Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward - Looking Statements

This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws, and is subject to the safe-harbor created by such Act and laws. Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other variations thereon or comparable terminology. These statements are merely predictions and therefore inherently subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance levels of activity, or our achievements, or industry results to be materially different from those contemplated by the forward-looking statements. Such forward-looking statements appear in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and may appear elsewhere in this Quarterly Report on Form 10-Q and include, but are not limited to, statements regarding the following:

Our business and operations are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.

In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this periodic report would be interpreted differently in light of additional research, clinical and preclinical trials results. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, or the 2019 Annual Report, as well as Item 1A of this Quarterly Report. Readers are also urged to carefully review and consider the various disclosures we have made in that report.

As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “Pluristem” mean Pluristem Therapeutics Inc. and our wholly owned subsidiaries, Pluristem Ltd. and Pluristem GmbH, unless otherwise indicated or as otherwise required by the context.

Overview

Pluristem Therapeutics Inc. is a leading developer of placenta-based cell therapy product candidates for the treatment of multiple ischemic, inflammatory and hematologic conditions. Our lead indications are critical limb ischemia, or CLI, muscle recovery following surgery for hip fracture. In addition, we are focusing on other indications such as acute radiation syndrome, incomplete recovery following bone marrow transplantation, Chronic Graft Versus Host Disease (cGVHD) and intermittent claudication. In addition, in April 2020, we initiated a compassionate use program in the U.S. and in Israel for the treatment of patients suffering from acute respiratory failure as a result of COVID-19 with our PLX cells. In April 2020, we filed an investigation new drug, or IND, application with the U.S. Food and Drug Administration, or the FDA, and the PEI for the initiation of a multinational, regulated clinical trial program relating to complications associated with COVID-19. In May 2020, the FDA cleared our IND application for the Phase II study of our PLX cells in the treatment of severe COVID-19 cases complicated by Acute Respiratory Distress Syndrome, or ARDS. Each of these indications is a severe unmet medical need. We were incorporated in Nevada in 2001, and have a wholly owned subsidiary in Israel called Pluristem Ltd. and a wholly owned subsidiary in Germany called Pluristem GmbH. We operate in one segment and our operations are focused on the research, development, clinical trials, manufacturing and marketing of cell therapeutics and related technologies.

PLX cells are derived from a class of placental cells that are harvested from donated placenta at the time of full term healthy delivery of a baby. PLX cell products require no tissue matching prior to administration. They are produced using our proprietary three-dimensional expansion technology. Our manufacturing facility complies with the European, Japanese, Israeli, South Korean and the FDA’s current Good Manufacturing Practice requirements and has been approved by the European and Israeli regulators for production of PLX-PAD for late stage trials. In December 2017, after an audit of our facilities, we were granted manufacturer/importer authorization and Good Manufacturing Practice Certification by Israel’s Ministry of Health. If we obtain FDA and other regulatory approvals to market PLX cells, we expect to have in-house production capacity to grow PLX cells in commercial quantities.

Our goal is to make significant progress with our clinical pipeline and our clinical trials in order to ultimately bring innovative, potent therapies to patients who need new treatment options. We expect to demonstrate a real-world impact and value from our pipeline, technology platform and commercial-scale manufacturing capacity. Our business model for commercialization and revenue generation includes, but is not limited to, direct sale of our products, partnerships, licensing deals, and joint ventures with pharmaceutical companies.

Our Current Clinical Development Pipeline

Two Phase III multinational clinical trials are currently being conducted with our PLX-PAD product candidate: one in CLI, and the other in muscle recovery following surgery for hip fracture.

For the CLI study, we have enrolled more than 80% of patients but have observed a slowdown in the enrollment rate of this study due to the COVID-19 pandemic. We are finalizing discussions with the FDA and European Medicines Agency regarding the data readout, and confirming understandings on endpoints, timing, and procedures for cleaning data during COVID-19 limitations. We expect the announcement of the interim readout top line results to be delayed to the beginning of the fourth quarter of calendar year 2020. We will continue to closely follow the guidelines that will enable access to the clinical sites to clean the data prior to data lock.

