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

FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2009

o TRANSITION REPORT UNDER 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, NY 10022
(Address of principal executive offices)

(212) 557-9000
(Registrant's telephone number, including area code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨    No ¨

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 14, 2009, the number of shares outstanding of the registrant’s common stock, $0.00005 par value per share, was 55,241,418.
 

 
TABLE OF CONTENTS
 
   
Page
Number
PART I
   
     
Item 1. Financial Statements
 
  3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
  28
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
  32
Item 4T. Controls and Procedures
 
  32
     
PART II
   
     
Item 1. Legal Proceedings
 
  33
Item 1A. Risk Factors
 
  33
Item 5. Other Information
 
  33
Item 6. Exhibits
 
  33
 
-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)

CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2009

UNAUDITED

U.S. DOLLARS IN THOUSANDS

INDEX

 
Page
   
Consolidated Balance Sheets
4
   
Consolidated Statements of Operations
5
   
Statements of Changes in Stockholders' Equity (Deficiency)
6 - 10
   
Consolidated Statements of Cash Flows
11
   
Notes to Consolidated Financial Statements
12 - 27

 
-3-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

CONSOLIDATED BALANCE SHEETS 

U.S. dollars in thousands (except share data)

   
March 31,
   
December 31,
 
   
2009
   
2008
 
   
Unaudited
   
Audited
 
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 2     $ 2  
Restricted cash
    32       36  
Accounts receivable and prepaid expenses
    43       21  
                 
Total current assets
    77       59  
                 
LONG-TERM INVESTMENTS:
               
Prepaid expenses
    6       11  
Severance pay fund
    54       62  
                 
Total long-term investments
    60       73  
                 
PROPERTY AND EQUIPMENT, NET
    704       743  
                 
Total assets
  $ 841     $ 875  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
                 
CURRENT LIABILITIES:
               
Short term Credit from bank
  $ 37     $ 72  
Trade payables
    764       744  
Other accounts payable and accrued expenses
    1,865       1,672  
Short-term convertible loans
    175       172  
Short-term loans
    200       199  
                 
Total current liabilities
    3,041       2,859  
                 
ACCRUED SEVERANCE PAY
    81       92  
                 
Total liabilities
    3,122       2,951  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' DEFICIENCY:
               
Stock capital: (Note 7)
               
Common stock of $0.00005 par value - Authorized: 800,000,000 shares at March 31, 2009 and December 31,2008; Issued and outstanding: 55,241,418  shares at March 31, 2009 and December 31, 2008,
    3       3  
Additional paid-in-capital
    34,190       33,881  
Deficit accumulated during the development stage
    (36,474 )     (35,960 )
                 
Total stockholders' deficiency
    (2,281 )     (2,076 )
Total liabilities and stockholders' deficiency
  $ 841     $ 875  

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

 
-4-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except share data)

   
Three months ended March
31,
   
Period from
September 22,
2000 (inception
date) through
March 31,
 
   
2009
   
2008
   
2009
 
   
Unaudited
   
Unaudited
 
Operating costs and expenses:
                 
                   
Research and development, net
  $ 289     $ 590     $ 21,793  
General and administrative
    251       544       11,940  
                         
Total operating costs and expenses
    540       1,134       33,733  
                         
Financial income (expenses), net
    26       (128     (2,524 )
                         
      514       1,262       36,257  
Taxes on income
    -       -       53  
                         
Loss from continuing operations
    514       1,262       35,310  
Net loss from discontinued operations
    -       -       164  
                         
Net loss
  $ 514     $ 1,262     $ 36,474  
                         
Basic and diluted net loss per share from continuing operations
  $ 0.01     $ 0.03          
                         
Weighted average number of shares outstanding used in computing basic and diluted net loss per share
    55,241,418       41,774,344          

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

 
-5-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

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 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 )

 
-6-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

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, 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
    8,510,000       * -       60       -       -       60  
Contribution capital
    -       -       7       -       -       7  
Stock issued in 2004 for private placement at $0.75 per unit
    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
    -       -       -       584       -       584  
Compensation related to shares and options granted to service providers
    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.

 
-7-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

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
    186,875       * -       149       -       -       149  
Stock issued on July 27, 2005 for private placement at $0.6 per share
    165,000       * -       99       -       -       99  
Stock issued on September 30, 2005 for private placement at $0.8 per share
    312,500       * -       225       -       -       225  
Stock issued on December 7, 2005 for private placement at $0.8 per share
    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
    -       -       51       1,123       -       1,174  
Stock-based compensation related to options and shares granted to service providers
    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
    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
    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.

