UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED MARCH 31, 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 REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-2061053
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1350 Avenue of the Americas
New York, NY 10019
212-557-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.00005 par value
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 [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes[ ] No [X]
The registrant did not have any revenues for the fiscal year ended March 31,
2006.
As of June 9, 2006, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant was $9,195,280, based on
the closing price of $0.51 as reported on the OTC Bulletin Board operated by the
NASD.
As of June 9, 2006, the number of shares outstanding of the Registrant's Common
Stock, $0.00005 par value per share, was 23,329,961.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
TABLE OF CONTENTS
Page Number
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PART I
Item1. Description of Business 1
Item 2. Description of Property 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 13
Item 6. Plan of Operation 15
Item 7. Financial Statements 18
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 47
Item 8A. Controls and Procedures 47
Item 8B. Other Information 47
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act 47
Item 10. Executive Compensation 49
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 52
Item 12. Certain Relationships and Related Transactions 56
Item 13. Exhibits 57
Item 14. Principal Accountant Fees and Services 57
PART I
SPECIAL NOTE
Unless otherwise specified in this annual report, all references to currency,
monetary values and dollars set forth herein shall mean United States (U.S.)
dollars and all payments hereunder shall be made in U.S. dollars.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual 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 annual 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. Description of Business.
Company Overview
BrainStorm Cell Therapeutics Inc. ("BrainStorm" or the "Company") is an emerging
company developing stem cell therapeutic products based on breakthrough
technologies enabling the in vitro differentiation of bone marrow stem cells to
neural-like cells. We aim to become a leader in adult stem cell transplantation
for neurodegenerative diseases. Our focus is on utilizing the patient's own bone
marrow stem cells to generate neuron-like cells that may provide an effective
treatment initially for Parkinson's Disease (PD), and thereafter for Multiple
Sclerosis and other neurodegenerative disorders.
Our core technology, NurOwn(TM), was developed through a collaboration between
prominent neurologist, Prof. Eldad Melamed, Head of Neurology of the Rabin
Medical Center and member of the Scientific Committee of the Michael J. Fox
Foundation for Parkinson's Research, and expert cell biologist Dr. Daniel Offen,
of the Felsenstein Medical Research Center of Tel-Aviv University.
This scientific team is among the first to have successfully demonstrated
release of dopamine from in vitro differentiated bone marrow cells. Moreover, in
research conducted by this team, implantation of these differentiated cells into
brains of animal models that had been induced to Parkinsonian behavior markedly
improved their symptoms. We intend to apply the patent-pending technology to the
development of innovative autologous cell therapeutic products, NurOwn(TM), for
treatment of neurological diseases.
BrainStorm holds exclusive worldwide rights to commercialize the NurOwn(TM)
technology, through a licensing agreement with Ramot at Tel Aviv University Ltd.
("Ramot"), the technology transfer company of Tel Aviv University. The agreement
also provides for further research, funded by BrainStorm, to be performed by
Prof. Melamed, Dr. Offen and members of their research team at the Felsenstein
Medical Research Center. The results of this research are licensed to us under
the terms of the license agreement. Thus, although a development stage company,
we have access to the research results of an R&D team comprised of approximately
12 experts in the technology field, including molecular and cell biologists,
pharmacologists and animal model experts.
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We are currently in the developmental stage of our technology and products and
we have not yet begun the process of seeking regulatory approval from regulatory
agencies. Our efforts are directed at the development of the technology from the
lab to the clinic with the following main objectives:
o Developing the cell differentiation process according to Food and
Drug Administration (FDA) guidelines;
o Demonstrating safety and efficacy first in animals and then in
patients; and
o Setting up centralized facilities to provide NurOwn(TM) therapeutic
products and services for transplantation in patients.
We intend to enter into strategic partnerships as we progress towards advanced
clinical development and commercialization.
History
The Company was incorporated under the laws of the State of Washington on
September 22, 2000, under the name Wizbang Technologies, Inc. and acquired the
right to market and sell a digital data recorder product line in certain states
in the U.S. Subsequently, the Company changed its name to Golden Hand Resources
Inc. On July 8, 2004, the Company entered into the licensing agreement with
Ramot to acquire certain stem cell technology and decided to discontinue all
activities related to the sales of digital data recorder product. On November
22, 2004, the Company changed its name from Golden Hand Resources Inc. to
BrainStorm Cell Therapeutics Inc. to better reflect its new line of business in
development of novel cell therapies for neurodegenerative diseases. On October
25, 2004, the Company opened its wholly-owned subsidiary, BrainStorm Cell
Therapeutics Ltd. in Israel.
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.
Neurodegenerative Diseases
Studies of neurodegenerative diseases suggest that symptoms that arise in
afflicted individuals are secondary to defects in neuron cell function and
neural circuitry and, to date, cannot be treated effectively with systemic drug
delivery. Consequently, alternative approaches for treating neurodegenerative
diseases have been attempted, such as transplantation of cells capable of
replacing or supplementing the function of damaged neurons. For such cell
replacement therapy to work, implanted cells must survive and integrate, both
functionally and structurally, within the damaged tissue.
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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 an annual $26 billion in the U.S. alone, including costs of medical
treatment, caring, facilities and other services, as well as loss of
productivity of both patients and caregivers.
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 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.
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.
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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.
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.
BrainStorm's Technology
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 GDNF. 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.
In parallel, we will use the GDNF-secreted cells for cell therapy in ALS
patients. The motoneurons in those patients are rapidly degenerated in the limbs
followed by cell destruction in the spinal cords. In several studies over the
world, GDNF have been shown to be highly protective, in both in vitro and in
vivo models of ALS. Therefore, we intend to restore the motoneurons cell bodies
by injecting the GDNF-secreted cells into the muscles and/or the spinal cords in
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ALS patients.
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:
NurOwn(TM) 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.
NurOwn(TM) program 2 - GDNF astrocyte-like cells - human bone marrow derived
GDNF 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 into the growth
medium. GDNF is a protein, previously been 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 GDNF 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.
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 GDNF 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 NurOwn(TM) 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 GDNF 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
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o Setting up centralized facilities to provide NurOwn(TM) 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 NurOwn(TM) 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.
Business Model
Our objective is to have the proprietary procedure adopted by an expanding user
base of medical centers, throughout the U.S. and Europe, for the treatment of
PD, ALS and later MS. Our intended procedure for the replacement of the
degenerated neurons with healthy functional cells derived by differentiation of
bone marrow, may be among the earliest successes of stem cell technologies and
could be the starting point for a massive market potential in the area of
autologous transplantation. A central laboratory would be responsible for
processing bone marrow extracted from patients, enabling the production of the
cells required for the transplantation. Transplantation would be carried out by
the medical center, with revenues shared with us on an agreed basis.
We will consider seeking cooperation with a major strategic marketing partner,
having established distribution channels and the ability to gain relatively fast
access to the target markets.
Working with a major partner will optimize our approach. We believe there is a
substantial market opportunity and cooperation with a strategic partner would
facilitate a more rapid and broad market penetration, by leveraging the
partner's market credibility and the proven ability to provide service and
support across a large and geographically spread target market.
Potential strategic partners include:
o Private Medical Center Chains - interested in expanding their
service offerings and being associated with an innovative
technology, thereby enhancing their professional standing and
revenue potential; and
o Major Pharmaceutical and/or Medical Device Companies - seeking new
product opportunities and/or wishing to maintain interest in the
market, which may shift away from drugs towards surgical treatment.
We cannot assure you that we will succeed in finding strategic partners 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.
Intellectual Property
o The NurOwn(TM) 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 A provisional patent application 60/690,879 was filed for the
NurOwn(TM) technology for differentiating astrocyte-like cells in
June 2005. This application was later filed as a PCT (number still
not available) in June 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 The Company has filed for a trademark on NurOwn(TM).
The patent applications, as well as relevant know-how and research results are
licensed from Ramot. BrainStorm intends to work with Ramot to protect and
enhance its intellectual property rights by filing continuations and new patent
applications on any improvements to NurOwn(TM) and any new discoveries arising
in the course of research and development.
Research and License Agreement with Ramot
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On July 8, 2004, we entered into our Research and License Agreement (the
"Original Ramot Agreement") with Ramot at Tel Aviv University Ltd. ("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.
As 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 research relating to the licensed
technology in an amount of $570,000 per year has been reduced to $380,000 per
year, retroactively. 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). The Amended Research and License Agreement also
reduces potential payments concerning sublicenses from 30% to 20-25% of
Sublicense Receipts (as defined therein).
Government Regulations and Supervision
Once fully developed, we intend to market our bone marrow derived differentiated
neural-like cell products, NurOwn(TM), for transplantation in patients by
neurosurgeons in medical facilities in the U.S., Europe, Japan and the Pacific
Rim. Accordingly, we believe our research and development activities and the
manufacturing and marketing of our technology are subject to the laws and
regulations of governmental authorities in the United States and other countries
in which our technology and products will be marketed. Specifically, in the
U.S., the FDA, among other agencies, regulates new biological product approvals
(BLA) to establish safety and efficacy, as well as appropriate production of
these products. Governments in other countries have similar requirements for
testing and marketing.
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As we are currently only in the developmental stage of our technology and
NurOwn(TM) cell product, we have not yet begun the process of seeking regulatory
approval from the FDA or other regulatory agencies. We intend to retain expert
regulatory consultants to assist us in our approach to the FDA in our efforts to
achieve regulatory approval.
Regulatory Process in the United States
Regulatory approval of new biological products is a lengthy procedure leading
from development of a new product through pre-clinical animal testing and
clinical studies in humans. This process takes a number of years, is regulated
by the FDA and requires the expenditure of significant resources. There can be
no assurance that our technology will ultimately receive regulatory approval. We
summarize below our understanding of the regulatory approval requirements that
may be applicable to us if we begin the process of seeking an approval from the
FDA.
The Federal Food, Drug, and Cosmetic Act and other federal statutes and
regulations govern or influence the research, testing, manufacture, safety,
labeling, storage, record-keeping, approval, distribution, use, reporting,
advertising and promotion of our future products. Non-compliance with applicable
requirements can result in civil penalties, recall, injunction or seizure of
products, refusal of the government to approve or clear product approval
applications or to allow us to enter into government supply contracts,
withdrawal of previously approved applications and criminal prosecution.
The FDA has developed and is continuously updating the requirements with respect
to cell and gene therapy products and has issued documents concerning the
regulation of cellular and tissue-based products, as new biological products. In
order to file for a BLA, we will be required to develop our stem cell product in
accordance with the regulatory guidelines for cell therapy and manufacture the
cell products under GMP. GMP, or Good Manufacturing Practice, is a standard set
of guidelines for pharmaceutical and bio-pharmaceutical production operations
and facilities by the FDA and other health regulatory authorities, which apply
caution in allowing any biologically active material to be administered into the
human body.
Although there can be no assurance that the FDA will not choose to change its
regulations, current regulation proposes that cell products which are
manipulated, allogeneic, or as in our case, autologous but intended for a
different purpose than the natural source cells (NurOwn(TM) are bone marrow
derived and are intended for brain transplantation) must be regulated through a
"tiered approach intended to regulate human cellular and tissue based products
only to the extent necessary to protect public health". Thus the FDA requires:
(i) preclinical laboratory and animal testing; (ii) submission of an
Investigational New Drug (IND) exemption which must be effective prior to the
initiation of human clinical studies; (iii) adequate and well-controlled
clinical trials to establish the safety and efficacy of the product for its
intended use; (iv) submission to the FDA of a BLA; and (v) review and approval
of the BLA as well as inspections of the manufacturing facility for GMP
compliance, prior to commercial marketing of the product.
Generally, in seeking an approval from the FDA for sale of a new medical
product, an applicant must submit proof of safety and efficacy. Such proof
entails extensive pre-clinical studies in the lab and in animals and, if
approved by the agency, in humans. The testing, preparation of necessary
applications and processing of those applications by the FDA is expensive and
may take several years to complete. There can be no assurance that the FDA will
act favorably or in a timely manner in reviewing submitted applications, and an
applicant may encounter significant difficulties or costs in its efforts to
obtain FDA approvals. This, in turn, could delay or preclude the applicant from
marketing any products it may develop. The FDA may also require post-marketing
testing and surveillance of approved products, or place other conditions on the
approvals. These requirements could cause it to be more difficult or expensive
to sell the products, and could therefore restrict the commercial applications
of such products. Product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. For patented technologies, delays imposed by the governmental
approval process may materially reduce the period during which an applicant will
have the exclusive right to exploit such technologies.
In order to conduct clinical trials of the proposed product, the manufacturer or
distributor of the product will have to file an IND submission with the FDA for
its approval to commencing human clinical trials. The submission must be
supported by data, typically including the results of pre-clinical and
laboratory testing. Following submission of the IND, the FDA has 30 days to
review the application and raise safety and other clinical trial issues. If an
applicant is not notified of objections within that period, clinical trials may
be initiated at a specified number of investigational sites with the number of
patients, as applied. Clinical trials which are to be conducted in accordance
with good clinical practice (GCP) guidelines are typically conducted in three
sequential phases. Phase I represents the initial administration of the drug or
biologic to a small group of humans, either healthy volunteers or patients, to
test for safety and other relevant factors. Phase II involves studies in a small
number of patients to explore the efficacy of the product, to ascertain dose
tolerance and the optimal dose range and to gather additional data relating to
safety and potential adverse affects. Once an investigational drug is found to
have some efficacy and an acceptable safety profile in the targeted patient
population, multi-center Phase III studies are initiated to establish safety and
efficacy in an expanded patient population and multiple clinical study sites.
The FDA reviews both the clinical plans and the results of the trials and may
request an applicant to discontinue the trials at any time if there are
significant safety issues.
8
In addition, the manufacturing of our cell therapy, whether it is performed by
us or by a contract manufacturer, will be required to be registered as a
biologic product manufacturer with the FDA product approval process. The FDA
will inspect us on a routine basis for compliance with the GMP and Good Tissue
Practice (GTP) guidelines for cell therapy products. The regulations of the FDA
would require that we, and any contract manufacturer, design, manufacture and
service products and maintain documents in the prescribed manner with respect to
manufacturing, testing, distribution, storage, design control and service
activities. The FDA may prohibit a company from promoting an approved product
for unapproved applications and reviews product labelling for accuracy.
