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

FORM 10-QSB

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2007

o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________ TO ________.

COMMISSION FILE NUMBER 333-61610

BRAINSTORM CELL THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
20-8133057
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
110 EAST 59th STREET
NEW YORK, NY 10022
(Address of principal executive offices)

(212) 557-9000
(Registrant's telephone number)

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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

As of November 10, 2007, the number of shares outstanding of the Registrant's Common Stock, $0.00005 par value per share, was 36,379,409.

Transitional Small Business Disclosure Format (Check one): Yes o No x.

 
TABLE OF CONTENTS
 
 
 
Page
Number
PART I
 
3
 
 
 
Item 1. Financial Statements
 
4
Item 2. Plan of Operation
 
27
Item 3. Controls and Procedures
 
39
 
 
 
PART II
 
40
 
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
40
Item 6. Exhibits
 
40
 
2
 
PART I: FINANCIAL INFORMATION

SPECIAL NOTE
 
Unless otherwise specified in this report, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains numerous statements, descriptions, forecasts and projections, regarding Brainstorm Cell Therapeutics Inc. and its potential future business operations and performance. These statements, descriptions, forecasts and projections constitute “forward-looking statements,” and as such involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance and achievements to be materially different from any results, levels of activity, performance and achievements expressed or implied by any such “forward-looking statements.” Some of these are described under “Risk Factors” in this report and in our report on Form 10-KSB for the transition period ended December 31, 2006. 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 “Risk Factors” in addition to the other information set forth herein and elsewhere in our other public filings with the Securities and Exchange Commission.
 
3
 
Item 1. Financial Statements.
 
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2007

IN U.S. DOLLARS IN THOUSANDS

UNAUDITED

INDEX


 
Page
   
Consolidated Balance Sheets
5
   
Consolidated Statements of Operations
6
   
Statements of Changes in Stockholders' Equity (Deficiency)
7 - 8
   
Consolidated Statements of Cash Flows
9
   
Notes to Consolidated Financial Statements
10 - 20
 
- - - - - - - - - - - - - - - - - - -

4
 

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED BALANCE SHEETS 
In U.S. dollars in thousands (except share and per share data)
 
   
September 30,
  
December 31,
  
   
2007
  
2006
  
   
Unaudited
      
ASSETS
          
           
CURRENT ASSETS:
          
Cash and cash equivalents
  
$
241
  
$
60
  
Restricted cash
    
34
    
32
  
Accounts receivable and prepaid expenses
   
75
    
42
  
               
Total current assets
    
350
    
134
  
               
LONG-TERM INVESTMENTS:
              
Prepaid expenses
    
12
    
8
  
Severance pay fund
    
65
    
38
  
               
Total Long-term investments
    
77
    
46
  
               
PROPERTY AND EQUIPMENT, NET
   
549
    
491
  
               
OTHER ASSETS, NET
   
10
    
52
  
               
Total assets
  
$
986
  
$
723
  
               
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
              
               
CURRENT LIABILITIES:
              
Trade payables
  
$
495
  
$
721
  
Other accounts payable and accrued expenses
   
1,030
    
651
  
Short-term convertible loans
   
1,154
    
937
  
Short-term loan
   
-
    
189
  
               
Total current liabilities
   
2,679
    
2,498
  
               
LONG TERM CONVERTIBLE LOANS
   
375
    
-
  
               
ACCRUED SEVERANCE PAY
   
75
    
41
  
               
Total liabilities
    
3,129
    
2,539
  
               
STOCKHOLDERS' DEFICIENCY:
              
Stock capital: (Note 7)
              
Common stock of $0.00005 par value - Authorized: 800,000,000 shares at September 30, 2007 and December 31, 2006; Issued and outstanding: 36,299,409 and 24,201,812 shares at September 30, 2007 and December 31, 2006, respectively
    
2
    
1
  
Additional paid-in capital
    
28,437
    
24,427
  
Deficit accumulated during the development stage
    
(30,582
)
  
(26,244
)
               
Total stockholders' deficiency
   
(2,143
)
  
(1,816
)
               
Total liabilities and stockholders' deficiency
  
$
986
  
$
723
  

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

5
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS 
In U.S. dollars in thousands (except share data)

   
Nine months ended
September 30,
  
Period from September 22,
2000 (inception
date) through September 30,
  
   
2007
  
2006
  
2007
  
   
Unaudited
  
Unaudited
  
               
Operating costs and expenses:
              
               
Research and development
  
$
809
  
$
710
  
$
3,125
  
Research and development expenses (income) related to stocks, warrants and options granted to employees and service providers
   
513
    
(535
)
  
16,306
  
General and administrative
    
566
    
656
    
2,457
  
General and administrative expenses related to stocks, warrants and options granted to employees and service providers
    
1,504
    
1,573
    
6,683
  
                     
Total operating costs and expenses
    
3,392
    
2,404
    
28,571
  
                     
Financial expenses, net
    
930
    
234
    
1,947
  
                     
     
4,322
    
2,638
    
30,518
  
Taxes on income
   
16
    
25
    
70
  
                     
Loss from continuing operations
    
4,338
    
2,663
    
30,588
  
Net loss from discontinued operations
   
-
    
-
    
164
  
                     
Net loss
 
$
4,338
  
$
2,663
  
$
30,752
  
                     
Basic and diluted net loss per share from continuing operations
  
$
0.16
  
$
0.11
        
                     
Weighted average number of shares outstanding used in computing basic and diluted net loss per share
    
26,373,349
    
23,157,385
        
 
The accompanying notes are an integral part of the consolidated financial statements.

6
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) 
In U.S. dollars in thousands (except share data)

               
Deficit accumulated
  
Total
  
       
Additional
  
Deferred
  
during the
  
stockholders'
  
   
Common stock
  
paid-in
  
stock-based
  
development
  
equity
  
   
Number
  
Amount
  
capital
  
compensation
  
stage
  
(deficiency)
  
                           
Balance as of September 22, 2000 (date of inception)
    
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
                                       
Stock issued on September 22, 2000 for cash at $ 0.00188 per share
    
8,500,000
    
1
    
15
    
-
    
-
    
16
  
Stock issued on March 31, 2001 for cash at $ 0.0375 per share
    
1,600,000
    
-
    
60
    
-
    
-
    
60
  
Contribution of capital
   
-
    
-
    
8
    
-
    
-
    
8
  
Net loss
    
-
    
-
    
-
    
-
    
(17
)
  
(17
)
                                       
Balance as of March 31, 2001
    
10,100,000
    
1
    
83
    
-
    
(17
)
  
67
  
                                       
Contribution of capital
   
-
    
-
    
11
    
-
    
-
    
11
  
Net loss
    
-
    
-
    
-
    
-
    
(26
)
  
(26
)
                                       
Balance as of March 31, 2002
    
10,100,000
    
1
    
94
    
-
    
(43
)
  
52
  
                                       
Contribution of capital
    
-
    
-
    
15
    
-
    
-
    
15
  
Net loss
    
-
    
-
    
-
    
-
    
(47
)
  
(47
)
                                       
Balance as of March 31, 2003
    
10,100,000
    
1
    
109
    
-
    
(90
)
  
20
  
                                       
2-for-1 stock split
    
10,100,000
    
-
    
-
    
-
    
-
    
-
  
Stock issued on August 31, 2003 to purchase mineral option at $ 0.065 per share
    
100,000
    
-
    
6
    
-
    
-
    
6
  
Cancellation of shares granted to Company's President
    
(10,062,000
)
  
(1
)
  
1
    
-
    
-
    
-
  
Contribution of capital
    
-
    
-
    
15
    
-
    
-
    
15
  
Net loss
    
-
    
-
    
-
    
-
    
(73
)
  
(73
)
 
                                      
Balance as of March 31, 2004
    
10,238,000
    
-
    
131
    
-
    
(163
)
  
(32
)
                                       
Stock issued on September 24, 2004 for private placement at $ 0.01 per share, net of $ 25,000 issuance expenses (Note 7c(1)(a))
   
8,510,000
    
1
    
60
    
-
    
-
    
61
  
Contribution of capital (Note 7b)
    
-
    
-
    
7
    
-
    
-
    
7
  
Stock issued in 2004 for private placement at $ 0.75 per unit (Note 7c(1)(b))
    
1,894,808
    
-
    
1,418
    
-
    
-
    
1,418
  
Cancellation of shares granted to service providers
   
(1,800,000
)
  
-
    
-
    
-
    
-
    
-
  
Deferred stock-based compensation related to options granted to employees
   
-
    
-
    
5,979
    
(5,979
)
  
-
    
-
  
Amortization of deferred stock-based compensation related to stock and options granted to employees (Note 7c(2))
    
-
    
-
    
-
    
584
    
-
    
584
  
Compensation related to stock and options granted to service providers (Note 7c(3)(c))
    
2,025,000
    
-
    
17,506
    
-
    
-
    
17,506
  
Net loss
    
-
    
-
    
-
    
-
    
(18,840
)
  
(18,840
)
                                       
Balance as of March 31, 2005
    
20,867,808
    
1
    
25,101
    
(5,395
)
  
(19,003
)
  
704
  
 
The accompanying notes are an integral part of the consolidated financial statements.

