Pluri Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Our financial statements are stated in thousands United States dollars and are prepared in accordance with U.S. GAAP. The following audited consolidated financial statements are filed as part of this Annual Report: Report of Independent Registered Public Accounting Firm, dated September 21, 2022 F-2 - F-3 Consolidated Balance Sheets F-4 - F-5 Consolidated Statements of Operations F-6 Statements of Changes in Equity F-7 - F-8 Consolidated Statements of Cash Flows F-9 Notes to the Consolidated Financial Statements F-10 - F-31 42 PLURI INC. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS As of June 30, 2022 U.S. DOLLARS IN THOUSANDS INDEX Page Report of Independent Registered Public Accounting Firm (PCAOB ID 1309 ) F-2 - F-3 Consolidated Balance Sheets F-4 - F-5 Consolidated Statements of Operations F-6 Statements of Changes in Shareholders’ Equity F-7 - F-8 Consolidated Statements of Cash Flows F-9 Notes to Consolidated Financial Statements F-10 - F-31 F- 1 Report of Independent Registered Public Accounting Firm To the board of directors and shareholders of Pluri Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Pluri Inc. and its subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of operations, of changes in shareholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Kesselman & Kesselman, Building 25, MATAM, P.O BOX 15084 Haifa, 3190500, Israel, Telephone: +972 -4- 8605000, Fax: +972 -4- 8605001, www.pwc.com/il F- 2 Establishment of Plurinuva As described in Note 1d to the consolidated financial statements, on February 24, 2022, the Company established Plurinuva together with Tnuva for the purpose of developing cultured meat products. Tnuva invested in Plurinuva $7.5 million for ordinary shares and warrants to purchase ordinary shares. The principal considerations for our determination that performing procedures relating to the establishment of Plurinuva is a critical audit matter are (i) the audit efforts to determine such a transaction was properly accounted for by the Company; and (ii) involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, reading the agreements, public filings and the Company's minutes from meetings of the Board of Directors. We inquired executive officers, key members and legal counsel of the Company, and the Audit Committee regarding the transaction. We researched accounting alternatives to evaluate the Company's accounting approach. We involved a valuation professional, with specialized skills and knowledge, who assisted in evaluating the valuation methodology which was included in the accounting analysis for the transaction. We analyzed the impacts of the transaction on the Company's financial statements. In addition, we evaluated the overall sufficiency of audit evidence obtained over the establishment of Plurinuva. /s/ Kesselman & Kesselman Certified Public Accountants (lsr.) A member firm of PricewaterhouseCoopers International Limited Haifa, Israel September 21, 2022 We have served as the Company's auditor since 2021. Kesselman & Kesselman, Building 25, MATAM, P.O BOX 15084 Haifa, 3190500, Israel, Telephone: +972 -4- 8605000, Fax: +972 -4- 8605001, www.pwc.com/il F- 3 PLURI INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. Dollars in thousands (except share and per share data) June 30, Note 2022 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9,772 $ 31,241 Short-term bank deposits 45,244 33,709 Restricted cash 2f 1,007 597 Prepaid expenses and other current assets 3 1,724 1,824 Total current assets 57,747 67,371 LONG-TERM ASSETS: Long-term bank deposits 2f - 23,269 Restricted bank deposits 2g 634 - Severance pay fund 661 664 Property and equipment, net 4 739 1,499 Operating lease right-of-use asset 6 8,270 728 Other long-term assets 14 7 Total long-term assets 10,318 26,167 Total assets $ 68,065 $ 93,538 The accompanying notes are an integral part of the consolidated financial statements. F- 4 PLURI INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS U.S. Dollars in thousands (except share and per share data) June 30, Note 2022 2021 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Trade payables $ 1,785 $ 2,526 Accrued expenses 1,630 5,941 Operating lease liability 6 619 634 Accrued vacation and recuperation 1,053 1,203 Other accounts payable 5 1,742 1,213 Total current liabilities 6,829 11,517 LONG-TERM LIABILITIES Accrued severance pay 867 920 Operating lease liability 6 6,505 100 Loan from the European Investment Bank (“EIB”) 7 21,678 23,850 Total long-term liabilities 29,050 24,870 COMMITMENTS AND CONTINGENCIES 8 SHAREHOLDERS’ EQUITY Share capital: 9 Common shares, $ 0.00001 par value per share: Authorized: 60,000,000 shares issued and outstanding: 32,507,491 shares as of June 30, 2022; 31,957,782 shares as of June 30, 2021 * * Additional paid-in capital 401,302 387,172 Accumulated deficit ( 371,263 ) ( 330,021 ) Total shareholders’ equity 30,039 57,151 Non-controlling interests 2,147 - Total equity 32,186 57,151 Total liabilities and equity $ 68,065 $ 93,538 (*) Less than $1 The accompanying notes are an integral part of the consolidated financial statements F- 5 PLURI INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS U.S. Dollars in thousands (except share and per share data) Year ended June 30, Note 2022 2021 Revenues 2h $ 234 $ - Operating expenses: Research and development expenses $ ( 24,605 ) $ ( 30,533 ) Less: participation by the Israel Innovation Authority, Horizon 2020 and other parties 228 467 Research and development expenses, net 2l ( 24,377 ) ( 30,066 ) General and administrative expenses ( 17,450 ) ( 20,557 ) Operating loss ( 41,593 ) ( 50,623 ) Financial income, net 1,106 836 Interest expense ( 887 ) ( 78 ) Total financial income, net 10 219 758 Net loss $ ( 41,374 ) $ ( 49,865 ) Net loss attributed to non-controlling interests ( 132 ) - Net loss attributed to shareholders ( 41,242 ) ( 49,865 ) Loss per share: Basic and diluted loss per share $ ( 1.28 ) $ ( 1.77 ) Weighted average number of shares used in computing basic and diluted loss per share 32,192,074 28,113,636 The accompanying notes are an integral part of the consolidated financial statements. F- 6 PLURI INC. AND ITS SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY U.S. Dollars in thousands (except share and per share data) Common Share Additional Paid-in Accumulated Total Shareholders’ Shares Amount Capital Deficit Equity Balance as of July 1, 2020 25,492,713 $ (* ) $ 336,257 $ ( 280,156 ) $ 56,101 Share-based compensation to employees, directors and non-employee consultants 591,033 (* ) 13,968 - 13,968 Issuance of common shares under Open Market Sales Agreement, net of issuance costs of $ 380 (Note 9(1)a) 1,045,097 (* ) 8,506 - 8,506 Issuance of common shares related to February 2021 registered direct offering net of issuance costs of $ 1,923 (Note 9(1)c) 4,761,905 (* ) 28,077 - 28,077 Exercise of options by employees and non-employee consultants 15,035 (* ) - - - Exercise of warrants by investors (Note 9(1)b) 51,999 (* ) 364 - 364 Net loss - - - ( 49,865 ) ( 49,865 ) Balance as of June 30, 2021 31,957,782 $ (* ) $ 387,172 $ ( 330,021 ) $ 57,151 (*) Less than $1 The accompanying notes are an integral part of the consolidated financial statements . F- 7 PLURI INC. AND ITS SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY U.S. Dollars in thousands (except share and per share data) Shareholders’ Equity Common Shares Additional Paid-in Accumulated Total Shareholders’ Non-controlling Total Shares Amount Capital Deficit Equity Interests Equity Balance as of July 1, 2021 31,957,782 $ (* ) $ 387,172 $ ( 330,021 ) $ 57,151 $ - $ 57,151 Share-based compensation to employees, directors, and non-employee consultants (Note 9(2)). 