UNITED STATES

 

FORM 10-K

 

(Mark One)

 

 

 

We are engaged in the business of developing cell therapy products. We have not realized a profit from our operations to date and there is little likelihood that we will realize any profits in the short or medium term. Any profitability in the future from our business will be dependent upon successful commercialization of our potential cell therapy products and/or licensing of our products, which will require significant additional research and development as well as substantial clinical trials.

 

 

So far, the products we are developing have completed only one Phase I/II clinical trial of Gluteal Musculature rehabilitation after total hip arthroplasty (efficacy, ongoing for safety), two Phase I clinical trials for CLI, and one Phase III clinical trial for CLI.in IC. Our early stage cell therapy product candidates may fail to perform as we expect. Moreover, even if our cell therapy product candidates successfully perform as expected, in later stages of development they may fail to show the desired safety and efficacy traits despite having progressed successfully through pre-clinical or initial clinical testing.  We will need to devote significant additional research and development, financial resources and personnel to develop commercially viable products and obtain the necessary regulatory approvals.

 

If our cell therapy product candidates do not prove to be safe and effective in clinical trials, we will not obtain the required regulatory approvals. If we fail to obtain such approvals, we may not generate sufficient revenues to continue our business operations.

 

Even if we obtain regulatory approval of a product, that approval may be subject to limitations on the indicated uses for which it may be marketed. Even after granting regulatory approval, the FDA, the EMA, the PMDA and regulatory agencies in other countries continue to regulate marketed products, manufacturers and manufacturing facilities, which may create additional regulatory barriers and burdens. Later discovery of previously unknown problems with a product, manufacturer or facility, may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market. Further, regulatory agencies may establish additional regulations that could prevent or delay regulatory approval of our products.

 

 

We cannot sell our cell therapy product candidates until regulatory agencies grant marketing approval, or licensure. The process of obtaining regulatory approval is lengthy, expensive and uncertain. It is likely to take at least several years to obtain the required regulatory approvals for our cell therapy product candidates, or we may never gain the necessary approvals.

Any difficulties that we encounter in obtaining regulatory approval may have a substantial adverse impact on our operations and cause our stock price to decline significantly.

 

To obtain marketing approvals in the United States and Europe for cell therapy product candidates we must, among other requirements, complete carefully controlled and well-designed clinical trials sufficient to demonstrate to the FDA, ,thethe EMA and the PMDA that the cell therapy product candidates is safe and effective for each disease for which we seek approval.  So far, we have successfully conducted Phase I/II and Phase I clinical trials for our PLX-PAD product, which currently is our only product that is the subject of clinical trials.product. Several factors could prevent completion or cause significant delay of these trials, including an inability to enroll the required number of patients or failure to demonstrate adequately that cell therapy product candidates are safe and effective for use in humans. Negative or inconclusive results from or adverse medical events during a clinical trial could cause the clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful. The FDA, the EMA or the PMDA can place a clinical trial on hold if, among other reasons, it finds that patients enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury. If safety concerns develop, we, the FDA, the EMA or the PMDA could stop our trials before completion.

 

The completion of our clinical trials may be delayed or terminated for many reasons.  For instance, in June 2013, we received a clinical hold notification, or the Clinical Hold, with respect to our United States Phase II IC study due to a serious allergic reaction in a case which required hospitalization.  This Clinical Hold, which was lifted in September 2013, resulted in delays in our clinical trials plan for IC in the United States, Europe and Israel as well as the extension of the development period for which we received funds from United from 6.5 years to 11.5 years. Our clinical trials may be delayed or terminated due to other reasons, such as:

 

 

 

 

 

 

 

 

Our development costs will increase if we have material delays in our clinical trials, or if we are required to modify, suspend, terminate or repeat a clinical trial. If we are unable to conduct our clinical trials properly and on schedule, marketing approval may be delayed or denied by the FDA, EMA, PMDA and other regulatory authorities.

 

 

 

 

Our cell therapy products are currently in the development stage and we anticipate that we will continue to incur substantial operating expenses and incur net losses until we have successfully completed all necessary research and clinical trials.  We, and any of our potential collaborators, may encounter problems and delays relating to research and development, regulatory approval and intellectual property rights of our technology.  Our research and development programs may not be successful, and our cell culture technology may not facilitate the production of cells outside the human body with the expected result.  Our cell therapy products may not prove to be safe and efficacious in clinical trials.  If any of these events occur, we may not have adequate resources to continue operations for the period required to resolve the issue delaying commercialization and we may not be able to raise capital to finance our continued operation during the period required for resolution of that issue.  Accordingly, we may be forced to discontinue or suspend our operations.

 

We have received certain Israeli government approvals under certainrely on research institutions to conduct our clinical trials. Specifically, the limited number of centers experienced with cell therapy product candidates heightens our dependence on such research institutions. Our reliance upon research institutions, including hospitals and clinics, provides us with less control over the timing and cost of clinical trials and the ability to recruit subjects. If we are unable to reach agreements with suitable research institutions on acceptable terms, or if any resulting agreement is terminated, we may be unable to quickly replace the research institution with another qualified institution on acceptable terms. We may not be able to secure and maintain suitable research institutions to conduct our clinical trials.

 Our product development programs are based on novel technologies and mayare inherently risky.

We are subject to the risks of failure inherent in the future utilizedevelopment of products based on new technologies. The novel nature of our therapeutics creates significant challenges in regards to product development and optimization, manufacturing, government regulation, third-party reimbursement and market acceptance. For example, the FDA, the EMA, the PMDA and other countries’ regulatory authorities have relatively limited experience with cell therapies. Very few cell therapy products have been approved by regulatory authorities to date for commercial sale, and the pathway to regulatory approval for our cell therapy product candidates may accordingly be more complex and lengthy. As a result, the development and commercialization pathway for our therapies may be subject to increased uncertainty, as compared to the pathway for new conventional drugs.