7
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) 
In U.S. dollars in thousands (except share data)

               
Deficit accumulated
  
Total
  
       
Additional
  
Deferred
  
during the
  
stockholders'
  
   
Common stock
  
paid-in
  
stock-based
  
development
  
equity
  
   
Number
  
Amount
  
capital
  
compensation
  
stage
  
(deficiency)
  
Balance as of March 31, 2005
    
20,867,808
  
$
1
  
$
25,101
  
$
(5,395
)
$
(19,003
)
$
704
  
                                       
Stock issued on May 12, 2005 for private placement at $ 0.8 per share (Note 7c(1)(d))
    
186,875
    
-
    
149
    
-
    
-
    
149
  
Stock issued on July 27, 2005 for private placement at $ 0.6 per share (Note 7c(1)(e))
    
165,000
    
-
    
99
    
-
    
-
    
99
  
Stock issued on September 30, 2005 for private placement at $0.8 per share (Note 7c(1)(f))
    
312,500
    
-
    
225
    
-
    
-
    
225
  
Stock issued on December 07, 2005 for private placement at $0.8 per share (Note 7c(1)(f))
    
187,500
    
-
    
135
    
-
    
-
    
135
  
Forfeiture of options granted to employees
    
-
    
-
    
(3,363
)
  
3,363
    
-
    
-
  
Deferred stock-based compensation related to stock and options granted to directors and employees
    
200,000
    
-
    
486
    
(486
)
  
-
    
-
  
Stock-based compensation related to options and stock granted to employees and directors (Note 7c(2))
    
-
    
-
    
51
    
1,123
    
-
    
1,174
  
Stock-based compensation related to options and stock granted to service providers (Note 7c(3)(c))
    
934,904
    
-
    
662
    
-
    
-
    
662
  
Reclassification due to application of EITF 00-19
               
(7,906
)
              
(7,906
)
Beneficial conversion feature related to a convertible bridge loan
    
-
    
-
    
164
    
-
    
-
    
164
  
Net loss
    
-
    
-
    
-
    
-
    
(3,317
)
  
(3,317
)
                                       
Balance as of March 31, 2006
    
22,854,587
    
1
    
15,803
    
(1,395
)
  
(22,320
)
  
(7,911
)
                                       
Elimination of deferred stock compensation due to implementation of FAS 123(R)
    
-
    
-
    
(1,395
)
  
1,395
    
-
    
-
  
Stock-based compensation related to stock and options granted to directors and employees
    
200,000
    
-
    
1,168
    
-
    
-
    
1,168
  
Reclassification due to application of EITF 00-19
   
-
    
-
    
7,191
    
-
    
-
    
7,191
  
Stock-based compensation related to options and stock granted to service providers (Note 7c)
    
1,147,225
    
-
    
453
    
-
    
-
    
453
  
Warrants issued to convertible note holder
    
-
    
-
    
11
    
-
    
-
    
11
  
Warrants issued to loan holder
   
-
    
-
    
110
    
-
    
-
    
110
  
Beneficial conversion feature related to convertible bridge loans
    
-
    
-
    
1,086
    
-
    
-
    
1,086
  
Net loss
    
-
    
-
    
-
    
-
    
(3,924
)
  
(3,924
)
                                       
Balance as of December 31, 2006
    
24,201,812
    
1
    
24,427
    
-
    
(26,244
)
  
(1,816
)
                                       
Stock-based compensation related to options and stock granted to service providers (Note 7c(3))
    
464,095
    
-
    
1,047
    
-
    
-
    
1,047
  
Warrants issued to convertible note holder (Note 6)
    
-
    
-
    
64
    
-
    
-
    
64
  
Stock-based compensation related to stock and options granted to directors and employees
    
200,000
    
-
    
970
    
-
    
-
    
970
  
Beneficial conversion feature related to convertible bridge loans (Note 6)
    
-
    
-
    
296
    
-
    
-
    
296
  
Conversion of convertible loans
   
725,881
    
-
    
170
    
-
    
-
    
170
  
Exercise of warrants 
    
3,832,621
    
-
    
214
    
-
    
-
    
214
  
Stock issued for private placement at $ 0.1818 per unit (Note 7g)
    
6,875,000
    
1
    
1,249
    
-
    
-
    
1,250
  
Net loss
    
-
    
-
    
-
    
-
    
(4,338
)
  
(4,338
)
 
                                      
Balance as of September 30, 2007 (unaudited)
    
36,299,409
  
$
2
  
$
28,437
  
$
-
  
$
(30,582
)
$
(2,143
)

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

8
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS 
In U.S. dollars in thousands

   
Nine months ended
September 30,
  
Period from September 22,
2000 (inception
date) through September 30,
  
   
2007
  
2006
  
2007
  
   
Unaudited
  
Unaudited
  
Cash flows from operating activities:
              
               
Net loss
  
$
(4,338
)
$
(2,663
)
$
(30,752
)
Less - loss for the period from discontinued operations
    
-
    
-
    
164
  
Adjustments to reconcile net loss to net cash used in operating activities:
                    
Depreciation
    
126
    
113
    
332
  
Erosion of restricted cash
    
(2
)
  
(2
)
  
-
  
Accrued severance pay, net
    
7
    
5
    
10
  
Accrued interest on loans
    
(101
)
  
72
    
(22
)
Amortization of discount on short-term loans
    
670
    
240
    
1,520
  
Change in fair value of options and warrants
    
-
    
(795
)
  
(795
)
Expenses related to stocks and options granted to service providers
   
1,047
    
852
    
19,905
  
Amortization of deferred stock-based compensation related to options granted to employees and directors
    
970
    
900
    
3,895
  
Increase in accounts receivable and prepaid expenses
   
(33
)
  
(37
)
  
(74
)
Increase (decrease) in trade payables
   
(226
)
  
38
    
495
  
Increase in other accounts payable and accrued expenses
    
379
    
202
    
1,025
  
                     
Net cash used in continuing operating activities
    
(1,501
)
  
(1,075
)
  
(4,297
)
Net cash used in discontinued operating activities
    
-
    
-
    
(23
)
                     
Total net cash used in operating activities
   
(1,501
)
  
(1,075
)
  
(4,320
)
                     
Cash flows from investing activities:
                    
                     
Purchase of property and equipment
    
(129
)
  
(115
)
  
(709
)
Restricted cash
    
-
    
-
    
(34
)
Investment in lease deposit
    
(4
)
  
(1
)
  
(12
)
                     
Net cash used in continuing investing activities
    
(133
)
  
(116
)
  
(755
)
Net cash used in discontinued investing activities
    
-
    
-
    
(16
)
                     
Total net cash used in investing activities
    
(133
)
  
(116
)
  
(771
)
                     
Cash flows from financing activities:
                    
                     
Proceeds from issuance of common stock and warrants
   
1,250
    
-
    
3,336
  
Proceeds from loans, notes and issuance of warrants net
    
673
    
1,157
    
2,061
  
Repayment of loans
   
(133
)
  
-
    
(322
)
Proceeds from exercise of warrants
    
25
    
-
    
214
  
                     
Net cash provided by continuing financing activities
    
1,815
    
1,157
    
5,289
  
Net cash provided by discontinued financing activities
    
-
    
-
    
43
  
                     
Total net cash provided by financing activities
    
1,815
    
1,157
    
5,332
  
                     
Increase (decrease) in cash and cash equivalents
    
181
    
(34
)
  
241
  
Cash and cash equivalents at the beginning of the period
    
60
    
87
    
-
  
                     
Cash and cash equivalents at end of the period
  
$
241
  
$
53
  
$
241
  


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

9

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)
 
NOTE 1:-
GENERAL

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

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

 
c.
On July 8, 2004, the Company entered into a licensing agreement with Ramot of Tel Aviv University Ltd. ("Ramot"), an Israeli corporation, to acquire certain stem cell technology (see Note 4 to the financial statements as of December 31, 2006). Subsequent to this agreement, the Company decided to focus on the development of novel cell therapies for neurodegenerative diseases, particularly, Parkinson's disease, based on the acquired technology and research to be conducted and funded by the Company.

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

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

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

 
f.
On December 21, 2006, the Company changed its state of incorporation from Washington to Delaware.

 
g.
As of September 30, 2007, the Company had accumulated deficit of $30,752, working capital deficiency of $2,329, incurred net loss of $4,508 and negative cash flows from operating activities in the amount of $1,501 for the nine months ended September 30, 2007. In addition, the Company has not yet generated any revenues.

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

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.

10
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)
 
NOTE 1:-
GENERAL (Cont.)

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

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

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2006, are applied consistently in these financial statements.

NOTE 3:-
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements have been prepared in a condensed format and include the consolidated financial operations of the Company and its fully owned subsidiary as of September 30, 2007 and for the nine months then ended, in accordance with accounting principles generally accepted in the United States relating to the preparation of financial statements for interim periods. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2007, are not necessarily indicative of the results that may be expected for the year ended December 31, 2007.

NOTE 4:-
RESEARCH AND LICENSE AGREEMENT

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

11

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

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

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

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

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

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

In addition, on August 1, 2007, the Company entered into the Second Amended and Restated Registration Rights Agreement with Ramot. According to the Second Amended and Restated Registration Rights Agreement, Ramot waived their demand for registration rights, according to the amended registration rights agreement dated March 31, 2006, and instead agreed to piggyback registration rights in the event that the Company files a registration statement.