For the muscle recovery following surgery for hip fracture study, we have enrolled more than 60% of patients but have observed a slowdown in the enrollment rate of this study due to the COVID-19 pandemic.

We intend to provide guidelines for expected end of enrollment for both studies once we have greater clarity of the impact of COVID-19 on the enrollment rates in each respective study.

Our PLX-PAD cell program in CLI had been selected for the EMA’s Adaptive Pathways Project, Japan’s Pharmaceuticals and Medical Devices Agency, or PMDA, accelerated pathway, the FDA Fast Track Designation and FDA Expanded Access Program, or EAP, in the United States.

Both our CLI and muscle recovery following surgery for hip fracture programs in the European Union were awarded a grant of Euro 7,600,000 (approximately $8,300,000) and 7,400,000 (approximately $8,100,000) , respectively, as part of the European Union’s Horizon 2020 program and to date we have received a portion of such grants.

Our second product candidate, PLX-R18, is under development in the United States for ARS via the FDA Animal Rule regulatory pathway, which may result in approval without the prior performance of human efficacy trials. The National Institutes of Health’s National Institute of Allergy and Infectious Diseases has completed a dose selection trial with our PLX-R18 product candidate in the hematologic component of ARS.

PLX-R18 is also under development in the United States and Israel for the treatment of incomplete hematopoietic recovery following hematopoietic cell transplantation, or HCT. In addition, the FDA granted orphan drug designation to our PLX cell therapy for the treatment of graft failure and incomplete hematopoietic recovery following HCT.

PLX cells for the treatment of respiratory complications associated with COVID19

In March 2020, we announced that we signed a collaborative agreement with the BIH Center for Regenerative Therapy and the Berlin Center for Advanced Therapies at Charité University of Medicine Berlin to expand our existing framework and research agreement and conduct a joint project evaluating the therapeutic effects of our patented PLX cell product candidates for potential treatment of the respiratory and inflammatory complications associated with the COVID-19 coronavirus. We also announced that the Israeli Ministry of Health has approved our request to seek approvals to treat COVID-19 coronavirus patients under the per-patient compassionate use framework in Israel. In April 2020, we announced the preliminary data from our compassionate use program, treating seven patients suffering from acute respiratory failure and inflammatory complications associated with COVID-19 with our PLX cells, in three medical centers in Israel. We also announced that we treated our first patient suffering from COVID-19 complications in the United States under the FDA Single Patient Expanded Access Program, also called a compassionate use program, which is part of the U.S. Coronavirus Treatment Acceleration Program (CTAP), an emergency program for possible therapies that uses every available method to move new treatments to patients as quickly as possible. We have filed for an IND and Phase II protocol with the FDA and the PEI to initiate a multinational clinical trial for the treatment of complications associated with COVID-19 with our PLX cells. In May 2020, the FDA cleared our IND application for the Phase II study of our PLX cells in the treatment of severe COVID-19 cases complicated by ARDS.

EIB Financing

On April 30, 2020, we announced that we, and our subsidiaries, signed an agreement with the EIB with respect to a €50 million non-dilutive financing, or the EIB Financing, to support our research and development in the E.U. to further advance our regenerative cell therapy platform, and to assist moving the products in our pipeline to market, with a special focus on clinical development of PLX cells as a treatment for complications associated with COVID-19. The EIB Financing will be deployed in three tranches, subject to the achievement of certain clinical, regulatory and scaling up milestones with the first tranche consisting of €20 million. The EIB Financing is not secured and will be payable to the EIB in lump sums following 5 years from the disbursement of the first and second tranches and, for the third tranche, in two annual payments following 4 years from its disbursement, with each tranche having an interest rate of between 3% to 4%.The EIB Financing will support up to 50% of our research and development project costs. In addition, the EIB is entitled to receive royalties from future revenues for a period of seven years starting 2024, at a rate of 0.2% to 2.3%, pro-rated to the amounts that we disbursed from the EIB Financing.

RESULTS OF OPERATIONS – THREE AND NINE MONTHS ENDED MARCH 31, 2020 COMPARED TO THREE AND NINE MONTHS ENDED MARCH 31, 2019.