549,709 (* ) 8,473 - 8,473 436 8,909 Establishment of Plurinuva and non-controlling interest in Plurinuva (Notes 1d). - - 5,657 - 5,657 1,843 7,500 Net loss - - - ( 41,242 ) ( 41,242 ) ( 132 ) ( 41,374 ) Balance as of June 30, 2022 32,507,491 $ (* ) $ 401,302 $ ( 371,263 ) $ 30,039 $ 2,147 $ 32,186 (*) Less than $1 The accompanying notes are an integral part of the consolidated financial statements. F- 8 PLURI INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. Dollars in thousands Year ended June 30 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 41,374 ) $ ( 49,865 ) Adjustments to reconcile loss to net cash used in operating activities: Depreciation 1,053 1,370 Share-based compensation to employees, directors and non-employee consultants 8,909 13,968 Decrease in prepaid expenses and other current assets and other long-term assets 93 303 Increase (decrease) in trade payables ( 758 ) 578 Increase (decrease) in other accounts payable and accrued expenses ( 3,932 ) 3,353 Decrease in operating lease right-of-use asset and liability ( 1,148 ) ( 321 ) Increase in interest receivable on short-term deposits ( 329 ) ( 256 ) Effect of exchange rate changes on cash, cash equivalents, deposits and restricted cash 3,207 ( 126 ) Long term interest payable pursuant to EIB loan ( 2,172 ) 78 Accrued severance pay, net ( 50 ) 8 Net cash used for operating activities $ ( 36,501 ) $ ( 30,910 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment $ ( 280 ) $ ( 373 ) Proceeds from withdrawal of short-term deposits 12,063 4,061 Investment in long-term deposits - ( 10,953 ) Net cash provided by (used for) investing activities $ 11,783 $ ( 7,265 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds related to issuance of common shares, net of issuance costs $ - $ 36,589 Proceeds related to exercise of warrants - 364 Proceeds related to investment in subsidiary by non-controlling interest 7,500 - Proceeds from EIB loan - 24,449 Net cash provided by financing activities $ 7,500 $ 61,402 EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS and restricted cash ( 3,207 ) ( 618 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 20,425 ) 22,609 Cash, cash equivalents and restricted cash at the beginning of the period 31,838 9,229 Cash, cash equivalents, restricted cash and restricted bank deposits at the end of the period $ 11,413 $ 31,838 Reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets: Cash and cash equivalents 9,772 31,241 Restricted cash 1,007 597 Long- term restricted bank deposits 634 - Total cash, cash equivalents, restricted cash and restricted bank deposits $ 11,413 $ 31,838 The accompanying notes are an integral part of the consolidated financial statements. F- 9 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 1: - GENERAL a. Effective July 26, 2022, Pluri Inc., a Nevada corporation (“Pluri”), changed its name from Pluristem Therapeutics Inc. The Company also changed its symbol on the Nasdaq Global Market and Tel-Aviv Stock Exchange From “PSTI” to “PLUR”. Pluri was incorporated on May 11, 2001. Pluri has a wholly owned subsidiary, Pluri-Biotech Ltd. (formerly known as Pluristem Ltd.) (the “Subsidiary”), which is incorporated under the laws of the State of Israel. In January 2020, the Subsidiary established a wholly owned subsidiary, Pluristem GmbH (the “German Subsidiary”) which is incorporated under the laws of Germany. In January 2022, the Subsidiary established a subsidiary, Plurinuva Ltd. (“Plurinuva”), which is incorporated under the laws of Israel, which followed the execution of the collaboration agreement with Tnuva Food Industries – Agricultural Cooperative in Israel Ltd. (through its fully owned subsidiary, Tnuva Food-Tech Incubator (2019), Limited Partnership (“Tnuva”)). Pluri, the Subsidiary, the German Subsidiary and Plurinuva are referred to as the “Company” or “Pluri.” The Subsidiary, the German Subsidiary and Plurinuva are referred to as the “Subsidiaries.” b. The Company is a bio-technology company with an advanced cell-based technology platform, which operates in one business segment. The Company has developed a unique three-dimensional (“3D”) technology platform for cell expansion with an industrial scale in-house Good Manufacturing Practice cell manufacturing facility. Pluri currently uses its technology in the field of regenerative medicine and food tech and plans to utilize it in other industries and verticals that have a need for mass scale and cost-effective cell expansion platform such as agri-tech and biologics. Pluri is focused on the research, development and manufacturing of cell-based products, conducting clinical studies and the business development of cell therapeutics and cell-based technologies providing potential solutions for various fields. c. The Company has incurred an accumulated deficit of approximately $ 371,263 and incurred recurring operating losses and negative cash flows from operating activities since inception. As of June 30, 2022, the Company’s total shareholders’ equity amounted to $ 30,039 . During the year ended June 30, 2022, the Company incurred losses of $ 41,242 and its negative cash flow from operating activities was $ 36,501 . As of June 30, 2022, the Company’s cash position (cash and cash equivalents, short-term bank deposits, long-term bank deposits, restricted cash and restricted bank deposits) totaled $ 56,657 . The Company plans to continue to finance its operations from its current resources, by entering into licensing or other commercial agreements, from grants to support its research and development activities, and from sales of its equity securities and from the proceeds received from the loan previously provided by the European Investment Bank (the “EIB”, see also note 7). The Company’s management believes that its current resources, together with its existing operating plan, are sufficient for the Company to meet its obligations as they come due at least for a period of twelve months from the date of the issuance of these consolidated financial statements. There is no assurance, however, that the Company will be able to obtain an adequate level of financial resources that are required for the long-term development and commercialization of its products. d. On January 5, 2022, the Subsidiary entered into definitive agreements (the “Agreements”) with Tnuva pursuant to which the Subsidiary and Tnuva established Plurinuva, with the purpose of developing cultured meat products. Plurinuva received exclusive, global, royalty bearing licensing rights to use Pluri’s proprietary technology, intellectual property and knowhow in the field of cultured meat. Tnuva invested $ 7,500 in Plurinuva and received 187,500 of Plurinuva’s ordinary shares, representing 15.79 % of the Plurinuva share capital as of February 24, 2022 (the “Closing Date”). In addition, Tnuva received Warrants to invest up to an additional $ 7,500 over a period of twelve months following the Closing Date. F- 10 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) The First Warrant issued to Tnuva permits Tnuva to purchase up to 125,000 ordinary shares of Plurinuva at an exercise price of $ 40.00 per share, and has a term commencing on the Closing Date and ending at the earlier of (i) six months from the Closing Date, (ii) immediately prior to and subject to the consummation of an initial public offering or acquisition of Plurinuva or (iii) the consummation of a financing round with a non-affiliated investor. In addition, on the six month anniversary of the Closing Date, and provided that the First Warrant has not expired, Plurinuva agreed to issue a Second Warrant to Tnuva which will permit Tnuva to purchase up to a number of ordinary shares of Plurinuva, or the then most senior securities issued by Plurinuva, in consideration for such amount equal to 200 % of the remaining balance of the aggregate purchase price of the First Warrant, provided that Tnuva exercises at least 62,500 ordinary shares at a price per share of $ 40.00 , or $ 2,500 in the aggregate, of the First Warrant. The Second Warrant’s exercise price per share equals $ 76.00 . The Second Warrant has a term commencing on the six month anniversary of the Closing Date and ending at the earlier of (i) six months from its issuance, (ii) immediately prior to and subject to the consummation of an initial public offering or acquisition of Plurinuva or (iii) the consummation of a financing round with a non-affiliated investor. The Company allocated the total consideration of $ 7,500 received in an amount