UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2006
|_| 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 small business issuer as specified in its charter)
WASHINGTON 91-2061053
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 EAST 59th STREET
NEW YORK, NY 10022
(Address of principal executive offices)
(212) 557-9000
(Issuer's telephone number)
Former fiscal year: March 31
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of November 7, 2006, the number of shares outstanding of the Registrant's
Common Stock, $0.00005 par value per share, was 24,201,812.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|.
TABLE OF CONTENTS
Page Number
-----------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis or Plan of Operation 22
Item 3. Controls and Procedures 34
PART II: OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 5. Other Information 35
Item 6. Exhibits 35
PART I: FINANCIAL INFORMATION
SPECIAL NOTE
Unless otherwise specified in this report, all references to currency, monetary
values and dollars set forth herein shall mean United States (U.S.).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains numerous statements, descriptions, forecasts and
projections, regarding Brainstorm Cell Therapeutics Inc. and its potential
future business operations and performance. These statements, descriptions,
forecasts and projections constitute "forward-looking statements," and as such
involve known and unknown risks, uncertainties, and other factors that may cause
our actual results, levels of activity, performance and achievements to be
materially different from any results, levels of activity, performance and
achievements expressed or implied by any such "forward-looking statements." Some
of these are described under "Certain Risk Factors That May Affect Future
Results" in this report. In some cases you can identify such "forward-looking
statements" by the use of words like "may," "will," "should," "could,"
"expects," "hopes," "anticipates," "believes," "intends," "plans," "estimates,"
"predicts," "likely," "potential," or "continue" or the negative of any of these
terms or similar words. These "forward-looking statements" are based on certain
assumptions that we have made as of the date hereof. To the extent these
assumptions are not valid, the associated "forward-looking statements" and
projections will not be correct. Although we believe that the expectations
reflected in these "forward-looking statements" are reasonable, we cannot
guarantee any future results, levels of activity, performance or achievements.
It is routine for our internal projections and expectations to change as the
year or each quarter in the year progresses, and therefore it should be clearly
understood that the internal projections and beliefs upon which we base our
expectations may change prior to the end of each quarter or the year. Although
these expectations may change, we may not inform you if they do and we undertake
no obligation to do so. We caution investors that our business and financial
performance are subject to substantial risks and uncertainties. In evaluating
our business, prospective investors should carefully consider the information
set forth under the caption "Certain Risk Factors That May Affect Future
Results" in addition to the other information set forth herein and elsewhere in
our other public filings with the Securities and Exchange Commission.
Item 1. Financial Statements.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
IN U.S. DOLLARS
UNAUDITED
INDEX
Consolidated Balance Sheets
Consolidated Statements of Operations
Statements of Changes in Stockholders' Equity (Deficiency)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
- - - - - - - - - - - - - - - - - - -
- 2 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
((A development stage company)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
September 30, March 31,
2006 2006
----------- -----------
Unaudited
-----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 52,991 290,219
Restricted cash 31,381 28,939
Accounts receivable and prepaid expenses 62,585 45,451
----------- -----------
Total current assets 146,957 364,609
----------- -----------
LONG-TERM INVESTMENTS:
Prepaid expenses 7,662 7,067
Severance pay fund 29,950 19,093
----------- -----------
37,612 26,160
----------- -----------
PROPERTY AND EQUIPMENT, NET 479,719 411,454
----------- -----------
OTHER ASSETS 61,206 57,590
----------- -----------
Total assets 725,494 859,813
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Trade payables 246,580 200,624
Other accounts payable and accrued expenses 722,120 370,445
Short-term convertible loans (Note 5) 945,693 367,292
Short-term loan (Note 6) 197,855 128,559
----------- -----------
Total current liabilities 2,112,248 1,066,920
----------- -----------
OPTIONS AND WARRANTS (Note 5b) -- 7,679,009
----------- -----------
ACCRUED SEVERANCE PAY 34,471 24,563
----------- -----------
Total liabilities 2,146,719 8,770,492
----------- -----------
STOCKHOLDERS' DEFICIENCY:
Stock capital:
Common stock of $ 0.00005 par value - Authorized: 200,000,000 shares at
September 30, 2006 and March 31, 2006; Issued and outstanding: 23,729,961
and 22,854,587 shares at September 30, 2006 and March 31, 2006,
respectively 1,187 1,144
Preferred stock of $ 0.00005 par value - Authorized: 40,000,000 shares at
September 30, 2006 and March 31, 2006; none issued -- --
Additional paid-in capital 22,794,443 15,802,847
Deferred stock-based compensation -- (1,395,439)
Deficit accumulated during the development stage (24,216,855) (22,319,231)
----------- -----------
Total stockholders' deficiency (1,421,225) (7,910,679)
----------- -----------
Total liabilities and stockholders' deficiency 725,494 859,813
=========== ===========
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
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
Period from
September 22,
Six months ended Three months ended 2000 (inception
September 30, September 30, Year ended date) through
------------------------- ------------------------- March 31, September 30,
2006 2005 2006 2005 2005 2006
---------- ---------- ---------- ---------- ---------- -----------
Unaudited Unaudited
------------------------------------------------------- -----------
Operating costs and expenses:
Research and development 510,025 491,932 267,095 311,295 970,891 1,952,958
Research and development
expenses (income) related
to shares, warrants and
options granted to
employees and service
providers (339,482) 22,911 1,629 13,056 (123,944) 15,415,025
General and administrative 548,747 471,533 304,106 236,825 817,366 1,631,244
General and administrative
expenses related to shares,
warrants and options
granted to employees and
service providers 913,811 775,371 316,678 467,771 1,636,692 4,761,925
---------- ---------- ---------- ---------- ---------- -----------
Total operating costs and
expenses 1,633,101 1,761,747 889,508 1,028,947 3,301,005 23,761,152
Financial income (expenses),
net (246,948) (1,788) (149,805) 591 14,689 (238,255)
---------- ---------- ---------- ---------- ---------- -----------
(1,880,049) (1,763,535) (1,039,313) (1,028,356) (3,286,316) (23,999,407)
Income taxes 17,575 14,378 8,891 9,769 30,433 53,477
---------- ---------- ---------- ---------- ---------- -----------
Loss from continuing
operations (1,897,624) (1,777,913) (1,048,204) (1,038,125) (3,316,749) (24,052,884)
Net loss from discontinued
operations -- -- -- -- -- (163,971)
---------- ---------- ---------- ---------- ---------- -----------
Net loss (1,897,624) (1,777,913) (1,048,204) (1,038,125) (3,316,749) (24,216,855)
========== ========== ========== ========== ========== ===========
Basic and diluted net loss
per share from continuing
operations (0.08) (0.08) (0.04) (0.05) (0.15)
========== ========== ========== ========== ==========
Weighted average number of
shares used in computing
basic and diluted net loss
per share 23,306,302 21,529,430 23,577,787 21,917,455 22,011,370
========== ========== ========== ========== ==========
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)
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
Deficit
accumulated Total
Common stock Additional Deferred during the stockholders'
------------------------- paid-in stock-based development equity
Number Amount capital compensation stage (deficiency)
---------- ----- ---------- ---------- ----------- -----------
Balance as of September 22, 2000 (date of
inception) -- -- -- -- -- --
Shares issued on September 22, 2000 for
cash at $ 0.00188 per share 8,500,000 850 15,150 -- -- 16,000
Stock issued on March 31, 2001 for cash
at $ 0.0375 per share 1,600,000 160 59,840 -- -- 60,000
Contribution of capital -- -- 7,500 -- -- 7,500
Net loss -- -- -- -- (17,026) (17,026)
---------- ----- ---------- ---------- ----------- -----------
Balance as of March 31, 2001 10,100,000 1,010 82,490 -- (17,026) 66,474
Contribution of capital -- -- 11,250 -- -- 11,250
Net loss -- -- -- -- (25,560) (25,560)
---------- ----- ---------- ---------- ----------- -----------
Balance as of March 31, 2002 10,100,000 1,010 93,740 -- (42,586) 52,164
Contribution of capital -- -- 15,000 -- -- 15,000
Net loss -- -- -- -- (46,806) (46,806)
---------- ----- ---------- ---------- ----------- -----------
Balance as of March 31, 2003 10,100,000 1,010 108,740 -- (89,392) 20,358
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 5 6,495 -- -- 6,500
Cancellation of shares granted to
Company's President (10,062,000) (503) 503 -- -- --
Contribution of capital -- -- 15,000 -- -- 15,000
Net loss -- -- -- -- (73,295) (73,295)
---------- ----- ---------- ---------- ----------- -----------
Balance as of March 31, 2004 10,238,000 512 130,738 -- (162,687) (31,437)
Shares issued on June 24, 2004 for
private placement at $ 0.01 per
stock, net of $ 25,000 issuance
expenses 8,510,000 426 59,749 -- -- 60,175
Contribution capital -- -- 7,500 -- -- 7,500
Shares issued in 2004 for private
placement at $ 0.75 per unit 1,894,808 95 1,418,042 -- -- 1,418,137
Cancellation of shares granted to
service providers (1,800,000) (90) 90 -- -- --
Deferred stock-based compensation
related to options granted to
employees -- -- 5,978,759 (5,978,759) -- --
Amortization of deferred stock-based
compensation related to shares and
options granted to employees -- -- -- 584,024 -- 584,024
Compensation related to shares and
options granted to service providers 2,025,000 101 17,505,747 -- -- 17,505,848
Net loss -- -- -- -- (18,839,795) (18,839,795)
---------- ----- ---------- ---------- ----------- -----------
Balance as of March 31, 2005 20,867,808 1,044 25,100,625 (5,394,735) (19,002,482) 704,452
========== ===== ========== ========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
Deficit
Common stock accumulated Total
------------------------- Additional Deferred during the stockholders'
paid-in stock-based development equity
Number Amount capital compensation stage (deficiency)
---------- ---------- ---------- ---------- ----------- ----------
Balance as of March 31, 2005 20,867,808 1,044 25,100,625 (5,394,735) (19,002,482) 704,452
Stock issued on May 12, 2005 for
private placement at $ 0.8 per share 186,875 9 149,491 -- -- 149,500
Stock issued on July 27, 2005 for
private placement at $ 0.6 per share 165,000 8 98,992 -- -- 99,000
Stock issued on September 30, 2005 for
private placement at $0.8 per share 312,500 16 224,984 -- -- 225,000
Stock issued on December 17, 2005 for
private placement at $0.8 per share 187,500 10 134,990 -- -- 135,000
Forfeiture of options granted to
employees -- -- (3,363,296) 3,363,296 -- --
Deferred stock-based compensation
related to shares and options granted
to directors and employees 200,000 10 486,490 (486,500) -- --
Amortization of deferred stock-based
compensation related to options and
shares granted to employees and
directors -- -- 51,047 1,122,500 -- 1,173,547
Stock-based compensation related to
options and shares granted to service
providers 934,904 47 662,069 -- -- 662,116
Reclassification due to application of
EITF 00-19 (7,906,289) (7,906,289)
Beneficial conversion feature related
to a convertible bridge loan -- -- 163,744 -- -- 163,744
Net loss -- -- -- -- (3,316,749) (3,316,749)
---------- ---------- ---------- ---------- ----------- ----------
Balance as of March 31, 2006 22,854,587 1,144 15,802,847 (1,395,439) (22,319,231) (7,910,679)
Elimination of deferred stock
compensation due to implementation of
FAS 123R -- -- (1,395,439) 1,395,439 -- --
Stock-based compensation related to
shares and options granted to
directors and employees 200,000 10 559,010 -- -- 559,020
Reclassification due to application of
EITF 00-19 (Note 5c) -- -- 7,190,829 -- -- 7,190,829
Stock-based compensation related to
options and shares granted to service
providers 675,374 33 437,196 -- -- 437,229
Beneficial conversion feature related
to convertible bridge loans (Note 4a
and b) -- -- 200,000 -- -- 200,000
Net loss -- -- -- -- (1,897,624) (1,897,624)
---------- ---------- ---------- ---------- ----------- ----------
Balance as of September 30, 2006
(unaudited) 23,729,961 1,187 22,794,443 -- (24,216,855) (1,421,225)
========== ========== ========== ========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
((A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
In U.S. dollars
Period from
September 22,
Six months ended 2000 (inception
September 30, Year ended date) through
------------------------- March 31, September 30,
2006 2005 2006 2006
---------- ---------- ---------- -----------
Unaudited Unaudited
------------------------- -----------
Cash flows from operating activities:
Net loss (1,897,624) (1,777,913) (3,316,749) (24,216,855)
