Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
 
(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________to __________

Commission File Number: 333-61610

BRAINSTORM CELL THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)
 
Delaware
20-8133057
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

110 East 59th Street
 
New York, New York
10022
(Address of principal executive offices)
(Zip code)
 
(212) 557-9000
(Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨            
Accelerated filer  ¨              
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)
Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 6, 2008, the number of shares outstanding of the registrant’s Common Stock, $0.00005 par value per share, was 47,154,768.
 
 

 
BRAINSTORM CELL THERAPEUTICS INC.
 
INDEX TO FORM 10-Q
 
 
 
Page Number
PART I - FINANCIAL INFORMATION
 
 
 
 
 
Item 1. Financial Statements
 
3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
29
Item 4. Controls and Procedures
 
29
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
Item 1. Legal Proceedings
 
30
Item 1A. Risk Factors
 
30
Item 5. Other Information
 
30
Item 6. Exhibits
 
30
 
2

 
PART I: FINANCIAL INFORMATION
 
SPECIAL NOTE
 
Unless otherwise specified in this quarterly report on Form 10-Q, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars.
 
Item 1. Financial Statements.
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2008

IN U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX

 
Page
   
Consolidated Balance Sheets
4
 
 
Consolidated Statements of Operations
5
   
Statements of Changes in Stockholders' Equity (Deficiency)
6 - 8
   
Consolidated Statements of Cash Flows
9
   
Notes to Consolidated Financial Statements
10 - 24
 
3


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED BALANCE SHEETS
In U.S. dollars in thousands (except share and per share data)

   
March 31,
 
December 31,
 
 
 
2 0 0 8
 
2 0 0 7
 
 
 
Unaudited
 
   
ASSETS
             
               
CURRENT ASSETS:
             
Cash and cash equivalents
 
$
-
 
$
86
 
Restricted cash
   
38
   
35
 
Other receivable and prepaid expenses
   
66
   
137
 
               
Total  current assets
   
104
   
258
 
               
LONG-TERM INVESTMENTS:
             
Prepaid expenses
   
15
   
9
 
Severance pay fund
   
99
   
75
 
               
Total  Long-term investments
   
114
   
84
 
               
PROPERTY AND EQUIPMENT, NET
   
866
   
739
 
               
Deferred charges
   
-
   
2
 
Total assets
   
1,084
   
1,083
 
               
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
             
               
CURRENT LIABILITIES:
             
Short term credit from bank
   
11
   
-
 
Trade payables
   
812
   
838
 
Other accounts payable and accrued expenses
   
1,231
   
1,049
 
Short-term convertible loans
   
190
   
396
 
Short-term loan
   
1,184
   
945
 
               
Total current liabilities
   
3,428
   
3,228
 
               
LONG TERM CONVERTIBLE LOANS
   
-
   
200
 
               
ACCRUED SEVERANCE PAY
   
100
   
83
 
Total liabilities
   
3,528
   
3,511
 
               
STOCKHOLDERS' DEFICIENCY:
             
Stock capital: (Note 7)
             
Common stock of $0.00005 par value - Authorized: 800,000,000 shares at March 31, 2008 and December 31, 2007; Issued and outstanding: 42,617,268 and 41,004,409 shares at March 31, 2008 and December 31, 2007, respectively
   
2
   
2
 
Subscription on account of shares
   
730
   
-
 
Additional paid-in capital
   
30,574
   
30,058
 
Deficit accumulated during the development stage
   
(33,750
)
 
(32,488
)
               
Total stockholders' deficiency
   
(2,444
)
 
(2,428
)
Total liabilities and stockholders' deficiency
 
$
1,084
 
$
1,083
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
4


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
In U.S. dollars in thousands (except share data)

   
Three months ended
March 31,
 
Period from
September 22,
2000 (inception
date) through
March 31,
 
 
 
2 0 0 8
 
2 0 0 7
 
2 0 0 8
 
 
 
Unaudited
 
Unaudited
 
               
Operating costs and expenses:
               
                     
Research and development
 
$
590
 
$
590
 
$
20,455
 
General and administrative
   
544
   
748
   
10,604
 
                     
Total operating costs and expenses
   
1,134
   
1,338
   
31,059
 
                     
Financial expenses, net
   
(128
)
 
(381
)
 
( 2,474
)
                     
     
1,262
   
1,719
   
33,533
 
Taxes on income
   
-
   
5
   
53
 
                     
Loss from continuing operations
   
1,262
   
1,724
   
33,586
 
Net loss from discontinued operations
   
-
   
-
   
164
 
                     
Net loss
 
$
1,262
 
$
1,724
 
$
33,750
 
                     
Basic and diluted net loss per share from continuing operations
 
$
0.03
 
$
0.07
       
                     
Weighted average number of shares outstanding used in computing basic and diluted net loss per share
   
41,774,344
   
24,372,261
       

The accompanying notes are an integral part of the consolidated financial statements.