equal to $ 6,718 for the ordinary shares and $ 782 for the Warrants. The Company determined the fair value of the ordinary shares and the warrants utilizing a Monte Carlo simulation model (Level 3 classification), which incorporates various assumptions including expected stock price volatility, risk-free interest rate, and the expected date of a qualifying event. The Company estimated the volatility of the ordinary shares of Plurinuva based on data from similar companies operating in the food tech field. The main assumptions used in the Monte Carlo simulation model are as follows: Risk-free interest rate 1.08 % Expected stock price volatility 85 % The consideration allocated to the shares issued was divided between the non-controlling interests (“NCI”) and the Company’s shareholders as this transaction is a transaction with the NCI. The consideration allocated to the warrants was recognized against the NCI. On August 23, 2022, Plurinuva and Tnuva executed an amendment to the warrant agreement, extending the exercise period of the First Warrant from six months to nine months from the Closing Date. All other terms remained unchanged. e. On February 26, 2022, the Subsidiary allocated a total of 45,936 of its shares in Plurinuva, which constitute approximately 3.87 % of Plurinuva’s ordinary shares, to its Chairman, Chief Executive Officer and Chief Financial Officer, pursuant to the terms of their respective employment and/or consulting agreements with the Company. Following such allocations, the Company holds 80.34 % of the outstanding equity in Plurinuva. As a result, the Company recognized compensation expenses in the amount of $ 1,646 representing the fair value of the respective allocated shares. f. Based on the Company’s current assessment, the Company does not expect material impact on its operations due to the worldwide spread of COVID-19. However, The Company may experience delays if the pandemic worsens and continues for an extended period of time and it is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented by governments to combat the virus throughout the world. NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). a. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, judgments, and assumptions that are reasonable based upon information available at the time they are made. Estimates are primarily used for, but not limited to, valuation of share-based compensation, valuation of warrants, determining the valuation and terms of leases. These estimates, judgments and assumptions can affect the amounts reported in the financial statements and accompanying notes, and actual results could differ from those estimates. F- 11 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (CONT.) b. Functional currency The U.S. dollar is the primary currency of the economic environment in which the Company and the Subsidiaries operate. Thus, the U.S 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 consolidated statements of operations as financial income or expenses, as appropriate. c. Principles of consolidation The consolidated financial statements include the accounts of the Company and its Subsidiaries. Non-controlling interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to the Company. Non-controlling interests are presented in equity separately from the equity attributable to the shareholders of the Company. Profit or loss and components of other comprehensive income or loss are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statements of operations. The Company treats transactions with non-controlling interests as transactions with its equity owners. Accordingly, for sales or purchases of shares to or from non-controlling interests, the difference between any consideration received or paid and the portion sold or acquired of the carrying value of the net assets of the subsidiary is recorded in equity. 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 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. F- 12 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (CONT.) h. Revenue Recognition A contract with a customer exists only when: (i) the parties to the contract have approved it and are committed to perform their respective obligations, (ii) the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), (iii) the Company can determine the transaction price for the goods or services to be transferred, (iv) the contract has commercial substance and (v) it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. Revenues are recognized when the control of the promised goods or the performance of the obligations are transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled to, excluding sales taxes. 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. i. Property and equipment Property and equipment are stated at cost, net of accumulated depreciation and impairments. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates: % Laboratory equipment 10 - 40 Computers and peripheral equipment 33 Office furniture and equipment 15 Leasehold improvements The shorter of the expected useful life or the term of the lease. Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of property and equipment, are expensed as incurred. j. 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 2022 and 2021, no triggering events were identified, and no impairment losses were recorded. k. Share-based compensation The Company accounts for share-based compensation in accordance with ASC 718, “Compensation-Share Compensation” (“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The Company estimates the fair value of share options granted using the Black-Scholes option-pricing model. The Company accounts for employees’ share-based payment awards classified as equity awards (restricted shares (“RS”) or restricted share units (“RSUs”)) using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period, net of estimated forfeitures. The Company estimates forfeitures based on historical experience and anticipated future conditions. F- 13 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (CONT.) The Company recognized compensation cost for an award with service conditions that has a graded vesting schedule using the accelerated method based on the multiple-option award approach. The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of service-based share option grants is estimated on the grant date using a Black-Scholes option-pricing model and compensation expense related to share option and RSUs grants are recognized on a graded vesting schedule over the vesting period. For RSUs containing a market condition, the market conditions are required to be considered when calculating the grant date fair value. ASC 718 requires selection of a valuation technique that best fits the circumstances of an award. In order to reflect the substantive characteristics of the market condition RSU award, a Monte Carlo simulation valuation model was used to calculate the grant date fair value of such RSUs. Expense for a market condition RSU is recognized over the derived service period as determined through the Monte Carlo simulation model. All RS and RSUs to employees and directors granted during fiscal 2022 and 2021, were granted for no consideration. Therefore, their fair value was equal to the share price at the date of grant, unless the RSUs include a market-based condition in which case the fair value of RSUs at the date of grant was calculated using the Monte Carlo model. The fair value of all RS and RSUs was determined based on the close trading price of the Company’s shares known at the grant date. The weighted average grant date fair value of RS and RSUs granted during fiscal years 2022 and 2021, was $ 2.87 and $ 9.76 per share, respectively. l. Research and development expenses, royalty bearing grants and non-royalty bearing grants Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for research and development activities, including clinical trials, manufacturing costs and professional services. All costs associated with research and developments are expensed as incurred. Grants received from the Israel Innovation Authority (the “IIA”) are recognized when the grant becomes receivable, provided there was reasonable assurance that the Company will comply with the conditions attached to the grant and there was reasonable assurance the grant will be received. The grant is deducted from the research and development expenses as the applicable costs are incurred (see also note 8b). Research and development expenses, net for the year ended June 30, 2022 and 2021 include participation in research and development expenses in the amount of approximately $ 228 and $ 467 , respectively. Clinical study expenses are charged to research and development expense as incurred. The Company accrues for expenses resulting from obligations under contracts with clinical research organizations (“CROs”). The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided. The Company’s objective is to reflect the appropriate study expense in the consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. During fiscal years 2022 and 2021, the Company also received non-royalty bearing grants from the European Union research and development consortiums, under Horizon 2020, and from the IIA, under the CRISPR-IL consortium, in the amount of approximately $ 293 and $ 566 , for the year ended June 30, 2022 and 2021, respectively. 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. The CRISPR-IL consortium is a group funded by the IIA, comprised of leading experts in life science and computer science from academia, medicine, and industry, in order to develop AI based end-to-end genome-editing solutions. m. Loss per share Basic and diluted loss per share is computed by dividing losses by the weighted average number of common shares outstanding during the year, including unexercised vested options with a par value price. All outstanding share options, unvested RSUs and warrants have been excluded from the calculation of the diluted loss per common share because all such securities are anti-dilutive for each of the periods presented. The total weighted average number of shares related to the outstanding options, warrants and RSUs excluded from the calculations of diluted net loss per share due to their anti-dilutive effect was 5,247,803 and 5,700,994 for the years ended June 30, 2022, and 2021, respectively. F- 14 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (CONT.) n. Income taxes 1. Deferred taxes Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future. 2. Uncertainty in income taxes The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50 % likelihood of being realized upon ultimate settlement. o. Concentration of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term deposits, long-term deposits and restricted bank deposits. The majority of the Company’s cash and cash equivalents, restricted cash, short-term and long-term deposits are mainly invested in dollar, EURO and NIS deposits of major banks in Israel and in the United States. Deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and therefore bear minimal risk. The Company invests its surplus cash in cash deposits in financial institutions and has established guidelines, approved by the Company’s Investment Committee, relating to diversification and maturities to maintain safety and liquidity of the investments. p. Severance pay The 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 obligation exists 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, for whom 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. F- 15 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (CONT.) The 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 accumulated up to the balance sheet date. Severance expenses for the years ended June 30, 2022 and 2021 were $ 835 and $ 748 , respectively. q. Fair value of financial instruments The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, short-term and restricted bank deposits, accounts receivable and other current assets, trade payable and other accounts payable and accrued expenses, approximate fair value because of their generally short term maturities. The Company measures its derivative instruments at fair value under ASC 820, “Fair Value Measurement” (“ASC 820”). Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 - Unobservable inputs for the asset or liability. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company categorized each of its fair value measurements in one of these three levels of hierarchy. On April 30, 2020, the Company, through the German Subsidiary, entered into a finance contract (the “Finance Contract”) with the EIB, pursuant to which the German Subsidiary can obtain a loan in the amount of up to € 50 million, subject to certain milestones being reached (the “Loan”), payable in three tranches, with the first tranche consisting of € 20 million, second of € 18 million and third of € 12 million for a period of 36 months from the signing of the Finance Contract. The Company measures its liability pursuant to the Finance Contract (see also note 7) with the EIB based on the aggregate outstanding amount of the combined principal and accrued interest. The Company does not reflect its liability for future royalty payments pursuant to the Finance Contract since the royalty payments are to be paid as a percentage of the Company’s future consolidated revenues, pro-rated to the amount disbursed, beginning in the fiscal year 2024 and continuing up to and including its fiscal year 2030, which cannot be measured at this time. r. Derivative financial instruments The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related interpretations (“ASC 815”). ASC 815 requires the Company to recognize all derivatives on the balance sheet at fair value. If a derivative meets the definition of a hedge and is so designated, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings (for fair value hedge transactions) or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (for cash flow hedge transactions). If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings. Cash flows related to Company’s current hedging 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”) and its loan from the EIB that is linked to the Euro. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is recognized immediately as “financial income, net”. F- 16 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES (CONT.) The Company measured the fair value of the contracts in accordance with ASC 820. Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. As of June 30, 2022, the fair value of the options contracts is presented in “Other accounts payable” (see note 5) and as of June 30, 2021, the fair value of the options contracts is presented in “Other current assets” (see note 3). The net gains (losses) recognized in “Financial income, net” during the year ended June 30, 2022 and 2021 were ($ 373 ) and $ 35 respectively (see note 10). s. Leases Operating leases are included in operating lease right-of-use (“ROU”) asset, and operating lease liability. ROU assets represent Company’s right to use an underlying asset for the lease term and lease liabilities represent obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses the incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of the incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements with a noncancelable term of less than 12 months are not recorded on the balance sheets. The Company accounts for an extension of a lease term that was not part of the original lease as a modification. As a result, the Company reallocate contract consideration between the lease and non-lease components, reassess lease classification, and remeasure the lease liability and right-of-use asset prospectively. Assumptions such as the discount rate, fair value of the underlying asset, and variable rents based on a rate or index will be updated as of the modification date. Lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will either exercise or not exercise the option to renew or terminate the lease. t. Recently Issued Accounting Pronouncements not yet adopted ASU No. 2016-13 - “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”): In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. The