As a result, the clinical efficacy endpoints, or the criteria to measure the intended results of treatment may be difficult to determine. Despite our eligibility for certain tax benefits in Israelaccelerated pathways, this could increase the difficulty of our obtaining FDA, EMA or other countries’ regulatory authorities approval to market our products.

Even if we successfully develop and obtain regulatory approval for our cell therapy candidates, the market may not understand or accept them. We are developing cell therapy product candidates that represent novel treatments and will compete with a number of more conventional products and therapies manufactured and marketed by virtueothers, including major pharmaceutical companies. The degree of these programs. To remain eligiblemarket acceptance of any of our developed and potential products will depend on a number of factors, including:

If the health care community does not accept our potential products for such tax benefits, we must continue to meet certain conditions. If we fail to comply with these conditions inany of the future, the benefits we receiveforegoing reasons, or for any other reason, it could be canceled and have to pay additional taxes. We cannot guarantee that these programs and tax benefits will be continued in the future, at their current levels or at all. If these programs and tax benefits are ended,affect our sales, having a material adverse effect on our business, financial condition and results of operations couldoperations.

Our manufacturing process, controls, equipment and quality system for PLX-PAD have received approval from the FDA, EMA, Germany’s PEI, the Korean MFDS and the PMDA. However, the clinical manufacturing process is complex and we have no experience in manufacturing our product candidates at a commercial level. There can be materially adversely affected.no guarantee that we will be able to successfully develop and manufacture our product candidates in a manner that is cost-effective or commercially viable, or that our development and manufacturing capabilities might not take much longer than currently anticipated to be ready for the market.  In addition, if we fail to maintain regulatory approvals for our manufacturing facilities, we may suffer delays in our ability to manufacture our product candidates.  This may result in a material adverse effect on our business.

 

We have received royalty-bearing grants from the OCS,IIA, for research and development programs that meet specified criteria. The terms of the OCS’sIIA’s grants limit our ability to transfer know-how developed under an approved research and development program outside of Israel, regardless of whether the royalties are fully paid. Any non-Israeli citizen, resident or entity that, among other things, becomes a holder of 5% or more of our share capital or voting rights, is entitled to appoint one or more of our directors or our Chief Executive Officer, or CEO, serves as a director of our Company or as our CEO is generally required to notify the same to the OCSIIA and to undertake to observe the law governing the grant programs of the OCS,IIA, the principal restrictions of which are the transferability limits described above. For more information, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”.

 

 

We have a limited operating history in our business of developing and commercializing cell production technology.  Until we entered into the United Agreement, which was terminated in December 2015, we did not generate any revenues.  ItWhile we generated minimal revenue for the year ended June 30, 2018, it is not clear when we will generate additional revenues or whether we will experience further delays in recognizing revenues such as resulted from the Clinical Hold.if we experienced a clinical hold.  Our primary source of funds has been the sale of our common stock and government grants.  We cannot give assurances that we will be able to generate any significant revenues or income in the future.  There is no assurance that we will ever be profitable.

 

 

The cellular therapeutics industry, of which we are a part, is very competitive and is subject to technological changes that can be rapid and intense. We have faced, and will continue to face, intense competition from biotechnology, pharmaceutical and biopharmaceutical companies, academic and research institutions and governmental agencies engaged in cellular therapeutic and drug discovery activities or funding, both in the United States and internationally. Some of these competitors are pursuing the development of cellular therapeutics, drugs and other therapies that target the same diseases and conditions that we target in our clinical and pre-clinical programs.

 

Many of our competitors have greater resources, more product candidates and have developed product candidates and processes that directly compete with our products.  Our competitors may have developed, or could develop in the future, new products that compete with our products or even render our products obsolete.

Our success depends to a significant extent on the continued services of certain highly qualified scientific and management personnel, in particular, Zami Aberman, our CEOCo-CEO and Chairman, and Yaky Yanay, our Chief Operating Officer, or COO, President,Co-CEO and Chief Financial Officer, or CFO.President.  We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms.  The loss of service of any of our key personnel could have a material adverse effect on our operations or financial condition.  In the event of the loss of services of such personnel, no assurance can be given that we will be able to obtain the services of adequate replacement personnel.  We do not maintain key person insurance on the lives of any of our officers or employees.

 

 

Our ability to successfully commercialize our product candidates will depend on the extent to which government healthcare programs, as well as private health insurers, health maintenance organizations and other third party payers will pay for our products and related treatments.

 

Reimbursement by third party payers depends on a number of factors, including the payer’s determination that use of the product is safe and effective, not experimental or investigational, medically necessary, appropriate for the specific patient and cost-effective.  Reimbursement in the United States or foreign countries may not be available or maintained for any of our product candidates.  If we do not obtain approvals for adequate third party reimbursements, we may not be able to establish or maintain price levels sufficient to realize an appropriate return on our investment in product development.  Any limits on reimbursement from third party payers may reduce the demand for, or negatively affect the price of, our products.  The lack of reimbursement for these procedures by insurance payers has negatively affected the market for our products in this indication in the past.

 

Managing and reducing health care costs has been a general concern of federal and state governments in the United States and of foreign governments.  In addition, third party payers are increasingly challenging the price and cost-effectiveness of medical products and services, and many limit reimbursement for newly approved health care products.  In particular, third party payers may limit the indications for which they will reimburse patients who use any products that we may develop.  Cost control initiatives could decrease the price for products that we may develop, which would result in lower product revenues to us.