5


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
In U.S. dollars in thousands (except share data)

   
 
 
 
 
 
 
Deficit
accumulated
 
Total
 
 
 
 
 
Additional
 
Deferred
 
during the
 
stockholders'
 
 
 
Common stock
 
paid-in
 
stock-based
 
development
 
equity
 
 
 
Number
 
Amount
 
capital
 
compensation
 
stage
 
(deficiency)
 
Balance as of September 22, 2000 (date of inception)
   
-
   
-
   
-
   
-
   
-
   
-
 
 
   
   
   
   
   
   
 
Stock issued on September 22, 2000 for cash at $0.00188 per share
   
8,500,000
   
1
   
16
   
-
   
-
   
17
 
Stock issued on March 31, 2001 for cash at $0.0375 per share
   
1,600,000
   
* -
   
60
   
-
   
-
   
60
 
Contribution of capital
   
-
   
-
   
8
   
-
   
-
   
8
 
Net loss
   
-
   
-
   
-
   
-
   
(17
)
 
(17
)
Balance as of March 31, 2001
   
10,100,000
   
1
   
84
   
-
   
(17
)
 
68
 
 
   
   
   
   
   
   
 
Contribution of capital
   
-
   
-
   
11
   
-
   
-
   
11
 
Net loss
   
-
   
-
   
-
   
-
   
(26
)
 
(26
)
 
   
   
   
   
   
   
 
Balance as of March 31, 2002
   
10,100,000
   
1
   
95
   
-
   
(43
)
 
53
 
 
   
   
   
   
   
   
 
Contribution of capital
   
-
   
-
   
15
   
-
   
-
   
15
 
Net loss
   
-
   
-
   
-
   
-
   
(47
)
 
(47
)
 
   
   
   
   
   
   
 
Balance as of March 31, 2003
   
10,100,000
   
1
   
110
   
-
   
(90
)
 
21
 
 
   
   
   
   
   
   
 
2-for-1 stock split
   
10,100,000
   
* -
   
-
   
-
   
-
   
-
 
Stock issued on August 31, 2003 to purchase mineral option at $0.065 per share
   
100,000
   
* -
   
6
   
-
   
-
   
6
 
Cancellation of shares granted to Company's President
   
(10,062,000
)
 
* -
   
* -
   
-
   
-
   
-
 
Contribution of capital
   
-
   
* -
   
15
   
-
   
-
   
15
 
Net loss
   
-
   
-
   
-
   
-
   
(73
)
 
(73
)
 
   
   
   
   
   
   
 
Balance as of March 31, 2004
   
10,238,000
   
1
   
131
   
-
   
(163
)
 
(31
)
 
   
   
   
   
   
   
 
Stock issued on June 24, 2004 for private placement at $0.01 per share, net of $25,000 issuance expenses (Note 7c(1)(a)
   
8,510,000
   
* -
   
60
   
-
   
-
   
60
 
Contribution capital
   
-
   
-
   
7
   
-
   
-
   
7
 
Stock issued in 2004 for private placement at $0.75 per unit (Note 7c(1)(b)
   
1,894,808
   
* -
   
1,418
   
-
   
-
   
1,418
 
Cancellation of shares granted to service providers
   
(1,800,000
)
 
* -
   
   
-
   
-
   
-
 
Deferred stock-based compensation related to options granted to employees
   
-
   
-
   
5,979
   
(5,979
)
 
-
   
-
 
Amortization of deferred stock-based compensation related to shares and options granted to employees (Note 7c(2))
   
-
   
-
   
-
   
584
   
-
   
584
 
Compensation related to shares and options granted to service providers (Note 7c(3))
   
2,025,000
   
* -
   
17,506
   
-
   
-
   
17,506
 
Net loss
   
-
   
-
   
-
   
-
   
(18,840
)
 
(18,840
)
Balance as of March 31, 2005
   
20,867,808
   
1
   
25,101
   
(5,395
)
 
(19,003
)
 
704
 

* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements.
 
6


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands (except share data)
 
 
                 
Deficit
accumulated
 
Total
 
           
Additional
 
Deferred
 
during the
 
stockholders'
 
   
Common stock
 
paid-in
 
stock-based
 
development
 
equity
 
   
Number
 
Amount
 
capital
 
compensation
 
stage
 
(deficiency)
 
                           
Balance as of March 31, 2005
   
20,867,808
   
1
   
25,101
   
(5,395
)
 
(19,003
)
 
704
 
 
   
   
   
   
   
   
 
Stock issued on May 12, 2005 for private placement at $0.8 per share (Note 7c(1)(c))
   
186,875
   
* -
   
149
   
-
   
-
   
149
 
Stock issued on July 27, 2005 for private placement at $0.6 per share (Note 7c(1)(d))
   
