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, 2020, or the 2020 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

We are a leading developer of placenta-based cell therapy product candidates for the treatment of multiple inflammatory and hematologic conditions. Our operations are focused on the research, development, manufacturing, conducting clinical trials and business development 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. The cells are grown using our proprietary three-dimensional expansion technology and can be administered to patients off the-shelf, without blood or tissue matching prior to administration. PLX cells are believed to release a range of therapeutic proteins in response to the patient’s condition such as inflammation, muscle trauma, hematological disorders and radiation damage.

We are currently enrolling patients in a multinational Phase III clinical study for muscle recovery following surgery for hip fracture and two Phase II clinical studies in Acute Respiratory Distress Syndrome, or ARDS, complicated by the COVID-19 coronavirus in the U.S., EU and Israel. We also expect to expand our COVID-19 program to Mexico following the announcement in December 2020 of our collaboration with Innovare R&D.

In addition, we are focusing on other clinical programs such as a Phase I clinical study for incomplete recovery following bone marrow transplantation in the U.S. and Israel, an Investigator-Led Phase I/II Chronic Graft vs Host Disease Study, or cGvHD, and acute radiation syndrome, or ARS, under the FDA animal rule. We believe that each of these indications is a severe unmet medical need.

Our manufacturing facility complies with the European, Japanese, Israeli, South Korean and the FDA’s current Good Manufacturing Practice, or cGMP, requirements and has been inspected and approved by the European and Israeli regulators for production of PLX-PAD for late stage trials. We have also granted manufacturer/importer authorization and cGMP 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.

Recent Developments

CLI Phase III Study

In December 2020, we announced that the independent Data Monitoring Committee, or DMC, issued its recommendation letter following an interim analysis relating to our global pivotal Phase III study for the use of PLX-PAD for the treatment of critical limb ischemia, or CLI. A clinical dataset was reviewed by the independent DMC for safety and analysis of the primary endpoint of amputation-free survival, defined as time to occurrence of major amputation of the index leg or death. Based on the review, the DMC concluded that the CLI study is unlikely to meet the primary endpoint by the time of the final analysis. Following the DMC’s recommendation, we decided to terminate enrollment in the CLI study.

RESULTS OF OPERATIONS – THREE AND SIX MONTHS ENDED DECEMBER 31, 2020 COMPARED TO THREE AND SIX MONTHS ENDED DECEMBER 31, 2019.

Revenues

We had no revenues for both the six and three month periods ended December 31, 2020, as compared to $23,000, respectively, in the six and three month periods ended December 31, 2019. Revenues in 2019 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 program and the IIA) for the six month period ended December 31, 2020 increased by 39% from $10,022,000 for the six month period ended December 31, 2019 to $13,915,000. The increase is mainly attributed to: (1) an increase in clinical trial subcontractor expenses for our ARDS associated with COVID - 19 Phase II clinical trial , (2) an increase in materials purchased as part of our production plan, (3) an increase in payroll expenses related to payroll adjustments, increase in the average number of employees and the strength of the New Israel Shekel, or NIS, against the U.S. dollar, (4) an increase in share-based compensation expenses related to the amount of restricted stock units granted and the share price at the time of the grant and (5) a decrease in participation by the EU with respect to the Horizon 2020 program, as a result of our utilizing the entirety of the grant under such program during the six month period ended December 31, 2019. The increase was partially offset by lower depreciation expenses and lower travel abroad expenses.

Research and development expense, net (costs less participation and grants by the Horizon 2020 program and the IIA) for the three month period ended December 31, 2020 increased by 72% from $4,640,000 for the three month period ended December 31, 2019 to $7,977,000. The increase is mainly attributed to: (1) an increase in clinical trial subcontractor expenses for our ARDS associated with COVID - 19 Phase II clinical trial, (2) an increase in materials purchased as part of our production plan, (3) an increase in payroll expenses related to payroll adjustments and the strength of the NIS against the U.S. dollar, (4) an increase in share-based compensation expenses related to the amount of restricted stock units granted and the share price at the time of the grant and (5) a decrease in participation by the European Union with respect to the Horizon 2020 program, as a result of our utilizing the entirety of the grant under such program during the three month period ended December 31, 2019. The increase was partially offset by lower depreciation expenses and lower travel abroad expenses.

