PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
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
|
|
|
96,938,789
|
|
|
$
|
1
|
|
|
$
|
217,822
|
|
|
$
|
1,999
|
|
|
$
|
(189,571
|
)
|
|
$
|
30,251
|
|
Exercise of options by employees
|
|
|
50,500
|
|
|
|
(*
|
)
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42
|
|
Stock-based compensation to employees, directors and non-employee consultants
|
|
|
3,148,380
|
|
|
|
(*
|
)
|
|
|
6,548
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,548
|
|
Issuance of common stock under At-The Market (“ATM”) Agreement, net of issuance costs of $174 (Note 9e)
|
|
|
3,599,408
|
|
|
|
(*
|
)
|
|
|
4,985
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,985
|
|
Issuance of common stock, net of issuance costs of $1,405 (Note 9f)
|
|
|
9,000,000
|
|
|
|
(*
|
)
|
|
|
13,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,646
|
|
Exercise of warrants by investors (Note 9d)
|
|
|
828,703
|
|
|
|
(*
|
)
|
|
|
1,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,160
|
|
Other comprehensive income, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,999
|
)
|
|
|
-
|
|
|
|
(1,999
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,126
|
)
|
|
|
(26,126
|
)
|
Balance as of June 30, 2018
|
|
|
113,565,780
|
|
|
$
|
1
|
|
|
$
|
244,203
|
|
|
$
|
-
|
|
|
$
|
(215,697
|
)
|
|
$
|
28,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) Less than $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(26,126
|
)
|
|
$
|
(27,814
|
)
|
|
$
|
(23,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,018
|
|
|
|
2,177
|
|
|
|
2,150
|
|
Loss from sale of property and equipment, net
|
|
|
6
|
|
|
|
72
|
|
|
|
82
|
|
Accretion of discount, amortization of premium and changes in accrued interest of marketable securities
|
|
|
11
|
|
|
|
35
|
|
|
|
(114
|
)
|
Loss (gain) from sale of investments of available-for-sale marketable securities
|
|
|
(8,440
|
)
|
|
|
(362
|
)
|
|
|
419
|
|
Other-than-temporary loss of available-for-sale marketable securities
|
|
|
850
|
|
|
|
767
|
|
|
|
38
|
|
Stock-based compensation to employees, directors and non-employees consultants
|
|
|
6,548
|
|
|
|
3,662
|
|
|
|
3,073
|
|
Decrease (increase) in accounts receivable from the IIA
|
|
|
978
|
|
|
|
1,192
|
|
|
|
(537
|
)
|
Decrease (increase) in other current and other long-term assets
|
|
|
(59
|
)
|
|
|
(731
|
)
|
|
|
1,395
|
|
Decrease (increase) in trade payables
|
|
|
1,212
|
|
|
|
(701
|
)
|
|
|
(77
|
)
|
Increase in other accounts payable, accrued expenses, other long-term liabilities and other current liabilities
|
|
|
1,600
|
|
|
|
138
|
|
|
|
1,225
|
|
Decrease in deferred revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,847
|
)
|
Decrease in advance payment from United Therapeutics Corporation
|
|
|
-
|
|
|
|
-
|
|
|
|
(93
|
)
|
Increase in interest receivable on short-term deposits
|
|
|
(128
|
)
|
|
|
(24
|
)
|
|
|
(25
|
)
|
Linkage differences and interest on short and long-term deposits and restricted bank deposits
|
|
|
5
|
|
|
|
(14
|
)
|
|
|
(3
|
)
|
Accrued severance pay, net
|
|
|
145
|
|
|
|
(8
|
)
|
|
|
38
|
|
Net cash used in operating activities
|
|
$
|
(21,380
|
)
|
|
$
|
(21,611
|
)
|
|
$
|
(18,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
(342
|
)
|
|
$
|
(378
|
)
|
|
$
|
(1,750
|
)
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
30
|
|
|
|
28
|
|
Repayment of (investment in) short-term deposits
|
|
|
(14,829
|
)
|
|
|
2,316
|
|
|
|
(849
|
)
|
Repayment of long-term deposits and restricted bank deposits
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
Proceeds from sale of available-for-sale marketable securities
|
|
|
21,881
|
|
|
|
5,527
|
|
|
|
6,999
|
|
Proceeds from redemption of available-for-sale marketable securities
|
|
|
9
|
|
|
|
410
|
|
|
|
1,094
|
|
Investment in available-for-sale marketable securities
|
|
|
(1,146
|
)
|
|
|
(3,607
|
)
|
|
|
(4,215
|
)
|
Net cash provided by investing activities
|
|
$
|
5,573
|
|
|
$
|
4,298
|
|
|
$
|
1,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds related to issuance of common stock and warrants, net of issuance costs
|
|
$
|
18,631
|
|
|
$
|
15,718
|
|
|
$
|
790
|
|
Proceeds with respect to Israel-United States Binational Industrial Research and Development Foundation liability
|
|
|
88
|
|
|
|
69
|
|
|
|
-
|
|
Exercise of warrants and options
|
|
|
1,202
|
|
|
|
10
|
|
|
|
17
|
|
Net cash provided by financing activities
|
|
$
|
19,921
|
|
|
$
|
15,797
|
|
|
$
|
807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
4,114
|
|
|
|
(1,516
|
)
|
|
|
(16,403
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
4,707
|
|
|
|
6,223
|
|
|
|
22,626
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
8,821
|
|
|
$
|
4,707
|
|
|
$
|
6,223
|
|
(a) Supplemental disclosure of cash flow activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Taxes paid due to non-deductible expenses
|
|
$
|
27
|
|
|
$
|
28
|
|
|
$
|
66
|
|
(b) Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment on credit
|
|
$
|
171
|
|
|
$
|
88
|
|
|
$
|
126
|
|
Share consideration to contractor
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
39
|
|
NOTE 1:-GENERAL
a.
|
Pluristem Therapeutics Inc., a Nevada corporation, was incorporated on May 11, 2001. Pluristem Therapeutics Inc. has a wholly owned subsidiary, Pluristem Ltd. (the “Subsidiary”), which is incorporated under the laws of the State of Israel. Pluristem Therapeutics Inc. and the Subsidiary are referred to as the “Company” or “Pluristem”.