NOTE 5:-
CONSULTING AGREEMENTS

The Company's total obligation to consultants as of September 30, 2007 was $76 (For the complete information regarding the research and license agreement, see Note 4 to the financial statements as of December 31, 2006.).

12
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 6:-
SHORT-TERM CONVERTIBLE LOANS

 
a.
On July 3, 2007, the Company issued a $30 Convertible Promissory Note to a third party. Interest on the note will accrue at the rate of 8% per annum and will be due and payable in full on July 3, 2008. 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 July 3, 2008 to convert all or part of the outstanding principal and interest amount of the note into shares of the Company's common stock. The Conversion Price, as defined in the note, will be 75% (60% 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, but in no event shall the conversion price be greater than $0.35 or shall more than 1,000,000 shares of common stock be issued. The Conversion Price will be adjusted in the event of a stock dividend, subdivision, combination or stock split of the outstanding shares.

In addition, the Company granted to the shareholder warrants to purchase 30,000 of the Company's common stock at an exercise price of $0.45 per stock. The warrants are fully vested and are exercisable at any time after July 3, 2007, until the second anniversary of the issue date. The fair value of the warrants amounts to $12.

In accordance with APB 14, the Company allocated the proceeds of convertible note issued with detachable warrants granted based on the relative fair values of the two securities at time of issuance. As a result, the Company recorded in its statement of changes in shareholders' equity an amount of $5, in respect to the warrants and the convertible note was recorded in the amount of $25.

The conversion feature, in the amount of $10, embedded in the note was calculated based on a conversion rate of 75%. The amount was recorded as discount on the note against additional paid-in capital and is amortized to financial expenses over the note period.

The balance as of September 30, 2007, is comprised as follows:

Note
  
$
25
  
Discount
    
(8
)
Accrued interest
    
1
  
         
   
$
18
  
 
13
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)
 
NOTE 6:-
SHORT-TERM CONVERTIBLE LOANS (Cont.)

 
b.
On July 3, 2007, the Company issued a $100 Convertible Promissory Note to a third party. Interest on the note will accrue at the rate of 8% per annum and be due and payable in full on July 3, 2008. The note becomes 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 July 3, 2008 to convert all or part of the outstanding principal and interest amount of the note into shares of the Company's common stock. The Conversion Price, as defined in the note, is 75% 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, but in no event shall the conversion price be greater than $0.35 or shall more than 2,000,000 shares of common stock be issued.

In addition, the Company granted to the shareholder warrants to purchase 100,000 of the Company's common stock at an exercise price of $0.45 per stock. The warrants are fully vested and are exercisable at any time after July 3, 2007, until the third anniversary of the issue date. The fair value of the warrants amounts to $44.

In accordance with APB 14, the Company allocated the proceeds of convertible note issued with detachable warrants granted based on the relative fair values of the two securities at time of issuance. As a result, the Company recorded in its statement of changes in shareholders' equity an amount of $19, in respect to the warrants and the convertible note was recorded in the amount of $81.

The conversion feature, in the amount of $33, embedded in the note was calculated based on a conversion rate of 75%. The amount was recorded as discount on the note against additional paid-in capital and is amortized in full to financial expenses due to converting the loan to shares.

On September 5, 2007, the third party converted all of the outstanding principal and interest amount into 289,722 shares.

 
c.
On August 30, 2007, as part of private investment agreement (see Note 7c(1)(g)), the investor surrendered to the Company a $250 promissory note and 250,000 warrants issued to him on May 6, 2007 (for the complete information, see Note 6b to the financial statements as of June 30, 2007).

The $250 promissory note is considered as part of $1,250 invested in the Company in the private placement.

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

14
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)
NOTE 6:-
SHORT-TERM CONVERTIBLE LOANS (Cont.)

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

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

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

As a result of this agreement, an amount of $375 was included in long-term loan in the balance sheet.

NOTE 7:-
CAPITAL STOCK

 
a.
The rights of common stock are as follows:

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

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

 
b.
The former president of the Company donated services valued at $6 and rent valued at $2 for the nine months ended 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.

15
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

 
c.
Issuance of stocks warrants and options:

 
1.
Private placements

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

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

 
c)
On March 21, 2005, the Company entered into lock-up agreements with twenty-nine of its stockholders with respect to 15,290,000 shares held by them. Under these lock-up agreements, these stockholders may not transfer their shares 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 shares shall be restricted from transfer for the twenty-four month period following July 8, 2004, and (ii) 15% of the shares 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 of the twenty-nine stockholders mentioned above with respect to 7,810,000 shares held by them. These lock-up agreements amend and restate the previous lock-up agreements.

Under the amended lock-up agreements, these stockholders 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) 85% of the shares will be restricted from transfer until December 31, 2006 and (ii) 15% of the shares will be free from the transfer restrictions. All of the restrictions under the amended lock-up agreements will automatically terminate upon the effectiveness of any registration statement filed by the Company for the benefit of Ramot.

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

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

16
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

 
f)
On August 11, 2005, the Company signed a private placement agreement with investors for the sale of up to 1,250,000 units at a price per unit of $0.8. Each unit consists of one share of common stock and one warrant to purchase one share of common stock at $1.00 per share. The warrants are exercisable for a period of three years from issuance. On September 30, 2005, the Company sold 312,500 units for total net proceeds of $225. On December 7, 2005, the Company sold 187,500 units for total net proceeds of $135.

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

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

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

On August 20, 2007, the investor completed payment of $1,000, and the Company issued to the investor an aggregate of 6,875,000 shares of common stock and a warrant to purchase 7,562,000 shares of the company's common stock at an exercise price of $0.20 per share. The warrant may be exercised at any time and expired on November 5, 2011.

17
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

 
2.
Share-based compensation to employees and to directors

 
a)
Options to employees and directors:

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

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

As of September 30, 2007, 1,061,684 options are available for future grants.

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

On February 6, 2006, the Company entered into an amendment to the Company's option agreement with Mr. David Stolick, the Company's Chief Financial Officer. The amendment changes the exercise price of the 400,000 options granted to him on March 29, 2005 to $0.15 per share from $0.75 per share.

On May 2, 2006, the Company granted to one of its directors an option to purchase 100,000 shares of its common stock, at an exercise price of $0.15. The options are fully vested and are exercisable for a period of 10 years.

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

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

18
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

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

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

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

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

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

   
Nine months ended
September 30, 2007
  
   
Amount of
options
  
Weighted
average
exercise price
  
       
$
  
           
Outstanding at beginning of the period
    
2,850,760
  
$
0.188
  
Granted
    
1,540,000
    
0.376
  
Forfeited
    
-
    
-
  
               
Outstanding at end of period
    
4,390,760
  
$
0.254
  
               
Vested and expected-to-vest options at end of the period
    
3,061,280
  
$
0.185
  

Compensation expenses recorded by the Company in respect to its stock based employee and directors' compensation award in accordance with SFAS-123(R) for the nine months ended September 30, 2007, amounted to $970.

19
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

 
b)
Restricted shares to directors:

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

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

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

In addition, on April 20, 2007, based on a board resolution dated March 21, 2007, the Company issued to another director 100,000 restricted shares of common stock. The restricted shares are not subject to any right to repurchase, and the compensation related to the shares issued amounted to $47 was recorded as prepaid general and administrative expenses in the nine months ended September 30, 2007.

 
3.
Stock and warrants to service providers and investors:

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

20
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

 
a)
Warrants:

Issuance date
  
Number of warrants
issued
  
Exercised
 
Forfeited
 
Outstanding
 
Exercise
price
  
Warrants exercisable
  
Exercisable
through
  
                               
November 2004
   
12,800,845
    
2,181,925
          
10,618,920
  
$
0.01
    
10,618,920
    
November 2012
 
December 2004
   
1,800,000
    
900,000
          
900,000
  
$
0.00005
    
900,000
    
December 2014
  
 
                                        
 
  
     
14,600,845
    
3,081,925
          
11,518,920
          
11,518,920
    
 
  
 
                                        
 
  
February 2005
    
1,894,808
                
1,894,808
  
$
2.5
   
1,894,808
    
February 2008
  
May 2005
   
47,500
                
47,500
  
$
1.62
    
47,500
    
May 2010
  
June 2005
   
30,000
                
30,000
  
$
0.75
    
30,000
    
June 2010
 
August 2005
    
70,000
                
70,000
  
$
0.15
    
70,000
    
August 2008
  
September 2005
   
3,000
    
3,000
          
-
  
$
0.15
    
-
    
-
  
September 2005
    
36,000
                
36,000
  
$
0.75
    
24,953
    
September 2010
  
September-December 2005
   
500,000
                
500,000
  
$
1
    
500,000
    
September - December 2008
  
December 2005
    
20,000
    
20,000
          
-
  
$
0.15
    
-
    
-
  
December 2005
   
457,163
                
457,163
  
$
0.15
    
273,463
    
July 2010
  
 
                                        
 
  
 
    
17,659,316
    
3,104,925
          
14,554,391
          
14,359,644
    
 
  
 
                                        
 
  
