLX-PAD cells are potentially effective in reducing the frequency of amputations in CLI patients. Generally, the FDA and the EMA require the primary endpoint for pivotal CLI clinical trials to be Amputation Free Survival, or AFS, at one year. The pooled data from the two studies we conducted suggest an AFS rate at one year of 86% in PLX-treated patients versus an AFS ranging between 48% to 66% in patients from placebo arms in other CLI trials.

 

In June 2018, we announced the results from our 172 patients, randomized, double blind, placebo controlled, and multinational Phase II clinical trial in IC. Analysis of the Phase II IC data, which was announced on November 2018, confirmed the optimal dosing regimen of PLX-PAD in the treatment of PAD - two administrations of 300 million cells, each originating from a different donor. This is also the treatment regimen being administered to patients in the Company’s ongoing multinational Phase III study in CLI, a more severe stage of PAD. PLX-PAD treated patients showed a good safety profile in the study.

 

3

 

 

In April 2015, Japan’s PMDA approved our large-scale manufacturing methods and quality for PLX-PAD cells for use in clinical trials. In August 2015, the PMDA granted safety clearance to PLX-PAD cells for use in clinical trials in Japan, and in December 2015 we reached an agreement with the PMDA on the design of the final trial needed to apply for conditional marketing approval of PLX-PAD cells in the treatment of CLI. Currently, as part of our strategy to focus on our active clinical trials and marketing readiness, we have not initiated clinical trial activities in Japan.

 

Orthopedic Indications – In April 2018, we announced that the FDA cleared our IND for our Phase III trial for recovery following surgery for hip fracture. This multinational Phase III trial is being conducted in the United States, Europe and Israel. The EMA confirmed that recovery following surgery for hip fracture is eligible for the Adaptive Pathways Project as well.

 

Our Phase III trial protocol and design was based on our phase I/II, randomized, double-blind, placebo-controlled study (n=20) to assess the safety and efficacy of intramuscular injections of allogeneic PLX-PAD cells for the regeneration of injured gluteal musculature after total hip replacement has been conducted in Germany under the approval of PEI. In this study, PLX-PAD cells or placebo were administered into the traumatized gluteal muscle during total hip replacement surgery. The study results met its primary efficacy endpoint, change in maximal voluntary isometric contraction force of the gluteal muscle at six months after total hip replacement. Patients treated with PLX-PAD had a significantly greater improvement of maximal voluntary muscle contraction force than the placebo group (p=0.0067). In addition, the study demonstrated that PLX-PAD was safe and well tolerated by the patients.

 

COVID-19 Complicated by ARDS – In May 2020, the FDA cleared our IND application for the Phase II study of our PLX cells in the treatment of severe COVID-19 cases complicated by ARDS and we initiated the study in June 2020. The U.S trail is randomized, double-blind, placebo-controlled, multicenter, parallel-group 140 patient study is evaluating the efficacy and safety of intramuscular injections of PLX-PAD for the treatment of severe COVID-19 cases complicated by ARDS. The primary endpoint is the number of ventilator free days during the main 28-day study period. Safety and survival follow-up will be conducted at week 8, 26 and 52. Secondary efficacy endpoints include all-cause mortality, duration of mechanical ventilation, ICU free-days, and hospitalization free-days. In addition, the FDA has cleared our EAP for the use of our PLX-PAD cells to treat ARDS caused by COVID-19 outside of our ongoing Phase II COVID-19 study in the U.S. The EAP will include up to 100 patients with the resulting data being collected and evaluated alongside our existing clinical trial in the U.S.

 

In August 2020, the PEI cleared our Phase II study in Germany titled, “A Randomized, Controlled, Multicenter, Parallel-Group Phase II Study to Evaluate the Efficacy and Safety of Intramuscular Injections of PLX PAD for the Treatment of severe COVID-19,” relating to the treatment of patients hospitalized with severe cases of COVID-19 complicated by ARDS. Forty patients hospitalized with severe cases of COVID-19 complicated by ARDS will be enrolled in the study. The primary efficacy endpoint of the study is the number of ventilator free days during the 28 days from day 1 through day 28 of the study. Safety and survival follow-up will be conducted at day 60, week 26 and week 52.

 

Recovery Following HCT – PLX-R18 is also under development in the United States and Israel for the treatment of incomplete hematopoietic recovery following HCT. This Phase I study of PLX-R18 in HCT, as previously announced, has successfully enrolled 20 patients in the United States and Israel. We expect to provide top line efficacy results in the first quarter of calendar 2021. In addition, the FDA granted orphan drug designation to our PLX cell therapy for the treatment of graft failure and incomplete hematopoietic recovery following HCT.

 

ARS – We have conducted several animal studies for the evaluation of PLX-R18 for the treatment of ARS, in collaboration with the National Institute of Allergy and Infectious Diseases, or the NIAID. The U.S. National Institutes of Health, or NIH, funded and conducted a pilot study in NHPs to evaluate the therapeutic effect of PLX-R18 on hematological aspects of ARS. In May 2017, we announced results of the NHPs pilot study for PLX-R18 as a treatment for ARS. Although study size was not designed to show significance, results showed a trend toward improved survival of PLX-R18 treated animals compared to control, placebo treated animals. The study, conducted and funded by the NIAID, was designed to assess the safety and efficacy of PLX-R18 following intramuscular injection into irradiated and non-irradiated NHPs. Efficacy measures included survival as well as hematological parameters which are affected by exposure to high levels of radiation as may occur in a nuclear accident or attack. These data will help the design of a pivotal study to fulfill the requirements for a Biologics License Application, or BLA, submission under the FDA’s Animal Rule regulatory pathway.

 

4

 

 

We plan to continue the discussions with the different government agencies with the goal of receiving their support for pivotal studies in large animals as well as conducting the safety studies required in order to file BLA for this indication.

 

In October 2017, we announced that the FDA granted us an orphan drug designation for our PLX-R18 cell therapy for the prevention and treatment of ARS.

 

In April 2018, we announced that the FDA approved our IND application for PLX-R18 cell therapy in the treatment of ARS. The IND allows us to treat victims who may have been acutely exposed to high dose radiation due to nuclear attack or accident.

 

In December 2015, we also signed a Memorandum of Understanding for a collaboration with Fukushima Medical University, Fukushima Global Medical Science Center. The purpose of the collaboration is to develop our PLX-R18 cells for the treatment of ARS, and for morbidities following radiotherapy in cancer patients. In June 2018, we reported positive animal data from studies conducted in collaboration with Fukushima Medical University evaluating PLX-R18 cells as a treatment for radiation damage to the gastrointestinal, or GI, tract and bone marrow. Data from these studies showed that PLX-R18 cells significantly increased survival rates, preserved GI stem cells activity that enhance the recovery of the GI system and prevented severe damage to the intestinal lining, suggesting PLX-R18 potential as a multi-organ therapy for ARS.

 

In July 2019, we presented positive results from a series of studies of our PLX-R18 cell therapy product conducted by the U.S. Department of Defense’s, or DoD, Armed Forces Radiobiology Research Institute, part of the Uniformed Services University of Health Sciences. The studies were designed to evaluate PLX-R18 as a potential prophylactic countermeasure against ARS administered prior to radiation exposure. These animal studies demonstrate that PLX-R18, administered 24 hours before radiation exposure, and again 72 hours after exposure, resulted in a significant increase in survival rates, from 4% survival rate in the placebo group to 74% in the treated group. In addition, the data shows an increase in recovery of blood lineages and a favorable safety profile. Furthermore, histopathological analysis and hematopoietic progenitor clonogenic assay of tissues collected show a significant increase in bone marrow cell numbers and improved regenerative capability into all blood lineages.

 

Steroid-Refractory cGVHD – In September 2017, we signed an agreement with Tel Aviv Sourasky Medical Center (Ichilov Hospital) to conduct a clinical Phase I/II trial of PLX-PAD cell therapy for the treatment of Steroid-Refractory cGVHD. This trial is an investigator initiated study. As such, Tel Aviv Sourasky Medical Center supports the study and is responsible for its design and implementation.

 

Regulatory and Clinical Affairs Strategy

 

Our cell therapy development strategy is to hold open and frequent discussions with regulators at all stages of development from preclinical trials to more advanced regulatory stages. We utilize this strategy in working with the FDA, the EMA, Germany’s PEI as well as other European national competent authorities, the Israeli Ministry of Health, or MOH and Japan’s PMDA, and we are also working with the Ministry of Food and Drug Safety, or MFDS, of South Korea.

 

The Adaptive Pathways Project is part of the EMA’s efforts to improve timely access for patients to new therapies. It targets treatments with the potential to heal serious conditions with an unmet medical need, and may reduce the time to a medicine’s approval or to its reimbursement for targeted patient groups. The pilot is open to clinical programs in early stages of development only. We have applied early to this program and have been selected for it.

 

In September 2017, we announced that the FDA granted “Fast Track” designation for PLX-PAD in CLI. The FDA’s Fast Track designation is a process designed to facilitate the development and expedite the review of drugs to treat serious conditions and unmet medical needs. With Fast Track designation, there is an increased possibility for a priority review by the FDA of PLX-PAD cells for the treatment of CLI.

 

5

 

 

In January 2018, we announced that the FDA cleared our EAP for the use of our PLX-PAD cell treatment in patients with CLI. EAP allows the use of an investigational medical product outside of clinical trials and is usually granted in cases where patients are unsuitable for inclusion under the study protocol and the patient’s condition is life-threatening with an unmet medical need. As part of the EAP, our PLX-PAD cell therapy is available to a limited number of CLI patients in the United States who are unsuitable for revascularization and cannot take part in our ongoing Phase III clinical trial.

 

In August 2020, we announced that the FDA cleared our EAP for the use of our PLX-PAD cells to treat ARDS caused by COVID-19 outside of our ongoing Phase II COVID-19 study in the U.S. The program provides a pathway for patients that are not eligible for inclusion in the Phase II clinical trial to be treated with PLX-PAD cells and will include up to 100 patients. The resulting data will be collected and evaluated alongside our existing clinical trial.

 

Impact of COVID-19 - In managing our ongoing global clinical trials, as well as our daily operations, in the midst of the COVID-19 global pandemic, we are taking all necessary precautions for the safety and well-being of patients, healthcare providers involved in our trials, and our employees. We are continuing our operational and manufacturing activities, subject to the directives of the Israeli Ministry of Health, with a dedicated team on site at our facilities. In addition, we are using remote work technologies that enable other activities to be conducted without the need for a physical presence in our facilities. Our allogenic, off-the-shelf approach and our advanced manufacturing capabilities enabled us to complete the manufacturing of the entire stock of PLX cells needed to complete all of our current clinical trials and EAPs. We currently hold supplies of PLX cells in inventory in Israel, and in secure storage facilities in Europe and the U.S. In addition, we are following the FDA and EMA guidelines regarding the management of clinical trials during COVID-19

 

Intellectual Property

 

We understand that our success will depend, in part, on maintaining our intellectual property, and therefore we are committed to protecting our technology and product candidates with patents and other methods described below.

 

We are the sole owner of 128 issued patents and approximately 60 pending patent applications in the United States, Europe, China and Japan, as well as in additional countries worldwide, including Israel, countries in the Far East and South America (in calculating the number of issued patents, each European patent validated in multiple jurisdictions was counted as a single patent).

 

In April 2016, the Subsidiary entered into a licensing agreement with TES Holdings Co., Ltd., a venture company derived from the University of Tokyo, to obtain a key patent in Japan to cover the treatment of ischemic diseases with placental cell therapy. This license is subject to future single low-digit royalties from sales of our product for treatment in the field of ischemic diseases in Japan, until expiry of the patent in 2023. This license follows the grant of two key patents to us by the Japanese Patent Office, which address three dimensional methods for expanding placental and adipose cells, and specified cell therapies produced from placental tissue using these methods.

 

In February 2017, Pluristem Ltd. signed an agreement with founders of a certain patent for a five year option to purchase the certain patent for an amount of 1 million Euro. The agreement includes yearly payments of Euro 75,000, Euro 75,000 and Euro 100,000 in February 2017, 2018 and 2019, respectively, which have been paid. We are entitled to terminate the agreement for convenience upon providing the founders 30 days prior notice.

 

In April 2019, we filed a U.S. provisional patent application titled “Methods and Compositions for Producing Cannabinoids,” which covers the use of our state-of-the-art, proprietary 3-D cell culturing technology for the potential manufacturing of cannabinoid-producing cells. In April 2020, we filed a Patent Cooperation Treaty, or PCT, application with respect to the technology.

 

In March 2020, we filed a U.S. provisional patent application titled “Methods and Compositions for Treating Viral Infections and Sequelae Thereof,” which covers the use of placental ASC for treating coronavirus infections and sequelae thereof. In May 2020, a related Israeli patent application was filed.

 

Based on the well-established understanding that the characteristics and therapeutic potential of a cell product are largely determined by the source of the cells and by the methods and conditions used during their culturing, our patent portfolio includes different types of claims that protect the various unique aspects of our technology.

 

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Our multi-national portfolio of patent and patent applications includes the following claims:

 

our proprietary expansion methods for 3D stromal cells;
   
composition of matter claims covering the cells;
   
the therapeutic use of PLX cells for the treatment of a variety of medical conditions; and
   
cell-culture, harvest, and thawing devices.

 

Through our experience with ASC-based product development, we have developed expertise and know-how in this field and have established procedures for manufacturing clinical-grade PLX cells in our facilities. Certain aspects of our manufacturing process are covered by patents and patent applications. In addition, specific aspects of our technology are retained as know-how and trade secrets that are protected by our confidentiality agreements with our employees, consultants, contractors, manufacturers and advisors. These agreements generally provide for protection of confidential information, restrictions on the use of materials, and an obligation to assign to us inventions conceived during the course of performing services for us.

 

The following table sets forth our key patents and patent applications and is not intended to represent an assessment of claims, limitations or scope. In some cases, a jurisdiction is listed as both pending and granted for a single patent family. This is due to pending continuation or divisional applications of the granted case.

 

There is a risk that our patents will be invalidated, and that our pending patent applications will not result in issued patents. We also cannot be certain that we will not infringe on any patents that may be issued to others. See “Risk Factors - We must further protect and develop our technology and products in order to become a profitable company”. The expiration dates of these patents, based on filing dates, range from 2020 to 2040.

 

Actual expiration dates will be determined according to extensions received based on the Drug Price Competition and Patent Term Restoration Act of 1984 (P.L. 98-417), commonly known as the “Hatch-Waxman” Act, that permits extensions of pharmaceutical patents to reflect regulatory delays encountered in obtaining FDA market approval. The Hatch-Waxman Act is based on a U.S. federal law and therefore only relevant to U.S. patents.

 

Our Patent Portfolio 

 

Patent Name/ Int. App. No.   Pending Jurisdictions   Granted Jurisdictions   Expiry Date

METHOD AND APPARATUS FOR MAINTENANCE AND EXPANSION OF HAEMATOPOIETIC STEM CELLS AND/OR PROGENITOR CELLS

PCT/US2000/02688

      United States  

October 6, 2020 (245 days patent term adjustment)

METHODS FOR CELL EXPANSION AND USES OF CELLS AND CONDITIONED MEDIA PRODUCED THEREBY FOR THERAPY

PCT/IL2007/000380

  China, Hong Kong   Australia, Canada, China, Hong Kong, Europe, Israel, India, Japan, South Korea, Mexico, Russia, Singapore   March 23, 2027

 

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ADHERENT CELLS FROM PLACENTA TISSUE AND USE THEREOF IN THERAPY

PCT/IL2008/001185

  United States, Brazil, China, Israel   Australia, Canada, China, Europe, Hong Kong, Israel, India, Japan, Mexico, Russia, Singapore, USA, South Africa, South Korea   September 2, 2028

METHODS OF TREATING INFLAMMATORY COLON DISEASES

PCT/IL2009/000527

      United States, Israel, Russia   May 26, 2029

METHODS OF SELECTION OF CELLS FOR TRANSPLANTATION

PCT/IL2009/000844

      Europe, Israel   September 1, 2029

ADHERENT CELLS FROM PLACENTA TISSUE AND USE THEREOF IN THERAPY

PCT/IL2009/000846

  Hong Kong, China   Australia, Canada, Europe, Hong Kong, Israel, India, Mexico, Russia, Singapore, USA, South Africa   September 1, 2029

ADHERENT CELLS FROM PLACENTA TISSUE AND USE THEREOF IN THERAPY

PCT/IL2009/000845

      United States, Europe, Israel   September 1, 2029

ADHERENT STROMAL CELLS DERIVED FROM PLANCENTAS OF MULTIPLE DONORS AND USES THEREOF

PCT/IB2011/001413

 

United States

 

 

Israel

 

 

 

Israel: April 21, 2031

U.S.: March 22, 2027

ADHERENT CELLS FROM PLACENTA AND USE OF SAME IN DISEASE TREATMENT

PCT/IB2010/003219

  United States, China, Israel   Australia, Canada, China Hong Kong, Europe, Israel, Mexico, New Zealand, United States, South Africa   November 29, 2030

METHODS AND SYSTEMS FOR HARVESTING ADHERENT STROMAL CELLS

PCT/IB2012/000933

  China, Israel, United States   Australia, Canada, Europe, Israel, India, South Korea, Mexico, Singapore, United States   April 15, 2032

METHODS FOR TREATING RADIATION OR CHEMICAL INJURY

PCT/IB2012/000664

  United States   Europe, Hong Kong, Israel, Japan, South Korea, United States   March 22, 2032

 

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SKELETAL MUSCLE REGENERATION USING MESENCHYMAL STEM CELLS

PCT/EP2011/058730

      United States, Europe, Israel   May 27, 2031

GENE AND PROTEIN EXPRESSION PROPERTIES OF ADHERENT STROMAL CELLS CULTURED IN 3D

PCT/IB2014/059114

 

 

 

  Israel, United States   February 20, 2034

DEVICES AND METHODS FOR CULTURE OF CELLS

PCT/IB2013/058184

      United States, Israel   August 31, 2033

METHODS FOR PREVENTION AND TREATMENT OF PREECLAMPSIA

PCT/IB2013/058186

      China, Hong Kong, Europe, Israel, Japan, South Korea, United States, South Africa   August 31, 2033

METHOD AND DEVICE FOR THAWING BIOLOGICAL MATERIAL

PCT/IB2013/059808

  China, Hong Kong   Australia, Europe, Israel, India, Japan, South Korea, Russia, Singapore, United States   October 31, 2033
SYSTEMS AND METHODS FOR GROWING AND HARVESTING CELLS PCT/IB2015/051559   Israel   United States, Europe   March 3, 2035

METHODS AND COMPOSITIONS FOR TREATING AND PREVENTING MUSCLE WASTING DISORDERS

PCT/IB2015/059763

  Israel   United States   December 18, 2035

USE OF ADHERENT STROMAL CELLS FOR ENHANCING HEMATOPOIESIS IN A SUBJECT IN NEED THEREOF

PCT/IB2016/051585

  United States, China, Israel       March 21, 2036

ALTERED ADHERENT STROMAL CELLS AND METHODS OF PRODUCING AND USING SAME

PCT/IB2016/053310

  United States, Europe, China, Israel       June 6, 2036

 

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METHODS AND COMPOSITIONS FOR TREATING CANCERS AND NEOPLASMS

PCT/IB2017/050868

  United States, Japan, Canada, Australia, Israel   Europe   February 16, 2037

METHODS AND COMPOSITIONS FOR TREATING NEUROLOGICAL DISORDERS

PCT/IB2018/052806

  Israel, United States       April 23, 2038

METHODS AND COMPOSITIONS FOR TUMOR ASSESSMENT

PCT/IB2018/050984

  United States, Israel       February 18, 2038

METHODS AND COMPOSITIONS FOR TREATING ADDICTIONS

PCT/IB2018/055473

  Israel, United States       July 23, 2038

METHODS AND COMPOSITIONS FOR DETACHING ADHERENT CELLS

US 16/026,199

IL 260253

Germany 10 2018 115 360.0

  United States, Israel, Germany       June 25-July 3, 2038
DRUG CONTAINING HUMAN PLACENTA-ORIGIN MESENCHYMAL CELLS AND PROCESS FOR PRODUCING VEGF USING THE CELLS JP20030579842       Japan   March 28, 2023
METHODS AND COMPOSITIONS FOR PRODUCING CANNABINOIDS   Patent Cooperation Treaty       April 28, 2040

METHODS FOR EXPANDING ADHERENT STROMAL CELLS AND CELLS OBTAINED THEREBY

PCT/IB2019/052569

  Patent Cooperation Treaty       March 28, 2039

 

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METHODS AND COMPOSITIONS FOR TREATING SUBJECTS EXPOSED TO VESICANTS AND OTHER CHEMICAL AGENTS

PCT/IB2019/055074

  Patent Cooperation Treaty       June 18, 2039

METHODS AND COMPOSITIONS FOR FORMULATING AND DISPENSING PHARMACEUTICAL FORMULATIONS

PCT/IB2019/053115

  Patent Cooperation Treaty; Israel      

International: April 16, 2039

 

Israel: April 26, 2038

THERAPEUTIC DOSAGE REGIMENS COMPRISING ADHERENT STROMAL CELLS

PCT/IB2019/054828

  Patent Cooperation Treaty       June 10, 2039

MODULAR BIOREACTOR

PCT/IB2019/058429

  Patent Cooperation Treaty       October 3, 2039

THERAPEUTIC METHODS AND COMPOSITIONS

PCT/IB2019/059544

  Patent Cooperation Treaty       November 6, 2039
METHODS AND COMPOSITIONS FOR TREATING VIRAL INFECTIONS AND SEQUELAE THEREOF  

United States (provisional)

Israel

      Not yet determined

 

Research and Development

 

Foundational Research

 

Our initial technology, the PluriX™ Bioreactor system, was invented at the Technion - Israel Institute of Technology’s Rappaport Faculty of Medicine, in collaboration with researchers from the Weizmann Institute of Science. This technology has been further significantly developed by our research and development teams over the ensuing years.

 

Collaborations and Ongoing Research and Development Plans

 

Charité Agreement

 

In July 2007, we entered into a five-year collaborative research agreement with the Berlin-Brandenburg Center for Regenerative Therapies at Charité - University Medicine Berlin, or Charité, which was extended from time to time through June 2022. We and Charité are collaborating on a variety of indications utilizing PLX cells. According to the agreement, we will be the exclusive owner of the technology and any products produced as a result of the collaboration. Charité will receive between 1% to 2% royalties from net sales of new developments that have been achieved during the joint development.

 

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In March 2020, we announced that we had signed a collaborative agreement with the BIH Center for Regenerative Therapy and the Berlin Center for Advanced Therapies at Charité University of Medicine Berlin to expand our existing framework and research agreement and conduct a joint project evaluating the therapeutic effects of our patented PLX cell product candidates for potential treatment of the respiratory and inflammatory complications associated with COVID-19.

 

Fukushima Medical University

 

We signed a memorandum of understanding, or MOU, for a collaboration with Fukushima Medical University, Fukushima Global Medical Science Center. The purpose of the collaboration is to develop Pluristem’s PLX-R18 cells for the treatment of ARS, and for morbidities following radiotherapy in cancer patients. The collaboration will proceed alongside research supported by the NIH, which is studying PLX-R18 as a potential treatment for the hematologic component of ARS. The MOU for a collaboration with Fukushima will be renewed automatically on a yearly basis. Each party is entitled to terminate the agreement for convenience upon providing the other party 30 days prior notice.

 

CHA Agreement

 

On June 26, 2013, we entered into an exclusive out-licensing and commercialization agreement, or the CHA Agreement, with CHA for conducting clinical trials and commercialization of our PLX-PAD product candidate in South Korea in connection with two indications: the treatment of CLI and IC. We will continue to retain rights to our proprietary manufacturing technology and cell-related intellectual property.

 

The first clinical trial that was performed as part of the CHA Agreement was a Phase II trial in IC. Upon the first regulatory approval for a PLX product in South Korea, if granted, for the specified indications, we and CHA will establish an equally owned joint venture with the purpose of commercializing PLX cell products in South Korea. Additionally, we will be able to use the data generated by CHA to pursue the development of PLX product candidates outside of South Korea.

