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, 2010

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, 2010, the number of shares outstanding of the registrant’s common stock, $0.00005 par value per share, was 89,404,862.

 
 

TABLE OF CONTENTS
 
   
Page
Number
PART I
    
     
Item 1. Financial Statements
  
1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
28
Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
33
Item 4. Controls and Procedures
  
33
   
  
PART II
    
     
Item 1. Legal Proceedings
  
34
Item 1A. Risk Factors
  
34
Item 5. Other Information
  
  35
Item 6. Exhibits
  
  35

 
 

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, 2010

UNAUDITED

U.S. DOLLARS IN THOUSANDS
 
 
1
 

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

CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2010

UNAUDITED

U.S. DOLLARS IN THOUSANDS
 
INDEX
 
 
Page
   
Consolidated Balance Sheets
3
   
Consolidated Statements of Operations
4
   
Statements of Changes in Stockholders' Equity (Deficiency)
5 - 10
   
Consolidated Statements of Cash Flows
11
   
Notes to Consolidated Financial Statements
12 - 27
 
 
2
 

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

CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share data)
 
   
March 31,
    
December 31,
  
   
2010
    
2009
  
   
Unaudited
    
Audited
  
             
ASSETS
            
             
CURRENT ASSETS:
            
Cash and cash equivalents
   $ 1,215     $ 1  
Accounts receivable and prepaid expenses
     158       86  
                 
Total current assets
     1, 373       87  
                 
LONG-TERM INVESTMENTS:
                
Prepaid expenses
     -       7  
Severance pay fund
     81       88  
Total long-term investments
     81       95  
                 
PROPERTY AND EQUIPMENT, NET
     538       575  
                 
Total assets
   $ 1,992     $ 757  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
                
                 
CURRENT LIABILITIES:
                
Short term Credit from bank
   $ 9     $ 46  
Trade payables
     539       600  
Other accounts payable and accrued expenses
     1,324       1,418  
Short-term convertible note
     -       135  
Short-term convertible loans
     -       189  
Total current liabilities
     1,872       2,388  
                 
ACCRUED SEVERANCE PAY
     117       112  
                 
Total liabilities
     1,989       2,500  
                 
COMMITMENTS AND CONTINGENCIES
             -  
                 
STOCKHOLDERS' EQUITY (DEFICIENCY):
                
Stock capital: (Note 7)
     5       4  
Common stock of $0.00005 par value - Authorized: 800,000,000 shares at March 31, 2010 and December 31,2009; Issued and outstanding: 87,707,647 and 76,309,152 shares at March 31, 2010 and December 31,2009 respectively.
                
Additional paid-in-capital
     38,354       35,994  
Deficit accumulated during the development stage
     (38,356 )     (37,741 )
                 
Total stockholders' equity (deficiency)
     3       (1,743 )
                 
Total liabilities and stockholders' equity (deficiency)
   $ 1,992     $ 757  
 
The accompanying notes are an integral part of the consolidated financial statements.

 
3
 

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

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,
  
   
2010
    
2009
    
2010
  
   
Unaudited
    
Unaudited
  
                   
Operating costs and expenses:
                  
                   
Research and development, net
   $ 239     $ 289     $ 21,924  
General and administrative
     370       251       13,624  
                         
Total operating costs and expenses
     609       540       35,548  
                         
Financial (income) expenses, net
     6       (26 )     2,591  
                         
Operating loss
     615       514       38,139  
Taxes on income
     -       -       53  
                         
Loss from continuing operations
     615       514       38,192  
Net loss from discontinued operations
     -       -       164  
                         
Net loss
   $ 615     $ 514     $ 38,356  
                         
Basic and diluted net loss per share from continuing operations
   $ 0.01     $ 0.01          
                         
Weighted average number of shares outstanding used in computing basic and diluted net loss per share
     81,560,155       55,241,418          
 
The accompanying notes are an integral part of the consolidated financial statements
 
 
4
 

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
        
         
Additional
    
Deferred
    
during the
    
Total
  
   
Common stock
    
paid-in
    
Stock - based
    
development
    
stockholders'
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 )
 
 
5
 

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
        
         
Additional
    
Deferred
    
during the
    
Total
  
   
Common stock
    
paid-in
    
Stock - based
    
development
    
stockholders'
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.