165,000
   
* -
   
99
   
-
   
-
   
99
 
Stock issued on September 30, 2005 for private placement at $0.8 per share (Note 7c(1)(e))
   
312,500
   
* -
   
225
   
-
   
-
   
225
 
Stock issued on December 7, 2005 for private placement at $0.8 per share (Note 7c(1)(e))
   
187,500
   
* -
   
135
   
-
   
-
   
135
 
Forfeiture of options granted to employees
   
-
   
-
   
(3,363
)
 
3,363
   
-
   
-
 
Deferred stock-based compensation related to shares and options granted to directors and employees
   
200,000
   
* -
   
486
   
(486
)
 
-
   
-
 
Amortization of deferred stock-based compensation related to options and shares granted to employees and directors (Note 7c(2))
   
-
   
-
   
51
   
1,123
   
-
   
1,174
 
Stock-based compensation related to options and shares granted to service providers (Note 7c(3))
   
934,904
   
* -
   
662
   
-
   
-
   
662
 
Reclassification due to application of EITF 00-19
   
-
   
-
   
(7,906
)
 
   
   
(7,906
)
Beneficial conversion feature related to a convertible bridge loan
   
-
   
-
   
164
   
-
   
-
   
164
 
Net loss
   
-
   
-
   
-
   
-
   
(3,317
)
 
(3,317
)
 
   
   
   
   
   
   
 
Balance as of March 31, 2006
   
22,854,587
   
1
   
15,803
   
(1,395
)
 
(22,320
)
 
(7,911
)
 
   
   
   
   
   
   
 
Elimination of deferred stock compensation due to implementation of SFAS 123(R)
   
-
   
-
   
(1,395
)
 
1,395
   
-
   
-
 
Stock-based compensation related to shares and options granted to directors and employees (note 7c(2)
   
200,000
   
* -
   
1,168
   
-
   
-
   
1,168
 
Reclassification due to application of EITF 00-19
   
-
   
-
   
7,191
   
-
   
-
   
7,191
 
Stock-based compensation related to options and shares granted to service providers (Note 7c(3))
   
1,147,225
   
-
   
453
   
-
   
-
   
453
 
Warrants issued to convertible note holder
   
-
   
-
   
11
   
-
   
-
   
11
 
Warrants issued to loan holder
   
-
   
-
   
110
   
-
   
-
   
110
 
Beneficial conversion feature related to convertible bridge loans
   
-
   
-
   
1,086
   
-
   
-
   
1,086
 
Net loss
   
-
   
-
   
-
   
-
   
(3,924
)
 
(3,924
)
 
   
   
   
   
   
   
 
Balance as of December 31, 2006
   
24,201,812
   
1
   
24,427
   
-
   
(26,244
)
 
(1,816
)
 
* Represents an amount less than $1 .
The accompanying notes are an integral part of the consolidated financial statements.
 
7


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands (except share data)

   
 
 
 
 
 
 
Deficit
accumulated
 
Total
 
 
 
 
 
Additional
 
Deferred
 
during the
 
stockholders'
 
 
 
Common stock
 
paid-in
 
stock-based
 
development
 
equity
 
 
 
Number
 
Amount
 
capital
 
compensation
 
stage
 
(deficiency)
 
                           
Balance as of December 31, 2006
   
24,201,812
   
1
   
24,427
   
-
   
(26,244
)
 
(1,816
)
 
   
   
   
   
   
   
 
Stock-based compensation related to options and shares granted to service providers (Note 7c(3))
   
544,095
   
   
1,446
   
-
   
-
   
1,446
 
Warrants issued to convertible note holder
   
-
   
-
   
109
   
-
   
-
   
109
 
Stock-based compensation related to shares and options granted to directors and employees (Note 7c(2))
   
200,000
   
* -
   
1,232
   
-
   
-
   
1,232
 
Beneficial conversion feature related to convertible loans
   
-
   
-
   
407
   
-
   
-
   
407
 
Conversion of convertible loans
   
725,881
   
* -
   
224
   
-
   
-
   
224
 
Exercise of warrants
   
3,832,621
   
* -
   
214
   
-
   
-
   
214
 
Stock issued for private placement at $0.1818 per unit, net of finder's fee (Note 7c(1)(f))
   
11,500,000
   
1
   
1,999
   
-
   
-
   
2,000
 
Net loss
   
-
   
-
   
-
   
-
   
(6,244
)
 
(6,244
)
 
   
   
   
   
   
   
 
Balance as of December 31, 2007
   
41,004,409
   
2
   
30,058
   
-
   
(32,488
)
 
(2,428
)
 
   
   
   
   
   
   
 
Stock-based compensation related to options and stock granted to service providers (Note 7c(3))
   
-
   
-
   
70
   
-
   
   
70
 
Stock-based compensation related to stock and options granted to directors and employees
   
-
   
-
   
199
   
-
   
   
199
 
Beneficial conversion feature related to convertible bridge loans
   
-
   
-
   
-
   
-
   
   
 
Conversion of convertible loans
   
695,460
   
*-
   
244
   
-
   
   
244
 
Exercise of warrants
   
900,000
   
*-
   
   
   
   
 
Exercise of options
   
17,399
   
*-
   
3
   
-
   
   
3
 
Subscription of shares
   
-
   
-
   
730
   
-
   
   
730
 
Net loss
   
 
   
 
   
 
   
 
   
(1,262
)
 
(1,262
)
 
   
   
   
   
   
   
 
Balance as of March 31, 2008 (unaudited)
   
42,617,268
   
2
   
31,304
   
-
   
(33,750
)
 
(2,444
)
 
* Represents an amount less than $1 .