 

The term of the CHA Agreement extends from June 24, 2013 until the later of the expiration, lapse, cancellation, abandonment or invalidation of the last valid patent claim covering the development of the product indications. The CHA Agreement contains customary termination provisions, including in the event that the parties do not reach an agreement upon a development plan for conducting the clinical trials.

 

Upon termination of the CHA Agreement, the license granted thereunder will terminate, and all rights included therein will revert to us, whereupon we will be free to enter into agreements with any other third parties for the granting of a license in or outside South Korea or to deal in any other manner with such rights as it shall see fit in our sole discretion.

 

Horizon 2020

 

The Phase III study of PLX-PAD in CLI will be a collaborative project carried out by an international consortium led by the Berlin-Brandenburg Center for Regenerative Therapies, together with the Company and with the participation of additional third parties.

 

Our Phase III study of PLX-PAD cell therapy in the treatment of muscle recovery following surgery for hip fracture will be a collaborative project carried out by an international consortium led by Charité, together with us and with the participation of additional third parties.

 

In October 2017, we entered into a collaborative project, the nTRACK, carried out by an international consortium led by Leitat. The aim of this project is to examine gold nano particles labeling of stem cells to enable assessment of cells’ in vivo persistence and distribution in correlation to biological efficacy. Under the project, PLX cells, labeled and non-labeled will be characterized and examined in animal models for muscle injury.

 

Indiana University

 

In April 2018, NIAID awarded a $2.5 million grant to Indiana University to conduct, together with us, studies of our PLX-R18 cell therapy in the treatment of ARS. The goal of this project is to extend the PLX-R18 ARS studies to include examination of survival in pediatric and geriatric populations as well as the ability of PLX-R18 to alleviate delayed effects of radiation in survivors.

 

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Thermo Fisher

 

In July 2018, we entered into a strategic collaboration agreement with Thermo Fisher Scientific Inc., or Thermo Fisher, with the aim of advancing the fundamental knowledge of cell therapy industrialization and to improve quality control of the end-to-end supply chain. The collaboration will combine Thermo Fisher’s experience in cell therapy development and bioproduction scaleup with our expertise in cell therapy manufacturing, clinical development and quality control.

 

Chart Industries

 

In November 2018, we entered into a license agreement with a subsidiary of Chart Industries, Inc., or Chart, regarding our thawing device for cell-based therapies. Pursuant to the terms of the agreement, Chart obtained the exclusive rights to manufacture and market the thawing device in all territories worldwide, excluding Greater China, and we are to receive royalties from sales of the product and supply of an agreed upon number of thawing devices. Royalties shall commence on the date of Chart’s first commercial sale of the thawing device.

 

NASA

 

In February 2019, we entered into a collaboration with NASA’s Ames Research Center to evaluate the potential of our PLX cell therapies in preventing and treating medical conditions caused during space missions.

 

U.S. Department of Defense

 

In August 2017, we announced that a pilot study of our PLX-R18 cell therapy was initiated by the U.S. DoD. The study is examining the effectiveness of PLX-R18 as a treatment for ARS prior to, and within the first 24 hours of exposure to radiation. In July 2019, we presented positive results from a series of studies of our PLX-R18 cell therapy product conducted by the U.S. DoD.

 

RESTORE

 

We are members of a large-scale research initiative, the RESTORE project which has received funding of Euro 1,000,000 (approximately $1,100,000) from the European Union’s Horizon 2020 research and innovation program, to submit a full grant application for the development and advancement of transformative therapeutics. At this time, due to COVID-19, there is no open call for full proposal. The members of the RESTORE project continue to collaborate in attempt to collectively submit the grant application once such call is available.

 

CRISPR-IL

 

In June 2020, we announced that we were selected as a member of the CRISPR-IL consortium, a group funded by the IIA. CRISPR-IL brings together the leading experts in life science and computer science from academia, medicine, and industry, to develop AI based end-to-end genome-editing solutions. These next-generation, multi-species genome editing products for human, plant, and animal DNA, have applications in the pharma, agriculture, and aquaculture industries. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000,000 of which, an amount of approximately $480,000 is a direct grant allocated to us, for a period of 18 months, with a potential for extension of an additional 18 months and additional budget from the IIA. CRISPR-IL participants include leading companies, and medical and academic institutions.

 

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United Arab Emirates-based Abu Dhabi Stem Cells Center

 

In August 2020, we signed a non-binding MOU with the United Arab Emirates-based Abu Dhabi Stem Cells Center, a specialist healthcare center focused on cell therapy and regenerative medicine. The aim of the collaboration is to capitalize on each party’s respective areas of expertise in cell therapies. The parties have agreed to exchange research results, share samples, join usage of equipment and testing, and other essential activities related to advancing the treatment and research of cell therapies for a broad range of medical conditions, including COVID-19.

 

We plan to continue to collaborate with universities, academic institutions, and corporate partners worldwide to fully leverage our expertise and explore the use of our cells in other indications.

 

In-House Clinical Manufacturing

 

We have the in-house capability to perform clinical cell manufacturing. Our state-of-the-art Good Manufacturing Practice, or GMP, grade manufacturing facility in Haifa has been in use since February 2013 for the main purpose of clinical grade, large-scale manufacturing. The facility’s new automated manufacturing process and products were approved for production of PLX-PAD for clinical use by the FDA, EMA, Korean MFDS, PMDA and the Israeli MOH. Our second product, PLX R18, was cleared by the FDA and the Israeli Ministry of Health for clinical use. Furthermore, the site was inspected and approved by an EU qualified person (European accreditation body), approving that the site and production processes meet the current GMP for the purpose of manufacturing clinical grade products.

 

The site was also inspected and approved by Israel’s Ministry of Health and we received a cGMP Certification and manufacturer-importer authorization.

 

We obtain the human placentas used for our research and manufacturing activities from various hospitals in Israel after receiving a written informed consent by the mother and pathogen clearance. Any medical waste related to the use of placentas is treated in compliance with local environmental laws and standards.

 

In June 2019, we announced that we developed a serum-free formulation to support the manufacturing of cell therapy products. This serum-free formulation was developed using our deep understanding in cell therapy industrial scale production standards, and the quality methods designed to support implementation in Phase III development and marketing. Achieving this significant technological challenge is expected to provide us with large-scale, highly-consistent production capacity with operational independency from third party suppliers for standard serum, an expensive and quantity limited product. PLX-R18 is the first product candidate that we intend to manufacture using the serum-free media, which is expected to be followed by PLX-PAD.

 

Government Regulation

 

The development, manufacturing, and marketing of our cell therapy product candidates are subject to the laws and regulations of governmental authorities in the United States and the European Union as well as other countries in which our products will be marketed in the future like Japan, Israel and South Korea. In addition, the manufacturing conditions are specifically inspected by the Israeli Ministry of Health.

 

The FDA in the United States and the EMA in Europe must approve the product for marketing. Furthermore, various governmental statutes and regulations also govern or influence testing, manufacturing, safety, labeling, storage and record keeping related to such products and their marketing. Governments in other countries have similar requirements for testing and marketing.

 

The process of obtaining these approvals and the subsequent compliance with appropriate statutes and regulations require the expenditure of substantial time, resources and money. There can be no assurance that our product candidates will ultimately receive marketing approval, or, if approved, will be reimbursed by public and private health insurance.

 

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There are several stages every drug has to go through during its development process. Among these are:

 

Performance of nonclinical laboratory and animal studies to assess a drug’s biological activity and to identify potential safety problems, and to characterize and document the product’s chemistry, manufacturing controls, formulation, and stability. In accordance with regulatory requirements, nonclinical safety and toxicity studies are conducted under Good Laboratory Practice requirements to ensure their quality and reliability;

 

The manufacture of the product according to GMP regulations and standards;

 

Conducting adequate and well-controlled human clinical trials in compliance with Good Clinical Practice, or GCP, to establish the safety and efficacy of the product for its intended indication; and

 

Potential post-marketing clinical testing and surveillance of the product after marketing approval, which can result in additional conditions on the approvals or suspension of clinical use.

 

Approval of a drug for clinical trials in humans and approval of marketing are sovereign decisions of states, made by national, or, in case of the European Union, international regulatory competent authorities.

 

The Regulatory Process in the United States

 

In the United States, our product candidates are subject to regulation as a biological product under the Public Health Service Act and the Federal Food, Drug and Cosmetic Act. The FDA, regulating the approval of clinical trials and marketing applications in the United States, generally requires the following steps prior to approving a new biological product either for clinical trials or for commercial sale:

 

 Submission of an IND Application, which must become effective before clinical testing in humans can begin;

 

 Obtaining approval of Institutional Review Boards, or IRBs, of research institutions or other clinical sites to introduce the drug candidate into humans in clinical trials;

 

 FDA may grant approval for EAP prior to the completion of clinical trials, in order to allow access for the investigational drug, for patients that are excluded from the study.

 

FDA may grant priority review status, in order to expedite the BLA review process. Obtaining of a Fast Track designation allows access for the request of priority review.

 

Submission to the FDA of a BLA for marketing authorization of the product, which must include adequate results of pre-clinical testing and clinical trials;

 

Submission of BLA with a proof of efficacy that is based only on animal studies, where human efficacy studies cannot be conducted because the conduct of such trials is unethical and field trials after an accidental or deliberate exposure are not feasible.

 

FDA review of the BLA in order to determine, among other things, whether the product is safe and effective for its intended uses; and

 

FDA inspection and approval of the product manufacturing facility at which the product will be manufactured.

 

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The Regulatory Process in Europe

 

In the European Union, our investigational cellular products are regulated under the Advanced Therapy Medicinal Product regulation, a regulation specific to cell and tissue products. This European Union regulation requires:

 

Filing a Clinical Trial Application for each European country involved in the clinical trial. The application may be filed via a centralized procedure, which makes it possible to obtain a coordinated assessment of an application for a clinical trial that is to take place in several European countries;

 

Obtaining approval of affiliated ethics committees to test the investigational product into humans in clinical trials;

 

Adequate and well-controlled clinical trials to establish the safety and efficacy of the investigational product for its intended use; and

 

Since our investigational cellular products are regulated under the Advanced Therapy Medicinal Product regulation, the application for marketing authorization to the EMA is mandatory within the 28 member states of the EU. The EMA is expected to review and approve the MAA.

 

In April 2015, the EMA designated PLX-PAD as a tissue-engineered product.

 

In May 2015, we were selected by EMA for development of PLX-PAD cells via the EMA Adaptive Pathways Project.

 

In April 2019, the Pediatric Committee of the EMA granted PLX-PAD a waiver for the requirement to submit a pediatric investigational plan for treatment of peripheral ischemia.

 

Other Regulations 

 

In general, the approval procedure varies among countries, and may involve additional preclinical testing and clinical trials. The requirements and time required may differ from those required for FDA or EMA approval. Each country may impose certain procedures and requirements of its own. Most countries other than the United States, the European Union and Japan are willing to consider requests for marketing approval only after the product had been approved for marketing by either the FDA, the EMA or the PMDA. The decision regarding marketing approval is made following the submission of a dossier that is thoroughly assessed and critically addressed.

 

In Japan, we have completed the required regulatory interactions with the PMDA, prior to the submission of clinical trial notification, in the framework of the new regulations for regenerative therapy effective in November 2014, which promote expedited approval for regenerative therapies that are being developed for seriously debilitating/life-threatening indications.

 

Clinical Trials

 

Typically, in the United States, as well as in the European Union, clinical testing involves a three-phase process, although the phases may overlap. In Phase I, clinical trials are conducted with a small number of healthy volunteers, or patients in cases of ethical issues with using healthy volunteers, and are designed to provide information about product safety and to evaluate the pattern of drug distribution and metabolism within the body.

 

In Phase II, clinical trials are conducted with a homogenous group of patients afflicted with the specific target disease, in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In some cases, an initial trial is conducted in diseased patients to assess both preliminary efficacy and preliminary safety and patterns of drug metabolism and distribution, in which case it is referred to as a Phase I/II trial. Phase III clinical trials are generally large-scale, multi-center, controlled trials conducted with a heterogeneous group of patients afflicted with the target disease, in order to provide statistically valid proof of efficacy, as well as safety and potency. The Phase III trials represent the trials that are considered for confirmation of efficacy and safety and are the most important ones for the approval. In some circumstances, a regulatory agency may require Phase IV, or post-marketing trials if it feels that additional information needs to be collected about the drug after it is on the market.

 

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During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data and clinical trial investigators to minimize risks. The sponsor of a clinical trial is required to submit an annual safety report to the relevant regulatory agencies, in which serious adverse events must be reported, and also to submit in an expedited manner any individual serious adverse events that are suspected to be related to the tested drug. An agency may, at its discretion, re-evaluate, alter, suspend, or terminate the clinical trial based upon the data that have been accumulated to that point and its assessment of the risk/benefit ratio to the patient.

 

Employees

 

We presently employ a total of 146 full-time employees and 12 part-time employees, of whom, 120 full-time employees and 12 part-time employees are engaged in research and development, manufacturing and clinical trials.

 

Competition

 

The regenerative medicine field is characterized by intense competition, as global pharma players are becoming more engaged in the cell therapy field based on the advancements made in clinical trials and due to the new favorable regenerative medicine legislation in certain regions. We face competition from both allogeneic and autologous cell therapy companies, academic, commercial and research institutions, pharmaceutical companies, biopharmaceutical companies, and governmental agencies. Some of the clinical indications we currently have under development are also being investigated in preclinical and clinical programs by others.

 

While there are hundreds of companies in the regenerative medicine space globally, there are multiple participants in the cell therapy field based in the United States, Europe, Japan, Korea, and Australia such as Athersys Inc., Celularity Inc., Tigenix NV (acquired by Takeda), SanBio Inc. and Mesoblast Ltd. Among other things, we expect to compete based upon our intellectual property portfolio, our in-house manufacturing efficiencies and capabilities, and the efficacy of our products. Our ability to compete successfully will depend on our continued ability to attract and retain experienced and skilled executives, scientific and clinical development personnel, to identify and develop viable cellular therapeutic candidates, and exploit these products commercially. Given the magnitude of the potential opportunity for cell therapy, we expect competition in this area to intensify.

 

Available Information

 

Additional information about us is contained on our Internet website at www.pluristem.com. Information on our website is not incorporated by reference into this report. Under the “SEC Filings” and “Financial Information” sections, under the “Investors & Media” section of our website, we make available free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports filed with the SEC are also made available on the SEC’s website at www.sec.gov. The following Corporate Governance documents are also posted on our website: Code of Business Conduct and Ethics, Trading Policy and the Charters for each of the Committees of our Board of Directors, or the Board.

 

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Item 1A. Risk Factors.

 

The following risk factors, among others, could affect our actual results of operations and could cause our actual results to differ materially from those expressed in forward-looking statements made by us. These forward-looking statements are based on current expectations and except as required by law we assume no obligation to update this information. You should carefully consider the risks described below and elsewhere in this Annual Report before making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Our common stock is considered speculative and the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The following risk factors are not the only risk factors facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.

 

We may need to raise additional financing to support the research, development and manufacturing of our cell therapy products and our products in the future but we cannot be sure we will be able to obtain additional financing on terms favorable to us when needed. If we are unable to obtain additional financing to meet our needs, our operations may be adversely affected or terminated.

 

It is highly likely that we will need to raise significant additional capital in the future. Although we were successful in raising capital in the past, our current financial resources are limited, and are dependent, to a certain extent, on our achieving certain milestones, and may not be sufficient to finance our operations until we become profitable, if that ever happens.

 

It is likely that we will need to raise additional funds in the near future in order to satisfy our working capital and capital expenditure requirements. Therefore, we are dependent on our ability to sell our common stock for funds, receive grants, potentially receive milestone payments pursuant to the EIB agreement, enter into collaborations and licensing deals or to otherwise raise capital. There can be no assurance that we will be able to obtain financing, including any funding under the EIB Agreement. Any sale of our common stock in the future will result in dilution to existing stockholders and could adversely affect the market price of our common stock.

 

Also, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to conduct the development and commercialization of our potential cell therapy products, which could result in the loss of some or all of one’s investment in our common stock.

 

Our likelihood of profitability depends on our ability to license and/or develop and commercialize products based on our cell production technology, which is currently in the development stage. If we are unable to complete the development and commercialization of our cell therapy products successfully, our likelihood of profitability will be limited severely.

 

We are engaged in the business of developing cell therapy products. We have not realized a profit from our operations to date and there is little likelihood that we will realize any profits in the short or medium term. Any profitability in the future from our business will be dependent upon successful commercialization of our potential cell therapy products and/or licensing of our products, which will require additional research and development.

 

If we are not able to successfully license and/or develop and commercialize our cell therapy product candidates and obtain the necessary regulatory approvals, we may not generate sufficient revenues to continue our business operations.

 

So far, the product candidates we are developing have completed one Phase I/II clinical trial of Gluteal Musculature rehabilitation after total hip arthroplasty (efficacy, ongoing for safety), two Phase I clinical trials for CLI, and one Phase II clinical trial in IC. In addition, we currently have an ongoing Phase II FDA study of PLX cells for the treatment of severe COVID-19 complicated by ARDS and two Phase III multinational clinical trials with our PLX-PAD product candidate: one in CLI, and the other in muscle recovery following surgery for hip fracture. Our early stage cell therapy product candidates may fail to perform as we expect. Moreover, even if our cell therapy product candidates successfully perform as expected, in later stages of development they may fail to show the desired safety and efficacy traits despite having progressed successfully through pre-clinical or initial clinical testing. We will need to devote significant additional research and development, financial resources and personnel to develop commercially viable products and obtain the necessary regulatory approvals.

 

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If our cell therapy product candidates do not prove to be safe and effective in clinical trials, we will not obtain the required regulatory approvals. If we fail to obtain such approvals, we may not generate sufficient revenues to continue our business operations.

 

Even if we obtain regulatory approval of a product, that approval may be subject to limitations on the indicated uses for which it may be marketed. Even after granting regulatory approval, the FDA, the EMA, and regulatory agencies in other countries continue to regulate marketed products, manufacturers and manufacturing facilities, which may create additional regulatory barriers and burdens. Later discovery of previously unknown problems with a product, manufacturer or facility, may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market.

 

Further, regulatory agencies may establish additional regulations that could prevent or delay regulatory approval of our product candidates.

 

We cannot market and sell our cell therapy product candidates in the United States, Europe, or in other countries if we fail to obtain the necessary regulatory approvals or licensure.

 

We cannot sell our cell therapy product candidates until regulatory agencies grant marketing approval, or licensure. The process of obtaining regulatory approval is lengthy, expensive and uncertain. It is likely to take at least several years to obtain the required regulatory approvals for our cell therapy product candidates, or we may never gain the necessary approvals.

 

Any difficulties that we encounter in obtaining regulatory approval may have a substantial adverse impact on our operations and cause our stock price to decline significantly.

 

To obtain marketing approvals in the United States and Europe for cell therapy product candidates we must, among other requirements, complete carefully controlled and well-designed clinical trials sufficient to demonstrate to the FDA, the EMA and the PMDA that the cell therapy product candidates is safe and effective for each disease for which we seek approval. So far, we have successfully conducted Phase I/II and Phase I clinical trials for our PLX-PAD product candidate. Several factors could prevent completion or cause significant delay of these trials, including an inability to enroll the required number of patients or failure to demonstrate adequately that cell therapy product candidates are safe and effective for use in humans. Negative or inconclusive results from or adverse medical events during a clinical trial could cause the clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful. The FDA or EMA (or, if we seek to conduct development efforts in Japan, the PMDA) can place a clinical trial on hold if, among other reasons, it finds that patients enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury. If safety concerns develop, we, the FDA, the EMA or other regulatory bodies could stop our trials before completion.

 

If we are not able to conduct our clinical trials properly and on schedule, marketing approval by FDA, EMA, MOH and other regulatory authorities may be delayed or denied.

 

The completion of our clinical trials may be delayed or terminated for many reasons, such as:

 

The FDA, the EMA or the MOH does not grant permission to proceed or places additional trials on clinical hold;

 

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Subjects do not enroll in our trials at the rate we expect, including as a result of COVID-19;

 

Government actions, such as those enacted during the ongoing COVID-19 pandemic, that limit the general populations movement;

 

The regulators may ask to increase subject’s population in the clinical trials;

 

Subjects experience an unacceptable rate or severity of adverse side effects;

 

Third-party clinical investigators do not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, GCP and regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner;

 

Third-party clinical investigators do not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, GCP and regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner;

 

Inspections of clinical trial sites by the FDA, EMA, MOH and other regulatory authorities find regulatory violations that require us to undertake corrective action, suspend or terminate one or more sites, or prohibit us from using some or all of the data in support of our marketing applications; or

 

One or more IRBs suspends or terminates the trial at an investigational site, precludes enrollment of additional subjects, or withdraws its approval of the trial.

 

Our development costs will increase if we have material delays in our clinical trials, or if we are required to modify, suspend, terminate or repeat a clinical trial. If we are unable to conduct our clinical trials properly and on schedule, marketing approval may be delayed or denied by the FDA, EMA, MOH and other regulatory authorities.

 

The results of our clinical trials may not support our product candidates claims or any additional claims we may seek for our product candidates and our clinical trials may result in the discovery of adverse side effects.

 

Even if any clinical trial that we need to undertake is completed as planned, or if interim results from existing clinical trials are released, we cannot be certain that such results will support our product candidates claims or any new indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. The clinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us to stop seeking additional clearances or approvals for our product candidates. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercialize a product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’s profile.

 

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If our processing and storage facility or our clinical manufacturing facilities are damaged or destroyed, our business and prospects would be adversely affected.

 

If our processing and storage facility, our clinical manufacturing facilities or the equipment in such facilities were to be damaged or destroyed, the loss of some or all of the stored units of our cell therapy drug candidates would force us to delay or halt our clinical trial processes.  We have one clinical manufacturing facilities located in Haifa, Israel. If these facilities or the equipment in them are significantly damaged or destroyed, we may not be able to quickly or inexpensively replace our manufacturing capacity.

 

If we encounter problems or delays in the research and development of our potential cell therapy products, we may not be able to raise sufficient capital to finance our operations during the period required to resolve such problems or delays.

 

Our cell therapy products are currently in the development stage and we anticipate that we will continue to incur substantial operating expenses and incur net losses until we have successfully completed all necessary research and clinical trials. We, and any of our potential collaborators, may encounter problems and delays relating to research and development, regulatory approval and intellectual property rights of our technology. Our research and development programs may not be successful, and our cell culture technology may not facilitate the production of cells outside the human body with the expected result. Our cell therapy products may not prove to be safe and efficacious in clinical trials. If any of these events occur, we may not have adequate resources to continue operations for the period required to resolve the issue delaying commercialization and we may not be able to raise capital to finance our continued operation during the period required for resolution of that issue. Accordingly, we may be forced to discontinue or suspend our operations.

 

We may not be able to secure and maintain research institutions to conduct our clinical trials.

 

We rely on research institutions to conduct our clinical trials. Specifically, the limited number of centers experienced with cell therapy product candidates heightens our dependence on such research institutions. Our reliance upon research institutions, including hospitals and clinics, provides us with less control over the timing and cost of clinical trials and the ability to recruit subjects. If we are unable to reach agreements with suitable research institutions on acceptable terms, or if any resulting agreement is terminated, we may be unable to quickly replace the research institution with another qualified institution on acceptable terms. We may not be able to secure and maintain suitable research institutions to conduct our clinical trials.

 

Our product development programs are based on novel technologies and are inherently risky.

 

We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our therapeutics creates significant challenges in regards to product development and optimization, manufacturing, government regulation, third-party reimbursement and market acceptance. For example, the FDA, the EMA and other countries’ regulatory authorities have relatively limited experience with cell therapies. Very few cell therapy products have been approved by regulatory authorities to date for commercial sale, and the pathway to regulatory approval for our cell therapy product candidates may accordingly be more complex and lengthy. As a result, the development and commercialization pathway for our therapies may be subject to increased uncertainty, as compared to the pathway for new conventional drugs.

