Pluri Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We are a biotechnology company with an advanced cell-based technology platform. We have developed a unique 3D technology platform for cell expansion with an industrial scale in-house GMP cell manufacturing facility. We are utilizing our technology in the field of regenerative medicine and food tech and plan to utilize it in other industries and verticals that have a need for our mass scale and cost-effective cell expansion platform. We use our advanced cell-based technology platform in the field of regenerative medicine to develop placenta-based cell therapy product candidates for the treatment of inflammatory, muscle injuries and hematologic conditions. Our PLX cells are adherent stromal cells that are expanded using our 3D platform. Our PLX cells can be administered to patients off-the-shelf, without blood or tissue matching or additional manipulation prior to administration. PLX cells are believed to release a range of therapeutic proteins in response to the patient’s condition. Our operations are focused on the research, development and manufacturing of cells and cell-based products, conducting clinical studies and the business development of cell therapeutics and cell-based technologies, such as our collaboration with Tnuva to use our technology to establish a cultivated food platform, as well as the collaboration agreement we signed in 2022 with a leading European manufacturer of APIs to use our expansion technology, which aims to revolutionize the production of biologics by enabling a cost-effective, sustainable and cruelty-free ingredient. In the pharmaceutical area, we have focused on several indications utilizing our product candidates, including, but not limited to, muscle recovery following surgery for hip fracture, incomplete recovery following bone marrow transplantation CLI Chronic Graft versus Host Disease and a potential treatment for H-ARS. Some of these studies have been completed while others are still ongoing. We believe that each of these indications is a severe unmet medical need. In July 2023, we announced that we signed a three year $4.2 million contract with the NIAID, which is part of the NIH. Pluri will collaborate with the U.S. Department of Defense’s Armed Forces Radiobiology Research Institute, or AFRRI, and the Uniformed Services University of Health Sciences, or USUHS, in Maryland, U.S.A., to further advance the development of its PLX-R18 cell therapy as a potential novel treatment for H-ARS, a deadly disease that can result from nuclear disasters and radiation exposure. In the food tech field, we established a new venture with Tnuva, Ever After Foods . Ever After Foods is developing cultivated meat products based on Pluri’s platform 3D cell expansion technology. 35 RESULTS OF OPERATIONS – YEAR ENDED JUNE 30, 2023 COMPARED TO YEAR ENDED JUNE 30, 2022. Revenues Revenues for the year ended June 30, 2023 were $287,000, compared to $234,000 for the year ended June 30, 2022. The revenues in the year ended June 30, 2023 were mainly related to our API Collaboration and the revenues in the year ended June 30, 2022 were related to the revenue derived from our license agreement with Takeda and the sale of our PLX cells for research use. Research and Development, Net Research and development, net (costs less participation and grants by the IIA, Horizon 2020, Horizon Europe and other parties) decreased by 35% from $24,377,000 for the year ended June 30, 2022, to $15,745,000 for the year ended June 30, 2023. The decrease is mainly attributed to: (1) a decrease in clinical studies expenses following the completion of our CLI and ARDS associated with COVID-19 studies and the end of enrollment of our muscle regeneration following hip fracture study in November 2021, (2) a decrease in material purchases in accordance with our manufacturing needs and plans, (3) a decrease in salaries and related expenses as part of our efficiency cost-reduction plan , specifically a reduction of 22 research and development, or R&D, employees in Pluri Biotech Ltd. (108 on June 30, 2023, compared to 130 on June 30, 2022), (4) a decrease in share-based compensation expenses and (5) higher participation by the European Union with respect to the Horizon 2020 grants, which relate to our CLI and muscle regeneration following hip fracture studies. General and Administrative General and administrative expenses decreased by 32% from $17,450,000 for the year ended June 30, 2022, to $11,779,000 for the year ended June 30, 2023. The decrease is mainly attributed to a decrease in share-based compensation expenses related to market based vesting conditioned restricted stock units, or RSUs, granted to our CEO and Chairman, a decrease in share-based compensation expenses related to the allocation of shares of Ever After Foods to our CEO, Chief Financial Officer, or CFO, and Chairman of our Board pursuant to their employment or consulting agreements, employee terminations and RSU expense amortization over time (see also