 

 

Our success will also depend in part on our ability to develop our technology and commercialize cell therapy products without infringing the proprietary rights of others.  We have not conducted full freedom of use patent searches and no assurance can be given that patents do not exist or could not be filed which would have an adverse affecteffect on our ability to develop our technology or maintain our competitive position with respect to our potential cell therapy products.  If our technology components, devices, designs, products, processes or other subject matter are claimed under other existing United States or foreign patents or are otherwise protected by third party proprietary rights, we may be subject to infringement actions.  In such event, we may challenge the validity of such patents or other proprietary rights or we may be required to obtain licenses from such companies in order to develop, manufacture or market our technology or products.  There can be no assurances that we would be able to obtain such licenses or that such licenses, if available, could be obtained on commercially reasonable terms.  Furthermore, the failure to either develop a commercially viable alternative or obtain such licenses could result in delays in marketing our proposed products or the inability to proceed with the development, manufacture or sale of products requiring such licenses, which could have a material adverse effect on our business, financial condition and results of operations.  If we are required to defend ourselves against charges of patent infringement or to protect our proprietary rights against third parties, substantial costs will be incurred regardless of whether we are successful.  Such proceedings are typically protracted with no certainty of success.  An adverse outcome could subject us to significant liabilities to third parties and force us to curtail or cease our development of our technology and the commercialization our potential cell therapy products.

 

 

 

The market for our shares of common stock may fluctuate significantly. A number of events and factors may have an adverse impact on the market price of our common stock, such as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In addition, a market downturn in general and/or in the biopharmaceutical sector in particular, may adversely affect the market price of our securities, which may not necessarily reflect the actual or perceived value of our Company.

 

 

A significant portion of our business is conducted outside the United States. Therefore, we are exposed to currency exchange fluctuations in other currencies such as the Euro and the New Israeli Shekel, or NIS, and the Euro, because a portion of our expenses in Israel and Europe are paid in NIS and Euros, respectively, which subjects us to the risks of foreign currency fluctuations. Our primary expenses paid in NIS are employee salaries, fees for consultants and subcontractors and lease payments on our Israeli facilities. During 2015,the fiscal year ended June 30, 2018, or fiscal year 2018, we entered into forwardoptions contracts and other derivative instruments to hedge against some of the risk of changes in future cash flows from payments of payroll and related expenses and costs of operations denominated in NIS.

 

 

Since a considerable portion of our expenses such as employees' salaries are linked to an extent to the rate of inflation in Israel, the dollar cost of our operations is influenced by the extent to which any increase in the rate of inflation in Israel is or is not offset by the devaluation of the NIS in relation to the dollar. As a result, we are exposed to the risk that the NIS, after adjustment for inflation in Israel, will appreciate in relation to the dollar. In that event, the dollar cost of our operations in Israel will increase and our dollar-measured results of operations will be adversely affected. We cannot predict whether the NIS will appreciate against the dollar or vice versa in the future. Any increase in the rate of inflation in Israel, unless the increase is offset on a timely basis by a devaluation of the NIS in relation to the dollar, will increase labor and other costs, which will increase the dollar cost of our operations in Israel and harm our results of operations.

 

 

We face an inherent business risk of exposure to product liability claims in the event that the use of our products results in adverse effects.  We may not be able to maintain adequate levels of insurance for these liabilities at reasonable cost and/or reasonable terms.  Excessive insurance costs or uninsured claims would add to our future operating expenses and adversely affect our financial condition.

 

 

Our principal research and development and manufacturing facilities are located in Israel.  As a result, we are directly influenced by the political, economic and military conditions affecting Israel.  Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. During July and August 2014 and November 2012, Israel was engaged in an armed conflict with a militia group and political party which controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel.

 

 

In addition, Israeli-based companies and companies doing business with Israel, have been the subject of an economic boycott by members of the Arab League and certain other predominantly Muslim countries since Israel's establishment.  Although Israel has entered into various agreements with certain Arab countries and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic and political problems in the Middle East, we cannot predict whether or in what manner these problems will be resolved. Wars and acts of terrorism have resulted in significant damage to the Israeli economy, including reducing the level of foreign and local investment.

 

Furthermore, certain of our officers and employees may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active military duty at any time.  All Israeli male citizens who have served in the army are subject to an obligation to perform reserve duty until they are between 40 and 49 years old, depending upon the nature of their military service.

 

 

There is a trend towards consolidation in the pharmaceutical and biotechnology industries. This consolidation trend may result in the remaining companies having greater financial resources and technical discovery capabilities, thus intensifying competition in these industries. This trend may also result in fewer potential collaborators or licensees for our therapeutic product candidates. Also, if a consolidating company is already doing business with our competitors, we may lose existing licensees or collaborators as a result of such consolidation.

 

This trend may adversely affect our ability to enter into license agreements or agreements for the development and commercialization of our product candidates, and as a result may materially harm our business.

 

Our assets include a significant component of cash and cash equivalents and bank deposits.  We adhere to an investment policy set by our investment committee which aims to preserve our financial assets, maintain adequate liquidity and maximize returns. We believe that our cash is held in institutions whose credit risk is minimal and that the shares,value and liquidity of our deposits are accurately reflected in our consolidated financial statements as well as to fluctuations in the KRW exchange rate to U.S. dollar.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish an annual report by our management assessing the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. In addition, our independent registered public accounting firm must annually provide an opinion on the effectiveness of our internal control over financial reporting.  Management's report as of the end of fiscal year 20152018 concluded that our internal control over financial reporting was effective.  In addition, our registered independent public accounting firm provided an opinion that our internal control over financial reporting was effective as of the end of fiscal year 2015.2018.  There is, however, no assurance that we will be able to maintain such effective internal control over financial reporting in the future. Ineffective internal control over financial reporting can result in errors or other problems in our financial statements. In the future, if we or our registered independent public accounting firm are unable to assert that our internal controls are effective, our investors could lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline. Failure to maintain effective internal control over financial reporting could also result in investigation or sanctions by regulatory authorities.

 

 

Substantially all of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of their assets are located outside the United States.  As a result, it may be difficult for you to enforce within the United States any judgments obtained against our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any U.S. state.

We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.  Investors seeking dividend income should not invest in our common stock.

 

Not Applicable.