 
-8-

 
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)

         
Additional
paid-in
         
Deficit
accumulated
   
Total
 
         
Capital and
   
Deferred
   
during the
   
stockholders'
 
   
Common stock
   
subscription on
   
stock-based
   
development
   
equity
 
   
Number
   
Amount
   
shares
   
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
    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
    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
    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
    90,000       -       33       -       -       33  
Stock-based compensation related to stock and options granted to directors and employees
    -               731       -       -       731  
Conversion of convertible loans
    3,644,610       * -       1,276       -       -       1,276  
Exercise of warrants
    1,860,000       * -       -       -       -       -  
Exercise of options
    17,399       * -       3       -       -       3  
Stock issued for private placement at $0.1818 per unit, net of finder's fee
    8,625,000       1       1,499       -       -       1,500  
Subscription of shares for  private placement at $0.1818 per unit
    -       -       281       -       -       281  
Net loss
    -       -       -       -       (3,472 )     (3,472 )
Balance as of December 31, 2008
    55,241,418     $ 3     $ 33,881     $ -     $ (35,960 )   $ (2,076 )
 
* Represents an amount less than $1.

 
-9-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) 

U.S. dollars in thousands (except share data)
 
   
Common stock
   
Additional
paid-in
   
Deferred
stock-based
   
Deficit
accumulated
during the
development
   
Total
stockholders'
 
   
Number
   
Amount
   
capital
   
compensation
   
stage
   
(deficiency)
 
                                     
Balance as of December 31, 2008
    55,241,418     $ 3     $ 33,881     $ -     $ (35,960 )   $ (2,076 )
                                                 
Stock-based compensation related to options and stock granted to service providers
    -       -       9       -       -       9  
Stock-based compensation related to stock and options granted to directors and employees
    -       -       109       -       -       109  
Subscription of shares for  private placement at $0.1818 per unit
    -       -       191       -       -       191  
Net loss
    -       -       -       -       (514 )     (514 )
                                                 
Balance as of March 31, 2009
    55,241,418     $ 3     $ 34,190     $ -     $ (36,474 )   $ (2,281 )

* Represents an amount less than $1.

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

 
-10-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
UNAUDITED

CONSOLIDATED STATEMENTS OF CASH FLOWS 

U.S. dollars in thousands
 
   
Three months ended
March 31,
   
Period from
September 22,
2000
(inception
date) through
March 31,
 
   
2009
   
2008
   
2009
 
Cash flows from operating activities:
                 
Net loss
  $ (514 )   $ (1,262 )   $ (36,474 )
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
    39       33       557  
Severance pay, net
    (4 )     (6 )     27  
Accrued interest on loans
    4       41       434  
Amortization of discount on short-term loans
    -       36       1,865  
Change in fair value of options and warrants
    -       -       (795 )
Expenses related to shares and options granted to service providers
    9       70       20,175  
Amortization of deferred stock-based compensation related to options granted to employees
    109       199       4,997  
Decrease (increase) in accounts receivable and prepaid expenses
    (21 )     70       (42 )
Increase (decrease) in trade payables
    20       (26 )     764  
Increase in other accounts payable and accrued expenses
    193       182       1,859  
Erosion of restricted cash
    3       (3 )     (3 )
Net cash used in continuing operating activities
  $ (162 )   $ (666 )   $ (6,472 )
Net cash used in discontinued operating activities
    -       -       (23 )
Total net cash used in operating activities
  $ (162 )   $ (666 )   $ (6,495 )
                         
Cash flows from investing activities:
                       
Purchase of property and equipment
  $       $ (157 )   $ (1,080 )
Restricted cash
    -       -       (29 )
Investment in lease deposit
    5       (7 )     (6 )
Net cash used in continuing investing activities
  $ 5     $ (164 )   $ (1,115 )
Net cash used in discontinued investing activities
    -       -       (16 )
Total net cash used in investing activities
  $ 5     $ (164 )   $ (1,131 )
 
                       
Cash flows from financing activities:
                       
Proceeds from issuance of Common stock, net
  $ 191     $ 730     $ 6,059  
Proceeds from loans, notes and issuance of warrants, net
    -       -       2,061  
Credit from bank
    (34 )     11       38  
Proceeds from exercise of warrants and options
    -       3       28  
Repayment of short-term loans
    -       -       (601 )
Net cash provided by continuing financing activities
  $ 157     $ 744     $ 7,585  
Net cash provided by discontinued financing activities
    -       -       43  
Total net cash provided by financing activities
  $ 157     $ 744     $ 7,628  
Increase (decrease) in cash and cash equivalents
    -       (86 )     2  
Cash and cash equivalents at the beginning of the period
    2       86       -  
Cash and cash equivalents at end of the period
  $ 2     $ -     $ 2  
 
   The accompanying notes are an integral part of the consolidated financial statements.

 
-11-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 1
 -
GENERAL

 
A.
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 (see Note 3). 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 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 Statement of Financial Accounting Standard ("SFAS") 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". 