Competition
We face significant competition in our efforts to develop our products and
services: (i) cell therapies competing with NurOwn(TM) and its applications and
(ii) other treatments or procedures to cure or slow the effects of PD and other
neurodegenerative diseases. There are a number of companies developing cell
therapies. Among them, are companies that are involved in the controversial
fetal cell transplant or ESC-derived cell therapy, as well as 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, which we intend to target. We believe
that as an autologous bone marrow derived product that has shown proof of
concept in vitro and in animal studies, NurOwn(TM) has a first mover advantage
in the adult stem cell space and that such space has competitive advantages over
the fetal cell or ESC-derived cell space as it has a long safety record and does
not have the same ethical limitations
Employees
As of June 9, 2006, we have two executive officers, Yoram Drucker, Chief
Operating Officer and David Stolick, Chief Financial Officer. On November 10,
2005, Dr. Yaffa Beck resigned from her positions as President and CEO and
director of the Company. Mr. Drucker has assumed Dr. Beck's responsibilities as
principal executive officer. We have used consultants, attorneys and accountants
as necessary. We currently have seven 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.
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
in the coming months. 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 and we
could be forced to restrict or cease our operations. We will need to raise
additional funds within the coming months 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.The financial statements have been prepared assuming the Company
will continue as a going concern. The financial Statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets and amounts and classification of liabilities that may
result from the outcome of this uncertainly.
We continue to seek additional financings although we have so far been
unsuccessful in our efforts. 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.
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.
9
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. The field of stem cell therapy is new
and, except for bone marrow transplants for neoplastic disease, it remains
largely untested in the clinical setting. Our intended cell therapeutic
treatment methods for PD and ALS involve a new approach that has never 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.
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:
10
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 NurOwn(TM)
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, which 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.
11
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
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 Common Shares
and warrants for Common Shares (the "Subsequent Offering"). The precise terms of
the Subsequent Offering will be determined by the Company 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, the Company's 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), respectively, and further approved the reservation of
9,143,462 shares of the Company's Common Stock for issuance thereunder (the
"Shares"). The Company's shareholders approved the Plans and 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 such individuals.
o under our Global Plan, we have granted a total of 3,032,423 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 1,330,000 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, we have issued 3,881,587 shares to investors 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 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.
12
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 bring
lawsuits or, if successful, collecting judgments against these persons or
entities as opposed to domestic persons or entities.
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. 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 2. Description of Property.
The address of our principal executive offices is 1350 Avenue of the Americas,
New York, NY 10019, where in consideration for $350 per month we have a license
to use office space and receive general office services until November 30, 2006.
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 $3,851)
per month during the first 12 months of the lease; (ii) NIS 19,527
(approximately $4,186) per month during the following 24 months of the lease;
(iii) NIS 22,317 (approximately $4,783) per month during the First Option
period; and (iv) NIS 23,712 (approximately $5,082) 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 $364,000 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 $150,000.
Item 3. Legal Proceedings.
We are not a party to any pending litigation and, to our knowledge, none is
contemplated or threatened.
Item 4. Submission of Matters to Vote of Security Holders.
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
Our Common Stock is currently traded on the Over-The-Counter Bulletin Board
operated by the NASD (OTC BB) under the symbol "BCLI.OB".
13
The following table sets forth for the periods indicated the high and low sales
prices for our Common Stock. The information was obtained from Yahoo! Finance
and reflects inter-dealer prices, without retail mark-up, markdown or
commission, and may not necessarily represent actual transactions.
Quarter Ended High Low
------------------ ------ -----
March 31, 2006 $0.66 $0.40
December 31, 2005 $0.86 $0.43
September 30, 2005 $1.19 $0.63
June 30, 2005 $2.90 $0.80
March 31, 2005 $3.50 $1.80
December 31, 2004 $2.00 $1.03
September 30, 2004 $1.20 $0.70
June 30, 2004 $1.20 $0.60
On June 9, 2006, the closing price for the Common Stock as reported by the
quotation service operated by the OTC Bulletin Board was $0.51.
As of June 9, 2006, there were 111 holders of record of our Common Stock. As of
such date, 23,329,961 shares of Common Stock were issued and outstanding.
Transfer Agent
First American Stock Transfer, 706 E. Bell Road, Suite 202, Phoenix, Arizona
85022 (Telephone: (602) 485-1346; Facsimile: (602) 788-0423) is the registrar
and transfer agent for our common shares.
Dividend Policy
We have not paid any cash dividends on our Common Stock and have no present
intention of paying any dividends on the shares of our Common Stock. We have not
had any revenues for the past two fiscal years. Our current policy is to retain
earnings, if any, for use in our operations and in the development of our
business. Our future dividend policy will be determined from time to time by our
board of directors.
Recent Sales of Unregistered Securities
On February 8, 2006, in connection with a loan that we have undertaken, we
issued to Double U Master Fund L.P. a fully exercisable warrant to purchase
189,000 shares of our Common Stock at an exercise price of $0.50, which warrant
has a term of three (3) years and has certain piggy-back registration rights.
14
On February 28, 2006 and May 2, 2006, in consideration for certain legal
services, we issued to BRL Law Group LLC 34,904 and 65,374 shares, respectively,
of our Common Stock, which shares have certain piggy-back registration rights.
On May 2, 2006, in consideration for certain services, we issued Mr. Ernest
Muller a fully-vested warrant to purchase 50,000 shares of our Common Stock at
an exercise price of $0.00005, which warrant has a term of ten (10) years and
has certain piggy-back registration rights.
On May 2, 2006, in accordance with the Consulting Agreement entered into by the
Company and Levi Israel LLC ("Levi"), the Company issued to Levi 200,000 shares
of the Company's Common Stock, which shares have piggy-back registration rights,
subject to certain limitations and conditions, including, among others, cutback
provisions and underwriter discretion, to be included by the Company in a
registration statement filed with the Securities and Exchange Commission.
None of these transactions involved any underwriters, underwriting discounts or
commissions and we believe that such transactions were exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof and Regulation D promulgated thereunder.
Item 6. Plan of Operation.
You should read the following plan of operation together with the consolidated
audited financial statements and the notes to our consolidated audited financial
statements included elsewhere in this filing prepared in accordance with
accounting principles generally accepted in the U.S. This section contains
statements that are forward-looking. These statements are based on expectations
and assumptions that are subject to risks and uncertainties. Actual results
could differ materially because of factors discussed in "Certain Risk Factors
That May Affect Future Results." Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis, judgment, belief or expectation only as of the date of issue. We
undertake no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date of issue.
Overview
The Company was incorporated under the laws of the State of Washington on
September 22, 2000, under the name Wizbang Technologies, Inc. and acquired the
right to market and sell a digital data recorder product line in certain states
in the U.S. Subsequently the Company changed its name to Golden Hand Resources
Inc. On July 8, 2004, the Company entered into a licensing agreement with Ramot
to acquire certain stem cell technology and decided to discontinue all
activities related to the sales of digital data recorder product. On November
22, 2004, the Company changed its name from Golden Hand Resources Inc. to
BrainStorm Cell Therapeutics Inc. to better reflect its new line of business in
development of novel cell therapies for neurodegenerative diseases. On October
25, 2004, the Company incorporated a wholly owned subsidiary in Israel, which
provides research, development and other services to the Company.
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 NurOwn(TM) 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 conduct further studies in animal models of PD (mice and rats) to
evaluate the engraftment, survival and efficacy of our cell implants
for our dopamine producing and/or GDNF cells;
o To evaluate and better define the induction of human bone marrow
cells to oligodendrocyes-like cells and to test the efficacy in
animal models of multiple sclerosis;
o To develop analytical methodology and specifications to be used as
release criteria in setting up a quality control system for the
processing of our cells;
15
o To set up standard and reproducible production procedures;
o To continue to gather information on the efficacy in animal models;
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 GNDF-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 March 31, 2006, we had $364,609 in total current assets and $1,066,920 in
total current liabilities and on June 9, 2006, we had approximately $400,000 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 February 7, 2006, we borrowed a net amount of $450,000 from an investor. In
connection with such loan, the Company issued said investor a $500,000 10%
Convertible Promissory Note due February 7, 2007 (the "February Note"). On June
5, 2006, we borrowed an additional net amount of $450,000 from said investor. In
connection with such loan, the Company issued said investor a $500,000 10%
Convertible Promissory Note due June 5, 2007 (the "June Note," and, together
with the February Note, the "Notes"). Interest on the February Note will accrue
at the rate of ten percent (10%) per annum and will be due and payable in full
on February 7, 2007 (the "February Maturity Date"). Interest on the June Note
will accrue at the rate of ten percent (10%) per annum and will be due and
payable in full on June 5, 2007 (the "June Maturity Date"). Any amount overdue
on the February Note or the June Note shall bear interest from the date it
became overdue at an annual rate of fifteen percent (15%) per annum. The Notes
will become immediately due and payable upon the occurrence of certain Events of
Default, as defined in the respective Note. Under the Notes, the Holder has the
right at any time prior to the close of business on the February Maturity Date
or the June Maturity Date, as applicable, to convert all or part of the
outstanding principal and interest amount of the February Note or the June Note,
as applicable, into shares of our Common Stock, $0.00005 par value per share
(the "Common Stock"). The Conversion Price, as defined in the Notes, will be 75%
(50% upon the occurrence of an Event of Default) of the average of the last bid
and ask 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 Holder's
written notice of election to convert. The Conversion Price will be adjusted in
the event of a stock dividend or reclassification.
On June 14, 2006, we entered into an Amendment of Convertible Promissory Notes
(the "Amendment") with said investor. Under the Amendment, a cap was placed on
the number of shares that may be acquired by said investor upon conversion of
the February Note and the June Note such that the Company shall not issue
greater than 50,000,000 shares of Common Stock, in the aggregate, to said
investor upon conversion of the February Note and the June Note.
On February 8, 2006, we borrowed a net amount of $152,500 from an additional
investor. In connection with such loan, we entered into a subscription agreement
with said investor (the "Subscription Agreement") pursuant to which the Company
sold and issued to the investor $189,000 of principal amount (the "Purchase
Price") of promissory notes of the Company with an original issue discount of 8%
(the "Promissory Notes") and warrants to purchase shares of our Common Stock for
every one dollar of the Purchase Price on the Closing Date (the "Warrants").
Under the Promissory Notes, any amount overdue shall bear interest from the date
it became overdue at an annual rate of fifteen percent (15%) per annum. The
Promissory Notes shall become immediately due and payable upon the occurrence of
certain Events of Default, as defined therein. The Promissory Notes shall be
payable within 120 days after the Closing Date of the Subscription Agreement.
The warrants have an exercise price of $0.50 per share and are exercisable for a
three-year period from the date of the issuance thereof.
16
On December 7, 2005, we raised an additional $135,000 (net of expenses) in
connection with a closing in a private placement of 187,500 units comprising
shares of our Common Stock and warrants for our Common Stock at $0.80 per unit.
In September 2005, we raised an additional $225,000 (net of expenses) in
connection with a closing in a private placement of 312,500 units comprising
shares of our Common Stock and warrants for our Common Stock at $0.80 per unit.
In May 2005, we raised $149,500 through a private placement of our Common Stock
at $0.80 per share. In July 2005, we raised $99,000 through a private placement
of our Common Stock at $0.60 per share. Those followed a private placement in
which we raised about $1.4 million that closed in three tranches in October and
November 2004 and February 2005.
In late 2004 and throughout 2005, we began to increase our spending
significantly to execute our development programs. In October 2004, we made a
$402,000 payment to Ramot to cover the up-front license fee, reimbursement of
certain patent expenses and initial research funding obligations under our
agreement. We have also made capital expenditures in the approximate amount of
$335,000 in order to build out our laboratory and office facilities to which we
relocated at the end of May 2005.
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. Ramot has agreed to defer the two research funding payments for the sum
of $95,000 each, until July 1, 2006. If we fail to make these payments by such
time (for which we will need to consummate additional financings), or to obtain
an additional deferral from Ramot until we raise such capital, 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.
Research and Development
Our research and development efforts have focused on development of growth
conditions and 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 Demonstration that bone marrow stem cells may be expanded prior to
differentiation;
o Identification and profiling of cell markers in the expanded
mesenchymal cell population;
o Development of molecular tools to evaluate cell differentiation;
o Demonstration that the bone marrow derived differentiated cells
produce multiple neuron-specific markers;
o Determination of timing and growth conditions for the
differentiation process;
o Demonstration of expression of enzymes and proteins associated with
dopamine production and release, including tyrosine hydroxilase;
o Identifying the production and release of dopamine and dopamine
precursors in the bone marrow derived differentiated cells;
o Evaluation of methodologies for cryopreserving the expanded bone
marrow cells prior to differentiation;
17
o Implantation of the bone marrow derived neural-like cells in
striatum of model animals results in long term engraftment and,
survival, as well as expression of dopamine neuron specific markers,
such as tyrosine hydroxilase; and
o Model animals implanted with the bone marrow derived neural-like
cells show significant improvement in their rotational behavior.
For the twelve months ending March 31, 2007, we estimate that our research and
development costs will be approximately $2,600,000(excluding compensation
expenses related to options and warrants). 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. 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 for future clinical trials.
General and Administrative Expenses
If we can successfully complete our financings, for the twelve months ending
March 31, 2007, we estimate that our general and administrative expenses will be
approximately $1,000,000 (excluding compensation expenses related to options and
warrants). 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 March
31, 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 GDNF 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 $10,000,000.
o Complete preclinical studies in rodents to confirm safety and
efficacy.
o Conduct full safety study of the final cell product for PD and ALS.
o Write up clinical protocols for Phase I & II clinical studies.
Purchase or Sale of Equipment
The Company's 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 $364,000 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. As of March 31, 2006, the Company has
purchased laboratory equipment and furniture for a total sum of approximately
$65,000 and assuming we complete additional financings, we intend to purchase
certain additional laboratory equipment at an estimated cost of $150,000.
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.
Item 7. Financial Statements.