Less - loss for the period from discontinued operations -- -- -- 163,971
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 95,894 23,577 72,318 153,547
Accrued severance pay, net (949) -- 5,470 4,521
Accrued interest on loans 58,324 -- 13,210 71,534
Amortization of discount on short-term loans 189,373 -- 50,765 240,138
Change in fair value of options and warrants (488,180) -- (306,660) (794,840)
Expenses related to shares and options granted to
service providers 437,229 237,747 631,216 18,550,093
Stock-based compensation related to options granted
to employees 559,020 586,935 1,173,547 2,316,591
Decrease in accounts receivable and prepaid expenses (17,134) (40,440) (37,525) (62,431)
Increase in trade payables 45,956 227,317 162,774 246,580
Increase in other accounts payable and accrued
expenses 351,675 189,692 239,213 716,970
---------- ---------- ---------- -----------
Net cash used in continuing operating activities (666,416) (472,205) (1,237,371) (2,610,181)
Net cash used in discontinued operating activities -- -- -- (22,766)
---------- ---------- ---------- -----------
Total net cash used in operating activities (666,416) (472,205) (1,237,371) (2,632,947)
---------- ---------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (107,775) (228,367) (209,647) (545,982)
Restricted cash (2,422) 1,525 2,195 (31,381)
Investment in lease deposit (595) -- (2,477) (7,662)
---------- ---------- ---------- -----------
Net cash used in continuing investing activities (110,812) (226,842) (209,929) (585,025)
Net cash used in discontinued investing activities -- -- -- (16,000)
---------- ---------- ---------- -----------
Total net cash used in investing activities (110,812) (226,842) (209,929) (601,025)
---------- ---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of Common stock and warrants,
net -- 248,500 608,500 2,086,812
Receipts on account of shares -- 225,000 602,500 --
Proceeds from loans 540,000 -- 1,211,000 1,157,410
---------- ---------- ---------- -----------
Net cash provided by continuing financing activities 540,000 473,500 -- 3,244,222
Net cash provided by discontinued financing activities -- -- 42,741
---------- ---------- ---------- -----------
Total net cash provided by financing activities 540,000 473,500 1,211,000 3,286,963
---------- ---------- ---------- -----------
Increase (decrease) in cash and cash equivalents (237,228) (225,547) (236,300) 52,991
Cash and cash equivalents at the beginning of the
period 290,219 526,519 526,519 --
---------- ---------- ---------- -----------
Cash and cash equivalents at end of the period 52,991 300,972 290,219 52,991
========== ========== ========== ===========
Non-cash financing activities:
Non-cash financing activities from discontinued
operations -- -- 30,900 30,900
========== ========== ========== ===========
Non-cash investing activities from continued operations -- 26,400 -- 26,400
========== ========== ========== ===========
Cash paid during the period for:
Taxes -- -- 2 2
========== ========== ========== ===========
Interest 1 -- 1 2
========== ========== ========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 7 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 1:- GENERAL
a. Brainstorm Cell Therapeutics Inc. (formerly: Golden Hand
Resources Inc.) ("the Company") was incorporated in the
State of Washington on September 22, 2000.
b. On September 22, 2000, the Company acquired the right to
market and sell a digital data recorder product in
certain states in the U.S.
c. On July 8, 2004, the Company entered into a licensing
agreement with Ramot of Tel Aviv University Ltd.
("Ramot"), an Israeli corporation, to acquire certain
stem cell technology. Subsequent to this agreement, the
Company decided to change its line of business and 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
activities related to the sale of the digital data
recorder product. The discontinuation of this activity
was accounted for under the provision of SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets".
d. On October 25, 2004, the Company formed a wholly-owned
subsidiary in Israel, Brainstorm Cell Therapeutics Ltd.
("BCT"). On March 14, 2005, the Company signed an
agreement with its subsidiary effective as of November,
2004, according to which the subsidiary will provide
research, development and other services to the Company.
In return, the subsidiary will be entitled to receive
reimbursement of expenses incurred by it in the process
of performing the research and development services plus
10% of such reimbursement amounts.
e. As of September 30, 2006, the Company had accumulated a
deficit of $ 24,216,855 and working capital deficiency
of $ 1,965,291, respectively, and incurred net loss of $
1,897,624 and negative cash flows from operating
activities in the amount of $ 666,416 for the six months
ended September 30, 2006. In addition, the Company has
not generated any revenues yet. The Company's ability to
continue to operate as a going concern is dependent upon
additional financial support.
These financial statements do not include any
adjustments relating to the recoverability and
classification of assets' carrying amounts or the amount
and classification of liabilities that may be required
should the Company be unable to continue as a going
concern.
The Company intends to raise additional capital to fund
its operations. In the event the Company is unable to
successfully raise capital and generate revenues, it is
unlikely that the Company will have sufficient cash
flows and liquidity to finance its business operations
as currently contemplated. Accordingly, the Company will
likely reduce general and administrative expenses and
cease or delay the development project 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.
Certain shareholders of the Company are obligated to
invest in the Company up to $3 million if the Company
does not succeed to raise capital from other sources.
The investment will be in a manner of an equity
investment or by the issuance of a convertible loan. If
the investment is made through a convertible loan, the
loan maturity date will not be before January 2008.
- 8 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 1:- GENERAL (Cont.)
f. Risk factors:
The Company depends on Ramot to conduct its research and
development activities. As discussed in Note 4, the
Company is currently in negotiations with Ramot for
additional deferral of the payment due to it pursuant to
the research and development agreement. In case a
deferral of payment will not be obtained, the Company
will be in breach of the agreement and Ramot may
terminate the research and license agreement.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. The significant accounting policies applied in the
annual financial statements of the Company as of March
31, 2006, are applied consistently in these financial
statements.
b. Accounting for stock-based compensation:
On January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment," ("SFAS 123(R)") which requires
the measurement and recognition of compensation expense
for all share-based payment awards made to employees and
directors including employee stock options under the
Company's stock plans based on estimated fair values.
SFAS 123(R) supersedes the Company's previous accounting
under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25")
for periods beginning in fiscal 2006. In March 2005, the
Securities and Exchange Commission issued Staff
Accounting Bulletin No. 107 ("SAB 107") relating to SFAS
123(R). The Company has applied the provisions of SAB
107 in its adoption of SFAS 123(R).
SFAS 123(R) requires companies to estimate the fair
value of equity-based payment awards on the date of
grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service
periods in the Company's consolidated statement of
operations. Prior to the adoption of SFAS 123(R), the
Company accounted for equity-based awards to employees
and directors using the intrinsic value method in
accordance with APB 25 as allowed under Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Under the
intrinsic value method, no equity-based compensation
expense was recognized in the Company's results of
operations because the exercise price of the Company's
stock options granted to employees and directors equaled
the fair market value of the underlying stock on the
date of grant.
The Company adopted SFAS 123(R) using the modified
prospective transition method, which requires the
application of the accounting standard as of April 1,
2006, the first day of the Company's fiscal year 2006.
Under that transition method, compensation cost
recognized in the six month period ended September 30,
2006, includes: (a) compensation cost for all
share-based payments granted prior to, but not yet
vested as of April 1, 2006, based on the grant date fair
value estimated in accordance with the original
provisions of Statement 123, and (b) compensation cost
for all share-based payments granted subsequent to April
1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123(R). As
required by the modified prospective method results for
prior periods have not been restated.
- 9 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company recognized compensation expenses for the
value of these awards, which has graded vesting, based
on the accelerated attribution method over the requisite
service period of each award, net of estimated
forfeitures. Estimated forfeitures were based on actual
historical pre-vesting forfeitures.
As a result of adopting SFAS 123(R) on April 1, 2006,
the Company's loss before income taxes and net loss for
the six months ended September 30, 2006, are $ 162,713
over than if it had continued to account for share-based
compensation under Opinion 25. Basic and diluted loss
per share for the six months period ended September 30,
2006, would have been $ 0.09, had the Company not
adopted SFAS 123(R), compared to reported basic and
diluted loss per share of $ 0.08.
The Company estimates the fair value of stock options
granted using the Black-Scholes-Merton option-pricing
model. The option-pricing model requires a number of
assumptions, of which the most significant are, expected
stock price volatility and the expected option term (the
amount of time from the grant date until the options are
exercised or expire). Expected volatility was calculated
based upon actual historical stock price movements over
the period ending September 30, 2006, equal to the
expected option term. The expected option term
represents the period that the Company's stock options
are expected to be outstanding and was determined based
on historical experience of similar options, giving
consideration to the contractual terms of the stock
options. The Company has historically not paid dividends
and has no foreseeable plans to issue dividends. The
risk-free interest rate is based on the yield from U.S.
Treasury zero-coupon bonds with an equivalent term.
The following table illustrates the effect on net loss
and net loss per share, assuming that the Company had
applied the fair value recognition provision of SFAS No.
123 on its stock-based employee compensation. For
purposes of this pro-forma disclosure, the value of the
options is estimated using a Black-Scholes option
pricing formula and amortized to expense over the
options vesting period. The assumptions used in the
calculation are as follows:
Six months ended Year ended
September 30, March 31,
Employee stock options 2006 2006
---------------------- --------- ---------
Unaudited
---------
Expected volatility 112% 110%
Risk-free interest 4.56% 4.46%
Dividend yield 0% 0%
Expected life of up to (years) 7.47 7.53
- 10 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The following table illustrates the effect on net loss
and net loss per share, assuming that the Company had
applied the fair value recognition provision of SFAS No.
123 on its stock-based employee compensation.
Year ended
March 31,
2006
----------
Net loss as reported (3,316,749)
Add: stock based employee compensation intrinsic value 1,122,500
Deduct: stock-based compensation expense determined
under fair value method (1,330,447)
----------
Pro forma net loss (3,524,696)
==========
Basic and diluted net loss per share, as reported (0.15)
==========
Basic and diluted net loss per share, pro forma (0.16)
==========
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 September 30, 2006 and for
the six 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 six-month period
ended September 30, 2006 are not necessarily indicative
of the results that may be expected for the year ended
March 31, 2007.
NOTE 4:- RESEARCH AND LICENSE AGREEMENT
a. The Company's total current obligation to Ramot as of
September 30, 2006 is in the amount of $ 272,127. The
Company is negotiating with Ramot to postpone the
payment. (For complete information regarding the
research and license agreement, see Note 3 to the
financial statements as of March 31, 2006).
b. In July 2006, the Company signed a non binding letter of
intends (LOI) to conduct pre clinical trials with a
third party. Based on the LOI, the project budget is
estimated at about Euro 100,000 and the parties will
share the cost. In case of future sales of products
derived from the trial, the third party will be entitled
up to 3% from the net price in certain countries.
- 11 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 5:- SHORT-TERM CONVERTIBLE LOANS
a. On June 5, 2006, the Company issued a $500,000
Convertible Promissory Note ("the Note") to a third
party under the same terms as the convertible loan dated
February 7, 2006. (See also Note 8 to the financial
statements as of March 31, 2006).