 

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There are very few drugs and limited therapies that the FDA or EMA and other regulatory authorities have approved as treatments for some of the disease indications we are pursuing. This could complicate and delay FDA, EMA or other countries’ regulatory authorities approval of our biologic drug candidates.

 

There are very few drugs and limited therapies currently approved for treatment of CLI, IC, ARS, muscle recovery following surgery for hip fracture or HCT. As a result, the clinical efficacy endpoints, or the criteria to measure the intended results of treatment may be difficult to determine. Despite our eligibility for certain accelerated pathways, this could increase the difficulty of our obtaining FDA, EMA or other countries’ regulatory authorities’ approval to market our products.

 

Our cell therapy drug candidates represent new classes of therapy that the marketplace may not understand or accept.

 

Even if we successfully develop and obtain regulatory approval for our cell therapy candidates, the market may not understand or accept them. We are developing cell therapy product candidates that represent novel treatments and will compete with a number of more conventional products and therapies manufactured and marketed by others, including major pharmaceutical companies. The degree of market acceptance of any of our developed and potential products will depend on a number of factors, including:

 

the clinical safety and effectiveness of our cell therapy drug candidates and their perceived advantage over alternative treatment methods, if any;

 

adverse events involving our cell therapy product candidates or the products or product candidates of others that are cell-based; and

 

the cost of our products and the reimbursement policies of government and private third-party payers.

 

If the health care community does not accept our potential products for any of the foregoing reasons, or for any other reason, it could affect our sales, having a material adverse effect on our business, financial condition and results of operations.

 

The clinical manufacturing process for cell therapy products is complex and requires meeting high regulatory standards. Any delay or problem in the clinical manufacturing of PLX may result in a material adverse effect on our business.

 

Our manufacturing process, controls, equipment and quality system for PLX-PAD have received approval from the FDA, EMA, Germany’s PEI, the Korean MFDS and the PMDA. However, the clinical manufacturing process is complex and we have no experience in manufacturing our product candidates at a commercial level.

 

There can be no guarantee that we will be able to successfully develop and manufacture our product candidates in a manner that is cost-effective or commercially viable, or that our development and manufacturing capabilities might not take much longer than currently anticipated to be ready for the market. In addition, if we fail to maintain regulatory approvals for our manufacturing facilities, we may suffer delays in our ability to manufacture our product candidates. This may result in a material adverse effect on our business.

 

Because we received grants from the IIA we are subject to on-going restrictions.

 

We have received royalty-bearing grants from the IIA, for research and development programs that meet specified criteria. The terms of the IIA’s grants limit our ability to transfer know-how developed under an approved research and development program outside of Israel, regardless of whether the royalties are fully paid. Any non-Israeli citizen, resident or entity that, among other things, becomes a holder of 5% or more of our share capital or voting rights, is entitled to appoint one or more of our directors or our Chief Executive Officer, or CEO, serves as a director of our Company or as our CEO is generally required to notify the same to the IIA and to undertake to observe the law governing the grant programs of the IIA, the principal restrictions of which are the transferability limits described above. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”.

 

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We have limited operating history, which raises doubts with respect to our ability to generate revenues in the future.

 

We have a limited operating history in our business of commercializing cell production technology. Until we entered into the United Agreement, which was terminated in December 2015, we did not generate any revenues. While we generated minimal revenue for the year ended June 30, 2019 and 2020, it is not clear when we will generate additional revenues or whether we will experience further delays in recognizing revenues such as if we experienced a clinical hold. Our primary source of funds has been the sale of our common stock and government grants. We cannot give assurances that we will be able to generate any significant revenues or income in the future. There is no assurance that we will ever be profitable.

 

If we do not keep pace with our competitors and with technological and market changes, our technology and products may become obsolete and our business may suffer.

 

The cellular therapeutics industry, of which we are a part, is very competitive and is subject to technological changes that can be rapid and intense. We have faced, and will continue to face, intense competition from biotechnology, pharmaceutical and biopharmaceutical companies, academic and research institutions and governmental agencies engaged in cellular therapeutic and drug discovery activities or funding, both in the United States and internationally. Some of these competitors are pursuing the development of cellular therapeutics, drugs and other therapies that target the same diseases and conditions that we target in our clinical and pre-clinical programs.

 

Some of our competitors have greater resources, more product candidates and have developed product candidates and processes that directly compete with our products. Our competitors may have developed, or could develop in the future, new products that compete with our products or even render our products obsolete.

 

We depend to a significant extent on certain key personnel, the loss of any of whom may materially and adversely affect our Company.

 

Our success depends to a significant extent on the continued services of certain highly qualified scientific and management personnel, in particular, Zami Aberman, our Executive Chairman, and Yaky Yanay, our CEO and President. We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms.

 

The loss of service of any of our key personnel could have a material adverse effect on our operations or financial condition. In the event of the loss of services of such personnel, no assurance can be given that we will be able to obtain the services of adequate replacement personnel. We do not maintain key person insurance on the lives of any of our officers or employees.

 

The market for our products will be heavily dependent on third party reimbursement policies.

 

Our ability to successfully commercialize our product candidates will depend on the extent to which government healthcare programs, as well as private health insurers, health maintenance organizations and other third party payers will pay for our products and related treatments.

 

Reimbursement by third party payers depends on a number of factors, including the payer’s determination that use of the product is safe and effective, not experimental or investigational, medically necessary, appropriate for the specific patient and cost-effective.  Reimbursement in the United States or foreign countries may not be available or maintained for any of our product candidates.  If we do not obtain approvals for adequate third party reimbursements, we may not be able to establish or maintain price levels sufficient to realize an appropriate return on our investment in product development.  Any limits on reimbursement from third party payers may reduce the demand for, or negatively affect the price of, our products.  The lack of reimbursement for these procedures by insurance payers has negatively affected the market for our products in this indication in the past.

 

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Managing and reducing health care costs has been a general concern of federal and state governments in the United States and of foreign governments.  In addition, third party payers are increasingly challenging the price and cost-effectiveness of medical products and services, and many limit reimbursement for newly approved health care products.  In particular, third party payers may limit the indications for which they will reimburse patients who use any products that we may develop.  Cost control initiatives could decrease the price for products that we may develop, which would result in lower product revenues to us.

 

Our success depends in large part on our ability to develop and protect our technology and our cell therapy products. If our patents and proprietary rights agreements do not provide sufficient protection for our technology and our cell therapy products, our business and competitive position will suffer.

 

Our success will also depend in part on our ability to develop our technology and commercialize cell therapy products without infringing the proprietary rights of others. We have not conducted full freedom of use patent searches and no assurance can be given that patents do not exist or could not be filed which would have an adverse effect on our ability to develop our technology or maintain our competitive position with respect to our potential cell therapy products. If our technology components, devices, designs, products, processes or other subject matter are claimed under other existing United States or foreign patents or are otherwise protected by third party proprietary rights, we may be subject to infringement actions. In such event, we may challenge the validity of such patents or other proprietary rights or we may be required to obtain licenses from such companies in order to develop, manufacture or market our technology or products. There can be no assurances that we would be able to obtain such licenses or that such licenses, if available, could be obtained on commercially reasonable terms. Furthermore, the failure to either develop a commercially viable alternative or obtain such licenses could result in delays in marketing our proposed products or the inability to proceed with the development, manufacture or sale of products requiring such licenses, which could have a material adverse effect on our business, financial condition and results of operations. If we are required to defend ourselves against charges of patent infringement or to protect our proprietary rights against third parties, substantial costs will be incurred regardless of whether we are successful. Such proceedings are typically protracted with no certainty of success. An adverse outcome could subject us to significant liabilities to third parties and force us to curtail or cease our development of our technology and the commercialization our potential cell therapy products.

 

We have built the ability to manufacture clinical grade ASCs in-house. Through our experience with ASC-based product development, we have developed expertise and know-how in this field. To protect these expertise and know-how, our policies require confidentiality agreements with our employees, consultants, contractors, manufacturers and advisors. These agreements generally provide for protection of confidential information, restrictions on the use of materials and assignment of inventions conceived during the course of performance for us. These agreements might not effectively prevent disclosure of our confidential information.

 

The price of our common stock may fluctuate significantly.

 

The market for our shares of common stock may fluctuate significantly. A number of events and factors may have an adverse impact on the market price of our common stock, such as:

 

results of our clinical trials or adverse events associated with our products;

 

the amount of our cash resources and our ability to obtain additional funding;

 

changes in our revenues, expense levels or operating results;

 

entering into or terminating strategic relationships;

 

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announcements of technical or product developments by us or our competitors;

 

market conditions for pharmaceutical and biotechnology stocks in particular;

 

changes in laws and governmental regulations, including changes in tax, healthcare, competition and patent laws;

 

disputes concerning patents or proprietary rights;

 

new accounting pronouncements or regulatory rulings;

 

public announcements regarding medical advances in the treatment of the disease states that we are targeting;

 

patent or proprietary rights developments;

 

regulatory actions that may impact our products;

 

future sales of our common stock, or the perception of such sales;

 

disruptions in our manufacturing processes; and

 

competition.  

 

In addition, a global pandemic, such as the COVID-19 pandemic and a market downturn in general and/or in the biopharmaceutical sector in particular, may adversely affect the market price of our securities, which may not necessarily reflect the actual or perceived value of our Company.

 

Future sales of our common stock may cause dilution.

 

Future sales of our common stock, or the perception that such sales may occur, could cause immediate dilution and adversely affect the market price of our common stock. If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity raising is the most common type of fundraising for companies like ours, the risk of dilution is particularly significant for stockholders of our company.


We are exposed to fluctuations in currency exchange rates.

 

A significant portion of our business is conducted outside the United States. Therefore, we are exposed to currency exchange fluctuations in other currencies such as the New Israeli Shekel, or NIS, and the Euro, because a portion of our expenses in Israel and Europe are paid in NIS and Euros, respectively, which subjects us to the risks of foreign currency fluctuations. Our primary expenses paid in NIS are employee salaries, subcontractors and material suppliers, fees for consultants and lease payments on our facilities. During the year ended June 30, 2020, or the fiscal year 2020, we entered into options contracts to hedge against some of the risk of changes in future cash flows from payments of payroll and related expenses and costs of operations denominated in NIS.

 

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The dollar cost of our operations in Israel will increase to the extent increases in the rate of inflation in Israel are not offset by a devaluation of the NIS in relation to the dollar, which would harm our results of operations.

 

Since a considerable portion of our expenses such as employees’ salaries are linked to an extent to the rate of inflation in Israel, the dollar cost of our operations is influenced by the extent to which any increase in the rate of inflation in Israel is or is not offset by the devaluation of the NIS in relation to the dollar. As a result, we are exposed to the risk that the NIS, after adjustment for inflation in Israel, will appreciate in relation to the dollar. In that event, the dollar cost of our operations in Israel will increase and our dollar-measured results of operations will be adversely affected. We cannot predict whether the NIS will appreciate against the dollar or vice versa in the future. Any increase in the rate of inflation in Israel, unless the increase is offset on a timely basis by a devaluation of the NIS in relation to the dollar, will increase labor and other costs, which will increase the dollar cost of our operations in Israel and harm our results of operations.

 

Potential product liability claims could adversely affect our future earnings and financial condition.

 

We face an inherent business risk of exposure to product liability claims in the event that the use of our products results in adverse effects. We may not be able to maintain adequate levels of insurance for these liabilities at reasonable cost and/or reasonable terms. Excessive insurance costs or uninsured claims would add to our future operating expenses and adversely affect our financial condition.

 

Our principal research and development and manufacturing facilities are located in Israel and the unstable military and political conditions of Israel may cause interruption or suspension of our business operations without warning.

 

Our principal research and development and manufacturing facilities are located in Israel. As a result, we are directly influenced by the political, economic and military conditions affecting Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. During July and August 2014 and November 2012, Israel was engaged in an armed conflict with a militia group and political party which controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel.

 

In addition, Israeli-based companies and companies doing business with Israel, have been the subject of an economic boycott by members of the Arab League and certain other predominantly Muslim countries since Israel’s establishment. Although Israel has entered into various agreements with certain Arab countries and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic and political problems in the Middle East, we cannot predict whether or in what manner these problems will be resolved. Wars and acts of terrorism have resulted in significant damage to the Israeli economy, including reducing the level of foreign and local investment.

 

Furthermore, certain of our employees may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active military duty at any time. All Israeli male citizens who have served in the army are subject to an obligation to perform reserve duty until they are between 40 and 49 years old, depending upon the nature of their military service.

 

The trend towards consolidation in the pharmaceutical and biotechnology industries may adversely affect us.

 

There is a trend towards consolidation in the pharmaceutical and biotechnology industries. This consolidation trend may result in the remaining companies having greater financial resources and technical discovery capabilities, thus intensifying competition in these industries. This trend may also result in fewer potential collaborators or licensees for our therapeutic product candidates. Also, if a consolidating company is already doing business with our competitors, we may lose existing licensees or collaborators as a result of such consolidation. This trend may adversely affect our ability to enter into license agreements or agreements for the development and commercialization of our product candidates, and as a result may materially harm our business.

 

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Our cash may be subject to a risk of loss and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates.

 

Our assets include a significant component of cash and cash equivalents and bank deposits.  We adhere to an investment policy set by our investment committee which aims to preserve our financial assets, maintain adequate liquidity and maximize returns. We believe that our cash is held in institutions whose credit risk is minimal and that the value and liquidity of our deposits are accurately reflected in our consolidated financial statements as of June 30, 2020. Currently, we hold part of our current assets in bank deposits. However, nearly all of our cash and bank deposits are not insured by the Federal Deposit Insurance Corporation, or the FDIC, or similar governmental deposit insurance outside the United States.  Therefore, our cash and any bank deposits that we now hold or may acquire in the future may be subject to risks, including the risk of loss or of reduced value or liquidity, particularly in light of the increased volatility and worldwide pressures in the financial and banking sectors.

 

Although our internal control over financial reporting was considered effective as of June 30, 2020, there is no assurance that our internal control over financial reporting will continue to be effective in the future, which could result in our financial statements being unreliable, government investigations or loss of investor confidence in our financial report. 

 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish an annual report by our management assessing the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Management’s report as of the end of fiscal year 2020 concluded that our internal control over financial reporting was effective. There is, however, no assurance that we will be able to maintain such effective internal control over financial reporting in the future. Ineffective internal control over financial reporting can result in errors or other problems in our financial statements. In the future, if we or our registered independent public accounting firm are unable to assert that our internal controls are effective, our investors could lose confidence in the accuracy and completeness of our financial report, which in turn could cause our stock price to decline. Failure to maintain effective internal control over financial reporting could also result in investigation or sanctions by regulatory authorities.

 

Because most of our officers and directors are located in non-U.S. jurisdictions, you may have no effective recourse against the management for misconduct and may not be able to enforce judgment and civil liabilities against our officers, directors, experts and agents.

 

Most of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of their assets are located outside the United States.

 

As a result, it may be difficult to enforce within the United States any judgments obtained against our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any U.S. state.

 

Because we do not intend to pay any dividends on our common stock, investors seeking dividend income should not purchase shares of our common stock.

 

We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.  Investors seeking dividend income should not invest in our common stock.

 

We are dependent upon third-party suppliers for raw materials needed to manufacture PLX; if any of these third parties fails or is unable to perform in a timely manner, our ability to manufacture and deliver will be compromised.

 

In addition to the placenta used in the clinical manufacturing process of PLX, we require certain raw materials. These items must be manufactured and supplied to us in sufficient quantities and in compliance with current GMP. To meet these requirements, we have entered into supply agreements with firms that manufacture these raw materials to current GMP standards. Our requirements for these items are expected to increase if and when we transition to the manufacture of commercial quantities of our cell-based drug candidates.

 

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In addition, as we proceed with our clinical trial efforts, we must be able to continuously demonstrate to the FDA, EMA and other regulatory authorities that we can manufacture our cell therapy product candidates with consistent characteristics. Accordingly, we are materially dependent on these suppliers for supply of current GMP-grade materials of consistent quality. Our ability to complete ongoing clinical trials may be negatively affected in the event that we are forced to seek and validate a replacement source for any of these critical materials.

 

We intend to decrease our dependency in third-party suppliers for raw materials. To that effect we have developed a serum-free formulation which is expected to support the manufacturing of cell therapy products. This serum-free formulation was developed using our deep understanding in cell therapy industrial scale production standards, and the quality methods designed to support implementation in Phase III development and marketing. Achieving this significant technological challenge is expected to provide us with large-scale, highly consistent production with operational independency from third party suppliers for standard serum, an expensive and quantity limited product. There can be no guarantee that we will successfully implement the use of our serum-free formulation to support the manufacturing of cell therapy products or any other future product candidates, if any, that we seek to produce using such formulation, or that such implementation of the serum-free formulation will decrease our dependency on third-party suppliers for raw materials.

 

We rely and will rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

 

We depend and will depend upon independent investigators and collaborators, such as universities, medical institutions, CROs, vendors and strategic partners to conduct our pre-clinical and clinical trials under agreements with us. We negotiate budgets and contracts with CROs, vendors and study sites which may result in delays to our development timelines and increased costs. We rely heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with current good clinical practices, or cGCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development.

 

Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, any Phase III clinical trials which we may conduct must be conducted with biologic product produced under cGMP and may require a large number of test patients. Biologic products for commercial purposes must also be produced under cGMP. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws and regulations.

 

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Any third parties conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our agreements with such third parties, which in some instances may be limited, we cannot control whether or not they devote sufficient time and resources to our ongoing pre-clinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed. Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.

 

We may not be able to take advantage of the new regulatory pathways in the United States, Europe and Japan to shorten our time to market our products.

 

Regulatory pathways in United States, Europe and Japan may allow for early commercialization of our products and thereby reducing the time to market our products.

 

The FDA’s Fast Track designation is a process designed to facilitate the development and expedite the review of drugs to treat serious conditions and unmet medical needs. The FDA granted PLX-PAD with “Fast Track” designation for the treatment of CLI.

 

The EAP allows the use of an investigational medical product outside of clinical trials and is usually granted in cases where patients are unsuitable for inclusion under the study protocol and the patient’s condition is life-threatening with an unmet medical need. The FDA has cleared PLX-PAD EAP, for the treatment of patients with CLI. As part of the EAP, our PLX-PAD cell therapy will be made available to a limited number of CLI patients in the United States who are unsuitable for revascularization and cannot take part in our ongoing Phase III clinical trial. In addition, the FDA has cleared our EAP for the use of our PLX-PAD cells to treat ARDS caused by COVID-19 outside of our ongoing Phase II COVID-19 study in the U.S. The EAP will include up to 100 patients with the resulting data being collected and evaluated alongside our existing clinical trial in the U.S.

 

The purpose of the EMA’s Adaptive Pathways Project is to shorten the time it takes for innovative medicines to reach patients with serious conditions that lack adequate treatment options. After a therapy is selected for the program, the discussion group that oversees a given project entering into the EMA’s Adaptive Pathways Project conducts high level discussions and provides guidance to the applicant regarding the formal regulatory processes that precede a trial targeting early approval and further expansion of the indications. The EMA selected our PLX-PAD cell program in CLI and in recovery following surgery for hip fracture for its Adaptive Pathways Project.

 

In Japan, a regulation regarding regenerative therapies, including cell therapies. This regulation allows for conditional, time-limited approval of products for marketing after limited proof of efficacy.  

 

In addition, the PMDA approved the proposed quality and large-scale manufacturing methods for PLX-PAD and has cleared our PLX-PAD cells for use in clinical trials in Japan.

 

However, since these new regulatory pathways are relatively new, we may not be able to meet the regulatory requirements and as a result would not benefit from early access to the market.

 

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Favorable results from compassionate use treatment or initial interim results from a clinical trial do not ensure that later clinical trials will be successful and success in early stage clinical trials does not ensure success in later-stage clinical trials.

 

PLX cells have been administered as part of compassionate use treatments, which permit the administration of the PLX cells outside of clinical trials. No assurance can be given that any positive results are attributable to the PLX cells, or that administration of PLX cells to other patients will have positive results. Compassionate use is a term that is used to refer to the use of an investigational drug outside of a clinical trial to treat a patient with a serious or immediately life-threatening disease or condition who has no comparable or satisfactory alternative treatment options. Regulators often allow compassionate use on a case-by-case basis for an individual patient or for defined groups of patients with similar treatment needs.

 

There is no assurance that we will obtain regulatory approval for PLX cells. We will only obtain regulatory approval to commercialize a product candidate if we can demonstrate to the satisfaction of the FDA, the EMA or other applicable regulatory authorities, in well-designed and conducted clinical trials, that the product candidate is safe and effective and that the product candidate, including the cell production methodology, otherwise meets the appropriate standards required for approval. Clinical trials can be lengthy, complex and extremely expensive processes with uncertain results. A failure of one or more clinical trials may occur at any stage of testing.

 

Success in early clinical trials does not ensure that later clinical trials will be successful, and initial results from a clinical trial do not necessarily predict final results. While results from treating patients through compassionate use have in certain cases been successful, we cannot be assured that further trials will ultimately be successful. Results of further clinical trials may be disappointing.

 

Even if early stage clinical trials are successful, we may need to conduct additional clinical trials for product candidates with patients receiving the drug for longer periods before we are able to seek approvals to market and sell these product candidates from the FDA and regulatory authorities outside the United States. Even if we are able to obtain approval for our product candidates through an accelerated approval review program, we may still be required to conduct clinical trials after such an approval. If we are not successful in commercializing any of our lead product candidates, or are significantly delayed in doing so, our business will be materially harmed.

 

We may not successfully maintain our existing exclusive out-licensing agreement with CHA, or establish new collaborative and licensing arrangements, which could adversely affect our ability to develop and commercialize our product candidates.

 

One of the elements of our business strategy is to license our technology to other companies. Our business strategy includes establishing collaborations and licensing agreements with one or more pharmaceutical or biotechnology companies. To date, we have a strategic partnership with CHA for both the IC and CLI indications in Korea. CHA will conduct PLX clinical trials in South Korea, and, following approval, a joint venture equally owned by both parties will be established to market PLX products in South Korea. Our PLX cells are also being used in South Korean sites participating to our International IC study through our partnership with CHA. Notwithstanding, we may not be able to further establish or maintain such licensing and collaboration arrangements necessary to develop and commercialize our product candidates.

 

Even if we are able to maintain or establish licensing or collaboration arrangements, these arrangements may not be on favorable terms and may contain provisions that will restrict our ability to develop, test and market our product candidates. Any failure to maintain or establish licensing or collaboration arrangements on favorable terms could adversely affect our business prospects, financial condition or ability to develop and commercialize our product candidates.

 

Our agreements with our collaborators and licensees may have provisions that give rise to disputes regarding the rights and obligations of the parties. These and other possible disagreements could lead to termination of the agreement or delays in collaborative research, development, supply, or commercialization of certain product candidates, or could require or result in litigation or arbitration. Moreover, disagreements could arise with our collaborators over rights to intellectual property or our rights to share in any of the future revenues of products developed by our collaborators. These kinds of disagreements could result in costly and time-consuming litigation. Any such conflicts with our collaborators could reduce our ability to obtain future collaboration agreements and could have a negative impact on our relationship with existing collaborators.

 

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Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.

 

We rely on and utilize services provided by third parties in connection with our clinical trials, which services involve the collection, use, storage and analysis of personal health information. While we receive assurances from these vendors that their services are compliant with the Health Insurance Portability and Accountability Act, or HIPAA, and other applicable privacy laws, there can be no assurance that such third parties will comply with applicable laws or regulations. Non-compliance by such vendors may result in liability for us which would have a material adverse effect on our business, financial conditions and results of operations.

 

Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While, to our knowledge, we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.

 

Unsuccessful compliance with certain European privacy regulations could have an adverse effect on our business and reputation.