February 2006
   
230,000
                
230,000
  
$
0.65
    
76,666
    
February 2008
  
February 2006
    
40,000
                
40,000
  
$
1.5
    
40,000
    
February 2011
  
February 2006
    
8,000
                
8,000
  
$
0.15
    
8,000
    
February 2011
  
February 2006
    
189,000
    
97,696
    
91,304
    
-
  
$
0. 5
    
-
    
-
  
May 2006
    
50,000
                
50,000
  
$
0.0005
    
50,000
    
May 2016
  
May -December 2006
    
48,000
                
48,000
  
$
0.35
    
48,000
    
May - December 2011
  
May -December 2006
    
48,000
                
48,000
  
$
0.75
    
48,000
    
May - December 2011
  
May 2006
    
200,000
                
200,000
  
$
1
    
200,000
    
May 2011
  
June 2006
    
24,000
                
24,000
  
$
0.15
    
24,000
    
June 2011
  
May 2006
    
19,355
                
19,355
  
$
0.15
    
19,355
    
May 2011
  
October 2006
    
630,000
    
630,000
          
-
  
$
0.3
    
-
    
-
  
December 2006
    
200,000
                
200,000
  
$
0.45
    
200,000
    
December 2008
  
 
                                        
 
  
 
    
19,345,671
    
727,696
    
91,304
    
15,421,746
          
15,073,665
    
 
  
 
                                        
 
  
March 2007
    
200,000
                
200,000
  
$
0.47
    
200,000
    
March 2012
  
March 2007
    
500,000
                
500,000
  
$
0.47
    
88,128
    
March 2017
  
March 2007
    
50,000
                
50,000
  
$
0.15
    
50,000
    
March 2010
  
March 2007
    
15,000
                
15,000
  
$
0.15
    
0
    
February 2012
  
February 2007
    
50,000
                
50,000
  
$
0.45
    
50,000
    
February 2009
  
March 2007
    
225,000
                
225,000
  
$
0.45
    
225,000
    
March 2009
  
March 2007
    
50,000
                
50,000
  
$
0.45
    
50,000
    
March 2010
  
April 2007
    
33,300
                
33,300
  
$
0.45
    
33,300
    
April 2009
  
May 2007
    
250,000
          
*) 250,000
    
-
  
$
0.45
    
-
    
-
  
July 2007
    
500,000
                
500,000
  
$
0.39
    
41,553
    
July 2017
  
September 2007
    
500,000
                
500,000
  
$
0.15
    
125,000
    
August 2017
  
August 2007
    
7,562,500
                
7,562,500
  
$
0.2
    
7,562,500
    
November 2011
  
July 2007
    
30,000
                
30,000
  
$
0.45
    
30,000
    
July 2009
  
July 2007
    
100,000
                
100,000
  
$
0.45
    
100,000
    
July 2010
  
                                             
     
29,411,471
    
3,832,621
    
341,304
    
25,237,546
          
23,629,146
    
 
  

*) See Note 6c.

The fair value of warrants which became vested during the nine months period ended September 30, 2007, amounted to $805.
 
21
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

Following is a summary of the status of the warrants and options to investors and service providers:

   
Nine months ended
September 30, 2007
  
   
Number of
options
  
Weighted average exercise price
  
       
U.S. $
  
           
Warrants outstanding at beginning of period
   
19,345,671
    
0.332
  
Changes during the period:
            
Granted
   
10,065,800
    
0.244
  
Exercised
    
(3,832,621
)
  
0.069
  
Forfeited or expired
    
(341,304
)
  
0.463
  
               
Warrants outstanding at end of the period
   
25,237,546
    
0.335
  
 
              
Warrants exercisable at end of the period
   
23,629,146
    
0.334
  
               
Weighted average fair value of options granted during the period
        
0.093
  

The fair value for the warrants to service providers and investors, was estimated on the date of grant using Black-Scholes option pricing model, with the following weighted-average assumptions for the nine months ended September 30, 2007, weighted average volatility of 115%, risk-free interest rates of 5.1% dividend yields of 0% and a weighted average life of the options of 7 years.

 
b)
Stock:

On June 1 and June 4, 2004, the Company issued 40,000 and 150,000 shares of common stock, respectively, for filing, legal and due-diligence services completed over a 12-month period with respect to a private placement. compensation expenses related to filing services, totaling $26, are amortized over a 12-month period. Compensation expenses related to legal services, totaling $105 were recorded as equity issuance cost and did not affect the statement of operations.

On July 1 and September 22, 2004, the Company issued 20,000 and 15,000 shares of common stock to a former director for financial services for the first and second quarters of 2004, respectively. Compensation expenses of $39 were recorded as general and administrative expenses.
 
22
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)
 
NOTE 7:-
CAPITAL STOCK (Cont.)

On February 10, 2005, the Company signed an agreement with one of its service providers according to which the Company issued the service provider 100,000 shares of restricted stock at a purchase price of $0.00005 under the U.S Stock Option and Incentive Plan of the Company. The restricted shares are subject to the Company's right to repurchase them within one year of the grant date as follows: (i) in the event that service provider breaches his obligations under the agreement, the Company shall have the right to repurchase the restricted shares at a purchase price equal to par value; and (ii) in the event that the service provider has not breached his obligations under the agreement, the Company shall have the right to repurchase the restricted shares at a purchase price equal to the then fair market value of the restricted shares.

In March and April 2005, the Company signed an agreement with four members of its Scientific Advisory Board according to which the Company issued to the members of the Scientific Advisory Board 400,000 shares of restricted stock at a purchase price of $0.00005 under the U.S. Stock Option and Incentive Plan (100,000 each). The restricted shares will be subject to the Company's right to repurchase them if the grantees cease to be members of the Company's Advisory Board for any reason. The restrictions on the shares shall lapse in three annual and equal portions commencing with the grant date.

In July 2005, the Company issued 50,000 shares of common stock to its legal advisors for legal services for 12 months. The compensation related to the shares in the amount of $38 was recorded as general and administrative expenses.

In January 2006, the Company issued 350,000 restricted shares of common stock to two service providers at a purchase price of $0.00005 par value under the U.S Stock Option and Incentive Plan of the Company. The restricted shares are subject to the Company's right to repurchase them within 12 months of the grant date as follows: (i) in the event that the service providers breach their obligations under the agreement, the Company shall have the right to repurchase the restricted shares at a purchase price equal to the par value; and (ii) in the event that the service providers have not breached their obligations under the service agreements the Company shall have the right to repurchase the restricted shares at a purchase price equal to the fair market value of the restricted shares. The compensation related to the restricted shares in the amount of $23 was recorded as general and administrative expenses.

On March 6, 2006, the Company issued to its legal advisor 34,904 shares of the Company's common stock. The shares are in lieu of $19 payable to the legal advisor. Related compensation, in the amount of $19, was recorded as general and administrative expenses.

On April 13, 2006, the Company issued to service providers 60,000 shares of the Company's common stock at a purchase price of $0.00005 par value under the U.S Stock Option and Incentive Plan of the Company. Related compensation in the amount of $26 was recorded as general and administrative expenses.
 
23
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

On May 9, 2006, the Company issued to its legal advisor 65,374 shares of the Company's common stock in lieu of cash payment for legal services. Related compensation in the amount of $33 was recorded as general and administrative expenses.

On June 7, 2006, the Company issued 50,000 shares of the Company's common stock for filing services for 12 months. Related compensation in the amount of $25 was recorded as general and administrative expenses.

On May 5, 2006, the Company issued 200,000 shares of the Company's common stock to its finance consultant for his services. Related compensation in the amount of $102 was recorded as general and administrative expenses.

On August 14, 2006, the Company issued 200,000 shares of the Company's common stock to a service provider. Related compensation in the amount of $68 was recorded as general and administrative expenses.

On August 17, 2006, the Company issued 100,000 shares of the Company's common stock to a service provider. Related compensation in the amount of $35 was recorded as general and administrative expenses.

On September 17, 2006, the Company issued to its legal advisor 231,851 shares of the Company's common stock. The shares are for the $63 payable to the legal advisor.

During April 1 and September 30, 2006, the Company issued to its business development advisor, based on an agreement with such advisor, 240,000 shares of the Company's common stock. Related compensation in the amount of $74 was recorded as general and administrative expenses.

On January 3, 2007, the Company issued to its legal advisor 176,327 shares of the Company's common stock. The shares are for the $45 payable to the legal advisor. Related compensation in the amount of $49 was recorded as general and administrative expenses.

On April 12, 2007, the Company issued to its filing and printing service providers 80,000 shares of the Company’s common stock. The shares issued are for the $15 payable to the service provider. Compensation of $30 was recorded as general and administrative expenses.

In addition, the Company is obligated to issue the filing and printing service providers additional shares, in the event that the total value of the shares hereby issued (as quoted on the Over-the-Counter Bulletin Board or such other exchange where the common stock is quoted or listed) is less than $20, on March 20, 2008. In no event shall the Company issue more than 30,000 additional shares to the service providers.

As a result, the Company recorded a liability in the amount of $20.
 
24
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)

NOTE 7:-
CAPITAL STOCK (Cont.)

On April 12, 2007, the Company issued to its legal advisor 108,511 shares of the Company's common stock. The stocks are for the $29 payable to the legal advisor. Related compensation in the amount of $40 was recorded as general and administrative expenses.

On May 18, 2007, the Company issued to its legal advisor 99,257 shares of the Company's common stock. The stocks are for the $33, payable to the legal advisor. Related compensation in the amount of $33 was recorded as general and administrative expenses

On May 28, 2007, the Company issued 210,812 shares to a shareholder pursuant to conversion request of the entire accrued principal and interest amount of a $50 Convertible Promissory Note issued to such shareholder on February 5, 2007.