The Company agreed to pay a finder's fee of 10% of the
loan. The finder's fee totaling $50,000 was charged to
deferred charges and amortized over the Note period (12
months).
According to FASB 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity" the short-term convertible loan was classified
as a liability at the full monetary value of the
obligation. Such amount is predominantly based on a
fixed monetary amount known at inception which amounted
to $666,667 (against a discount in the amount of $
166,667).
The balance as of September 30, 2006 is comprised as
follows:
Loan 666,667
Discount (113,242)
Accrued interest 16,027
--------
569,452
========
On June 14, 2006, the loan was amended (see also b
below). According to the amendment, the Company limited
the number of stocks to be issued upon conversion of
such loan amount of 50,000,000 shares of Common stock.
b. On September 14, 2006, the Company issued a $ 100,000
Convertible Promissory Note ("the Note") to a third
party under the same terms as the convertible loan dated
February 7, 2006. (See also Note 8 to the financial
statements as of March 31, 2006).
The Company agreed to pay a finder's fee of 10% of the
loan. The finder's fee totaling $10,000 was charged to
deferred charges and was amortized over the Note period
(12 months).
According to FASB 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity" the short-term convertible loan was classified
as a liability at the full monetary value of the
obligation. Such amount is predominantly based on a
fixed monetary amount known at inception which amounted
to $133,333 (against a discount in the amount of $
33,333).
The balance as of September 30, 2006 is comprised as
follows:
Loan 133,333
Discount (31,872)
Accrued interest 438
-------
101,899
=======
- 12 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 5:- SHORT-TERM CONVERTIBLE LOANS (Cont.)
c. On June 14, 2006, the Company signed amendments to the
convertible loan agreements dated February 7, 2006 (see
also Note 8a to the financial statements as of March 31,
2006) and June 5, 2006 (see 5a above), according to
which the Company limited the number of shares to be
issued upon conversion of such loans to an amount of
50,000,000 shares of Common stock each. As a
consequence, the Company reclassified the fair value of
options and warrants previously granted to service
providers and investors from liability to equity. The
fair value as of June 14, 2006, amounted to $7,190,829.
NOTE 6:- SHORT-TERM LOAN
On February 8, 2006, the Company issued a $189,000
Promissory Note due June 8, 2006 (the "Note"), with an
interest of 8% to a third party (see also Note 9 to the
financial statements as of March 31, 2006). In addition,
the Company granted the third party warrants to purchase
189,000 of the Company's Common stock at an exercise
price of $0.50 per share. The warrants are fully vested
and are exercisable at any time after February 8, 2006
until the third anniversary of the issue date.
The Company agreed to pay $22,500 for due diligence and
legal fees .The fees were recorded to deferred charges
and are amortized over a four month period.
The fair value of the warrant amounted to approximately
$79,380. The Company estimated the fair value of the
warrants using a Black and Scholes option pricing model,
with the following assumptions: volatility of 119%, risk
free interest rate of 4.66%, dividend yield of 0%, and
an expected life of 36 months.
In accordance with EITF 00-19, the warrants were
recorded as a liability at their entire fair value and
the residual amount (the difference between the amounts
invested and the fair value of the warrants at the date
of issuance) was allocated to the Note as follows:
$79,380 to the warrants and $95,620 to the Note.
As a result, an amount equal to the fair value allocated
to the warrants was recorded as discount on the Note,
and is amortized to financial expenses over a four month
period.
The balance as of September 30, 2006 is comprised as
follows:
Loan 175,000
Discount --
Accrued interest 22,855
-------
197,855
=======
The Company recorded, in the period ended September 30,
2006, $ 69,296 as financial expenses in respect to the
discount amortization and accrued interest.
The Company accrues additional interest according to the
terms of the agreement (annual interest of 15%).
The Company and the lender agreed to postpone the due
date of the loan to December 31, 2006 (see Note 8d).
- 13 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 7:- STOCK CAPITAL
a. Classification of options and warrants to consultants
and investors:
According to EITF 00-19 "Accounting for Derivative
Financial Instruments Indexed to, and potentially
settled in a Company's Own Stock" (EITF 00-19), in order
to classify warrants and options (other than employee
stock options) as equity and not as liabilities, the
Company must have sufficient authorized and unissued
shares of common stock to provide for settlement of
those instruments that may require share settlement.
Under the terms of the Note, the Company may be required
to issue an unlimited number of shares to satisfy the
Note's contractual requirements. As such, the Company's
warrants and options (other than employee stock options)
are required to be classified as liabilities and
measured at fair value with changes recognized currently
in earnings.
Consequently, on February 7, 2006, the Company
reclassified at fair value, options and warrants
previously issued to consultants and investors from
equity to liability. Such reclassification amounted to $
7,906 thousand.
On June 14, 2006, the Company signed amendments to the
convertible loan agreements dated February 7, 2006
according to which the Company limited the number of
shares to be issued upon conversion of such loans to an
amount of 50,000,000 shares of Common stock each. As a
consequence, the Company reclassified the fair value of
options and warrants previously granted to service
providers and investors from liability to equity. The
fair value as of June 14, 2006, amounted to $7,190,829.
b. The rights of Common stock are as follows:
Common stocks confer their holders the right to receive
notice to participate and vote in general meetings of
the Company, the right to a stock in the excess of
assets upon liquidation of the Company and the right to
receive dividends, if declared.
The Common stock are registered and publicly traded on
the Over-the-Counter Bulletin Board service of the
National Association of Securities Dealers, Inc. under
the symbol BCLI.
c. The former president of the Company donated services
valued at $6,000 and rent valued at $1,500 for the six
months ended September 30, 2004. These amounts were
charged to the statement of operations as part of
discontinued operations and classified as additional
paid in capital in the stockholders' equity.
d. Issuance of stocks, warrants and options:
1. Private placements
a) On June 24, 2004, the Company issued to investors
8,510,000 Common stocks for total proceeds of $
60,175 (net of $25,000 issuance expenses).
- 14 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 7:- STOCK CAPITAL (Cont.)
b) On February 23, 2005, the Company completed a private
placement round for sale of 1,894,808 units for total
proceeds of $1,418,137. Each unit consists of one share
of Common stock and a three year warrant to purchase one
stock of Common stock at $2.50 per stock. This private
placement was consummated in four trances which closed
in October 2004, November 2004 and February 2005.
c) On March 21, 2005, the Company entered into lock up
agreements with its 29 stockholders with respect to
15,290,000 stocks held by them .Under these lock-up
agreements, these security holders may not transfer
their stocks to anyone other than permitted transferees
without the prior consent of the Company's Board of
Directors, for the period of time as follows: (i) 85% of
the securities shall be restricted from transfer for the
twenty-four month period following July 8, 2004 and (ii)
15% of the securities shall be restricted from transfer
for the twelve month period following July 8, 2004.
On March 26, 2005, the Company completed Amended lock up
agreements with five from the twenty nine stockholders
mentioned above with respect to 7,810,000 shares held by
them .These Lock-Up Agreements amend and restate the
previous lock-up agreements.
Under the Lock-Up Agreements, these stockholders may not
sell or otherwise transfer their stocks to anyone other
than permitted transferees without the prior written
consent of the Company's Board of Directors, as follows:
(i) 85% of the stocks will be restricted from transfer
until December 31, 2006 and (ii) 15% of the stocks will
be free from the transfer restrictions. All of the
restrictions under the Lock-Up Agreements will
automatically terminate upon the effectiveness of any
registration statement filed by the Company for the
benefit of Ramot.
d) On May 12, 2005, the Company issued to a certain
investor 186,875 shares of its Common stock for total
proceeds of $149,500 at a price per stock of $ 0.8.
e) On July 27, 2005, the Company issued to certain
investors 165,000 shares of its Common stock for total
proceeds of $99,000 at a price per stock of $0.6.
f) On August 11, 2005, the Company signed a private
placement agreement ("PPM") with investors for the sale
of up to 1,250,000 units at a price per unit of $0.8.
Each unit consists of one Common stock and one warrant
to purchase one 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 $225,000. On
December 7, 2005, the Company sold 187,500 units for
total net proceeds of $135,000.
- 15 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 7:- STOCK CAPITAL (Cont.)
2. Options to employees and to directors
On November 25, 2004, the Company's stockholders
approved the 2004 Global Stock Option Plan and the
Israeli Appendix thereto (which applies solely to
participants who are residents of Israel) and on March
28, 2005, the Company's stockholders approved the 2005
U.S. Stock Option and Incentive Plan, and the
reservation of 9,143,462 shares of Common stock for
issuance in aggregate under these stock option plans.
Each option granted under the plans is exercisable until
the earlier of ten years from the date of grant of the
option or the expiration dates of the respective option
plans. The 2004 and 2005 options plans will expire on
November 25, 2014 and March 28, 2015, respectively. The
exercise price of the options granted under the plans
may not be less than the nominal value of the stocks
into which such options are exercised. The options vest
primarily over three or four years. Any options which
are canceled or forfeited before expiration become
available for future grants.
As of September 30, 2006, 3,819,039 shares are available
for future grants.
On May 27, 2005, the Company granted two of its
directors 200,000 restricted shares (100,000 each). The
restricted shares are subject to the Company's right to
repurchase them at a purchase price of par value ($
0.00005). The restrictions of the stocks shall lapse in
three annual and equal portions commencing the grant
date.
On May 27, 2005, the Company granted one of its
directors an option to purchase 100,000 shares of its
Common stock, at an exercise price of $0.75. The
options are fully vested and expire after 10 years.
On May 2, 2006, the Company granted two of its directors
200,000 restricted shares (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 the grant date. The shares
were issued on June 7, 2006 to one director and on July
2, 2006 to the second director. The compensation related
to the stocks issued on June 7, in the amount of $
49,000 will amortize over the vesting period as general
and administrative expenses.
On May 2, 2006, the Company granted one of its directors
an option to purchase 100,000 shares of its Common
stock, at an exercise price of $0.15. The options are
fully vested and expire after 10 years. The compensation
related to the options, in the amount of $48,000 was
recorded as general and administrative expenses.
On September 17, 2006, the Company entered into an
amendment to the Company's option agreement with one of
its directors. The amendment changes the exercise price
of 100,000 options granted to them to $0.15 per share
from $0.75 per share. Due to the modification, the
difference between the fair value of the option on grant
date and the fair value on the modification date will be
amortized over the remaining vesting period.
- 16 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 7:- STOCK CAPITAL (Cont.)
Compensation expenses recorded by the Company in respect
of its stock-based employee compensation awards amounted
to $559,010, $1,173,547 and $586,935 for the periods
ended September 30, 2006, March 31, 2006 and September
30, 2005, respectively.
On February 6, 2006, the Company entered into an
amendment to the Company's option agreement with Mr.
David Stolick, the Company's Chief Financial Officer.
The amendment changes the exercise price of the 400,000
options granted to him on March 29, 2005 to $ 0.15 per
share from $ 0.75 per share. Due to the modification,
the award is accounted for as a variable from the date
of modification.
On June 22, 2006, the Company entered into an amendment
to the Company's option agreement with two of its
employees. The amendment changes the exercise price of
270,000 options granted to them to $0.15 per share from
$ 0.75 per stock. Due to the modification, the
difference between the fair value of the option on grant
date and the fair value on the modification date will be
amortized over the remaining vesting period.