 

The collection and use of personal health data in the European Union is governed by the provisions of the General Data Protection Regulation, or GDPR. This directive imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The GPDR also extends the geographical scope of European Union data protection law to non-European Union entities under certain conditions, tightens existing European Union data protection principles and creates new obligations for companies and new rights for individuals. Failure to comply with the requirements of the GDPR and the related national data protection laws of the European Union Member States may result in fines and other administrative penalties. There may be circumstances under which a failure to comply with GDPR, or the exercise of individual rights under the GDPR, would limit our ability to utilize clinical trial data collected on certain subjects. The GDPR regulations impose additional responsibility and liability in relation to personal data that we process and we intend to put in place additional mechanisms ensuring compliance with these and/or new data protection rules.

 

Changes to these European privacy regulations and unsuccessful compliance may be onerous and adversely affect our business, financial condition, prospects, results of operations and reputation.

 

We have limited experience in conducting Phase III trials. If we fail in the conduct of such trials, our business will be materially harmed.

 

Even though we conducted Phase I and Phase II trials and we are currently conducting two Phase III trials for our PLX-PAD product candidate, a Phase II FDA study of PLX cells for the treatment of severe COVID-19 complicated by ARDS, and a Phase I for our PLX-R18 product, and have recruited employees who are experienced in managing and conducting clinical trials, we have limited experience in this area.

 

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We will need to expand our experience and rely on consultants in order to obtain regulatory approvals for our therapeutic product candidates. The failure to successfully conduct clinical trials could materially harm our business.

 

Existing government programs and tax benefits may be terminated.

 

We have received certain Israeli government approvals under certain programs and may in the future utilize certain tax benefits in Israel by virtue of these programs. To remain eligible for such tax benefits, we must continue to meet certain conditions. If we fail to comply with these conditions in the future, the benefits we receive could be canceled and have to pay additional taxes. We cannot guarantee that these programs and tax benefits will be continued in the future, at their current levels or at all. If these programs and tax benefits are ended, our business, financial condition and results of operations could be materially adversely affected.

 

If we fail to obtain or maintain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenue will be reduced.

 

Our business strategy focuses on the development of drugs that are eligible for FDA and European Union orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union Community. Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product.

 

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

 

Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition.

 

Even with orphan drug exclusivity, if a third party were to prepare or market a product which infringes upon our intellectual property, we may need to initiate litigation, which may be costly, to enforce our rights against such party. After an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation on its own neither shortens the development time or regulatory review time for a drug.

 

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While orphan drug products are typically sold at a high price relative to other medications, the market may not be receptive to high pricing of our products.

 

We develop our product candidates to treat rare and ultra-rare diseases, a space where medications are usually sold at high prices compared with other medications.

 

Accordingly, even if regulatory authorities approve our product candidates, the market may not be receptive to, and it may be difficult for us to achieve, a per-patient per-year price high enough to allow us to realize a return on our investment.

 

The patent approval process is complex and we cannot be sure that our pending patent applications or future patent applications will be approved.

 

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and any future licensors’ patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States and we may not be able to obtain meaningful patent protection for any of our commercial products either in or outside the United States.

 

No assurance can be given that the scope of any patent protection granted will exclude competitors or provide us with competitive advantages, that any of the patents that have been or may be issued to us will be held valid if subsequently challenged, or that other parties will not claim rights to or ownership of our patents or other proprietary rights that we hold. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of our technology or products or design around any patents that have been or may be issued to us or any future licensors. Since patent applications in the United States and in Europe are not publicly disclosed until patents are issued, there can be no assurance that others did not first file applications for products covered by our pending patent applications, nor can we be certain that we will not infringe any patents that may be issued to others.

 

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on our business.

 

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We have yet to conduct comprehensive freedom-to-operate searches to determine whether our proposed business activities or use of certain of the patent rights owned by us would infringe patents issued to third parties. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all.

 

Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. For example, we are aware of issued third party patents directed to placental stem cells and their use for therapy and in treating various diseases. We may need to seek a license for one or more of these patents. No assurances can be given that such a license will be available on commercially reasonable terms, if at all. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

 

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Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors are able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

 

We must further protect and develop our technology and products in order to become a profitable company.

 

If we do not complete the development of our technology and products in development by the time our patents expire, create additional sufficient layers of patents or other intellectual property rights, other companies may use the technology to develop competing products. If this happens, we may lose our competitive position and our business would likely suffer.

 

Furthermore, the scope of our patents may not be sufficiently broad to offer meaningful protection. In addition, our patents could be successfully challenged, invalidated or circumvented so that our patent rights would not create an effective competitive barrier. We also intend to seek patent protection for any of our potential cell therapy products once we have completed their development. We also rely on trade secrets and unpatentable know-how that we seek to protect, in part, by confidentiality agreements with our employees, consultants, suppliers and licensees. These agreements may be breached, and we might not have adequate remedies for any breach. If this were to occur, our business and competitive position would suffer.

 

We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

 

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit U.S. companies or their agents and employees from providing anything of value to a foreign official or political party for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. We have operations and agreements with third parties. Our international activities create the risk of unauthorized and illegal payments or offers of payments by our employees or consultants, even though they may not always be subject to our control. We discourage these practices by our employees and consultants. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees or consultants, may engage in conduct for which we might be held responsible for Any failure by us to adopt appropriate compliance procedures and ensure that our employees and consultants comply with the FCPA and applicable laws and regulations in foreign jurisdictions could result in substantial penalties or restrictions on our ability to conduct business in certain foreign jurisdictions.

 

Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

 

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The COVID-19 pandemic, or any other pandemic, epidemic or outbreak of an infectious disease, may materially and adversely affect our business and operations.

 

The recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to approximately 200 countries, including the United States, Israel and many European countries in which we operate. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. While COVID-19 is still spreading and the final implications of the pandemic are difficult to estimate at this stage, it is clear that it has affected the lives of a large portion of the global population. At this time, the pandemic has caused states of emergency to be declared in various countries, travel restrictions imposed globally, quarantines established in certain jurisdictions and various institutions and companies being closed. We are actively monitoring the pandemic and we are taking any necessary measures to respond to the situation in cooperation with the various stakeholders.

 

Based on guidelines provided by the Israeli Government, employers (including us) are also required to prepare and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, COVID-19 infection of our workforce could result in a temporary disruption in our business activities, including manufacturing and other functions.

 

The COVID-19 pandemic is also affecting the United States, Israel and global economies and has affected, and may continue to affect, the conduct of our clinical trials and may in the future affect our operations and those of third parties on which we rely, including by causing disruptions in our raw material supply, though to date we have not experienced any such disruptions.

 

In addition, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respect to our Phase III clinical trials relating to CLI and muscle recovery following surgery for hip fracture. The evolving COVID-19 pandemic has already impacted, and may continue to, directly or indirectly impact the pace of enrollment in our clinical trials as patients may avoid or may not be able to travel to healthcare facilities and physicians’ offices unless due to a health emergency and clinical trial staff can no longer get to the clinic. Additionally, such facilities and offices have been and may continue to be required to focus limited resources on non-clinical trial matters, including treatment of COVID-19 patients, thereby decreasing availability, in whole or in part, for clinical trial services. Additionally, the stock market has been unusually volatile during the COVID-19 outbreak and such volatility may continue. To date, during certain periods of the COVID-19 pandemic, our stock price fluctuated significantly, and such fluctuation may continue to occur. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities, or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely.

 

The impact of the use of our PLX cells in various COVID-19 related compassionate use programs, as well as our expected clinical trial, if any, on our business and our results of operations cannot be predicted with certainty, as factors including, but not limited to, the ultimate duration and scope of the compassionate use authorization, as well as the availability of our product internationally, are not determinable at this time. Our PLX cells may not be successful in treating complications associated with COVID-19.

 

Item 1B. Unresolved Staff Comments.

 

Not Applicable.

 

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Item 2. Properties.

 

Our principal executive, manufacturing and research and development offices are located at MATAM Advanced Technology Park, Building No. 5, Haifa, Israel, where we occupy approximately 4,389 square meters. Our monthly rent payment for these leased facilities as of July 2020 was 263,000 NIS (approximately $76,000). For the fiscal year ended June 30, 2020, we recognized a net expense of $491,000, according to the implementation of Accounting Standards Update No. 2016-02, “Leases”.

 

We believe that the current space we have is adequate to meet our current and near future needs.

 

Item 3. Legal Proceedings.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

  

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our shares of common stock trade on the Nasdaq Capital Market and the Tel Aviv Stock Exchange under the symbol PSTI.

 

As of September 4, 2020, there were 101 holders of record, and 25,554,668 shares of our common stock were issued and outstanding.

 

American Stock Transfer and Trust Company, LLC is the registrar and transfer agent for our common shares. Their address is 6201 15th Avenue, 2nd Floor, Brooklyn, NY 11219, telephone: (718) 921-8300, (800) 937-5449.

 

Item 6. Selected Financial Data

 

Not applicable.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. -

 

We are a leading developer of placenta-based cell therapy product candidates for the treatment of multiple ischemic, inflammatory and hematologic conditions. Our operations are focused on the research, development, manufacturing, conducting clinical trials and business development of cell therapeutics and related technologies.

 

We are currently enrolling patients in two Phase III studies: one for CLI and another for muscle recovery following surgery for hip fracture. In addition, we are focusing on other indications such as ARS, incomplete recovery following bone marrow transplantation, Steroid-Refractory cGVHD and IC. We received clearance from the FDA and the PEI to conduct a Phase II study evaluating PLX cells for the treatment of severe cases of the COVID-19 complicated by ARDS. We have treated several patients in Israel and in the United States suffering from severe ARDS associated with COVID-19 under a compassionate use program. In addition, the FDA has cleared our EAP for the use of our PLX-PAD cells to treat up to 100 patients suffering from ARDS caused by COVID-19 outside of our ongoing Phase II COVID-19 study in the U.S. We believe that each of these indications is a severe unmet medical need.

 

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PLX cells are derived from a class of placental cells that are harvested from donated placenta at the time of full term healthy delivery of a baby. PLX cell products require no tissue or blood matching prior to administration. They are produced using our proprietary three-dimensional expansion technology. Our manufacturing facility complies with the European, Japanese, Israeli, South Korean and the FDA’s cGMP requirements and has been inspected and approved by the European and Israeli regulators for production of PLX-PAD for late stage trials. We have also granted manufacturer/importer authorization and cGMP Certification by Israel’s Ministry of Health. If we obtain FDA and other regulatory approvals to market PLX cells, we expect to have in-house production capacity to grow PLX cells in commercial quantities. See “ – Research and Development - In-House Clinical Manufacturing” for additional information.

 

Our goal is to make significant progress with our clinical pipeline and our clinical trials in order to ultimately bring innovative, potent therapies to patients who need new treatment options. We expect to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity. Our business model for commercialization and revenue generation includes, but is not limited to, direct sale of our products, partnerships, licensing deals, and joint ventures with pharmaceutical companies.

 

We were incorporated in Nevada in 2001, and we have a wholly owned subsidiary in Israel called Pluristem Ltd. and a wholly owned subsidiary in Germany called Pluristem GmbH.

 

RESULTS OF OPERATIONS – YEAR ENDED JUNE 30, 2020 COMPARED TO YEAR ENDED JUNE 30, 2019.

 

Revenues

 

Revenues for the year ended June 30, 2020 were $23,000 and revenues for the year ended June 30, 2019 were $54,000. All revenues in the years ended June 30, 2020 and June 30, 2019 were related to the sale of our PLX cells for research use.

 

Cost of Revenues

 

Cost of revenues for the year ended June 30, 2019 were $2,000 compared to no cost of revenues for the year ended June 30, 2020. All cost of revenues are related to the royalties we are obligated to pay to the IIA.

 

Research and Development, Net

 

Research and development net costs (costs less participation and grants by the IIA, Horizon 2020 and other parties) for the year ended June 30, 2020 decreased by 18% to $21,577,000 from $26,427,000 for the year ended June 30, 2019. The decrease is mainly attributed to (1) our increasingly efficient production activities that resulted in a decrease in materials consumption, (2) a decrease in payroll expenses related to a decrease in the average number of employees and temporary salary deductions during April and May 2020 (as part of our expense reduction strategy due to COVID-19), (3) a decrease in stock-based compensation expenses related to the amount of restricted stock units, or RSUs, granted and their vesting schedules, (4) a decrease in expenses related to clinical site initiation and (5) a decrease in rent expenses due to the implementation of Accounting Standards Update No. 2016-02, “Leases,” which resulted in a reduction of $160,000 (for further information please refer to Note 7 in the accompanying financial statements to this Annual Report). The decrease was partially offset by lower participation by the European Union with respect to the Horizon 2020 grants, which was primarily utilized in the first year of the projects, and a lower participation by the IIA due to a decrease in the grant obtained in calendar year 2020 compared to calendar year 2019 and to calendar year 2018.

 

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General and Administrative

 

General and administrative expenses decreased by 13% from $9,157,000 for the year ended June 30, 2019 to $7,922,000 for the year ended June 30, 2020. This decrease is attributed to a decrease in stock-based compensation expenses related to the amount of RSUs granted and their vesting schedules, a decrease in payroll expenses related to a 25% reduction of the annual salary of our CEO and, a 25% reduction of the annual compensation of our Executive Chairman and temporary salary deductions during April and May 2020 (as part of our expense reduction strategy due to COVID-19). The decrease was partially offset by an increase in professional services expenses related to the EIB Agreement.

 

Financial Income, Net

 

Financial income increased from $225,000 for the year ended June 30, 2019 to $324,000 for the year ended June 30, 2020. This increase is mainly attributable to increased income from exchange rates related to the strength of the U.S. dollar against the NIS and changes in the fair value of our hedging instruments related to the strength of the U.S. dollar against the NIS, partially offset by financial expense from the implementation of Accounting Standards Update No. 2016-02, “Leases,” which resulted in an expense of $261,000 (for further information please refer to Note 7 in the accompanying financial statements to this Annual Report).

 

Net Loss

 

Net loss for the year ended June 30, 2020 was $29,152,000 as compared to a net loss of $35,307,000 for the year ended June 30, 2019. The changes were mainly due to a decrease in research and development expenses, net, and a decrease in general and administrative expenses, net for the reasons mentioned above. Net loss per share for the year ended June 30, 2020 was $1.60 per share, as compared to $2.90 per share for the year ended June 30, 2019. The net loss per share decreased mainly as a result of an increase in our weighted average number of shares due to the issuance of additional shares issued during fiscal year 2020, and by a decrease in the net loss.

 

Liquidity and Capital Resources

 

As of June 30, 2020, our total current assets were $48,461,000 and our total current liabilities were $7,987,000. On June 30, 2020, we had a working capital surplus of $40,474,000 and an accumulated deficit of $280,156,000.

 

As of June 30, 2019, our total current assets were $26,371,000 and our total current liabilities were $8,158,000. On June 30, 2019, we had a working capital surplus of $18,213,000 and an accumulated deficit of $251,004,000.

 

Our cash and cash equivalents and restricted cash as of June 30, 2020 amounted to $9,229,000. This is a decrease of $4,043,000 from the $5,186,000 reported as of June 30, 2019. Cash balances decreased in the year ended June 30, 2020 for the reasons presented below.

 

Operating activities used cash of $26,369,000 in the year ended June 30, 2020. Cash used by operating activities in the year ended June 30, 2020 primarily consisted of payments to subcontractors, suppliers, and professional services providers primarily related to our ongoing clinical trials and payments of salaries to our employees, offset by participation of the IIA, Horizon 2020 and other grants.

 

Investing activities used cash of $30,458,000 in the year ended June 30, 2020. The investing activities in the year ended June 30, 2020 consisted primarily of cash used for investment in short-term deposits of $17,949,000, investment in long-term deposits of $12,239,000 and payments of $270,000 related to investments in property and equipment.

 

39

 

 

Financing activities generated cash in the amount of $60,870,000 during the year ended June 30, 2020. The cash generated in the year ended June 30, 2020 from financing activities is related to net proceeds of $43,262,000 from issuing shares of our common stock under our Sales Agreement (defined below), net proceeds of $14,901,000 from issuing shares of our common stock in a registered direct offering in May 2020 and net proceeds of $2,707,000 from issuing shares of our common stock from the exercise of warrants.

 

On February 6, 2019, we entered into an Open Market Sales AgreementSM, or the Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies. We are not obligated to make any sales of common stock under the Sales Agreement. From February 6, 2019 through June 30, 2020, we sold an aggregate of 8,297,750 shares of common stock pursuant to the Sales Agreement for aggregate gross proceeds of $ 49,140,965. On June 30, 2020, our shelf registration on Form S-3 declared effective by the SEC on June 23, 2017 expired, and as a result thereof, the parties stopped utilizing the Sales Agreement. On July 16, 2020, we entered into a new Open Market Sales AgreementSM, or the 2020 Sales Agreement, with Jefferies, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $75,000,000 from time to time through Jefferies. Upon entering into the 2020 Sales Agreement, we filed a new shelf registration statement on Form S-3, which was declared effective by the SEC on July 23, 2020.

 

In the year ended June 30, 2020, warrants to purchase up to 386,678 shares from our April 2019 firm commitment public offering, or the 2019 Public Offering, were exercised by investors at an exercise price of $7.00 per share, resulting in the issuance of 386,678 shares of common stock for net proceeds of approximately $2,707,000.

 

On May 5, 2020, we entered into a securities purchase agreement with two institutional investors, or the Investors, pursuant to which we sold, in a registered direct offering to the Investors, 1,587,302 shares of common stock for net proceeds of approximately $14,901.

 

On April 30, 2020, we and our Israeli subsidiary, Pluristem Ltd., and our German subsidiary, Pluristem GmbH, entered into the EIB Agreement with the EIB, pursuant to which we can obtain a loan in the amount of Euro 50 million, or the Loan, payable in tranches, subject to the achievement of certain clinical, regulatory and scale up milestones. Each of the Company and Pluristem Ltd. are guarantors under the Finance Contract. The Loan is not secured and will be disbursed in three tranches consisting of one tranche of Euro 20 million, or the First Tranche, a second tranche of Euro 18 million, or the Second Tranche, and a third tranche of Euro12 million, or the Third Tranche, each as may be requested by us, subject to the achievement of clinical, regulatory and scale up milestones. The tranches will be treated independently, each with its own interest rate and maturity period. The fixed interest rate is 0% per annum for the First Tranche and 1.00% for each of the Second Tranche and Third Tranche. The deferred interest rate is 4% per annum for the First Tranche, 3% for the Second Tranche and 2% for the Third Tranche. We are required to repay the First Tranche and the Second Tranche, with all other amounts owed thereunder, in a single installment on the maturity date of that tranche, following the five-year anniversaries from each of the First Tranche and the Second Tranche disbursements. We are required to repay the Third Tranche, with all other amounts owed thereunder, in two equal installments, with the first such payment following the fourth anniversary of the disbursement date and the last repayment on a date not later than five years from the disbursement date. To date, we have not yet received a disbursement pursuant to the EIB Agreement.

 

During the year ended June 30, 2020, we received cash of approximately $23,000 from third parties from the sale of our PLX cells for research use.

 

Our cash and cash equivalents and restricted cash as of June 30, 2019 amounted to $5,186,000. This is a decrease of $4,701,000 from the $9,887,000 reported as of June 30, 2018. Cash balances decreased in the year ended June 30, 2019 for the reasons presented below.

 

40

 

 

Operating activities used cash of $29,453,000 in the year ended June 30, 2019. Cash used by operating activities in the year ended June 30, 2019 primarily consisted of payments to subcontractors, suppliers, and professional services providers primarily related to our ongoing Phase III clinical trials and payments of salaries to our employees, offset by participation of the IIA, Horizon 2020 and other grants.

 

Investing activities provided cash of $1,170,000 in the year ended June 30, 2019. The investing activities in the year ended June 30, 2019 consisted primarily of cash provided from repayment of short term deposits of $1,415,000, offset by payments of $239,000 related to investments in property and equipment and Investment in restricted bank deposits of $6,000.

 

Financing activities generated cash in the amount of $23,582,000 during the year ended June 30, 2019. The cash generated in the year ended June 30, 2019 from financing activities is related to net proceeds, after deducting underwriting commissions and discounts, and other offering expenses, of $19,464,000 from issuing shares of our common stock in the Public Offering and Registered Direct Offering (as defined below), aggregate net proceeds of $4,003,000 from issuing shares of our common stock under our (1) At Market Sales Agreement, or the ATM Agreement, with FBR Capital Markets & Co., MLV & Co. LLC and Oppenheimer & Co. Inc., and (2) the Sales Agreement, proceeds of $107,000 related to a grant received from the Israel-United States Binational Industrial Research and Development Foundation and net proceeds of $8,000 from the exercise of options.

 

In July 2017, we entered into the ATM Agreement with FBR Capital Markets & Co., MLV & Co. LLC and Oppenheimer & Co. Inc., each an Agent, which provided that, upon the terms and subject to the conditions and limitations set forth in the ATM Agreement, we could elect, from time to time, to issue and sell shares of common stock having an aggregate offering price of up to $80,000,000 through any of the Agents. We were not obligated to make any sales of common stock under the ATM Agreement. From July 2017 through February 4, 2019, we sold an aggregate of 530,541 shares of common stock pursuant to the ATM Agreement at an average price of $13.70 per share. On February 4, 2019, we notified the Agents of the termination of the ATM Agreement.

 

From February 6, 2019 through June 30, 2019, we sold an aggregate of 236,800 shares of common stock pursuant to the Sales Agreement at an average price of $9.70 per share.

 

On April 8, 2019, we sold, pursuant to an underwriting agreement relating to the 2019 Public Offering, an aggregate of 2,857,143 shares of common stock and warrants to purchase up to 2,857,143 shares of common stock, inclusive of the underwriter’s over-allotment option which was exercised in full, for aggregate gross proceeds of $20,000,000. The warrants issued in the Public Offering are exercisable for a period of five years from issuance and have an exercise price of $7.00 per share. In addition, on April 8, 2019, we sold, pursuant to a subscription agreement with a certain investor in a registered direct offering, or the Registered Direct Offering, 142,857 shares of common stock, for aggregate gross proceeds of $1,000,000. The net proceeds from the Public Offering and the Registered Direct Offering, after deducting underwriting commissions and discounts, and other offering expenses, were $19,464,000.

 

During the year ended June 30, 2019, we received cash of approximately $54,000 from third parties from the sale of our PLX cells for research use.

 

During the years ended June 30, 2020 and 2019, we received total cash grants of approximately $1,227,000 and $1,374,000, respectively, from the European Union research and development consortiums relating to the Horizon 2020 program.

 

Non-dilutive grants

 

The IIA has supported our activity during the past 14 years. Our last program was approved by the IIA in 2019 and relates to a grant of approximately $500,000. The grant was used to cover research and development expenses for the period January 1, 2019 to December 31, 2019.

 

41

 

 

According to the IIA grant terms, we are required to pay royalties at a rate of 3% on sales of products and services derived from technology developed using this and other IIA 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 year ended June 30, 2020, no royalties were paid to the IIA. The IIA may impose certain conditions on any arrangement under which the IIA permits the Company to transfer technology or development out of Israel or outsource manufacturing out of Israel. While the grant is given to the Company over a certain period of time (usually a year), the requirements and restrictions under the Israeli Law for the Encouragement of Industrial Research and Development, 1984 continue and do not have a set expiration period, except for the royalties, which requirement to pay them expires after payment in full.

 

In May 2020, we were selected as a member of the CRISPR-IL consortium, a group funded by the IIA. CRISPR-IL brings together the leading experts in life science and computer science from academia, medicine, and industry, to develop AI based end-to-end genome-editing solutions. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000,000 of which, an amount of approximately $480,000 is a direct grant allocated to us, for a period of 18 months, with a potential for extension of an additional 18 months and additional budget from the IIA. CRISPR-IL participants include leading companies, and medical and academic institutions.

 

In July 2018, we were awarded a marketing grant of approximately $52,000 under the “Shalav” program of the Israeli Ministry of Economy and Industry. The grant is intended to facilitate certain marketing and business development activities with respect to our advanced cell therapy products in the U.S. market.