 
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
        
               
Additional
    
Deferred
    
during the
    
Total
  
   
Common stock
    
paid-in
    
Stock - based
    
development
    
stockholders'
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 ASC 815-40-25 (formerly 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 ASC 718-10 (formerly 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 ASC 815-40-25 (formerly 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 )
 
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
        
         
Additional
    
Deferred
    
during the
    
Total
  
   
Common stock
    
paid-in
    
Stock - based
    
development
    
stockholders'
equity
  
   
Number
    
Capital
    
compensation
    
stage
    
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
     -       -       -       -       (6,2 44 )     (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.

 
8
 

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)

   
Common stock
    
Additional paid-in
    
Deferred
stock - based
    
Deficit
accumulated
during the
development
    
Total
stockholders'
equity
  
   
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
     5,284,284       ( *)     775       -               775  
Stock-based compensation related to stock and options granted to directors and employees
     -       -       409       -               409  
Conversion of convertible loans
     2,500,000       ( *)     200       -               200  
Exercise of warrants
     3,366,783       ( *)     -       -               -  
Stock issued for amendment of private placement
     9,916,667       1       -       -               1  
Subscription of shares
     -       -       729       -               729  
Net loss
     -       -       -       -     $ (1,781 )     (1,781 )
Balance as of December 31, 2009
     76,309,152     $ 4     $ 35,994     $ -     $ (37,741 )   $ (1,743 )
 
* Represents an amount less than $1.
 
 
9
 

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)

   
Common stock
    
Additional paid-in
    
Deferred
stock - based
    
Deficit
accumulated
during the
development
    
Total
stockholders'
equity
  
   
Number
    
Amount
    
capital
    
compensation
    
stage
    
(deficiency)
  
                                     
Balance as of December 31, 2009
     76,309,152     $ 4     $ 35,994     $ -     $ (37,741 )   $ (1,743 )
Stock-based compensation related to options and stock granted to service providers
     110,000       ( *)     87       -       -       87  
Stock-based compensation related to stock and options granted to directors and employees
     -       -       96       -       -       96  
Stock issued for amendment of private placement
     7,250,000       1       1,750       -       -       1,751  
Conversion of convertible note
     402,385       ( *)     135       -       -       135  
Conversion of convertible loans
     1,016,109       ( *)     189       -       -       189  
Exercise of options
     350,000       ( *)     53       -       -       53  
Exercise of warrants
     270,000       ( *)     -       -       -       -  
Subscription of shares for  private placement at $0.12 per unit
     -       -       50       -       -       50  
Issuance of shares on account of previously subscribed shares (See also Note 7B.1.f)
     2,000,001       ( *)     -       -       -       -  
Net loss
     -       -       -       -       (615 )     (615 )
                                                 
Balance as of March 31, 2010
     87,707,647     $ 5     $ 38,354     $ -     $ (38,356 )   $ 3  

* 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)

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,
  
   
2010
    
2009
    
2010
  
   
Unaudited
    
Unaudited
  
Cash flows from operating activities:
                  
Net loss
   $ (615 )   $ (514 )   $ (38,356 )
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
     42       39       728  
Severance pay, net
     12       (4 )     36  
Accrued interest on loans
     -       4       448  
Amortization of discount on short-term loans
     -       -       1,864  
Change in fair value of options and warrants
     -       -       (795 )
Expenses related to shares and options granted to service providers
     87       9       21,028  
Amortization of deferred stock-based compensation related to options granted to employees
     96       109       5,394  
Increase in accounts receivable and prepaid expenses
     (65 )     (21 )     (151 )
Increase (decrease) in trade payables
     (61 )     20       674  
Increase (decrease) in other accounts payable and accrued expenses
     (94 )     193       1,319  
Erosion of restricted cash
     -       3       (6 )
Net cash used in continuing operating activities
     (598 )     (162 )     (7,653 )
Net cash used in discontinued operating activities
     -       -       (23 )
Total net cash used in operating activities
   $ (598 )   $ (162 )   $ (7,676 )
                         
Cash flows from investing activities:
                        