3. Stocks and warrants to service providers:
a) Warrants:
Number of Exercise Warrants Exercisable
Issuance date warrants price exercisable through
------------- ---------- ----------- --------- -------------
November 2004 12,800,845 $ 0.01 1,920,126 November 2010
December 2004 1,800,000 $ 0.00005 1,800,000 December 2014
February 2005 1,894,808 $ 2.5 1,894,808 February 2008
May 2005 47,500 $ 1.62 47,500 May 2010
June 2005 30,000 $ 0.75 30,000 June 2010
August 2005 70,000 $ 0.15 70,000 August 2008
September 2005 3,000 $ 0.15 3,000 September 2008
September 2005 36,000 $ 0.75 12,953 September 2010
September - December September - December
2005 500,000 $ 1 500,000 2008
December 2005 20,000 $ 0.15 20,000 December 2008
December 2005 457,163 $ 0.7 118,570 July 2010
February 2006 230,000 $ 0.65 -- February 2008
February 2006 40,000 $ 1.5 40,000 February 2011
February 2006 8,000 $ 0.15 -- February 2011
February 2006 189,000 $ 0. 5 189,000 February 2009
May 2006 50,000 $ 0.00005 50,000 May 2016
May 2006 24,000 $ 0.35 24,000 May - September 2011
May 2006 24,000 $ 0.75 24,000 May - September 2011
May 2006 200,000 $ 1 200,000 May 2011
June 2006 24,000 $ 0.15 24,000 June 2011
---------- ---------
18,448,316 6,967,957
========== =========
- 17 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 7:- STOCK CAPITAL (Cont.)
The fair value for the warrants to service providers was
estimated on the date of grant using Black-Scholes
option pricing model, with the following
weighted-average assumptions for the periods ended
September 30, 2006, March 31, 2006 and September 30,
2005; weighted average volatility of 110%, 115% and 109%
respectively, risk- free interest rates of 4.375%,
4.605% and 3.9% respectively dividend yields of 0% and a
weighted average life of the options of 4, 4 and 2.3
years, respectively.
b) Stocks:
On June 1 and June 4, 2004, the Company issued 40,000
and 150,000 Common shares for 12 months filing services
and legal and due-diligence services with respect to
private placement, respectively. Compensation expenses
related to filing services, totaling $26,400, are
amortized over a 12-month period. Compensation related
to legal services, totaling $105,000 were recorded as
equity issuance cost and did not affect the statement of
operations.
On July 1 and September 22, 2004, the Company issued
20,000 and 15,000 shares to a former director for
financial services for the first and second quarters of
2004, respectively. Compensation expenses of $38,950
were recorded as general and administrative expenses.
On February 10, 2005, the Company signed an agreement
with one of its service providers according to which the
Company issued the service provider 100,000 shares of
restricted stock at a purchase price of $ 0.00005 par
value under the U.S Stock Option and Incentive Plan of
the Company. The restricted shares are subject to the
Company's right to repurchase them within one year of
the grant date as follows: (i) in the event that service
provider breaches his obligations under the agreement,
the Company shall have the right to repurchase the
restricted shares at a purchase price equal to par
value; and (ii) in the event that the service provider
has not breached his obligations under the agreement,
the Company shall have the right to repurchase the
restricted shares at a purchase price equal to the then
fair market value of the restricted shares.
In March and April 2005, the Company signed an agreement
with four members of its Scientific Advisory Board
according to which the Company issued to the members of
the Scientific Advisory Board 400,000 restricted shares
at a purchase price of $ 0.00005 par value under the U.S
Stock Option and Incentive Plan (100,000 each). The
restricted shares will be subject to the Company's right
to repurchase them if the grantees cease to be members
of the Company's Advisory Board for any reason. The
restrictions of the shares shall lapse in three annual
and equal portions commencing with the grant date.
- 18 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 7:- STOCK CAPITAL (Cont.)
In July 2005, the Company issued to its legal advisors
50,000 shares for legal services for 12 months. The
compensation related to the shares in the amount of $
37,500 was recorded as general and administrative
expenses.
In January 2006, the Company issued to two service
providers 350,000 restricted shares at a purchase price
of $ 0.00005 par value under the U.S Stock Option and
Incentive Plan of the Company. The restricted shares are
subject to the company's right to repurchase them within
12 months of the grant date as follows: (i) in the event
that the service providers breach their obligations
under the agreement, the Company shall have the right to
repurchase the restricted shares at a purchase price
equal to the par value; and (ii)in the event that the
service providers have not breached their obligations
under the service agreements the Company shall have the
right to repurchase the restricted shares at a purchase
price equal to the fair market value of the restricted
stocks. The compensation related to the shares in the
amount of $ 58,203 was recorded as general and
administrative expenses.
On March 6, 2006, the Company issued to its legal
advisor 34,904 shares of the Company common stock. The
shares are in lieu of $18,500 payable to the legal
advisor. The compensation related to the shares, in the
amount of $18,500 was recorded as general and
administrative expenses.
On April 13, 2006, the Company issued to service
providers 60,000 shares at a purchase price of $ 0.00005
par value under the U.S Stock Option and Incentive Plan
of the Company. The compensation related to the shares,
in the amount of $25,800 was recorded as general and
administrative expenses.
On April 14, 2006, the Company signed an agreement with
a service provider. According to the agreement the
Company is obligated to issue 200,000 shares of
restricted shares at a purchase price of $0.00005 par
value under the U.S Stock Option and Incentive Plan of
the Company with some purchase rights. The shares were
issue on August 14, 2006. The restricted shares are
subject to the Company's right to repurchase them within
one year of the grant date. If the agreement is
terminated on or prior to July 31, 2006, then the
company may repurchase up to 9/12 of the original number
of shares. Each month thereafter the Company shall have
the right purchase a lesser amount by 1/12 of the
original number of shares, until the shares are fully
vested in not subject to forfeiture. The restrictions of
the shares shall lapse in twelve monthly in equal
portions commencing with the grant date.
On May 9, 2006, the Company issued to its legal advisor
65,374 shares of the Company's common stock in lieu of
legal services. The compensation related to the shares,
in the amount of $33,341 was recorded as general and
administrative expenses.
On June 7, 2006, the Company issued 50,000 Common shares
for filing services for 12 months. The compensation
related to the shares, in the amount of $24,500 was
recorded as general and administrative expenses.
- 19 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 7:- STOCK CAPITAL (Cont.)
On June 7, 2006, the Company issued 200,000 shares to
finance consultant for his services. The compensation
related to the shares, in the amount of $98,000 was
recorded as general and administrative expenses.
On May 2, 2006 the Company granted options to purchase
12,000 shares of Common stock of the Company per month,
to its consultant. 6,000 options granted at an exercise
price of $0.75, 6,000 granted at an exercise price of $
0.35. The options are fully vested and expire after 5
years. As of September 30, 2006, the Company granted
48,000 shares to the consultant.
The Company also granted the consultant 200,000 options
at an exercise price of $1. The options are fully
vested and expire after 10 years.
The compensation related to the options, in the
aggregate amount of $75,760 was recorded as general and
administrative expenses.
On June 11, 2006, the Company granted options to
purchase 24,000 shares of Common stock of the Company to
a service provider. The options are fully vested and
expire after 5 years. The compensation related to the
shares, in the amount of $11,040 was recorded as
general and administrative expenses.
On August 14, 2006, the Company issued 200,000 shares to
a service provider. The compensation related to the
shares, in the amount of $68,000 was recorded as
general and administrative expenses.
On August 17, 2006, the Company issued 100,000 shares to
a service provider. The compensation related to the
shares, in the amount of $35,000 was recorded as
general and administrative expenses.
c) Stock-based compensation recorded by the Company in
respect of stocks and warrants granted to service
providers amounted to $ 437,196, $ 662,069 and $ 237,719
for the periods ended September 30, 2006, March 31, 2006
and September 30, 2005, respectively.
- 20 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
NOTE 8:- SUBSEQUENT EVENTS
a. On October 3, 2006, the Company issued to its legal
advisor 231,851 shares of the Company's Common stock.
The stocks are in lieu of $83,265 payable to the legal
advisor.
b. On October 14, 2006, the Company signed an agreement
with a service provider. According to the agreement the
Company is obligated to issue 300,000 shares of
restricted stock at a purchase price of $0.00005 par
value.
c. On October 18, 2006, the Company issued to its business
development advisor, based on the agreement, 240,000
shares of the Company's Common stock.
d. On October 23, 2006, the Company increased its
authorized Common shares to 440,000,000 based on the
shareholders decision dated September 20, 2006.
e. On October 3, 2006, the Company issued 630,000 warrants
to purchase the Company's Common stock at a purchase
price of $0.3 shares to the lender (see Note 6) for
lender's agreement to extend the maturity date of the
note to December 31, 2006 and to waive any and all
interest or fees. The shares are exercisable and expire
after three years.
f. On November 9, 2006, the Company issued a $50,000
Convertible Promissory Note ("the Note") in connection
with a third party's loan to the Company. Interest on
the Note will accrue at the rate of twelve percent per
annum but not less than $750 in case of early pay back
and will be due and payable in full on February 12,
2007. The Note will become immediately due and payable
upon the occurrence of certain Events of Default, as
defined in the Note. The third party has the right at
any time prior to the close of business on the Maturity
Date to convert all or part of the outstanding principal
and interest amount of the Note into shares of the
Company's Common stock, $ 0.00005 par value stock (the
Common Stock"). The Conversion Price, as defined in the
Note, will be 75% of the average of the last bid and
asking price of the Common Stock as quoted on the
Over-the-Counter Bulletin Board for the five trading
days prior to the Company's receipt of the third party
written notice of election to convert. The Conversion
Price will be adjusted in the event of a stock dividend,
subdivision, combination or stock split of the
outstanding shares. The Company limited the number of
stocks to be issued upon conversion of such loan to an
amount of 3,000,000 shares of Common stock.
-------------------
- 21 -
Item 2. Plan of Operation.
Company Overview
Since July 8, 2004, the Company's business has focused on the development of
adult stem cell therapies for treatment of neurodegenerative diseases. The
Company's business activities are based on technology, know-how and patent
applications exclusively licensed world-wide from Ramot at Tel Aviv University
Ltd. ("Ramot"). Under the terms of the Research and License Agreement with
Ramot, Ramot granted to us an exclusive license to (i) certain stem cell
technology developed at the Felsenstein Medical Research Center of Tel Aviv
University and related patent applications, and (ii) the results of further
research to be performed at Tel Aviv University relating to this technology
under the supervision of Professor Eldad Melamed and Dr. Daniel Offen, the lead
inventors.
- 22 -
Recent Developments
Letter of Intent
In July 2006, we entered into a Letter of Intent with the Fundacion para la
Investigacion Medica Aplicada (FIMA), as the operator of the Center for Applied
Medical Research of the University of Navarra in Spain to conduct safety and
efficacy trials in primates of our Parkinson's disease stem cell therapy. The
Letter of Intent is non-binding and it provides that we intend to negotiate and
enter into a definitive agreement with FIMA pursuant to which we will
collaborate to conduct the safety trials of our adult stem cell therapy in
primates and, depending on the outcome of the trials, we will collaborate to
conduct safety trials in humans in Spain. The Letter of Intent also provides
that, subject to the parties entering into a definitive agreement, FIMA will be
entitled to certain net royalties from us based on sales from any resulting
Parkinson's disease treatments in Portugal, Spain, France and the Netherlands.
Change in Fiscal Year
On September 17, 2006, our Board of Directors determined to change our fiscal
year-end from March 31 to December 31. Our report covering the transition period
beginning April 1, 2006 and ending December 31, 2006 will be filed on Form
10-KSB.
Stem Cell Therapy
Our activities are within the stem cell therapy field. Stem cells are
non-specialized cells with a potential for both self-renewal and differentiation
into cell types with a specialized function, such as muscle, blood or brain
cells. The cells have the ability to undergo asymmetric division such that one
of the two daughter cells retains the properties of the stem cell, while the
other begins to differentiate into a more specialized cell type. Stem cells are
therefore central to normal human growth and development, and also are a
potential source of new cells for the regeneration of diseased and damaged
tissue. Stem cell therapy aims to restore diseased tissue function by the
replacement and/or addition of healthy cells by stem cell transplants.