The accompanying notes are an integral part of the consolidated financial statements.

8


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
In U.S. dollars in thousands

   
Three months ended
March 31,
 
Period from
September 22,
2000
(inception
date) through
March 31,
 
   
2 0 0 8
 
2 0 0 7
 
2 0 0 8
 
   
Unaudited
 
Unaudited
 
               
               
Cash flows from operating activities:
                   
Net loss
 
$
(1,262
)
$
(1,724
)
$
(33,750
)
Less - loss for the period from discontinued operations
         
-
   
164
 
Adjustments to reconcile net loss to net cash used in operating activities:
                   
Depreciation and amortization of deferred charges
   
33
   
48
   
399
 
Erosion of restricted cash
   
(3
)
 
-
   
(9
)
Accrued severance pay, net
   
(6
)
 
7
   
2
 
Accrued interest on loans
   
41
   
38
   
357
 
Amortization of discount on short-term loans
   
36
   
286
   
1,858
 
Change in fair value of options and warrants
   
-
   
558
   
(795
)
Expenses related to stocks and options granted to service providers
   
70
   
299
   
20,203
 
Amortization of deferred stock-based compensation related to options granted to employees and directors
   
199
   
7
   
4,357
 
Increase in accounts receivable and prepaid expenses
   
70
   
34
   
(66
)
Increase (decrease) in trade payables
   
(26
)
 
199
   
811
 
Increase in other accounts payable and accrued expenses
   
182
   
-
   
1,226
 
Net cash used in continuing operating activities
   
(666
)
 
(248
)
 
(5,243
)
Net cash used in discontinued operating activities
   
-
   
-
   
(22
)
                     
Total net cash used in operating activities
   
(666
)
 
(248
)
 
(5,265
)
                     
Cash flows from investing activities:
                   
Purchase of property and equipment
   
(157
)
 
(37
)
 
(1,083
)
Restricted cash
   
-
   
(1
)
 
(29
)
Investment in lease deposit
   
(7
)
 
(4
)
 
(15
)
                     
Net cash used in continuing investing activities
   
(164
)
 
(42
)
 
(1,127
)
Net cash used in discontinued investing activities
   
-
   
-
   
(16
)
                     
Total net cash used in investing activities
   
(164
)
 
(42
)
 
(1,143
)
                     
Cash flows from financing activities:
                   
Proceeds from issuance of common stock and warrants
   
730
   
-
   
4,817
 
Proceeds from loans, notes and issuance of warrants net
   
-
   
260
   
2,060
 
Credit from the bank
   
11
   
-
   
11
 
Repayment of loans
   
-
   
-
   
(551
)
Proceeds from exercise of warrants and options
   
3
   
-
   
28
 
Net cash provided by continuing financing activities
   
744
   
260
   
6,365
 
Net cash provided by discontinued financing activities
   
-
   
-
   
43
 
Total net cash provided by financing activities
   
744
   
260
   
6,408
 
                     
Increase (decrease) in cash and cash equivalents
   
(86
)
 
(30
)
 
-
 
Cash and cash equivalents at the beginning of the period
   
86
   
60
   
-
 
Cash and cash equivalents at end of the period
 
$
-
 
$
30
 
$
-
 

The accompanying notes are an integral part of the consolidated financial statements.

9

 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 1:-
GENERAL

 
a.
Brainstorm Cell Therapeutics Inc. (formerly: Golden Hand Resources Inc.) ("the Company") was incorporated in the State of Washington on September 22, 2000.

 
b.
On May 21, 2004, the former major stockholders of the Company entered into a purchase agreement with a group of private investors, who purchased from the former major stockholders 6,880,000 shares of the then issued and outstanding 10,238,000 shares of the Company's common stock.

 
c.
On July 8, 2004, the Company entered into a licensing agreement with Ramot of Tel Aviv University Ltd. ("Ramot"), an Israeli corporation, to acquire certain stem cell technology. Subsequent to this agreement, the Company decided to focus on the development of novel cell therapies for neurodegenerative diseases, particularly, Parkinson's disease, based on the acquired technology and research to be conducted and funded by the Company.

