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| PSTI > SEC Filings for PSTI > Form 10-K on 23-Sep-2009 | All Recent SEC Filings |
23-Sep-2009
Annual Report
Overview:
We develop and intend to commercialize, cell therapy production technologies and products.
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 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, 2009 COMPARED TO YEAR ENDED JUNE 30,
2008.
We have not generated any revenues, and we have negative cash flow from
operations of $17,730,000 and have accumulated a deficit of $32,652,000 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 net
Research and development net costs, for the year ended June 30, 2009 decreased by 28% to $3,141,000 from $4,393,000 for the year ended June 30, 2008. The decrease is due to the decrease in stock-based compensation to employees and consultants in the amount of $1,036,000 as a result of a decrease in our stock price, and due to an increase in the participation by the Israeli Office of the Chief Scientist, or OCS, which offset costs, as the grant for the last 4 months of fiscal year 2008 was approved and recorded in fiscal year 2009. This decrease is partially offset by increasing expenses of subcontractors and materials as we are progressing with our research and development toward clinical trials.
For the next twelve months, we estimate that our cash research and development net costs will be approximately $4,000,000. We intend to spend our research and development funds on continuing research of our PLX cells, continuing our Phase I clinical trials for the PAD indication in the United States and Germany, 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, 2009 decreased by 43% to $3,417,000 from $6,036,000 for the year ended June 30, 2008. The decrease in general and administrative expenses is primarily attributable to the decrease in stock-based compensation to employees and consultants in the amount of $1,865,000. In addition, we reduced various expenses, mainly expenses related to services provided by investor relations and public relations consultants.
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, 2009 was $6,636,000 as compared to net loss of $10,498,000 for the year ended June 30, 2008. Net loss per share for the year ended June 30, 2009 was $0.63, as compared to $1.63 for the year ended June 30, 2008. The net loss per share decreased as a result of the decrease in the net loss and the increase in our weighted average number of shares due to the issuance of additional shares pursuant to equity issuances since July 1, 2008 as discussed further below.
Liquidity and Capital Resources
As of June 30, 2009, total current assets were $2,935,000 and total current liabilities were $840,000. On June 30, 2009, we had a working capital surplus of $2,095,000 and an accumulated deficit of $32,652,000. We finance our operations and plan to continue doing so with stock issuances and with the participation of the OCS.
Cash and cash equivalents as of June 30, 2009 amounted to $2,339,000. This is an increase of $2,016,000 from the $323,000 reported as of June 30, 2008. In addition to the cash and cash equivalents, we had marketable securities in the amount of $1,185,000 as of June 30, 2008. Cash balances increased in the year ended June 30, 2009 for the reasons presented below:
Operating activities used cash of $4,262,000 in the year ended June 30, 2009. Cash used by operating activities in the year ended June 30, 2009 primarily consisted of payments of salaries to our employees, and payments of fees to our consultants, subcontractors and professional services providers, less research and development grant participation by the OCS.
Investing activities provided cash of $830,000 in the year ended June 30, 2009. This resulted primarily from proceeds from sale of marketable securities in the amount of $1,113,000 offset by purchases of capital equipment and leasehold improvements associated with our GMP in the amount of $313,000.
Financing activities generated cash in the amount of $5,448,000 during the year ended June 30, 2009 resulting primarily from receiving cash from investors related to the offerings described below.
On August 6, 2008, we sold 1,391,304 shares of our common stock and warrants to purchase 695,652 shares of common stock at an exercise price of $1.90 per share to two investors in consideration of $1,600,000 pursuant to the terms of a securities purchase agreement. 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 securities sold (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 Financial Industry Regulatory Authority, or 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 in consideration for $1,035,000 pursuant to terms of a securities purchase agreement. The price per share of common stock was $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). As part of this transaction, we paid a transaction fee to finders equal to 6% of the actual purchase price and issued, for no further consideration, warrants exercisable for five years at an exercise price of $1.50 per share to purchase 54,000 shares of our common stock.
During November 2008 through January 2009, we entered into securities purchase
agreements with various investors, pursuant to which we sold in aggregate of
1,746,575 shares of our common stock at a price of $0.40 per share, for an
aggregate purchase price of $698,630, and issued warrants to purchase up to an
additional 1,746,575 shares of common stock with an exercise price of $1.00 per
share. The warrants became exercisable after six months from the applicable
closing date and will expire after five years from such date. Pursuant to the
securities purchase agreements, the investors had the option, by notice to us no
later than 10 business days following the release of an official announcement by
us that the company is initiating its first human clinical trials, to purchase
an additional 931,507 shares of common stock at a purchase price of $0.75 per
share, for an aggregate purchase price of $698,630, and receive therewith
warrants to purchase up to additional 931,507 shares of common stock with an
exercise price of $1.50 per share, or the Initial Option. The Initial Option was
exercisable within six months from the applicable closing date. Investors
exercised the Initial Option in July 2009 as described further below. As part of
this transaction, we paid a transaction fee to finders in an amount of $38,630
in cash and issued them warrants exercisable for five years at an exercise price
of $1.00 per share to purchase 96,579 shares of our common stock.