Currently, two principal platforms for cell therapy products are being explored:
(i) embryonic stem cells ("ESC"), isolated from the inner mass of a few days old
embryo; and (ii) adult stem cells, sourced from bone marrow, cord blood and
various organs. Although ESCs are the easiest to grow and differentiate, their
use in human therapy is limited by safety concerns associated with their
tendency to develop Teratomas (a form of tumor) and their potential to elicit an
immune reaction. In addition, ESC has generated much political and ethical
debate due to their origin in early human embryos.
Cell therapy using adult stem cells does not suffer from the same concerns. Bone
marrow is the tissue where differentiation of stem cells into blood cells
(haematopoiesis) occurs. In addition, it harbors stem cells capable of
differentiation into mesenchymal (muscle, bone, fat and other) tissues. Such
mesenchymal stem cells have also been shown capable of differentiating into
nerve, skin and other cells. In fact, bone marrow transplants have been safely
and successfully performed for many years, primarily for treating leukemia,
immune deficiency diseases, severe blood cell diseases, lymphoma and multiple
myeloma. Moreover, bone marrow may be obtained through a simple procedure of
aspiration, from the patient himself, enabling autologous cell therapy, thus
obviating the need for donor matching, circumventing immune rejection and other
immunological mismatch risks, as well as avoiding the need for immunosuppressive
therapy. Thus, we believe bone marrow, in particular autologous bone marrow,
capable of in vitro growth and multipotential differentiation, presents a
preferable source of therapeutic stem cells.
Parkinson's Disease ("PD")
Background
PD is a chronic, progressive disorder, affecting certain nerve cells, which
reside in the Substantia Nigra of the brain and which produce dopamine, a
neurotransmitter that directs and controls movement. In PD, these
dopamine-producing nerve cells break down, causing dopamine levels to drop below
the threshold levels and resulting in brain signals directing movement to become
abnormal. The cause of the disease is unknown.
Over four million people suffer from PD in the western world, of whom about 1.5
million are in the United States. In over 85% of cases, PD occurs in people over
the age of 65. Thus, prevalence is increasing in line with the general aging of
the population. We believe the markets for pharmaceutical treatments for PD have
a combined value of approximately $4 billion per year. However, these costs are
dwarfed when compared to the total economic burden of the disease, which has
been estimated by the National Institute of Neurological Disease (NINDS) to
exceed $26 billion annually in the U.S. alone, including costs of medical
treatment, care-giving, facilities and other services, as well as loss of
productivity of both patients and caregivers.
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Description
The classic symptoms of PD are shaking (tremor), stiff muscles (rigidity) and
slow movement (bradykinesia). A person with fully developed PD may also have a
stooped posture, a blank stare or fixed facial expression, speech problems and
difficulties with balance or walking. Although highly debilitating, the disease
is not life threatening and an average patient's life span is approximately 15
years.
Current Treatments
Current drug therapy for PD primarily comprises dopamine replacement, either
directly (levodopa), with dopamine mimetics or by inhibition of its breakdown.
Thus, the current drugs focus on treating the symptoms of the disease and do not
presume to provide a cure.
Levodopa, which remains the standard and most potent PD medication available,
has a propensity to cause serious motor response complications (MRCs) with
long-term use. Moreover, effective drug dosage often requires gradual increase,
leading to more adverse side effects and eventual resistance to their
therapeutic action. This greatly limits patient benefit. Therefore, physicians
and researchers are continuously seeking levodopa-sparing strategies in patients
with early-stage disease to delay the need for levodopa, as well as in patients
with late stage disease who no longer respond to therapy.
Prescription drugs to treat PD currently generate sales of over $1 billion and
the market is expected to grow to approximately $2.3 billion by 2010, driven by
the increase in size of the elderly population and the introduction of new PD
therapies that carry a higher price tag than the generic levodopa.
Another method for treating PD is Deep Brain Stimulation (DBS), which consists
of transplanting electrodes deep into the brain to provide permanent electrical
stimulation to specific areas of the brain and to cause a delay in the activity
in those areas. However, DBS is problematic as it often causes uncontrollable
and severe side effects such as bleeding in the brain, infection and depression.
In addition, like drug therapy, DBS focuses on treating the symptoms of PD and
does not provide a cure.
There is a greatly unsatisfied need for novel approaches towards management of
PD. These include development of neurotrophic agents for neuroprotection and/or
neurorestoration, controlling levodopa-induced adverse side effects, developing
compounds targeting nondopaminergic systems (e.g., glutamate antagonists)
controlling the motor dysfunction such as gait, freezing, and postural
imbalance, treating and delaying the onset of disease-related dementia and
providing simplified dosing regimens.
In addition to the symptomatic drug development approaches, there is an intense
effort to develop cell and gene therapeutic "curative" approaches to restore the
neural function in patients with PD, by (i) replacing the dysfunctional cells
with dopamine producing cell transplant, or by (ii) providing growth factors and
proteins, such as glial derived neurotrophic factor (GDNF), that can maintain or
preserve the patient's remaining dopaminergic cells, protecting them from
further degeneration. Preclinical evaluation of cell therapeutic approaches
based on transplantation of dopaminergic neurons differentiated in vitro from
ESC, have been successful in ameliorating the parkinsonian behavior of animal
models, as has direct gene therapy with vectors harboring the GDNF gene.
However, these approaches are limited, in the first case, by the safety and
ethical considerations associated with use of ESC, and, in the second case, by
the safety risks inherent to gene therapy.
In fact, PD is the first neurodegenerative disease for which cell
transplantation has been attempted in humans, first with adrenal medullary cells
and, later, with tissue grafts from fetal brain. About 300 such fetal
transplants have already been performed and some benefits have been observed,
mainly in younger patients. However, this approach is not only impractical but
greatly limited by the ethical issues influencing the availability of human
fetuses. The above considerations have led to intensive efforts to define and
develop appropriate cells from adult stem cells.
Amyotrophic Lateral Sclerosis ("ALS")
ALS, often referred to as "Lou Gehrig's disease," is a progressive
neurodegenerative disease that affects nerve cells in the brain and the spinal
cord. Motor neurons reach from the brain to the spinal cord and from the spinal
cord to the muscles throughout the body. The progressive degeneration of the
motor neurons in ALS eventually leads to death. As motor neurons degenerate,
they can no longer send impulses to the muscle fibers that normally result in
muscle movement. With voluntary muscle action progressively affected, patients
in the later stages of the disease may become completely paralyzed. However, in
most cases, mental faculties are not affected.
Approximately 5,600 people in the U.S. are diagnosed with ALS each year. It is
estimated that as many as 30,000 Americans may have the disease at any given
time, with 100,000 across the western world. Consequently, the total estimated
cost of treating ALS patients is approximately $1.25 billion per year.
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Description
Early symptoms of ALS often include increasing muscle weakness or stiffness,
especially involving the arms and legs, speech, swallowing or breathing.
ALS is most often found in the 40 to 70 year age group, where it is actually
quite common, with the same incidence as Multiple Sclerosis (MS). There appear
to be more MS sufferers because MS patients tend to live much longer, some for
30 years or more. The life expectancy of an ALS patient averages about two to
five years from the time of diagnosis. However, up to 10% of ALS patients will
survive more than ten years.
Current Treatment
The physician bases medication decisions on the patient's symptoms and the stage
of the disease. Some medications used for ALS patients include:
o Riluzole - the only medication approved by the FDA to slow the progress of
ALS. While it does not reverse ALS, riluzole has been shown to reduce
nerve damage. Riluzole may extend the time before a patient needs a
ventilator (a machine to help breathe) and may prolong the patient's life
by several months;
o Baclofen or Diazepam - these medications may be used to control muscle
spasms, stiffness or tightening (spasticity) that interfere with daily
activities; and
o Trihexyphenidyl or Amitriptyline - these medications may help patients who
have excess saliva or secretions, and emotional changes.
Other medications may be prescribed to help reduce such symptoms as fatigue,
pain, sleep disturbances, constipation, and excess saliva and phlegm.
Our Approach
We intend to focus our efforts to develop cell therapeutic treatments for PD
based on the expansion of human mesenchymal stem cells from adult bone marrow
and their differentiation into neuron like cells, such as neurons that produce
dopamine and astrocytes (glial cells) that produce neurotrophic factors (NTF)
including GDNF, BDNF, NGF and IGF-1. Our aim is to provide neural stem cell
transplants that (i) "replace" damaged dopaminergic nerve cells and diseased
tissue by augmentation with healthy dopamine producing cells; and (ii) maintain,
preserve and restore the damaged and remaining dopaminergic cells in the
patient's brain, protecting them from further degeneration.
The research team led by Prof. Melamed and Dr. Offen has achieved expansion of
human bone marrow mesenchymal stem cells and their differentiation into both
types of brain cells, neurons and astrocytes, each having therapeutic potential,
as follows:
NurOwnTM program 1 - DA neuron-like cells - human bone marrow derived dopamine
producing neural cells for restorative treatment in PD. Human bone marrow
mesenchymal stem cells were isolated and expanded. Subsequent differentiation of
the cell cultures in a proprietary differentiation medium generated cells with
neuronal-like morphology and showing protein markers specific to neuronal cells.
Moreover, the in vitro differentiated cells were shown to express enzymes and
proteins required for dopamine metabolism, particularly the enzyme tyrosine
hydroxylase. Most importantly, the cells produce and release dopamine in vitro.
Further research consisting of implanting these cells in an animal model of PD
(6-OHDA induced lesions), showed the differentiated cells exhibit long-term
engraftment, survival and function in vivo. Most importantly, such implantation
resulted in marked attenuation of their symptoms, essentially reversing their
Parkinsonian movements.
NurOwnTM program 2 - Astrocyte-like cells - human bone marrow derived NTF
producing astrocyte for treatment of PD, ALS and spinal cord injury. In vitro
differentiation of the expanded human bone marrow derived mesenchymal stem cells
in a special proprietary medium and generated cells with astrocyte-like
morphology that expressed astrocyte specific markers. Moreover, the in vitro
differentiated cells were shown to express and secrete GDNF, as other NTF, into
the growth medium. GDNF is a protein, previously shown to protect, preserve and
even restore neurons, particularly dopaminergic cells in PD, but also neuron
function in other neurodegenerative pathologies such as ALS and Huntington's.
Unfortunately, therapeutic application of GDNF is hampered by its poor brain
penetration and stability. Attempting to infuse the protein directly to the
brain is impractical and the alternative, using GDNF gene therapy, suffers from
the limitations and risks of using viral vectors. Our preliminary results show
that our astrocyte-like cells, when transplanted into PD rats with a 6-OHDA
lesion, show significant efficacy. Within weeks of the transplantation, there
was an improvement of more than 50% in the animals' characteristic disease
symptoms.
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We intend to optimize the proprietary processes for transformation of human bone
marrow expanded mesenchymal stem cells into differentiated cells that produce
dopamine and/or NTF for implantation to PD and ALS patients. The optimization
and process development will be conducted in an effort to comply with FDA
guidelines for Good Tissue Practice (GTP) and Good Manufacturing Practice (GMP).
Once the optimization of the process is completed, we intend to evaluate the
safety and efficacy of our various cell transplants in animal models,
(separately and in combination). Based on the results in animals we intend to
use the differentiated cell products for conducting clinical trials to assess
the efficacy of the cell therapies in PD and ALS patients.
Our technology is based on the NurOwnTM products - an autologous cell
therapeutic modality, comprising the extraction of the patient bone marrow,
processed into the appropriate neuronal cells and re-implanted into the
patient's brain. This approach is taken in order to increase patient safety and
minimize any chance of immune reaction or cell rejection.
We believe that the therapeutic modality will comprise the following:
o Bone marrow aspiration from patient;
o Isolating and expanding the mesenchymal stem cells;
o Differentiating the expanded stem cells into neuronal-like dopamine
producing cells and/or astrocytes-like NTF producing cells; and
o Implantation of the differentiated cells into patient from whom the bone
marrow was extracted.