The Company’s shares of common stock are traded on the Nasdaq Capital Market under the symbol “PSTI” and on the Tel-Aviv Stock Exchange under the symbol “PLTR”.
|
b.
|
The Company is a bio-therapeutics company developing placenta-based cell therapy product candidates for the treatment of multiple ischemic and inflammatory conditions. The Company has incurred an accumulated deficit of approximately $215,697 and incurred recurring operating losses and negative cash flows from operating activities since inception. As of June 30, 2018, the Company’s total stockholders' equity amounted to $28,507.
|
During the year ended June 30, 2018, the Company incurred operating losses of $33,731 and its negative cash flow from operating activities was $21,380. The Company will be required to identify additional liquidity resources in the near term in order to support the commercialization of its products and maintain its research and development and clinical trials activities.
As of June 30, 2018, the Company's cash position (cash and cash equivalents and short-term bank deposits) totaled approximately $29,900. The Company is addressing its liquidity issues by implementing initiatives to allow the continuation of its activities. The Company's current operating plan includes various assumptions concerning the level and timing of cash outflows for operating activities and capital expenditures. The Company's ability to successfully carry out its business plan, which includes a cost-reduction plan should it be unable to raise sufficient additional capital, is primarily dependent upon its ability to (1) obtain sufficient additional capital, (2) enter into license agreements to use or commercialize the Company’s products and (3) receive other sources of funding, including non-diluting sources such as the IIA grants, the
European Union's Horizon 2020 program (“Horizon 2020”)
grants and other grants. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of its products.
According to management estimates, liquidity resources as of June 30, 2018, will be sufficient to maintain the Company's operations into the first quarter of the Company's fiscal year 2020. The Company's inability to raise funds to carry out its business plan will have a severe negative impact on its ability to remain a viable company.
These conditions raise substantial doubt about the Company's ability to continue as a going concern. The audited consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern.
United Therapeutics Corporation ("United") Agreement
On June 19, 2011, the Company entered into an exclusive license agreement (the “United Agreement”) with United for the use of the Company's PLX cells to develop and commercialize a cell-based product for the treatment of Pulmonary Hypertension (“PAH”). The United Agreement provided that United would receive exclusive worldwide license rights for the development and commercialization of the Company's PLX cell-based product to treat PAH.
Under the United Agreement the Company received an upfront payment of $7,000 paid in August 2011, which included a $5,000 non-refundable upfront payment and a $2,000 advance payment on development.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 1:-GENERAL (CONT.)
On December 8, 2015, the Company received a notice from United terminating the United Agreement, effective immediately. Pursuant to the United Agreement termination clause, Pluristem regained full rights to PLX in the field of PAH, as well as all clinical data and regulatory submissions. As the Company has no further obligations towards United, the Company recognized the remaining upfront payment received in August 2011 as revenues during the year ended June 30, 2016.
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 Intermediate Claudication (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.
The first clinical study as part of the CHA Agreement is a 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.
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.
In addition, and as contemplated by the CHA Agreement, in December 2013, Pluristem and CHA executed the mutual investment pursuant to which Pluristem issued 2,500,000 shares of its common stock in consideration for 1,011,504 shares of CHA, which reflects total consideration to each of Pluristem and CHA of approximately $10,414. The parties also agreed to give an irrevocable proxy to the other party’s management with respect to the voting power of the shares issued.
In March 2015, the Company sold a portion of the CHA shares received in December 2013.
In January 2018, the Company sold its remaining investment in the CHA shares, for aggregate net proceeds of approximately $10,500, representing a net gain of $6,200, which is recorded in “Financial income, net” for the year ended June 30, 2018, and reclassified from other comprehensive income (loss).
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
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.
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.
Most of the Pluristem Therapeutics Inc. costs 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 Pluristem Therapeutics Inc. and its Subsidiary operate. 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 Inc. and it’s Subsidiary. 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.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
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 years ended June 30, 2018, 2017 and 2016, the Company recognized other-than-temporary impairment loss of $850, $767 and $38, respectively (see Note 3).
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 our historic accounting under ASC 605 (see Note 2(v)).
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.
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
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 contract with the customer includes one type of product and thus has 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.
Revenue from
License Agreement:
The Company recognized revenue in fiscal year 2016 pursuant to the License Agreement with United in accordance with ASC 605-25, "Revenue Recognition, Multiple-Element Arrangements" (“ASC 605-25”).
Pursuant to ASC 605-25, each deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has “stand-alone value” to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. In general, the consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables.
The Company received an up-front, non-refundable license payment of $5,000. Additional payments totaling $37,500 were subject to the achievement of certain regulatory milestones by United.
Since the deliverables in the United Agreement did not have stand-alone value, none of them qualified as a separate unit of accounting. Accordingly, the non-refundable upfront license fee of $5,000 was deferred and recognized on a straight line basis over the related performance period which was the development period in accordance with Staff Accounting Bulletin (“SAB”) 104, "Revenue Recognition".
The Company also received an advanced payment from United of $2,000 for the development that was deductible against development expenses as it was incurred. The upfront payment which was received was included in the balance sheet as advance payment. The Company deducted the payments from its research and development expenses in accordance with ASC 730-20, "Research and Development Agreements".
On December 8, 2015, the Company received a notice from United terminating the United Agreement, effective immediately. Pursuant to the United Agreement termination clause, Pluristem regained full rights to PLX in the field of PAH, as well as all clinical data and regulatory submissions. As the Company had no further obligations
towards United, the Company recognized the remaining upfront payment received in 2011 as revenues during the year ended June 30, 2016.
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
|
|
Vehicles
|
15
|
|
Leasehold improvements
|
The shorter of the expected useful life or the reasonable assumed term of the lease.
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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 2018, 2017 and 2016, no impairment losses have been identified.