   
On June 27, 2007, the Company issued 225,346 shares to an investor pursuant to conversion request of the entire accrued principal and interest amount of a $50 Convertible Promissory Note issued to such investor on March 14, 2007.

On September 5, 2007, the Company issued 289,722 shares of the Company’s common stock to an investor pursuant to conversion request of the entire accrued principal and interest amount of a $100 Convertible Promissory Note issued to such investor on July 3, 2007 (see Note 7c(3)(b)) .

A summary of the Company's stock award activity related to shares issued to service providers, and related information is as follows:

   
Nine months ended
September 30, 2007
  
   
Amount of shares
  
Weighted average issue price
  
       
$
  
           
Outstanding at beginning of the period
    
2,307,129
    
0.97
  
Issued
    
464,095
    
0.33
  
               
Outstanding at end of the period
    
2,771,224
    
0.86
  

c.
Stock-based compensation recorded by the Company in respect of stock and warrants granted to service providers amounted to $1,217 for the nine months ended September 30, 2007.
 
25
 
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars in thousands (except share data)
 
NOTE 8:-
SUBSEQUENT EVENTS

 
a.
On October 23, 2007, the Company granted to its CEO options to purchase 1,000,000 shares of common stock of the Company at an exercise price of $0.87. The options shall vest in six equal installments every six months, commencing April 23, 2008, and shall be exercisable for a period of 10 years.

 
b.
On October 16, 2007, the Company granted to its advisory board member options to purchase 200,000 shares of common stock of the Company at an exercise price of $0.15. The options shall vest in four equal installments every three months starting October 16, 2007, and shall be exercisable for a period of 10 years.

c.
On October 29, 2007, the Company signed an agreement with a shareholder for an introduction fee for private investment (see Note 7c(1)(g)). For the introduction, the Company will issue up to 1,250,000 shares of common stock of the Company. The shares will be issued pro rata to the funds received from the investor.

d.
On November 12, 2007, pursuant to the investment agreement (see note 7c(1)(g)), the investor completed a second payment to the company of $750. The corresponding shares of common stock and the warrants for this payment have not been issued yet.

- - - - - - - - - -
 
26
 
Item 2. Plan of Operation.

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 ALS, and thereafter for Multiple Sclerosis and other neurodegenerative disorders.
 
Recent Developments
 
New Chief Executive Officer and Board Member
 
27
 
On October 15, 2007, Mr. Abraham (Rami) Efrati was appointed the Chief Executive Officer of the Company.

On August 27, 2007, the Board of Directors of the Company elected Dr. Jonathan C. Javitt to the Board.

Advisory Board

In August 2007, we established an Advisory Board comprised of world class business leaders. In October 2007, we appointed Rasheda Ali, author and daughter of Muhammad Ali, to the Advisory Board. In August 2007, we appointed Dr. Jacob Frenkel, Vice Chairman of American International Group, Inc. and Harvey Krueger, Vice Chairman Emeritus of Lehman Brothers, Inc., to the Advisory Board. The Advisory Board is still in development, and we are working to add additional qualified members.
 
Vivian Shaltiel

On September 10, 2007, we entered into an agreement with Vivian Shaltiel pursuant to which Ms. Shaltiel agreed to defer the payment of $1,100,000 (the “Debt”) owed by the Company to Ms. Shaltiel pursuant to the following promissory notes issued by the Company to Ms. Shaltiel: (i) a Convertible Promissory Note, dated February 7, 2006, in the original principal amount of $500,000, (ii) a Convertible Promissory Note, dated June 5, 2006, in the original principal amount of $500,000, and (iii) a Convertible Promissory Note, dated September 14, 2006, in the original principal amount of $100,000.

Pursuant to the agreement, the Company agreed to pay the Debt, plus any accrued interest and/or penalties, in accordance with the following schedule:
 
Payment Date
  
Amount (U.S. Dollars)
  
August 16, 2007
  
$
100,000
  
November 30, 2007
  
$
100,000
  
January 15, 2008
  
$
175,000
  
February 28, 2008
  
$
175,000
  
April 30, 2008
  
$
175,000
  
June 30, 2008
  
$
175,000
  
August 31, 2008
  
$
175,000
  
November 30, 2008
  
$
175,000
  
January 31, 2009
  
$
200,000
  

Ms. Shaltiel agreed that upon payment of the foregoing amounts in accordance with the foregoing schedule, all of the Company’s outstanding obligations owed to Ms. Shaltiel under the notes will be satisfied in full. Ms. Shaltiel also waived any breach or default that may have arisen prior to the date of the agreement from the failure of the Company to make payments to Ms. Shaltiel under any of the notes. As of November 10, the Company has made all scheduled payments to Ms. Shaltiel.

Double U Master Fund
 
In July 2007, we entered into a letter agreement with Double U Master Fund L.P. pursuant to which we agreed to issue to Double U an aggregate of 630,000 shares of common stock upon exercise of a common stock purchase warrant dated as of October 3, 2006 held by Double U. In lieu of paying the purchase price for the shares in cash, Double U agreed to waive the repayment of the promissory note we issued to Double U on February 1, 2006 in the principal amount of $189,000, except for accrued interest of $17,340. Upon payment of the accrued interest and issuance of the 630,000 shares to Double U, all of our obligations owed to Double U under the February 1, 2006 note and the common stock purchase warrant were satisfied in full.
 
28
 
Second Amended License Agreement with Ramot at Tel Aviv University Ltd.

We entered into a Second Amended and Restated Research and License Agreement with Ramot at Tel Aviv University Ltd. on July 26, 2007. Like the original license agreement with Ramot, the amended license agreement imposes on us development and commercialization obligations, milestone and royalty payment obligations and other obligations. As of June 30, 2007, we owed Ramot an aggregate of $513,249 in overdue payments and patent fees under the original license agreement with Ramot. On August 1, 2007, we obtained a waiver and release from Ramot pursuant to which Ramot agreed to an amended payment schedule regarding our payment obligations under the amended license agreement and waived all claims against us resulting from our previous breaches, defaults and non-payment under the original license agreement. The payments described in the waiver and release cover all of our payment obligations (including interest) that were past due and not yet due pursuant to the original license agreement. The waiver and release amends and restates the original payment schedule under the license agreement as follows:
 
Payment Date
  
 Amount
  
September 5, 2007
  
$
100,000
  
November 20, 2007
  
$
150,000
  
February 20, 2008
  
$
150,000
  
May 20, 2008
  
$
150,000
  
August 4, 2008
  
$
90,000
  

In addition, in the event that the “research period”, as defined in the license agreement, is extended for an additional three year period in accordance with the terms of the license agreement, then we must make the following payments to Ramot during the first year of the extended research period: 
 
Payment Date
  
Amount
  
August 4, 2008
  
$
60,000
  
November 20, 2008
  
$
150,000
  
February 20, 2009
  
$
170,000
  

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

In addition, on August 1, 2007, we entered into the Second Amended and Restated Registration Rights Agreement with Ramot. The amended Registration Rights Agreement provides Ramot with demand and piggyback registration rights whereby if we propose to register any of our common stock under the Securities Act of 1933, as amended, for sale for our own account including for the account of any of our shareholders or for ACCBT Corp.’s account in connection with the public offering of such common stock, then Ramot may request that the we file, or include within a registration statement to be filed, the shares of common stock underlying the warrants held by Ramot.

Investment Agreement with ACCBT Corp.
 
On July 2, 2007, we entered into a subscription agreement with ACCBT Corp., a company under the control of Mr. Chaim Lebovits, our newly appointed President, pursuant to which we agreed to sell (i) up to 27,500,000 shares of our common stock for an aggregate subscription price of up to $5.0 million, and (ii) for no additional consideration, warrants to purchase up to 30,250,000 shares of our common stock. Subject to certain closing conditions, separate closings of the purchase and sale of the shares and the warrants are scheduled to take place from August 30, 2007 through November 15, 2008. The warrants will have the following exercise prices: (i) the first 10,083,333 warrants will have an exercise price of $0.20; (ii) the next 10,083,333 warrants will have an exercise price of $0.29; and (iii) the final 10,083,334 warrants will have an exercise price of $0.36. Because of our recent resolution and restructuring of the amounts owed by us to Ramot under the Ramot license agreement, ACCBT elected to accelerate the date of the first closing under the subscription agreement from August 30, 2007 to August 10, 2007. Therefore, on August 20, 2007, we received an aggregate of $1,000,000 from ACCBT, and, in connection therewith, ACCBT agreed to apply the principal amounts outstanding under the $250,000 convertible promissory note, dated as of May 6, 2007, issued to ACCBT by the Company towards the $5 million aggregate subscription price under the subscription agreement in exchange for shares of common stock (at which point the promissory note was cancelled). Accordingly, we issued to ACCBT an aggregate of 6,875,000 shares of common stock and a warrant to purchase an aggregate of 7,562,500 shares of common stock. In November 2007, we received an aggregate of $750,000 from ACCBT, and we will issue to ACCBT an aggregate of 4,125,000 shares of common stock and a warrant to purchase an aggregate of 4,537,500 shares of common stock.
 