Business Strategy
Our efforts are currently focused on the development of the technology to
convert the process from the lab stage to the clinical stage, with the following
main objectives:
o Developing the cell differentiation process according to health regulation
guidelines;
o Demonstrating safety and efficacy, first in animals and then in patients;
and
o Setting up centralized facilities to provide NurOwnTM therapeutic products
and services for transplantation in patients.
We intend to enter into strategic partnerships as we progress towards advanced
clinical development and commercialization with companies responsible for
advanced clinical development and commercialization. We intend to provide
strategic partners with services required to process the NurOwnTM products for
the clinical trials. This approach is intended to generate an early inflow of
up-front and milestone payments and to enhance our capacities in regulatory and
clinical infrastructure while minimizing expenditure and risk.
Intellectual Property
We have filed the following patent and trademark applications:
o The NurOwnTM technology for differentiation of dopamine producing
neuron-like cells is covered by PCT patent application number
PCT/IL03/00972 filed on November 17, 2003.
o The NurOwnTM technology for differentiating astrocyte-like cells is
covered by PCT patent application number PCT/IL2006/000699 filed on June
18, 2006.
o A provisional patent application 60/748,219 was filed for covering methods
of generating oligodendrocytes astrocytes from bone marrow stem cells on
December 8, 2005.
o We have filed for a trademark on NurOwnTM.
The patent applications, as well as relevant know-how and research results are
licensed from Ramot. We intend to work with Ramot to protect and enhance our
intellectual property rights by filing continuations and new patent applications
on any improvements to NurOwnTM and any new discoveries arising in the course of
research and development.
Research and License Agreement with Ramot
On July 8, 2004, we entered into our Research and License Agreement (the
"Original Ramot Agreement") with Ramot, the technology licensing company of Tel
Aviv University, which Agreement was amended on March 30, 2006 by the Amended
Research and License Agreement (described below). Under the terms of the
Original Ramot Agreement, Ramot granted to us an exclusive license to (i) the
know-how and patent applications on the above mentioned stem cell technology
developed by the team led by Prof. Melamed and Dr. Offen, and (ii) the results
of further research to be performed by the same team on the development of the
stem cell technology. Simultaneously with the execution of the Original Ramot
Agreement, we entered into individual consulting agreements with Prof. Melamed
and Dr. Offen pursuant to which all intellectual property developed by Prof.
Melamed or Dr. Offen in the performance of services thereunder will be owned by
Ramot and licensed to us under the Original Ramot Agreement.
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s of November 4, 2004, we entered into consulting agreements with Prof. Melamed
and Dr. Offen, under which we pay each of them an annual consulting fee of
$72,000 and we issued each of them warrants to purchase 1,097,215 shares of our
common stock (3% of our issued and outstanding shares at such time).
Each of the warrants is exercisable for a five-year period beginning on November
4, 2005.
Under the Original Ramot Agreement, we agreed to fund further research relating
to the licensed technology in an amount of $570,000 per year for an initial
period of two years, and for an additional two-year period if certain research
milestones are met.
In consideration for the license, we originally agreed to pay Ramot:
o An up-front license fee payment of $100,000;
o An amount equal to 5% of all Net Sales of Products (as those terms are
defined in the Original Ramot Agreement); and
o An amount equal to 30% of all Sublicense Receipts (as such term is defined
in the Original Ramot Agreement).
In addition, under the Original Ramot Agreement, we issued to Ramot and its
designees, warrants to purchase an aggregate of 10,606,415 shares of our common
stock (29% of our issued and outstanding shares as of November 4, 2004). Each of
the warrants is exercisable for a five-year period beginning on November 4,
2005.
On March 30, 2006, we entered into an Amended Research and License Agreement
(the "Amended Research and License Agreement") with Ramot. Under the Amended
Research and License Agreement, the funding of further research relating to the
licensed technology in an amount of $570,000 per year has been reduced to
$380,000 per year. Moreover, under the Amended Research and License Agreement,
the initial period of time that the Company has agreed to fund the research has
been extended from an initial period of two (2) years to an initial period of
three (3) years. The Amended Research and License Agreement also extends the
additional two-year period in the Original Ramot Agreement to an additional
three-year period, if certain research milestones are met. In addition, the
Amended Research and License Agreement reduces certain royalties payments that
the Company may have to pay from five percent (5%) to three percent (3%) of all
Net Sales (as defined therein) in cases of third party royalties. The Amended
Research and License Agreement also reduces potential payments concerning
sublicenses from 30% to 20-25% of Sublicense Receipts (as defined in the
agreement).
Employees
As of November 10, 2006, we had two executive officers, Yoram Drucker, our Chief
Operating Officer, and David Stolick, our Chief Financial Officer. We are
currently conducting a search for a Chief Executive Officer. We have engaged
consultants, attorneys and accountants as necessary. We currently have eight
scientific and administrative employees. Assuming we consummate our intended
financings, we expect to increase our staff significantly in the near future.
None of our employees is represented by a labor union and we believe that we
have good relations with our employees.
Facilities; Equipment
On December 1, 2004, our Israeli subsidiary, Brainstorm Cell Therapeutics Ltd.
(the "Subsidiary"), entered into a lease agreement for the lease of premises in
12 Basel Street, Petach Tikva, Israel, which include approximately 600 square
meters of office and laboratory space. The term of the lease is 36 months, with
two options to extend: one for an additional 24 months (the "First Option"); and
one for an additional 36 months (the "Second Option"). Rent is to be paid on a
quarterly basis in the following amounts: (i) NIS 17,965 (approximately $4,046)
per month during the first 12 months of the lease; (ii) NIS 19,527
(approximately $4,398) per month during the following 24 months of the lease;
(iii) NIS 22,317 (approximately $5,026) per month during the First Option
period; and (iv) NIS 23,712 (approximately $5,340) per month during the Second
Option period.
In May 2005, we completed leasehold improvements of the Petach Tikva facility
for which we paid the contractor approximately $368,000 and issued it
fully-vested options to purchase 30,000 shares of our common stock at an
exercise price of $0.75 per share. The lessor has reimbursed us $82,000 in
connection with these improvements. We relocated to the new facility in May 2005
and, assuming we complete additional financings, we intend to purchase certain
additional laboratory equipment at an estimated cost of $200,000.
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The address of our principal executive offices is 110 East 59th Street, New
York, NY 10022. Our monthly rent at our principal executive offices is $2,500.
Plan of Operations
Assuming we can successfully complete our additional necessary financings, our
primary objectives over the next twelve (12) months will be:
o To define and optimize our NurOwnTM technology in human bone marrow cells
in order to prepare the final process and production for clinical studies
in accordance with health authorities' guidelines. We intend to perfect
methods for the stem cell growth and differentiation in specialized growth
media, as well as methods for freezing, thawing, storing and transporting
the expanded mesenchymal stem cells, as well as the differentiated
neuronal cells;
o To verify the robustness and the reproducibility of the process;
o To further repeat the process using bone marrow from Parkinson's patients;
o To conduct further studies in animal models of PD (mice, rats and
primates) to evaluate the engraftment, survival and efficacy of our cell
implants for our astrocyte-like cells;
o To set up standard and reproducible production procedures;
o To develop analytical methodology and specifications to be used as release
criteria;
o To set up a quality control system for the processing of our cells;
o To conduct a full safety study of the final cell product for clinical
trials in humans; and
o To write up clinical protocols for phase I & II clinical studies.
All of these activities will be coordinated with a view towards the execution of
clinical trials of the dopamine and/or astrocyte-like-producing differentiated
cell implants in humans. We intend to crystallize our development plans with the
assistance of our scientific advisory board members as well as to retain
external regulatory consultants, expert in the FDA cell therapy regulation
guidelines.
We also intend to continue our close cooperation and funding of the research
programs conducted by the scientific team led by Prof. Melamed and Dr. Offen at
the Tel-Aviv University. These programs will focus on further understanding and
optimization of the technology towards the generation of better processes for
generation of dopaminergic and other neurons as well as Oligodendrocytes to
target additional neurodegenerative diseases, such as ALS and Multiple Sclerosis
(MS).
In addition, we intend to identify and evaluate in-licensing opportunities for
development of innovative technologies utilizing cell and gene therapy for
diabetes, cardiac disease and other indications.
Cash Requirements
At September 30, 2006, we had $146,957 in total current assets and $2,099,748 in
total current liabilities and on November 10, 2006, we had approximately $30,000
in cash. We will need to raise additional funds through public or private debt
or equity financings within the next month to meet our anticipated expenses so
that we can execute our business plan. Although we have been seeking such
additional financings, no commitments to provide additional funds have been made
by management, other shareholders or third parties. We may not be able to raise
additional funds on favorable terms or at all. If we are unable to obtain
additional funds in a timely manner, we will be unable to execute our business
plan and we may be forced to cease our operations.
On November 9, 2006, we borrowed $50,000 from one of our existing shareholders.
In connection with the loan, we issued a $50,000, 12% Convertible Promissory
Note due February 12, 2007. Interest accrues at the rate of twelve percent per
annum, but not less than $750 and will be due and payable in full on February
12, 2007. Any amount overdue shall bear interest from the date it became overdue
at an annual rate of seventeen percent per annum. The note will become
immediately due and payable upon the occurrence of certain events of default.
The holder has the right at any time prior to the close of business on February
12, 2007 to convert all or part of the outstanding principal and interest amount
of the note into shares of our common stock. Pursuant to the note, we may not,
in any event, issue greater than 3,000,000 shares of our common stock upon
conversion. The conversion price will be 75% of the average of the last bid and
ask price of our common stock as quoted on the Over-the-Counter Bulletin Board
for the five trading days prior to our receipt of the holder's written notice of
election to convert. The conversion price will be adjusted in the event of a
stock dividend, reclassification or stock split.
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On September 14, 2006, we borrowed a net amount of $90,000 from an investor. In
connection with such loan we issued a $100,000, 10% Convertible Promissory Note
due September 14, 2007 (the "September Note"). Interest on the September Note
accrues at the rate of ten percent per annum and will be due and payable in full
on September 14, 2007 (the "September Maturity Date"). Any amount overdue shall
bear interest from the date it became overdue at an annual rate of fifteen
percent per annum. The September Note will become immediately due and payable
upon the occurrence of certain events of default. The Holder has the right at
any time prior to the close of business on the September Maturity Date to
convert all or part of the outstanding principal and interest amount of the
September Note into shares of our common stock. Pursuant to the September Note,
we shall not, in any event, issue greater than 10,000,000 shares of our common
stock, in the aggregate, to the Holder upon conversion of the September Note.
The conversion price, as defined in the September Note, will be 75% (50% upon
the occurrence of an event of default) of the average of the last bid and ask
price of our common stock as quoted on the Over-the-Counter Bulletin Board for
the five trading days prior to our receipt of the Holder's written notice of
election to convert. The conversion price will be adjusted in the event of a
stock dividend, reclassification or stock split.
In order to execute our plan of operation for the coming year we will need to
raise at least $4 million.
Under the Amended Research and License Agreement, we are obligated to pay Ramot
$95,000 on a quarterly basis through April 2007, and, if certain research
milestones are met, for an additional three-year period. If we fail to comply
with these obligations to Ramot, Ramot may have the right to terminate the
license. As of September 30, 2006, we owed Ramot $272,127 in overdue payments
under the Amended Research and License Agreement. We are negotiating with Ramot
to obtain a deferral of these payments until we raise additional capital. If we
are unable to reach an agreement with Ramot and Ramot elects to terminate our
license, we would need to change our business strategy entirely or would be
forced to cease our operations.
Our other material cash needs for the next 12 months will include, among others,
employee salaries and benefits, facility lease, capital equipment expenses,
legal and audit fees, patent prosecution fees, consulting fees, payments for
outsourcing of certain animal experiments and, possibly, upfront payments for
in-licensing opportunities and payment for clinical trials in Europe.