Purchase of property and equipment
   $ (4 )   $ -     $ (1,084 )
Restricted cash
     -       -       6  
Investment in lease deposit
     -       5       (7 )
Net cash used in continuing investing activities
     (4 )     5       (1,085 )
Net cash used in discontinued investing activities
     -       -       (16 )
Total net cash used in investing activities
   $ (4 )   $ 5     $ (1,101 )
                         
Cash flows from financing activities:
                        
Proceeds from issuance of Common stock, net
   $ 1,800     $ 191     $ 8,399  
Proceeds from loans, notes and issuance of warrants, net
     -       -       2,061  
Credit from bank
     (37 )     (34 )     9  
Proceeds from exercise of warrants and options
     53       -       81  
Repayment of short-term loans
     -       -       (601 )
Net cash provided by continuing financing activities
     1,816       157       9,949  
Net cash provided by discontinued financing activities
     -       -       43  
Total net cash provided by financing activities
     1,816       157       9,992  
Increase (decrease) in cash and cash equivalents
     1,214       -       1,215  
Cash and cash equivalents at the beginning of the period
     1       2       -  
Cash and cash equivalents at end of the period
   $ 1,215     $ 2     $ 1,215  
                         
Non-cash financing activities:
                        
Conversion of convertible loan and convertible note to shares
   $ 324       -     $ 1,800  
 
The accompanying notes are an integral part of the consolidated financial statements.

 
11
 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
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 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 (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 ASC 360-10 (formerly "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. BCT owns all operational property and equipment.

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

 
F.
On December 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" ASC 915-10 (formerly "SFAS" 7).

GOING CONCERN

As reflected in the accompanying financial statements, the Company’s operations for the three months ended on March 31, 2010, resulted in a net loss of $615 and the Company’s balance sheet reflects net stockholders’ equity of $3 and accumulated deficit of $38,356. 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)
Notes to the financial statements
 
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 focus only on the effort to reach clinical trials in ALS in 2010. During the first quarter of 2010, the Company entered into an agreement with Hadassah Medical Centre to conduct clinical trails in up to 26 ALS patients in 2010 and raised approximately $1.8 million from investors for this purpose.

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

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, 2009, 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, 2010 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, 2010, are not necessarily indicative of the results that may be expected for the year ended December 31, 2010.
 
 
13
 
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
NOTE 4
 
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 December 24, 2009, the Company paid to Ramot the first three payments totaling $400 but did not make the last two payments totaling $240 and for the extended research period.

On December 24, 2009, the Company and Ramot entered into a settlement agreement which also amended the Research and License Agreement in July 8, 2004 and the first and second amendments to the agreement pursuant to which, among others, the following matters were agreed upon:

 
a)
Ramot released the Company from its obligation to fund the extended research period in the total amount of $1,140.Therefore the company deleted an amount in 2009, equal to $ 760 from it research and development expenses that were previously expensed.
.
 
b)
Past due amount of $240 for the initial research period plus interest of $32 owed by the Company to Ramot was converted into 1,120,000 shares of common stock on December 30, 2009. Ramot is required to deposit the shares with a broker and only sell the shares in the free market after 185 days from the issuance date.

14

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
NOTE 4   -     RESEARCH AND LICENSE AGREEMENT (Cont.)

In the event that the total proceeds generated by sales of the shares are less than $120 on or prior to September 30, 2010 ("September Payment"), then on such date the Company shall pay to Ramot the difference between the aggregate proceeds that have been received by Ramot up to such date, and $120.  In the event that the total proceeds generated by sales of the shares on December 31, 2010, together with the September 30, 2010 payment, are less than $240 on or prior to December 31, 2010, then on such date the Company shall pay to Ramot the difference between the proceeds that Ramot has received from sales of the shares up to such date together with the September Payment (if any) that has been transferred to Ramot up to such date, and $240.
 
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, 2010, the Company has a total obligation of $388 for services rendered by the Consultants.
 
NOTE 6  -     SHORT-TERM LOANS

On March 2007, the company has signed a convertible note with a lender in return of 150$, the note bear an interest of 8%, for the first year and 10% afterword. The lender had the right to convert the debt to the company shares.  .On January 27, 2010, the lender converted the entire accrued principle and interest of $189 Convertible Promissory Note into 1,016,109 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 ASC 860-10 (formerly FASB No 140) “Accounting for Transfer and Servicing of Financial Assets and Extinguishment 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).

