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| PSTI > SEC Filings for PSTI > Form 10-K on 29-Sep-2008 | All Recent SEC Filings |
29-Sep-2008
Annual Report
Overview:
We are engaged in the business of the development of stem cell production technology and the development and commercialization of cell therapy products. We were incorporated in the State of Nevada under the name "A.I. Software, Inc." on May 11, 2001. On June 10, 2003, we acquired from the Weizmann Institute of Science and the Technion-Israel Institute of Technology 100% of the issued and outstanding shares of a research and development company based in Israel called Pluristem, Ltd. Pluristem, Ltd. was incorporated under the law of Israel on January 22, 2003 and has the facilities and personnel to conduct research and development in the field of stem cell research. As a result, Pluristem, Ltd. became our wholly owned subsidiary as of June 10, 2003.
On November 23, 2007, we changed our name to Pluristem Therapeutics Inc.
On November 26, 2007, we effected a one for two hundred reverse stock split. Accordingly, all references to number of shares, common stock and per share data have been adjusted to reflect the stock split on a retroactive basis.
On December 10, 2007, our shares of common stock began trading on the NASDAQ Capital Market under the symbol PSTI. The shares were previously traded on the OTC Bulletin Board under the trading symbol "PLRS.OB". On May 7, 2007, our shares also began trading on the Frankfurt Stock Exchange, under the symbol PJT.
Effective on June 4, 2008, the authorized number of shares of our common stock was increased from 7,000,000 shares to 30,000,000 shares. Effective on July 1, 2008, we amended our Articles of Incorporation to authorize 10,000,000 shares of Preferred Stock, par value $0.00001, with such series, rights, preferences, privileges and restrictions as may be designated from time to time by the Board of Directors.
RESULTS OF OPERATIONS - YEAR ENDED JUNE 30, 2008 COMPARED TO YEAR ENDED JUNE 30,
2007.
We have not generated any revenues, and we have negative cash flow from
operations of $13,468,000 and have accumulated a deficit of $26,016,000 since
our inception in May 2001. This negative cash flow is mostly attributable to
research and development and general and administrative expenses. We anticipate
that our operating expenses will increase as we intend to conduct expanded
development of our products through animal pre-clinical trials and experiments
and clinical trials. We estimate our cash expenses in the next twelve months
will be approximately $6,000,000, generally falling in two major categories:
research and development costs and general and administrative expenses.
Research and Development
Research and development costs net for the year ended June 30, 2008 increased by 72% to $4,393,000 from $2,549,000 for the year ended June 30, 2007. The increase is due to the revaluation of the Israeli shekel against the US dollar, which increased our operational expenses paid in NIS and due to the increase in the number of employees and research activity such as conducting final pre-clinical studies under GLP (Good Laboratory Practice) conditions, as part of our progress towards clinical trials. For the next twelve months, we estimate that our cash research and development costs will be approximately $4,000,000 We intend to spend our research and development funds on completion and filing an IND package with the FDA, entering into Phase I/II clinical trial for the PAD indication in the United States and Germany (subject to regulatory approval), upgrading the 3-D bioreactor operations, developing the expansion of our placenta adherent stem cell product, and developing capabilities for new clinical indications of PLX cells.
General and Administrative
General and administrative expenses for the year ended June 30, 2008 increased by 62% to $6,036,000 from $3,726,000 for the year ended June 30, 2007. The increase in general and administrative expenses is primarily attributable to the increase in stock-based compensation to employees and consultants which increased from $1,934,000 to $3,160,000 and due to the revaluation of the Israeli shekel against the US dollar, which increased our operational expenses paid in Israel, and due to an increase of legal and investor relations expenses. For the next twelve months, we estimate that our cash general and administrative expenses will be approximately $2,000,000. These expenses will include management services, public relations and investor relations and additional amounts on office and miscellaneous charges, which consist primarily of charges incurred for purchase of office supplies and other administrative expenses. These expenses will also include professional fees, which consist primarily of accounting and auditing fees for the year-end audit and legal fees for securities advice, directors liability insurance and cost of fundraising.
Net Loss
Net loss for the year ended June 30, 2008 was $10,498,000 as compared to net loss of $8,429,000 for the year ended June 30, 2007. Net loss per share for the year ended June 30, 2008 was $1.63, as compared to $5.84 for the year ended June 30, 2007. The net loss increased mainly due to the increase in stock-based compensation to employees and consultants in the amount of $1,459,000, and an increase in our operating expenses as a result of moving forward with our research and development plan, the increase was set off by know-how write-off in the amount of $1,963,000 which was recorded in March 2007. The net loss per share decreased as a result of the increase in our weighted average number of shares due to the issuance of additional shares in a private placement, as discussed below.
Liquidity and Capital Resources
As of June 30, 2008, total current assets were $2,107,000 and total current liabilities were $1,072,000. On June 30, 2008, we had a working capital surplus of $1,035,000 and an accumulated deficit of $26,016,000. We finance our operations and plan to continue doing so with stock issuances and with the participation of the Office of the Chief Scientist in Israel (OCS).
Cash and cash equivalents as of June 30, 2008 amounted to $323,000. This is a decrease of $1,330,000 from the $1,653,000 reported as of June 30, 2007. In addition to the cash and cash equivalents, we had marketable securities in the amount of $1,185,000 as of June 30, 2008 (marketable securities on June 30, 2007 were in the amount of $3,758,000). Cash balances decreased in the year ended June 30, 2008 for the reasons presented below:
Operating activities used cash of $4,537,000 in the year ended June 30, 2008. Cash used by operating activities in the year ended June 30, 2008 primarily consisted of payments of salaries to our employees, and payments of fees to our consultants, subcontractors and professional services providers.