Research and Development
Our research and development efforts have focused on improving growth conditions
and developing tools to evaluate the differentiation of bone marrow stem cells,
into neural-like cells, suitable for transplantation as a restorative therapy
for neurodegenerative diseases. Some highlights achieved in this research
include:
o Improving the bone marrow stem cells expansion prior to differentiation;
o Evaluation of methodologies for cryo-preservation of the expanded bone
marrow cells prior to differentiation;
o Characterization of the propagated mesenchymal stem according to
established CD-markers;
o Determination of timing and growth conditions for the differentiation
process;
o Development of molecular tools and cell surface markers to evaluate cell
differentiation;
o Demonstrating that the bone marrow derived differentiated cells do produce
and secrete several neuron-specific markers;
o Transplantation of the bone marrow derived neural-like cells in the
striatum of model animals resulting in long term engraftment; and
o Parkinson's model animals transplanted with the bone marrow derived
neural-like cells show significant improvement in their rotational
behavior.
For the twelve months ending September 30, 2007, we estimate that our research
and development costs will be approximately $3,000,000. We intend to spend our
research and development costs on the development of our core NurOwn(TM)
technology by developing the cell differentiation process according to FDA
guidelines and to conduct the primate clinical trials in Spain. We intend to
continue to fund our collaborators at the university lab and in parallel, we
have constructed and set up a facility, which includes laboratories for
continued development of our proprietary processes. We also intend to fund and
finance collaborations with medical centers and strategic partners for future
clinical trials.
- 29 -
General and Administrative Expenses
If we can successfully complete our financings, for the twelve months ending
September 30, 2007, we estimate that our general and administrative expenses
will be approximately $1,000,000. These expenses will include, among others,
salaries, legal and audit expenses, business development, investor and public
relations and office maintenance.
We do not expect to generate any revenues in the 12-month period ending
September 30, 2007.
In management's opinion, we need to achieve the following events or milestones
in the next twelve months in order for us to reach clinical trials for our
NurOwn(TM) dopamine or astrocyte-like producing cell differentiation process as
planned within one to two years:
o Raise equity or debt financing or a combination of equity and debt
financing of at least $13,000,000.
o Complete preclinical studies in rodents to confirm safety and efficacy.
o Complete preclinical studies to confirm safety in monkeys.
o Conduct full safety study of the final cell product for PD.
o Write up clinical protocols for Phase I & II clinical studies.
Purchase or Sale of Equipment
Our subsidiary leases a facility in Petach Tikva, Israel, which includes
approximately 600 square meters of laboratory and office space. In May 2005, we
completed leasehold improvements of the facility for which we paid the
contractor approximately $368,000 and issued to the contractor fully vested
options to purchase 30,000 shares of our common stock at an exercise price of
$0.75 per share. The lessor has reimbursed us $82,000 in connection with these
improvements. We relocated to the new facility in May 2005. As of September 30,
2006, we had purchased laboratory equipment and furniture for a total of
approximately $212,000 and assuming we complete additional financings, we intend
to purchase certain additional laboratory equipment at an estimated cost of
$300,000.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements that have or are reasonably likely to
have a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources.
Certain Risk Factors That May Affect Future Results
Any investment in our common stock involves a high degree of risk. You should
consider carefully the risks described below, together with the other
information contained in this report. If any of the following events actually
occurs, our business, financial condition and results of operations may suffer
materially. As a result, the market price of our common stock could decline, and
you could lose all or part of your investment in our common stock.
In order to execute our business plan, we will need to raise additional capital
within the next 30 days. If we are unable to raise additional capital on
favorable terms and in a timely manner, we will not be able to achieve our
business objectives and we could be forced to restrict or cease our operations.
We will need to raise additional funds within the next 30 days to meet our
anticipated expenses so that we can execute our business plan. We expect to
incur substantial and increasing net losses for the foreseeable future as we
increase our spending to execute our development programs. Our auditors have
expressed in their audit report that there is substantial doubt regarding our
ability to continue as a going concern.
We continue to seek additional financing although we have so far been
unsuccessful in our efforts to raise sufficient amounts to allow us to execute
on our business plan. Even if we complete an interim or bridge financing we
would still need to secure additional funds to effect our plan of operations. We
may not be able to raise additional funds on favorable terms, or at all. If we
are unable to obtain additional funds on favorable terms and in a timely
fashion, we will be unable to execute our business plan and we will be forced to
restrict or cease our operations.
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Assuming we raise additional funds through the issuance of equity,
equity-related or convertible debt securities, these securities may have rights,
preferences or privileges (including registrations rights) senior to those of
the rights of our common stock and our stockholders will experience additional
dilution.
Our company has a history of losses and we expect to incur losses for the
foreseeable future. We had no revenues for the fiscal years ended March 31,
2004, March 31, 2005 or March 31, 2006 or for any interim period since then. As
a development stage company, we are in the early stages of executing against our
business plan. Our ability to operate successfully is materially uncertain and
our operations are subject to significant risks inherent in a developing
business enterprise. Most notably, we do not expect that any therapies resulting
from our or our collaborators' research and development efforts will be
commercially available for a significant number of years, if at all. We also do
not expect to generate revenues from strategic partnerships or otherwise for at
least the next 12 months, and likely longer. Furthermore, we expect to incur
substantial and increasing operating losses for the next several years as we
increase our spending to execute our development programs. These losses are
expected to have an adverse impact on our working capital, total assets and
stockholders' equity, and we may never achieve profitability.
We have a limited operating history, which will limit your ability to evaluate
our operations and prospects. We were incorporated under the laws of the State
of Washington on September 22, 2000, but only changed our business model to
focus on stem cell research in connection with the signing of the Original Ramot
Agreement in July 2004. We have a limited operating history upon which you may
evaluate our operations and prospects. Our limited operating history makes it
difficult to evaluate our commercial viability. Our potential success should be
evaluated in light of the problems, expenses and difficulties frequently
encountered by new businesses in general and biotechnology businesses
specifically.
Our business in the foreseeable future will be based on technology licensed from
Ramot and if this license were to be terminated for any reason, including
failure to pay the required research funding or royalties, we would need to
change our business strategy and we may be forced to cease our operations. The
Original Ramot Agreement imposes on us development and commercialization
obligations, milestone and royalty payment obligations and other obligations. In
October 2004, we made payments to Ramot to cover the up-front license fee,
reimbursement of certain patent expenses and initial research funding. Under the
Amended Research and License Agreement, we are obligated to pay Ramot $95,000 on
a quarterly basis through April 2007, and, if certain research milestones are
met, we are obligated to pay Ramot such amount for an additional three-year
period. If we fail to comply with these obligations to Ramot, Ramot may have the
right to terminate the license. If Ramot elects to terminate our license, we
would need to change our business strategy and we may be forced to cease our
operations.
The field of stem cell therapy is new and our development efforts may not yield
an effective treatment of human diseases. Except for bone marrow transplants for
neoplastic disease, the field of stem cell therapy remains largely untested in
the clinical setting. Our intended cell therapeutic treatment methods for PD and
ALS involve a new approach that has never been proven to work in human testing.
We are still conducting experimental testing in animals for our treatment,
which, together with other stem cell therapies, may ultimately prove ineffective
in treatment of human diseases. If we cannot successfully implement our stem
cell therapy in human testing, we would need to change our business strategy and
we may be forced to cease our operations.
Our ability to commercialize the products we intend to develop will depend upon
our ability to prove the efficacy and safety of these products according to
government regulations. Our present and proposed activities are subject to
extensive and rigorous regulation by governmental authorities in the U.S. and
other countries. To clinically test, produce and market our proposed future
products for human use, we must satisfy mandatory procedural and safety and
efficacy requirements established by the FDA and comparable state and foreign
regulatory agencies. Typically, such rules require that products be approved by
the government agency as safe and effective for their intended use prior to
being marketed. The approval process is expensive, time consuming and subject to
unanticipated delays. It takes years to complete the testing of a product, and
failure can occur at any stage of testing. Our product candidates may not be
approved. In addition, our product approvals could be withdrawn for failure to
comply with regulatory standards or due to unforeseen problems after the
product's marketing approval.
Testing is necessary to determine safety and efficacy before a submission may be
filed with the FDA to obtain authorization to market regulated products. In
addition, the FDA imposes various requirements on manufacturers and sellers of
products under its jurisdiction, such as labeling, GMP, record keeping and
reporting requirements. The FDA also may require post-marketing testing and
surveillance programs to monitor a product's effects. Furthermore, changes in
existing regulations or the adoption of new regulations could prevent us from
obtaining, or affect the timing of, future regulatory approvals or could
negatively affect the marketing of our existing products.
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We may not be able to obtain regulatory approval of potential products, or may
experience delays in obtaining such approvals, and we may consequently never
generate revenues from product sales because of any of the following risks
inherent in the regulation of our business:
o We may not be successful in obtaining the approval to perform clinical
studies, an investigational new drug application, or IND, with respect to
a proposed product;
o Preclinical or clinical trials may not demonstrate the safety and efficacy
of proposed products satisfactory to the FDA or foreign regulatory
authorities; or
o Completion of clinical trials may be delayed, or costs of clinical trials
may exceed anticipated amounts (for example, negative or inconclusive
results from a preclinical test or clinical trial or adverse medical
events during a clinical trial could cause a preclinical study or clinical
trial to be repeated, additional tests to be conducted or a program to be
terminated, even if other studies or trials relating to the program are
successful).
We may not be able to succeed in our business model of seeking to enter into
collaborations at appropriate stages of development. We intend to enter into
strategic partnerships as we progress towards advanced clinical development and
commercialization with companies responsible for such activities. We intend to
provide strategic partners with services required to process the NurOwnTM
products for the clinical trials. It may be difficult for us to find third
parties that are willing to enter into collaborations for our potential products
at the appropriate stage of development, on economic terms that are attractive
to us or at all. If we are not able to continue to enter into acceptable
collaborations, we could fail in our strategy of generating an early inflow of
up-front and milestone payments and to enhance our capacities in regulatory and
clinical infrastructure while minimizing expenditure and risk and we could be
required to undertake and fund further development, clinical trials,
manufacturing and marketing activities solely at our own expense.
We may be dependent upon a company with which we enter into collaborations to
conduct clinical trials and to commercialize our potential products. If we are
ultimately successful in executing our strategy of securing collaborations with
companies that would undertake advanced clinical development and
commercialization of our products, we may not have day-to-day control over their
activities. Any such collaborator may adhere to criteria for determining whether
to proceed with a clinical development program under circumstances where we
might have continued such a program. Potential collaborators may have
significant discretion in determining the efforts and amount of resources that
they dedicate to our collaborations or may be unwilling or unable to fulfill
their obligations to us, including their development and commercialization.
Potential collaborators may underfund or not commit sufficient resources to the
testing, marketing, distribution or other development of our products. They may
also not properly maintain or defend our intellectual property rights or they
may utilize our proprietary information in such a way as to invite litigation
that could jeopardize or potentially invalidate our proprietary information or
expose us to potential liability. Potential collaboration partners may have the
right to terminate the collaboration on relatively short notice and if they do
so or if they fail to perform or satisfy their obligations to us, the
development or commercialization of products would be delayed and our ability to
realize any potential milestone payments and royalty revenue would be adversely
affected.