Following the licensing agreement dated July 8, 2004, the management of the Company has decided to abandon all old activities related to the sale of the digital data recorder product. The discontinuation of this activity was accounted for under the provision of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

 
d.
On November 22, 2004, the Company changed its name from Golden Hand Resources Inc. to Brainstorm Cell Therapeutics Inc. to better reflect its new line of business in the development of novel cell therapies for neurodegenerative diseases.

 
e.
On October 25, 2004, the Company formed a wholly-owned subsidiary in Israel, Brainstorm Cell Therapeutics Ltd. ("BCT").

 
f.
On December 21, 2006, the Company changed its state of incorporation from Washington to Delaware.
 
g.
On September 17, 2006, the Company's Board determined to change the Company's fiscal year-end from March 31 to December 31.

 
h.
Since its inception, the Company has devoted substantially most of its efforts to research and development, recruiting management and technical staff, acquiring assets and raising capital. In addition, the Company has not generated revenues. Accordingly, the Company is considered to be in the development stage, as defined in Statement of Financial Accounting Standards No. 7, "Accounting and reporting by development Stage Enterprises" ("SFAS No. 7").

   
As of March 31, 2008, the Company had an accumulated deficit of $33,750, a working capital deficiency of $3,324, incurred net loss of $1,252 and negative cash flows from operating activities in the amount of $666 for the three months ended March 31, 2008. In addition, the Company has not yet generated any revenues.

These conditions raise substantial doubt as to the Company's ability to continue to operate as a going concern.
 
10


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 1:-
GENERAL (Cont.)

The Company's ability to continue to operate as a going concern is dependent upon additional financial support.

These financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.

The Company intends to raise additional capital to fund its operations. In the event the Company is unable to successfully raise capital and generate revenues, it is unlikely that the Company will have sufficient cash flows and liquidity to finance its business operations as currently contemplated and might not be able to pay its liabilities on their scheduled maturity dates.


NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2007, are applied consistently in these financial statements.


NOTE 3:-
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements have been prepared in a condensed format and include the consolidated financial operations of the Company and its fully owned subsidiary as of March 31, 2008 and for the three months then ended, in accordance with accounting principles generally accepted in the United States relating to the preparation of financial statements for interim periods. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008, are not necessarily indicative of the results that may be expected for the year ended December 31, 2008.


NOTE 4:-
RESEARCH AND LICENSE AGREEMENT

On July 26, 2007, the Company entered into a Second Amended and Restated Research and License Agreement with Ramot. On August 1, 2007, the Company obtained a waiver and release from Ramot pursuant to which Ramot agreed to an amended payment schedule regarding the Company’s payment obligations under the amended license agreement, dated March 30, 2006, and waived all claims against the Company resulting from the Company's previous defaults and non-payment under the original and first amended license agreement. The payments described in the waiver and release covered all payment obligations that were past due and not yet due pursuant to the original license agreement. The waiver and release amends and restates the original payment schedule under the license agreement as follows:
 
11


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 4:-
RESEARCH AND LICENSE AGREEMENT (Cont.)

Payment date
 
Amount
 
 
 
 
 
September 5, 2007
   
100
 
November 20, 2007
   
150
 
February 20, 2008
   
150
 
May 20, 2008
   
150
 
August 4, 2008
   
90
 

In addition, in the event that the "research period", as defined in the license agreement, is extended for an additional three year period in accordance with the terms of the license agreement, then the Company is obligated to the make following payments to Ramot during the first year of the extended research period:

Payment date
 
Amount
 
 
 
 
 
August 4, 2008
   
60
 
November 20, 2008
   
150
 
February 20, 2009
   
170
 

If the Company fails to make a payment to Ramot on any required payment date, and the Company does not cure the default within seven business days of notice of the default, all claims of Ramot against the Company, which were waived and released by the waiver and release, will be reinstated.

The Company's total current obligation to Ramot as of March 31, 2008, is in the amount of $580.

NOTE 5:-
CONSULTING AGREEMENTS

 
a.
On July 8, 2004, the Company entered into two consulting agreements with Prof. Eldad Melamed and Dr. Daniel Offen (together, the "Consultants"), upon which the Consultants shall provide the Company scientific and medical consulting services in consideration for a monthly payment of $6 each. In addition, the Company granted each of the Consultants, a fully vested warrant to purchase 1,097,215 shares of Common Stock at an exercise price of $0.01 per share. The warrants issued pursuant to the agreement were issued to the Consultants effective as of November 4, 2004. Each of the warrants is exercisable for a seven-year period beginning on November 4, 2005.

 
b.
As of March 31, 2008, the Company had a total obligation of $118 for services rendered by the Consultants.

12


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 6:-
SHORT-TERM LOANS

   
On September 10, 2007, the Company entered into a payment agreement with a lender with respect to the following promissory notes: (i) a Convertible Promissory Note, dated February 7, 2006, in the original principal amount of $500, (ii) a Convertible Promissory Note, dated June 5, 2006, in the original principal amount of $500, and (iii) a Convertible Promissory Note, dated September 14, 2006, in the original principal amount of $100.