Revenues

Revenues for the nine month period ended March 31, 2020 were $23,000, as compared to $54,000 in the nine month period ended March 31, 2019. We had no revenues during the three month periods ended March 31, 2020 and March 31, 2019. All revenues were related to the sale of our PLX cells for research use.

Research and Development Expenses, Net

Research and development expense, net (costs less participation and grants by the Horizon 2020 and IIA) for the nine month period ended March 31, 2020 decreased by 25% from $20,847,000 for the nine month period ended March 31, 2019 to $15,739,000. The decrease is mainly attributed to a cost reduction and efficiency plan that consisted primarily of (1) a decrease in materials consumption, (2) a decrease in payroll expenses related to a decrease in the average number of employees, (3) a decrease in stock-based compensation expenses related to the amount of restricted stock units granted and their vesting schedules, (4) a decrease in clinical subcontractor expenses due to a decrease in the initiation of sites for our clinical studies compared to last year, and (5) a decrease in rent expenses due to the implementation of Accounting Standards Update No. 2016-02, “Leases,” which resulted in a reduction of $130,000 (for further information please refer to Note 3 in the accompanying financial statements to this Quarterly Report on Form 10-Q). The decrease was partially offset by lower participation by the European Union with respect to the Horizon 2020 grants, which was primarily utilized in the first year of the projects, and a lower participation by the IIA due to a decrease in the grant obtained in calendar year 2019 to calendar year 2018.

Research and development expense, net (costs less participation and grants by the IIA and other parties) for the three month period ended March 31, 2020 decreased by 27% from $7,827,000 for the three month period ended March 31, 2019 to $5,717,000. The decrease is mainly attributed to a cost reduction and efficiency plan that consisted primarily of (1) a decrease in materials consumption, (2) a decrease in stock-based compensation expenses related to the amount of restricted stock units granted and their vesting schedules and (3) a decrease in payroll expenses related to a decrease in the average number of employees. The decrease was partially offset by lower participation by the European Union with respect to the Horizon 2020 grants, which was primarily utilized in the first year of the projects, a lower participation by the IIA due to a decrease in the grant obtained in calendar year 2019 to calendar year 2018 and an increase in subcontractor expenses related to some of our clinical studies

General and Administrative Expenses

General and administrative expenses for the nine month period ended March 31, 2020 decreased by 23% from $6,806,000 for the nine month period ended March 31, 2019 to $5,245,000. This decrease is attributed to a decrease in stock-based compensation expenses related to the amount of restricted stock units granted and their vesting schedules, and a decrease in payroll expenses related to a 25% reduction of the annual salary of our Chief Executive Officer, a 25% reduction of the annual compensation of our Executive Chairman and a decrease in the average number of employees.

General and administrative expenses for the three month period ended March 31, 2020 decreased by 32% from $2,473,000 for the three month period ended March 31, 2019 to $1,682,000. This decrease is attributed to a decrease in stock-based compensation expenses related to the amount of restricted stock units granted and their vesting schedules and decrease in corporate activities expenses.

Financial Income (Expense), Net

Financial income (expense), net, changed from a net financial income of $54,000 for the nine month period ended March 31, 2019 to a net financial expense of $54,000 for the nine month period ended March 31, 2020. This increase is mainly attributable to the implementation of Accounting Standards Update No. 2016-02, “Leases,” which resulted in an expense of $173,000 (for further information please refer to Note 3 in the accompanying financial statements to this Quarterly Report on Form 10-Q), partially offset by changes in the fair value of our hedging instruments related to the strength of the U.S. dollar against the New Israel Shekel, or NIS.

Financial income (expense), net, changed from a net financial income of $222,000 for the three month period ended March 31, 2019 to a net financial expense of $108,000 for the three month period ended March 31, 2020. This increase is mainly attributable to changes in the fair value of our hedging instruments related to the strength of the U.S. dollar against the NIS, partially offset by lower expense from exchange rates related to the strength of the U.S. dollar against the NIS.