As required by ASC 820, “Fair Value Measurements”, the Company applies assumptions that marketplace participants would consider in determining the fair value of long-lived assets.
l.
|
Accounting for stock-based compensation
|
The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation-Stock Compensation" (“ASC 718”) and ASC 505-50, "Equity-Based Payments to Non-Employees" (“ASC 505-50”). 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 stocks or restricted stock units) 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 elected to recognize 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.
The assumptions below are relevant to restricted stock and restricted stock units granted in 2018, 2017 and 2016:
In accordance with ASC 718, restricted stock and restricted stock units are measured at their fair value. All restricted stock and restricted stock units to employees and directors granted in 2018, 2017 and 2016, 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 restricted stock and restricted stock units 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 2018, 2017 and 2016, was $1.40, $1.41 and $1.13, respectively.
During fiscal years 2018, 2017 and 2016, 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 IIA in the Ministry of Economy and Industry (formerly the Office of Chief Scientist's) 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.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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
|
T
he Company participates in European Union research and development consortiums under Horizon 2020. In August 2016, the CLI program consortium was awarded a Euro 7,600,000 (approximately $8,900) non-royalty bearing grant, of which, an amount of Euro 1,900,000 (approximately $2,200) 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 1,000,000 (approximately $1,200). 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 7,400,000 (approximately $8,600) grant, of which, an amount of Euro 2,550,000 (approximately $3,000) 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 6,800,000 (approximately $7,900) non-royalty bearing grant, of which, an amount of Euro 500,000 (approximately $580) is a direct grant allocated to the Company.
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.
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 restricted stock units 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 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.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)
q.
|
Concentration of credit risk
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term deposits, long-term deposits, restricted deposits and marketable securities.
The majority of the Company’s cash and cash equivalents and short-term and long-term deposits are mainly invested in dollar instruments of major banks in Israel and in the United States. 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 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.
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.
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, 2018, 2017 and 2016 were $822, $524 and $556, respectively.
s.
|
Fair value of financial instruments
|
The carrying amounts of the Company's financial instruments, including cash and cash equivalents, 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.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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).
The ineffective portion of a derivative's change in fair value is recognized in earnings. 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".
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, 2018, the fair value of the
options contracts was approximately ($
243) and is
presented in “other accounts payable” (see Note 4). The net gains (losses) recognized in “Financial income, net” during the years ended June 30, 2018, 2017 and 2016, were ($538), $230 and ($205), respectively.
u.
|
Comprehensive income (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.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The following table summarizes the changes in accumulated balances of other comprehensive income for the year ended June 30, 2018:
|
|
Year ended June 30, 2018
|
|
|
|
Unrealized
gains (losses)
on marketable
securities
|
|
Beginning balance
|
|
$
|
1,999
|
|
Other comprehensive income before reclassifications
|
|
|
6,441
|
|
Amounts reclassified from accumulated other comprehensive loss, net
|
|
|
(8,440
|
)
|
Net current-period other comprehensive income
|
|
|
(1,999
|
)
|
Ending balance
|
|
$
|
-
|
|
v.
|
Recently Adopted Accounting Pronouncement
|
ASC 606 - Revenue from Contracts with Customers (“ASC 606”):
The Company adopted ASC 606 on July 1, 2017, using the modified retrospective transition method. Prior periods were not retrospectively adjusted. As the Company did not have any contracts with customers that were not completed as of June 30, 2017, the adoption of ASC 606 did not, and does not, have a material impact on the Company's consolidated financial statements, including the presentation of revenues in the Company's consolidated statements of operations upon adoption.
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's contract with the customer includes one type of product and thus has 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.
Accounting Standards Update (“ASU”) No. 2017-11 – “Earnings Per Share” (Topic 260) Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU No. 2017-11”):
In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11. The ASU was issued to address the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (CONT.)
The Company was an early adopter of ASU No. 2017-11 as of July 1, 2017. The adoption of ASU No. 2017-11 did not have a material impact on the Company's consolidated financial statements and related disclosures.
ASU No. 2016-09 – “Compensation - Stock Compensation” (Topic 718):
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). This ASU affects entities that issue share-based payment awards to their employees. The ASU is designed to simplify several aspects of accounting for share-based payment award transactions, which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. The Company adopted ASU No. 2016-09 in the first quarter of fiscal year 2017. The Company elected to retain its existing accounting policy and estimate expected forfeitures. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
ASU No. 2016-02 - “Leases” (Topic 842):
In February 2016, the 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 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 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 the interim and annual periods beginning on or after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the potential effect of the guidance on its consolidated financial statements.
ASU No. 2016-15 - “Statement of Cash Flows” (Topic 230) (“ASU No. 2016-15”):
In August 2016, the FASB issued ASU No. 2016-15, which addresses the classification of eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU No. 2016-15 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impact of the guidance on its consolidated financial statements.
ASU No. 2016-18 - Statement of Cash Flows (Topic 230) (“ASU No. 2016-18”):
In November 2016, the FASB issued ASU 2016-18. The ASU requires that the consolidated statement of cash flows include the change in total cash and equivalents and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The ASU also requires a reconciliation between the total of cash and equivalents and restricted cash presented on the consolidated statement of cash flows and the cash and equivalents balance presented on the consolidated balance sheet. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The standard requires application using a retrospective transition method. The Company is currently evaluating the potential impact of the guidance on its consolidated financial statements.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
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 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 the requirements of ASU No. 2018-07 to nonemployee awards except for specific guidance on inputs to an option pricing model 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 and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the potential impact of the guidance on its consolidated financial statements.
NOTE 3:- MARKETABLE SECURITIES
As of June 30, 2018 and 2017, all of the Company’s marketable securities were classified as available-for-sale.