notes 1e and 9c to the consolidated financial statements included elsewhere in this Annual Report). These decreases were partially offset by an increase in share-based compensation expenses related to the amount of RSUs and options granted to our CEO. Total Financial Income (Expense), Net Total financial income (expenses), net decreased from $219,000 in financial income for the year ended 2022 to $1,641,000 in financial expenses for the year ended June 30, 2023. This decrease is mainly attributable to (1) expenses relating to exchange rate differences related to the EIB loan provided to us in June 2021 pursuant to EIB Finance Agreement (as a result of the strength of the Euro against the U.S. dollar, which increased by 5% in 2023 compared to 2022 where it decreased by 7%), and (2) a decrease due to exchange rate expenses on a lease liability due to the strength of the U.S Dollar against the NIS which resulted in an expense of $690,000. The decrease in financial income (expense) was partially offset by an increase related to interest income from bank deposits. Net Loss for the Year Net loss decreased from $41,374,000 for the year ended June 30, 2022 to $28,887,000 for the year ended June 30, 2023. The decrease was mainly due to a decrease in R&D expenses, net, and a decrease in general and administrative expenses for the reasons mentioned above. We had a net loss attributed to our non-controlling interest in Ever After Foods for the year ended June 30, 2023 of $566,000. Loss per share for the year ended June 30, 2023, was $0.78, as compared to $1.28 loss per share for the year ended June 30, 2022. The change in the loss per share was mainly as a result of a decrease in the loss for the year, and by an increase in our weighted average number of shares due to the issuance of additional shares during fiscal year 2023. The increase in weighted average common shares outstanding reflects the issuance of additional shares pursuant to a private placement offering we conducted in December 2022, or the December 2022 Private Placement, and the issuance of additional shares upon the vesting of RSUs issued to directors, employees and consultants. Liquidity and Capital Resources As of June 30, 2023, our total current assets were $41,409,000 and our total current liabilities were $5,621,000. On June 30, 2023, we had a working capital surplus of $35,788,000 and an accumulated deficit of $399,584,000. As of June 30, 2022, our total current assets were $57,747,000 and our total current liabilities were $6,829,000. On June 30, 2022, we had a working capital surplus of $50,918,000 and an accumulated deficit of $371,263,000. Our cash, cash equivalents and restricted cash as of June 30, 2023, amounted to $5,629,000, which reflects a decrease of $5,150,000 from the $10,779,000 reported as of June 30, 2022. Our bank deposits as of June 30, 2023, amounted to $34,811,000 compared to $45,244,000 as of June 30, 2022. Our cash equivalents and restricted cash decreased in the year ended June 30, 2023, for the reasons presented below. 36 Our cash used in operating activities was $22,857,000 during the year ended June 30, 2023, and $36,501,000 during the year ended June 30, 2022. The decrease in cash used in operating activities is mainly attributed to a decrease in net loss following the completion of certain clinical trials and the implementation of our cost reduction and efficiency plan that we initiated to align with the change in our business strategy. Cash used in operating activities in year ended June 30, 2023 and June 30, 2022 consisted primarily of payments of fees to our suppliers, subcontractors, professional services providers and consultants, and payments of salaries to our employees, partially offset by grants from the IIA, the EU’s Horizon 2020, Horizon Europe and 2022 programs, Israel’s Ministry of Economy and other research grants. Cash provided by investing activities was $9,698,000 during the year ended June 30, 2023, as opposed to cash provided for investing activities of $11,783,000 during the year ended June 30, 2022. Cash provided by investing activities in the year ended June 30, 2023 consisted primarily of the withdrawal of $9,960,000 of short-term deposits, partially offset by payments of $262,000 related to investments in property and equipment. Cash provided by investing activities in the year ended June 30, 2022, consisted primarily of a withdrawal of $12,063,000 of short-term deposits partially offset by payments of $280,000 related to investments in property and equipment. Financing activities provided cash in the amount of $8,024,000 during the year ended June 30, 2023, and $7,500,000 during the year ended June 30, 2022. The financing activities during the year ended June 30, 2023 related to issuances of common shares and warrants, net of issuance costs, in the December 2022 Private Placement. The financing activities during year ended June 30, 2022 were related to proceeds of $7,500,000 we received from Tnuva as an investment in Ever After Foods. Between