 
B.
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. BCT owns all operational property and equipment.

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

 
D.
On December 2006, the Company changed its state of incorporation from Washington to Delaware.

 
E.
On September 17, 2006, the Company's Board determined to change the Company's fiscal year-end from March 31 to December 31.

 
F.
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").

 
GOING CONCERN
   
 
As reflected in the accompanying financial statements, the Company’s operations for the three months ended on March 31, 2009, resulted in a net loss of $514 and the Company’s balance sheet reflects a net stockholders’ deficiency of $2,281, accumulated deficit of $36,474 and working capital deficiency of $2,964. These conditions raise substantial doubt about the Company's ability to continue to operate as a going concern. The Company’s ability to continue operating as a “going concern” is dependent on several factors, among them is its ability to raise sufficient additional working capital. Management’s plans in this regard include, among others, raising additional cash from current and potential stockholders and lenders.

 
-12-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 1
 -
GENERAL (Cont.)

GOING CONCERN (Cont.)

Accordingly, As a result of the current economic situation and the difficulty to raise immediate fund to support all of the Company’s projects, the Company decided to reduce its activity and downsize it workforce and focus only on the effort to reach clinical trials in ALS in 2009.

The Company also reduced its general and administrative expenses and ceased and delayed some development projects until it is able to obtain sufficient financing. There can be no assurance that sufficient revenues will be generated and that additional funds will be available on terms acceptable to the Company, or at all.

The Company depends on Ramot to conduct its research and development activities. As discussed in Note 4, the Company did not make a certain payment in 2008 to Ramot. As a result, the Company did not meet the payment schedule according to the agreement with Ramot and Ramot is entitled to terminate the research and license agreement.

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.

NOTE 2 -        SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2008, 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, 2009 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, 2009, are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.

 
-13-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 4 -     RESEARCH AND LICENSE AGREEMENT

 
A.
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 Research and 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 Agreement and the Amended Research and 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 Agreement. The waiver and release amends and restates the original payment schedule under the Original Agreement as follows:

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 Amended Research and License Agreement, is extended for an additional three year period in accordance with the terms of the Amended Research and License Agreement, then the Company is obligated to the 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, may be reinstated.

As of May 13, 2009, the Company paid to Ramot the first three payments total of $400 but has not made yet the last two payments total of $240 and for the extended research period. As a result, the Company is in breach of the new agreement with Ramot and Ramot may terminate the research and license agreement. The Company is negotiating with Ramot to postpone the payments.
On March 2009, the Company got a breach warning from Ramot and the parties are currently  negotiating an updated  agreement to postpone the payments .

 
-14-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 4 -      RESEARCH AND LICENSE AGREEMENT (Cont.)

 
B.
The Company's total current obligation to Ramot as of March 31, 2009, is in the amount of $867. The amount includes $570 for the extended research period.

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, 2009, the Company has a total obligation of $262 for services rendered by the Consultants.

NOTE 6 -     SHORT-TERM LOANS

 
A.
On April 13, 2008, the Company entered into a new agreement with a lender 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 based on the payment agreement between the two parties.

Pursuant to the new agreement, the Company agreed to pay $250 of the Debt in accordance with the following schedule:

Payment date
 
Amount
 
       
May 30, 2008
    50  
July 31, 2008
    50  
September 30, 2008
    50  
December 31, 2008
    50  
February 28, 2009
    50  

 
-15-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 6 -     SHORT-TERM LOANS (Cont.)

 
B.
In addition, the Company issued 2,857,142 shares of common stock to the lender in lieu of the repayment of $1,000 of the Debt.

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

As of March 31, 2009 the Company paid the first payment to the lender and the last four installments had not yet been paid. On April 2,2009 the Company and the lender agreed to convert the entire debt of $200 to 2,500,000 restricted shares of common stock.

Since the outcome of the issuance of the shares was to relieve the debtor from its obligation, based on guidance in FASB No 140 “Accounting for Transfer and Servicing of Financial Assets and Eextinguishment of Liabilities“ the company derecognized the liability with the difference  recognized in earning.

NOTE 7 -     STOCK CAPITAL

 
A.
  The rights of Common Stock are as follows:

Holders of Common Stock have 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 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.
Issuance of shares, 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 for 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 three tranches which closed in October 2004, November 2004 and February 2005.

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

 
-16-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 7 -     STOCK CAPITAL (Cont.)

B.
Issuance of shares, warrants and options: (Cont.)

1.
Private placements: (Cont.)

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

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 of $0.8 per unit. 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 September 30, 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.

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 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 (Note 8i))
      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 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 issued will have an exercise price of $0.36 per share. All warrants will expire on November 5, 2011.

 
-17-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 7:- STOCK CAPITAL (Cont.)

B.
Issuance of shares, warrants and options: (Cont.)

1.
Private placements: (Cont.)

f)
Cont.