Pursuant to the agreement, the Company agreed to pay the outstanding amount due under the convertible promissory notes, plus any accrued interest and penalties, in accordance with the following schedule:
 
Payment Date
 
Amount
 
       
August 16, 2007
 
$
100
(already paid)    
November 30, 2007
 
$
100
 
January 15, 2008
 
$
175
 
February 28, 2008
 
$
175
 
April 30, 2008
 
$
175
 
June 30, 2008
 
$
175
 
August 31, 2008
 
$
175
 
November 30, 2008
 
$
175
 
January 31, 2009
 
$
200
 

The lender agreed that upon payment of the foregoing amounts in accordance with the foregoing schedule, all of the Company's outstanding obligations owed to the lender under the convertible promissory notes will be satisfied in full. The lender also waived any breach or default that may have arisen prior to the date of the agreement from the failure of the Company to make payments under any of the convertible promissory notes.

According to the model provided in EITF 02-4, the Company concluded that the modification of the convertible loans payments is in the scope of FASB 15 “Accounting by Debtors and Creditors for Troubled Debt Restructurings”. According to the payment agreement, the loans carrying amount doesn't exceed the total future payments, therefore, in accordance with FASB 15, no gain or loss should be recognized.

On April 13, 2008, the company entered into a new agreement with the lender pursuant to which the lender agreed to partially defer and partially convert to the Company’s Common Stock the payment of $1,250 owed by the Company to the lender (See note 8a).

13


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK

 
a.
The rights of common stock are as follows:

Shares of common stock confer upon their holders the right to receive notice to participate and vote in general meetings of the Company, the right to a share in the excess of assets upon liquidation of the Company and the right to receive dividends, if declared.

The common stock of the Company is registered and publicly traded on the Over-the-Counter Bulletin Board service of the National Association of Securities Dealers, Inc. under the symbol BCLI.

 
b.
The former president of the Company donated services valued at $6 and rent valued at $2 for the nine months ended March 31, 2004. These amounts were charged to the statement of operations as part of discontinued operations and classified as additional paid-in capital in the stockholders' equity.

 
c.
Issuance of stocks warrants and options:

 
1.
Private placements

a)
On June 24, 2004, the Company issued to investors 8,510,000 shares of common stock for total proceeds of $60 (net of $25 issuance expenses).

b)
On February 23, 2005, the Company completed a private placement round for the sale of 1,894,808 units for total proceeds of $1,418. Each unit consists of one share of common stock and a three year warrant to purchase one share of common stock at $2.50 per share. This private placement was consummated in four tranches which closed in October 2004, November 2004 and February 2005.

 
c)
On May 12, 2005, the Company issued to a certain investor 186,875 shares of its common stock for total proceeds of $149 at a price per share of $0.8.

 
d)
On July 27, 2005, the Company issued to certain investors 165,000 shares of its common stock for total proceeds of $99 at a price per share of $0.6.

 
e)
On August 11, 2005, the Company signed a private placement agreement with investors for the sale of up to 1,250,000 units at a price per unit of $0.8. Each unit consists of one share of common stock and one warrant to purchase one share of common stock at $1.00 per share. The warrants are exercisable for a period of three years from issuance. On March 31, 2005, the Company sold 312,500 units for total net proceeds of $225. On December 7, 2005, the Company sold 187,500 units for total net proceeds of $135.
 
14


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

f)
On July 2, 2007 the Company entered into an investment agreement, pursuant to which the Company agreed to sell up to 27,500,000 shares of the Company's common stock, for an aggregate subscription price of up to $5 million and warrants to purchase up to 30,250,000 shares of common stock. Separate closings of the purchase and sale of the shares and the warrants shall take place as follows:

Purchase date
 
Purchase price
 
Number of subscription shares
 
Number of warrant shares
 
 
 
 
 
 
 
 
 
August 30, 2007
 
 
$1,250 (includes $250 paid
as a convertible loan)
 
 
6,875,000
   
7,562,500
 
November 15, 2007
 
 
$750
   
4,125,000
   
4,537,500
 
February 15, 2008
 
 
$750
   
4,125,000
   
4,537,500
 
May 15, 2008
 
 
$750
   
4,125,000
   
4,537,500
 
July 30, 2008
 
 
$750
   
4,125,000
   
4,537,500
 
November 15, 2008
 
 
$750
   
4,125,000
   
4,537,500
 


At each closing date, the Company shall deliver to the investor the number of shares and warrants, subject to customary closing conditions and the delivery of funds, described above. The warrants shall have the following exercise prices: (i) the first 10,083,333 warrants will have an exercise price of $0.20 per share; (ii) the next 10,083,333 warrants will have an exercise price of $0.29 per share; and (iii) the final 10,083,334 warrants will have an exercise price of $0.36 per share. All warrants will expire on November 5, 2011.