December 13, 2022, and December 27, 2022, we entered into a series of securities purchase agreements with several purchasers for an aggregate of 8,155,900 common shares and warrants, or the Warrants, to purchase up to 8,155,900 common shares. On December 13, 2022, we executed securities purchase agreements to sell, at a purchase price of $1.03 per share, up to 5,579,883 common shares and Warrants to purchase up to 5,579,833 common shares, with an exercise price of $1.03 per share and a term of three years. On December 14, 2022, we executed securities purchase agreements to sell, at a purchase price of $1.05 per share, up to 2,068,517 common shares and Warrants to purchase up to 2,068,517 common shares, with an exercise price of $1.05 per share and a term of three years. On December 15, 2022, we executed securities purchase agreements to sell, at a purchase price of $1.06 per share, up to 237,500 common shares and Warrants to purchase up to 237,500 common shares, with an exercise price of $1.06 per share and a term of three years. On December 19, 2022, we executed a securities purchase agreement to sell, at a purchase price of $1.09 per share, up to 135,000 common shares and Warrants to purchase up to 135,000 common shares, with an exercise price of $1.09 per share and a term of three years. On December 27, 2022, we executed a securities purchase agreement to sell, at a purchase price of $1.12 per share, up to 135,000 common shares and Warrants to purchase up to 135,000 common shares, with an exercise price of $1.12 per share and a term of three years. The Warrants sold in the December 2022 Private Placement will be exercisable within six months from their issuance date. As of June 30, 2023, the Company issued 8,155,900 common shares and Warrants that relate to the December 2022 Private Placement and received $8,024,000 as of that date net of $445 from issuance expenses. In addition, the purchasers in the December 2022 Private Placement agreed to execute proxies permitting our CEO and CFO to vote the securities purchased in the December 2022 Private Placement in favor of any shareholder vote relating to a future increase of our authorized shares. Pursuant to the securities purchase agreements executed with the purchasers, we agreed to hold a meeting of shareholders within 200 days of the execution of the securities purchase agreements for the purpose of increasing our authorized shares. On April 27, 2023, our shareholders approved an amendment to our articles of incorporation to increase the number of authorized common shares from 60,000,000 shares to 300,000,000 shares and such increase was effectuated on May 1, 2023, when the Company filed its amendment to its articles of incorporation reflecting such increase. As such, the Warrants became exercisable 6 months from the date of their issuance. On December 14, 2022, Yaky Yanay, our CEO, agreed to forgo, starting January 1, 2023, $375,000 of his annual cash salary for the next twelve months in return for equity grants, issuable under our existing equity compensation plans. In that regard, we granted Mr. Yanay (i) 334,821 RSUs, vesting ratably each month, and (ii) options to purchase 334,821 common shares, vesting ratably each month, with a term of three years, at an exercise price of $1.12 per share. In addition, the Board also agreed to grant Mr. Yanay options to purchase 1,500,000 common shares, with a term of three years, with the following terms: (i) options to purchase 500,000 common shares at an exercise price of $1.56 per share, 50% vesting on June 30, 2023 and 50% vesting on December 31, 2023, (ii) options to purchase 500,000 common shares at an exercise price of $2.08 per share, 50% vesting on June 30, 2023 and 50% vesting on December 31, 2023, and (iii) options to purchase 500,000 common shares at an exercise price of $2.60 per share, 50% vesting on June 30, 2023 and 50% vesting on December 31, 2023. All options were granted in January 2023 and will expire three years from the later of the vesting date. On July 16, 2020, we entered into an at-the market agreement, or the ATM Agreement, with Jefferies LLC, or Jefferies, pursuant to which we may issue and sell shares of our common shares having an aggregate offering price of up to $75,000,000 from time to time through Jefferies. Upon entering into the ATM Agreement, we filed a new shelf registration statement on Form S-3, which was declared effective by the SEC on July 23, 2020. On September 21, 2022, as a result of General Instruction I.B.6 of Form S-3, and in accordance with the terms of the Sales Agreement, we reduced the amount available to be sold under the ATM Agreement to a maximum aggregate offering price of up to $11,800,000 of our common shares from time to time through Jefferies. During the years ended June 30, 2022, and 2023, we did not sell of our any common shares under the ATM Agreement. On September 7, 2023, we provided a formal notice of termination of the ATM Agreement with Jefferies, which took effect on September 8, 2023. Pursuant to a shelf registration on Form S-3 filed on July 20, 2023, which we intend to obtain the effectiveness of in the near term, the Company may elect, from time to time, to offer and sell shares of common stock, preferred stock, warrants and units having an aggregate offering price of up to $200,000,000. 