18
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2006
IN U.S. DOLLARS
INDEX
Page
---------------
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Statements of Changes in Stockholders' Equity (Deficiency)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
- - - - - - - - - - - - - - - - - - -
19
ERNST & YOUNG
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders of
BRAINSTORM CELL THERAPEUTICS INC.
(A development stage company)
We have audited the accompanying consolidated balance sheets of Brainstorm
Cell Therapeutics Inc. ("the Company") (a development stage company) and its
subsidiary as of March 31, 2006 and 2005, and the related consolidated
statements of operations, statements of changes in stockholders' equity
(deficiency) and the consolidated statements of cash flows for each of the two
years in the period ended March 31, 2006 and for the period from September 22,
2000 (inception) through March 31, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements for the period from September 22, 2000 (inception) through March 31,
2004, were audited by other auditors whose report dated May 26, 2004 expressed
an unqualified opinion on those statements. The consolidated financial
statements for the period from September 22, 2000 (inception) through March 31,
2004 included a net loss of $ 162,687. Our opinion on the consolidated
statements of operations, changes in stockholders' equity and cash flows for the
period from September 22, 2000 (inception) through March 31, 2006, insofar as it
relates to amounts for prior periods through March 31, 2004, is based solely on
the report of other auditors.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiary as of March 31, 2006 and 2005, and the consolidated results of their
operations and cash flows for each of the two years then ended March 31, 2006
and for the period from September 22, 2000 (inception) through March 31, 2006,
in conformity with U.S generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1g,
the Company has incurred operating losses and has a negative cash flow from
operating activities. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
June 28, 2006 A Member of Ernst & Young Global
20
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
In U.S. dollars (except stock data)
March 31,
--------------------------
2006 2005
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 290,219 526,519
Restricted cash 28,939 31,134
Accounts receivable and prepaid expenses (Note 5) 45,451 82,976
----------- -----------
Total current assets 364,609 640,629
----- ----------- -----------
LONG-TERM INVESTMENTS:
Prepaid expenses 7,067 4,590
Severance pay fund 19,093 5,871
----------- -----------
26,160 10,461
----------- -----------
PROPERTY AND EQUIPMENT, NET (Note 6) 411,454 228,315
----------- -----------
OTHER ASSETS (Notes 8, 9) 57,590 --
----------- -----------
Total assets 859,813 879,405
----- =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Trade payables 200,624 37,850
Other accounts payable and accrued expenses (Note 7) 370,445 131,232
Short-term convertible loan (Note 8a) 367,292 --
Short-term loan (Note 9) 128,559 --
----------- -----------
Total current liabilities 1,066,920 169,082
----- ----------- -----------
OPTIONS AND WARRANTS (Note 8b) 7,679,009 --
----------- -----------
ACCRUED SEVERANCE PAY 24,563 5,871
----------- -----------
Total liabilities 8,770,492 174,953
----- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Stock capital: (Note 11)
Common stock of $ 0.00005 par value - Authorized: 200,000,000 stocks at
March 31, 2006 and 2005; Issued and outstanding: 22,854,587 and 20,867,808
at March 31, 2006 and 2005, respectively. 1,14 1,044
Preferred stock of $ 0.00005 par value - Authorized: 40,000,000 stocks at
March 31, 2006 and 2005; none issued. -- --
Additional paid-in capital 15,802,847 25,100,625
Deferred stock-based compensation (1,395,439) (5,394,735)
Deficit accumulated during the development stage (22,319,231) (19,002,482)
----------- -----------
Total stockholders' equity (deficiency) (7,910,679) 704,452
----- ----------- -----------
Total liabilities and stockholders' equity (deficiency) 859,813 879,405
----- =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
21
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,
Year ended 2000 (inception
March 31, date) through
-------------------------- March 31,
2006 2005 2006
----------- ----------- -----------
Operating costs and expenses:
Research and development 970,891 472,042 1,442,933
Research and development expenses (income) related to stocks,
warrants and options granted to employees and service
providers (123,944) 15,878,451 15,754,507
General and administrative 817,366 265,131 1,082,497
General and administrative related to stocks, warrants and
options granted to employees and service providers 1,636,692 2,211,422 3,848,114
----------- ----------- -----------
Total operating costs and expenses (3,301,005) (18,827,046) (22,128,051)
Financial income (expenses), net 14,689 (5,996) 8,693
----------- ----------- -----------
(3,286,316) (18,833,042) (22,119,358)
Taxes on income (Note 12) 30,433 5,469 35,902
----------- ----------- -----------
Loss from continuing operations (3,316,749) (18,838,511) (22,155,260)
Net loss from discontinued operations -- (1,284) (163,971)
----------- ----------- -----------
Net loss (3,316,749) (18,839,795) (22,319,231)
=========== =========== ===========
Basic and diluted net loss per stock from continuing
operations (0.15) (1.01)
=========== ===========
Weighted average number of stocks outstanding used in
computing basic and diluted net loss per stock 22,011,370 18,587,317
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
22
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) -- -- -- -- -- --
Stock issued on September 22, 2000
for cash at $ 0.00188 per stock 8,500,000 850 15,150 -- -- 16,000
Stock issued on March 31, 2001 for
cash at $ 0.0375 per stock 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 stock 100,000 5 6,495 -- -- 6,500
Cancellation of stocks 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)
Stock issued on June 24, 2004 for
private placement at $ 0.01 per
stock, net of $ 25,000 issuance
expenses (Note 11c(1)(a)) 8,510,000 426 59,749 -- -- 60,175
Contribution capital (Note 11b) -- -- 7,500 -- -- 7,500
Stock issued in 2004 for private
placement at $ 0.75 per unit
(Note 12c(1)(a)) 1,894,808 95 1,418,042 -- -- 1,418,137
Cancellation of stocks 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 stocks and options granted to
employees (Note 11c(2)) -- -- -- 584,024 -- 584,024
Compensation related to stocks and
options granted to service
providers (Note 11c(3)(c)) 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.
23
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 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
stock (Note 11c(1)(d)) 186,875 9 149,491 -- -- 149,500
Stock issued on July 27, 2005
for private placement at $ 0.6
per stock (Note 11c(1)(e)) 165,000 8 98,992 -- -- 99,000
Stock issued on September 30,
2005 for private placement at
$0.8 per share(Note 11c(1)(f)) 312,500 16 224,984 -- -- 225,000
Stock issued on December 07,
2005 for private placement at
$0.8 per share (Note 11c(1)(f)) 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 stocks
and options granted to
directors and employees 200,000 10 486,490 (486,500) -- --
Amortization of deferred
stock-based compensation
related to options and stocks
granted to employees and
directors (Note 11c(2)) -- -- 51,047 1,122,500 -- 1,173,547
Stock-based compensation related
to options and stocks granted
to service providers (Note
11c(3)(c)) 934,904 47 662,069 -- -- 662,116
Reclassification due to
application of EITF 00-19
(Note 8b) (7,906,289) (7,906,289)
Beneficial conversion feature
related to a convertible
bridge loan (Note 8a) -- -- 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)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
24
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
In U.S. dollars
Period from
September 22,
2000
Year ended (inception
March 31, date) through
------------------------- March 31,
2006 2005 2006
---------- ----------- -----------
Cash flows from operating activities:
Net loss (3,316,749) (18,839,795) (22,319,231)
Less - loss for the period from discontinued operations -- 1,284 163,971
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 57,408 245 57,653
Accrued severance pay, net 5,470 -- 5,470
Accrued interest on loans 13,210 -- 13,210
Amortization of discount on short-term loans 50,765 50,765
Change in fair value of options and warrants (306,660) -- (306,660)
Expenses related to stocks and options granted to service
providers 631,216 17,481,648 18,112,864
Amortization of deferred stock-based compensation related to
options granted to employees 1,173,547 584,024 1,757,571
Decrease (increase) in accounts receivable and prepaid
expenses 37,525 (82,822) (45,297)
Increase in trade payables 162,774 37,850 200,624
Increase in other accounts payable and accrued expenses 239,213 126,082 365,295
----------- ----------- -----------
Net cash used in continuing operating activities (1,252,281) (691,484) (1,943,765)
Net cash provided by (used in) discontinued operating activities -- 13,648 (22,766)
----------- ----------- -----------
Total net cash used in operating activities (1,252,281) (677,836) (1,966,531)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (209,647) (228,560) (438,207)
Restricted cash 2,195 (31,134) (28,939)
Investment in lease deposit (2,477) (4,590) (7,067)
----------- ----------- -----------
Net cash used in continuing investing activities (209,929) (264,284) (474,213)
Net cash used in discontinued investing activities -- -- (16,000)
----------- ----------- -----------
Total net cash used in investing activities (209,929) (264,284) (490,213)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Common stock and warrants, net 608,500 1,478,312 2,086,812
Proceeds from loans 617,410 -- 617,410
----------- ----------- -----------
Net cash provided by continuing financing activities 1,225,910 1,478,312 2,704,222
Net cash provided by provided by (used in) discontinued financing
activities -- (14,277) 42,741
----------- ----------- -----------
Total net cash provided by financing activities 1,225,910 1,464,035 2,746,963
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (236,300) 521,915 290,219
Cash and cash equivalents at the beginning of the period 526,519 4,604 --
----------- ----------- -----------
Cash and cash equivalents at end of the period 290,219 526,519 290,219
=========== =========== ===========
Non-cash financing activities:
Non-cash financing activities from continued operations: 30,900 -- 30,900
=========== =========== ===========
Cash paid during the year for:
Taxes 2 -- 2
=========== =========== ===========
Interest 1 -- 1
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
25
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 1:- GENERAL
a. Brainstorm Cell Therapeutics Inc. (formerly: Golden Hand Resources
Inc.) ("the Company") was incorporated in the State of Washington on
September 22, 2000.
b. On May 21, 2004, the former major stockholders of the Company
entered into a purchase agreement with a group of private investors,
who purchased from the former major stockholders 6,880,000 stocks of
the then issued and outstanding 10,238,000 stocks of the Company's
Common stock.
c. The Company acquired the right to market and sell a digital data
recorder product line in certain States in the U.S. The license was
acquired on September 22, 2000 and had a four years term. Under the
terms of the license agreement, the Company purchased products and
resold them.
On May 4, 2004, the Company amended the license agreement to a
worldwide non-exclusive license. Due to the non-exclusivity of the
license, the Company could not determine whether the license would
generate any future sales. As a result, in the first quarter of
2004, the Company recognized impairment in the value of the license,
which has been charged to the statement of operations. Since the end
of the first quarter of 2004, the Company has not engaged in any
activities related to the sale of the digital data recorder product.
d. On July 8, 2004, the Company entered into a licensing agreement with
Ramot of Tel Aviv University Ltd. ("Ramot"), an Israeli corporation,
to acquire certain stem cell technology (see Note 3). Subsequent to
this agreement, the Company decided to 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 has 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".
e. On November 22, 2004, the Company changed its name from Golden Hand
Resources Inc. to Brainstorm Cell Therapeutics Inc. to better
reflect its new line of business in the development of novel cell
therapies for neurodegenerative diseases.
f. 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.
g. As of March 31, 2006, the Company had accumulated a deficit of $
22,319,231, and working capital deficiency of $ 702,311,
respectively, and incurred net loss of $ 3,316,675 and negative cash
flows from operating activities in the amount of $ 1,252,281 for the
year ended March 31, 2006. In addition, the Company has not
generated any revenues yet.
26
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 1:- GENERAL (Cont.)
The Company's ability to continue to operate as a going concern is
dependent upon additional financial support.
These financial statements do not include any adjustments relating
to the recoverability and classification of assets' carrying amounts
or the amount and classification of liabilities that may be required
should the Company be unable to continue as a going concern.
The Company intends to raise additional capital to fund its
operations. In the event the Company is unable to successfully raise
capital and generate revenues, it is unlikely that the Company will
have sufficient cash flows and liquidity to finance its business
operations as currently contemplated. 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.
h. Risk factors:
The Company depends on Ramot to conduct its research and development
activities. (See Note 3). Termination of the research and license
agreement may impact the Company's ability to continue to operate as
a going concern.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation:
The consolidated financial statements have been prepared in
accordance with United States generally accepted accounting
principles.
b. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
c. The Company's fiscal year ends on March 31 of each year.
d. Financial statement in U.S. dollars:
The functional currency of the Company is the U.S dollar ("dollar")
since the dollar is the currency of the primary economic environment
in which the Company has operated and expects to continue to operate
in the foreseeable future. Part of the transactions of the
subsidiary is recorded in new Israeli shekels ("NIS"); however, a
substantial portion of the subsidiary's costs is incurred in dollars
and parts of the expenses are linked to the dollar. Accordingly,
management has designated the dollar as the currency of its
subsidiary's primary economic environment and thus it is their
functional and reporting currency.
27
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Transactions and balances denominated in dollars are presented at
their original amounts. Non-dollar transactions and balances have
been remeasured to dollars in accordance with the provisions of
Statement of Financial Accounting Standard No. 52, "Foreign Currency
Translation". All transaction gains and losses from remeasurement of
monetary balance sheet items denominated in non-dollar currencies
are reflected in the statement of operations as financial income or
expenses, as appropriate.
e. Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. Intercompany balances and
transactions have been eliminated upon consolidation.
f. Cash equivalents:
Cash equivalents are short-term highly liquid investments that are
readily convertible to cash with maturities of three months or less
as of the date acquired.
g. Property and equipment:
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated by the straight-line method
over the estimated useful lives of the assets.
The annual depreciation rates are as follows:
%
-------------------------------
Office furniture and equipment 7
Computer software and electronic equipment 33
Laboratory equipment 15
Over the shorter of the lease
term (including the option)
Leasehold improvements or useful life
h. Impairment of long-lived assets:
The Company and it subsidiary's long-lived assets are reviewed for
impairment in accordance with Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to the
future undiscounted cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount of the assets exceeds their fair value. During 2004 and 2005,
no impairment losses were identified.
i. Research and development costs:
Research and development costs are charged to expenses as incurred.
28
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
j. Severance pay:
The liability of the subsidiary for severance pay is calculated
pursuant to the Severance Pay Law in Israel, based on the most
recent salary of the employees multiplied by the number of years of
employment as of the balance sheet date and is presented on an
undiscounted basis.