amendments contained in ASU 2016-13 were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years for the Company. In November 2019, the FASB issued ASU No. 2019-10, which delayed the effective date of ASU 2016-13 for smaller reporting companies (as defined by the U.S. Securities and Exchange Commission rules (“SRC”)) to fiscal years beginning after December 15, 2022, including interim periods. Early adoption is permitted. The Company meets the definition of an SRC and is adopting the deferral period for ASU 2016-13. The guidance requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements but does not expect that the adoption of this standard will have a material impact on its consolidated financial statements. In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements. u. Comprehensive loss For all periods presented, net loss is the same as comprehensive loss as there are no comprehensive income items. t. Loss contingencies The Company may become involved, from time to time, in various lawsuits and legal proceedings which arise in the ordinary course of business. The Company records accruals for loss contingencies to the extent that it concludes their occurrence is probable and that the related liabilities are estimable. F- 17 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 3: - PREPAID EXPENSES AND OTHER CURRENT ASSETS June 30, 2022 2021 Accounts receivable from the Horizon 2020 grants $ 952 $ 1,089 Prepaid expenses 403 333 Value Added Tax (VAT) receivables 344 382 Accounts receivable from the Ministry of Economy and Industry 3 19 Derivatives instruments - 1 Other receivables 22 - Total $ 1,724 $ 1,824 NOTE 4: - PROPERTY AND EQUIPMENT, NET June 30, 2022 2021 Cost: Laboratory equipment $ 6,784 $ 6,715 Computers and peripheral equipment 1,619 1,473 Office furniture and equipment 681 681 Leasehold improvements 8,740 8,662 Total cost 17,824 17,531 Accumulated depreciation: Laboratory equipment 6,321 6,152 Computers and peripheral equipment 1,409 1,310 Office furniture and equipment 678 663 Leasehold improvements 8,677 7,907 Total accumulated depreciation 17,085 16,032 Property and equipment, net $ 739 $ 1,499 Depreciation expenses amounted to $ 1,053 and $ 1,370 for the years ended June 30, 2022 and 2021, respectively. Most of the Company’s property and equipment is located in Israel. F- 18 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 5: - OTHER ACCOUNTS PAYABLE June 30, 2022 2021 Deferred income from the Horizon 2020 grant and CRISPR-IL $ 112 $ 40 Accrued payroll 624 612 Derivatives instruments 457 - Payroll institutions 549 561 Total $ 1,742 $ 1,213 NOTE 6: - LEASES Towards the termination of the previous facility operating lease agreement, the Company signed, in December 2021,an addendum to its facility operating lease agreement (the “Addendum”) with the lessor, which extended the lease period to December 2026. In addition the Company has the option to extend the term of the lease (the “Extension Option”) for an additional period of five years until December 2031. The Company reflected the Extension Option during the evaluation of the lease liability and right-of-use asset. The monthly lease payments are approximately NIS 291,000 or $ 94 which are linked to the consumer price index and will increase by 10 % in the event the Company exercises its Extension Option. In addition, the Company has operating leases for vehicles that expire through fiscal year 2025. Below is a summary of the Company’s operating right-of-use assets and operating lease liabilities: June 30, 2022 2021 Operating right-of-use assets $ 8,270 $ 728 Operating lease liabilities, current 619 634 Operating lease liabilities long-term 6,505 100 Total operating lease liabilities $ 7,124 $ 734 Maturities of operating lease liabilities as of June 30, 2022 are as follows: June 30, 2022 2023 1,279 2024 1,203 2025 1,115 2026 999 2027 1,049 2028 and thereafter 4,947 Total undiscounted lease payments $ 10,592 Less: interest ( 3,468 ) Present value of lease liabilities $ 7,124 F- 19 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 6: - LEASES (CONT.) The components of lease expense and supplemental cash flow information related to leases for the year ended June 30, 2022 are as follows: Year ended June 30, 2022 2021 Components of lease expense Operating lease payments linked to index, net * $ 1,196 $ 984 Sublease income $ 9 $ 55 Supplemental cash flow information Cash paid for amounts included in the measurement of lease liabilities $ 1,305 $ 1,214 Supplemental non-cash information related to lease liabilities arising from obtaining ROU assets $ 8,250 $ 154 * The operating lease payments are linked to the consumer price index and are presented net after elimination of deferred participation payments in amount of $ 124 and $ 248 for the year ended June 30, 2022 and 2021 respectively. As of June 30, 2022, the weighted average remaining lease term is 9.1 years, and the weighted average discount rate is 9 percent. The discount rate was determined based on the estimated collateralized borrowing rate of the Company, adjusted to the specific lease term and location of each lease. For vehicles, the lease period is usually 3 years. NOTE 7: - LOAN FROM THE EIB On April 30, 2020, the German Subsidiary entered into the Finance Contract with the EIB, pursuant to which the German Subsidiary can obtain the Loan in the amount of up to € 50 million, subject to certain milestones being reached, payable in three tranches, with the first tranche consisting of € 20 million, second of € 18 million and third of € 12 million for a period of 36 months from the signing of the Finance Contract. The tranches will be treated independently, each with its own interest rate and maturity period. The annual interest rate is 4 % (consisting of a 0 % fixed interest rate and a 4 % deferred interest rate payable upon maturity,) for the first tranche, 4 % (consisting of a 1 % fixed interest rate and a 3 % deferred interest rate payable upon maturity) for the second tranche and 3 % (consisting of a 1 % fixed interest rate and a 2 % deferred interest rate payable upon maturity) for the third tranche. In addition to any interest payable on the Loan, the EIB is entitled to receive royalties from future revenues for a period of seven years starting at the beginning of fiscal year 2024 and continuing up to and including its fiscal year 2030 in an amount equal to between 0.2 % to 2.3 % of the Company’s consolidated revenues, pro-rated to the amount disbursed from the Loan. During June 2021, Pluri received the first tranche in an amount of € 20 million of the Finance Contract. The amount received is due on June 1, 2026 and bears annual interest of 4 % to be paid with the principal of the Loan. As of June 30, 2022, the linked principal balance in the amount of $ 20,779 and the interest accrued in the amount of $ 899 are presented among long term liabilities. The Finance Contract also contains certain limitations such as the use of proceeds received from the EIB, limitations relates to disposal of assets, substantive changes in the nature of the Company’s business, changes in holding structure, distributions of future potential dividends and engaging with other banks and financing entities for other loans. F- 20 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 8: - COMMITMENTS AND CONTINGENCIES a. As of June 30, 2022, an amount of $ 1,641 of cash and deposits was pledged by the Subsidiary to secure its hedging transaction, credit line, lease agreement and bank guarantees. b. Under the Law for the Encouragement of Industrial Research and Development, 1984, (the “Research Law”), research and development programs that meet specified criteria and are approved by the IIA are eligible for grants of up to 50 % of the project’s expenditures, as determined by the research committee, in exchange for the payment of royalties from the sale of products developed under the program. Regulations under the Research Law generally provide for the payment of royalties to the IIA of 3 % on sales of products and services derived from a technology developed using these