As of March 31,2009, the investor completed payment of the first four installments and $ 472 of the fifth installment and the Company issued to the investor and its designee  an aggregate of 19,250,000 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 , a warrant to purchase 10,083,333 shares of common stock at an exercise price of $0.29 per share and a warrant to purchase 1,008,334 shares of  common stock at an exercise price of $0.36 per share. The warrants may be exercised at any time and expire on November 5, 2011.

The investor did not complete its obligation based on the investment agreement above. The Company is negotiating with the investor on continuance of payments.

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, 2009, 875,000 shares of Common Stock had been issued as an introduction fee.

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.

 
-18-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 7:- STOCK CAPITAL (Cont.)

B.
Issuance of shares, warrants and options: (Cont.)

2.
Share-based compensation to employees and to directors: (Cont.)

a)
Options to employees and directors: (Cont.)

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 options 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.

On June 5, 2008, the Company's stockholders approved to amend and restate the Company’s 2004 Global Share Option Plan and 2005 U.S. Stock Option and Incentive Plan to increase the number of shares of common stock available for issuance under these stock option plans in the aggregate by 5,000,000 shares.

As of March 31, 2009, 5,151,684 options are available for future grants.

On May 27, 2005, the Company granted one of its directors an option to purchase 100,000 shares of Common Stock at an exercise price of $0.75 per share. The options are fully vested and expire after 10 years.

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

On May 2, 2006, the Company granted to one of its directors an option to purchase 100,000 shares of Common Stock at an exercise price of $0.15 per share. The options are fully vested and expire after 10 years. The compensation related to the options, in the amount of $48, was recorded as general and administrative expense.

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 from $0.75 to $0.15 per share. The excess of the fair value resulting from the modification, in the amount of $2, was recorded as general and administration 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 the director from $0.75 to $0.15 per share.

 
-19-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 7:- STOCK CAPITAL (Cont.)

B.
Issuance of shares, warrants and options: (Cont.)

2.
Share-based compensation to employees and to directors: (Cont.)

a)
Options to employees and directors: (Cont.)

On March 21, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of 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 expense.

On July 1, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of 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 expense. On October 22, 2007, the Company and the director agreed to cancel and relinquish all the options which were 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 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 $75, was recorded as general and administrative expense.

On August 27, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of 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 $84, was recorded as general and administrative expense.

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 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.

On November 5, 2008, the Company entered into an amendment to the Company's option to purchase 1,000,000 shares of common stock agreement with the Company's CEO. The amendment changes the exercise price of the option from $0.87 to $0.15 per share. The compensation related the modification of the purchase price in the amount of $4 was recorded as general and administrative expense.

 
-20-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 7:- STOCK CAPITAL (Cont.)

B.
Issuance of shares, warrants and options: (Cont.)

2.
Share-based compensation to employees and to directors: (Cont.)

a)
Options to employees and directors: (Cont.)
There was no change in the company options to employees and directors  activity during the three months ended March 31, 2009.

b)
Restricted shares to directors:

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 shall 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 its 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 of par value ($0.00005). The restrictions of the shares shall 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.

In addition, 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.

On August 27, 2008 the Company issued to its director 960,000 shares of common stock upon a cashless exercise by a shareholder of a warrant to purchase 1,000,000 shares of Common Stock at an exercise price of $.01 per share that was acquired by the shareholder from Ramot. The shares were allocated to the director by the shareholder.

3.
Shares and warrants to service providers:

The Company accounts for shares and warrant grants issued to non-employees using the guidance of SFAS 123(R), "Accounting for Stock-Based Compensation" and EITF 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 a 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.

 
-21-

 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)

NOTE 7:- STOCK CAPITAL (Cont.)

B.
Issuance of shares, warrants and options: (Cont.)

3.
Shares and warrants to service providers: (Cont.)

a) 
Warrants:

Issuance date
 
Number of
warrants
issued
   
Exercised
   
Forfeited
   
Outstanding
   
Exercise
Price
$
   
Warrants
exercisable
 
Exercisable
through
                                       
November 2004
    12,800,845       3,141,925       40,000       9,618,920       0.01       9,618,920  
November 2012
December 2004
    1,800,000       1,800,000               -       0.00005        
-
February 2005
    1,894,808               1,894,808       -       2.5       -    
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       -  
-
September 2005
    3,000       3,000               -       0.15       -  
-
September 2005
    36,000                       36,000       0.75       36,000  
September 2010
September-December 2005
    500,000               500,000       -       1       -  
-
December 2005
    20,000       20,000               -       0.15       -  
-
December 2005
    457,163                       457,163       0.15       457,163  
July 2010
February 2006
    230,000                       230,000       0.65       230,000  
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       19,355  
May 2011
October 2006
    630,000       630,000               -       0.3       -  
-
December 2006
    200,000               200,000       -       0.45     &#