 

 

Our principal executive, new manufacturing and research and development offices are located at MATAM Advanced Technology Park, Building No. 5, Haifa, Israel, 31905, where we occupy approximately 4,3904,389 square meters. Our monthly rent payment for these leased facilities as of July 20152018 was 177,000258,000 NIS (approximately $47,000).$73,000), excluding MTM - Scientific Industries Center Haifa, Ltd., or MTM, participation as described at Item 7. For the fiscal year ended June 30, 2015,2018, we paid $457,450recognized an expense of $878,000, net, for rent for such facilities. In addition, we rent a facility that is located at MATAM Advanced Technology Park,of Building No. 20, Haifa, Israel 31905, where we occupy approximately 1,280 square meters. Our monthly rent payment for the leased facilities5, which was offset by MATAM participation of $239,000 due to renovations made in Building No. 20 as of July 2015 was 77,000 NIS (approximately $20,500). For the fiscal year ended June 30, 2015, we paid $246,600 for rent for such facilities. 5.

We believe that the current space we have including our current improvement plans, is adequate to meet our current and near future needs.

 

 

None.

 

 

Not applicable.

 

 

 

Our shares trade on the NASDAQNasdaq Capital Market under the symbol PSTI and in the Tel Aviv Stock Exchange under the ticker symbol PLTR.

 

The following table sets forth, for the periods indicated, the high and low sales prices of our common stock, as reported on NASDAQNasdaq website and may not necessarily represent actual transactions.

 

 

American Stock Transfer and Trust Company, LLC is the registrar and transfer agent for our common shares.  Their address is 6201 15th Avenue, 2nd Floor, Brooklyn, NY 11219, telephone: (718) 921-8261,921-8300, (800) 937-5449.

 

 

We have not paid any cash dividends on our common stock and have no present intention of doing so. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our Board of Directors.

 

 

The selected data presented below under the captions "Statements of Operations Data," "Statements of Cash Flows Data" and "Balance Sheet Data" for, and as of the end of, each of the fiscal years in the five-year period ended June 30, 2015,2018, are derived from, and should be read in conjunction with, our audited consolidated financial statements.

 

 

The information contained in this table should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes thereto included elsewhere in this report (in thousands of dollars except share and per share data):

 

 

We are a bio-therapeutics company developing off-the-shelf allogeneicleading developer of placenta-based cell therapy productsproduct candidates for the treatment of multiple ischemic, inflammatory and inflammatory conditions, with ourhematologic conditions. Our lead indications focusing on cardiovascular, orthopedic, pulmonary, hematological,are CLI, recovery following surgery for hip fracture and women’s health diseases. Our patented placenta expanded, or ARS.  Each of these indications is a severe unmet medical need.

PLX cells are intended to function asderived from a platform that releases a numberclass of therapeutic proteins in response to various local and systemic inflammatory and ischemic signalsplacental cells that are generated byharvested from donated placenta at the patient’s own body.time of full term healthy delivery of a baby. PLX cells are grown using our proprietary three-dimensional, or 3D, micro environment technology which produces a product that requirescell products require no tissue matching prior to administration.

 

Our focusgoal is to make significant progress inwith our robust clinical pipeline and shorten the time to market of our first product, PLX-PAD, in Europe and Japan, in parallel to our clinicalanticipated pivotal trials in the United States. We intend to leverage the new regulatory environments in Europe and Japan that now offer unique opportunities for accelerated paths to bring new products to the market. We believe that these new pathways create substantial opportunities for us and for the cell therapy industry as a whole. We will explore these accelerated pathways for several of our current clinical indications, such as critical limb ischemia, or CLI, as well as for carefully selected hematologic indications which represent substantial unmet needs that we hope to address with our second product, PLX-R18. In May 2015, we announced that the PLX cell program in CLI had been selected for the Adaptive Pathways pilot project of the European Medicines Agency, or EMA. In addition, we reported that Japan’s Pharmaceuticals and Medical Devices Agency, or PMDA, approved the proposed quality and large-scale manufacturing methods for PLX-PAD for use in clinical trials in Japan. In August 2015, we announced that the PMDA has cleared our PLX-PAD cells for use in clinical trials in Japan. We plan to continue frequent discussions with these regulators in order to initiate clinical studies using the accelerated paths. Our intention isultimately bring innovative, potent therapies to initiate the CLI studies during calendar year 2016 with the aim of obtaining initial approval in calendar year 2018.

We made progress inaim to shorten the time to commercialization of our Phase II intermittent claudication, or IC, trial, a randomized, double blind, placebo controlled, multinational clinical trial. We currently have active clinical sitesproduct candidates, by leveraging unique accelerated regulatory pathways that exist in the United States, Israel, GermanyEurope and South Korea. We also anticipateJapan to bring innovative products that United Therapeutics Corporation, or United, will complete an ongoingaddress life-threatening diseases to the market efficiently.

Two pivotal, Phase IIII multinational clinical trial oftrials are currently being conducted with our PLX-PAD cellsproduct candidate: one in pulmonary arterial hypertensionCLI, and the other in Australia, which will potentially lay the groundworkrecovery following surgery for a Phase II clinical trial.hip fracture.

We plan to initiate a Phase I/II incomplete engraftment studyOur second product candidate, PLX-R18, is under development in the United States and we are currently in discussions withfor ARS via the FDA before submitting an IND application. Currently, we plan to continue working in partnership with the NIH in developing PLX-R18 as a potential treatment for Acute Radiation Syndrome, or ARS. In the upcoming months, we expect to receive FDA guidance on the additional animal studies that would be required to approve PLX-R18 for use in ARS under the Animal Rule regulatory pathway, which does not requiremay result in approval without the prior performance of human efficacy trials.

 

 

Revenues for each of the years ended June 30, 2015 and June 30, 2014 were $379,000. All such revenues were derived from the United Agreement.

Revenues for the year ended June 30, 2014.2016 were $2,847,000. All such revenues were derived from the United Agreement.

 

Cost of revenues

 

Cost of revenues increased by 17% from $11,000 for the year ended June 30, 2014 to $13,0002018 were $2,000 and we did not recognize cost of revenues in the year ended June 30, 2017. Cost of revenues for the year ended June 30, 2015. This increase is2016 were $100,000. All cost of revenues mentioned above are related to the royalties we are obligated to pay to the OCS, which reflects 3.5% of the revenues derived from the United Agreement in fiscal 2015 compared to 3% of the revenues derived from the United Agreement in fiscal 2014.