The subsidiary's employees are entitled to one month's salary for
each year of employment or a portion thereof. The subsidiary's
liability for all of its employees is fully provided by monthly
deposits with insurance policies and by an accrual. The value of
these policies is recorded as an asset in the Company's balance
sheet.
The deposited funds may be withdrawn only upon the fulfillment of
the obligation pursuant to Israel's Severance Pay Law or labor
agreements. The value of the deposited funds is based on the cash
surrendered value of these policies, and includes immaterial
profits.
Severance expenses for the years ended March 31, 2006 and 2005 were
$ 18,692 and $ 5,871, respectively.
k. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB-25"), and FASB Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44") in accounting
for its employee stock options. Under APB-25, when the exercise
price of the Company's stock options is less than the market price
of the underlying stocks on the date of grant, compensation expense
is recognized over the option's vesting period.
Pro forma information regarding net loss and loss per stock is
required by Statement of Financial Accounting Standard No. 123
("SFas 123"), and has been determined assuming the Company had
accounted for its employee stock options under the fair value method
prescribed by that Statement. The fair value for these options was
estimated on the date of grant using a Black-Scholes option pricing
model, with the following weighted-average assumptions for grants
during the year ended March 31, 2006 and 2005 respectively: weighted
average volatility of 115% and 109%, risk-free interest rate of
4.53% and 4.51%, dividend yields of 0% and an expected life of five
and four years.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized as an expense over the option's vesting
period. The Company's pro forma information is as follows:
Year ended March 31,
--------------------------
2006 2005
----------- -----------
Net loss as reported 3,316,749 18,839,795
Deduct: stock-based employee and directors compensation expense
included in reported net loss in accordance with APB-25 (1,122,500) (584,024)
Add: stock-based employee and directors compensation expense
determined under fair value method 1,330,447 626,631
----------- -----------
Pro forma net loss 3,524,696 18,882,402
=========== ===========
Pro forma net loss per stock (basic and diluted) 0.16 1.02
=========== ===========
29
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company applies SFAS 123 and EITF 96-18, "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring,
or in Conjunction with Selling, Goods or Services" ("EITF 96-18")
with respect to options and warrants issued to non-employees. SFAS
123 and EITF 96-18 require the use of an option valuation model to
measure the fair value of the options at the grant date.
l. Basic and diluted net loss per stock:
Basic net loss per stock is computed based on the weighted average
number of stocks outstanding during each year. Diluted net loss per
stock is computed based on the weighted average number of stocks
outstanding during each year, plus the dilutive potential of the
Common stock considered outstanding during the year, in accordance
with Statement of Financial Standard No. 128, "Earnings per Stock"
("SFAS No. 128").
All outstanding stock options and warrants have been excluded from
the calculation of the diluted loss per stock for the years ended
March 31, 2006 and 2005, because all such securities have an
anti-dilutive effect.
Such outstanding securities consist of the following:
Year ended March 31,
-----------------------
2006 2005
---------- ----------
Options 2,360,760 3,009,452
Warrants 18,126,315 18,390,458
---------- ----------
Total 20,487,075 21,399,910
========== ==========
m. Income taxes:
The Company and its subsidiary account for income taxes in
accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes". This Statement requires the use of
the liability method of accounting for income taxes, whereby
deferred tax asset and liability account balances are determined
based on the differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. The Company and its subsidiary provide a
valuation allowance, if necessary, to reduce deferred tax assets to
their estimated realizable value.
n. Fair value of financial instruments:
The following methods and assumptions were used by the Company and
its subsidiary in estimating their fair value disclosures for
financial instruments:
The carrying values of cash and cash equivalents, accounts
receivable and prepaid expenses, trade payables and other accounts
payable and accrued expenses, approximate their fair value due to
the short-term maturity of these instruments.
30
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o. Concentrations of credit risks:
Financial instruments that potentially subject the Company and its
subsidiary to concentrations of credit risk consist principally of
cash and cash equivalents.
Cash and cash equivalents are deposited in banks in the United
States and in Israel. Such deposits in the United States may be in
excess of insured limits and are not insured in other jurisdictions.
Management believes that the financial institutions that hold the
Company's investments are financially sound and, accordingly,
minimal credit risk exists with respect to these investments.
The Company has no off-balance-sheet concentration of credit risk
such as foreign exchange contracts, option contracts or other
foreign hedging arrangements.
p. Impact of recently issued accounting standards:
On December 16, 2004, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 123 (revised 2004), "Stock-Based
Payment" ("Statement 123(R)"), which is a revision of FASB Statement
No. 123, Accounting for Stock-Based Compensation. Statement 123(R)
supersedes APB 25, and amends FASB Statement No. 95, "Statement of
Cash Flows". Generally, the approach in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement
123(R) requires all stock-based payments to employees, including
grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no
longer an alternative. The new Standard will be effective for the
Company in the first interim period beginning after April 1, 2006.
As permitted by Statement 123, the Company currently accounts for
stock-based payments to employees using APB 25's intrinsic value
method. Accordingly, the adoption of Statement 123(R)'s fair value
method will have a significant impact on the Company result of
operations, although it will have no impact on the Company overall
financial position. The impact of adoption of Statement 123(R)
cannot be predicted at this time because it will depend on levels of
stock-based payments granted in the future. However, had the Company
adopted Statement 123(R) in prior periods, the impact of that
standard would have approximated the impact of Statement 123 as
described in the disclosure of pro forma net income and earnings per
stock in Note 2k to the consolidated financial statements.
In March 2005, the SEC staff issued Staff Accounting Bulletin No.
107 (SAB 107) to give guidance on implementation of Statement
123(R), which the Company plans to consider in implementing
Statement 123(R).
31
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 3:- RESEARCH AND LICENSE AGREEMENT
a. On July 8, 2004, the Company entered into a research and license
agreement ("the original agreement") with Ramot, the technology
transfer company of Tel Aviv University Ltd. ("Ramot"). The license
agreement grants the Company an exclusive, worldwide,
royalty-bearing license to develop, use and sell certain stem cell
technology. In consideration of the license, the Company was
required to remit an upfront license fee payment of $ 100,000;
royalties at a rate of 5% of all net sales of products and 30% of
all sublicense receipts. In addition, the Company granted Ramot and
certain of its designees fully vested warrants to purchase
10,606,415 stocks of its common stock at an exercise price of $ 0.01
per stock. The Company will also fund, through Ramot, further
research in consideration of $ 570,000 per year for an initial
two-year period and for a further two-year period if certain
research milestones are met. Ramot may terminate the agreement if
the Company fails to reach certain development milestones or
materially breaches the agreement. As of the Balance sheet date the
Company fulfilled all its obligations.
On March 30, 2006, the Company entered into Amended Research and
License Agreement with Ramot, for the purpose of amending and
restating the original agreement. According to the agreement, the
initial period was amended to an initial research period of three
years. The Amended Research and License Agreement also extends the
additional two-year research period in the Original Agreement to an
additional three-year research period if certain research milestones
are met. The Amended Research and License Agreement retroactively
amends the consideration to $ 380,000 per year, instead of $ 570,000
per year. As a consequence, an amount of $ 300 thousand was charged
to the statement of operations as research and development expenses
in 2006 ($237 was charged in 2005). In addition, the Amended
Research and License Agreement reduces royalties that the Company
may have to pay Ramot, in certain cases ,from 5% to 3% of net sales
and also reduces the sublicenses receipt from 30% to 20%-25% of
sublicense receipts.
The warrants issued pursuant to the agreement were issued to Ramot
and its designees effective as of November 4, 2004. Each of the
warrants is exercisable for a five-year period beginning on November
4, 2005. Ramot and its designees were granted certain registration
rights.
Ramot has instructed the Company that the warrants will be issued as
follows: Ramot shall be issued 60% of the warrants, the two
consultants, or trustees for their benefits, shall each be issued,
in addition to the consultants' warrants described in Note 4, 15% of
the Ramot warrants, Mr. Yosef Levy, a member of the research team,
shall be issued 8% of the Ramot warrants and Mrs. Pnina Green, a
member of the research team , shall be issued 2% of Ramot warrants.
The fair value of the warrants granted, totaling $ 13,151,955 was
charged in the year ended March 31, 2005, to the statement of
operations as research and development expenses.
The fair value of the warrants was estimated at the grant date using
a Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 3.9 %, dividend yield of 0%, volatility
of 109% and an expected life of 5 years.
32
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 3:- RESEARCH AND LICENSE AGREEMENT (Cont.)
On March 21, 2005, the Company entered into lock up agreements with
Ramot with respect to warrants held by it. Under the lock-up
agreements, Ramot may not transfer their securities 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)
eighty-five percent (85%) of the securities shall be restricted from
transfer for the twenty-four month period following July 8, 2004 and
(ii) fifteen percent (15%) of the securities shall be restricted
from transfer for the twelve month period following July 8, 2004.
According to the Amended Research and License Agreement the Company
will postpone the date by which the stocks underlying the warrant
must be registered no later than December 31, 2006.
b. The Company's total current obligation to Ramot as of March 31, 2006
is in the amount of $ 153,888. In June 2006, the Company paid Ramot
$ 95,000 in respect of to the aforementioned obligation.
NOTE 4:- CONSULTING AGREEMENTS
a. On July 8, 2004, the Company entered into two consulting agreements
with Prof. Eldad Melamed and Dr. Daniel Offen (together "the
Consultants"), upon which the Consultants shall provide the Company
scientific and medical consulting services in consideration for a
monthly payment of $ 6,000 each. In addition, the Company granted
each of the Consultants, a fully vested warrant to purchase
1,097,215 stocks of the Company's Common stock, at an exercise price
of $ 0.01 per stock. The warrants issued pursuant to the agreement
were issued to the consultants effective as of November 4, 2004.
Each of the warrants is exercisable for a five-year period beginning
on November 4, 2005.
The fair value of the warrants granted, totaling $ 2,721,093 was
charged in the year ended March 31, 2005 to the statement of
operations as research and development expenses.
The fair value of the warrants was estimated at the grant date using
a Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 3.9 %, dividend yield of 0%, volatility
of 109% and an expected life of 5 years.
On March 21, 2005, the Company entered into lock up agreements with
the Consultants with respect to warrants held by them .Under the
lock-up agreements, the Consultants may not transfer their
securities 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 .
33
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 4:- CONSULTING AGREEMENTS (Cont.)
According to the Amended Research and License Agreement, (see Note
3) the Company will postpone the date by which the stocks underlying
the warrant must be registered no later than December 31, 2006.
b. As of March 31, 2006, the Company has a total obligation of $ 12,000
for services rendered in respect of the Consultants.
NOTE 5:- ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
March 31,
---------------
2006 2005
------ ------
Government authorities 15,411 36,661
Prepaid expenses 30,040 46,315
------ ------
45,451 82,976
====== ======
NOTE 6:- PROPERTY AND EQUIPMENT
Cost:
Office furniture and equipment 5,309 946
Computer software and electronic equipment 34,876 4,096
Laboratory equipment 65,341 35,649
Leasehold improvements 363,581 187,869
------- -------
469,107 228,560
------- -------
Accumulated depreciation:
Office furniture and equipment 301 --
Computer software and electronic equipment 9,892 245
Laboratory equipment 8,253 --
Leasehold improvements 39,207 --
------- -------
57,653 245
------- -------
Depreciated cost 411,454 228,315
======= =======
Depreciation expenses for the years ended March 31, 2006 and 2005
were $ 57,408 and $ 245, respectively.
34
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
March 31,
-----------------
2006 2005
------- -------
Employees and payroll accruals 121,911 34,346
Accrued expenses (1) 248,534 96,886
------- -------
370,445 131,232
======= =======
(1) Includes $ 158 thousand in respect of Ramot in 2006
NOTE 8:- SHORT-TERM CONVERTIBLE LOAN
a. On February 7, 2006, the Company issued a $ 500,000 Convertible
Promissory Note (the "Note") to a third party in connection with the
third party's loan to the Company. Interest on the Note will accrue
at the rate of 10% per Annum and will be due and payable in full on
February 7, 2007 (the "Maturity Date"). 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 stocks of the Company's Common stock (the "Common
Stock"). The Conversion Price, as defined in the Note, will be 75%
(50% upon the occurrence of an Event of Default) of the average of
the last bid and ask 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 agreed to pay finder's fee of 10% of the loan. The
finder fee totaling $ 50,000 were charged to deferred charges and
are amortized over the Note period (12 months).
The beneficial conversion feature embedded in the Note amounted to o
$ 163,744.
Such amount was recorded as discount against additional paid-in
capital and is amortized to financial expenses over a 12 month
period.
The balance as of March 31, 2006 is comprised as follows:
Loan 500,000
Discount (139,968)
Accrued interest 7,260
--------
367,292
========
35
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 8:- SHORT-TERM CONVERTIBLE LOAN (Cont.)
b. 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. Gains and losses derive from the remeasurement
of the options and warrants to their fair value as of balance sheet
date are recorded as R&D, general & administrative expenses and
financial expenses.
On June 14, 2006, the Company signed an amendment to the convertible
loan agreement, according to which the Company limited the number of
stocks to be issued upon conversion of such loan to an amount of
50,000,000 stocks of Common stock. As a consequence, the options and
warrants will be reclassified into equity according to their fair
value as of June 14, 2006.
NOTE 9:- 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. 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 stock. 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 (see Note 8b for further discussion),
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.
36
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 9:- SHORT-TERM LOAN (Cont.)
The balance as of March 31, 2006 is comprised as follows:
Loan 175,000
Discount (52,391)
Accrued interest 5,950
--------
128,559
========
The Company recorded, in the period ended March 31, 2006, $26,989
and $5,950 as financial expenses in respect to the discount
amortization and accrued interest, respectably.
NOTE 10:- COMMITMENTS AND CONTINGENCIES
a. The Company has a license to use office space and receive general
office services until November 30, 2006 in consideration for $ 350
per month.
b. On December 1, 2004, the Israeli subsidiary entered into a lease
agreement for the lease of its facilities. 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 $ 3,851) per
month during the first 12 months of the lease; (ii) NIS 19,527
(approximately $ 4,186) per month during the following 24 months of
the lease; (iii) NIS 22,317 (approximately $ 4,783) per month during
the First Option period; and (iv) NIS 23,712 (approximately $ 5,082)
per month during the Second Option period.