As of April 3, 2008, the investor completed payment of $2,750, and the Company issued to the investor an aggregate of 15,125,000 shares of common stock and a warrant to purchase 10,083,333 shares of the company's common stock at an exercise price of $0.20 per share and a warrant to purchase 6,554,167 shares of common stock at an exercise price of $0.29 per share. The warrants may be exercised at any time and expire on November 5, 2011.

In addition, the Company agreed to issue an aggregate of 1,250,000 shares of common stock to a related party as an introduction fee for the investment. The shares shall be issued pro rata to the funds received from the investor.

As of March 31, 2008, 500,000 shares of common stock had been issued as an introduction fee.

15


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

 
2.
Share-based compensation to employees and to directors

 
a)
Options to employees and directors:

On November 25, 2004, the Company's stockholders approved the 2004 Global Stock Option Plan and the Israeli Appendix thereto (which applies solely to participants who are residents of Israel) and on March 28, 2005, the Company's stockholders approved the 2005 U.S. Stock Option and Incentive Plan, and the reservation of 9,143,462 shares of common stock for issuance in the aggregate under these stock option plans.

Each option granted under the plans is exercisable until the earlier of ten years from the date of grant of the option or the expiration dates of the respective option plans. The 2004 and 2005 option plans will expire on November 25, 2014 and March 28, 2015, respectively. The exercise price of the options granted under the plans may not be less than the nominal value of the shares into which such options are exercised. The options vest primarily over three or four years. Any options that are canceled or forfeited before expiration become available for future grants.

As of March 31, 2008, 151,684 options are available for future grants.

On May 27, 2005, the Company granted to one of its directors an option to purchase 100,000 shares of its common stock at an exercise price of $0.75 per share. The option is fully vested and is exercisable for a period of 10 years.

On February 6, 2006, the Company entered into an amendment to the Company's option agreement with Mr. David Stolick, the Company's Chief Financial Officer. The amendment changes the exercise price of the 400,000 options granted to him on February 13, 2005 to $0.15 per share from $0.75 per share.

On May 2, 2006, the Company granted to one of its directors an option to purchase 100,000 shares of its common stock at an exercise price of $0.15. The option is fully vested and is exercisable for a period of 10 years. The compensation related to the options, in the amount of $48, was recorded as general and administrative expenses.

On June 22, 2006, the Company entered into an amendment to the Company's option agreement with two of its employees. The amendment changes the exercise price of 270,000 options granted to them to $0.15 per share from $0.75 per share. The excess of the fair value resulting from the modification in the amount of $2,was recorded as general and administrative expense over the remaining vesting period of the option.

On September 17, 2006, the Company entered into an amendment to the Company's option agreement with one of its directors. The amendment changes the exercise price of 100,000 options granted to them to $0.15 per share from $0.75 per share.
 
16

 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

On March 21, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of its common stock, at an exercise price of $0.15 per share. The option is fully vested and is exercisable for a period of 10 years. The compensation related to the option, in the amount of $43, was recorded as general and administrative expenses.

On July 1, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of its common stock at an exercise price of $0.15 per share. The option is fully vested and is exercisable for a period of 10 years. The compensation related to the option, in the amount of $38, was recorded as general and administrative expenses. On October 22, 2007 the company and the director agreed to cancel and relinquish the option granted on July 1 ,2007.

On July 16, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of its common stock at an exercise price of $0.15 per share. The option is fully vested and is exercisable for a period of 10 years. The compensation related to the options, in the amount of $75, was recorded as general and administrative expenses.

On August 27, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of its common stock at an exercise price of $0.15 per share. The option is fully vested and is exercisable for a period of 10 years. The compensation related to the options, in the amount of $84, was recorded as general and administrative expenses.

On October 23, 2007, the Company granted to its CEO an option to purchase 1,000,000 shares of Common Stock at an exercise price of $0.87 per share. The option vests with respect to 1/6 of the option on each six month anniversary of the date of grant and expires after 10 years. The total compensation related to the option is $733, which is amortized over the vesting period as general and administrative expense. An amount of $61 was recorded as general and administrative expense in the period of three months ended March 31 ,2008 .

A summary of the Company's option activity related to options to employees and directors, and related information is as follows:

   
Three months ended
March 31, 2008
 
   
Amount of
options
 
Weighted
average
exercise price
 
       
$
 
Outstanding at beginning of the period
   
5,280,760
 
$
0.372
 
Granted
   
170,000
   
0.49
 
Exercised
   
(17,399
)
 
0.15
 
               
Outstanding at end of period
   
5,433,361
 
$
0.377
 
               
Vested and expected-to-vest options at end of the period
   
3,286,728
 
$
0.205
 
 
17

 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

Weighted average of fair value of options granted to employees and directors for the three months ended March 31, 2008 is 0.42.