 

Research and Development net

 

Research and development net costs (costs less participation and grants by the OCSIIA, Horizon 2020 and other parties) for the year ended June 30, 2015 decreased in 2%2018 increased by 7% to $19,173,000$22,629,000 from $19,542,000$21,092,000 for the year ended June 30, 2014.

 

Research and development net costs (costs less participation and grants by the OCSIIA, Horizon 2020 and other parties), for the year ended June 30, 20142017 increased by 13%8% to $19,542,000$21,092,000 from $17,233,000$19,580,000 for the year ended June 30, 2013.2016. This increase is attributed to a lower participation of the material increaseIIA in our in-house research and development activity, increase in our salaries due to, among other things, an increase of 45 employees asfiscal 2017 compared to the average number of employeesfiscal 2016 ($2,900,000 was approved in thecalendar year ended June 30, 2013,2015 compared to $3,300,000 that was approved in calendar year 2016 and $1,500,000 that was approved in calendar year 2017), an increase in payments to consultants and subcontractors related to clinical studies such as our depreciationCLI and HCT studies, an increase in stock-based compensation expenses due to an increased number of RSUs granted under our 2016 Equity Compensation Plan, or the 2016 Plan, and an increase in market value of our rent and maintenance expenses,common stock on the day of the grant. The increase was offset by an increase in OCS participation. This increase in OCS participation is attributablefrom the European Union with respect to the fact that due to a delay in the approval of the OCSHorizon 2020 grant for 2013, we recognized $5,396,000CLI commencing in fiscalcalendar year 2014 compared to $2,673,0002017 and a decrease in fiscal year 2013.materials consumption.

General and administrative expenses decreasedincreased by 26%63% from $8,676,000$6,927,000 for the year ended June 30, 20142017 to $6,460,000$11,193,000 for the year ended June 30, 2015.2018. This increase is primarily driven by a decreaseattributed to: (1) an increase in stock-based compensation expenses related to our directors and officers and attributable to the timingamount of the grant ofgranted restricted stock units or RSUs.and their vesting schedules, (2) an increase in payroll expenses related to an increase in the number of employees, increases in average salaries and differences in exchange rates, and (3) an increase in corporate activities expenses.

 

General and administrative expenses increased by 54%7% from $5,649,000$6,486,000 for the year ended June 30, 20132016 to $8,676,000$6,927,000 for the year ended June 30, 2014.2017. This increase is primarily driven byattributed to an increase in stock-based compensationcorporate activities expenses related to our employees and directors, due to timing of grants made to directors, and an increase in our salariespayroll expenses due to among other things,differences in exchange rates as well as an increase of 6 employees as compared toin the average number of employees in the year ended June 2013.employees.

 

Financial Income, net

Financial income decreasedincreased from $918,000$205,000 for the year ended June 30, 20142017 to $590,000$7,605,000 for the year ended June 30, 2015.2018. This decreaseincrease is mainly due to the sale of our investments in marketable securities, specifically the sale of the investment in CHA shares which resulted in a net gain of $6,200,000. The increase was partially offset due to an expense of $850,000 resulting from an other-than-temporary impairment loss recognized and resulting from changes in the fair value of our hedging instruments related to the strength of the U.S. dollar against the NIS.

Financial income increased from $73,000 for the year ended June 30, 2016 to $205,000 for the year ended June 30, 2017. This increase is mainly attributable to income from exchange rates in the year ended June 30, 2017  as compared to expense from exchange rates in the year ended June 30, 2016, since through the year ended June 30, 2017, there was a decrease of 9% in the value of the U.S. dollar against the NIS, compared to an increase of 2% in exchange rates expenses,the value of the U.S. dollar against the NIS through the year ended June 30, 2016, as well as income resulting from the changes in the fair value of our hedging instruments, which is related to the strength of the U.S. dollar against the NIS in the year ended June 30, 2015. The exchange rates expenses’ increase was offset by2017 as compared to an increaseexpense in gains related to our sale of our marketable securities and the sale of a portion of CHA shares, as well as increase in gains from derivatives and fair value hedge derivatives.

Net Loss

Net loss for the year ended June 30, 20152018 was $24,677,000$26,126,000 as compared to a net loss of $26,932,000$27,814,000 for the year ended June 30, 2014.2017. The changes were mainly due to the increases in financial income, net, offset by an increase in general and administrative expenses, as well as for the reasons mentioned above. Net loss per share for the year ended June 30, 20152018 was $0.35,$0.25, as compared to $0.42$0.32 for the year ended June 30, 2014.2017.  The net loss per share decreased mainly as a result of the decrease in our net loss, and an increase in our weighted average number of shares due to the issuance of additional shares during fiscal 2015.year 2018.

 

Net loss for the year ended June 30, 20142017 was $26,932,000$27,814,000 as compared to a net loss of $21,155,000$23,246,000 for the year ended June 30, 2013.2016. The reasons for the increase in net loss were mainly due to revenues of $2,847,000 in fiscal year 2016 compared to no revenues in fiscal year 2017 and an other-than-temporary impairment loss of $38,000 in fiscal year 2016 compared to $767,000 in fiscal year 2017, as well as for the reasons mentioned above. Net loss per share for the year ended June 30, 20142017 was $0.42,$0.32, as compared to $0.38$0.29 for the year ended June 30, 2013.2016.  The net loss per share increased as a result of thean increase in our net loss offset by thean increase in our weighted average number of shares due to the issuance of additional shares mainly the shares issued to CHA in December 2013 and the shares issued under an At Market Issuance Sales Agreement, or ATM Agreement.during fiscal year 2017.

Liquidity and Capital Resources

 

As of June 30, 2015,2018, our total current assets were $56,868,000$32,036,000 and our total current liabilities were $6,183,000.$8,548,000. On June 30, 2015,2018, we had a working capital surplus of $50,685,000$23,488,000 and an accumulated deficit of $138,511,000.$215,697,000.