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
Amortized cos
t
|
|
|
Gross
unrealized
gain
|
|
|
Gross
unrealized
loss
|
|
|
Other-than-temporary impairment
|
|
|
Fair
value
|
|
|
Amortized cost
|
|
|
Gross
unrealized
gain
|
|
|
Gross
unrealized
loss
|
|
|
Other-than-temporary impairment
|
|
|
Fair
value
|
|
Available-for-sale - matures within one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and index linked notes
|
|
$
|
850
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(850
|
)
|
|
$
|
-
|
|
|
$
|
11,988
|
|
|
$
|
2,014
|
|
|
$
|
(47
|
)
|
|
$
|
(767
|
)
|
|
$
|
13,188
|
|
Government debentures – fixed interest rate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
157
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158
|
|
Corporate debentures – fixed interest rate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
$
|
850
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(850
|
)
|
|
$
|
-
|
|
|
$
|
12,192
|
|
|
$
|
2,016
|
|
|
$
|
(47
|
)
|
|
$
|
(767
|
)
|
|
$
|
13,394
|
|
Available-for-sale - matures after one year through five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government debentures – fixed interest rate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
468
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
491
|
|
Corporate debentures – fixed interest rate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,255
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
1,261
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,723
|
|
|
$
|
30
|
|
|
$
|
(1
|
)
|
|
$
|
-
|
|
|
$
|
1,752
|
|
Available-for-sale - matures after five years through ten years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debentures – fixed interest rate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18
|
|
Total
|
|
$
|
850
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(850
|
)
|
|
$
|
-
|
|
|
$
|
13,932
|
|
|
$
|
2,047
|
|
|
$
|
(48
|
)
|
|
$
|
(767
|
)
|
|
$
|
15,164
|
|
NOTE 3:- MARKETABLE SECURITIES (CONT.)
The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2018 and June 30, 2017, and the length of time that those investments have been in a continuous loss position:
|
|
12 months or less
|
|
|
Greater than 12 months
|
|
|
|
Fair Value
|
|
|
Gross
unrealized loss
|
|
|
Fair Value
|
|
|
Gross
unrealized loss
|
|
As of June 30, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2017
|
|
$
|
869
|
|
|
$
|
(24
|
)
|
|
$
|
106
|
|
|
$
|
(24
|
)
|
The Company typically invests in highly-rated securities. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company's intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment's amortized cost basis.
The Company recognized other-than-temporary impairment loss on outstanding securities during the year ended June 30, 2018 and 2017, of $850 and $767, respectively.
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:- FAIR VALUE OF FINANCIAL INSTRUMENTS
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 1
|
|
|
Level 2
|
|
Marketable securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,523
|
|
|
$
|
4,641
|
|
Foreign currency derivative instruments not designated as hedge instruments
|
|
|
-
|
|
|
|
(243
|
)
|
|
|
-
|
|
|
|
295
|
|
Total financial assets (liabilities)
|
|
$
|
-
|
|
|
$
|
(243
|
)
|
|
$
|
10,523
|
|
|
$
|
4,936
|
|
NOTE 5:-OTHER CURRENT ASSETS
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Accounts receivable from the Horizon 2020 grants
|
|
$
|
626
|
|
|
$
|
-
|
|
Prepaid expenses
|
|
|
602
|
|
|
|
882
|
|
Derivatives not designated as hedge instruments
|
|
|
-
|
|
|
|
295
|
|
VAT receivables
|
|
|
150
|
|
|
|
137
|
|
Accounts receivable from the Ministry of Economy and Industry
|
|
|
6
|
|
|
|
-
|
|
Other receivables
|
|
|
7
|
|
|
|
1
|
|
Total
|
|
$
|
1,391
|
|
|
$
|
1,315
|
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 6:-PROPERTY AND EQUIPMENT, NET
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cost:
|
|
|
|
|
|
|
Laboratory equipment
|
|
$
|
6,395
|
|
|
$
|
6,097
|
|
Computers and peripheral equipment
|
|
|
1,206
|
|
|
|
1,126
|
|
Office furniture and equipment
|
|
|
681
|
|
|
|
681
|
|
Leasehold improvements
|
|
|
|
|
|
|
|
|
Total Cost
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
|
4,903
|
|
|
|
4,164
|
|
Computers and peripheral equipment
|
|
|
1,060
|
|
|
|
951
|
|
Office furniture and equipment
|
|
|
511
|
|
|
|
416
|
|
Leasehold improvements
|
|
|
|
|
|
|
|
|
Total accumulated depreciation
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
5,678
|
|
|
$
|
7,277
|
|
Depreciation expenses amounted to $2,018, $2,177 and $2,150 for the years ended June 30, 2018, 2017 and 2016, respectively.
NOTE 7:-OTHER ACCOUNTS PAYABLE
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Accrued vacation
|
|
$
|
911
|
|
|
$
|
791
|
|
Deferred income from the Horizon 2020 grant
|
|
|
640
|
|
|
|
-
|
|
Accrued payroll
|
|
|
524
|
|
|
|
505
|
|
Payroll institutions
|
|
|
463
|
|
|
|
345
|
|
Derivatives not designated as hedge instruments
|
|
|
243
|
|
|
|
-
|
|
Other payables
|
|
|
240
|
|
|
|
342
|
|
Total
|
|
$
|
3,021
|
|
|
$
|
1,983
|
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 8:-COMMITMENTS AND CONTINGENCIES
|
a.
|
In February 2015, the Company signed an addendum to its facility operating lease agreement (the “Addendum”) with the lessor, which extended the lease period to December 2021.
|
The lessor paid a non-refundable leasehold improvement participation payment, of approximately $947 in October 2015, in addition to the non-refundable payment of approximately $816 received in January 2013.
The payments are deductible against lease expenses as they are incurred. The lessor upfront payment is included in the balance sheet as advance payment and recognized as a deduction from lease expenses over the lease term.
In June 2017, the Company terminated its operating lease agreement for another facility of 1,280 square meters.
The Company recognizes lease expense, net of lessor participation, under such arrangements, on a straight-line basis over the lease term.
As of June 30, 2018, aggregate minimum lease commitments under the active operating lease agreements are as follows:
Fiscal year ending June 30,
|
|
|
|
2019
|
|
|
847
|
|
2020
|
|
|
856
|
|
2021
|
|
|
866
|
|
2022
|
|
|
433
|
|
Total
|
|
$
|
3,002
|
|
Lease expenses, net of lessor participation, amounted to $638, $781 and $824 for the years ended June 30, 2018, 2017 and 2016, respectively.