Net Loss

Net loss for the nine and three month periods ended March 31, 2020 was $21,016,000 and $7,507,000, respectively, as compared to net loss of $27,547,000 and $10,078,000 for the nine and three month periods ended March 31, 2019. The changes were mainly due to decreases in research and development expenses and general and administrative expenses, as described above. Net loss per share for the nine and three month periods ended March 31, 2020 was $1.28 and $0.42, respectively, as compared to $2.38 and $0.86 for the nine and three month periods ended March 31, 2019.

For the nine and three month periods ended March 31, 2020 and March 31, 2019, we had weighted average shares of common stock outstanding of 16,376,377, 17,823,207 and 11,554,260, 11,722,553, respectively, which were used in the computations of net loss per share for the nine and three month periods.

The increase in weighted average common shares outstanding reflects the issuance of additional shares mainly related to the issuances of shares from a public offering we conducted in April 2019, issuances of shares pursuant to our Open Market Sale Agreement^SM, or the Sale Agreement, issuances of shares to employees and consultants, and shares issued as a result of exercises of options.

Liquidity and Capital Resources

As of March 31, 2020, our total current assets were $17,819,000 and total current liabilities were $7,200,000. On March 31, 2020, we had a working capital surplus of $10,619,000, stockholders’ equity of $14,169,000 and an accumulated deficit of $272,020,000. We finance our operations, and plan to continue doing so, from our existing cash, issuances of our securities, use of the funds that we may receive pursuant to the EIB Financing once we meet the applicable milestones, and other non-dilutive grants such as grants from the IIA, European Union’s Horizon 2020 program, Israel’s Ministry of Economy.

Our cash and cash equivalents as of March 31, 2020 amounted to $6,762,000 compared to $9,535,000 as of March 31, 2019, and compared to $4,106,000 as of June 30, 2019. Cash balances changed in the nine months ended March 31, 2020 and 2019 for the reasons presented below.

Operating activities used cash of $20,047,000 in the nine months ended March 31, 2020, compared to $22,780,000 in the nine months ended March 31, 2019. Cash used in operating activities in the nine months ended March 31, 2020 and 2019 consisted primarily of payments of salaries to our employees and payments of fees to our consultants, suppliers, subcontractors, and professional services providers, including the costs of clinical studies, partially offset by grants from the IIA, Horizon 2020, Israel’s Ministry of Economy and other research grants.

Investing activities provided cash of $11,334,000 in the nine months ended March 31, 2020, compared to cash provided of $19,685,000 for the nine months ended March 31, 2019. The investing activities in the nine month period ended March 31, 2020 consisted primarily of the withdrawal of $11,490,000 of short term deposits, partially offset by payments of $157,000 related to investment in property and equipment. The investing activities in the nine month period ended March 31, 2019 consisted primarily of the withdrawal of $19,908,000 of short term deposits, partially offset by payments of $217,000 related to investment in property and equipment and investments in long-term bank deposits of $6,000.

Financing activities generated cash of $11,362,000 during the nine months ended March 31, 2020, compared to $3,825,000 for the nine months ended March 31, 2019. The cash generated in the nine months ended March 31, 2020 from financing activities is related to net proceeds of $11,362,000 from issuing shares of our common stock under our Sale Agreement. The cash generated in the nine months ended March 31, 2019 from financing activities is related to net proceeds of $3,710,000 from issuing shares of our common stock under our ATM Agreement (as defined below) and the Sale Agreement, proceeds of $107,000 related to a grant received from the Israel-United States Binational Industrial Research and Development Foundation and net proceeds of $8,000 from the exercise of options.

In April 2020, we and our subsidiaries, Pluristem Ltd. and Pluristem GmbH, executed the Finance Contract with the EIB for funding of up to €50 million in the aggregate, payable in three tranches. The proceeds from the Finance Contract are 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, with a special focus on clinical development of PLX cells as a treatment for complications associated with COVID-19. The proceeds from the Finance Contract are expected to be deployed in three tranches, subject to the achievement of certain clinical, regulatory and scaling up milestones with the first tranche consisting of €20 million. To date, we have not yet received the first tranche of funds from the EIB.