General and Administrative Expenses

General and administrative expenses for the six month period ended December 31, 2020 increased by 122% from $3,563,000 for the six month period ended December 31, 2019 to $7,896,000. The increase is mainly attributed to: (1) an increase in share-based compensation expenses related to the amount of restricted stock units granted and the share price at the time of the grant, (2) an increase in payroll expenses, mostly related to the entitlement of Mr. Aberman, our Executive Chairman, to certain adjustment fees pursuant to his amended consulting agreement, payroll adjustments and the strength of the NIS against the U.S. dollar, (3) an increase in Directors & Officers insurance premium expenses and (4) an increase in legal expenses related to the EIB Finance Agreement. The increase was offset by lower travel abroad expenses.

General and administrative expenses for the three month period ended December 31, 2020 increased by 191% from $1,750,000 for the three month period ended December 31, 2019 to $5,097,000. The increase is mainly attributed to: (1) an increase in share-based compensation expenses related to the amount of restricted stock units granted and the share price at the time of the grant, (2) an increase in payroll expenses related to payroll adjustments and the strength of the NIS against the U.S. dollar and (3) an increase in Directors & Officers insurance premium expenses. The increase was partially offset by lower travel abroad expenses.

Financial Income (Expense), Net

Financial income, net, increased from a net financial income of $54,000 for the six month period ended December 31, 2019 to a net financial income of $768,000 for the six month period ended December 31, 2020. This increase is mainly attributable to income derived from NIS against U.S. dollar exchange rates on deposits linked to the NIS.

Financial income (expense), net, increased from a net financial expense of )$2,000( for the three month period ended December 31, 2019 to a net financial income of $520,000 for the three month period ended December 31, 2020. This increase is mainly attributable to income derived from NIS against U.S. dollar exchange rates on deposits linked to the NIS.

Net Loss

Net loss for the six and three month periods ended December 31, 2020 was $21,043,000 and $12,554,000, respectively, as compared to net loss of $13,509,000 and $6,370,000 for the six and three month periods ended December 31, 2019. The increases in net loss were mainly due to increases in research and development and general and administrative expenses, as described above. Net loss per share for the six and three month periods ended December 31, 2020 was $0.82 and $0.49, respectively, as compared to $0.86 and $0.40 for the six and three month periods ended December 31, 2019.

For the six and three month periods ended December 31, 2020 and December 31, 2019, we had weighted average common shares outstanding of 25,599,008, 25,662,752 and 15,665,641, 15,927,749, respectively, which were used in the computations of net loss per share for the six 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 upon settlement of restricted stock units to employees and consultants, issuances of shares pursuant to our new Open Market Sale Agreement ^SM, or the New ATM Agreement, that we entered into with Jefferies LLC, or Jefferies, on July 16, 2020, and the Open Market Sale Agreement^SM, or the Sales Agreement, that we entered into with Jefferies on February 6, 2019, issuances of shares pursuant to a securities purchase agreement with two institutional investors in May 2020, and shares issued as a result of the exercise of outstanding warrants and options.

Liquidity and Capital Resources

As of December 31, 2020, our total current assets were $45,250,000 and total current liabilities were $9,996,000. On December 31, 2020, we had a working capital surplus of $35,254,000, shareholders’ equity of $41,148,000 and an accumulated deficit of $301,199,000. 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 Finance Agreement once we meet the applicable milestones, and other non-dilutive grants such as grants from the IIA, European Union’s Horizon 2020 program and Israel’s Ministry of Economy.

Our cash and cash equivalents as of December 31, 2020 amounted to $7,824,000, compared to $7,300,000 as of December 31, 2019, and compared to $8,270,000 as of June 30, 2020. Cash balances changed in the six months ended December 31, 2020 and 2019 for the reasons presented below.

Operating activities used cash of $13,984,000 in the six months ended December 31, 2020, compared to $13,542,000 in the six months ended December 31, 2019. Cash used in operating activities in the six months ended December 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, the EU’s Horizon 2020 program, Israel’s Ministry of Economy and other research grants.