The Subsidiary issued a bank guarantee in favor of the lessors in the amount of approximately $379.
|
b.
|
The Subsidiary leases several motor vehicles under operating lease agreements, which expire in various dates during years 2018 through 2021.
|
As of June 30, 2018, future aggregate minimum lease commitments under non-cancelable operating lease agreements are as follows:
Fiscal year ending June 30,
|
|
|
|
2019
|
|
|
202
|
|
2020
|
|
|
147
|
|
2021
|
|
|
67
|
|
Total
|
|
$
|
416
|
|
Lease expenses amounted to $294, $233 and $210 for the years ended June 30, 2018, 2017 and 2016, respectively.
|
c.
|
An amount of $687 of cash and deposits was pledged by the Subsidiary to secure certain derivatives and hedging transactions, credit line and bank guarantees as of June 30, 2018.
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 8:-COMMITMENTS AND CONTINGENCIES (CONT.)
|
d.
|
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, 2018, total grants obtained aggregated to approximately $26,804 and total royalties paid and accrued amounted to $168. As of June 30, 2018, the Company's liability in respect to royalties to the IIA amounted to $26,636, not including LIBOR interest as described above.
|
e.
|
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, 2018, total grants obtained under this Smart Money program amounted to approximately $112. As of June 30, 2018, the Company's contingent liability with respect to royalties for this “Smart Money” program was $112 and no royalties were paid or accrued.
|
f.
|
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, 2018, the aggregate amount of grant obtained from this Smart Money program was approximately $18. As of June 30, 2018, the Company's contingent liability with respect to royalties for this “Smart Money” program is $18 and no royalties were paid or accrued.
|
g.
|
The Company announced that it will collaborate with the New York Blood Center (“NYBC”) on pre-clinical studies of its placental expanded R-18 cells (“PLX-R18”) to enhance the efficacy of umbilical cord blood transplantation. The project has been selected to receive a conditional award of $900 from Israel-United States Binational Industrial Research and Development Foundation (“BIRD Foundation”), of which an amount of $585 is a direct grant allocated to the Company. Per the terms of the project, the Company will provide the PLX-R18 cells and the NYBC will be responsible for conducting and supporting the studies. Amounts received in connection with this award are presented in “Other long-term liabilities” as the Company does not expect to repay the liability in the next 12 months.
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 8:-COMMITMENTS AND CONTINGENCIES (CONT.)
In accordance with the agreement between the Company and NYBC, if only one party elects to proceed with the development of the product, such party shall be responsible for all repayment obligations to the BIRD Foundation for both parties, if applicable. In addition, in case of conclusion of project development which will trigger the grant repayment to the BIRD Foundation, if the Company will elect to pursue the development of the product, and NYBC elects not to pursue the development of the product, then, unless otherwise agreed by the parties, the Company shall pay NYBC royalties in the amount of 2.5% from its revenues of the product, up to an aggregate royalty amount of approximately $550.
As of June 30, 2018, the aggregate amount of grant obtained from the BIRD Foundation was approximately $157. As of June 30, 2018, the Company's contingent liability with respect to royalties for the BIRD Foundation was $157 and no royalties were paid or accrued.
NOTE 9: - STOCKHOLDERS' EQUITY
The Company's authorized common stock consists of 200,000,000 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 10,000,000 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
.
|
From October 2014 through May 2015, the Company issued shares of common stock in private placements to investors. In October 2014, the Company issued 200,000 shares of common stock to an investor for aggregate cash consideration of $528. In February 2015, the Company issued an additional 200,000 shares of common stock to an investor for aggregate cash consideration of $586. In May 2015, the Company issued an additional 300,000 shares of common stock to an investor, for which the consideration in the amount of $790 was received from the investor in September 2015.
|
|
b.
|
In February 2015, the Subsidiary entered into an agreement with a contractor for the construction of its new laboratories facility for a consideration of approximately NIS 3.3 million (approximately $841). Under the terms of the agreement, the Subsidiary agreed to pay part of the NIS 3.3 million consideration using 100,004 restricted shares of common stock of the Company, linked to performance milestones with respect to the new laboratories construction and which serve as a guarantee. These restricted shares were released to the contractor in December 2014 upon the successful completion of the construction.
|
In May 2015, the Subsidiary entered into an addendum to the agreement with the contractor for the design and construction of additional office space renovations in the Subsidiary leased facility for additional consideration of approximately NIS 4 million (approximately $1,032) which is comprised of NIS 3 million (approximately $774) in cash and 90,000 restricted shares which were issued to the contractor in February 2016.
The Company accounted for the abovementioned stock-based payment awards to the contractor in accordance with ASC 505-50, “Equity based payments to non-employees”.
As performance by the contractor was not deemed complete while the awards were forfeitable (or not issued), the Company measured the fair value of the awards at each reporting period through the performance completion date (until completion of the construction work).
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 9: - STOCKHOLDERS' EQUITY
(CONT.)
The construction work was initiated in June 2015. On October 30, 2015, the contractor completed the agreed construction milestones. As a result, the Company recognized the fair value of the stock-based payments awards, using the fair value of the Company's shares on October 30, 2015, totaling approximately $302 as stock-based payment to the contractor in "Additional paid-in capital" with a corresponding amount included in "Property and equipment, net".
|
c.
|
On January 25, 2017, the Company issued, pursuant to an underwriting agreement relating to a firm commitment public offering, an aggregate of 14,081,633 shares of common stock and warrants to purchase an aggregate of 8,448,980 shares of common stock, inclusive of the underwriter’s over-allotment option, which was exercised in full, for aggregate gross proceeds of $17,250. The net proceeds, after deducting underwriting commissions, discounts and other expenses related to the offering were approximately $15,718.
|
|
d.
|
In the year ended June 30, 2018, a total of 828,703 warrants from the January 2017 offering were exercised by investors at an exercise price of $1.40 per share, resulting in the issuance of 828,703 shares of common stock for net proceeds of approximately $1,160.
|
|
e.
|
Pursuant to a shelf registration statement on Form S-3 declared effective by the Securities and Exchange Commission on June 23, 2017, in July 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 3,599,408 shares of common stock under the ATM Agreement at an average price of $1.43 per share. As of June 30, 2018, the Company raised an aggregate of approximately $4,985, net of issuance expenses of $174, under the ATM Agreement.
|
|
f.
|
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 9,000,000 shares of the Company’s common stock at a purchase price of NIS 5.90 (approximately $1.67) per share. The net proceeds, after deducting fees and expenses related to the offering, were approximately $13,646.
|
|
g.
|
Options, warrants and restricted stock units to employees, directors and consultants:
|
The Company has an incentive option plan from 2005 (the “2005 Plan”). Under the 2005 Plan, options, restricted stock (“RS”) and restricted stock units (“RSUs”) (collectively, the “Awards”) may be granted to the Company’s officers, directors, employees and consultants. Any Awards that are cancelled or forfeited before expiration become available for future grants.