29

As a condition to each closing under the subscription agreement, the market price per share of our common stock may not be 10% less than the bid price per share under the subscription agreement on any trading day between 30 and 10 days prior to any given closing date. If at any time prior to the first closing date we issue shares of common stock or others securities convertible into, exercisable or exchangeable for common stock, then the number of shares to be issued to ACCBT under the subscription agreement and the price per share will be adjusted so that ACCBT will have the right to purchase up to 52.35% of our equity on a fully diluted as converted basis (assuming ACCBT purchases all of the shares and exercises in full all of the warrants subject to the subscription agreement) and 50.02% of the issued and outstanding shares of our common stock (assuming ACCBT invests the full $5.0 million).
 
Pursuant to the subscription agreement, ACCBT and certain other security holders of the Company holding at least 31% of the issued and outstanding shares of our common stock entered into a Security Holders Agreement. The security holders party to the Security Holders Agreement agreed, upon the payment by ACCBT of its first $1.0 million under the subscription agreement, to vote all of their shares such that ACCBT’s nominees to our Board of Directors will constitute a minimum of 40% of the Board of Directors, and, upon the payment by ACCBT of its second $1.0 million, to vote all of their shares such that ACCBT’s nominees will constitute a minimum of 50.1% of the Board of Directors. However, if ACCBT stops making payments after the first closing date such that ACCBT pays us less than $4.0 million, ACCBT will be entitled to appoint only 40% of the members of our Board of Directors.
  
The security holders party to the Security Holders Agreement also agreed, for so long as ACCBT holds at least 5% of the issued and outstanding shares of our common stock, not to vote any of their shares to approve the following matters, without the written consent of ACCBT: (i) any change in our certificate of incorporation or bylaws, or alteration of our capital structure; (ii) the declaration or payment of a dividend or the making of any distributions; (iii) the taking of any steps to liquidate, dissolve, wind-up or otherwise terminate our corporate existence; or (iv) the entering into any transaction the effect of which would place control of our business in the hands of an arm’s length third party.

In connection with the subscription agreement, we agreed to issue, as a finder’s fee, an aggregate of 1,250,000 shares of our common stock to Tayside Trading Ltd. or its registered assigns. The shares will be issued pro rata to the funds received from ACCBT on each closing date under the subscription agreement. As of November 12, 2007, no shares have been issued to Tayside Trading Ltd.

Transfer of Warrant from Ramot at Tel Aviv University Ltd. to ACCBT Corp.

Pursuant to the terms of a Warrant Purchase Agreement, dated August 2, 2007, between Ramot at Tel Aviv University Ltd. and ACCBT Corp., Ramot agreed to transfer and sell to ACCBT (or to certain parties that may be designated by ACCBT), a warrant to purchase an aggregate of 3,181,925 shares of our common stock for an aggregate purchase price of $636,385. The warrant is exercisable at any time for an exercise price per share equal to $0.01. The warrant will expire on November 4, 2012. On September 6, 2007, ACCBT acquired a warrant from Ramot to purchase an aggregate of 1,181,925 shares of our common stock for an aggregate purchase price of $236,385. ACCBT designated other purchasers to acquire the remaining warrants to purchase 2,000,000 shares of our common stock. On September 10, 2007, ACCBT exercised the warrant for the entire 1,181,925 shares of our common stock for an aggregate exercise price of $11,819.
 
30
 
Adult Stem Cell Therapy
 
Our activities are within the stem cell therapy field. Stem cells are non-specialized cells with a potential for both self-renewal and differentiation into cell types with a specialized function, such as muscle, blood or brain cells. The cells have the ability to undergo asymmetric division such that one of the two daughter cells retains the properties of the stem cell, while the other begins to differentiate into a more specialized cell type. Stem cells are therefore central to normal human growth and development, and also are a potential source of new cells for the regeneration of diseased and damaged tissue. Stem cell therapy aims to restore diseased tissue function by the replacement and/or addition of healthy cells by stem cell transplants.
 
Currently, two principal platforms for cell therapy products are being explored: (i) embryonic stem cells ("ESC"), isolated from the inner mass of a few days old embryo; and (ii) adult stem cells, sourced from bone marrow, cord blood and various organs. Although ESCs are the easiest to grow and differentiate, their use in human therapy is limited by safety concerns associated with their tendency to develop Teratomas (a form of tumor) and their potential to elicit an immune reaction. In addition, ESC has generated much political and ethical debate due to their origin in early human embryos.
 
Cell therapy using adult stem cells does not suffer from the same concerns. Bone marrow is the tissue where differentiation of stem cells into blood cells (haematopoiesis) occurs. In addition, it harbors stem cells capable of differentiation into mesenchymal (muscle, bone, fat and other) tissues. Such mesenchymal stem cells have also been shown capable of differentiating into nerve, skin and other cells. In fact, bone marrow transplants have been safely and successfully performed for many years, primarily for treating leukemia, immune deficiency diseases, severe blood cell diseases, lymphoma and multiple myeloma. Moreover, bone marrow may be obtained through a simple procedure of aspiration, from the patient himself, enabling autologous cell therapy, thus obviating the need for donor matching, circumventing immune rejection and other immunological mismatch risks, as well as avoiding the need for immunosuppressive therapy. Thus, we believe bone marrow, in particular autologous bone marrow, capable of in vitro growth and multipotential differentiation, presents a preferable source of therapeutic stem cells.
 
Parkinson's Disease ("PD")
 
Background
 
PD is a chronic, progressive disorder, affecting certain nerve cells, which reside in the Substantia Nigra of the brain and which produce dopamine, a neurotransmitter that directs and controls movement. In PD, these dopamine-producing nerve cells break down, causing dopamine levels to drop below the threshold levels and resulting in brain signals directing movement to become abnormal. The cause of the disease is unknown.
 
Over four million people suffer from PD in the western world, of whom about 1.5 million are in the United States. In over 85% of cases, PD occurs in people over the age of 65. Thus, prevalence is increasing in line with the general aging of the population. We believe the markets for pharmaceutical treatments for PD have a combined value of approximately $4 billion per year. However, these costs are dwarfed when compared to the total economic burden of the disease, which has been estimated by the National Institute of Neurological Disease (NINDS) to exceed $26 billion annually in the U.S. alone, including costs of medical treatment, 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.
 
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Current Treatments
 
Current drug therapy for PD primarily comprises dopamine replacement, either directly (levodopa), with dopamine mimetics or by inhibition of its breakdown. Thus, the current drugs focus on treating the symptoms of the disease and do not presume to provide a cure.
 
Levodopa, which remains the standard and most potent PD medication available, has a propensity to cause serious motor response complications (MRCs) with long-term use. Moreover, effective drug dosage often requires gradual increase, leading to more adverse side effects and eventual resistance to their therapeutic action. This greatly limits patient benefit. Therefore, physicians and researchers are continuously seeking levodopa-sparing strategies in patients with early-stage disease to delay the need for levodopa, as well as in patients with late stage disease who no longer respond to therapy.
 
Prescription drugs to treat PD currently generate sales of over $1 billion and the market is expected to grow to approximately $2.3 billion by 2010, driven by the increase in size of the elderly population and the introduction of new PD therapies that carry a higher price tag than the generic levodopa.
 
Another method for treating PD is Deep Brain Stimulation (“DBS”), which consists of transplanting electrodes deep into the brain to provide permanent electrical stimulation to specific areas of the brain and to cause a delay in the activity in those areas. However, DBS is problematic as it often causes uncontrollable and severe side effects such as bleeding in the brain, infection and depression. In addition, like drug therapy, DBS focuses on treating the symptoms of PD and does not provide a cure.
 
There is a greatly unsatisfied need for novel approaches towards management of PD. These include development of neurotrophic agents for neuroprotection and/or neurorestoration, controlling levodopa-induced adverse side effects, developing compounds targeting nondopaminergic systems (e.g., glutamate antagonists) controlling the motor dysfunction such as gait, freezing, and postural imbalance, treating and delaying the onset of disease-related dementia and providing simplified dosing regimens.
 
In addition to the symptomatic drug development approaches, there is an intense effort to develop cell and gene therapeutic "curative" approaches to restore the neural function in patients with PD, by (i) replacing the dysfunctional cells with dopamine producing cell transplant, or by (ii) providing growth factors and proteins, such as glial derived neurotrophic factor (“GDNF”), that can maintain or preserve the patient's remaining dopaminergic cells, protecting them from further degeneration. Preclinical evaluation of cell therapeutic approaches based on transplantation of dopaminergic neurons differentiated in vitro from ESC, have been successful in ameliorating the parkinsonian behavior of animal models, as has direct gene therapy with vectors harboring the GDNF gene. However, these approaches are limited, in the first case, by the safety and ethical considerations associated with use of ESC, and, in the second case, by the safety risks inherent to gene therapy.
 
In fact, PD is the first neurodegenerative disease for which cell transplantation has been attempted in humans, first with adrenal medullary cells and, later, with tissue grafts from fetal brain. About 300 such fetal transplants have already been performed and some benefits have been observed, mainly in younger patients. However, this approach is not only impractical but greatly limited by the ethical issues influencing the availability of human fetuses. The above considerations have led to intensive efforts to define and develop appropriate cells from adult stem cells.
 