Investing activities provided cash of $11,771,000 in the six months ended December 31, 2020, compared to cash provided of $10,660,000 for the six months ended December 31, 2019. The investing activities in the six month period ended December 31, 2020 consisted primarily of the withdrawal of $2,445,000 of short term deposits and the withdrawal of $9,533,000 of long term deposits, partially offset by payments of $207,000 related to investment in property and equipment. The investing activities in the six month period ended December 31, 2019 consisted primarily of the withdrawal of $10,786,000 of short term deposits, offset by payments of $128,000 related to investment in property and equipment.

Financing activities generated cash of $1,284,000 during the six months ended December 31, 2020, compared to $5,967,000 for the six months ended December 31, 2019. The cash generated in the six months ended December 31, 2020 from financing activities is related to net proceeds of $364,000 from issuing our common shares from the exercise of warrants and net proceeds of $920,000 related to issuances made under the New ATM Agreement. The cash generated in the six months ended December 31, 2019 from financing activities is related to net proceeds of $5,967,000 from issuing our common shares under our Sale Agreement.

In April 2020, we and our subsidiaries, Pluristem Ltd. and Pluristem GmbH, executed the EIB Finance Agreement for funding of up to €50 million in the aggregate, payable in three tranches. The proceeds from the EIB Finance Agreement 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 EIB Finance Agreement 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.

On February 6, 2019, we entered into the Sales Agreement, pursuant to which we were entitled to issue and sell our common shares having an aggregate offering price of up to $50,000,000 from time to time through Jefferies. We were not obligated to make any sales of common shares under the Sales Agreement. On June 30, 2020, our shelf registration on Form S-3 declared effective by the SEC on June 23, 2017 expired, and as a result thereof, the Sales Agreement was terminated. On July 16, 2020, we entered into the New ATM Agreement, pursuant to which we may issue and sell our common shares having an aggregate offering price of up to $75,000,000 from time to time through Jefferies. Upon entering into the New ATM Agreement, we filed a new shelf registration statement on Form S-3, which was declared effective by the SEC on July 23, 2020. During the six month period ended December 31, 2020, we sold 117,021 of our common shares under the New ATM Agreement at an average price of $8.70 per share for aggregate net proceeds of approximately $869,000.

From January 1, 2021 through February 8, 2021, we sold an aggregate of 928,076 common shares under the New ATM Agreement for aggregate gross proceeds of $7,867,000.

On February 2, 2021, we entered into a securities purchase agreement with several institutional investors, or the Investors, pursuant to which we sold, in a registered direct offering, or the Registered Direct Offering, directly to the Investors, 4,761,905 common shares for aggregate gross proceeds of $30,000,000.

During the six months ended December 31, 2020, warrants were exercised by investors at an exercise price of $7.00 per share, resulting in the issuance of 51,999 our common shares for net proceeds of approximately $364,000.

During the six months ended December 31, 2020, we received cash of approximately $58,000 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 December 31, 2020, total grants obtained from the IIA aggregated to approximately $27,743,000 and total royalties paid and accrued amounted to $169,000.

The IIA has supported our activity in the past fourteen years. 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.

In May 2020, 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. CRISPR-IL is funded by the IIA with a total budget of approximately $10,000,000 of which, an amount of approximately $480,000 is a direct grant allocated to us, for a period of 18 months, with a potential for extension of an additional 18 months and additional budget from the IIA. CRISPR-IL participants include leading companies, and medical and academic institutions. As of December 31, 2020, we received total grants of approximately $348,000 in cash from the IIA pursuant to the CRISPR-IL consortium program.

As of December 31, 2020, we received total grants of approximately $5,997,000 in cash from the EU research and development consortiums pursuant to the EU’s 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 2020 Annual Report on form 10-K for the fiscal year ended June 30, 2020.

We have an effective Form S-3 registration statement (File No. 333-239890), 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 our common shares, preferred shares and warrants to purchase common shares, and units of two or more of such securities in one or more offerings up to a total dollar amount of $250,000,000. As of February 8, 2021, other than the $75 million we are eligible to sell pursuant to the New ATM Agreement, and the $30,000,000 we sold in the Registered Direct Offering, no common shares, preferred shares or warrants to purchase common shares were sold pursuant to our effective Form S-3 registration statement.

Outlook

We have accumulated a deficit of $301,199,000 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 Finance Agreement, grants from the IIA, EU’s Horizon 2020 program, Israel’s Ministry of Economy and other research grants, collaboration with other companies and sales of our common shares.

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.