The facilities and vehicles of the Company and it's subsidiary are
rented under operating leases that expire on various dates.
Aggregate minimum rental commitments under non-cancelable leases as
of March 31, 2006 are as follows:
Year ending March 31, Facilities Vehicles Total
--------------------- ---------- -------- --------
2007 64,989 29,288 94,277
2008 60,789 26,063 86,852
2009 68,158 -- 68,158
------- ------- -------
193,936 55,351 249,287
======= ======= =======
Total rent expenses for the years ended March 31, 2006 and 2005 were
$ 55,218 and $ 1,555 respectively.
b. The Company's subsidiary gave a bank guarantee in the amount of $
28,939 to secure its obligation under the facilities lease
agreement.
c. On March 20, 2006, The Company entered into a Termination Agreement
and General Release with Dr. Yaffa Beck, the Company's former
President and Chief Executive Officer who resigned her position as
an officer and director of the Company on November 10, 2005.
37
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 10:- COMMITMENTS AND CONTINGENCIES (Cont.)
Under the Termination Agreement, the Company and Dr. Beck have
agreed to terminate their employment relationship effective February
9, 2006. Pursuant to the Termination Agreement, the Company will pay
in 10 monthly installments beginning on March 1, 2006 a total of $
47,355 to Dr. Beck. In the event that the Company raises an
aggregate of $ 1,000,000 through equity financings after February 9,
2006, the Company will pay the then total outstanding amount in one
lump-sum payment. The Company provided a provision in respect of
such amount. In addition, as per original terms of the grant,
options previously granted to Dr. Beck to acquire 800,000 stocks of
the Company's Common Stock at an exercise price of $ 0.15 per stock
which are fully vested will be exercisable until February 9, 2010.
All compensation expenses related to such vested options were
previously recorded in the statement of operations. All other
options previously granted to Dr. Beck were forfeited. As a
consequence a deferred stock compensation in the amount of
$3,363,296 was eliminated against additional paid in capital and
compensation expenses in the amount of $103,966 were reversed.
Such termination agreement settles all Dr. Beck's claims against the
Company. No further claims can be raised by both parties following
the signing of the termination agreement.
NOTE 11:- STOCK CAPITAL
a. 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.
b. 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.
c. 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).
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 stock
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.
38
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 11:- STOCK CAPITAL (Cont.)
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' 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 stocks 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 stocks 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 stocks 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 stock. 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.
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 stocks of Common stock for
issuance in aggregate under these stock option plans.
39
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 11:- STOCK CAPITAL (Cont.)
Each option granted under the plans is exercisable until the
earlier of ten years from the date of grant of the option or
the expiration dates of the respective option plans. The 2004
and 2005 options plans will expire on November 25, 2014 and
March 28, 2015, respectively. The exercise price of the
options granted under the plans may not be less than the
nominal value of the 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 March 31, 2006, 4,781,039 stocks are available for
future grants.
A summary of the Company's option activity related to options
to employees and directors, and related information is as
follows:
March 31, 2006 March 31, 2005
------------------------ ------------------------
Weighted Weighted
average average
Amount of exercise Amount of exercise
options price options price
--------- ---------- --------- ---------
$ $
---------- ----------
Outstanding at beginning of year 3,009,452 0.249 - -
Granted 380,000 0.75 3,009,452 0.249
forfeited (1,028,692) 0.15 - -
---------- ---------
Outstanding at end of year 2,360,760 0.271 3,009,452 0.249
========= ========== ========= =========
Exercisable options at end of year 1,351,599 0.189 291,327 0.175
========= ========== ========= =========
The options outstanding as of March 31, 2006, have been
separated into exercise prices, as follows:
Options Options
outstanding Weighted average exercisable
as of remaining as of
March 31, contractual March 31,
Exercise price 2006 life 2006
--------------- ----------- ---------------- -----------
$ Years
--------------- ----------------
0.15 1,885,760 6.66 1,113,132
0.75 475,000 9.20 238,467
----------- -----------
2,360,760 1,351,599
=========== ===========
40
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 11:- STOCK CAPITAL (Cont.)
All options were granted with exercise prices that were lower than
the market price of the Company's Common stock on the date of grant.
Weighted average fair values and weighted average exercise prices of
options at date of grant are as follows:
March 31,
---------------
2006 2005
------ ------
Weighted average exercise price 0.271 0.249
Weighted average fair value on date of grant 1.46 1.49
On May 27, 2005, the Company granted two of its directors 200,000
restricted stocks (100,000 each). The restricted stocks 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.
Compensation expenses recorded by the Company in respect of its
stock-based employee compensation awards in accordance with APB 25
amounted to $ 1,173,547 and $ 584,024 for the years ended March 31,
2006 and 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
stock from $ 0.75 per stock. Due to the modification, the award is
accounted for as a variable from the date of modification.
41
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 11:- STOCK CAPITAL (Cont.)
3. Stocks and warrants to service providers:
a) Warrants:
Number of Exercise Warrants Exercisable
Issuance date warrants price exercisable through
---------------------------------------- ---------- ------------ ------------- --------------------
November 2004 (see Notes 3 and 4) 12,800,845 $ 0.01 -- November 2009
December 2004 1,800,000 $ 0.00005 1,800,000 December 2014
October 2004 - February 2005 (see Note October 2007 -February
12c(1,2)) 1,894,808 $ 2.5 1,894,808 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 98,000 August 2008
September 2005 3,000 $ 0.15 3,000 September 2008
September 2005 36,000 $ 0.75 6,000 September 2010
September - December 2005 500,000 $ 1 500,000 September - December 2008
December 2005 20,000 $ 0.15 20,000 December 2008
December 2005 457,163 $ 0.7 64,446 July 2010
February 2006 230,000 $ 0.65 241,779 January-February 2008
February 2006 40,000 $ 1.5 -- February 2011
February 2006 8,000 $ 0.15 -- February 2011
February 2006 189,000 $ 0. 5 189,000 February 2009
---------- ---------
18,126,316 4,894,533
========== =========
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 years ended March
31, 2006 and 2005; weighted average volatility of 115%
and 109% respectively, risk-free interest rates of
4.605% and 3.091% respectively dividend yields of 0% and
a weighted average life of the options of 4 and 5 years,
respectively.
b) Stocks:
On June 1 and June 4, 2004, the Company issued 40,000
and 150,000 Common stocks 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 stocks 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.
42
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 11:- STOCK CAPITAL (Cont.)
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 stocks 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 stocks 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 stocks 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 stocks at a purchase price equal to the then
fair market value of the restricted stocks.
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 stock
at a purchase price of $ 0.00005 par value under the U.S
Stock Option and Incentive Plan (100,000 each). The
restricted stocks 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 stocks shall lapse in three annual
and equal portions commencing with the grant date.
In July 2005, the Company issued to its legal advisors
50,000 stocks for legal services for 12 months. The
compensation related to the stocks 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 stocks at a purchase price
of $ 0.00005 par value under the U.S Stock Option and
Incentive Plan of the Company. The restricted stocks 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 stocks 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 stocks at a purchase
price equal to the fair market value of the restricted
stocks. The compensation related to the stocks in the
amount of $ 23,343 was recorded as general and
administrative expenses.
On March 6, 2006, the Company issued to its legal
advisor 34,904 stocks of the Company common stock. The
stocks are in lieu of $ 18,500 payable to the legal
advisor. The compensation related to the stocks, in the
amount of $ 18,500 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 $ 662,069 and $
17,505,848 for the years ended March 31, 2006 and
2005, respectively.
43
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 12:- TAXES ON INCOME
a. Tax rates applicable to the income of the subsidiary:
Until December 31, 2003, the regular tax rate applicable to income
of companies was 36%. In June 2004, an amendment to the Income Tax
Ordinance (No. 140 and Temporary Provision), 2004 was passed by the
"Knesset" (Israeli parliament) and on July 25, 2005, another law was
passed, the amendment to the Income Tax Ordinance (No. 147) 2005,
according to which the corporate tax rate is to be progressively
reduced to the following tax rates: 2004 - 35%, 2005 - 34%, 2006 -
31%, 2007 - 29%, 2008 - 27%, 2009 - 26%, 2010 and thereafter - 25%.
b. Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
assets are as follows:
March 31,
--------------------
2006 2005
-------- --------
Operating loss carryforward 945,229 199,698
-------- --------
Net deferred tax asset before valuation allowance 945,229 199,698
Valuation allowance (945,229) (199,698)
-------- --------
Net deferred tax asset -- --
======== ========
As of March 31, 2006, the Company has provided valuation allowances
of $ 945,229 in respect of deferred tax assets resulting from tax
loss carryforwards and other temporary differences. Management
currently believes that since the Company has a history of losses,
it is more likely than not that the deferred tax regarding the loss
carryforwards and other temporary differences will not be realized
in the foreseeable future.
c. Available carryforward tax losses:
As of March 31, 2006, the Company has an accumulated tax loss
carryforward of approximately $ 2,625,000. Carryforward tax losses
in the U.S. can be carried forward and offset against taxable income
in the future for a period of 20 years. Utilization of U.S. net
operating losses may be subject to substantial annual limitations
due to the "change in ownership" provisions of the Internal Revenue
Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses before utilization.
44
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 12:- TAXES ON INCOME (Cont.)
d. Loss from continuing operations, before taxes on income, consists of
the following:
Year ended March 31,
--------------------------
2006 2005
----------- -----------
United States (3,375,824) (18,848,668)
Israel 89,508 15,626
----------- -----------
(3,286,316) (18,833,042)
=========== ===========
e. Taxes on income included in the statement of operations:
Current taxes:
United States -- --
Israel (30,433) (5,469)
----------- -----------
(30,433) (5,469)
=========== ===========
NOTE 13:- TRANSACTIONS WITH RELATED PARTIES
Year ended March 31,
--------------------------
2006 2005
----------- -----------
a. Fees and related benefits and compensation 139,993 --
expenses in respect of options granted to a member =========== ===========
of the Board of Directors
b. As for transactions with Ramot see Note 3.
NOTE 14:- SUBSEQUENT EVENTS
a. On April 1, 2006, the Company signed a consulting agreement,
according to which the Company will issue to the consultant 240,000
stocks of common stock of the Company in consideration for its
services.
b. On May 2, 2006, the Company reached the following resolutions:
1. Issuance of 65,374 stocks of Common stock of the Company to
its legal consultant in exchange of legal services in the
amount of $ 31,675.
2. Repricing of option to purchase 457,163 stocks of Common stock
of the company, granted to its service provider on December
21, 2005 at an exercise price of $ 0.7 to an exercise price of
$ 0.15.
45
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
NOTE 14:- SUBSEQUENT EVENTS (Cont.)
3. Issuance of 250,000 stocks of Common stock of the Company to
certain consultants in consideration for their services.
4. Grant of options to purchase 300,000 stocks of Common stock of
the Company, to its chief operating officer, chief financial
officer and one of its directors at an exercise price of $
0.15. The options shall be fully vested from the grant date.
In addition, the Company Board of Directors resolved to issue
200,000 restricted stocks to two of its Directors.
5. Granting of options to purchase 19,355 stocks of Common stock
of the Company, to its Public relation consultants at an
exercise price of $ 0.15. The options will vest in one annual
from the day of grant and be exercisable for a period of 5
years.
6. Grant of options to purchase 272,000 stocks of Common stock of
the Company, to its consultant. 36,000 options will be granted
at an exercise price of $ 0.75, 36,000 will be granted at an
exercise price of $ 0.35 and 200,000 options will be granted
at an exercise price of $ 1. All options shall be fully vested
on the of grant date.
c. On June 5, 2006, the Company issued a $ 500,000 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 ten percent per annum and will be due and
payable in full on June 5, 2007 (the "Maturity Date"). 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 stocks of the Company's Common stock, $ 0.00005 par value
per stock (the "Common Stock"). The Conversion Price, as
defined in the Note, will be 75% (50% upon the occurrence of
an Event of Default) of the average of the last bid and ask
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.
On June 14, 2006, the Company signed an amendment to the
convertible loan agreement, according to which the Company
limited the number of stocks to be issued upon conversion of
such loan to an amount of 50,000,000 stocks of Common stock.
- - - - - - - - - - - - - - - - - - - - - - -
46
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 8A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, the Company carried
out an evaluation, under the supervision and with the participation of its
Principal Executive Officer and the 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, the Principal Executive Officer
and the Chief Financial Officer concluded that the Company's 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 the Company in
the reports filed by it under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that the information required to be disclosed by the Company in such
reports is accumulated and communicated to the Company's management, including
the Principal Executive Officer and Chief Financial Officer of the Company, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control
There were no changes in the Company's internal control over financial reporting
that occurred during the fourth fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
Item 8B. Other Information.
None.
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers, Promoters and Control Persons
Set forth below is a summary description of the principal occupation and
business experience of each of the Company's directors and executive officers.
Name Age Position
---------------------------- --- --------------------------------------------
Yoram Drucker 41 Chief Operating Officer (Principal Executive
Officer)
David Stolick 40 Chief Financial Officer
Irit Arbel 46 Director
Michael Greenfield (Ben-Ari) 46 Director
Robert Shorr 52 Director
Mr. Yoram Drucker joined the Company as our Chief Operating Officer in November
2004. In connection with Dr. Beck's resignation from her positions as President
and Chief Executive Officer and director of the Company on November 10, 2005
(discussed above), Mr. Drucker has also assumed Dr. Beck's responsibilities as
the Company's principal executive officer. Since 1998, Mr. Drucker has been an
independent consultant regarding business development, finance, strategy, and
operations. From 1997 to 1998, Mr. Drucker managed a real estate brokerage firm.
From 1995 through 1996, Mr. Drucker managed his own promotion company and
created and designed marketing and promotion concepts for various Israeli
companies. From 1990 through 1995, Mr. Drucker served as manager of the
production department of one of Israel's largest diamond factories.
47
Mr. David Stolick joined the Company in February 2005. From 1995 to 2005, Mr.