 

In July 2017, we were awarded an additional Smart Money grant of approximately $229,000 from Israel’s Ministry of Economy. The Israeli government granted us budget resources that we intend to use to advance our product candidate towards marketing in China-Hong Kong markets. We will also receive close support from Israel’s trade representatives stationed in China, including Hong Kong, along with experts appointed by the Smart Money program.

 

In August 2016, our CLI program in the European Union was awarded a Euro 7,600,000 (approximately $8,500,000) grant. The grant is part of the European Union’s Horizon 2020 program. The Phase III study of PLX-PAD in CLI will be a collaborative project carried out by an international consortium led by the Berlin-Brandenburg Center for Regenerative Therapies together with the Company and with participation of additional third parties. The grant will cover a significant portion of the CLI program costs. An amount of Euro 1,900,000 (approximately $2,100,000) is a direct grant allocated to us, and the Company also expects to benefit from cost savings resulting from grant amounts allocated to the other consortium members. In July 2017, the consortium amended the consortium agreement, pursuant to which the original grant allocation was amended such that we will receive an additional direct grant of Euro 1,000,000 (approximately $1,100,000). The additional direct grant was allocated to us from the total amount of the original grant.

 

In September 2017, our Phase III study of PLX-PAD cell therapy in the treatment of muscle injury following surgery for hip fracture was awarded a Euro 7,400,000 (approximately $8,300,000) grant, as part of the European Union’s Horizon 2020 program. This Phase III study will be a collaborative project carried out by an international consortium led by Charité, together with us, and with participation of additional third parties. The grant will cover a significant portion of the project costs. An amount of Euro 2,550,000 (approximately $2,900,000) is a direct grant allocated to us for manufacturing and other costs, and we also expect to have a direct benefit from cost savings resulting from grant amounts allocated to the other consortium members.

 

In October 2017, the nTRACK, a collaborative project carried out by an international consortium led by Leitat was awarded a Euro 6,800,000 (approximately $7,600,000) non-royalty bearing grant. An amount of Euro 500,000 (approximately $560,000) is a direct grant allocated to us. We also expect to benefit from cost savings resulting from grant amounts allocated to the other consortium members.

 

42

 

 

Outlook  

 

We have accumulated a deficit of $280,156,000 since our inception in May 2001. We do not expect to generate any significant revenues from sales of products in the next twelve months. Our cash needs may increase in the foreseeable future. We expect to generate revenues, from the sale of licenses to use our technology or products, but in the short and medium terms will unlikely exceed our costs of operations.

 

We may be required to obtain additional liquidity resources in order to support the commercialization of our products and maintain our research and development and clinical trials activities.

 

We are continually looking for sources of funding, including non-diluting sources such as the EIB Financing, the IIA grants, the European Union grant and other research grants, collaboration with other companies and sales of our common stock.

 

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

 

Application of Critical Accounting Policies 

 

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing in this Annual Report. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.

 

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 

Stock-Based Compensation

 

Stock-based compensation is considered a critical accounting policy due to the significant expenses of RSUs which were granted to our employees, directors and consultants. In fiscal year 2020, we recorded stock-based compensation expenses related to options, restricted stock and RSUs in the amount of $2,561,000.

 

In accordance with ASC 718, “Compensation-Stock Compensation”, or ASC 718, RSUs granted to employees and directors are measured at their fair value on the grant date. All RSUs granted in fiscal years 2020 and 2019 were granted for no consideration; therefore their fair value was equal to the share price at the date of grant, based on the close trading price of our shares known at the grant date. The RSUs granted in fiscal year 2019 to non-employees consultants were remeasured in any future vesting period for the unvested portion of the grants. The RSUs granted in fiscal year 2020 to non-employees consultants were measured at their fair value on the grant date in accordance with ASU No. 2018-07 - “Compensation—Stock Compensation”

 

The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our consolidated statements of operations. We have graded vesting based on the accelerated method over the requisite service period of each of the awards. The expected pre-vesting forfeiture rate affects the number of the shares. Based on our historical experience, the pre-vesting forfeiture rate per grant is 7% for the shares granted to employees and 0% for the shares granted to our directors, CEO, Executive Chairman and non-employee consultants.

 

43

 

 

Research and Development Expenses, Net

 

We expect our research and development expenses to remain our primary expense in the near future as we continue to develop our product candidates. Our research and development expenses consist primarily of clinical trials expenses, consultant and subcontractor expenses, payroll and related expenses, lab material expenses, stock-based compensation expenses, rent and maintenance expenses and patent expenses. The following table provides a breakdown of the related costs for fiscal years 2018 through 2020 (in thousands of dollars):

 

   Year ended June 30, 
   2020   2019   2018 
Payroll and related expenses  $8,478   $9,752   $9,915 
Materials expenses   2,821    5,871    4,521 
Clinical trials expenses   6,021    5,774    4,370 
Depreciation expenses   1,453    1,841    1,893 
Consultants and subcontractor expenses   1,351    2,028    1,469 
Rent and maintenance expenses   1,227    1,473    1,429 
Stock-based compensation expenses   556    1,616    1,423 
Patent expenses   528    482    426 
Other Research and development expenses   661    1,045    925 
Total expenses   23,096    29,882    26,371 
Less: Research and development participation grants   (1,519)   (3,455)   (3,742)
Research and development expenses, net  $21,576   $26,427   $22,629 

 

We invest heavily in research and development. Research and development expenses, net, were our major operating expenses, representing 73%, 74% and 67% of the total operating expenses for each of our fiscal years 2020, 2019 and 2018, respectively. We expect that in the upcoming years our research and development expenses, net, will continue to be our major operating expense.

 

Contractual Obligations 

 

The following summarizes our contractual obligations and other commitments on June 30, 2020, and the effect such obligations could have on our liquidity and cash flow in future periods:

  

       Payments due by period 
Contractual Obligations  Total   Less than
1 year
   1-3 years   3-5 years   More than
5 years
 
Operating lease obligations  $1,706,000   $1,123,000   $563,000   $          20    - 
Accrued severance pay, net  $248,000    -    -    -   $248,000 
Total  $1,954,000   $1,123,000   $563,000   $20   $248,000 

 

Off Balance Sheet Arrangements

 

We have no off balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

We are exposed to a variety of risks, including changes in interest rates, foreign currency exchange rates and inflation.

 

44

 

 

As of June 30, 2020, we had $8.3 million in cash and cash equivalents, $38 million in short-term bank deposits and restricted deposits and $12.7 million in long-term bank deposits and restricted deposits.

 

We adhere to an investment policy set by our investment committee, which aims to preserve our financial assets, maintain adequate liquidity and maximize return while minimizing exposure to the NIS. Such policy further provides that we should hold most of our current assets in bank deposits and the remainder of our current assets should be invested in low risk instruments. As of June 30, 2020, the currency of our financial portfolio is mainly in U.S. dollars and we use options contracts in order to hedge our exposures to currencies other than the U.S. dollar.

 

Interest Rate Risk

 

We invest a major portion of our cash surplus in bank deposits in banks in Israel. Since the bank deposits typically carry fixed interest rates, financial income over the holding period is not sensitive to changes in interest rates. However, our interest gains from future deposits may decline in the future as a result of changes in the financial markets. In any event, given the historic low levels of the interest rate, we estimate that a further decline in the interest rate we are receiving will not result in a material adverse effect to our business.

 

Foreign Currency Exchange Risk and Inflation

 

A significant portion of our expenditures, including salaries, materials, consultants’ fees and facility expenses relate to our operations in Israel. The cost of those Israeli operations, as expressed in U.S. dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the NIS in relation to the U.S. dollar. If the U.S. dollar declines in value in relation to the NIS, it will become more expensive for us to fund our operations in Israel. In addition, as of June 30, 2020, we own net financial balances in NIS of approximately ($13,989,000).

 

Assuming a 10% appreciation of the NIS against the U.S. dollar, we would experience exchange rate loss of approximately $1,272,000, while assuming a 10% devaluation of the NIS against the U.S. dollars, we would experience an exchange rate gain of approximately $1,554,000, in both cases excluding the effect of our hedging transactions (as described below).

 

The exchange rate of the U.S. dollar to the NIS, based on exchange rates published by the Bank of Israel, was as follows:

 

   Year Ended June 30, 
   2018   2019   2020 
Average rate for period   3.529    3.647    3.507 
Rate at period-end   3.650    3.566    3.466 

 

We use currency transactions of options and forward contracts to decrease the risk of financial exposure from fluctuations in the exchange rate of the U.S. dollar against the NIS.

 

For the year ended June 30, 2020, our net realized loss from hedging transactions that are non-designated and consist primarily of options strategies and also forward contracts to minimize the risk associated with the foreign exchange effects of monetary assets and liabilities denominated in NIS was $11,000.

 

45

 

 

Item 8. Financial Statements and Supplementary Data.

 

Our financial statements are stated in thousands United States dollars (US$) and are prepared in accordance with U.S. GAAP.

 

The following audited consolidated financial statements are filed as part of this Annual Report:

 

Report of Independent Registered Public Accounting Firm, dated September 10, 2020. F-2
   
Consolidated Balance Sheets. F-3 - F-4
   
Consolidated Statements of Operations. F-5
   
Consolidated Statements of Comprehensive Loss. F-6
   
Statements of Changes in Equity. F-7 - F-9
   
Consolidated Statements of Cash Flows. F-10 - F-11
   
Notes to the Consolidated Financial Statements. F-12 - F-37

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

As of June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

 

As of June 30, 2020

 

U.S. DOLLARS IN THOUSANDS

 

INDEX

 

    Page
     
Reports of Independent Registered Public Accounting Firm   F-2
     
Consolidated Balance Sheets   F-3 - F-4
     
Consolidated Statements of Operations   F-5
     
Consolidated Statements of Comprehensive Loss   F-6
     
Statements of Changes in Stockholders’ Equity   F-7 - F-9
     
Consolidated Statements of Cash Flows   F-10 - F-11
     
Notes to Consolidated Financial Statements   F-12 - F-37

 

F-1

 

 

Kost Forer Gabbay & Kasierer

144 Menachem Begin Road, Building A,

Tel-Aviv 6492102, Israel

 

Tel: +972-3-6232525

Fax: +972-3-5622555

ey.com

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Stockholders and Board of Directors Of

 

PLURISTEM THERAPEUTICS INC.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Pluristem Therapeutics Inc. and its subsidiaries (the “Company”) as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2020 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated September 12, 2019 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KOST FORER GABBAY & KASIERER

A Member of Ernst & Young Global

 

We have served as the Company’s auditor since 2003.

Tel Aviv, Israel

September 10, 2020

 

F-2

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

U.S. Dollars in thousands (except share and per share data)

 

      June 30, 
   Note  2020   2019 
ASSETS           
            
CURRENT ASSETS:           
            
Cash and cash equivalents     $8,270   $4,106 
Short-term bank deposits      37,514    19,599 
Restricted cash  2f   555    692 
Other current assets  4,2n   2,122    1,974 
Total current assets      48,461    26,371 
              
LONG-TERM ASSETS:             
              
Long-term deposits and restricted bank deposits  2g   12,653    398 
Severance pay fund      631    693 
Property and equipment, net  5   2,516    3,838 
Operating lease right-of-use asset  7   1,259    - 
Other long-term assets      12    10 
Total long-term assets      17,071    4,939 
              
Total assets     $65,532   $31,310 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-3

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

U.S. Dollars in thousands (except share and per share data)

 

      June 30, 
   Note  2020   2019 
LIABILITIES AND STOCKHOLDERS’ EQUITY           
            
CURRENT LIABILITIES           
            
Trade payables     $1,968   $2,281 
Accrued expenses      3,018    3,744 
Operating lease liability, current      1,020    - 
Other accounts payable  6   1,981    2,133 
Total current liabilities      7,987    8,158 
              
LONG-TERM LIABILITIES             
              
Accrued severance pay      879    950 
Operating lease liability  7   565    - 
Other long-term liabilities      -    381 
Total long-term liabilities      1,444    1,331 
              
COMMITMENTS AND CONTINGENCIES  8          
              
STOCKHOLDERS’ EQUITY             
              
Share capital:  9          
Common stock $0.00001 par value per share:
Authorized: 60,000,000 shares
Issued and outstanding: 25,492,713 shares as of June 30, 2020; 15,082,852 shares as of June 30, 2019
      *    * 
Additional paid-in capital      336,257    272,825 
Accumulated deficit      (280,156)   (251,004)
Total stockholders’ equity      56,101    21,821 
              
Total liabilities and stockholders’ equity     $65,532   $31,310 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-4

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. Dollars in thousands (except share and per share data)

 

      Year ended June 30, 
   Note  2020   2019   2018 
                
Revenues  2i   23    54    50 
Cost of revenues      -    (2)   (2)
Gross profit      23    52    48 
Operating Expenses:                  
Research and development expenses      (23,096)   (29,882)   (26,371)
Less: participation grants by the Israel Innovation Authority, Horizon 2020 and other parties      1,519    3,455    3,742 
Research and development expenses, net      (21,577)   (26,427)   (22,629)
General and administrative expenses, net      (7,922)   (9,157)   (11,193)
Other income  10   -    -    43 
                   
Total operating loss      (29,476)   (35,532)   (33,731)
                   
Financial income, net  11   324    225    7,605 
                   
Net loss for the period     $(29,152)  $(35,307)  $(26,126)
                   
Loss per share:                  
Basic and diluted net loss per share     $(1.60)  $(2.90)  $(2.50)
                   
Weighted average number of shares used in computing basic and diluted net loss per share      18,197,303    12,332,912    10,587,677 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-5

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. Dollars in thousands (except share and per share data)

 

   Year ended June 30, 
   2020   2019   2018 
             
Net loss  $(29,152)  $(35,307)  $(26,126)
Other comprehensive loss, net:               
Unrealized gain on available-for-sale marketable securities, net   -    -    6,441 
                
Reclassification adjustment of available-for-sale marketable securities gains realized in net loss, net   -    -    (8,440)
Other comprehensive loss   -    -    (1,999)
Total comprehensive loss  $(29,152)  $(35,307)  $(28,125)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-6

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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, 2017   9,693,879   $(*)   $217,823   $1,999   $(189,571)  $30,251 
Exercise of options by employees   5,050    (*)    42    -    -    42 
Stock-based compensation to employees, directors and non-employee consultants   314,838    (*)    6,548    -    -    6,548 
Issuance of common stock under At-The Market Agreement, net of issuance costs of $174 (Note 9c)   359,941    (*)    4,985    -    -    4,985 
Issuance of common stock, net of issuance costs of $1,405 (Note 9d)   900,000    (*)    13,646    -    -    13,646 
Exercise of warrants by investors (Note 9b)   82,871    (*)    1,160    -    -    1,160 
Other comprehensive loss, net   -    -    -    (1,999)   -    (1,999)
Net loss   -    -    -    -    (26,126)   (26,126)
Balance as of June 30, 2018   11,356,579   $

(*)

   $244,204   $-   $(215,697)  $28,507 

 

(*)Less than $1
(**)See note 9a for reverse stock split

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-7

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

U.S. Dollars in thousands (except share and per share data)

 

   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares (**)   Amount   Capital   Deficit   Equity 
Balance as of July 1, 2018   11,356,579   $ (*)   $244,204   $(215,697)  $28,507 
Stock-based compensation to employees, directors and non-employee consultants   317,023    (*)    5,146    -    5,146 
Issuance of common stock under At Market Issuance Sales Agreement, and Open Market Sales Agreement, net of aggregate issuance costs of $403 (Note 9c, 9e)   407,400    (*)    4,003    -    4,003 
Issuance of common stock and warrants related to April 2019 offering, net of issuance costs of $1,536 (Note 9f)   3,000,000    (*)    19,464    -    19,464 
Exercise of options by employees and non-employee consultants   1,850    (*)    8    -    8 
Net loss   -    -    -    (35,307)   (35,307)
Balance as of June 30, 2019   15,082,852   $

(*)

   $272,825   $(251,004)  $21,821 

 

(*)Less than $1
(**)See note 9a for reverse stock split

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-8

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

U.S. Dollars in thousands (except share and per share data)

 

   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares (**)   Amount   Capital   Deficit   Equity 
Balance as of July 1, 2019   15,082,852   $(*)   $272,825   $(251,004)  $21,821 
Stock-based compensation to employees, directors and non-employee consultants   357,755    (*)    2,562    -    2,562 
Issuance of common stock under Open Market Sales Agreement, net of aggregate issuance costs of $3,573 (Note 9e)   8,060,950    (*)    43,262    -    43,262 
Issuance of common stock related to May 2020 registered direct offering, net of issuance costs of $99 (Note 9h)   1,587,302    (*)    14,901    -    14,901 
Exercise of options by employees and non-employee consultants   15,884    (*)    -    -    - 
Exercise of warrants by investors (Note 9g)   386,678    (*)    2,707    -    2,707 
Round up of shares due to reverse stock split effectuated on July 25, 2019 (see Note 9a)   1,292    (*)    -    -    - 
Net loss   -    -    -    (29,152)   (29,152)
Balance as of June 30, 2020   25,492,713   $

(*)

   $336,257   $(280,156)  $56,101 

 

(*)Less than $1
(**)See note 9a for reverse stock split

 

The accompanying notes are an integral part of the consolidated financial statements. 

 

F-9

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. Dollars in thousands

 

   Year ended June 30, 
   2020   2019   2018 
             
CASH FLOWS FROM OPERATING ACTIVITIES:            
             
Net loss  $(29,152)  $(35,307)  $(26,126)
                
Adjustments to reconcile net loss to net cash used in operating activities:               
                
Depreciation   1,570    1,962    2,018 
Loss from sale of property and equipment, net   -    -    6 
Accretion of discount, amortization of premium and changes in accrued interest of marketable securities   -    -    11 
Gain from sale of investments of available-for-sale marketable securities   -    -    (8,440)
Other-than-temporary loss of available-for-sale marketable securities   -    -    850 
Stock-based compensation to employees, directors and non-employee consultants   2,562    5,146    6,548 
Decrease (increase) in accounts receivable from the IIA   37    (121)   978 
Increase in other current and other long-term assets   (187)   (397)   (59)
Increase (decrease) in trade payables   (291)   (863)   1,212 
Decrease in operating lease right-of-use asset and liability, net and effect of exchange rate differences   (295)   -    - 
Increase (decrease) in other accounts payable, accrued expenses, other long-term liabilities and other current liabilities   (638)   86    1,600 
Decrease (increase) in interest receivable on short-term deposits   45    68    (128)
Linkage differences and interest on short and long-term deposits and restricted bank deposits   (11)   (3)   5 
Accrued severance pay, net   (9)   (24)   145 
Net cash used in operating activities  $(26,369)  $(29,453)  $(21,380)
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
                
Purchase of property and equipment  $(270)  $(239)  $(342)
Proceeds from (investment in) short-term deposits   (17,949)   1,415    (14,721)
Investment in long-term deposits   (12,239)   (6)   - 
Proceeds from sale of available-for-sale marketable securities   -    -    21,881 
Proceeds from redemption of available-for-sale marketable securities   -    -    9 
Investment in available-for-sale marketable securities   -    -    (1,146)
Net cash provided by investing activities  $(30,458)  $1,170   $5,681 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-10

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. Dollars in thousands

 

   Year ended June 30, 
   2020   2019   2018 
CASH FLOWS FROM FINANCING ACTIVITIES:            
Proceeds related to issuance of common stock, net of issuance costs  $58,163   $23,467   $18,631 
Proceeds with respect to Israel-United States Binational Industrial Research and Development Foundation   -    107    88 
Exercise of options and warrants   2,707    8    1,202 
Net cash provided by financing activities  $60,870   $23,582   $19,921 
                
Increase (decrease) in cash, cash equivalents and restricted cash   4,043    (4,701)   4,222 
Cash, cash equivalents and restricted cash at the beginning of the period   5,186    9,887    5,665 
Cash, cash equivalents and restricted cash at the end of the period  $9,229   $5,186   $9,887 
                
(a) Supplemental disclosure of cash flow activities:               
                
Cash paid during the period for:            
Taxes paid due to non-deductible expenses  $10   $10   $27 
                
(b) Supplemental disclosure of non-cash activities:            
             
Purchase of property and equipment on credit  $32   $54   $171 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-11

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 1:- GENERAL

 

a.Pluristem Therapeutics Inc., a Nevada corporation (“Pluristem Therapeutics”), was incorporated on May 11, 2001. Pluristem Therapeutics has a wholly owned subsidiary, Pluristem Ltd. (the “Subsidiary”), which is incorporated under the laws of the State of Israel. In January 2020, the Subsidiary established a wholly owned subsidiary, Pluristem GmbH (the “German Subsidiary”) which is incorporated under the laws of Germany. Pluristem Therapeutics, the Subsidiary and the German Subsidiary are referred to as the “Company” or “Pluristem”.

 

The Company’s shares of common stock are traded on the Nasdaq Capital Market and on the Tel-Aviv Stock Exchange under the symbol “PSTI”.

 

b.The Company is a bio-therapeutics company developing placenta-based cell therapy product candidates for the treatment of multiple ischemic, inflammatory and hematologic conditions. The Company has also initiated a compassionate use programs in the United States and Israel and commenced enrollment in its Phase II study of PLX cells for the treatment of severe COVID-19 complicated by Acute Respiratory Distress Syndrome (“ARDS”).

 

The Company has incurred an accumulated deficit of approximately $280,156 and incurred recurring operating losses and negative cash flows from operating activities since inception. As of June 30, 2020, the Company’s total stockholders’ equity amounted to $56,101. During the year ended June 30, 2020, the Company incurred operating losses of $29,476 and its negative cash flow from operating activities was $26,369.

 

As of June 30, 2020, the Company’s cash position (cash and cash equivalents, short-term bank deposits and restricted cash and long-term bank deposits) totaled approximately $58,992. The Company plans to continue to finance its operations with the current resources and potential funds it will obtain from the European Investment Bank (the “EIB”) finance contract (the “Finance Contract”) (See note 1c) once certain milestones are reached, and also by entering into licensing or other commercial agreements, grants to support its research and development activities and with sales of equity securities. Management believes that these funds, together with its existing operating plan, are sufficient for the Company to meet its obligations as they come due at least for a period of twelve months from the date of the issuance of these consolidated financial statements. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its product.

 

c.EIB Finance contract

 

On April 30, 2020, Pluristem entered into a Finance Contract with the EIB, pursuant to which the German Subsidiary can obtain a loan in the amount of up to €50 million, subject to certain milestones being reached (the “Loan”), payable in three tranches, with the first tranche consisting of €20 million, second of €18 million and third of €12 million for a period of 36 months from the signing of the Finance Contract.

 

The Tranches will be treated independently, each with its own interest rate and maturity period. The fixed interest rate is 0% per year for the First Tranche and 1% for each of the Second Tranche and Third Tranche. The deferred interest rate is 4% per year for the First Tranche, 3% for the Second Tranche and 2% for the Third Tranche.

 

In addition to any interest payable on the Loan, EIB is entitled to receive royalties from future revenues, if any, of Pluristem for a period of seven years starting in 2024, in an amount equal to between 0.2% to 2.3% of the Company’s consolidated revenues, pro-rated to the amount disbursed from the Loan to Pluristem beginning in the fiscal year 2024 and continuing up to and including its fiscal year 2030.

 

As of June 30, 2020 Pluristem has not yet disbursed any tranche of the Finance Contract.

 

F-12

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 1:- GENERAL (CONT.)

 

CHA Agreement

 

On June 26, 2013, Pluristem entered into an exclusive license and commercialization agreement (the “CHA Agreement”) with CHA Biotech Co. Ltd. (“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 (“CLI”), and IntermittentClaudication (collectively with CLI, 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 and the Company will continue to retain rights to its proprietary manufacturing technology and cell-related intellectual property. CHA participated in the Phase II trial in Intermittent Claudication.

 

Upon the first regulatory approval for a PLX product in South Korea, for the specified Indications, Pluristem and CHA will establish an equally owned joint venture to commercialize PLX cell products in South Korea. Pluristem will be able to use the data generated by CHA to pursue the development of PLX product candidates outside of South Korea.