 

As of June 30, 2014,2017, our total current assets were $61,987,000$29,016,000 and our total current liabilities were $7,397,000.$5,414,000. On June 30, 2014,2017, we had a working capital surplus of $54,590,000$23,602,000 and an accumulated deficit of $113,834,000.$189,571,000.

 

Our cash and cash equivalents as of June 30, 20152018 amounted to $22,626,000.$8,821,000.  This is an increase of $18,133,000$4,114,000 from the $4,493,000$4,707,000 reported as of June 30, 2014.2017. Cash balances increased in the year ended June 30, 20152018 for the reasons presented below:

 

Operating activities used cash of $20,605,000$21,380,000 in the year ended June 30, 2015.2018. Cash used by operating activities in the year ended June 30, 20152018 primarily consisted 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, offset by an OCS grant.IIA and Horizon 2020 grants.

 

Investing activities provided cash of $21,537,000$5,573,000 in the year ended June 30, 2015.2018. The investing activities in the year ended June 30, 2018 consisted primarily of withdrawal of $16,061,000 of short-term deposits and proceeds of $11,269,000cash provided from the sale and the redemption of marketable securities of $21,890,000, offset by investing $4,903,000investments in short term deposits of $14,829,000, investment of $1,146,000 in marketable securities and the purchasepayments of $342,000 related to investments in property and equipment for $831,000.

 

Financing activities generated cash in the amount of $17,201,000$19,921,000 during the year ended June 30, 2015. 2018.

The financing activities are primarily attributable to net proceeds of $16,914,000$13,646,000 from issuing shares of our common stock in thea public offering we closedconducted in June 2015 and stock issuances in private placementsIsrael in October 2014 and February 2015, and $287,0002017, net proceeds of $1,202,000 from exercisesissuing shares of our common stock from the exercise of warrants and options, by employeesnet proceeds of $4,985,000 from issuing shares of our common stock under our At Market Sales Agreement, or the ATM Agreement, with FBR Capital Markets & Co., MLV & Co. LLC and investors.Oppenheimer & Co. Inc., each an Agent,  and proceeds of $88,000 related to a grant received from the Israel-United States Binational Industrial Research and Development Foundation.

 

On June 25, 2015,In July 2017, we entered into definitive agreementsthe ATM Agreement, with the Agents which provides that, upon the terms and subject to the conditions and limitations set forth in the ATM Agreement, we may elect, from time to time, to issue and sell 6,800,000 shares of common stock and warrants to purchasehaving an aggregate offering price of up to 4,080,000$80 million through any of the Agents. We are not obligated to make any sales of common stock under the ATM Agreement. As of June 30, 2018, we had sold 3,599,408 shares of common stock at a combinedan average price of $2.50$1.43 per shareshare.

On October 31, 2017, we completed a public offering in Israel, pursuant to our existing shelf registration statement in the United States and related warrants. Thea shelf registration statement filed in Israel, pursuant to which we raised aggregate gross proceeds fromof $15,051,000 through the sale of 9,000,000 shares of our common stock at a purchase price of NIS 5.90 (approximately $1.67 per share). The net proceeds, after deducting fees and expenses related to the offering, were $17 million. The warrants have an exercise price$13,646,000.

During the year ended June 30, 2018, we received cash of $2.85 per share of common stock, are immediately exercisable and expire 5 yearsapproximately $50,000 from a third party from the closingsale of this offering. The offering was closed onour PLX cells for research use.

During the year ended June 30, 2015.

Our cash and cash equivalents as of June 30, 20142017 amounted to $4,493,000.$4,707,000.  This is a decrease of $4,514,000$1,516,000 from the $9,007,000$6,223,000 reported as of June 30, 2013.2016. Cash balances decreased in the year ended June 30, 20142017 for the reasons presented below:

 

Operating activities used cash of $19,121,000$21,611,000 in the year ended June 30, 2014.2017. Cash used by operating activities in the year ended June 30, 20142017 primarily consisted 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, offset by an OCS grant.IIA and Horizon 2020 grants.

 

Investing activities provided cash of $1,983,000$4,298,000 in the year ended June 30, 2014.2017. The investing activities consisted primarily of withdrawal of $7,421,000 of short-term deposits and proceeds of $6,867,000$5,937,000 from the sale and redemption of marketable securities and redemption of short term deposits of $2,316,000, offset by investing $10,851,000$3,607,000 in marketable securities and the purchase of property and equipment for $1,573,000.$378,000.

 

Financing activities generated cash in the amount of $12,624,000$15,797,000 during the year ended June 30, 2014.2017. The financing activities are primarily attributable to net proceeds of $10,644,000$15,718,000 from issuing shares of our common stock underin the ATM Agreement as described below,underwritten public offering we closed in January 2017, proceeds related to grant received from the Israel-United States Binational Industrial Research and fromDevelopment Foundation and exercises of warrantsoptions by shareholders.employees.

 

From July 1, 2013 through June 30, 2014, a totalOn January 25, 2017, we closed the public offering and sold an aggregate of 2,517,90714,081,633 shares of our common stock and warrants were exercised via “cashless” exercise, resulting in the issuanceto purchase 8,448,980 shares of 1,469,584 sharesour common stock, at an aggregate purchase price of $1.225 per share of common stock to investorsand warrant, inclusive of the Company.  In addition, 1,432,584 warrants wereover-allotment option, which was exercised for cash and resulted in the issuance of 1,432,584 shares of common stock to investors of the Company. The aggregate cash consideration received was $1,968,000. From July 1, 2013 through June 30, 2014, a total of 65,000 warrants were exercised via a “cashless” exercise,full, resulting in the issuanceaggregate net proceeds of 36,970 shares of common stock to our consultants.$15,718,000.

During the years that ended June 30, 2015, 20142018, 2017 and 20132016, we received approximately $4,405,000, $3,243,000$2,328,000, $3,258,000 and $1,452,000,$2,526,000, respectively, in cash from the OCSIIA towards our research and development expenses.