Stolick was Corporate Controller of M-Systems Flash Disk Pioneers Ltd., a NASDAQ
listed company. In 1994 he served as Deputy Controller of Electronics Line Ltd.,
an Israeli publicly traded Company, and from 1991 until 1994 he was Audit
Manager at Goldstein, Sabbo, and Tebet Accountants. Mr. Stolick holds a B.A. in
Economics and Accounting from Ben-Gurion University. He has been qualified as a
certified accountant in Israel since 1993.
Dr. Irit Arbel joined the Company in May 2004 as a director and as our
President. She served as President until she resigned in November 2004 in order
to enable Dr. Beck's appointment. Dr. Arbel was President and CEO of Pluristem
Life Systems, Inc. from 2003 to June 2004, and was Israeli Sales Manager of
Merck, Sharp & Dohme from 1998 to 2002. From 1995 to 1997, Dr. Arbel served as
the head of research for Hadassa-Ein Karem Hospital in Jerusalem. Dr. Arbel
specialized in the use of pharmaceuticals for neurology, ophthalmology and
dermatology treatments. Dr. Arbel earned her Post Doctorate degree in 1997 in
Neurobiology, after performing research in the area of Multiple Sclerosis. Dr.
Arbel also holds a Chemical Engineering degree from the Technion, Israel's
Institute of Technology.
Mr. Michael Greenfield (Ben-Ari) became a director of the Company in December
2004. Mr. Greenfield (Ben-Ari) manages Evergreen Field Enterprises, his own
consulting company which he formed in 1997. From 1991 to 1997, Mr. Greenfield
(Ben-Ari) served as Vice President of Marketing at Bank Leumi. Mr. Greenfield
holds an MBA from Tel-Aviv University and a BA from Brandeis University.
Dr. Robert Shorr joined the Company as a director in March 2005. Since 2000, Dr.
Shorr serves as President and CEO of Cornerstone Pharmaceuticals, a
bio-technology company. Since 1998, he has also served as Director of Business
Development at the State University of New York at the Stony Brook Center for
Advanced Technology. From 1998 until 2002, Dr. Shorr was Vice-President of
Science and Technology (CSO) of United Therapeutics, a NASDAQ listed company.
From 1999, he has served as trustee at the Tissue Engineering Charities,
Imperial College, London. Prior to 1998 he held management positions at Enzon
Inc., a NASDAQ listed company, and AT Biochem of which he was also founder. Dr.
Shorr also served on the Board of Directors of Biological Delivery Systems Inc.,
a NASDAQ listed company. Dr. Shorr holds both a Ph.D. and a D.I.C. from the
University of London, Imperial College of Science and Technology as well as a
B.Sc. from the State University of New York.
Committees of the Board
The Board of Directors has not yet created an audit committee, and therefore
does not have an audit committee financial expert. Two "independent" directors
(as the term is defined in Nasdaq Rule 4200(a)(15)) were elected to our Board in
December 2004 and March 2005, and we intend to create an audit committee as well
as a compensation committee consisting of such independent directors in the
future. Until then, however, our Board of Directors performs these functions.
Family Relationships
There are no family relationships between the executive officers or directors of
the Company.
Involvement in Certain Legal Proceedings
None.
Code of Ethics
On May 27, 2005, our Board of Directors adopted a Code of Business Conduct and
Ethics that applies to, among other persons, members of our Board of Directors,
our officers including our Chief Operating Officer (our principal executive
officer) and our Chief Financial Officer (our principal financial and accounting
officer), contractors, consultants and advisors.
We will provide a copy of the Code of Business Conduct and Ethics to any person
without charge, upon request. Requests can be sent to BrainStorm Cell
Therapeutics Inc., 1350 Avenue of the Americas, New York, NY 10019, Attn: Chief
Financial Officer.
Section 16(a) Beneficial Ownership Compliance
48
Section 16(a) of the Securities Exchange Act requires our executive officers and
directors, and persons who own more than 10% of our Common Stock (collectively,
the "Reporting Persons"), to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange Commission and
to provide us with copies of those filings. Based solely on our review of the
copies of such forms received by us, or written representations from the
Reporting Persons, we believe that during the fiscal year ended March 31, 2006,
all Reporting Persons complied with the applicable requirements of Section 16(a)
of the Exchange Act. There are no known failures to file a required Form 3, Form
4 or Form 5.
Item 10. Executive Compensation.
Summary Compensation
The following table sets forth certain summary information with respect to he
compensation paid during the fiscal years ended March 31, 2006 and 2005 earned
by each of the following individuals: (i) the Chief Operating Officer, (ii) the
Chief Financial Officer and (iii) our former President and Chief Executive
Officer (collectively, the "Named Executive Officers"). None of the Named
Executive Officers earned any compensation in the fiscal year ended March 31,
2004. Each of the Named Executive Officers is paid in New Israeli Shekel (NIS);
the amounts below are the U.S. dollar equivalent. In the table below, columns
required by the regulations of the SEC have been omitted where no information
was required to be disclosed under those columns.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
--------------------------- ------------------------
Awards
-----------------------
Securities
Other Underlying
Annual Options/ All Other
Name and Principal Compen- SARs Compen-
Position Year Salary ($) ation ($)(1) Granted sation ($)
---------------------- ---- ---------- -------------- ---------- ----------
Dr. Yaffa Beck, Former 2006 83,760 14,372 -- 47,355(2)
President and Chief 2005 42,675 7,075 1,828,692 --
Executive Officer
Yoram Drucker, Chief 2006 60,462 11,025 -- --
Operating Officer 2005 19,457 3,720 685,760 --
(principal executive
officer)
David Stolick, Chief 2006 60,500 11,280 400,000(3) --
Financial Officer 2005 18,872 349 400,000 --
(1) Includes management insurance (which includes pension, disability insurance
and severance pay), payments towards such employee's education fund and Israeli
social security.
(2) Represents the full amount of the severance payment owed to Dr. Beck, to be
paid to Dr. Beck in ten (10) monthly installments pursuant to the Termination
Agreement and General Release. During the fiscal year ended March 31, 2006,
$5,000 of such amount was paid to Dr. Beck.
(3) Due to the amendment of the exercise price of the option originally granted
to Mr. Stolick on March 29, 2005, there was a deemed cancellation of that option
and a grant of a replacement option on February 6, 2006. Mr. Stolick only has an
option to purchase 400,000 shares of Common Stock, not 800,000.
Option Grants During Fiscal Year Ended March 31, 2006
49
The following table sets forth information regarding options to purchase Common
Stock granted to Mr. Stolick during the fiscal year ended March 31, 2006. No
options were granted to any other Named Executive Officer during the fiscal year
ended March 31, 2006. The Company has never granted any stock appreciation
rights.
OPTION GRANTS IN LAST FISCAL YEAR
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal Exercise or Base
Name Granted (#) Year Price ($/Sh) Expiration Date
------------------- --------------------- ------------------- ---------------- ---------------
David Stolick 400,000(1) 100% 0.15 2/13/2015
(1) Due to the amendment of the exercise price of an outstanding option
originally granted to Mr. Stolick on March 29, 2005, there was a deemed
cancellation of that option and a grant of a replacement option on February 6,
2006.
Options Exercised During Fiscal Year Ended March 31, 2006
The following table sets forth the number of exercisable and unexercisable
options to purchase BrainStorm Common Stock held by the Named Executive Officers
as of March 31, 2006. No stock options to purchase BrainStorm Common Stock were
exercised by any Named Executive Officer during the fiscal year ended March 31,
2006.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND 2005 FISCAL YEAR END
OPTION VALUES
Number of Securities Underlying Value of Unexercised In-the
Unexercised Options at -Money Options at FY-
FY-End (#) end ($)
Exercisable / Exercisable /
Name Unexercisable Unexercisable
------------------- ------------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Dr. Yaffa Beck 800,000 -- 272,000 --
Yoram Drucker 313,132 372,628 106,465 126,693
David Stolick 150,137 249,863 51,047 84,953
Report of Board of Directors on Repricing of Options/SARs
On February 6, 2006, in light of the significant decline in the Company's share
price in the last fiscal year, the Company's Board of Directors approved the
repricing of Mr. Stolick's option to purchase 400,000 shares of Common Stock
granted pursuant to his employment agreement with the Company, such that said
option shall have an exercise price of $0.15 per share.
Stock Incentive Plans
In November 2004 and February 2005, the Company's 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), respectively, and further approved the reservation of
9,143,462 shares of the Company's Common Stock for issuance thereunder. The
Company's shareholders approved the Plans and the shares reserved for issuance
thereunder at a special meeting of shareholders that was held on March 28, 2005.
50
Under the Global Plan, we granted a total of 3,032,423 options with various
exercise prices (a weighted average exercise price of $0.363) and expiration
dates, to service providers, subcontractors, directors, officers, and employees.
Such options do not include 1,028,692 options that were previously granted to
Dr. Beck pursuant to her employment agreement, which, following the termination
of her employment with the Company on February 9, 2006 expired and were returned
to the Company's option pool. Under the U.S. Plan, we have issued an additional
1,330,000 shares of restricted stock and options to Scientific Advisory Board
members, consultants, and directors.
As at March 31, 2006, there were 4,781,039 shares available for issuance
pursuant to the Plans, not including the following shares of restricted stock
and options that we issued subsequent to March 31, 2006: (i) the 419,355 options
and shares of restricted stock for the Company's consultants and service
providers; (ii) the 100,000 options and 200,000 restricted shares that have been
issued to our directors as initial compensation for the fiscal year ending March
31, 2007; (iii) the 200,000 options that have been approved for issuance to our
executive officers, Mr. Drucker and Mr. Stolick, by the Company's Board of
Directors on May 2, 2006; or (iv) the 60,000 shares of restricted stock that
have been issued to a consultant on April 13, 2006.
Compensation of Directors
We reimburse our directors for reasonable travel and other out-of-pocket
expenses incurred in connection with attending board meetings. On May 27, 2005,
we approved the following compensation for non-employee directors beginning for
fiscal year 2006: (i) annual retainer of $10,000; (ii) meeting participation
fees of $1,000 for each board meeting or duly constituted committee thereof
attended in person; and (iii) $500 for each meeting attended by telephone. In
the fiscal year ended March 31, 2006, we paid our directors the following
compensation: (i) Dr. Irit Arbel received an aggregate of $10,000 and was issued
an option to purchase 100,000 shares of our Common Stock, at an exercise price
of $0.75, vesting in three (3) equal annual installments beginning on May 27,
2006; (ii) Dr. Robert Shorr received an aggregate of $5,000 and was issued
100,000 restricted shares, which are subject to the Company's right to
repurchase at a purchase price of par value ($0.00005), which repurchase right
expires in three equal annual installments beginning on May 27, 2006; and (iii)
Michael Greenfield (Ben Ari) received an aggregate of $5,000 and was issued
100,000 restricted shares, which are subject to the Company's right to
repurchase at a purchase price of par value ($0.00005), which repurchase right
expires in three (3) equal annual installments beginning on May 27, 2006.
Executive Employment Agreements
Yoram Drucker. Pursuant to his employment agreement dated November 16, 2004 (the
"Drucker Effective Date") Mr. Drucker is entitled to an initial base salary of
$4,000 per month, which shall be increased six (6) months subsequent to the
Drucker Effective Date to $6,000 per month. Mr. Drucker will be entitled to an
annual bonus in connection with the achievement of milestones and/or objectives,
in each case as determined by the Board of Directors.
Mr. Drucker will be entitled to coverage under our Directors' and Officers'
liability insurance policy and to a written undertaking from the Company and its
subsidiary to indemnify and release him to the full extent possible in
accordance with the Israeli Companies Law 5759-1999 and the applicable laws of
the State of Washington.
Pursuant to his employment agreement and the Company's Global Plan, Mr. Drucker
was granted options to purchase 685,760 shares of our Common Stock at a price
per share of $0.15, which options began to vest and become exercisable in
thirty-six equal monthly installments from the Drucker Effective Date. These
options are exercisable by Mr. Drucker for a ten (10) year period following the
Drucker Effective Date, but in any case not later than four (4) years after
termination of the Agreement.
Mr. Drucker's employment agreement has no stated term and is terminable by
either party upon 90 days prior notice or by the Company with 30 days prior
notice in the event of a termination for cause (including a 15 day opportunity
to cure). Mr. Drucker is prohibited, during the term of his employment and for a
period of 12 months thereafter, from competing with the Company or its
subsidiary or soliciting any of the Company's or its subsidiary's customers or
employees. Moreover, Mr. Drucker's employment agreement provides that in the
event that the Company terminates his employment without cause, or in the event
that Mr. Drucker resigns as a result of a constructive discharge or in the event
of termination of employment by reason of his disability or death, all of the
remaining unvested options granted to Mr. Drucker shall vest immediately as of
the notice of termination, and Mr. Drucker or his successor shall be entitled to
exercise the vested options from the date of such termination until the earlier
of four (4) years thereafter or their expiration date. In the event that Mr.
Drucker's employment is terminated by reason of disability or death or within
two (2) years of the Drucker Effective Date, only 67% of the remaining unvested
options shall vest immediately as of the date of the notice of termination. In
the event that the Company terminates Mr. Drucker's employment with cause, he
shall be entitled to exercise the options vested as of the date of the notice of
termination until 12 months following such date.
51
David Stolick. Pursuant to his employment agreement effective as of February 13,
2005 (the "Stolick Effective Date"), Mr. Stolick is entitled to an initial base
salary of 20,000 New Israeli Shekel (NIS) per month (approximately $4,470),
which shall be increased six (6) months subsequent to the Stolick Effective
Date, to NIS 28,000 per month. Mr. Stolick was granted, pursuant to the
Company's Global Plan, options to purchase 400,000 shares of the Company's
Common Stock at a price per share of $0.75 each, which options will vest and
become exercisable in thirty-six equal monthly installments from the Stolick
Effective Date. These options shall be exercisable by Mr. Stolick for a ten (10)
year period following the Stolick Effective Date, but in any case not later than
two (2) years after termination of the Agreement. On February 6, 2006, in light
of the significant decline in the Company's share price in the last fiscal year,
our Board of Directors approved the repricing of Mr. Stolick's 400,000 options
to have an exercise price of $0.15 per share. Mr. Stolick will be entitled to
coverage under the Company's Directors' and Officers' liability insurance policy
and to a written undertaking from the Company and its subsidiary to indemnify
and release him to the full extent possible in accordance with the Israeli
Companies Law 5759-1999 and the applicable laws of the State of Washington.