15
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
NOTE 7  -     STOCK CAPITAL (Cont.)

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

 
1.
Private placements: (Cont.)

 
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.

 
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.

On August 18, 2009, the Company entered into an amendment to the investment agreement with the investor as follows:

16
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
NOTE 7   -     STOCK CAPITAL (Cont.)

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

1.
Private placements: (Cont.)
 
 
(a)
The investor shall invest the remaining amount of the original investment agreement at price per share of $0.12 in monthly installments of not less then $50 starting August 1, 2009. The investor may accelerate such payments in its discretion.

 
(b)
The exercise price of the last 10,083,334 warrants will decrease from an exercise price of $0.36 per share to $0.29 per share.

 
(c)
All warrants will expire on November 5, 2013 instead of November 5, 2011.

(d)
The price per share of the investment agreement shall decreased from $0.1818 to $0.12, therefore the Company shall adjust the number of Shares of Common Stock issuable pursuant the investment agreement retroactively and shall issue to the investor additional 9,916,667 Shares of Common Stock for past investment. On October 28, 2009, the 9,916,667 Shares of Common Stock were issued.

(e)
The investor shall have the right to cease payments in the event that the price per share as of the closing on five consecutive trading days shall decrease to $0.05.

As of March 31, 2010, the investor completed payment of the first five installments and $324 of the sixth installment and the Company issued to the investor and its designees an aggregate of 29,166,667 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 15,629,167 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, 2013. The Company has issued 2,000,001 shares of common stock on behalf of the investor and the investor is due to be issued an additional 4,249,999 shares of common stock for the fifth installment that had already been paid.

The investor has yet to fully complete its obligation based on the investment agreement above and is due to invest an additional amounts according to the agreement.

As of March 31, 2010, 875,000 shares of Common Stock had been issued as an introduction fee.
g)
On January 2010, the Company issued 1,250,000 units for total proceeds of $250 from private investor. Each unit consists of one share of Common Stock and a two-year warrant to purchase one share of Common Stock at $0.50 per share.

h).
On February 2010, the Company issued 6,000,000 shares of Common Stock for 3 investors (2,000,000 for each investor) and two years warrants purchasing an aggregate of 3,000,000 shares of Common Stock (1,000,000 for each investor) with an exercise price of $0.5 for an aggregate amount of $1,500 ($500 each).
 
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.
 
17
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
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, 2010, 4,021,684 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.

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.

18
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
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 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.

On June 29, 2009, the Company granted to its CEO and director an option to purchase 1,000,000 shares of Common Stock at an exercise price of $0.067 per share. The option vests with respect to 1/3 of the option on each year anniversary and expires after 10 years. The total compensation related to the option is $68, which is amortized over the vesting period as general and administrative expense.

On June 29, 2009, the Company granted to its CFO an option to purchase 200,000 shares of Common Stock at an exercise price of $0.067 per share. The option vests with respect to 1/3 of the option on each year anniversary and expires after 10 years. The total compensation related to the option is $8, which is amortized over the vesting period as general and administrative expense.

On August 31, 2009, the Company granted to two of its directors an option to purchase 100,000 shares of Common Stock for each of them at an exercise price of $0.15 per share. The option vests with respect to 1/3 of the option on each year anniversary and expires after 10 years. The total compensation related to the option is $32, which is amortized over the vesting period as general and administrative expense.

On December 13, 2009, 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 $21, was recorded as general and administrative expense.

On February 10, 2010, the Company granted to its employee an option to purchase 30,000 shares of Common Stock at an exercise price of $0.32 per share. The option vests with respect to 1/3 of the option on each year anniversary and expires after 10 years. The total compensation related to the option is $9, which is amortized over the vesting period as Research and development expense.

19
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
 
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.)
 
A summary of the Company's option activity related to options to employees and directors, and related information is as follows:

   
For the period ended March 31, 2010
  
   
Amount of
options
    
Weighted
average
exercise
price
    
Aggregate
intrinsic
value
  
         
$
    
$
  
                   
Outstanding at beginning of period
     6,488,361       0.187       -  
Granted
     30,000       0.32       -  
Exercised
     (350,000