In addition, at the Company’s annual meeting of its stockholders, held on May 31, 2016, the Company’s stockholders approved the 2016 Equity Compensation Plan (the "2016 Plan"). Under the 2016 Plan, 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 subsidiary.
As of June 30, 2018, the number of shares of common stock authorized for issuance under the 2005 Plan amounted to 21,211,973, of which 2,222,411 shares are available for future grant under the 2005 Plan.
As of June 30, 2018, the number of shares of common stock authorized for issuance under the 2016 Plan amounted to 3,558,080 for calendar year 2018, all of which are available for future grant under the 2016 Plan.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 9: - STOCKHOLDERS' EQUITY
(CONT.)
(1) Options to employees and directors:
The Company accounts for its options to employees and directors under the fair value method in accordance with ASC 718, “Compensation—Stock Compensation”. A summary of the Company’s activity for options granted to employees and directors under the 2005 Plan is as follows:
|
|
Year ended June 30, 2018
|
|
|
|
Number
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Terms (in years)
|
|
|
Aggregate Intrinsic Value Price
|
|
Options outstanding at beginning of period
|
|
|
815,650
|
|
|
$
|
2.98
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(50,500
|
)
|
|
$
|
0.83
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(450,150
|
)
|
|
$
|
4.86
|
|
|
|
|
|
|
|
Options outstanding at end of the period
|
|
|
315,000
|
|
|
$
|
0.62
|
|
|
|
0.334
|
|
|
$
|
189
|
|
Options exercisable at the end of the period
|
|
|
315,000
|
|
|
$
|
0.62
|
|
|
|
0.334
|
|
|
$
|
189
|
|
Options vested at the end of the period
|
|
|
315,000
|
|
|
$
|
0.62
|
|
|
|
0.334
|
|
|
$
|
189
|
|
Intrinsic value of exercisable options (the difference between the Company’s closing stock price on the last trading day in the period and the exercise price, multiplied by the number of in-the-money options) represents the amount that would have been received by the employees and directors option holders had all option holders exercised their options on June 30, 2018. This amount changes based on the fair market value of the Company’s common stock.
(2) Options to non-employees:
A summary of the options to non-employee consultants under the 2005 Plan and 2016 Plan is as follows:
|
|
Year ended June 30, 2018
|
|
|
|
Number
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Terms (in years)
|
|
|
Aggregate Intrinsic Value Price
|
|
Options outstanding at beginning of period
|
|
|
177,200
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
Options granted
|
|
|
358,400
|
|
|
$
|
-
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(35,000
|
)
|
|
$
|
3.57
|
|
|
|
|
|
|
|
Options outstanding at end of the period
|
|
|
500,600
|
|
|
$
|
0.01
|
|
|
|
6.91
|
|
|
$
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at the end of the period
|
|
|
177,750
|
|
|
$
|
0.02
|
|
|
|
5.24
|
|
|
$
|
214
|
|
Options vested and expected to vest at the end of the period
|
|
|
500,600
|
|
|
$
|
0.01
|
|
|
|
6.91
|
|
|
$
|
608
|
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
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 options granted to consultants were recorded as follows:
|
|
Year ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Research and development expenses
|
|
$
|
107
|
|
|
$
|
7
|
|
|
$
|
22
|
|
General and administrative expenses
|
|
|
61
|
|
|
|
39
|
|
|
|
2
|
|
|
|
$
|
168
|
|
|
$
|
46
|
|
|
$
|
24
|
|
(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, 2018:
|
|
Number
|
|
Unvested at the beginning of period
|
|
|
6,064,901
|
|
Granted
|
|
|
3,243,926
|
|
Forfeited
|
|
|
(257,919
|
)
|
Vested
|
|
|
(2,757,300
|
)
|
Unvested at the end of the period
|
|
|
6,293,608
|
|
Expected to vest after June 30, 2018
|
|
|
6,126,061
|
|
Compensation expenses related to RS and RSUs granted to employees and directors were recorded as follows:
|
|
Year ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Research and development expenses
|
|
$
|
1,273
|
|
|
$
|
1,558
|
|
|
$
|
960
|
|
General and administrative expenses
|
|
|
4,577
|
|
|
|
1,645
|
|
|
|
1,905
|
|
|
|
$
|
5,850
|
|
|
$
|
3,203
|
|
|
$
|
2,865
|
|
Unamortized compensation expenses related to RS and RSUs granted to employees and directors to be recognized over an average time of approximately
3.5
years are approximately $5,034.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 9: - STOCKHOLDERS' EQUITY
(CONT.)