On January 20, 2009, we sold 216,818 shares of our common stock and warrants to purchase 216,818 shares of common stock to investors in consideration for $95,400 pursuant to terms of a securities purchase agreement. The price per share of common stock was $0.44, and the exercise price of the warrants is $1.00 per share. The warrants became exercisable after six months from the closing date and will expire after five years from such date. Pursuant to the agreement, the investors had the option, by notice to us no later than 10 business days following the release of an official announcement by us that the company is initiating its first human clinical trials, to purchase additional 127,200 shares of common stock at a purchase price of $0.75 per share, for an aggregate purchase price of $95,400, and receive therewith warrants to purchase up to an additional 127,200 shares of common stock with an exercise price of $1.50 per share, or the January 20 Option. The January 20 Option was exercisable within six months from the closing date. Investors exercised the January 20 Option in July 2009 as described further below. As part of this transaction, we paid a transaction fee to finders in an amount of $5,400 in cash and issued them warrants exercisable for two years at an exercise price of $1.00 per share to purchase 12,273 shares of our common stock.
On January 29, 2009, we entered into a subscription agreement with certain investors, pursuant to which we sold to such investors 969,826 units, each unit consisting of one share of common stock and a warrant to purchase one share of our common stock exercisable 181 days following the issuance thereof for a period of five years thereafter at an exercise price of $1.90 per share, or the Units. The purchase price per Unit was $1.16 and the aggregate purchase price for such Units was $1,125,000. As part of this transaction, we paid a transaction fee to finders in an amount of $89,546 in cash and issued these investors warrants to purchase 80,983 shares of our common stock, exercisable after six months for five years at an exercise price of $1.90 per share.
On May 5, 2009, we entered into securities purchase agreements with two investors pursuant to which we sold 888,406 shares of our common stock and warrants to purchase 488,623 shares of common stock in consideration for $1,332,610. The exercise price of the warrants is $1.96 and they will be exercisable for a period of five years commencing six months following the issuance thereof. 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 securities sold (excluding any consideration that may be paid in the future upon exercise of the warrants) as well as warrants to purchase 53,304 shares of common stock at an exercise price of $1.875 per share. Subject to FINRA Rule 2710, the placement agent's warrants may be exercised after six months through and including May 5, 2014. The offering was made pursuant to our effective shelf registration statement on Form S-3 (File No. 333-151761).
We announced that the company is initiating its first human clinical trials, which triggered the ability to exercise the Initial Option and the January 20 Option by certain investors. Accordingly, we issued in July 2009 1,058,708 shares of common stock at a purchase price of $0.75 per share, for an aggregate purchase price of $794,030, and warrants to purchase up to an additional 1,058,708 shares of common stock with an exercise price of $1.50 per share.
We received $1,375,000 from grants from the OCS during the year ended June 30,
2009. Recently, a grant in an amount of $2.3 million was approved for
participation in R&D expenses for the period March 2009 to February 2010 (In
August 2009 we received $668,000 on account of the approved grant).
While most of our capital resources are denominated by US dollars, about half of our expenses are denominated by NIS. Over the past year, due to the increased volatility of the US Dollar, we began using foreign currency forward contracts. We continue to actively utilize currency hedging transactions to manage our exposure.
Outlook
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 or products. Our products will likely not be ready for sale for at least three years, if at all.
The OCS has supported our activity in the past three years. Our application for a fourth year's grant was submitted in March 2009. Recently, the OCS approved a grant in an amount of $2.3 million for participation in R&D expenses for the period March 2009 to February 2010. We believe that the funds we have, together with the approved R&D grant, will be sufficient for operating until March 2010. Our independent registered public accounting firm's report states that there is a substantial doubt that we will be able to continue as a going concern. Management believes that we will need to raise additional funds before we have any cash flow from operations.
We are looking constantly for sources of funding, including non-diluting funds, such as the OCS grants and filing grant applications with the U.S. National Institutes of Health, which we have done recently. There can be no assurance that we will receive this grant. In addition, we plan to raise additional funds by issuance of equity.
If we are unable to obtain the financing necessary to support our operations, we may need to take measures to reduce our operating costs, or, if such measures will not be sufficient, 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 the company.
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.
Stock-based compensation
We account for stock-based compensation in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123 (revised 2004), "Share-Based Payment", or SFAS No. 123(R). SFAS No. 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 our consolidated income statements.
We recognize compensation expenses for the value of its awards, which have graded vesting based on the accelerated method over the requisite service period of each of the awards.
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. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending on the grant date. The expected life of options granted is calculated using the Simplified Method, as defined in Staff Accounting Bulletin, or SAB No. 107, "Share-Based Payments", or SAB No. 107, as the average between the vesting period and the contractual life of the options. On December 21, 2007 the SEC staff issued SAB No. 110, or SAB 110, which, effective January 1, 2008, amends and replaces SAB No. 107.
We currently use the Simplified Method, as adequate historical experience is not
available to provide a reasonable estimate. We adopted SAB 110 effective
January 1, 2008 and will continue to apply the Simplified Method until enough
historical experience is available to provide a reasonable estimate of the
expected term for stock option grants.
We have historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The expected annual pre-vesting forfeiture rate affects the number of exercisable options. Based on our historical experience, the annual pre-vesting forfeiture rate is 5%.
The assumptions below are relevant to restricted shares granted in 2009:
In accordance with SFAS No. 123(R), restricted shares are measured at their fair value as if they were vested and issued on the grant date. All restricted shares to employees and non-employees granted in 2009 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 shares was determined based on the close trading price of our shares known at the grant date.
We apply SFAS No. 123 (R) 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", with respect to options and warrants issued to non-employees. SFAS 123(R) requires the use of option valuation models to measure the fair value of the options and warrants at the measurement date.
Off Balance Sheet Arrangements
Our company has no off balance sheet arrangements.
Item7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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