37 In April 2020, we and our subsidiaries, Pluri Biotech Ltd. and Pluristem GmbH, executed the EIB Finance Agreement for non–dilutive funding of up to €50 million in the aggregate, payable in three tranches. The proceeds from the EIB Finance Agreement were intended to support our research and development in the EU to further advance our regenerative cell therapy platform, and to bring the products in our pipeline to market. The term of the project was three years commencing on January 1, 2020. During June 2021, we received the first tranche in the amount of €20 million pursuant to the EIB Finance Agreement. The amount received is due to be repaid on June 1, 2026, and bears annual interest of 4% to be paid together with the principal of the loan. As of June 30, 2023, the interest accrued was in the amount of €1,665,000. In addition to the interest payable, the EIB is also entitled to royalty payments, pro-rated to the amount disbursed from the EIB loan, on our consolidated revenues beginning in the fiscal year 2024 up to and including its fiscal year 2030, in an amount equal to up to 2.3% of our consolidated revenues below $350 million, 1.2% of our consolidated revenues between $350 million and $500 million and 0.2% of our consolidated revenues exceeding $500 million. As the project term ended on December 31, 2022, we do not expect to receive additional funds pursuant to the EIB Finance Agreement. Non-dilutive grants Israel Innovation Authority (IIA) According to the IIA grant terms, we are required to pay royalties at a rate of 3% on sales of products and services derived from technology developed using this and other IIA grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required. Through June 30, 2023, total grants obtained from the IIA aggregated to approximately $27,743,000 and total royalties paid and accrued amounted to $179,000. The IIA may impose certain conditions on any arrangement under which the IIA permits the Company to transfer technology or development out of Israel or outsource manufacturing out of Israel. While the grant is given to the Company over a certain period of time (usually a year), the requirements and restrictions under the Israeli Law for the Encouragement of Industrial Research and Development, 1984 continue and do not have a set expiration period, except for the royalties, which requirement to pay them expires after payment in full. In June 2020, we announced that we were selected as a member of the CRISPR-IL consortium, a group funded by the IIA. CRISPR-IL brings together the leading experts in life science and computer science from academia, medicine, and industry, to develop AI based end-to-end genome-editing solutions. These next-generation, multi-species genome editing products for human, plant, and animal DNA, have applications in the pharmaceutical, agriculture, and aquaculture industries. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000,000 of which, an amount of approximately $480,000 was a direct grant allocated to us, for the initial period of 18 months. During October 2021, we received an approval for an additional grant of approximately $583,000 from the IIA pursuant to the CRISPR-IL consortium program, for an additional period of eighteen months. During January 2023, we received approval for an extension of an additional 2 months to finish the program until June 30, 2023. The CRISPR-IL consortium program does not include any obligation to pay royalties. Through June 30, 2023, we received total grants of approximately $774,000 in cash from the IIA pursuant to the CRISPR-IL consortium program, and we expect to receive an additional $253,000. EU grants – Horizon 2020 and Horizon Europe Through June 30, 2023, we received total grants of approximately $8,621,000 in cash from the EU R&D consortiums pursuant to the Horizon programs. On September 6, 2022, we announced that a €7.5 million non-dilutive grant from the EU’s Horizon program was awarded to Advanced Personalized Therapies for Osteoarthritis (PROTO), an international collaboration led by Charité Berlin Institute of Health Center for Regenerative Therapies. The goal of the PROTO project is to utilize our PLX-PAD cells in a Phase I/IIA study for the treatment of mild to moderate knee osteoarthritis. Final approval of the grant is subject to completion of the consortium agreement. An amount of approximately Euro 500,000 (approximately $545,000) will be a direct grant that will be allocated to us. Through June 30, 2023, we received a payment of approximately $185,000 in cash, which relates to the PROTO program. The Phase I/II study will be carried out by Charité, together with us and other members of the international consortium under the leadership of