 

The CHA Agreement contains customary termination provisions, including in the event the parties do not reach an agreement upon development plan for conducting the clinical trials. Upon termination of the CHA Agreement, the license granted thereunder will terminate and all rights included therein will revert to the Company, and the Company will be free to enter into agreements with any other third parties for the granting of a license in or outside South Korea or to deal in any other manner with such rights as it shall see fit at its sole discretion.

 

Chart Industries Agreement

 

In November 2018, the Company entered into a license agreement with a subsidiary of Chart Industries, Inc. (“Chart”), regarding the Company’s thawing device for cell-based therapies. Pursuant to the terms of the agreement, Chart obtained the exclusive rights to manufacture and market the thawing device in all territories worldwide, excluding Greater China, and the Company is entitled to receive royalties from sales of the product and supply of an agreed upon number of thawing devices. Royalties shall commence on the date of Chart’s first commercial sale of the thawing device. As of June 30, 2020, commercial sale of the thawing device by Chart has not yet begun.

 

F-13

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) applied on consistent basis.

 

a.Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, judgments, and assumptions that are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

b.Functional currency

Most of Pluristem Therapeutics’ costs and assets are denominated in United States dollars (“dollar”). The Company’s management believes that the dollar is the primary currency of the economic environment in which the Company operates. Thus, the dollar is the Company’s functional and reporting currency. Accordingly, non-dollar denominated transactions and balances have been re-measured into the functional currency in accordance with Accounting Standards Codification (“ASC”) 830, “Foreign Currency Matters”. All transaction gains and losses from the re-measured monetary balance sheet items are reflected in the statements of income as financial income or expenses, as appropriate.

 

c.Principles of consolidation

The consolidated financial statements include the accounts of Pluristem Therapeutics and the Subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.

 

d.Cash and cash equivalents

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less at the date acquired.

 

e.Short-term bank deposit

Bank deposits with original maturities of more than three months but less than one year are presented as part of short-term investments. Deposits are presented at their cost which approximates market values including accrued interest. Interest on deposits is recorded as financial income.

 

f.Restricted cash and short-term bank deposits

Short-term restricted bank deposits and restricted cash used to secure derivative and hedging transactions and the Company’s credit line. The restricted cash and short-term bank deposits are presented at cost which approximates market values including accrued interest.

 

g.Long-term restricted bank deposits

Long-term restricted bank deposits with maturities of more than one year used to secure operating lease agreement are presented at cost which approximates market values including accrued interest.

 

h.Investment in marketable securities

The Company accounts for its investments in marketable securities in accordance with ASC 320, “Investments – Debt and Equity Securities”. The Company determines the classification of marketable securities at the time of purchase and re-evaluates such designations as of each balance sheet date. The Company classifies all of its marketable securities as available-for-sale. Available-for-sale marketable securities are carried at fair value, with the unrealized gain and loss reported at “accumulated other comprehensive income (loss)” in the statement of changes in stockholders’ equity.

 

F-14

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

Realized gain and loss on sales of marketable securities are included in the Company’s “Financial income, net” and are derived using the specific identification basis for determining the cost of marketable securities sold. The amortized cost of available for sale debt marketable securities is adjusted for amortization of premiums and accretion of discount to maturity. Such amortization, together with coupon interest on available for sale marketable securities, is included in the “Financial income, net”.

 

The Company recognizes an impairment charge when a decline in the fair value of its available-for-sale marketable securities below the cost basis is judged to be other than temporary.

 

The Company considers various factors in determining whether to recognize an impairment charge, including the length of time the investment has been in a loss position, the extent to which the fair value has been less than the Company’s cost basis, the reason for the decline in value, the potential recovery period and the Company’s intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. ASC 320-10-35, “Investments - Debt and Equity Securities”, requires other-than-temporary impairment for debt securities to be separated into (a) the amount representing the credit loss and (b) the amount related to all other factors (provided that the Company does not intend to sell the security and it is not more likely than not that it will be required to sell it before recovery). For securities that are deemed other-than-temporarily impaired, the amount of impairment is recognized in “financial income, net”, in the statement of operations and is limited to the amount related to credit loss, while impairment related to other factors is recognized in “other comprehensive income (loss)”.

 

During the year ended June 30, 2018, the Company recognized other-than-temporary impairment loss of $850 (see Note 3). During the years ended June 30, 2020 and 2019, the Company did not recognize any other-than-temporary impairment loss.

 

i.Revenue Recognition

On July 1, 2017, the Company adopted ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method. Results for reporting periods beginning after July 1, 2017 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605.

 

Revenue Recognition from sales of products:

 

Revenues are recognized when control of the promised goods is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods.

 

The Company determines revenue recognition through the following steps:

 

identification of the contract with a customer;

 

identification of the performance obligations in the contract;

 

determination of the transaction price;

 

allocation of the transaction price to the performance obligations in the contract; and

 

recognition of revenue when, or as, the Company satisfies a performance obligation.

 

F-15

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

The Company’s contracts with its customers are expected to include one type of product and thus have only one performance obligation, which is the transfer of control of the product. The Company’s PLX cells have an alternative use and, as such, the performance obligation is considered to be satisfied at a point in time where the customer obtains control over the product.

 

The Company’s contract with Chart includes variable consideration for which the Company estimates the most likely amount that should be included in the transaction price subject to constraints based on the specific facts and circumstances. Pursuant to the terms of the agreement, the Company is entitled to receive royalties from sales of the product and supply of an agreed upon number of thawing devices. Royalties shall commence on the date of Chart’s first commercial sale of the thawing device.

 

As of June 30, 2020, commercial sales of the thawing device by Chart have not begun. Based on the Company’s assessment, it is not probable that a significant reversal in the amount of cumulative revenue recognized will not occur, and therefore the Company is unable to recognize revenues with respect to the Chart agreement before the uncertainty associated with the variable consideration is subsequently resolved.

 

j.Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:

 

    %  
Laboratory equipment   10-40  
Computers and peripheral equipment   33  
Office furniture and equipment   15  
Leasehold improvements   The shorter of the expected useful life or the reasonable assumed term of the lease.

 

k.Impairment of long-lived assets

The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During fiscal years 2020, 2019 and 2018, no impairment losses have been identified.

 

l.Accounting for stock-based compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. The Company accounts for employee’s share-based payment awards classified as equity awards (restricted stock (“RS”) or restricted stock units (“RSUs”)) using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period, net of estimated forfeitures. The Company estimates forfeitures based on historical experience and anticipated future conditions. The Company recognized compensation cost for an award with service conditions and goals achievement that has a graded vesting schedule using the accelerated method based on the multiple-option award approach.

 

F-16

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

The assumptions below are relevant to RS and RSUs granted in 2020, 2019 and 2018:

 

In accordance with ASC 718, RS and RSUs are measured at their fair value. All RS and RSUs to employees and directors granted in 2020, 2019 and 2018, were granted for no consideration; therefore, their fair value was equal to the share price at the date of grant.

 

The fair value of all RS and RSUs was determined based on the close trading price of the Company’s shares known at the grant date. The weighted average grant date fair value of shares granted during 2020, 2019 and 2018, was $3.65, $8.70 and $14.00 per share, respectively.

 

During fiscal years 2020, 2019 and 2018, there were no options granted to employees or directors.

 

m.Research and Development expenses and royalty bearing grants

Research and development expenses, net of participations grants, are charged to the statement of operations as incurred. Pluristem receives grants from the Israel Innovation Authority (“IIA”) in the Ministry of Economy and Industry for the purpose of partially funding approved research and development projects. The grants are not to be repaid, but instead Pluristem is obliged to pay royalties as a percentage of future sales if and when sales from the funded projects are generated. These grants are recognized as a deduction from research and development costs at the time the Company is entitled to such grants on the basis of the research and development costs incurred. Since the payment of royalties is not probable when the grants are received, the Company records a liability in the amount of the estimated royalties for each individual contract, when the related revenues are recognized, as part of Cost of revenues. For more information regarding such royalties commitments and regarding grants and participation received, see Note 8.

 

n.Non-royalty bearing grant

The Company participates in European Union research and development consortiums under Horizon 2020. In August 2016, the CLI program consortium was awarded a Euro 7,600 thousands (approximately $8,500) non-royalty bearing grant, of which, an amount of Euro 1,900 thousands (approximately $2,100) is a direct grant allocated to the Company. In July 2017, the consortium amended the consortium agreement, pursuant to which the original grant allocation was amended such that the Company received an additional direct grant of Euro 1,000 thousands (approximately $1,100). The additional direct grant was allocated to the Company from the total amount of the original grant. In September 2017, the Company’s Phase III study of PLX-PAD cell therapy in the treatment of muscle injury following surgery for hip fracture was awarded a Euro 7,400 thousands (approximately $8,300) grant, of which, an amount of Euro 2,550 thousands (approximately $2,900) is a direct grant allocated to the Company. In October 2017, the “nTRACK”, a collaborative project carried out by an international consortium led by LEITAT, was awarded a Euro 6,800 thousands (approximately $7,600) non-royalty bearing grant, of which, an amount of Euro 500 thousands (approximately $560) is a direct grant allocated to the Company.

 

In May 2020, the Company was selected as a member of the CRISPR-IL consortium, a group funded by the IIA. CRISPR-IL brings together the leading experts in life science and computer science from academia, medicine, and industry, to develop artificial intelligence (AI) based end-to-end genome-editing solutions. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000, of which, an amount of approximately $480 is a direct grant allocated to the Company, for a period of 18 months, with a potential for extension of an additional 18 months and additional budget from the IIA.

 

F-17

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

The non-royalty bearing grants for funding the projects are recognized at the time the Company is entitled to each such grant on the basis of the related costs incurred and recorded as a deduction from research and development expenses.

 

o.Loss per share

Basic and diluted net loss per share is computed based on the weighted average number of shares of common stock outstanding during each year. All outstanding stock options and unvested RSUs have been excluded from the calculation of the diluted loss per common share because all such securities are anti-dilutive for each of the periods presented. The total weighted average number of shares related to the outstanding options, warrants and RSU’s excluded from the calculations of diluted net earnings per share due to their anti-dilutive effect was 3,708,807, 4,942,491 and 1,900,905 for the years ended June 30, 2020, 2019 and 2018, respectively.

 

p.Income taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). This Topic prescribes the use of the liability method, whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

 

The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. ASC 740 establishes a single model to address accounting for uncertain tax positions. ASC 740 clarified the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

 

q.Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term deposits, long-term deposits and restricted deposits.

 

The majority of the Company’s cash and cash equivalents, restricted cash and short-term and long-term deposits are mainly invested in dollar instruments of major banks in Israel and in the United States. Deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and therefore bear minimal risk. The Company invests its surplus cash in cash deposits in financial institutions and has established guidelines, approved by the Company’s Investment Committee, relating to diversification and maturities to maintain safety and liquidity of the investments. The Company utilizes options and forward contracts to protect against the risk of overall changes in exchange rates. The derivative instruments hedge a portion of the Company’s non-dollar currency exposure. Counterparties to the Company’s derivative instruments are all major financial institutions.

 

r.Severance pay

A majority of the Company’s agreements with employees in Israel are subject to Section 14 of the Israeli Severance Pay Law, 1963 (“Severance Pay Law”). The Company’s contributions for severance pay have replaced its severance obligation. Upon contribution of the full amount of the employee’s monthly salary for each year of employment, no additional calculations are conducted between the parties regarding the matter of severance pay and no additional payments are made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of the employee for such obligation are not stated on the balance sheet, as the Company is legally released from the obligation to employees once the deposit amounts have been paid.

 

F-18

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

For some employees, which their agreement is not subject to Section 14 of the Severance Pay Law, the Subsidiary’s liability for severance pay is calculated pursuant to Israeli Severance Pay Law, based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment or a portion thereof. The Company’s liability for all of its employees is fully provided by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset in the Company’s balance sheet. The deposited funds include profits or losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to the Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits or losses.

 

Severance expenses for the years ended June 30, 2020, 2019 and 2018 were $604, $632 and $822, respectively.

 

s.Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, short-term and restricted bank deposits, accounts receivable and other current assets, trade payable and other accounts payable and accrued liabilities, approximate fair value because of their generally short term maturities.

 

The Company measures its investments in marketable securities and derivative instruments at fair value under ASC 820. 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:

 

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 - Unobservable inputs for the asset or liability.

 

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 (see Note 4).

 

t.Derivative financial instruments

The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related interpretations. ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. If a derivative meets the definition of a hedge and is so designated, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings (for fair value hedge transactions) or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (for cash flow hedge transactions).

 

If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings. Cash flows related to such hedges are classified as operating activities. The Company enters into option contracts in order to limit the exposure to exchange rate fluctuation associated with expenses mainly incurred in New Israeli Shekels (“NIS”). Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is recognized immediately as “financial income, net”.

 

F-19

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

 

The Company measured the fair value of the contracts in accordance with ASC 820. Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. As of June 30, 2020, the fair value of the options contracts was approximately $67 and is presented in “other current assets” (see Note 4). The net gains (losses) recognized in “Financial income, net” during the years ended June 30, 2020, 2019 and 2018, were $13, $(105) and $(264), respectively.

 

u.Comprehensive loss:

The Company accounts for comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income”. Comprehensive income generally represents all changes in stockholders’ equity during the period except those resulting from investments by, or distributions to, stockholders’. The Company determined that its items of other comprehensive income (loss) relate to unrealized gains and losses on available for sale marketable securities.

 

v.Reclassifications:

Certain financial statement data for prior years have been reclassified to conform to current year financial statement presentation.

 

w.Recently Adopted Accounting Pronouncement

 

Accounting Standards Update (“ASU”) No. 2016-02 - “Leases” (“Topic 842”) and ASU No. 2018-11, “Targeted Improvements - Leases” (Topic 842):

 

In February 2016 and July 2018, the Financial Accounting Standards Board (“FASB”) issued guidance on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether a lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for in a manner similar to the accounting treatment requirements under existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. Topic 842 supersedes the previous leases standard, ASC 840, “Leases”. The guidance is effective for annual periods beginning on or after December 15, 2018, or July 1, 2019 for the Company, and interim periods within those fiscal years with early adoption permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach.

 

The Company adopted the new standard as of July 1, 2019, using the modified retrospective approach. Consequently, prior period balances and disclosures have not been restated. The Company has elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard which does not require it to reassess the prior conclusions about lease identification, lease classification and initial direct costs. The adoption of Topic 842 resulted in the elimination of deferred participation payments of $240 and $381 in current and long-term liabilities in the Company’s consolidated balance sheets, respectively. Additionally, the Company included in its balance sheet, at adoption, operating right-of-use assets, short-term operating lease liabilities and long-term operating lease liabilities of $1,631, $964 and $1,261, respectively. The standard had no material impact on the Company’s net loss or its cash flows. For additional information regarding the Company’s accounting for leases, please refer to Note 7.

 

F-20

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.) 

 

ASU No. 2018-07 - “Compensation—Stock Compensation” (Topic 718) (“ASU No. 2018-07”):

 

In June 2018, the FASB issued ASU No. 2018-07. The ASU expands the scope of ASU No. 2018-07 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply ASU No. 2018-07 to nonemployee awards except with respect to option pricing models and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that ASU No. 2018-07 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASU No. 2018-07 is effective for fiscal years beginning after December 15, 2018, or July 1, 2019 for the Company, and interim periods within those fiscal years with early adoption permitted. The Company adopted the new standard as of July 1, 2019, and the new standard had no material impact on its consolidated financial statements.

 

ASU No. 2017-12 - “Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities” (“ASU No. 2017-12”):

 

In August 2017, the FASB issued ASU No. 2017-12, which is intended to simplify and amend the application of hedge accounting to more clearly portray the economics of an entity’s risk management strategies in its financial statements. The ASU will make more financial and nonfinancial hedging strategies eligible for hedge accounting, reduce complexity in fair value hedges of interest rate risk and ease certain documentation and assessment requirements of hedge effectiveness. It also changes how companies assess effectiveness of the hedge and amends the presentation and disclosure requirements relating to hedging activities.

 

ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, or July 1, 2019, for the Company. The Company adopted the new standard as of July 1, 2019 and the standard had no impact on the Company’s consolidated financial statements.

 

x.Recently Issued Accounting Pronouncements

 

ASU No. 2018-18 - “Collaborative Arrangements (Topic 808) - Clarifying the Interaction between Topic 808 and Topic 606” (“ASU No. 2018-18”):

 

In November 2018, the FASB issued ASU No. 2018-18, which clarifies the interaction between Topic 808 and Topic 606 by (1) clarifying that certain transactions between collaborative arrangement participants should be accounted for under Topic 606, (2) adding unit-of-account guidance in Topic 808 to align with the guidance in Topic 606, and (3) clarifying presentation guidance for transactions with a collaborative arrangement participant that are not accounted for under Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, or July 1, 2020 for the Company. The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements.

 

ASU No. 2016-13 -, “Financial Instruments - Credit Losses (Topic 326)

 

In September 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures.

 

F-21

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.) 

 

For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements.

 

ASU No. 2019-10 -, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)

 

In November 2019, the FASB issued ASU No. 2019-10 which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S. Securities and Exchange Commission (the “SEC”)) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, or July 1, 2023 for the Company, including interim periods within those fiscal periods. Early adoption is permitted. The Company is currently evaluating the impact of adopting the ASU on its consolidated financial statements.

 

NOTE 3:- MARKETABLE SECURITIES

 

The Company has invested in highly-rated securities. When evaluating the investments for other-than-temporary impairment, the Company has reviewed 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.

 

The Company recognized other-than-temporary impairment loss on outstanding securities during the year ended June 30, 2018 of $850. The Company did not recognize any other-than-temporary impairment loss on outstanding securities during the year ended June 30, 2020 and 2019.

 

During the year ended June 30, 2018, the Company sold marketable securities for aggregate net proceeds (including redemptions) of approximately $21,890, representing a net gain of $8,440. The proceeds from the sale of such marketable securities are included in “Financial income, net”, for the year ended June 30, 2018.

 

NOTE 4:- OTHER CURRENT ASSETS

 

   June 30, 
   2020   2019 
Accounts receivable from the Horizon 2020 grants  $1,071   $991 
Prepaid expenses   445    532 
Accounts receivable from the IIA   142    179 
Value Added Tax (VAT) receivables   336    125 
Accounts receivable from the Ministry of Economy and Industry   35    73 
Derivatives not designated as hedge instruments   67    21 
Other receivables   26    53 
Total  $2,122   $1,974 

 

F-22

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 5:- PROPERTY AND EQUIPMENT, NET

 

   June 30, 
   2020   2019 
Cost:        
Laboratory equipment  $6,514   $6,435 
Computers and peripheral equipment   1,322    1,274 
Office furniture and equipment   681    681 
Leasehold improvements   8,661    8,614 
Total Cost   17,178    17,004 
Accumulated depreciation:          
Laboratory equipment   5,955    5,634 
Computers and peripheral equipment   1,221    1,147 
Office furniture and equipment   646    600 
Leasehold improvements   6,840    5,785 
Total accumulated depreciation   14,662    13,166 
Property and equipment, net  $2,516   $3,838 

 

Depreciation expenses amounted to $1,570, $1,962 and $2,018, for the years ended June 30, 2020, 2019 and 2018, respectively.

 

During the fiscal years ended June 30, 2020 and 2019, the Company recorded a reduction of $ 74 and $9, respectively, to the cost accumulated depreciation of fully depreciated equipment no longer in use.

 

NOTE 6:- OTHER ACCOUNTS PAYABLE

 

   June 30, 
   2020   2019 
Accrued vacation   928    974 
Deferred income from the nTRACK Horizon 2020 grant   126    - 
Accrued payroll   489    486 
Payroll institutions   438    433 
Other payables   -    240 
Total  $1,981   $2,133 

 

F-23

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 7:- LEASES

 

The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate based on the information available at the date of adoption in determining the present value of the lease payments. The Company’s incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

 

The Company has various operating leases for office space and vehicles that expire through 2023. Below is a summary of our operating right-of-use assets and operating lease liabilities as of June 30, 2020:

 

   June 30,
2020
 
Operating right-of-use assets  $1,259 
      
Operating lease liabilities, current   1,020 
Operating lease liabilities long-term   565 
Total operating lease liabilities  $1,585 

 

The operating lease right-of-use assets are presented in long term assets net after elimination of deferred participation payments from Matam High-Tech and Business Park of $240 and $381 in current and long-term liabilities in the Company’s consolidated balance sheets, respectively.

 

Minimum lease payments for the Company’s right-of-use (“ROU”) assets over the remaining lease periods as of June 30, 2020 are as follows:

 

   June 30,
2020
 
2021   1,123 
2022   563 
2023   20 
Total undiscounted lease payments  $1,706 
Less: Interest   121 
Present value of lease liabilities  $1,585 

 

The components of lease expense and supplemental cash flow information related to leases for the year ended June 30, 2020 were as follows:

 

   Year ended June 30,
2020
 
Components of lease expense    
Operating lease cost  $1,167 
Sublease income  $51 
Supplemental cash flow information     
Cash paid for amounts included in the measurement of lease liabilities  $1,152 
Supplemental non-cash information related to lease liabilities arising from obtaining ROU assets  $83 
      

 

F-24

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 7:- LEASES (CONT.)

 

As of June 30, 2020, the weighted average remaining lease term is 1.7 years, and the weighted average discount rate is 10 percent. The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease.

 

As of June 30, 2020, the aggregate minimum lease commitments under the active operating lease agreements are $ 1,706.

 

As of June 30, 2019, the aggregate minimum lease commitments under the active operating lease agreements are $2,641.

 

NOTE 8:- COMMITMENTS AND CONTINGENCIES

 

a.An amount of $555 of cash and deposits was pledged by the Subsidiary to secure certain derivatives and hedging transactions, a credit line and bank guarantees as of June 30, 2020.

 

b.Under the Law for the Encouragement of Industrial Research and Development, 1984, (the “Research Law”), research and development programs that meet specified criteria and are approved by the IIA are eligible for grants of up to 50% of the project’s expenditures, as determined by the research committee, in exchange for the payment of royalties from the sale of products developed under the program. Regulations under the Research Law generally provide for the payment of royalties to the IIA of 3% on sales of products and services derived from a technology developed using these grants until 100% of the dollar-linked grant is repaid. The Company’s obligation to pay these royalties is contingent on its actual sale of such products and services. In the absence of such sales, no payment is required. Outstanding balance of the grants will be subject to interest at a rate equal to the 12 month LIBOR applicable to dollar deposits that is published on the first business day of each calendar year. Following the full repayment of the grant, there is no further liability for royalties.

 

Through June 30, 2020, total grants obtained aggregated to approximately $27,685 and total royalties paid and accrued amounted to $169. As of June 30, 2020, the Company’s liability in respect to royalties to the IIA amounted to $27,516, not including LIBOR interest as described above.

 

c.The Company has been awarded a marketing grant under the “Smart Money” program of the Israeli Ministry of Economy and Industry. The program’s aim is to assist companies to extend their activities in international markets. The goal market that was chosen was Japan. The Israeli government granted the Company budget resources that are intended to be used to advance the Company’s product candidate towards marketing in Japan and for regulatory activities there. As part of the program, the Company will repay royalties of 5% from the Company’s income in Japan during five years, starting the year in which the Company will not be entitled to reimbursement of expenses under the program and will be spread for a period of up to 5 years or until the amount of the grant is fully paid.

 

As of June 30, 2020, total grants obtained under this Smart Money program amounted to approximately $112. As of June 30, 2020, the Company’s contingent liability with respect to royalties for this “Smart Money” program was $112 and no royalties were paid or accrued.

 

F-25

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 8:- COMMITMENTS AND CONTINGENCIES (CONT.)

 

d.The Company was awarded an additional Smart Money grant of approximately $229 from Israel’s Ministry of Economy and Industry to facilitate certain marketing and business development activities with respect to its advanced cell therapy products in the Chinese market, including Hong Kong. The Israeli government granted the Company budget resources that are intended to be used to advance the Company’s product candidate towards marketing in the China-Hong Kong markets. The Company will also receive close support from Israel’s trade representatives stationed in China, including Hong Kong, along with experts appointed by the Smart Money program. As part of the program, the Company will repay royalties of 5% from the Company’s revenues in the region for a five year period, beginning the year in which the Company will not be entitled to reimbursement of expenses under the program and will be spread for a period of up to 5 years or until the amount of the grant is fully paid.