We face significant competition in our efforts to develop cell therapies for PD,
ALS and other neurodegenerative diseases. We face significant competition in our
efforts to develop cell therapies and other treatment or procedures to cure or
slow the effects of PD, ALS and other neurodegenerative diseases. Among our
competitors are companies that are involved in the fetal cell transplant or
embryonic stem cell derived cell therapy and companies developing adult stem
cells. Other companies are developing traditional chemical compounds, new
biological drugs, cloned human proteins and other treatments, which are likely
to impact the markets that we intend to target. Many of our competitors possess
longer operating histories and greater financial, managerial, scientific and
technical resources than we do and some possess greater name recognition and
established customer bases. Many also have significantly more experience in
preclinical testing, human clinical trials, product manufacturing, the
regulatory approval process and marketing and distribution than we do. All of
these factors put us at a competitive disadvantage.
If Ramot is unable to obtain patents on the patent applications and technology
exclusively licensed to us or if patents are obtained but do not provide
meaningful protection, we may not be able to successfully market our proposed
products. We rely upon the patent application as filed by Ramot and the license
granted to us by Ramot under the Original Ramot Agreement. We agreed under the
Original Ramot Agreement to seek comprehensive patent protection for all
inventions licensed to us under the Original Ramot Agreement. However, we cannot
be sure that any patents will be issued to Ramot as a result of its domestic or
future foreign patent applications or that any issued patents will withstand
challenges by others.
We also rely upon unpatented proprietary technology, know-how and trade secrets
and seek to protect them through confidentiality agreements with employees,
consultants and advisors. If these confidentiality agreements are breached, we
may not have adequate remedies for the breach. In addition, others may
independently develop or otherwise acquire substantially the same proprietary
technology as our technology and trade secrets.
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As a result of our reliance on consultants, we may not be able to protect the
confidentiality of our technology, which, if disseminated, could negatively
impact our plan of operations. We currently have relationships with two academic
consultants who are not employed by us, and we may enter into additional
relationships of such nature in the future. We have limited control over the
activities of these consultants and can expect only limited amounts of their
time to be dedicated to our activities. These persons may have consulting,
employment or advisory arrangements with other entities that may conflict with
or compete with their obligations to us. Our consultants typically sign
agreements that provide for confidentiality of our proprietary information and
results of studies. However, in connection with every relationship, we may not
be able to maintain the confidentiality of our technology, the dissemination of
which could hurt our competitive position and results of operations. To the
extent that our scientific consultants develop inventions or processes
independently that may be applicable to our proposed products, disputes may
arise as to the ownership of the proprietary rights to such information, we may
expend significant resources in such disputes and we may not win those disputes.
The price of our stock is expected to be volatile. The market price of our
common stock has fluctuated significantly in the short time it has been traded,
and is likely to continue to be highly volatile. To date, the trading volume in
our stock has been relatively low and significant price fluctuations can occur
as a result. An active public market for our common stock may not continue to
develop or be sustained. If the low trading volumes experienced to date
continue, such price fluctuations could occur in the future and the sale price
of our common stock could decline significantly. Investors may therefore have
difficulty selling their shares.
Your percentage ownership will be diluted by future offerings of our securities,
upon the conversion of outstanding convertible promissory notes into shares of
our common stock and by options, warrants or shares we grant to management,
employees, directors and consultants. In order to meet our financing needs
described above, we intend to initiate a significantly larger offering of units
comprising shares of our common stock and warrants to purchase shares of our
common stock (the "Subsequent Offering"). The precise terms of the Subsequent
Offering will be determined by us and potential investors. Assuming the
Subsequent Offering is successfully consummated, it will have a significant
dilutive effect on your percentage ownership in the Company.
In November 2004 and February 2005, our Board of Directors adopted and ratified
the 2004 Global Share Option Plan and the 2005 U.S. Stock Option Plan and
Incentive Plan (the "Global Plan" and "U.S. Plan" respectively and the "Plans"
together), and further approved the reservation of 9,143,462 shares of our
common stock for issuance under the Plans (the "Shares"). Our shareholders
approved the Plans and the issuance of the Shares in a special meeting of
shareholders that was held on March 28, 2005. We have made and intend to make
further option grants under the Plans or otherwise issue warrants or shares of
our common stock to individuals under the Plans. For example, as of November 1,
2006:
o under our Global Plan, we have granted a total of 3,794,423 options with
various exercise prices and expiration dates, to officers, directors,
services providers, consultants and employees.
o under our U.S. Plan we have issued an additional 1,530,000 shares of
restricted stock and options for grants to Scientific Advisory Board
members, service providers, consultants and directors.
Such issuances will, if and when made (and if options or warrants are
subsequently exercised), dilute your percentage ownership in the Company.
Since October 2004 until November 10, 2006, we have issued 5,228,812 shares to
investors, service providers and consultants. When we register the shares or
those underlying convertible securities for which we have undertaken to
register, they can be sold in the public market. In addition, the shares that we
will not register will become eligible for sale into the public market subject
to and in accordance with applicable SEC rules and regulations, which provide
exemptions from registration requirements. If any of the holders of these shares
or convertible securities, or any of our existing stockholders, sell a large
number of shares of our common stock, or the public market perceives that
existing stockholders might sell shares of common stock, the market price of our
common stock could decline significantly.
Investors may face significant restrictions on the resale of our stock due to
the way in which stock trades are handled by broker-dealers. Brokers may be less
willing to execute transactions in securities subject to "penny stock" rules.
This may make it more difficult for investors to dispose of shares of our common
stock and cause a decline in the market value of our stock. Because of large
broker-dealer spreads, investors may be unable to sell the stock immediately
back to the broker-dealer at the same price the broker-dealer sold the stock to
the investor. In some cases, the stock may fall quickly in value. Investors may
be unable to reap any profit from any sale of the stock, if they can sell it at
all. The market among broker-dealers may not be active. Investors in penny
stocks often are unable to sell stock back to the dealer that sold them the
stock. The mark-ups or commissions charged by the broker-dealers may be greater
than any profit a seller may make.
You may experience difficulties in attempting to enforce liabilities based upon
U.S. federal securities laws against us and our non-U.S. resident directors and
officers. Our principal operations are located through our subsidiary in Israel
and our principal assets are located outside the U.S. Our Chief Operating
Officer, Chief Financial Officer, and some of our directors are foreign citizens
and do not reside in the U.S. It may be difficult for courts in the U.S. to
obtain jurisdiction over our foreign assets or these persons and as a result, it
may be difficult or impossible for you to enforce judgments rendered against us
or our directors or executive officers in U.S. courts. Thus, should any
situation arise in the future in which you have a cause of action against these
persons or entities, you are at greater risk in investing in our company rather
than a domestic company because of greater potential difficulties in bringing
lawsuits or, if successful, collecting judgments against these persons or
entities as opposed to domestic persons or entities.
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Political, economic and military instability in Israel may impede our ability to
execute our plan of operations. Our principal operations and the research and
development facilities of the scientific team funded by us under the Original
Ramot Agreement are located in Israel. Accordingly, political, economic and
military conditions in Israel may affect our business. Since the establishment
of the State of Israel in 1948, a number of armed conflicts have occurred
between Israel and its Arab neighbors, including the recent conflict with
Hezbollah in the summer of 2006. Since October 2000, terrorist violence in
Israel increased significantly and until they were recently revived,
negotiations between Israel and Palestinian representatives had effectively
ceased. Ongoing or revived hostilities or other factors related to Israel could
harm our operations and research and development process and could impede on our
ability to execute our plan of operations.
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. As of the end of the period
covered by this report, we carried out an evaluation, under the supervision and
with the participation of our Principal Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")). Based on this evaluation, our Principal
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective, as of the end of the period covered by
this report, to ensure that information required to be disclosed by us in the
reports we file under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that the information required to be disclosed
by us in such reports is accumulated and communicated to our management,
including our Principal Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in
our internal control over financial reporting that occurred during the fiscal
quarter to which this report relates that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II: OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 14, 2006, we issued 200,000 shares of our common stock to Edward F.
DePaulis as consideration for services provided by Mr. DePaulis to the company.
On August 17, 2006, we issued 100,000 shares of our common stock to First
Equity Group, Inc. as consideration for services provided by First Equity Group,
Inc. to the company.
On October 3, 2006, we issued a warrant to Double U Master Fund L.P. to purchase
up to 630,000 shares of our common stock at an exercise price of $0.30 per
share. The warrant expires on October 3, 2009. We previously issued a note to
the holder dated as of February 1, 2006, in the original principal amount of
$189,000. In consideration of Double U Master Fund's agreement to extend the
maturity date of the note and to waive any and all interest or fees on, or
default under, such note, we issued the warrant to Double U Master Fund.
On October 5, 2006, we issued 231,851 shares of our common stock to Thomas B.
Rosedale for approximately $83,265 in legal services rendered by Mr. Rosedale
and BRL Law Group LLC.
On October 18, 2006, we issued 240,000 shares of our common stock to Dr. Holly
G. Atkinson as part of the agreement between Dr. Atkinson and the company for
business and development services.
The issuance of the securities described above was effected without registration
in reliance on Section 4(2) of the Securities Act of 1933, as amended, as a sale
by us not involving a public offering.
Item 4. Submission of Matters to a Vote of Security Holders
At our 2006 Annual Meeting of Shareholders (the "Annual Meeting") held on
September 20, 2006, the following matters were acted upon by our shareholders:
1. The election of three directors until the annual meeting of shareholders
indicated below;
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2. The approval of an amendment to our Articles of Incorporation increasing
the number of authorized shares of common stock from 200,000,000 to
440,000,000;
3. The authorization of our Board of Directors, in its discretion, should it
deem it to be appropriate and in the best interests of the company and its
shareholders, to amend our Articles of Incorporation to eliminate the
class of preferred stock and all authorized shares of preferred stock; and
4. The ratification of the appointment of Kost Forer Gabbay & Kasierer, a
member of Ernst & Young Global, as our independent registered public
accounting firm for the current fiscal year ending December 31, 2006.
The number of shares of common stock issued, outstanding and eligible to vote as
of the record date of July 21, 2006 was 23,429,961. The results of the voting on
each of the matters presented to shareholders at the Annual Meeting are set
forth below:
VOTES VOTES VOTES BROKER
FOR WITHHELD AGAINST ABSTENTIONS NON-VOTES
---------- -------- ------- ----------- ----------
1. Election of three directors:
Dr. Irit Arbel (until the 2007 annual meeting of
shareholders) 13,353,130 NA 0 0 NA
Michael Greenfield (until the 2008 annual meeting of
shareholders) 13,353,130 NA 0 0 NA
Dr. Robert Shorr (until the 2009 annual meeting of
shareholders) 13,353,130 NA 0 0 NA
2. Approval of Amendment to Articles of Incorporation
to increase authorized shares of common stock. 13,341,518 NA 11,511 0 101
3. Authorization of Board of Directors, in its
discretion, to amend the Articles of Incorporation
to eliminate the class of preferred stock. 13,225,633 NA 0 0 127,497
4. Ratification of Kost Forer Gabbay & Kasierer. 13,353,130 NA 0 0 0
Item 5. Other Information
During the quarter to which this report relates, we made no material changes to
the procedures by which shareholders may recommend nominees to our Board of
Directors, as described in our most recent proxy statement.
Item 6. Exhibits
The Exhibits listed in the Exhibit index immediately preceding such Exhibits are
filed with or incorporated by reference in this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BRAINSTORM CELL THERAPEUTICS INC.
November 14, 2006 By: /s/ Yoram Drucker
------------------------------------
Name: Yoram Drucker
Title: Chief Operating Officer
(Principal Executive Officer)
November 14, 2006 By: /s/ David Stolick
------------------------------------
Name: David Stolick
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 36 -
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Articles of Amendment to the Articles of Incorporation of the
Registrant.
10.1 Convertible Promissory Note, dated September 14, 2006, issued by the
Registrant to Vivian Shaltiel is incorporated herein by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed
September 18, 2006 (File No. 333-61610).
10.2 Common Stock Purchase Warrant, dated as of October 3, 2006, issued by
the Registrant to Double U Master Fund L.P.
31.1 Certification of the Chief Operating Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Operating Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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