Professor Tobias Winkler, Principal Investigator, at the Berlin Institute of Health Center of Regenerative Therapies, Julius Wolff Institute and Center for Musculoskeletal Surgery. In August 2016, our CLI program in the EU was awarded a €7,600,000 non-royalty bearing grant. The grant was part of the EU’s Horizon 2020 program. The Phase III study of PLX-PAD in CLI was a collaborative project carried out by an international consortium led by the Berlin-Brandenburg Center for Regenerative Therapies together with the Company and with participation of additional third parties. The grant covered a significant portion of the CLI program costs, and the program was ended during fiscal year 2023. Through June 30, 2023, we received a total of €3,235,000 relating to the CLI program in the EU (approximately $3,563,000). In September 2017, our Phase III study of PLX-PAD cell therapy in the treatment of muscle injury following surgery for hip fracture was awarded a €7,400,000 grant, as part of the EU’s Horizon 2020 program. This Phase III study was a collaborative project carried out by an international consortium led by Charité, together with us, and with participation of additional third parties. The grant covered a significant portion of the project costs and the program was ended during fiscal year 2023. Through June 30, 2023, we received a total of €3,228,000 (approximately $3,699,000). In October 2017, the nTRACK, a collaborative project carried out by an international consortium led by Leitat was awarded a €6,800,000 non-royalty bearing grant. As of June 30, 2023, we received a total of €764,000 (approximately $859,000). The nTRACK program ended during fiscal year 2023. 38 Outlook We have accumulated a deficit of $399,584,000 since our inception in May 2001. We do not expect to generate any significant revenues from sales of products in the next twelve months. We expect to generate revenues, from the sale of licenses to use our technology or products, but in the short and medium terms will unlikely exceed our costs of operations. We may be required to obtain additional liquidity resources in order to support the commercialization of our products and technology and maintain our research and development activities. We are continually looking for sources of funding, including collaboration with other companies via licensing agreements, joint ventures and partnerships, and other non-dilutive sources such as our contract with NIAID and DoD, research grants such as the IIA grants and the European Union grants, and sales of our common shares. We believe that we have sufficient cash to fund our operations for at least the next twelve months. Application of Critical Accounting Policies and Estimates Our accounting policies are more fully described in Note 2 to our consolidated financial statements appearing in this Annual Report. We believe that the accounting policy below is critical for one to fully understand and evaluate our financial condition and results of operations. The discussion and analysis of our financial condition and results of operations is based on our financial statements, which we prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported revenues and expenses during the reporting periods. We evaluate such estimates and judgments on an ongoing basis, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Share-Based Compensation Share-based compensation is considered a critical accounting policy due to the significant expenses of RSUs which were granted to our employees, directors and consultants. In fiscal year 2023, we recorded share-based compensation expenses related to options, restricted shares and RSUs in the amount of $3,977,000. In accordance with ASC 718, “Compensation-Stock Compensation”, or ASC 718, RSUs granted to employees and directors are measured at their fair value on the grant date. All RSUs granted in fiscal years 2023 and 2022 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 RSUs at the date of grant was calculated using the Monte Carlo model. The RSUs granted in fiscal year 2023 to non-employee consultants were measured at their fair value on the grant date in accordance with ASU No. 2018-07 - “Compensation—Share Compensation”. The fair value of shares of Ever After Foods granted to our CEO, CFO and Chairman (see details in Item 11 below) was calculated using the Monte Carlo model, and the fair value of the options of Ever After Foods granted to employees and officers were calculated using the Black Scholes 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 statements of operations. We have graded vesting based on the accelerated method over the requisite service period of each of the awards. The expected pre-vesting forfeiture rate affects the number of the shares. Based on our historical experience, the pre-vesting forfeiture rate per grant is 16% for the shares granted to employees and 0% for the shares granted to our directors and officers and non-employee consultants. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 39