 

According to the OCSIIA grant terms, we are required to pay royalties at a rate of 3% - 4% on sales of products and services derived from technology developed using this and other OCSIIA grants until 100% of the dollar-linked grants amount plus interest are repaid. In the absence of such sales, no payment is required.  During the year ended June 30, 2015,2018, we paid $2,000 of royalties to the OCS in the aggregate amount of $12,000 in cash.IIA. The OCSIIA may impose certain conditions on any arrangement under which the OCSIIA 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 accordance with the CHA Agreement, in December 2013, we issued to CHA 2,500,000 shares of our common stock in consideration for the issuance to us of 1,011,504 common shares of CHA, which reflected total consideration of approximately $10,414,000 to each of us and CHA. Each of us and CHA agreed not to sell the other party's shares for at least one year. The parties also agreed to give an irrevocable proxy to the other party’s management with respect to the shares issued.

 

During March 2015, we sold a portion of the CHA shares received in December 2013, resulting in net proceeds of $5,717,000. The net gain was $282,000 and iswas presented as “Financial income, net”. in fiscal 2015.

 

The remaining investmentDuring January 2018, we sold the remainder of our holdings in CHA, shares is presented as “Marketable Securities” and classified as available-for-sale in accordance with ASC 320, “Investments - Debt and Equity Securities”. The fair valueconsisting of the remaining investment as of June 30, 2015 is $5,982,000, and other comprehensive income includes unrealized gains of $857,000 related to the increase in the fair value400,368 shares of CHA, shares. If we decide to sell our investmenton the open market for aggregate net proceeds of approximately $10,500,000, representing a net gain of $6,200,000 presented in CHA shares, we will reclassify the unrealized gains or losses in our statement of operations.“Financial income, net”.

 

We adhere to an investment policy set by our investment committee which aims to preserve our financial assets, maintain adequate liquidity and maximize return while minimizing exposure to the NIS.  Such policy further provides that we should hold most of our current assets in bank deposits and the remainder of our current assets is to be invested in government bonds and a combination of corporate bonds and relativelyother low risk stocks.instruments.  As of today, the currency of our financial portfolio is mainly in U.S. dollars and we use forward and options contracts in order to hedge our exposures to NIS.

 

Outlook

 

We have accumulated a deficit of $138,511,000$215,697,000 since our inception in May 2001. We do not expect to generate any revenues from sales of products in the next twelve months. Our cash needs will increase in the foreseeable future. We expect to generate revenues, which in the short and medium terms will unlikely exceed our costs of operations, from the sale of licenses to use our technology or products. We will be required to obtain additional liquidity resources in order to support the commercialization of our products asand maintain our research and development and clinical trials activities.

The OCSIIA has supported our activity in the past tenthirteen years. Our last program, for the tenththirteenth year, was approved by the OCSIIA in June 20152018 and relates to an approximately $2,871,000$900,000 grant. The grant will be used to cover research and development expenses for the period January 1, 20152018 to December 31, 2015.2018.

 

In June 2015, we were awarded a “Smart Money” grant of approximately $117,559 from Israel’s Ministry of Economy. The program’s aim is to assist companies to extend their activities in international markets. The Israeli government granted us budget and resources for thethat we intend to use to advance our product candidate towards marketing of our advanced cell therapy products in Japan and for regulatory activities there. We will also receive assistance from Israel’s trade attachés stationed in Japan, and from experts appointed especially by the "Smart Money" program.

We believeIn July 2017, we were awarded an additional “Smart Money” grant of approximately $229,000 from Israel’s Ministry of Economy. The Israeli government granted us budget resources that we intend to use to advance our product candidate towards marketing in China-Hong Kong markets. We will also receive close support from Israel’s trade representatives stationed in China, including Hong Kong, along with experts appointed by the Smart Money program.

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 Euro 7,400,000 (approximately $8,600,000) grant, as part of the European Union’s Horizon 2020 program. This Phase III study will be a collaborative project carried out by an international consortium led by Charite Universitätsmedizin Berlin, together with us, and with participation of additional third parties. The grant will cover a significant portion of the project costs. An amount of Euro 2,550,000 (approximately $3,000,000) is a direct grant allocated to us for manufacturing and other costs, and we also expect to have sufficient casha direct benefit from cost savings resulting from grant amounts allocated to fund our operations for at least the next 12 months.other consortium members.

 

Application of Critical Accounting Policies

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing in this Annual Report. We believe that the accounting policies below are 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. generally accepted accounting principles. 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. On an ongoing basis, we evaluate such estimates and judgments, 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.

 

Revenue Recognition from the United Agreement

 

We recognizedetermine revenue recognition through the following steps:

We recognized revenue in fiscal year 2016 pursuant to the License Agreement with United in accordance with ASC 605-25, "Revenue Recognition, Multiple-Element Arrangements"., or ASC 605-25.

Pursuant to ASC 605-25, each deliverable is evaluated to determine whether it qualifies as a separate unit of accounting based on whether the deliverable has “stand-alone value” to the customer. The arrangement’s consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable.

In general, the consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables.

We received an up-front, non-refundable license payment of $5,000,000. Additional payments totaling $37,500,000 arewere subject to the achievement of certain regulatory milestones by United.

Since the deliverables in the United Agreement dodid not have stand-alone value, none of them qualifiesqualify as a separate unit of accounting. Accordingly, the non-refundable upfront license fee of $5,000,000 iswas deferred and was recognized on a straight line basis over the related performance period which iswas the development period in accordance with Staff Accounting Bulletin, or SAB, No. 104, "Revenue Recognition"“Revenue Recognition”. We assessed the remaining performance period under the United Agreement at 7.5 years as of June 30, 2015.