(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, 2018:
|
|
Number
|
|
Unvested at the beginning of period
|
|
|
42,500
|
|
Granted
|
|
|
548,139
|
|
Vested
|
|
|
(391,080
|
)
|
Unvested at the end of the period
|
|
|
199,559
|
|
Compensation expenses related to RS and RSUs granted to consultants were recorded as follows:
|
|
Year ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Research and development expenses
|
|
$
|
43
|
|
|
$
|
19
|
|
|
$
|
39
|
|
General and administrative expenses
|
|
|
487
|
|
|
|
394
|
|
|
|
145
|
|
|
|
$
|
530
|
|
|
$
|
413
|
|
|
$
|
184
|
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 9: - STOCKHOLDERS' EQUITY
(CONT.)
|
a.
|
Summary of warrants and options:
|
|
|
|
|
|
Options and Warrants for Common Stock
|
|
|
Options and Warrants
Exercisable
|
|
|
Weighted Average Remaining Contractual Terms
(in years)
|
|
Warrants:
|
|
$
|
1.40
|
|
|
|
7,620,278
|
|
|
|
7,620,278
|
|
|
|
4.06
|
|
|
|
$
|
2.85
|
|
|
|
4,080,000
|
|
|
|
4,080,000
|
|
|
|
2.00
|
|
Total warrants
|
|
|
|
|
|
|
11,700,278
|
|
|
|
11,700,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options:
|
|
$
|
0.00
|
|
|
|
495,600
|
|
|
|
172,750
|
|
|
|
6.98
|
|
|
|
$
|
0.62
|
|
|
|
320,000
|
|
|
|
320,000
|
|
|
|
0.33
|
|
Total options
|
|
|
|
|
|
|
815,600
|
|
|
|
492,750
|
|
|
|
|
|
Total warrants and options
|
|
|
|
12,515,878
|
|
|
|
12,193,028
|
|
|
|
|
|
This summary does not include 6,493,167 RS and RSUs that are not vested as of June 30, 2018.
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.
NOTE 11:-FINANCIAL INCOME, NET
|
|
Year ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Foreign currency translation differences, net
|
|
$
|
52
|
|
|
$
|
182
|
|
|
$
|
(174
|
)
|
Bank and broker commissions
|
|
|
(62
|
)
|
|
|
(67
|
)
|
|
|
(85
|
)
|
Interest income on deposits
|
|
|
276
|
|
|
|
122
|
|
|
|
149
|
|
Gain (loss) related to marketable securities, net
|
|
|
8,478
|
|
|
|
254
|
|
|
|
228
|
|
Other than temporary impairment loss
|
|
|
(850
|
)
|
|
|
(767
|
)
|
|
|
(38
|
)
|
Gain (loss) from derivatives and fair value hedge derivatives
|
|
|
(264
|
)
|
|
|
481
|
|
|
|
(30
|
)
|
Other financial income (expense)
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
23
|
|
|
|
$
|
7,605
|
|
|
$
|
205
|
|
|
$
|
73
|
|
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 12:-TAXES ON INCOME
A.
|
Tax assessments:
The Subsidiary has not received final tax assessments since its incorporation; however, the assessments of the Subsidiary are deemed final through 2012.
|
B.
|
Tax rates applicable to the Company:
|
|
1.
|
Pluristem Therapeutics Inc.:
|
The tax rates applicable to Pluristem Therapeutics Inc., a Nevada corporation, are corporate (progressive) tax at the rate of up to 21% following the U.S. Tax and Jobs Act, excluding state tax and local tax, if any, which rates depend on the state and city in which Pluristem Therapeutics Inc. conducts its business.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Tax Act") was signed into law, permanently lowering the corporate federal income tax rate from 35% to 21%, effective January 1, 2018.
The Tax Act also provides for a one-time transition tax on certain foreign earnings 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 the Company.
The Company recognized the income tax effects of the Tax Act in its 2018 consolidated financial statements in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), which provides Securities and Exchange Commission staff guidance for the application of ASC 740, "Income Taxes", in the reporting period in which the 2017 Tax Act was enacted. In accordance with SAB 118,
deferred tax assets and liabilities were re-measured to reflect the revised corporate income tax rate of 21%
.
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, 2018. 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.
The Company does not expect that the Tax Act will have a significant effect on its consolidated financial statements and related disclosures. In addition, there was no one-time transition tax for the Company under the Tax Act.
In January 2018, Pluristem Therapeutics Inc. was registered as an Israeli resident with the Israel Tax Authority (“ITA”) and the Israeli VAT authorities. As a result, since such date, Pluristem Therapeutics Inc. has a dual residency for tax purposes both in Israel and in the United States.
In June 2018, Pluristem Therapeutics Inc. and its Subsidiary submitted an election notice to the ITA to file a consolidated tax return starting with tax year 2018.
Taxable income of Israeli companies is subject to tax at the rate of 23% in 2018, 24% in 2017 and 25% in 2016.
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016, which reduces the corporate income tax rate to 23% effective from January 1, 2018.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 12:-TAXES ON INCOME (CONT.)
The Subsidiary is filing its tax reports in accordance with the Foreign Exchange Regulations ("FER"). Under the FER, the Subsidiary calculates its tax liability in U.S. Dollars according to certain orders. The tax liability, as calculated in U.S. Dollars, is translated into NIS according to the exchange rate as of June 30 of each year.
Tax Benefits Under the Law for Encouragement of Capital Investments.
According to the Law for Encouragement of Capital Investments, 1959 (the "Encouragement Law"), the Subsidiary is entitled to various tax benefits due to "Beneficiary Enterprise" status granted to its enterprise, as implied by the Encouragement Law. The principal benefits by virtue of the Encouragement Law are:
Tax benefits and reduced tax rates:
On July 7, 2010, the Subsidiary received a letter of approval (the "Ruling") from the ITA. According to the Ruling, the Subsidiary's expansion program of its plant was granted the status of a "Beneficiary Enterprise" under the "Alternative Track" (the "2007 Program"). The Subsidiary chose the year 2007 as the election year of the 2007 Program.
Under the 2007 Program "Alternative Track", the Subsidiary, which was located in a National Priority Zone "B" with respect to the year 2007, is tax exempt in the first six years of the benefit period and subject to tax at the reduced rate of 10%-25% for a period of one to four years for the remaining benefit period (dependent on the level of foreign investments).
On June 6, 2013, the Subsidiary informed the ITA that it has chosen the year 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).
Tax rates applicable to the Company:
The income qualifying for tax benefits under the alternative track is the taxable income of a “beneficiary company” that has met certain conditions as determined by the Encouragement Law, and which is derived from an industrial enterprise. The Encouragement Law specifies the types of qualifying income that is entitled to tax benefits under the alternative track both in respect of an industrial enterprise and of a hotel, whereby income from an industrial enterprise includes, among others, revenues from the production and development of software products and revenues from industrial research and development activities performed for a foreign resident (and approved by the Head of the Administration of Industrial Research and Development).