Amyotrophic Lateral Sclerosis ("ALS")
 
ALS, often referred to as "Lou Gehrig's disease," is a progressive neurodegenerative disease that affects nerve cells in the brain and the spinal cord. Motor neurons reach from the brain to the spinal cord and from the spinal cord to the muscles throughout the body. The progressive degeneration of the motor neurons in ALS eventually leads to death. As motor neurons degenerate, they can no longer send impulses to the muscle fibers that normally result in muscle movement. With voluntary muscle action progressively affected, patients in the later stages of the disease may become completely paralyzed. However, in most cases, mental faculties are not affected.
 
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Approximately 5,600 people in the U.S. are diagnosed with ALS each year. It is estimated that as many as 30,000 Americans and 100,000 people across the western world may have the disease at any given time. Consequently, the total estimated cost of treating ALS patients in the United States is approximately $1.25 billion per year and $3 billion per year in the western world.
 
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 Treatments
 
The physician bases medication decisions on the patient's symptoms and the stage of the disease. Some medications used for ALS patients include:
 
o Riluzole - the only medication approved by the FDA to slow the progress of ALS. While it does not reverse ALS, riluzole has been shown to reduce nerve damage. Riluzole may extend the time before a patient needs a ventilator (a machine to help breathe) and may prolong the patient's life by several months;
 
o Baclofen or Diazepam - these medications may be used to control muscle spasms, stiffness or tightening (spasticity) that interfere with daily activities; and
 
o Trihexyphenidyl or Amitriptyline - these medications may help patients who have excess saliva or secretions, and emotional changes.
 
Other medications may be prescribed to help reduce such symptoms as fatigue, pain, sleep disturbances, constipation, and excess saliva and phlegm.
 
Our Approach
 
We intend to focus our efforts to develop cell therapeutic treatments for PD based on the expansion of human mesenchymal stem cells from adult bone marrow and their differentiation into neuron like cells, such as neurons that produce dopamine and astrocytes (glial cells) that produce neurotrophic factors (NTF) including GDNF, BDNF, NGF and IGF-1. Our aim is to provide neural stem cell transplants that (i) "replace" damaged dopaminergic nerve cells and diseased tissue by augmentation with healthy dopamine producing cells; and (ii) maintain, preserve and restore the damaged and remaining dopaminergic cells in the patient's brain, protecting them from further degeneration.
 
The research team led by Prof. Melamed and Dr. Offen has achieved expansion of human bone marrow mesenchymal stem cells and their differentiation into both types of brain cells, neurons and astrocytes, each having therapeutic potential, as follows:
 
NurOwnTM program 1 - DA neuron-like cells - human bone marrow derived dopamine producing neural cells for restorative treatment in PD. Human bone marrow mesenchymal stem cells were isolated and expanded. Subsequent differentiation of the cell cultures in a proprietary differentiation medium generated cells with neuronal-like morphology and showing protein markers specific to neuronal cells. Moreover, the in vitro differentiated cells were shown to express enzymes and proteins required for dopamine metabolism, particularly the enzyme tyrosine hydroxylase. Most importantly, the cells produce and release dopamine in vitro. Further research consisting of implanting these cells in an animal model of PD (6-OHDA induced lesions), showed the differentiated cells exhibit long-term engraftment, survival and function in vivo. Most importantly, such implantation resulted in marked attenuation of their symptoms, essentially reversing their Parkinsonian movements.
 
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NurOwnTM program 2 - Astrocyte-like cells - human bone marrow derived NTF producing astrocyte for treatment of PD, ALS and spinal cord injury. In vitro differentiation of the expanded human bone marrow derived mesenchymal stem cells in a special proprietary medium and generated cells with astrocyte-like morphology that expressed astrocyte specific markers. Moreover, the in vitro differentiated cells were shown to express and secrete GDNF, as other NTF, into the growth medium. GDNF is a protein, previously shown to protect, preserve and even restore neurons, particularly dopaminergic cells in PD, but also neuron function in other neurodegenerative pathologies such as ALS and Huntington's disease. Unfortunately, therapeutic application of GDNF is hampered by its poor brain penetration and stability. Attempting to infuse the protein directly to the brain is impractical and the alternative, using GDNF gene therapy, suffers from the limitations and risks of using viral vectors. Our preliminary results show that our astrocyte-like cells, when transplanted into PD rats with a 6-OHDA lesion, show significant efficacy. Within weeks of the transplantation, there was an improvement of more than 50% in the animals' characteristic disease symptoms.
 
We intend to optimize the proprietary processes for transformation of human bone marrow expanded mesenchymal stem cells into differentiated cells that produce dopamine and/or NTF for implantation to PD and ALS patients. The optimization and process development will be conducted in an effort to comply with FDA guidelines for Good Tissue Practice (GTP) and Good Manufacturing Practice (GMP). Once the optimization of the process is completed, we intend to evaluate the safety and efficacy of our various cell transplants in animal models, (separately and in combination). Based on the results in animals we intend to use the differentiated cell products for conducting clinical trials to assess the efficacy of the cell therapies in PD and ALS patients.
 
Our technology is based on the NurOwnTM products - an autologous cell therapeutic modality, comprising the extraction of the patient bone marrow, processed into the appropriate neuronal cells and re-implanted into the patient's brain. This approach is taken in order to increase patient safety and minimize any chance of immune reaction or cell rejection.
 
We believe that the therapeutic modality will comprise the following:
 
o Bone marrow aspiration from patient;
 
o Isolating and expanding the mesenchymal stem cells;
 
o Differentiating the expanded stem cells into neuronal-like dopamine producing cells and/or astrocytes-like NTF producing cells; and
 
o Implantation of the differentiated cells into patient from whom the bone marrow was extracted.
 
Business Strategy
 
Our efforts are currently focused on the development of the technology to convert the process from the lab stage to the clinical stage, with the following main objectives:
 
o Developing the cell differentiation process according to health regulation guidelines;
 
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o Demonstrating safety and efficacy, first in animals and then in patients; and
 
o Setting up centralized facilities to provide NurOwnTM therapeutic products and services for transplantation in patients.
 
We intend to enter into strategic partnerships as we progress towards advanced clinical development and commercialization with companies responsible for advanced clinical development and commercialization. This approach is intended to generate an early inflow of up-front and milestone payments and to enhance our capacities in regulatory and clinical infrastructure while minimizing expenditure and risk.
 
Intellectual Property
 
We have filed the following patent and trademark applications:
 
o The NurOwnTM technology for differentiation of dopamine producing neuron-like cells is covered by PCT patent application number PCT/IL03/00972 filed on November 17, 2003.
 
o The NurOwnTM technology for differentiating astrocyte-like cells is covered by PCT patent application number PCT/IL2006/000699 filed on June 18, 2006.
 
o The NurOwnTM technology for generating oligodendrocyte-like cells treatment of medical conditions of the CNS is covered by PCT patent application number PCT/IL2006/001410 filed on December 7, 2006.
 
o We have filed for a trademark on NurOwnTM.

Plan of Operations
 
Assuming we can successfully complete our additional necessary financings, our primary objectives over the next twelve (12) months will be:
 
·
To define and optimize our NurOwnTM technology in human bone marrow cells, in order to prepare the final production process for clinical studies in accordance with health authorities’ guidelines. To reach this goal we intend to further optimize methods for the stem cell growth and differentiation in specialized growth media, as well as methods for freezing, thawing, storing and transporting of the expanded mesenchymal stem cells, as well as the differentiated neuronal cells; particular attention will be devoted to optimizing and refining the animal in vivo models for testing the efficacy of the transplanted cells.
 
·
To sustain the robustness and the reproducibility of the process;
 
·
To further repeat the process using bone marrow from PD patients;
 
·
To optimize the in vivo animal model;

·
To conduct large efficacy studies in animal models of PD (such as mice and rats) in order to further evaluate the engraftment, survival and efficacy of our astrocyte-like cell in these models;
 
·
To finish conducting safety and efficacy studies in primates-monkeys;
 
·
To conduct a full tumorgenicity study in animals;
 
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·
To generate process SOPs, protocols and reports for the file submission;
 
·
To finalize analytical methodology and product specifications to be used as release criteria of the final cell product for clinical trials in humans;
 
·
To finalize the preparations for the submission of Pre-IND;
 
·
To set up a quality control system for the processing of our cells; and
 
·
To write up clinical protocols for phase I & II clinical studies, and start the clinical trials.
 
All of these activities will be coordinated with a view towards the execution of clinical trials of the astrocyte-like differentiated cell implants in humans. We intend to crystallize our development plans with the assistance of our scientific advisory board members and external regulatory consultants who are experts in the FDA cell therapy regulation guidelines.
 
In addition, we intend to identify and evaluate in-licensing opportunities for development of innovative technologies utilizing cell and gene therapy for diabetes, cardiac disease and other indications.

Cash Requirements

At September 30, 2007, we had $350,000 in total current assets and $2,679,000 in total current liabilities and on November 10, 2007, we had approximately $643,000 in cash. In August 2007, the Company received $1,000,000 from ACCBT Corp. and in November 2007, the Company received an additional $750,000 from ACCBT Corp. If ACCBT Corp. chooses to continue funding the Company as set forth in the Subscription Agreement, then we expect that we will receive another four installments of $750,000 every quarter through November 2008. We will need to raise additional funds through public or private debt or equity financings to meet our anticipated expenses for the coming years so that we can execute our business plan and conduct clinical trials in PD and ALS patients. Although we have been seeking such additional funds, no commitments to provide additional funds have been made by management, other shareholders or third parties.