Compensation expenses recorded by the Company in respect to its stock based employee and directors' compensation award in accordance with SFAS-123(R) for the three months ended March 31, 2008, amounted to $199.

 
b)
Restricted shares to directors:

On May 27, 2005, the Company issued to two of its directors 200,000 restricted shares of common stock (100,000 each). The restricted shares are subject to the Company's right to repurchase them at a purchase price per share of par value ($0.00005). The restrictions on the shares shall lapse in three annual and equal portions commencing with the grant date.

On May 2, 2006, the Company issued to two of its directors 200,000 restricted shares of common stock (100,000 each). The restricted shares are subject to the Company's right to repurchase them at a purchase price of par value ($0.00005). The restrictions of the shares lapse in three annual and equal portions commencing with the grant date. The compensation related to the stocks issued amounted to $104, which will be amortized over the vesting period as general and administrative expenses.

On April 20, 2007, based on a board resolution dated March 21, 2007, the Company issued to a director 100,000 restricted shares of common stock. The restricted shares are subject to the Company's right to repurchase them at a purchase price per share of par value ($0.00005). The restrictions on the shares lapse in three annual and equal portions commencing with the grant date. The compensation related to the shares issued amounted to $47, which will be amortized over the vesting period as general and administrative expenses.

On April 20, 2007, based on a board resolution dated March 21, 2007, the Company issued to another director 100,000 restricted shares of common stock. The restricted shares are not subject to any right to repurchase, and the compensation related to the shares issued amounted to $47 was recorded as prepaid general and administrative expenses in the three months ended March 31, 2007.

 
3.
Stock and warrants to service providers and investors:

The Company accounts for stock option and warrant grants issued to non-employees using the guidance of SFAS No. 123(R), "Accounting for Stock-Based Compensation" and EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," whereby the fair value of such option and warrant grants is determined using the Black-Scholes options pricing model at the earlier of the date at which the non-employee's performance is completed or a performance commitment is reached.
 
18


BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

a) Warrants:

Issuance date
 
Number of warrants issued
 
Exercised
 
Forfeited
 
Outstanding
 
Exercise
price
 
Warrants exercisable
 
Exercisable
through
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
November 2004
   
12,800,845
    
2,181,925
    
   
10,618,920
  
$
0.01
    
10,618,920
   
November 2012
 
December 2004
   
1,800,000
   
1,800,000
   
   
-
 
$
0.00005
   
   
-
 
 
   
   
   
   
   
   
   
 
 
   
14,600,845
   
3,981,925
   
   
10,618,920
   
   
10,618,920
   
 
 
   
   
   
   
   
   
   
 
February 2005
   
1,894,808
   
   
1,894,808
   
-
 
$
1.62
   
-
   
 
May 2005
   
47,500
   
   
   
47,500
 
$
1.62
   
47,500
   
May 2010
 
June 2005
   
30,000
   
   
   
30,000
 
$
0.75
   
30,000
   
June 2010
 
August 2005
   
70,000
   
   
   
70,000
 
$
0.15
   
70,000
   
August 2008
 
September 2005
   
3,000
   
3,000
   
   
-
 
$
0.15
   
-
   
-
 
September 2005
   
36,000
   
   
   
36,000
 
$
0.75
   
30,000
   
September 2010
 
September-December 2005
   
500,000
   
   
   
500,000
 
$
1
   
500,000
   
September - December 2008
 
December 2005
   
20,000
   
20,000
   
   
-
 
$
0.15
   
-
   
-
 
December 2005
   
457,163
   
   
   
457,163
 
$
0.15
   
342,872
   
July 2010
 
 
   
   
   
   
   
   
   
 
 
   
17,659,316
   
4,004,925
   
1,894,808
   
11,759,583
   
   
11,639,292
   
 
 
   
   
   
   
   
   
   
 
February 2006
   
230,000
   
   
   
230,000
 
$
0.65
   
153,333
   
February 2008
 
February 2006
   
40,000
   
   
   
40,000
 
$
1.5
   
40,000
   
February 2011
 
February 2006
   
8,000
   
   
   
8,000
 
$
0.15
   
8,000
   
February 2011
 
February 2006
   
189,000
   
97,696
   
91,304
   
-
 
$
0. 5
   
-
   
-
 
May 2006
   
50,000
   
   
   
50,000
 
$
0.0005
   
50,000
   
May 2016
 
May -December 2006
   
48,000
   
   
   
48,000
 
$
0.35
   
48,000
   
May - December 2011
 
May -December 2006
   
48,000
   
   
   
48,000
 
$
0.75
   
48,000
   
May - December 2011
 
May 2006
   
200,000
   
   
   
200,000
 
$
1
   
200,000
   
May 2011
 
June 2006
   
24,000
   
   
   
24,000
 
$
0.15
   
24,000
   
June 2011
 
May 2006
   
19,355
   
   
   
19,355
 
$
0.15
&#