We also received an advance payment for the development of $2,000,000 that will bewas deductible against development expenses as it accrued. The

On December 8, 2015, we received a notice from United terminating the United Agreement, effective immediately. Pursuant to the United Agreement termination clause, we regained full rights to PLX in the field of PAH, as well as all clinical data and regulatory submissions. As we have no further obligations towards United, we recognized the remaining upfront payment which was received and has not yet fully recognized in August 2011 as revenues during the statement of operations, is included in the balance sheet as advance payment. Part of the expenses related to the development, on a cost basis, shall be repaid to the Company by United according to the applicable license agreement. We are deducting the payments from research and development expenses in accordance with ASC 730-20, "Research and Development Agreements". As ofyear ended June 30, 2015, we deducted an amount of approximately $1,907,000.2016.

Stock-based compensation

Stock-based compensation is considered critical accounting policy due to the significant expenses of restricted stock units which were granted to our employees, directors and consultants. In fiscal year 2015,2018, we recorded stock-based compensation expenses related to options, restricted stock and restricted stock units in the amount of $4,050,000.$6,548,000.

In accordance with ASC 718, "Compensation-Stock Compensation", or ASC 718, restricted sharesshare units granted to employees and directors are measured at their fair value on the grant date. All restricted shares units granted in 20152018 and 20142017 were granted for no consideration; therefore their fair value was equal to the share price at the date of grant, based on the close trading price of our shares known at the grant date. The restricted shares units to non-employees consultants are remeasured in any future vesting period for the unvested portion of the grants.

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 7% for the shares granted to employees and 0% for the shares granted to our directors, officersCo-CEOs and non-employees consultants.

Marketable Securities

Marketable securities consist of corporate bonds, government bonds and stocks. We determine the appropriate classification of marketable securities at the time of purchase and re-evaluate such designation at each balance sheet date. In accordance with ASC No. 320, "Investment Debt and Equity Securities," we classify marketable securities as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders' equity. Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income.

The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest, are included in financial income.

Marketable securities are classified within Level 1 or Level 2 because marketable securities are valued using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

We recognize an impairment charge when a decline in the fair value of our investments is below the cost basis and is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and our intent to sell, including whether it is more likely than not that we will be required to sell the investment before recovery of cost basis. As such, we did not recognize anyrecognized an impairment chargescharge of $850,000 on outstanding securities during the year ended June 30, 2015.2018.

Research and Development Expenses, Net  

 

We expect our research and development expenses to remain our primary expense in the near future as we continue to develop our product candidates. Our research and development expenses consist primarily of clinical trials expenses, consultant and subcontractor expenses, payroll and related expenses, lab material expenses, stock based compensation expenses, rent and maintenance expenses and patent expenses. The following table provides a breakdown of the related costs for fiscal years 20132016 through 20152018 (in thousands of dollars):

 

 

We invest heavily in research and development. Research and development expenses, net, were our major operating expenses, representing between 70% - 77%67%, 75% and 75% of the total operating expenses for each of our fiscal years 2013, 20142018, 2017 and 2015.2016, respectively. We expect that in the upcoming years our research and development expenses, net, will continue to be our major operating expense.

 

 

The following summarizes our contractual obligations and other commitments on June 30, 2015,2018, and the effect such obligations could have on our liquidity and cash flow in future periods:

 

 

Off Balance Sheet Arrangements

 

Our Company hasWe have no off balance sheet arrangements.

 

 

We are exposed to a variety of risks, including changes in interest rates, foreign currency exchange rates, changes in the value of our marketable securities and inflation.

 

As of June 30, 2015,2018, we had $22.6$8.8 million in cash and cash equivalents $8.5and $22.1 million in short-term bank deposits and restricted deposits and $22.2 million in marketable securities.deposits.

 

We adhere to an investment policy set by our investment committee, which aims to preserve our financial assets, maintain adequate liquidity and maximize return while minimizing exposure to the NIS.  Such policy further provides that we should hold most of our current assets in bank deposits and the remainder of our current assets should be invested in government bonds and a combination of corporate bonds and relatively low risk stocks.instruments.  As of today, the currency of our financial portfolio is mainly in U.S. dollars and we use forward and options contracts in order to hedge our exposures to currencies other than the U.S. dollar.

 

Interest Rate Risk

 

We invest a major portion of our cash surplus in bank deposits in banks in Israel. Since the bank deposits typically carry fixed interest rates, financial income over the holding period is not sensitive to changes in interest rates. However, our interest gains from future deposits may decline in the future as a result of changes in the financial markets. In addition, our income from marketable securities is exposed to market risks resulting from changes in interest rates.  In any event, given the historic low levels of the interest rate, we estimate that a further decline in the interest rate we are receiving will not result in a material adverse effect to our business.

 

Foreign Currency Exchange Risk and Inflation

 

A significant portion of our expenditures, including salaries, lab materials, consultants'consultants’ fees and office expenses relate to our operations in Israel.  The cost of those Israeli operations, as expressed in U.S. dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the NIS in relation to the U.S. dollar.  If the U.S. dollar declines in value in relation to the NIS, it will become more expensive for us to fund our operations in Israel. In addition, as of June 30, 2015,2018, we own net financial balances in NIS of approximately $3,871,000, ($2,875,000).

Assuming a 10% appreciation of the NIS against the U.S. dollar, we would experience exchange rate gainloss of approximately $430,000,$261,000, while assuming a 10% devaluation of the NIS against the U.S. dollars, we would experience an exchange rate lossgain of approximately $352,000,$319,000, in both cases excluding the effect of our hedging transactions (as described below).

 

 

We use currency hedging transactions of options and forwards to decrease the risk of financial exposure from fluctuations in the exchange rate of the U.S. dollar against the NIS.

 

 

 

Our financial statements are stated in thousands United States dollars (US$) and are prepared in accordance with U.S. GAAP.

 

The following audited consolidated financial statements are filed as part of this Annual Report:

 

Reports of Independent Registered Public Accounting Firm, dated September 9, 2015.12, 2018.

 

Consolidated Balance Sheets.

 

Consolidated Statements of Operations.

 

Consolidated Statements of Comprehensive Loss.

 

Statements of Changes in Equity.

 

Consolidated Statements of Cash Flows.

 

Notes to the Consolidated Financial Statements.