Our other material cash needs for the next 12 months will include employee salaries and benefits, payments for outsourcing of certain animal experiments, possible upfront payments for in-licensing opportunities, payment for clinical trials in Europe or the U.S., facility lease, capital equipment expenses and construction of facilities for animals we plan to use in our research and development and trials, legal and audit fees, patent prosecution fees, consulting fees

Research and Development
 
Our research and development efforts have focused on improving growth conditions and developing tools to evaluate the differentiation of bone marrow stem cells into neural-like cells, suitable for transplantation as a restorative therapy for neurodegenerative diseases. Some highlights achieved in this research include:
  
·
Improving the bone marrow stem cells expansion prior to differentiation;
  
·
Evaluation of methodologies for cryo-preservation of the expanded bone marrow cells prior to differentiation;
 
·
Characterization of the propagated mesenchymal stem according to established CD-markers;
 
·
Determination of timing and growth conditions for the differentiation process;
 
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·
Development of molecular tools and cell surface markers to evaluate cell differentiation;
 
·
Demonstrating that the bone marrow derived differentiated cells do produce and secrete several neuron-specific markers;
 
·
Transplantation of the bone marrow derived neural-like cells in the striatum of model animals resulting in long-term engraftment; and
 
·
Parkinson’s model animals transplanted with the bone marrow derived neural-like cells show significant improvement in their rotational behavior.
 
For the twelve months ending September 30, 2008, we estimate that our research and development costs will be approximately $3.5 million excluding compensation expenses related to options and warrants. We intend to spend our research and development costs on the development of our core NurOwn™ technology by developing the cell differentiation process according to FDA and/or EMEA guidelines. We also plan to construct a facility for animals we plan to use in our research and development and trials. We also intend to fund and finance collaborations with medical centers and strategic partners for future clinical trials.
 
General and Administrative Expenses
 
If we can successfully complete our financings, for the twelve months ending September 30, 2008, we estimate that our general and administrative expenses will be approximately $1.5 million excluding compensation expenses related to options, warrants and shares. These general and administrative expenses will include, among others, salaries, legal and audit expenses, business development, investor and public relations, Sarbanes-Oxley compliance expenses and office maintenance.
 
We do not expect to generate any revenues in the twelve-month period ending September 30, 2008.
 
In management's opinion, we need to achieve the following events or milestones in the next twelve months in order for us to conduct clinical trials for our NurOwn™ dopamine or astrocyte-like producing cell differentiation process as planned within the next several years:
 
·
Complete preclinical studies in rodents to confirm safety and efficacy;
   
·
Complete preclinical studies to confirm safety in monkeys;
   
·
Conduct full safety study of the final cell product for PD;
   
·
Write up clinical protocols for Phase I & II clinical studies; and
   
·
Raise additional equity or debt financing or a combination of equity and debt financing in addition to the $5,000,000 from ACCBT Corp. that we expect to receive under the recent subscription agreement.
 
Purchase or Sale of Equipment

Our subsidiary leases a facility in Petach Tikva, Israel, which includes approximately 600 square meters of laboratory and office space. In May 2005, we completed leasehold improvements of the facility for which we paid the contractor approximately $368,000 and issued to the contractor fully vested options to purchase 30,000 shares of our common stock at an exercise price of $0.75 per share. The lessor has reimbursed us $82,000 in connection with these improvements. We relocated to the new facility in May 2005. As of September 30, 2007, we had purchased laboratory equipment and furniture for a total sum of approximately $217,000 and assuming we complete additional financings, we intend to purchase certain additional laboratory equipment at an estimated cost of $150,000. In addition, we intend to build a Vivarian facility using proceeds from the financing with ACCBT Corp.
 
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Employees 

We currently have fifteen scientific and administrative employees. We expect to increase our staff significantly in the coming months in order to reach our goals.
 
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.
 
Risk Factors

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 addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in our report on Form 10-KSB for the transition period ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described in our transition report on Form 10-KSB are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. The risk factors below were disclosed in our annual report on Form 10-KSB and have been updated to provide information as of September 30, 2007.
 
Your percentage ownership will be diluted by future offerings of our securities, upon the conversion of outstanding convertible promissory notes into shares of common stock and by options, warrants or shares we grant to management, employees, directors and consultants. If we issue all of the shares and warrants to ACCBT Corp. as provided for in the subscription agreement, it will have a significant dilutive effect on your percentage ownership in the Company. In addition, in order to meet our financing needs described above, we may issue additional significant amounts of our common stock and warrants to purchase shares of our common stock. The precise terms of any future financings will be determined by us and potential investors and such future financings may also significantly dilute your percentage ownership in the Company.
 
In November 2004 and February 2005, our Board of Directors adopted and ratified the 2004 Global Share Option Plan and the 2005 U.S. Stock Option Plan and Incentive Plan (the “Global Plan” and “U.S. Plan” respectively and the “Plans” together), and further approved the reservation of 9,143,462 shares of our common stock for issuance under the Plans (the “Shares”). Our shareholders approved the Plans and the issuance of the Shares in a special meeting of shareholders that was held on March 28, 2005. We have made and intend to make further option grants under the Plans or otherwise issue warrants or shares of our common stock to individuals under the Plans. For example, as of November 10, 2007:

·    
under our Global Plan we have granted and not canceled a total of 7,901,778 options with various exercise prices and expiration dates, to officers, directors, services providers, consultants and employees.
 
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·    
under our U.S. Plan we have issued an additional 1,180,000 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.

As of November 10, 2007, we have issued convertible notes that have not yet been converted or repaid in an aggregate principal amount of $1,555,000 to various investors. Each holder of a convertible note may choose to convert all or part of the outstanding principal and interest amount of such holder’s note into shares of our common stock on or prior to the maturity date of the respective note. The maximum number of shares, in the aggregate, that are issuable pursuant to outstanding convertible notes is 74,000,000.

As of November 10, 2007, we have issued 17,406,409 shares to investors, directors, service providers and consultants. When we register the shares or those underlying convertible securities for which we have undertaken to register, they can be sold in the public market. In addition, the shares that we will not register will become eligible for sale into the public market subject to and in accordance with applicable SEC rules and regulations, which provide exemptions from registration requirements. If any of the holders of these shares or convertible securities, or any of our existing stockholders, sell a large number of shares of our common stock, or the public market perceives that existing stockholders might sell shares of our common stock, the market price of our common stock could decline significantly.

ACCBT Corp. holds equity participation rights that could affect our ability to raise funds. Pursuant to the subscription agreement with ACCBT Corp., a company under the control of Mr. Chaim Lebovits, our newly appointed President, we granted ACCBT Corp. the right to acquire additional shares of our common stock whenever we issue additional shares of common stock or other securities of the Company, or options or rights to purchase shares of the Company or other securities directly or indirectly convertible into or exercisable for shares of the Company (including shares of any newly created class or series). This participation right could limit our ability to enter into equity financings and to raise funds from third parties. In addition, there is no guaranty that any or all of the four scheduled installments of $750,000 will be made by ACCBT Corp.
 
Item 3. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures 
 
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures are effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that the information required to be disclosed by us in such reports is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
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PART II: OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On September 19, 2007, pursuant to the terms of a warrant held by Malcolm S. Taub, the Company issued an aggregate of 675,000 shares of its common stock to Malcolm S. Taub upon exercise by Malcolm S. Taub of such warrant. The aggregate price paid by Malcolm S. Taub for the shares of common stock was $34. 

On September 19, 2007, pursuant to the terms of a warrant held by Ernest Muller, the Company issued an aggregate of 225,000 shares of its common stock to Ernest Muller upon exercise by Ernest Muller of such warrant. The aggregate price paid by Ernest Muller for the shares of common stock was $11. 

On October 29, 2007, in consideration for certain services rendered by Jeffery H. Kordower, the Company issued an aggregate of 80,000 shares of its common stock to Jeffery H. Kordower.
 
On November 12, 2007, the Company completed a second equity financing closing with ACCBT Corp. under which the Company received an aggregate of $750,000 from ACCBT Corp. Pursuant to the terms of the subscription agreement entered into with ACCBT Corp., the Company sold and issued to ACCBT Corp. an aggregate of 4,125,000 shares of its common stock and a warrant to purchase an aggregate of 4,537,500 shares of its common stock.
 
The issuance of the shares of common stock and warrants described above was effected without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder, as a sale by the Company not involving a public offering. No underwriters were involved with the issuance of such securities.
 
Item 6. Exhibits.

The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed with or incorporated by reference in this report.
 
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
BRAINSTORM CELL THERAPEUTICS INC.
 
 
 
 
 
 
November 13, 2007
By:  
/s/ Chaim Lebovits
 
Name: Chaim Lebovits 
Title: President (Principal Executive 
Officer)
 
 
November 13, 2007
By:  
/s/ David Stolick
 
Name: David Stolick
Title: Chief Financial Officer (Principal Financial
and Accounting Officer)
 
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EXHIBIT INDEX  

Exhibit
Number
 
Description
 
 
 
10.1
 
Agreement, dated September 10, 2007, by and between the Company and Vivian Shaltiel is incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 14, 2007 (File No. 333-61610).
 
 
 
31.1
 
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
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