 

As of June 30, 2020, the aggregate amount of grant obtained from this Smart Money program was approximately $129. As of June 30, 2020, the Company’s contingent liability with respect to royalties for this “Smart Money” program is $129 and no royalties were paid or accrued.

 

e.In September 2017, the Company signed an agreement with the Tel-Aviv Sourasky Medical Center (Ichilov Hospital) to conduct a Phase I/II trial of PLX-PAD cell therapy for the treatment of Steroid-Refractory Chronic Graft-Versus-Host-Disease (“cGVHD”).

 

As part of the agreement with the Tel-Aviv Sourasky Medical Center (Ichilov Hospital), the Company will pay royalties of 1% from its net sales of the PLX-PAD product relating to cGVHD, with a maximum aggregate royalty amount of approximately $250.

 

f.In July 2018, the Company was awarded a marketing grant of approximately $52 under the “Shalav” program of the Israeli Ministry of Economy and Industry. The grant is intended to facilitate certain marketing and business development activities with respect to the Company’s advanced cell therapy products in the U.S. market. As part of the program, the Company will repay royalties of 3%, but only with respect to the Company’s revenues in the U.S. market in excess of $250 of its revenues in fiscal year 2018, upon the earlier of the five year period beginning the year in which the Company will not be entitled to reimbursement of expenses under the program and/or until the amount of the grant, which is linked to the Consumer Price Index, is fully paid.

 

As of June 30, 2020, total grants obtained under the “Shalav” program amounted to approximately $49. As of June 30, 2020, the Company’s contingent liability with respect to royalties for the “Shalav” program was $49 and no royalties were paid or accrued.

 

F-26

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 9:- STOCKHOLDERS’ EQUITY

 

The Company’s authorized common stock consists of 60,000,000 shares with a par value of $0.00001 per share. All shares have equal voting rights and are entitled to one vote per share in all matters to be voted upon by stockholders. The shares have no pre-emptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares. Holders of the common stock are entitled to equal ratable rights to dividends and distributions with respect to the common stock, as may be declared by the Board of Directors out of funds legally available. The Company’s authorized preferred stock consists of 1,000,000 shares of preferred stock, par value $0.00001 per share, with series, rights, preferences, privileges and restrictions as may be designated from time to time by the Company’s Board of Directors. No shares of preferred stock have been issued.

 

a.Reverse stock split:

In July 2019, the Board of Directors approved a 1-for-10 reverse stock split of the Company’s (a) authorized shares of common stock; (b) issued and outstanding shares of common stock and (c) authorized shares of preferred stock. The reverse split became effective on July 25, 2019. The reverse stock split will not have any effect on the stated par value of the common stock. All shares of common stock, options, warrants and securities convertible or exercisable into shares of common stock, as well as loss per share, have been adjusted to give retroactive effect to this reverse stock split for all periods presented.

 

b.In the year ended June 30, 2018, a total of 828,703 warrants from a January 2017 offering were exercised by investors at an exercise price of $14.00 per share, resulting in the issuance of 82,871 shares of common stock for net proceeds of approximately $1,160.

 

c.In July 2017, pursuant to a shelf registration statement on Form S-3, declared effective by the SEC on June 23, 2017, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with FBR Capital Markets & Co., MLV & Co. LLC and Oppenheimer & Co. Inc. (collectively, the “Agents”), which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, the Company may elect, from time to time, to offer and sell shares of common stock having an aggregate offering price of up to $80,000 through the Agents acting as sales agent. During the year ended June 30, 2018, the Company sold 359,941 shares of common stock under the ATM Agreement at an average price of $14.30 per share for aggregate proceeds of approximately $4,985, net of issuance expenses of $174. During the year ended June 30, 2019, the Company sold 170,600 shares of common stock under the ATM Agreement at an average price of $12.30 per share for aggregate proceeds of approximately $1,952, net of issuance expenses of $148.

 

On February 4, 2019, the Company notified the Agents of the termination of the ATM Agreement.

 

d.On October 31, 2017, the Company completed a public offering in Israel, pursuant to the Company’s existing shelf registration statement on Form S-3 in the United States and a shelf registration statement filed in Israel, pursuant to which the Company raised aggregate gross proceeds of $15,051 through the sale of 900,000 shares of the Company’s common stock at a purchase price of NIS 59 (approximately $16.70) per share. The net proceeds, after deducting fees and expenses related to the offering, were approximately $13,646.

 

F-27

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 9:- STOCKHOLDERS’ EQUITY (CONT.)

 

e.Pursuant to a shelf registration on Form S-3 declared effective by the SEC on June 23, 2017, on February 6, 2019, the Company entered into the Open Market Sale AgreementSM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) which provides that, upon the terms and subject to the conditions and limitations in the sales agreement, the Company may elect, from time to time, to offer and sell shares of common stock having an aggregate offering price of up to $50,000 through Jefferies acting as sales agent. During the year ended June 30, 2019, the Company sold 236,800 shares of common stock under the Sales Agreement at an average price of $9.70 per share for aggregate net proceeds of approximately $2,051, net of issuance expenses of $255.

During the year ended June 30, 2020, the Company sold 8,060,950 shares of common stock under the Sales Agreement at an average price of $5.81 per share for aggregate net proceeds of approximately $43,262, net of issuance expenses of $3,573.

 

On June 30, 2020, the shelf registration statement on Form S-3 declared effective by the SEC on June 23, 2017expired , and as a result thereof, the Sales Agreement was terminated.

 

f.On April 8, 2019, the Company sold, pursuant to an underwriting agreement relating to a firm commitment public offering (the “Public Offering”), an aggregate of 2,857,143 shares of common stock and warrants to purchase 2,857,143 shares of common stock, inclusive of the underwriter’s over-allotment option which was exercised in full, for aggregate gross proceeds of $20,000.

 

The warrants issued in the Public Offering are exercisable for a period of five years from issuance and have an exercise price of $7.00 per share. In addition, on April 8, 2019, the Company sold, pursuant to a subscription agreement with a certain investor in a registered direct offering (the “Registered Direct Offering”), 142,857 shares of common stock, for aggregate gross proceeds of $1,000. The net proceeds from the Public Offering and the Registered Direct Offering, after deducting underwriting commissions and discounts and other expenses related to the offerings, were $19,464.

 

As of June 30, 2020, 2,470,465 warrants to purchase share of our common stock are outstanding.

 

g.In the year ended June 30, 2020, a total of 386,678 warrants to purchase shares from the April 2019 offering were exercised by investors at an exercise price of $7.00 per share, resulting in the issuance of 386,678 shares of common stock for net proceeds of approximately $2,707.

 

h.On May 5, 2020, the Company entered into a securities purchase agreement with two institutional investors (the “Investors”) pursuant to which the Company sold, in a registered public offering directly to the Investors, 1,587,302 shares of common stock for net proceeds of approximately $14,901.

 

i.Stock options, RS and RSUs to employees, directors and consultants:

 

The Company adopted, after receiving stockholder approval, the 2005 Stock Option Plan in 2005 (the “2005 Plan”). Under the 2005 Plan, stock options, RS and RSUs were granted to the Company’s officers, directors, employees and consultants. The 2005 Plan expired on December 31, 2018. The Company adopted, after receiving stockholder approval, the 2016 Equity Incentive Plan in 2016 (the “2016 Plan”). Under the 2016 Plan, stock options, RS and RSUs may be granted to the Company’s officers, directors, employees and consultants or the officers, directors, employees and consultants of our Subsidiaries. In addition, at the Company’s annual meeting of its stockholders, held on June 13, 2019, the Company’s stockholders approved the 2019 Equity Compensation Plan (the “2019 Plan”).

 

F-28

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 9:- STOCKHOLDERS’ EQUITY (CONT.)

 

Under the 2019 Plan, stock options, RS and RSUs may be granted to the Company’s officers, directors, employees and consultants or the officers, directors, employees and consultants of the Subsidiary.

 

As of June 30, 2020, the number of shares of common stock authorized for issuance under the 2016 Plan amounted to 595,694 for calendar year 2020, of which 584,144 are available for future grant during calendar year 2020 under the 2016 Plan. As of June 30, 2020, the number of shares of common stock authorized for issuance under the 2019 Plan amounted to 4,672,243, all of which are available for future grant under the 2019 Plan.

 

(2) Options to non-employees:

 

A summary of the stock options to non-employee consultants under the 2005 Plan and 2016 Plan is as follows:

 

   Year ended June 30, 2020 
   Number   Weighted Average Exercise Price   Weighted Average Remaining Contractual Terms
(in years)
   Aggregate Intrinsic Value Price 
Stock options outstanding at beginning of period   89,580   $       -           
Stock options granted   1,050   $-           
Stock options exercised   (15,884)  $-           
Stock options forfeited   (19,875)  $-           
Stock options outstanding at end of the period   54,871   $-    7.89   $485 
Stock options exercisable at the end of the period   48,621   $-    7.81   $430 
Stock options vested and expected to vest at the end of the period   54,871   $-    7.89   $485 

 

Compensation expenses related to stock options granted to consultants were recorded as follows:

 

   Year ended June 30, 
   2020   2019   2018 
Research and development expenses  $(35)  $117   $107 
General and administrative expenses   64    167    61 
   $29   $284   $168 

 

F-29

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 9:- STOCKHOLDERS’ EQUITY (CONT.)

 

(3) RS and RSUs to employees and directors: 

 

The following table summarizes the activity related to unvested RS and RSUs granted to employees and directors under the 2005 Plan and 2016 Plan for the year ended June 30, 2020:

 

   Number 
Unvested at the beginning of period   795,633 
Granted   19,500 
Forfeited   (101,256)
Vested   (298,683)
Unvested at the end of the period   415,194 
Expected to vest after June 30, 2020   402,491 

 

Compensation expenses related to RS and RSUs granted to employees and directors were recorded as follows:

 

   Year ended June 30, 
   2020   2019   2018 
Research and development expenses  $578   $1,401   $1,273 
General and administrative expenses   1,786    3,003    4,577 
   $2,364   $4,404   $5,850 

 

Unamortized compensation expenses related to RS and RSUs granted to employees and directors to be recognized over an average time of approximately 2.75 years are approximately $1,194.

 

(4) RS and RSUs to consultants:

 

The following table summarizes the activity related to unvested RS and RSUs granted to consultants for the year ended June 30, 2020:

 

   Number 
Unvested at the beginning of period   30,107 
Granted   42,000 
Forfeited   (6,785)
Vested   (59,072)
Unvested at the end of the period   6,250 

 

F-30

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 9:- STOCKHOLDERS’ EQUITY (CONT.)

 

Compensation expenses related to RS and RSUs granted to consultants were recorded as follows:

 

   Year ended June 30, 
   2020   2019   2018 
Research and development expenses  $14   $48   $43 
General and administrative expenses   155    410    487 
   $169   $458   $530 

 

j.Summary of warrants and options:

 

Warrants / Options

  Exercise Price per Share   Options and Warrants for Common Stock   Options and Warrants Exercisable for Common Stock   Weighted Average Remaining Contractual Terms
(in years)
 
Warrants:  $7.00    2,470,465    2,470,465    3.77 
   $14.00    762,028    762,028    2.06 
Total warrants        3,232,493    3,232,493      
                     
Options:  $0.00    54,870    48,621    7.62 
Total options        54,870    48,621      
Total warrants and options        3,287,363    3,281,114      

 

This summary does not include 421,444 RS and RSUs that are not vested as of June 30, 2020.

 

NOTE 10:- OTHER INCOME

 

In December 2017, the Subsidiary was awarded approximately $43 (NIS 150 thousand) by the Israeli Ministry of Labor, Social Affairs and Social Services related to its “Equal Employment” program which aims to reward and honor Israeli employers who demonstrate and promote gender equality in employment.

 

F-31

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 11:- FINANCIAL INCOME, NET

 

   Year ended June 30, 
   2020   2019   2018 
Foreign currency translation differences, net  $155   $(26)  $52 
Bank and broker commissions   (32)   (27)   (62)
Interest income on deposits   384    385    276 
Interest expenses due to implementation of new accounting standards “Leases” (Topic 842)   (196)   -    - 
Gain related to marketable securities, net   -    -    8,478 
Other than temporary impairment loss   -    -    (850)
Gain (loss) from derivatives and fair value hedge derivatives   13    (105)   (264)
Other financial expense   -    (2)   (25)
   $324   $225   $7,605 

 

NOTE 12:- TAXES ON INCOME

 

A.Tax rates applicable to the Company:

 

1.Pluristem Therapeutics:

 

The U.S. federal tax rate applicable to Pluristem Therapeutics is the corporate federal tax rate of 21%, which is the result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Such corporate tax rate excludes state tax and local tax, if any, which rates depend on the state and city in which Pluristem Therapeutics conducts its business.

 

On December 22, 2017, the Tax Act was signed into law in the United States, lowering the corporate federal income tax rate from 35% to 21%, effective January 1, 2018.

 

The Tax Act provided for a one-time transition tax on certain foreign earnings for the tax year 2017, and taxation of Global Intangible Low-Taxed Income (“GILTI”) earned by foreign subsidiaries beginning after December 31, 2017. The GILTI tax imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Tax Act also makes certain changes to the depreciation rules and implements new limits on the deductibility of certain executive compensation paid by Pluristem Therapeutics. Finally, while the Tax Act removes the 20 year limitation on net operating losses generated after December 31, 2017, all losses generated after December 31, 2017 can only be used to offset 80% of net income in the year they will be utilized.

 

F-32

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 12:- TAXES ON INCOME (CONT.)

 

This re-measurement was fully offset by a valuation allowance, resulting in no impact to the Company’s income tax expense for the fiscal year ended June 30, 2020. As a result, the Company’s financial results reflect in the income tax effects of the Tax Act, for which the accounting under ASC 740 is complete.

 

There was no one-time transition tax for the Company under the Tax Act, nor will there be GILTI tax due for the current year, since the Subsidiary had losses for every year to date.

 

In January 2018, Pluristem Therapeutics registered as an Israeli resident with the Israel Tax Authority (the “ITA”) and the Israeli Value Added Tax Authorities. As a result, as of such date, Pluristem Therapeutics is classified as a dual resident for tax purposes, as a resident in both Israel and the United States.

 

In June 2018, Pluristem Therapeutics and the Subsidiary submitted an election notice to the ITA to file a consolidated tax return in Israel commencing with the 2018 tax year.

 

2.The Subsidiary:

 

Taxable income of Israeli companies is subject to tax at the rate of 23% in 2020, 2019 and 2018.

 

The Subsidiary is filing its tax reports in dollars based on specific regulations of the ITA which allow, in specific circumstances, filing tax reports in dollars (“Dollar Regulations”). Under the Dollar Regulations, the Subsidiary calculates its tax liability in dollars according to certain orders. The tax liability, as calculated in dollars, is translated into NIS according to the exchange rate as of June 30 of each year.

 

The Subsidiary has not received final tax assessments since its incorporation, however the assessments of the Subsidiary are deemed final through 2014.

 

The Law for the Encouragement of Capital Investments, 1959 (the “Law”):

 

The Subsidiary has programs which meet the criteria of a “Beneficiary Enterprise”, in accordance with the Law, under the Alternative Benefit Track starting with 2007 as the election year (the “2007 Program”) and 2012 as an election year to the expansion of its “Beneficiary Enterprise” program (the “2012 Program”).

 

Under the 2012 Program, the Subsidiary, which was located in the “Other National Priority Zone” with respect to the year 2012, would be tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10%-25% for a period of five to eight years for the remaining benefit period (dependent on the level of foreign investments).

 

In respect of expansion programs pursuant to Amendment No. 60 to the Law, the duration of the benefit period has been amended, such that it starts at the later of the election year and the first year the Company earns taxable income provided that 12 years have not passed since the beginning of the election year and for companies in National Priority Zone A - 14 years have not passed since the beginning of the election year.

 

F-33

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 12:- TAXES ON INCOME (CONT.)

 

The benefit period for the Subsidiary’s 2007 Program expired in 2018 (12 years since the beginning of the election year– 2007) and the benefit period for the Subsidiary’s 2012 Program is expected to expire in 2023 (12 years since the beginning of the election year - 2012).

 

If a dividend is distributed out of tax exempt profits, as detailed above, the Subsidiary will become liable for taxes at the rate applicable to its profits from the Beneficiary Enterprise in the year in which the income was earned (tax at the rate of 10-25%, dependent on the level of foreign investments) and to a withholding tax rate of 15% (or lower, under an applicable tax treaty).

 

Accelerated depreciation:

 

The Subsidiary is eligible for deduction of accelerated depreciation on buildings, machinery and equipment used by the “Beneficiary Enterprise” at a rate of 200% (or 400% for buildings but not more than 20% depreciation per year) from the first year of the assets operation.

 

Conditions for the entitlement to the benefits:

 

The above mentioned benefits are conditional upon the fulfillment of the conditions stipulated by the Law, regulations promulgated thereunder, and the Ruling with respect to the beneficiary enterprise. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest. The management believes that the Subsidiary is meeting the aforementioned conditions.

 

Amendments to the Law:

 

In December 2010, the “Knesset” (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among others, amendments in the Law ( “Amendment No. 68”). Amendment No. 68 became effective as of January 1, 2011. According to Amendment No. 68, the benefit tracks in the Law were modified and a flat tax rate became applicable to a company for all preferred income under its status as a preferred company with a preferred enterprise.

 

On August 5, 2013, the Knesset issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which consists of Amendment No. 71 to the Law ( “Amendment No. 71”). According to Amendment No. 71, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter will be 16% (in development area A it will be 9%).

 

Amendment No. 71 also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise’s earnings as above will be subject to tax at a rate of 20%.

 

The Subsidiary did not apply Amendment No. 71 with respect to the preferred enterprise status, but may choose to apply Amendment No. 71 in the future.

 

F-34

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 12:- TAXES ON INCOME (CONT.)

 

Innovation Box Regime “Technological Preferred Enterprise”:

 

In December 2016, the Knesset approved amendments to the Law that introduce an innovation box regime (the “Innovation Box Regime”) for intellectual property (IP)-based companies, enhance tax incentives for certain industrial companies and reduce the standard corporate tax rate and certain withholding rates starting in 2017.

 

The Innovation Box Regime was tailored by the Israeli government to a post-base erosion and profit shifting world, encouraging multinationals to consolidate IP ownership and profits in Israel along with existing Israeli research and development (“R&D”) functions. Tax benefits created to achieve this goal include a reduced corporate income tax rate of 6% on IP-based income and on capital gains from future sale of IP.

 

The 6% rate would apply to qualifying Israeli companies that are part of a group with global consolidated revenue of over NIS 10 billion (approximately $2.9 billion). Other qualifying companies with global consolidated revenue below NIS 10 billion, would be subject to a 12% tax rate. However, if the Israeli company is located in Jerusalem or in certain northern or southern parts of Israel, the tax rate is further reduced to 7.5%. Additionally, withholding tax on dividends for foreign investors would be subject to a reduced rate of 4% for all qualifying companies (unless further reduced by a treaty).

 

Entering the regime is not conditioned on making additional investments in Israel, and a company could qualify if it invested at least 7% of the last three years’ revenue in R&D (or incurred at least NIS 75 million in R&D expenses per year) and met one of the following three conditions:

 

1.At least 20% of its employees are R&D employees engaged in R&D (or employs, in total, more than 200 R&D employees);
2.Venture capital investments in the aggregate of NIS 8 million were previously made in the company; or
3.Average annual growth over three years of 25% in sales or employees.

 

Companies not meeting the above conditions may still be considered as a qualified company at the discretion of the IIA. Companies wishing to exit from the regime in the future will not be subject to claw back of tax benefits. The Knesset also approved a stability clause in order to encourage multinationals to invest in Israel. Accordingly, companies will be able to confirm the applicability of tax incentives for a 10-year period under a pre-ruling process. Further, in line with the new Organization for Economic Co-operation and Development Nexus Approach, the Israeli Finance Minister will promulgate regulations to ensure companies are benefiting from the regime to the extent qualifying research and development expenditures are incurred. The regulations were set to be finalized by March 31, 2017, with new amendments to the Law coming into effect after the regulations have been finalized.  

 

Taxable income which is not produced as part of “Preferred Enterprise” income will be taxed at the regular tax rate (23% in 2020).

 

As of June 30, 2020, the Company’s management believes that the Company meets the conditions mentioned above to be considered as a Technological Preferred Enterprise.

 

F-35

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 12:- TAXES ON INCOME (CONT.)

 

3.Pluristem GmbH:

 

The tax rate applicable to the German Subsidiary is the corporate tax rate of 15%, which is derived from the German Corporation Tax Act and Solidarity surcharge of 5.5% from the 15% corporate tax rate. This corporate tax rate excludes trade tax, which rate depends on the municipality in which the German Subsidiary conducts its business. Trade tax is calculated on the basis of the trade income, to which the tax rate of 3.5% is applied. The measured amount is then multiplied by the applicable rate of assessment, the registered office of the German Subsidiary is in Potsdam, and in Potsdam, the applicable rate of assessment is 455%.

 

B.Carryforward losses for tax purposes

 

As of June 30, 2020, Pluristem Therapeutics had a U.S. federal net operating loss carryforward for income tax purposes in the amount of approximately $34,836. Net operating loss carryforward arising in taxable years, can be carried forward and offset against taxable income for 20 years and expiring between 2023 and 2038.

 

Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

 

In January 2018, Pluristem Therapeutics registered as an Israeli resident with the ITA and the Israeli Value Added Tax Authorities. As of June 30, 2020, Pluristem Therapeutics and the Subsidiary consolidated accumulated losses, for tax purposes, are approximately $51,888, which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period.

 

The Subsidiary has accumulated losses, for tax purposes, as of June 30, 2020, in the amount of approximately $129,286, which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period.

 

The German Subsidiary has accumulated losses, for tax purposes, as of June 30, 2020, in the amount of approximately $151, which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period.

 

F-36

 

 

PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share amounts)

 

NOTE 12:- TAXES ON INCOME (CONT.)

 

Deferred income taxes:

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

 

   June 30, 
   2020   2019 
Deferred tax assets:        
U.S. net operating loss carryforward  $7,316   $7,316 
Israeli net operating loss and research and development expenses carryforward   35,168    40,866 
Consolidated net operating loss carryforward   11,934    - 
German subsidiary net operating loss carryforward   48    - 
Allowances and reserves   271    283 
           
Total deferred tax assets before valuation allowance   54,737    48,465 
Valuation allowance   (54,737)   (48,465)
           
Net deferred tax asset  $-   $- 

 

As of June 30, 2020 and 2019, the Company has provided full valuation allowances in respect of deferred tax assets resulting from tax loss carryforward and other temporary differences, since it has a history of operating losses and current uncertainty concerning its ability to realize these deferred tax assets in the future.

 

The Company accounts for its income tax uncertainties in accordance with ASC 740 which clarifies the accounting for uncertainties in income taxes recognized in a Company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

 

As of June 30, 2020 and 2019, there were no unrecognized tax benefits that if recognized would affect the annual effective tax rate.

 

Reconciliation of the theoretical tax expense (benefit) to the actual tax expense (benefit):

In 2020, 2019 and 2018, the main reconciling item of the statutory tax rate of the Company (21% to 35% in 2020, 2019 and 2018) to the effective tax rate (0%) is tax loss carryforwards, stock-based compensation and other deferred tax assets for which a full valuation allowance was provided.

 

NOTE 13:- SUBSEQUENT EVENTS

 

a.Pursuant to a shelf registration on Form S-3 declared effective by the SEC on July 23, 2020, in July 2020 the Company entered into a new Open Market Sale AgreementSM (“New ATM Agreement”) with Jefferies, which provides that, upon the terms and subject to the conditions and limitations in the New ATM Agreement, the Company may elect, from time to time, to offer and sell shares of common stock having an aggregate offering price of up to $75,000 through Jefferies acting as sales agent. As of September 5, 2020, no shares had been sold pursuant to the New ATM Agreement.