grants until 100 % of the dollar-linked grant is repaid. The Company’s obligation to pay these royalties is contingent on its actual sale of such products and services. In the absence of such sales, no payment is required. Outstanding balance of the grants will be subject to interest at a rate equal to the 12 month LIBOR applicable to dollar deposits that is published on the first business day of each calendar year. Following the full repayment of the grant, there is no further liability for royalties. As of June 30, 2022, the Company’s contingent liability in respect to royalties to the IIA amounted to $ 27,574 , not including LIBOR interest as described above. c. The Company was awarded a 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 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, 2022, the grant received from this Smart Money program was approximately $ 179 , program has ended and no royalties were paid or accrued. F- 21 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 8: - COMMITMENTS AND CONTINGENCIES (CONT.) d. In September 2017, the Company signed an agreement with the Tel-Aviv Sourasky Medical Center (Ichilov Hospital) to conduct a Phase I/II trial of PLX-PAD cell therapy for the treatment of Steroid-Refractory Chronic Graft-Versus-Host-Disease (“cGVHD”). As part of the agreement with Ichilov Hospital, the Company will pay royalties of 1 % from its net sales of the PLX-PAD product relating to cGVHD, with a maximum aggregate royalty amount of approximately $ 250 . e. The Company was awarded a marketing grant of approximately $ 52 under the “Shalav” program of the Israeli Ministry of Economy and Industry. The grant is intended to facilitate certain marketing and business development activities with respect to the Company’s advanced cell therapy products in the U.S. market. As part of the program, the Company will repay royalties of 3 %, but only with respect to the Company’s revenues in the U.S. market in excess of $ 250 of its revenues in fiscal year 2018, upon the earlier of the five year period beginning the year in which the Company will not be entitled to reimbursement of expenses under the program and/or until the amount of the grant, which is linked to the Consumer Price Index, is fully paid. As of June 30, 2022, the aggregate amount of the grant received is approximately $ 52 and no royalties were paid or accrued. f. As to potential royalties to the EIB, see note 7 . NOTE 9: - SHAREHOLDERS’ EQUITY (1) The Company’s authorized common shares consist of 60,000,000 shares with a par value of $ 0.00001 per share. All shares have equal voting rights and are entitled to one vote per share in all matters to be voted upon by shareholders and may be issued only as fully paid and non-assessable shares. Holders of the common shares are entitled to equal ratable rights to dividends and distributions, as may be declared by the Board of Directors out of funds legally available. The Company’s authorized preferred shares consist of 1,000,000 preferred shares, 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 preferred shares have been issued. F- 22 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 9: - SHAREHOLDERS’ EQUITY (CONT.) a. Pursuant to a shelf registration on Form S-3 declared effective by the SEC on July 23, 2020, in July 2020 the Company entered into a new Open Market Sale Agreement (“ATM Agreement”) with Jefferies, 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 common shares having an aggregate offering price of up to $ 75,000 through Jefferies acting as sales agent. During the year ended June 30, 2021, the Company sold 1,045,097 common shares under the ATM Agreement at an average price of $ 8.50 per share for aggregate net proceeds of approximately $ 8,506 , net of issuance expenses of $ 380 . During the year ended June 30, 2022 the Company did not sell any common shares under the ATM Agreement. b. During the year ended June 30, 2021, a total of 519,990 warrants were exercised by investors at an exercise price of $ 7.00 per share, resulting in the issuance of 51,999 common shares for net proceeds of approximately $ 364 . During the year ended June 30, 2022 no warrants were exercised. c. On February 2, 2021, the Company, entered into a securities purchase agreement, with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 4,761,905 common shares for gross proceeds of $ 30,000 . The aggregate net proceeds were approximately $ 28,077 , net of issuance costs of $ 1,923 . (2) Share options, RS and RSUs to employees, directors and consultants: The Company adopted a Share Option Plan in 2005, an Equity Incentive Plan in 2016 and an Equity Compensation Plan in 2019 (together, the “Plans”). Under the Plans, share options, RS and RSUs may be granted to the Company’s officers, directors, employees and consultants or the officers, directors, employees and consultants of the Subsidiary. As of June 30, 2022, 4,765,698 common shares are available for future grants under the Plans. a. Options to consultants: A summary of the share options to non-employee consultants is as follows: Year ended June 30, 2021 Number Weighted Average Exercise Price Weighted Average Remaining Contractual Terms (in years) Aggregate Intrinsic Value Price Share options outstanding at beginning of period 54,871 $ - Share options granted - $ - Share options exercised ( 15,035 ) $ - Share options forfeited - $ - Share options outstanding at end of the period 39,836 $ - 6.99 $ 158 Share options exercisable at the end of the period 36,086 $ - 6.94 $ 143 Share options unvested 3,750 Share options vested and expected to vest at the end of the period 39,836 $ - 6.99 $ 158 F- 23 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 9: - SHAREHOLDERS’ EQUITY (CONT.) Year ended June 30, 2022 Number Weighted Average Exercise Price Weighted Average Remaining Contractual Terms (in years) Aggregate Intrinsic Value Price Share options outstanding at beginning of period 39,836 $ 6.99 158 Share options granted 55,000 $ 2.18 7.62 - Share options exercised - $ - - - Share options forfeited ( 3,791 ) $ Share options outstanding at end of the period 91,045 $ 1.32 7.05 $ 44 Share options exercisable at the end of the period 43,545 $ 0.38 6.74 $ 44 Share options unvested 47,500 $ 2.18 Share options vested and expected to vest at the end of the period 91,045 $ 1.32 7.05 $ 44 Compensation expenses related to share options granted to consultants were recorded as follows: Year ended June 30, 2022 2021 General and administrative expenses 30 11 $ 30 $ 11 b. RSUs to employees and directors: The following table summarizes the activity related to unvested RSUs granted to employees and directors under the Plans, for the years ended June 30, 2022 and 2021: Year ended June 30, 2022 2021 Number Unvested at the beginning of period 2,404,415 415,194 Granted 85,000 2,646,120 Forfeited ( 49,691 ) ( 76,804 ) Vested ( 504,709 ) ( 580,095 ) Unvested at the end of the period 1,935,015 2,404,415 Expected to vest after the end of period 1,899,416 2,356,134 F- 24 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 9: - SHAREHOLDERS’ EQUITY (CONT.) Compensation expenses related to RSUs and common shares granted to employees and directors were recorded as follows: Year ended June 30, 2022 2021 Research and development expenses $ 524 $ 1,363 General and administrative expenses 7,913 12,253 $ 8,437 $ 13,616 Unamortized compensation expenses related to RSUs granted to employees and directors is approximately $ 3,094 to be recognized by the end of June 2026. General and administrative expenses include: 1 - Compensation expenses for the year ended June 30, 2022, in the amount of $ 1,646 were related to 45,936 ordinary shares of Plurinuva that were allocated during February 2022 to the Company’s Chairman, Chief Executive Officer and Chief Financial Officer, each pursuant to the terms of their respective employment and/or consulting agreements (see note 1d). 