As stated above, the Subsidiary's 2007 Program and 2012 Program were granted the status of a "Beneficiary Enterprise", in accordance with the Encouragement
Law, under the alternative benefits track. Accordingly, income derived from the Beneficiary Enterprise is subject to the benefits and conditions stated above.
In respect of expansion programs pursuant to Amendment No. 60 to the Encouragement
Law, the benefit period 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 since the beginning of the election year. The benefit period for the Subsidiary's 2007 Program expired in 2018 (12 years since the beginning of the election year– 2007).
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
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 2012 Program would 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 tax 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).
As for "Beneficiary Enterprises" pursuant to Amendment No. 60 to the Encouragement
Law, the basic condition for receiving the benefits under this track is that the enterprise contributes to Israeli economic growth and is a competitive factor for the gross domestic product. In order to comply with this condition, the Encouragement
Law prescribes various requirements regarding industrial enterprises.
As for industrial enterprises, in each tax year during the benefit period, one of the following conditions must be met:
|
1.
|
The industrial enterprise's main field of activity is biotechnology or nanotechnology as approved by the Head of the Administration of Industrial Research and Development, prior to the approval of the relevant program.
|
|
2.
|
The industrial enterprise's sales revenues in a specific market during the tax year do not exceed 75% of its total sales for that tax year. A "market" is defined as a separate country or customs territory.
|
|
3.
|
At least 25% of the industrial enterprise's overall revenues during the tax year were generated from the enterprise's sales in a specific market with a population of at least 14 million.
|
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) from the first year of the assets operation.
Conditions for the entitlement to the benefits:
The abovementioned benefits are conditional upon the fulfillment of the conditions stipulated by the Encouragement
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.
Amendment to the Encouragement Law:
Effective January 2011, the Knesset (Israeli parliament) enacted a reform to the Encouragement Law. According to the reform a flat rate tax would apply to companies eligible for the “Preferred Enterprise” status.
In order to be eligible for a "Preferred Enterprise" status, a company must meet minimum requirements to establish that it contributes to the country’s economic growth and is a competitive factor for the Gross Domestic Product (a competitive enterprise).
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 12:-TAXES ON INCOME (CONT.)
Israeli companies which currently benefit from an Approved or Privileged Enterprise status and meet the criteria for qualification as a "Preferred Enterprise" can elect to apply the new "Preferred Enterprise" benefits by waiving their benefits under the "Approved" and "Beneficiary Enterprise" status.
Benefits granted to a "Preferred Enterprise" include reduced tax rates. Following the enactment of the National Priorities Law, effective January 1, 2014, the reduced tax rate is 9% in the Development Area A regions and 16% in other regions. "Preferred Enterprises" in peripheral regions are also eligible for Israeli government Investment Center grants, as well as the applicable reduced tax rates.
A distribution from a "Preferred Enterprise" out of the "Preferred Income" is subject to 20% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates).
A distribution from a "Preferred Enterprise" out of the “Preferred Income” would be exempt from withholding tax for an Israeli-resident company.
The Subsidiary did not apply the Amendment to the Encouragement Law with respect to the Privileged Enterprise status, but may choose to apply the Amendment in the future
.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 71):
In August 2013, the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which includes Amendment 71 to the Law for the Encouragement of Capital Investments (“Amendment 71”) was enacted. According to Amendment 71, the tax rate on preferred income from a preferred enterprise in 2014 and thereafter will be 16% (in development area A - 9%). As for changes in tax rates resulting from the enactment of Amendment 73 to the Law, see below.
Amendment 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%.
Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73):
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement of Capital Investments (“Amendment 73”) was published. According to Amendment 73, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).
Amendment 73 also prescribes special tax tracks for technological enterprises, which are subject to rules that are to be issued by the Minister of Finance on May 28, 2017, the regulations were approved by the Minister of Finance and the amendment came into effect on January 1, 2017.
The new tax tracks under Amendment 73 are as follows:
Technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion.
A technological preferred enterprise, as defined in the Encouragement of Capital Investments Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in development area A - a tax rate of 7.5%).
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 12:-TAXES ON INCOME (CONT.)
Special technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits deriving from intellectual property, regardless of the enterprise's geographical location.
Any dividends distributed to "foreign companies", as defined in the Law, deriving from income from the technological enterprises will be subject to tax at a rate of 4%.
|
C.
|
Carryforward losses for tax purposes
|
As of June 30, 2018, Pluristem Therapeutics Inc. had U.S. federal net operating loss carryforward for income tax purposes in the amount of approximately $35,641. Net operating loss carryforward arising in taxable years
,
can be carried forward and offset against taxable income for 20 years and expiring between 2024 and 2037.
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.
The Subsidiary in Israel has accumulated losses for tax purposes as of June 30, 2018, in the amount of approximately $128,182, which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period.
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,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
U.S. net operating loss carryforward
|
|
$
|
7,485
|
|
|
$
|
11,382
|
|
Israeli net operating loss and research and development expenses carryforward
|
|
|
33,538
|
|
|
|
26,275
|
|
Allowances and reserves
|
|
|
274
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets before valuation allowance
|
|
|
41,297
|
|
|
|
37,879
|
|
Valuation allowance
|
|
|
(41,297
|
)
|
|
|
(37,879
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2018 and 2017, the Company has provided full valuation allowances in respect of deferred tax assets resulting from tax loss carryforward and other temporary differences, since they have a history of operating losses and current uncertainty concerning its ability to realize these deferred tax assets in the future.
PLURISTEM THERAPEUTICS INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
U.S. Dollars in thousands (except share and per share amounts)
|
NOTE 12:-TAXES ON INCOME (CONT.)
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, 2018 and 2017, 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 2018, 2017 and 2016, the main reconciling item of the statutory tax rate of the Company (21% to 35% in 2018, 2017 and 2016) 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.