 

b.Subsequent to year-end, warrants to purchase shares of common stock were exercised by investors at an exercise price of $7.00 per share, resulting in the issuance of 35,000 shares of common stock for net proceeds of approximately $245.

 

  c. Subsequent to year-end, the Board of Directors approved (i) a grant of 1,000,000 RSUs to each of Mr. Yanay, and Mr. Aberman of which 500,000 shares vest over a term of 4 years from the date of the grant and 500,000 shares shall vest pursuant to certain performance metrics, (ii) a grant of 100,000 RSUs to Mrs. Franco-Yehuda, which vest over a term of 4 years from the date of grant; and (iii)  20,000 RSUs to each of the Company’s non-executive directors, which vest over a term of 4 years from the date of the grant.

 

F-37

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation under the supervision of our CEO and Chief Financial Officer, or CFO (our principal executive officer and principal financial officer, respectively), regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2020. Based on the aforementioned evaluation, management has concluded that our disclosure controls and procedures were effective as of June 30, 2020.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles generally accepted in the United States of America.

 

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting on June 30, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework, or COSO, in Internal Control—Integrated Framework. Based on that assessment under those criteria, management has determined that, as of June 30, 2020, our internal control over financial reporting was effective.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of fiscal year 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

47

 

 

Item 9B. Other Information.

 

Executive Employment Agreements

 

Amended and Restated Employment Agreement of Yaky Yanay

 

On September 10, 2020, the Company entered into an amended and restated employment agreement with Mr. Yanay, our CEO and President, which supersedes his existing employment agreement. Pursuant to the agreement, we have agreed to pay Mr. Yanay a monthly salary of 80,000 NIS, increasing to 99,000 NIS commencing on January 1, 2021. Pursuant to the agreement, we have also agreed to provide Mr. Yanay with a company car, cellular phone reimbursement and reimbursement for certain other expenses.  In the event of termination of Mr. Yanay’s employment, he will be entitled to a payment equal to a month’s compensation for each twelve-month period of employment or otherwise providing services to the Company, and an additional adjustment fee that equals the monthly salary amount multiplied by 6, plus the number of years the employment agreement remains in force from September 12, 2018, but in any event no more than a 9 months’ adjustment period in the aggregate, as well as a notice period of 6 months. Mr. Yanay is also entitled to an acceleration of the vesting of any unvested awards in the following circumstances: (1) if we terminate his employment, he will be entitled to acceleration of 100% of any unvested award and (2) if he resigns, he will be entitled to acceleration of 50% of any unvested awards.

 

Mr. Yanay will also be entitled to a target bonus of up to seven times his monthly salary, subject to achievement of milestones and performance targets that will be set by our Compensation Committee or by the Board. In addition, he will be eligible for a bonus equal to 1.5% of amounts received by us from strategic deals or up to the equivalent of three times his monthly salary at the discretion of the Board for extraordinary performance or achievements.

 

In the event of a change in control of the Company, Mr. Yanay will be eligible for the immediate acceleration of his unvested awards, and, in the event of a change of control of the Company and up to 12 months thereafter, in the event of a material adverse change to Mr. Yanay’s employment terms as a result of such change of control, or if Mr. Yanay’s employment agreement is terminated as a result of such change in control , a notice period of 6 months, as well as the adjustment fee that equals his monthly salary amount multiplied by 6, plus the number of years the employment agreement remains in force from September 12, 2018, but in any event no more than a 9 months’ adjustment period in the aggregate. In addition, Mr. Yanay will be entitled to receive equity awards as awarded by our Board at its sole discretion.

 

Amended and Restated Employment Agreement of Chen Franco-Yehuda

 

On September 10, 2020, the Company entered into an employment agreement with Ms. Franco-Yehuda, our CFO, Secretary and Treasurer, which supersedes the existing employment agreement with Ms. Franco-Yehuda. Pursuant to the agreement, we have agreed to pay Ms. Franco-Yehuda a monthly salary of 42,000 NIS, increasing to 65,000 NIS commencing on January 1, 2021. Pursuant to the agreement, we have also agreed to provide Ms. Franco-Yehuda with a company car, or a fixed amount of NIS 4,000, cellular phone reimbursement and reimbursement for certain other expenses.  In the event of termination of Mrs. Franco-Yehuda’s employment, she is entitled to a severance payment pursuant to Section 14 of the Israeli Severance Pay Law, and in addition, she will be entitled to receive an adjustment fee that equals her monthly salary amount multiplied by three, plus the number of years the employment agreement remains in force from June 30, 2020, but in any event no more than a 6 months’ adjustment period in the aggregate. Mrs. Franco-Yehuda is also entitled to an acceleration of the vesting of any unvested awards in the following circumstances: (1) if we terminate her employment, she will be entitled to acceleration of 100% of any unvested award and (2) if she resigns, she will be entitled to acceleration of 50% of any unvested awards.

 

Mrs. Franco-Yehuda will also be entitled to a target bonus of up to five and a half times her monthly salary, subject to milestones and performance targets that will be set by our Compensation Committee. In addition, she will be eligible for a bonus equal to 0.5% of amounts received by us from strategic deals or up to the equivalent of three times her salary at the discretion of the Board for extraordinary performance or achievements. 

 

48

 

 

In the event of a change in control of the Company, Mrs. Franco-Yehuda will be eligible for the immediate acceleration of her unvested awards, and, in the event of a change of control of the Company and up to 12 months thereafter, in the event of a material adverse change to Mrs. Franco-Yehuda’s employment terms as a result of such change of control, or if Mrs. Franco-Yehuda is terminated as a result of such change in control, a notice period of 3 months, as well as the adjustment fee that equals her monthly salary amount multiplied by three, plus the number of years the employment agreement remains in force from June 30, 2020, but in any event no more than a six months’ adjustment period in the aggregate. In addition, Mrs. Franco-Yehuda will be entitled to receive equity awards as awarded by our Board at its sole discretion.

 

Amended and Restated Consulting Agreement with Rose Hitech Ltd.

 

On September 10, 2020, the Company entered into an amended and restated consulting agreement with Rose Hitech Ltd., pursuant to which we compensate Mr. Aberman, our Executive Chairman, and which supersedes the existing consulting agreement with Rose Hitech Ltd. Pursuant to the agreement, we have agreed to pay Mr. Aberman, or an entity he controls, a monthly fee of 149,500 NIS, decreasing to 142,250 NIS commencing on January 1, 2021 and effective through the earlier of December 31, 2021 or the filing of a BLA. Upon the expiration of the consulting agreement, we intend to enter into a new consulting agreement with Mr. Aberman or an entity which he controls. In addition, we have agreed to pay a special bonus of 1.5% of the sums actually received by us from strategic deals. Pursuant to the agreement, we have also agreed to provide Mr. Aberman with a monthly car expenses reimbursement, cellular phone and reimbursement for certain other expenses. The agreement may be terminated by us or Mr. Aberman with ninety days’ prior notice. While the agreement will be terminated on the earlier of December 31, 2021 or upon the filing of a BLA, we have agreed to pay Mr. Aberman an adjustment fee as provided above, but only during the period between January 1, 2021 and December 31, 2021, or in the event of a change of control equal to nine months of consulting fees; provided, however that such adjustment fees shall be paid in two installments as follows: (i) 38,250 NIS on January 1, 2021, and 1,307,250 NIS on December 31, 2021. Mr. Aberman will also be subject to standard confidentiality, intellectual property assignment and non-compete provisions.

 

In addition, Mr. Aberman will be entitled to receive equity awards as awarded by our Board at its sole discretion. Any awards issued to Mr. Aberman will be entitled to acceleration subject to the following terms: (i) in the case of our termination of the agreement, 100% of any unvested award, (ii) in the case of the termination of the agreement by Mr. Aberman, 50% of any unvested award, and (iii) in the event of a change of control transaction (as defined in the agreement), 100% of any unvested awards.

 

In the event of a change in control of the Company, and up to 12 months thereafter, in the event of a material adverse change to Mr. Aberman’s consulting terms as a result of such change of control, or if the consulting agreement is terminated as a result of such change in control, an adjustment fee that equals his monthly salary amount multiplied by nine, and a notice period of 90 days.

 

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Equity Grants

 

Our Board approved a grant of 1,000,000 RSUs to Mr. Yanay and 1,000,000 RSUs to Mr. Aberman. For each of Messrs. Yanay and Aberman, 500,000 RSUs vest over four years as follows: 12.5% shall vest on the 6 month anniversary of the date of grant and the remaining shares vest in 14 equal installments every 3 months the thereafter. The remaining 500,000 RSUs vest in full upon milestone achievement of increasing market capitalization of our Common Stock on the Nasdaq Capital Market to $550 million within no more than 3 years from the date of grant.

 

Our Board also approved a grant of 100,000 RSUs to Mrs. Franco-Yehuda. Such RSUs vest over four years as follows: 12.5% shall vest on the 6 month anniversary of the date of grant and the remaining shares vest in 14 equal installments every 3 months thereafter.

 

Director Grants and Bonus

 

On September 10, 2020, we agreed to issue a grant of 20,000 RSUs to each of our non-executive directors. Each such RSU vests over four years as follows: 12.5% shall vest on the 6 month anniversary of the date of grant and the remaining shares vest in 14 equal installments every 3 months thereafter.

 

Amended and Restated Bylaws

 

On September 10, 2020, the Board approved Amended and Restated Bylaws, or the Bylaws. The Bylaws were revised as follows: (i) Article I, Section 2 of the Bylaws provides that a holder of a majority of the issued and outstanding equity securities of the Company may call a special meeting of stockholders, (ii) Article II, Section 2 clarifies that each director shall serve his or her term until his or her successor is duly elected or until his or her office has been declared vacant in the manner provided in Bylaws, (iii) Article II, Section 6 has been revised to remove the ability of a Vice President to call a meeting of the Board, and (iv) Article VI, Section 7 includes a forum selection clause that limits certain types of lawsuits that may be brought against the Company to Federal courts located in the State of Nevada.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Our directors and executive officers, their ages, positions currently held, and duration of such, are as follows:

 

Name   Position Held With Company   Age   Date First Elected or Appointed
Zami Aberman   Executive Chairman   66   June 23, 2019
Yaky Yanay  

President

Director

Chief Executive Officer

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February 4, 2014

February 5, 2015

June 23, 2019

Chen Franco-Yehuda   Chief Financial Officer, Treasurer and Secretary   37   March 14, 2019
Doron Shorrer   Director   67   October 2, 2003
Isaac Braun   Director   67   July 6, 2005
Mark Germain   Director   70   May 17, 2007
Moria Kwiat   Director   41   May 15, 2012

 

Business Experience

 

The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which they were employed.

 

Zami Aberman

 

Mr. Aberman joined the Company in September 2005 and has served as our Executive Chairman since June 2019, as our Co-Chief Executive Officer from March 2017 until June 2019, as our CEO from November 2005 until March 2017, and as President of the Company from September 2005 until February 2014. He changed the Company’s strategy towards cellular therapeutics. Mr. Aberman’s vision to use the maternal section of the Placenta (Decidua) as a source for cell therapy, combined with the Company’s 3D culturing technology, led to the development of our products. Since November 2005, Mr. Aberman has served as a director of the Company, and since April 2006, as Chairman of the Board, or the Board. Since October 2015, he has served as a Director of The Alliance for Regenerative Medicine. He has 25 years of experience in marketing and management in the high technology industry. Mr. Aberman has held the CEO and Chairman positions of various companies located in Israel, the United States, Europe, Japan and Korea.

 

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Mr. Aberman has operated within high-tech global companies in the fields of automatic optical inspection, network security, video over IP, software, chip design and robotics. He serves as the chairman of Rose Hitech Ltd., a private investment company. He previously served as the chairman of VLScom Ltd., a private company specializing in video compression for HDTV and video over IP and as a director of Ori Software Ltd., a company involved in data management. Prior to holding those positions, Mr. Aberman served as the President and CEO of Elbit Vision System Ltd. (EVSNF.OB), a company engaged in automatic optical inspection. Before joining the Company, Mr. Aberman served as President and CEO of Netect Ltd., a company specializing in the field of internet security software and was the co-founder, President and CEO of Associative Computing Ltd., which developed an associative parallel processor for real-time video processing. He also served as Chairman of Display Inspection Systems Inc., specializing in laser based inspection machines and as President and CEO of Robomatix Technologies Ltd.

 

In 1992, Mr. Aberman was awarded the Rothschild Prize for excellence in his field from the President of the State of Israel. Mr. Aberman holds a B.Sc. in Mechanical Engineering from Ben Gurion University in Israel.

 

We believe that Mr. Aberman’s qualifications to sit on our Board include his unique multidisciplinary innovative approach, years of experience in the financial markets in Israel and globally, as well as his experience in serving as the CEO of publicly traded entities.

 

Yaky Yanay

 

Mr. Yanay became a director of the Company in February 2015. He has served as our President from February 2014 and as our CEO from June 2019, previously serving as Co-CEO from March 2017. Mr. Yanay has served in variety of executive positions in Pluristem since 2006 including as our Chief Financial Officer from November 2006 until February 2014 and from February 2015 until March 2017. He also served as our Chief Operating Officer from February 2014 until March 2017. From November 2006 to February 2014, he served as our Secretary and served as our Executive Vice President from March 2013 until February 2014. From 2015 to 2018, Mr. Yanay served as the Co-Chairman of Israel Advanced Technology Industries (IATI), the largest umbrella organization representing Israel’s high tech and life science industries and since August 2012 has continually served as a Director of IATI, representing Israel’s life sciences industry. Prior to joining the Company, Mr. Yanay founded and served as Chairman of “The Israeli Life Science Forum” and also served as the CFO of Elbit Vision Systems Ltd., a public company. In addition, from July 2010 to April 2018, he served on the board of directors of Elbit Vision Systems Ltd. Prior to these positions, Mr. Yanay served as manager of audit groups of the technology sector at Ernst & Young Israel.

 

Mr. Yanay holds a bachelor’s degree with honors in business administration and accounting from the College of Management Academic Studies of Rishon LeZion and is a Certified Public Accountant in Israel.

 

We believe that Mr. Yanay’s qualifications to sit on our Board include his years of experience in the medical technology industry, his vast skill and expertise in accounting and economics, as well as his knowledge and familiarity with corporate finance.

 

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Doron Shorrer

 

Mr. Shorrer became a director of the Company in October 2003. Mr. Shorrer was one of the Company’s founders and served as its first Chairman until 2006. Since 1998, Mr. Shorrer has served as the Chairman and CEO of Shorrer International Ltd., an investment and financial consulting company. Mr. Shorrer also serves as a director at each of Sigma Mutual Funds Ltd., Food Save Ltd. and G.D.M. Investments Ltd.

 

Mr. Shorrer has served as a director of Provident Fund for employees of the Israel Electric Company Ltd. and between 1999 and 2004 he was Chairman of the board of directors of Phoenix Insurance Company, one of the largest insurance companies in Israel, and of Mivtachim Pension Funds Group, the largest pension fund in Israel. Prior to serving in these positions, Mr. Shorrer held senior positions that included Arbitrator at the Claims Resolution Tribunal for Dormant Accounts in Switzerland; Economic and Financial Advisor, Commissioner of Insurance and Capital Markets for the State of Israel; Member of the board of directors of “Nechasim” of the State of Israel; Member Committee for the Examination of Structural Changes in the Capital Market (The Brodet Committee); General Director of the Ministry of Transport; founder and managing partner of an accounting firm with offices in Jerusalem, Tel-Aviv and Haifa; Member of the Lecture Staff of the Hebrew University Business Administration School; Chairman of Amal School Chain; Chairman of a Public Committee for Telecommunications; and Economic Consultant to the Ministry of Energy. In addition, Mr. Shorrer served as a director of Hebrew University employees and Massad Bank from the International Bank group from 2009 to 2018.

 

Among his many areas of expertise, Mr. Shorrer formulates, implements and administers business planning in the private and institutional sector, in addition to consulting on economic, accounting and taxation issues to a diverse audience ranging from private concerns to government ministries.

 

Mr. Shorrer holds a B.A. in Economics and Accounting and an M.B.A. in Business Administration (specialization in finance and banking) from the Hebrew University of Jerusalem and is a Certified Public Accountant in Israel.

 

We believe that Mr. Shorrer’s qualifications to sit on our Board include his years of experience in the high-tech industry, his vast skill and expertise in accounting and economics, as well as his knowledge and familiarity with corporate finance.

 

Isaac Braun

 

Mr. Braun became a director of the Company in July 2005. Mr. Braun is a business veteran with entrepreneurial, industrial and manufacturing experience. He has co-founded and served as a board member of several high-tech start-ups in the areas of e-commerce, security, messaging, search engines and biotechnology. Mr. Braun is involved with advising private companies in the areas of capital raising and business development.

 

We believe that Mr. Braun’s qualifications to sit on our Board include his years of experience in the high-tech industry, as well as his knowledge and familiarity with corporate finance.

 

Mark Germain

 

Mr. Germain became a director of the Company in May 2007. Between May 2007 and February 2009, Mr. Germain served as Co-Chairman of our Board. Mr. Germain has been a merchant banker serving primarily the biotech and life sciences industries for over five years. He has been involved as a founder, director, chairman of the board of, and/or investor in, over twenty companies in the biotech field and assisted many of them in arranging corporate partnerships, acquiring technology, entering into mergers and acquisitions, and executing financings and going public transactions. He graduated from New York University School of Law in 1975, Order of the Coif, and was a partner in a New York law firm practicing corporate and securities law before leaving in 1986. Since then, and until he entered the biotech field in 1991, he served in senior executive capacities, including as president of a public company that was sold in 1991. In addition to being a director of the Company, Mr. Germain is a Managing Director at The ÆNTIB Group, a boutique merchant bank. From June 2018 through September 2019, Mr. Germain also served as Vice Chairman of the board of BiondVax Pharmaceuticals Ltd., a company based in Israel engaging in a Phase III clinical trials for a universal flu vaccine, and, since September 2019 has served as the chairman of the board of BiondVax Pharmaceuticals Ltd.

 

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Mr. Germain also serves or served as a director of the following companies that were reporting companies in the past: ChromaDex Inc., Stem Cell Innovations, Inc., Omnimmune Corp. and Collexis Holdings, Inc. He is also a co-founder and director of a number of private companies in and outside the biotech field.

 

We believe that Mr. Germain’s qualifications to sit on our Board include his years of experience in the biotech industry, his experience serving as a director of public companies, as well as his knowledge and familiarity with corporate finance.

 

Moria Kwiat

 

Dr. Kwiat became a director of the Company in May 2012. Dr. Kwiat is an analyst at aMoon, a leading Israeli life sciences venture fund. Previously she was a consultant and analyst at Frost & Sullivan, producing equity research for public companies in the healthcare domain. Dr. Kwiat has a broad academic background and scientific experience in inter-disciplinary fields, with specific expertise in the interface between the biology and materials fields. She is the co-author of multiple scientific papers. Dr. Kwiat holds a Post-Doctoral degree in nanotechnology and material sciences, a Ph.D. in Chemistry and a M.Sc. and B.Sc. in Biotechnology, from Tel Aviv University.

 

We believe that Dr. Kwiat’s qualifications to sit on our Board include her knowledge and experience as a scientist and a researcher in the fields of biotechnology and nanotechnology.

 

Chen Franco-Yehuda

 

Mrs. Franco-Yehuda was appointed as our CFO, effective as of March 17, 2019. Prior to being appointed as our Chief Financial Officer, or CFO, Mrs. Franco-Yehuda served as the Company’s Head of Accounting and Financial Reporting since July 2016 and, prior to that, the Company’s Controller since May 2013. Before joining the Company, from October 2008 to April 2013, Mrs. Franco-Yehuda served as a manager of audit groups relating to public and private companies in various industries at PricewaterhouseCoopers (PwC) and also as a lecturer of accounting classes at the Open University of Israel from 2009 to 2014.

 

Mrs. Franco-Yehuda holds a bachelor’s degree in economics and accounting from Haifa University, and is a certified public accountant in Israel.

 

There are no family relationships between any of the directors or officers named above.

 

Audit Committee and Audit Committee Financial Expert

 

Until June 30, 2020 the members of our Audit Committee were Doron Shorrer, Nachum Rosman and Israel Ben-Yoram. As a result of the voting outcome from the 2020 Annual Meeting, on June 30, 2020, each of Messrs. Ben-Yoram and Rosman resigned as members of the Board effective immediately. Messrs. Ben-Yoram’s and Rosman’s resignations as members of the Board also constituted their resignations as members of the Audit Committee. Effective July 1, 2020, the Board appointed Ms. Kwiat and Mr. Braun to serve on the Audit Committee and determined that Mr. Doron Shorrer is an Audit Committee financial expert. Doron Shorrer is the Chairman of the Audit Committee, and our Board has determined that all members of the Audit Committee are “independent” as defined by the rules of the SEC and the Nasdaq rules and regulations. The Audit Committee operates under a written charter that is posted on our website at www.pluristem.com. The information on our website is not incorporated by reference into this Annual Report. The primary responsibilities of our Audit Committee include:

 

Appointing, compensating and retaining our registered independent public accounting firm;

 

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Overseeing the work performed by any outside accounting firm;

 

Assisting the Board in fulfilling its responsibilities by reviewing: (i) the financial report provided by us to the SEC, our stockholders or to the general public, and (ii) our internal financial and accounting controls; and

 

Recommending, establishing and monitoring procedures designed to improve the quality and reliability of the disclosure of our financial condition and results of operations.

 

Our Audit Committee held seven meetings from July 1, 2019 through June 30, 2020 (fiscal year 2020).

 

Compensation Committee

 

Until June 30, 2020 the members of our Compensation Committee were Doron Shorrer, Nachum Rosman and Israel Ben-Yoram. As a result of the voting outcome from the 2020 Annual Meeting, on June 30, 2020, Messrs. Israel Ben-Yoram and Rosman resigned as members of the Board, effective immediately. Messrs. Ben-Yoram’s and Rosman’s resignations as members of the Board also constituted their resignations as members of the Compensation Committee. Effective July 1, 2020, the Board appointed Mr. Braun to serve on the Compensation Committee. The Board has determined that all of the members of the Compensation Committee are “independent” as defined by the rules of the SEC and Nasdaq rules and regulations. The Compensation Committee operates under a written charter that is posted on our website at www.pluristem.com. The information on our website is not incorporated by reference into this Annual Report. The primary responsibilities of our Compensation Committee include:

 

Reviewing and recommending to our Board of the annual base compensation, the annual incentive bonus, equity compensation, employment agreements and any other benefits of our executive officers;

 

Administering our equity based plans and making recommendations to our Board with respect to our incentive–compensation plans and equity–based plans; and

 

Annually reviewing and making recommendations to our Board with respect to the compensation policy for such other officers as directed by our Board.

 

Our Compensation Committee held nine meetings during fiscal year 2020. The Compensation Committee did not receive advice from or retain any consultants during fiscal year 2020.

 

Nominating Committee

 

Until June 30, 2020 the members of our Nominating Committee were Mark Germain, Doron Shorrer and Nachum Rosman. As a result of the voting outcome from the 2020 Annual Meeting, on June 30, 2020, Mr. Rosman resigned as member of the Board, effective immediately. Nachum Rosman’s resignations as members of the Board also constituted his resignations as member of the Nominating Committee. Mr. Germain is the Chairman of the Nominating Committee. The Board has determined that all of the members of the Nominating Committee are “independent” as defined by the rules of the SEC and Nasdaq rules and regulations. The Nominating Committee operates under a written charter that is posted on the “Investors” section of our website, www.pluristem.com. The primary responsibilities of our Nominating Committee include:

 

Overseeing the composition and size of the Board, developing qualification criteria for Board members and actively seeking, interviewing and screening individuals qualified to become Board members for recommendation to the Board;

 

Recommending the composition of the Board for each annual meeting of stockholders; and

 

Reviewing periodically with the Chairman of the Board and the Chief Executive Officer the succession plans relating to positions held by directors, and making recommendations to the Board with respect to the selection and developme