In July 2017, we entered into the At Market Sales Agreement, or ATM Agreement, with FBR Capital Markets & Co., MLV & Co. LLC and Oppenheimer & Co. Inc., each an Agent, which provides that, upon the terms and subject to the conditions and limitations set forth in the ATM Agreement, we could elect, from time to time, to issue and sell shares of common stock having an aggregate offering price of up to $80,000,000 through any of the Agents. We were not obligated to make any sales of common stock under the ATM Agreement. From July 2017 through February 4, 2019, we sold an aggregate of 530,541 shares of common stock pursuant to the ATM Agreement at an average price of $13.68 per share. On February 4, 2019, we notified the Agents of the termination of the ATM Agreement.

On February 6, 2019, we entered into the Sale Agreement, with Jefferies LLC, as agent, or Jefferies, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies. We are not obligated to make any sales of common stock under the Sale Agreement. From February 6, 2019 through March 31, 2020, we sold an aggregate of 3,556,698 shares of common stock pursuant to the Sale Agreement for aggregate gross proceeds of $15,273,000.

From April 1, 2020 through May 7, 2020, we sold an aggregate of 4,348,869 shares of common stock for aggregate gross proceeds of $29,862,000 under the Sale Agreement.

From April 1, 2020 through May 7, 2020, warrants were exercised by investors at an exercise price of $7.00 per share, resulting in the issuance of 286,311 shares of common stock for net proceeds of approximately $2,004,000.

On May 5, 2020, we entered into a securities purchase agreement with two institutional investors, or the Investors, pursuant to which we sold, in a registered public offering directly to the Investors, 1,587,302 shares of common stock for net proceeds of approximately $15,000,000.

During the nine months ended March 31, 2020, we received cash of approximately $332,000 from the IIA towards our research and development expenses. 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 March 31, 2020, total grants obtained from the IIA aggregated to approximately $27,685,000 and total royalties paid and accrued amounted to $170,000.

The IIA has supported our activity in the past fourteen years. Our previous program, for the thirteen year, was approved by the IIA in 2018 and relates to a grant of approximately $900,000. The grant was used to cover research and development expenses for the period of January 1, 2018 to December 31, 2018. Our most recent program, for the fourteenth year, was approved by the IIA in 2019 and relates to a grant of approximately $500,000. The grant was used to cover research and development expenses for the period of January 1, 2019 to December 31, 2019.

As of March 31, 2020, we received total grants of approximately $5,638,000 in cash from the European Union research and development consortiums pursuant to the Horizon 2020 program.

The currency of our financial portfolio is mainly in U.S. dollars and we use options contracts in order to hedge our exposures to currencies other than the U.S. dollar. For more information, please see Item 7A. - “Quantitative and Qualitative Disclosures about Market Risk” in the 2019 Annual Report on form 10-K for the fiscal year ended June 30, 2019.

We have an effective Form S-3 registration statement, filed under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission, or the SEC, using a “shelf” registration process. Under this shelf registration process, we may, from time to time, sell common stock, preferred stock and warrants to purchase common stock, and units of two or more of such securities in one or more offerings up to a total dollar amount of $200,000,000. As of May 7, 2020, we have sold 5,487,302 shares of our common stock and warrants to purchase up to 2,857,143 shares of common stock in a total gross amount of $51,051,000 in offerings we closed in October 2017, April 2019 and May 2020, 530,541 shares of common stock in a total gross amount of $7,258,542 pursuant to the ATM Agreement, 7,905,567 shares of common stock in a total gross amount of $45,134,717 pursuant to the Sale Agreement, and may be deemed to have sold an additional $4,865,283 pursuant to the Sale Agreement.

Outlook

We have accumulated a deficit of $272,020,000 since our inception in May 2001. We do not expect to generate any significant revenues from sales of products in the next twelve months. Our cash needs may increase in the foreseeable future. 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 maintain our research and development and clinical trials activities.

We are continually looking for sources of funding, including non-diluting sources such as the EIB Financing, the IIA grants, the European Union grant and other research grants, collaboration with other companies and sales of our common stock.

We believe that we have sufficient cash to fund our operations for at least the next 12 months.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.