2 - Market-based awards: In September 2020, the Company granted its Chairman and Chief Executive Officer an aggregate of 1,000,000 RSUs (500,000 each) under the Plans. The RSUs will vest in full upon the achievement of a milestone of the Company increasing the market capitalization of its common shares on the Nasdaq Global Market to $ 550,000 within no more than three years from the date of grant. For market-based awards, the Company determines the grant-date fair value utilizing a Monte Carlo simulation model, which incorporates various assumptions including expected share price volatility, risk-free interest rates, and the expected date of a qualifying event. The Company estimates the volatility of the common shares based on its historical share price volatility for a period of 4 years from the grant date based on the daily changes in the share price. The risk-free interest rate is based on the zero-coupon yield of U.S. Treasury bonds for the expiration date of the RSUs. The fair value of the market-based award uses the assumptions noted in the following table: Risk-free interest rates 0.16 % Dividend yield 0 % Expected volatility 69.44 % The Company recognizes compensation expenses for the value of its market-based awards based on the results of the Monte Carlo valuation model. The fair value of the market-based awards granted on the grant date was $ 7.28 per share and the expected time for the market condition to achieve, based on the Monte Carlo valuation model, is thirteen and a half months from the date of the grant. For the year ended June 30, 2022 and 2021 the Company recognized $ 2,127 and $ 5,156 of expenses included in general and administrative expenses, respectively. c. Options to employees and directors: Compensation expenses related to options of Plurinuva granted to Plurinuva‘s employees were recorded as follows: Year ended June 30, 2022 2021 Research and development expenses $ 21 $ - General and administrative expenses 155 - $ 176 $ - F- 25 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 9: - SHAREHOLDERS’ EQUITY (CONT.) d. RSUs to consultants: The following table summarizes the activity related to unvested RS and RSUs granted to non-employee consultants for the years ended June 30, 2022 and 2021: Year ended June 30, 2022 2021 Number Unvested at the beginning of period 76,249 6,250 Granted 10,000 110,000 Forfeited - ( 29,063 ) Vested ( 45,000 ) ( 10,938 ) Unvested at the end of the period 41,249 76,249 Compensation expenses related to RSUs granted to consultants were recorded as follows: Year ended June 30, 2022 2021 Research and development expenses $ 47 $ 176 General and administrative expenses 219 165 $ 266 $ 341 e. Summary of warrants and options: Warrants / Options Exercise Price per Share Options and Warrants for Common Share Options and Warrants Exercisable for Common Share Weighted Average Remaining Contractual Terms (in years) Warrants: $ 7.00 2,418,466 2,418,466 1.77 $ 14.00 762,028 762,028 0.06 Total warrants 3,180,494 3,180,494 Options: $ 0.00001 91,045 43,545 7.05 Total options 91,045 43,545 Total warrants and options 3,271,539 3,224,039 This summary does not include 1,976,264 RSUs that are not vested as of June 30, 2022. F- 26 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 10: - FINANCIAL INCOME (EXPENSES), NET Year ended June 30, 2022 2021 Foreign currency translation differences, net $ 922 $ 332 Bank and broker commissions ( 25 ) ( 23 ) Interest income on deposits 581 492 Gain (loss) from derivatives ( 372 ) 35 Financial income, net 1,106 836 EIB loan interest expenses ( 887 ) ( 78 ) $ 219 $ 758 NOTE 11: - TAXES ON INCOME a. Tax rates applicable to the Company: 1. Pluri: The U.S. corporate federal tax rate applicable to Pluri is 21 %, which is the result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Such corporate tax rate excludes state tax and local tax, if any, which rates depend on the state and city in which Pluri conducts its business. The Tax Act provided for a one-time transition tax on certain foreign earnings for the tax year 2017, and taxation of Global Intangible Low-Taxed Income (“GILTI”) earned by foreign subsidiaries beginning after December 31, 2017. The GILTI tax imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Tax Act also makes certain changes to the depreciation rules and implements new limits on the deductibility of certain executive compensation paid by Pluri All losses generated after December 31, 2017 can only be used to offset 80 % of net income in the year they will be utilized. There was no one-time transition tax for the Company under the Tax Act, nor will there be GILTI tax due for the current year, since the Subsidiary had losses for every year to date. In January 2018, Pluri registered as an Israeli resident with the Israel Tax Authority (the “ITA”) and the Israeli Value Added Tax Authorities. As a result, as of such date, Pluri is classified as a dual resident for tax purposes both in Israel and the United States. F- 27 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 11: - TAXES ON INCOME (CONT.) In June 2018, Pluri Inc. and the Subsidiary submitted an election notice to the ITA to file a consolidated tax return in Israel commencing with the 2018 tax year. 2. The Subsidiary: Consolidated taxable income of Pluri and the Subsidiary (the “Consolidated tax unit”) is subject to tax at the rate of 23 % in 2022 and 2021. The Consolidated tax unit is filing its consolidated tax reports in dollars based on specific regulations of the ITA which allow, in specific circumstances, filing tax reports in dollars (“Dollar Regulations”). Under the Dollar Regulations, the tax liability is calculated in dollars according to certain orders. The tax liability, as calculated in dollars, is translated into NIS according to the exchange rate as of June 30 of each year. The Subsidiary has not received final tax assessments since its incorporation; however the assessments of the Subsidiary are deemed final through 2017. The Law for the Encouragement of Capital Investments, 1959 (the “Law”): The Subsidiary has programs which meet the criteria of a “Beneficiary Enterprise”, in accordance with the Law, under the Alternative Benefit Track starting with 2007 as the election year (the “2007 Program”) and 2012 as an election year to the expansion of its “Beneficiary Enterprise” program (the “2012 Program”). Under the 2012 Program, the Subsidiary, which was located in the “Other National Priority Zone” with respect to the year 2012, would be tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10 %- 25 % for a period of five to eight years for the remaining benefit period (dependent on the level of foreign investments). In respect of expansion programs pursuant to Amendment No. 60 to the Law, the duration of the benefit period has been amended, such that it starts at the later of the election year and the first year the Company earns taxable income provided that 12 years have not passed since the beginning of the election year and for companies in National Priority Zone A - 14 years have not passed since the beginning of the election year. The benefit period for the Subsidiary’s 2007 Program expired in 2018 (12 years since the beginning of the election year– 2007) and the benefit period for the Subsidiary’s 2012 Program is expected to expire in 2023 (12 years since the beginning of the election year - 2012). If a dividend is distributed out of tax exempt profits, as detailed above, the Subsidiary will become liable for taxes at the rate applicable to its profits from the Beneficiary Enterprise in the year in which the income was earned (tax at the rate of 10-25%, dependent on the level of foreign investments) and to a withholding tax rate of 15% (or lower, under an applicable tax treaty). Accelerated depreciation: The Subsidiary is eligible for deduction of accelerated depreciation on buildings, machinery and equipment used by the “Beneficiary Enterprise” at a rate of 200 % (or 400 % for buildings but not more than 20 % depreciation per year) from the first year of the assets operation. F- 28 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 11: - TAXES ON INCOME (CONT.) Conditions for the entitlement to the benefits: The above mentioned benefits are conditional upon the fulfillment of the conditions stipulated by the Law, regulations promulgated thereunder, and the Ruling with respect to the beneficiary enterprise. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest. Company’s management believes that the Subsidiary is meeting the aforementioned conditions. Amendments to the Law: In December 2010, the “Knesset” (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among others, amendments in the Law (“Amendment No. 68”). Amendment No. 68 became effective as of January 1, 2011. According to Amendment No. 68, the benefit tracks in the Law were modified and a flat tax rate became applicable to a company for all preferred income under its status as a preferred company with a preferred enterprise. On August 5, 2013, the Knesset issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which consists of Amendment No. 71 to the Law (“Amendment No. 71”). According to Amendment No. 71, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter will be 16 % (in development area A it will be 9 %). Amendment No. 71 also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise’s earnings as above will be subject to tax at a rate of 20 %. The Subsidiary did not apply Amendment No. 71 with respect to the preferred enterprise status, but may choose to apply Amendment No. 71 in the future. Innovation Box Regime “Technological Preferred Enterprise”: In December 2016, the Knesset approved amendments to the Law that introduce an innovation box regime (the “Innovation Box Regime”) for intellectual property (IP)-based companies, enhance tax incentives for certain industrial companies and reduce the standard corporate tax rate and certain withholding rates starting in 2017. The Innovation Box Regime was tailored by the Israeli government to a post-base erosion and profit shifting world, encouraging multinationals to consolidate IP ownership and profits in Israel along with existing Israeli research and development (“R&D”) functions. Tax benefits created to achieve this goal include a reduced corporate income tax rate of 6 % on IP-based income and on capital gains from future sale of IP. The 6 % rate would apply to qualifying Israeli companies that are part of a group with global consolidated revenue of over NIS 10 billion (approximately $ 2.9 billion). Other qualifying companies with global consolidated revenue below NIS 10 billion, would be subject to a 12 % tax rate. However, if the Israeli company is located in Jerusalem or in certain northern or southern parts of Israel, the tax rate is further reduced to 7.5 %. Additionally, withholding tax on dividends for foreign investors would be subject to a reduced rate of 4 % for all qualifying companies (unless further reduced by a treaty). Entering the regime is not conditioned on making additional investments in Israel, and a company could qualify if it invested at least 7 % of the last three years’ revenue in R&D (or incurred at least NIS 75 million in R&D expenses per year) and met one of the following three conditions: 1. At least 20 % of its employees are R&D employees engaged in R&D (or employs, in total, more than 200 R&D employees); 2. Venture capital investments in the aggregate of NIS 8 million were previously made in the company; or 3. Average annual growth over three years of 25 % in sales or employees. F- 29 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 11: - TAXES ON INCOME (CONT.) Companies not meeting the above conditions may still be considered as a qualified company at the discretion of the IIA. Companies wishing to exit from the regime in the future will not be subject to claw back of tax benefits. The Knesset also approved a stability clause in order to encourage multinationals to invest in Israel. Accordingly, companies will be able to confirm the applicability of tax incentives for a 10-year period under a pre-ruling process. Further, in line with the new Organization for Economic Co-operation and Development Nexus Approach, the Israeli Finance Minister will promulgate regulations to ensure companies are benefiting from the regime to the extent qualifying research and development expenditures are incurred. The regulations were set to be finalized by March 31, 2017, with new amendments to the Law coming into effect after the regulations have been finalized. Taxable income which is not produced as part of “Preferred Enterprise” income will be taxed at the regular tax rate ( 23 % in 2022). As of June 30, 2022, the Company’s management believes that the Company meets the conditions mentioned above to be considered as a Technological Preferred Enterprise. 3. Pluristem GmbH: The corporate tax rate applicable to the German Subsidiary is 15%, which is derived from the German Corporation Tax Act and Solidarity surcharge of 5.5% from the 15% corporate tax rate. This corporate tax rate excludes trade tax, which rate depends on the municipality in which the German Subsidiary conducts its business. Trade Tax is calculated by determining the Trade Tax Base with 3.5% of the trade income and applying the tax factor which differs according to the specific municipality in Germany and equals 455% for the municipality of Potsdam. 4. Plurinuva: Plurinuva is an Israeli tax resident and is subject to corporate income tax at the rate of 23 %. b. Carryforward losses for tax purposes As of June 30, 2022, Pluri had a U.S. federal net operating loss carryforward for income tax purposes in the amount of $ 34,836 . Net operating loss carryforwards arising in taxable years, can be carried forward and offset against taxable income for 20 years and expire between 2023 and 2038. Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. The Subsidiary has accumulated losses, for tax purposes, as of June 30, 2022, in the amount of approximately $ 129,286 , which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period. In January 2018, Pluri registered as an Israeli resident with the ITA and the Israeli Value Added Tax Authorities. As of June 30, 2022, Pluri and the subsidiaries consolidated accumulated losses, for tax purposes, are approximately $ 122,375 , which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period. The German Subsidiary has accumulated losses, for tax purposes, as of June 30, 2022, in the amount of approximately $ 588 , which may be carried forward and offset against taxable business income and business capital gain in the future for an indefinite period. F- 30 PLURI INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share amounts) NOTE 11: - TAXES ON INCOME (CONT.) c. Loss before income taxes The components of loss before income taxes are as follows: Year ended June 30, 2022 2021 Consolidated loss of Pluri and the Israeli subsidiaries $ 41,370 $ 49,432 Pluristem GmbH 4 433 $ 41,374 $ 49,865 d. 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, 2022 2021 Deferred tax assets: Operating loss carryforwards $ 65,384 $ 57,304 Research and development credit carryforwards 5,583 5,907 Issuance costs - 352 Allowances and reserves 286 336 Total deferred tax assets before valuation allowance 71,253 63,899 Valuation allowance ( 71,253 ) ( 63,899 ) Net deferred tax asset $ - $ - As of June 30, 2022 and 2021, the Company has provided full valuation allowances in respect of deferred tax assets resulting from tax loss carryforwards and other temporary differences, since it has a history of operating losses and due to current uncertainty concerning its ability to realize these deferred tax assets in the future. The Company accounts for its income tax uncertainties in accordance with ASC 740 which clarifies the accounting for uncertainties in income taxes recognized in a Company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of June 30, 2022 and 2021, there were no unrecognized tax benefits that if recognized would affect the annual effective tax rate. Reconciliation of taxes at the federal statutory rate to Company’s provision for income taxes: In 2022 and 2021, the main reconciling item of the statutory tax rate of the Company ( 21 % to 23 %) to the effective tax rate ( 0 %) is tax loss carryforward and research and development credit carryforward for which a full valuation allowance was provided. F- 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.