Investing activities provided cash of $1,285,000 in the year ended June 30, 2008. This resulted primarily from proceeds from sale of marketable securities in the amount of $2,201,000 offset by costs associated with upgrading our facilities to Good Manufacturing Practice, or GMP, standard facilities in the amount of $840,000.
Financing activities generated cash in the amount of $1,922,000 during the year ended June 30, 2008 resulting primarily from receiving cash from investors related to the May 14, 2007 private placement.
On May 14, 2007, we closed a private placement ("Private Placement") of our
securities at a price of $2.50 per unit. Each unit consisted of one common share
and one common share purchase warrant, with one such warrant entitling the
holder to purchase one share of our common stock at a price of $5 per share for
a period of five years. The total proceeds related to the Private Placement
accumulated as of June 30, 2008 were $10,086,450 , and 4,034,585 shares and
4,034,585 warrants were issued. On August 5, 2008, we entered into securities
purchase agreements with two investors pursuant to which the investors agreed to
purchase 1,391,304 shares of our common stock and warrants to purchase 695,652
shares of Common Stock in consideration of $1,600,000. Rodman & Renshaw, LLC
acted as placement agent, on a best efforts basis, for the offering and received
a placement fee equal to 6% of the gross purchase price of the Units (excluding
any consideration that may be paid in the future upon exercise of the Warrants)
as well as warrants to purchase 83,478 shares of common stock at an exercise
price of $1.44 per share. Subject to FINRA Rule 2710, the placement agent
warrants may be exercised after six months through and including August 5, 2013.
The offering was made pursuant to our effective shelf registration statement on
Form S-3 (File No. 333-151761).
On September 22, 2008, we sold 900,000 shares of our Common Stock and Warrants
to purchase 675,000 shares of Common Stock to an investor pursuant to terms of a
securities purchase agreement. The price per share of Common Stock is $1.15, and
the exercise price of the Warrants is $1.90. The Warrants will be exercisable
for a period of five years. The offering was made pursuant to our effective
shelf registration statement on Form S-3 (File No. 333-151761).
We received $969,000 from grants from the OCS during the year ended June 30, 2008. We plan to continue our application for grants with OCS regarding the grant received from the Israeli government. We will use these grants in order to support our research and development plan.
Outlook
Over the next twelve months, we intend to pursue our primary objective of developing our technology and upgrading our production capabilities bringing them to commercial level. We intend to pursue scale-up of our bioreactors and to continuously improve production capabilities. We plan to complete our IND package to be submitted to the FDA; the acceptance of the IND document by the FDA is required before initiation of Phase I clinical trials. We will focus our efforts in entering into Phase I/II clinical trial for the PAD indication in the United States and Germany. We will start the manufacture of clinical grade PLX cells in our in-house GMP facilities.
We do not expect to generate any revenues from sales of products in the next twelve months. We may generate revenues from sale of licenses to use our technology. Our products will likely not be ready for sale for at least three years, if at all.
In our management's opinion, we would need to achieve the following milestones in the next twelve months in order for us to begin generating revenues as planned within three years or more:
- Filing the IND package with the FDA
- Scaling up of our 3-D PluriXTM Bioreactor operations bringing them to commercial capabilities
- Start the first Phase I clinical trial with the PLX-PAD after the FDA approval, or the IND.
We believe that we have sufficient funds to operate for until at least for additional two fiscal quarters Management believes that we will need to raise additional funds before we have any cash flow from operations. We believe that it will take several years for us to complete the approval process for our products in the United States or any other jurisdiction. In addition, future decisions regarding any acquisitions that we may make or any expanded product development, as to which there can be no assurance of success, will require additional capital, which must be raised through the issuance of additional securities and/or through the incurrence of debt. There can be no assurance, however, that acceptable financing to fund our ongoing operations can be obtained on suitable terms, if at all. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. In that event, we may be forced to cease operations and our stockholders could lose their entire investment in our company.
Going Concern
Our annual financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. The financial statements have been prepared on the assumption that we will continue as a going concern. However, certain conditions exist which raise doubt about our ability to continue as a going concern. We have suffered recurring losses from operations and have accumulated losses of approximately $26,016,000 since inception through the year ended June 30, 2008.
Application of Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with U.S. GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.
Options
On July 1, 2006, we adopted the Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)") which requires the measurement and recognition of compensation expenses based on estimated fair values for all share-based payment awards made to employees and directors. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
SFAS 123(R) requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the company's consolidated income statement. Prior to the adoption of SFAS 123(R), we accounted for equity-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
We adopted SFAS 123(R) using the modified prospective transition method, which required the application of the accounting standard starting from July 1, 2006, the first day of our 2006 fiscal year. We recognize compensation expenses for the value of awards, which have graded vesting based on the accelerated. method over the requisite service period of each of the awards. Prior to July 1, 2006, we applied the intrinsic value method of accounting for stock options as prescribed by APB 25, whereby compensation expense is equal to the excess, if any, of the quoted market price of the stock over the exercise price at the grant date of the award.
We estimate the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. The option-pricing model requires a number of assumptions, of which the most significant are expected stock price volatility and the expected option term.
We applied SFAS No. 123 and Emerging Issues Task Force No. 96-18 "Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" ("EIFT 96-18"), with respect to options and warrants issued to non-employees. The fair value of these options was estimated using the Black-Scholes-Merton option-pricing model.
Off Balance Sheet Arrangements
Our company has no off balance sheet arrangements.
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