Mr. Stolick's employment agreement has no stated term and is terminable by
either party upon 90 days prior notice or by the Company without prior notice in
the event of a termination for cause. In the event that Mr. Stolick resigns as a
result of constructive discharge, or in the event of termination of employment
by reason of Mr. Stolick's disability or death, 67% of the remaining unvested
options granted to Mr. Stolick shall vest immediately as of the date of the
notice of termination, and Mr. Stolick or his successor shall be entitled to
exercise the vested options from the date of such termination until the earlier
of two (2) years thereafter or their expiration date. Mr. Stolick is prohibited,
during the term of his employment and for a period of 12 months thereafter, from
competing with the Company or its subsidiary or soliciting any of the Company's
or its subsidiary's customers or employees.
Dr. Yaffa Beck. On March 20, 2006, in connection with Dr. Beck's resignation
from her positions as officer and director of the Company, the Company and the
Subsidiary (collectively, the "Company") entered into a Termination Agreement
and General Release (the "Termination Agreement") with Dr. Beck. Under the
Termination Agreement, the Company and Dr. Beck agreed to terminate their
employment relationship effective February 9, 2006. Pursuant to the Termination
Agreement, the Company will pay in 10 monthly installments beginning on March 1,
2006, a total of $47,355 to Dr. Beck. In the event that the Company raises an
aggregate of $1,000,000 through equity financings after February 9, 2006, the
Company will pay the then total outstanding amount in one lump-sum payment. In
addition, if the Company is granted certain EC research and development grants
as detailed in the Termination Agreement, it will pay Dr. Beck a bonus of
$30,000 upon the earlier of (i) 15 days after the Company receives an initial
payment of such EC grant of at least $50,000 or (ii) 15 days after the receipt
of aggregate proceeds of $1,000,000 from equity financings. Under the
Termination Agreement, options granted to Dr. Beck to acquire 800,000 shares of
the Company's Common Stock at an exercise price of $0.15 per share are fully
vested and are exercisable until February 9, 2010. All other options previously
granted to Dr. Beck are forfeited to the Company as of the date of the
Termination Agreement. The Company has recently been notified that its
applications for the said EC research and development grants have been declined
and therefore Dr. Beck shall not be entitled to receive the aforementioned
$30,000 bonus.
Moreover, under the Termination Agreement, Dr. Beck released the Company from
any and all claims arising out of or related to her employment or termination
from employment with the Company, except for (i) claims based on the enforcement
of the Termination Agreement, (ii) claims for unemployment payment, (iii) claims
based on events occurring after the date of the Termination Agreement and (iv)
any right of Dr. Beck under the Company's 2004 Global Share Option Plan with
respect to the 800,000 vested stock options granted to Dr. Beck. The Company
released Dr. Beck from any and all claims arising out of or related to Dr.
Beck's employment or termination from employment with the Company, except for
(i) claims based on the enforcement of the Termination Agreement and (ii) claims
based on events occurring after the date of the Termination Agreement.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 31, 2006 with
respect to the beneficial ownership of Common Stock of the Company by the
following: (i) each of the Company's current directors; (ii) each of the Named
Executive Officers; (iii) all of the current executive officers and directors as
a group; and (iv) each person known by the Company to own beneficially more than
five percent (5%) of the outstanding shares of the Company's Common Stock.
52
For purposes of the following table, beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission (the "SEC")
and the information is not necessarily indicative of beneficial ownership for
any other purpose. Except as otherwise noted in the footnotes to the table, the
Company believes that each person or entity named in the table has sole voting
and investment power with respect to all shares of BrainStorm Common Stock shown
as beneficially owned by that person or entity (or shares such power with his or
her spouse). Under the SEC's rules, shares of BrainStorm Common Stock issuable
under options that are exercisable on or within 60 days after March 31, 2006
("Presently Exercisable Options") or under warrants that are exercisable on or
within 60 days after March 31, 2006 ("Presently Exercisable Warrants") are
deemed outstanding and therefore included in the number of shares reported as
beneficially owned by a person or entity named in the table and are used to
compute the percentage of the Common Stock beneficially owned by that person or
entity. These shares are not, however, deemed outstanding for computing the
percentage of the Common Stock beneficially owned by any other person or entity.
Unless otherwise indicated, the address of each person listed in the table is
c/o BrainStorm Cell Therapeutics Inc., 1350 Avenue of the America, New York, NY
10019.
The percentage of the Common Stock beneficially owned by each person or entity
named in the following table is based on 22,854,587 shares of Common Stock
outstanding as of March 31, 2006 plus any shares issuable upon exercise of
Presently Exercisable Options and Presently Exercisable Warrants held by such
person or entity.
53
Shares Beneficially Owned
--------------------------------------
Name and Address of Beneficial Owner Number of Shares Percentage of Class
------------------------------------------------- ---------------- -------------------
Directors, Nominees and Named Executive Officers
Dr. Yaffa Beck (Former Chief Executive Officer) 800,000 (1) 3.4%
Yoram Drucker 751,230 (2) 3.2%
David Stolick 172,359 (3) *
Irit Arbel 2,333,333 (4) 10.2%
Michael Greenfield (Ben Ari) 100,000 (5) *
Robert Shorr 100,000 (6) *
All current directors and executive officers
as a group (5 persons) 3,456,922 14.8%
5% Shareholders
Ramot at Tel Aviv University Ltd.
32 Haim Levanon St.
Tel Aviv University, Ramat Aviv
Tel Aviv, L3 61392 6,363,849 (7) 21.8%
Eldad Melamed
c/o Rabin Medical Center
Beilinson Campus
Sackler School of Medicine, Tel Aviv University
Petah-Tikva, L3 49100 2,688,178 (8) 10.5%
Daniel Offen
c/o Felsenstein Medical Research Center
Rabin Medical Center, Tel Aviv University
Petah-Tikva, L3 49100 2,688,177 (9) 10.5%
Zegal & Ross Capital 2,600,000 (10) 11.4%
1748 54th Street
Brooklyn, NY 11204
Basad Holdings Ltd.
55 Ameer Avenue, Suite 9050
Toronto, Ontario, Canada M6A2Z1 1,610,000 (11) 7.0%
Shareholder group 7,347,263 (12) 31.6%
---------
* Less than 1%.
(1) Consists of 800,000 shares of Common Stock issuable upon the exercise of
Presently Exercisable Options at an exercise price of $0.15.
(2) Consists of (i) 400,000 shares of Common Stock owned by Mr. Drucker; and
(ii) 351,230 shares of Common Stock issuable upon the exercise of
Presently Exercisable Options at an exercise price of $0.15. Mr. Drucker
is also considered to be a member of a group within the meaning of Section
13(d)(3) of the Securities Exchange Act (see note 12 below). Other than
the Lock-up agreements described below, the members of the group have not
entered into any agreement relating to the acquisition, disposition or
voting of such shares.
(3) Consists of 172,359 shares of Common Stock issuable upon the exercise of
Presently Exercisable Options at an exercise price of $0.15.
(4) Consists of (i) 2,300,000 shares of Common Stock owned by Dr. Arbel; and
(ii) 33,333 shares of Common Stock issuable upon the exercise of Presently
Exercisable Options at an exercise price of $0.75. Dr. Arbel is also
considered to be a member of a group within the meaning of Section
13(d)(3) of the Securities Exchange Act (see note 12 below). The members
of the group have not entered into any agreement relating to the
acquisition, disposition or voting of such shares. Dr. Arbel's address is
6 Hadison Street, Jerusalem, Israel.
54
(5) Consists of 100,000 shares of restricted stock, which shares are subject
to the Company's right to repurchase them at a purchase price of par value
($0.00005), which repurchase right expires in three (3) equal annual
installments beginning on May 27, 2006.
(6) Consists of 100,000 shares of restricted stock, which shares are subject
to the Company's right to repurchase them at a purchase price of par value
($0.00005), which repurchase right expires in three (3) equal annual
installments beginning on May 27, 2006.
(7) Consists of shares of Common Stock issuable upon the exercise of Presently
Exercisable Warrants. Tel Aviv University and Tel Aviv University Economic
Corp. Ltd. may each be deemed the beneficial owners of these shares. Based
solely on information provided in Schedule 13D filed with the SEC by Ramot
at Tel-Aviv University Ltd. on November 21, 2005.
(8) Consists of shares of Common Stock issuable upon the exercise of Presently
Exercisable Warrants. Based solely on information provided in Schedule 13D
filed with the SEC by Prof. Eldad Melamed on September 26, 2005.
(9) Consists of shares of Common Stock issuable upon the exercise of Presently
Exercisable Warrants. Based solely on information provided in Schedule 13D
filed with the SEC by Daniel Offen on September 26, 2005.
(10) Based solely on information provided in Schedule 13D filed with the SEC by
Zegal & Ross Capital on July 16, 2004.
(11) Based solely on information provided in Schedule 13D filed with the SEC by
Basad Holdings Ltd. on July 27, 2004.
(12) Information is based on Schedule 13Ds received by the Company from the
following persons indicating beneficial ownership of the following number
of shares, respectively: Irit Arbel (2,300,000), Inon Barnea (40,000),
Jonatan Berlin (300,000), Yoram Drucker (400,000), Ilan Drucker (300,000),
Rachel Even (460,000), Gil Mastey (190,000), Iris Nehorai (700,000), Ilana
Nehorai (750,000), Elazar Nehorai (700,000) Osnat Reuveni (700,000), Erez
Schwartz (300,000). The Schedule 13Ds indicate that (i) such persons are
considered to be a group within the meaning of Section 13(d)(3) of the
Securities Exchange Act; (ii) the members of the group have not entered
into any agreement relating to the acquisition, disposition or voting of
such shares; and (iii) each person has sole voting and dispositive power
with respect to his or her shares. Information also includes Yoram
Drucker's Presently Exercisable Options to purchase 351,230 shares of
Common Stock at an exercise price of $0.15 and Dr. Irit Arbel's Presently
Exercisable Options to purchase 33,333 shares of Common Stock at an
exercise price of $0.75.
Equity Compensation Plan Information
The following table summarizes certain information regarding our equity
compensation plan as of March 31, 2006:
Number of securities Number of securities
to be issued upon Weighted-average remaining available
exercise of exercise price of for future issuance
outstanding options, outstanding options, under equity
Plan Category warrants and rights warrants and rights compensation plans
-------------------------------------- -------------------- -------------------- --------------------
Equity compensation plans approved by 3,262,423(1) $0.383 4,781,039 (2)
security holders
Equity compensation plans not approved 0 0 0
by security holders
Total 3,262,423(1) 4,781,039 (2)
55
(1) Does not include 1,100,000 shares of restricted stock that the Company has
issued pursuant to the 2005 U.S. Stock Option and Incentive Plan to
scientific advisory board members, directors, service providers, and
consultants.
(2) A total of 9,143,462 shares of our Common Stock were reserved for issuance
in aggregate under the 2004 Global Share Option Plan and the 2005 U.S.
Stock Option and Incentive Plan. Any awards granted under the 2004 Global
Share Option Plan or the 2005 U.S. Stock Option and Incentive Plan will
reduce the total number of shares available for future issuance under the
other plan.
Lock-up Agreements
On March 21, 2005, we entered into lock-up agreements with (i) 29 shareholders
with respect to 15,290,000 shares of our Common Stock held by them, and (ii)
holders of warrants to purchase 12,800,844 shares of our Common Stock. Under
these lock-up agreements, these security holders may not transfer these
securities to anyone other than permitted transferees without the prior consent
of our Board of Directors, for the period of time as follows: (i) eighty-five
percent (85%) of the securities shall be restricted from transfer for the
twenty-four (24) month period following July 8, 2004 (the date of our original
research and license agreement with Ramot at Tel Aviv University Ltd.) and (ii)
fifteen percent (15%) of the securities shall be restricted from transfer for
the twelve (12) month period following July 8, 2004. On July 8, 2005, the above
lock-up agreements expired with respect to fifteen percent (15%) of the
foregoing securities.
On March 26, 2006, we entered into new lock-up agreements (the "New-Lock Up
Agreements") with each of Zegal & Ross Capital LLC, Ms. Irit Arbel, Based
Holdings Ltd., Ofilam LLC, and Yoram Drucker, with respect to 7,810,000 shares
of our Common Stock held by them. These lock-up agreements amend and restate the
previous lock-up agreements described above. Under the New Lock-Up Agreements,
these shareholders may not sell or otherwise transfer their shares to anyone
other than permitted transferees without the prior written consent of the
Company's Board of Directors, as follows: (i) eighty-five percent (85%) of the
shares will be restricted from transfer until December 31, 2006 and (ii) fifteen
percent (15%) of the shares will be free from the transfer restrictions. All of
the restrictions under the New Lock-Up Agreements will automatically terminate
upon the effectiveness of any registration statement filed by the Company for
the benefit of Ramot at Tel Aviv University Ltd.
Item 12. Certain Relationships and Related Transactions.
On July 8, 2004, we entered into 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 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.
As 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:
56
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 all 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 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). The Amended Research
and License Agreement also reduces potential payments concerning sublicenses
from 30% to 20-25% of Sublicense Receipts (as defined therein).
Item 13. Exhibits.
The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are
filed with or incorporated by reference in this report.
Item 14. Principal Accountant Fees and Services.
The following table presents fees for professional audit services rendered by
Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for the audit of
the Company's annual financial statements for the years ended March 31, 2006 and
2005, and fees billed for other services rendered by Kost Forer Gabbay &
Kasierer, a member of Ernst & Young Global during those periods.
2006 2005
------- -------
Audit Fees(1)............................................... $55,000 $47,974
Audit-Related Fees(2) ...................................... $ 0 $14,526
Tax Fees ................................................... -- --
All Other Fees.............................................. -- --
------- -------
Total Fees(3) .............................................. $55,000 $62,500
(1) Audit fees are comprised of fees for professional services performed
by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global,
for the audit of the Company's annual financial statements and the
review of the Company's quarterly financial statements, as well as
other services provided by Kost Forer Gabbay & Kasierer, a member of
Ernst & Young Global, in connection with statutory and regulatory
filings or engagements.
(2) Audit-related fees are comprised of fees related to the audits of
employee benefit plans.
(3) In addition to the Total Fees calculated above, the Company paid to
Manning Elliott LLP (a) $4,600 in fees for the review of one of the
Company's quarterly financial statements in the fiscal year ended
March 31, 2005 and (b) $750 in fees for other services provided in
connection with regulatory filings in the fiscal year ended March
31, 2006.
We do not use Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global,
for financial information system design and implementation. These services,
which include designing or implementing a system that aggregates source data
underlying the financial statements and generates information that is
significant to our financial statements, are provided internally or by other
service providers. We do not engage Kost Forer Gabbay & Kasierer, a member of
Ernst & Young Global, to provide compliance outsourcing services.
57
Pre-approval Policies
The Board of Directors pre-approves all services provided by our independent
auditors. All of the above services and fees were reviewed and approved by the
Board before the services were rendered.
The Board of Directors has considered the nature and amount of fees billed by
Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, and believes
that the provision of services for activities unrelated to the audit is
compatible with maintaining Kost Forer Gabbay & Kasierer's independence.
58
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.
Date: June 29, 2006 By: /s/ Yoram Drucker
----------------------------------------
Name: Yoram Drucker
Title: Chief Operating Officer
(Principal Executive Officer)
Date: June 29, 2006 By: /s/ David Stolick
----------------------------------------
Name: David Stolick
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
---------------------------- -------------------------------- ------------
/s/ Yoram Drucker Chief Operating Officer June 29, 2006
---------------------------- (Principal Executive Officer)
Yoram Drucker
/s/ David Stolick Chief Financial Officer June 29, 2006
---------------------------- (Principal Financial and
David Stolick Accounting Officer)
/s/ Irit Arbel Director June 29, 2006
----------------------------
Irit Arbel
/s/ Michael Greenfield Director June 29, 2006
----------------------------
Michael Greenfield (Ben-Ari)
/s/ Robert Shorr Director June 29, 2006
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Robert Shorr
59
EXHIBIT INDEX
Exhibit
No. Description
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3.1 Articles of Incorporation is incorporated herein by reference to
Exhibit 3.1 of the Company's Registration Statement on Form S-1 dated
May 24, 2001 (File No. 333-61610).
3.2 Articles of Amendment to the Articles of Incorporation, dated as of
July 31, 2003, is incorporated herein by reference to Exhibit 4.3 of
the Company's Registration Statement on Form S-8 dated February 15,
2006 (File No. 333-131880).
3.3 Certificate of Amendment to the Articles of Incorporation, dated as of
August 19, 2003, is incorporated herein by reference to Exhibit 4.2 of
the Company's Registration Statement on Form S-8 dated February 15,
2006 (File No. 333-131880).
3.4 Articles of Amendment to the Articles of Incorporation, dated as of
November 15, 2004, is incorporated herein by reference to Exhibit
3.(I) of the Company's Current Report on Form 8-K dated November 18,
2004 (File No. 333-61610).
3.5 By-laws is incorporated herein by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S- 1 dated May 24, 2001 (File
No. 333-61610).
10.1 Restricted Stock Purchase Agreement, dated as of April 28, 2003, by
and between Irit Arbel and Michael Frankenberger is incorporated
herein by reference to Exhibit 10.1 of the Company's Current Report on
Form 8- K dated May 21, 2004 (File No. 333-61610).
10.2 Letter of Intent, dated as of April 30, 2004, by and between the
Company and Ramot at Tel Aviv University Ltd. is incorporated herein
by reference to Exhibit 10.2 of the Company's Current Report on Form
8-K dated May 21, 2004 (File No. 333-61610).
10.3 Research and License Agreement, dated as of July 8, 2004, by and
between the Company and Ramot at Tel Aviv University Ltd. is
incorporated herein by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated July 8, 2004 (File No. 333-61610).
10.4 Research and License Agreement, dated as of March 30, 2006, by and
between the Company and Ramot at Tel Aviv University Ltd. is
incorporated herein by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated March 30, 2006 (File No. 333-61610).
10.5 Amendment Agreement, dated as of May 23, 2006, to Research and License
Agreement, by and between the Company and Ramot at Tel Aviv University
Ltd. is incorporated herein by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K/A dated March 30, 2006 (File No.
333-61610).
10.6 Form of Common Stock Purchase Warrant, dated as of November 4, 2004,
issued pursuant to Research and License Agreement with Ramot at Tel
Aviv University Ltd. is incorporated herein by reference to Exhibit
4.07 of the Company's Current Report on Form 8-K/A dated November 4,
2004 (File No. 333-61610).
10.7 Amendment Agreement, dated as of March 31, 2006, among the Company,
Ramot at Tel Aviv University Ltd. and certain warrantholders is
incorporated herein by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K dated March 30, 2006 (File No. 333-61610).
10.8 Form of Common Stock Purchase Warrant, dated as of November 4, 2004,
issued as a replacement warrant under the Amendment Agreement to Ramot
at Tel Aviv University Ltd., is incorporated herein by reference to
Exhibit 10.4 of the Company's Current Report on Form 8-K dated March
30, 2006 (File No. 333-61610).
10.9 Amended and Restated Registration Rights Agreement, dated as of March
31, 2006, by and between the Company and certain warrant holders is
incorporated herein by reference to Exhibit 10.3 of the Company's
Current Report on Form 8-K dated March 30, 2006 (File No. 333-61610).
10.10 Consulting Agreement, dated as of July 8, 2004, by and between the
Company and Prof. Eldad Melamed is incorporated herein by reference to
Exhibit 10.2 of the Company's Current Report on Form 8-K dated July 8,
2004 (File No. 333-61610).
60
10.11 Consulting Agreement, dated as of July 8, 2004, by and between the
Company and Dr. Daniel Offen is incorporated herein by reference to
Exhibit 10.3 of the Company's Current Report on Form 8-K dated July 8,
2004 (File No. 333-61610).
10.12 Form of Warrant to purchase common stock dated as of November 4, 2004
issued pursuant to consulting agreements with Prof. Eldad Melamed and
Dr. Daniel Offen is incorporated herein by reference to Exhibit 4.08
of the Company's Current Report on Form 8-K/A dated November 4, 2004
(File No. 333-61610).
10.13 Common Stock Purchase Agreement, dated as of October 22, 2004, by and
between the Company and certain buyers is incorporated herein by
reference to Exhibit 10.03 of the Company's Current Report on Form 8-K
dated October 22, 2004 (File No. 333-61610).
10.14 Subscription Agreement, dated as of October 22, 2004, by and between
the Company and certain buyers is incorporated herein by reference to
Exhibit 10.04 of the Company's Current Report on Form 8-K dated
October 22, 2004 (File No. 333-61610).
10.15 Form of Class A Common Stock Purchase Warrant to purchase common stock
for $1.50 per share, dated as of October 2004, issued to certain
buyers pursuant to Common Stock Purchase Agreement with certain buyers
is incorporated herein by reference to Exhibit 4.03 of the Company's
Current Report on Form 8-K dated October 22, 2004 (File No.
333-61610).
10.16 Form of Class B Common Stock Purchase Warrant to purchase common stock
for $2.50 per share, dated as of October 2004, issued to certain
buyers pursuant to Common Stock Purchase Agreement with certain buyers
is incorporated herein by reference to Exhibit 4.04 of the Company's
Current Report on Form 8-K dated October 22, 2004 (File No.
333-61610).
10.17* Employment Agreement, dated as of November 8, 2004, by and between the
Company and Dr. Yaffa Beck is incorporated herein by reference to
Exhibit 10.5 of the Company's Current Report on Form 8-K dated
November 4, 2004 (File No. 333-61610).
10.18* Termination Agreement and General Release, dated as of March 20, 2006,
by and between the Company and Dr. Yaffa Beck is incorporated herein
by reference to Exhibit 10.1 of the Company's Current Report on Form
8-K dated March 20, 2006 (File No. 333-61610).
10.19* Employment Agreement, dated as of November 16, 2004, by and between
the Company and Yoram Drucker is incorporated herein by reference to
Exhibit 10.6 of the Company's Current Report on Form 8-K dated
November 16, 2004 (File No. 333-61610).
10.20 Consulting Agreement, dated as of December 23, 2004, by and between
the Company and Malcolm E. Taub is incorporated herein by reference to
Exhibit 10.7 of the Company's Current Report on Form 8-K dated
December 23, 2004 (File No. 333-61610).
10.21 Common Stock Purchase Warrant, dated as of December 23, 2004, issued
to Malcolm E. Taub is incorporated herein by reference to Exhibit 4.5
of the Company's Current Report on Form 8-K dated December 23, 2004
(File No. 333-61610).
10.22 Consulting Agreement, dated as of December 23, 2004, by and between
the Company and Ernest Muller is incorporated herein by reference to
Exhibit 10.8 of the Company's Current Report on Form 8-K dated
December 23, 2004 (File No. 333-61610).
10.23 Common Stock Purchase Warrant, dated as of December 23, 2004, issued
to Ernest Muller is incorporated herein by reference to Exhibit 4.6 of
the Company's Current Report on Form 8-K dated December 23, 2004 (File
No. 333-61610).
10.24* Employment Agreement, dated as of January 16, 2005, by and between the
Company and David Stolick is incorporated herein by reference to
Exhibit 10.9 of the Company's Current Report on Form 8-K dated January
16, 2005 (File No. 333-61610).
61
10.25 Lease Agreement, dated as of December 1, 2004, among the Company,
Petah Tikvah Science and Technology District `A' Ltd., Petah Tikvah
Science and Technology District `B' Ltd. and Atzma and Partners
Maccabim Investments Ltd. is incorporated herein by reference to
Exhibit 10.10 of the Company's Quarterly Report on Form 10-QSB dated
December 31, 2004 (File No. 333-61610).
10.26 Form of Lock-up Agreement, dated as of March 21, 2005, by and between
the Company and certain shareholders of the Company is incorporated
herein by reference to Exhibit 10.10 of the Company's Current Report
on Form 8-K dated March 21, 2005 (File No. 333-61610).
10.27 Form of Lock-up Agreement, dated as of March 26, 2006, by and between
the Company and certain shareholders of the Company is incorporated
herein by reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K dated March 26, 2006 (File No. 333-61610).
10.28* The 2004 Global Share Option Plan is incorporated herein by reference
to Exhibit 10.11 of the Company's Current Report on Form 8-K dated
March 28, 2005 (File No. 333-61610).
10.29* 2005 U.S. Stock Option and Incentive Plan is incorporated herein by
reference to Exhibit 10.12 of the Company's Current Report on Form 8-K
dated March 28, 2005 (File No. 333-61610).
10.30* Option Agreement, dated as of December 31, 2004, by and between the
Company and Yaffa Beck is incorporated herein by reference to Exhibit
10.13 of the Company's Current Report on Form 8-K dated March 28, 2005
(File No. 333-61610).
10.31* Option Agreement, dated as of December 31, 2004, by and between the
Company and Yoram Drucker is incorporated herein by reference to
Exhibit 10.14 of the Company's Current Report on Form 8-K dated March
28, 2005 (File No. 333-61610).
10.32* Option Agreement, dated as of December 31, 2004, by and between the
Company and David Stolick is incorporated herein by reference to
Exhibit 10.15 of the Company's Current Report on Form 8-K dated March
28, 2005 (File No. 333-61610).
10.33* Amendment to Option Agreement, dated as of February 6, 2006, by and
between the Company and David Stolick is incorporated herein by
reference to Exhibit 10.2 of the Company's Current Report on Form 8-K
dated February 6, 2006 (File No. 333-61610).
10.34 Common Stock Purchase Warrant, dated as of May 16, 2005, issued to
Trout Capital LLC is incorporated herein by reference to Exhibit 10.19
of the Company's Quarterly Report on Form 10-QSB dated June 30, 2005
(File No. 333-61610).
10.35 Restricted Stock Award Agreement under 2005 U.S. Stock Option and
Incentive Plan issued by the Company to Scientific Advisory Board
Members in April, 2005 is incorporated herein by reference to Exhibit
10.18 of the Company's Quarterly Report on Form 10-QSB dated June 30,
2005 (File No. 333-61610).
10.36 Form of Investor Questionnaire and Subscription Agreement, dated
October 2005, by and between the Company and certain investors is
incorporated herein by reference to Exhibit 10.20 of the Company's
Current Report on Form 8-K dated September 30, 2005 (File No.
333-61610).
10.37 Form of Common Stock Purchase Warrant to purchase common stock for
$1.00 per share, dated as of September 2005, issued to certain
investors pursuant to a private placement with certain investors is
incorporated herein by reference to Exhibit 4.09 of the Company's
Current Report on Form 8-K dated September 30, 2005 (File No.
333-61610).
10.38 Form of Investor Questionnaire and Subscription Agreement, dated
December 2005, by and between the Company and certain investors is
incorporated herein by reference to Exhibit 10.21 of the Company's
Current Report on Form 8-K dated December 7, 2005 (File No.
333-61610).
10.39 Form of Common Stock Purchase Warrant to purchase common stock for
$1.00 per share, dated as of December 2005, issued to certain
investors pursuant to a private placement with certain investors is
incorporated herein by reference to Exhibit 4.10 of the Company's
Current Report on Form 8-K dated December 7, 2005 (File No.
333-61610).
62
10.40 Convertible Promissory Note, dated as of February 7, 2006, issued by
the Company to Vivian Shaltiel is incorporated herein by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated
February 6, 2006 (File No. 333-61610).
10.41 Convertible Promissory Note, dated as of June 5, 2006, issued by the
Company to Vivian Shaltiel is incorporated herein by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated June 5,
2006 (File No. 333-61610).
10.42 Amendment to Convertible Promissory Notes, dated as of June 13, 2006,
by and between the Company and Vivian Shaltiel.
21 Subsidiaries of the Company.
23 Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global.
31.1 Certification by the Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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* Management contract or compensatory plan or arrangement filed in response to
Item 13 of Form 10-KSB.
63