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 DECEMBER 31, 2004
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
Commission File Number 333-61610
BRAINSTORM CELL THERAPEUTICS INC.
(Exact name of small business issuer as specified in its charter)
Washington 912061053
---------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1350 Avenue of the Americas
New York, NY 10019
----------------------------------------
(Address of principal executive offices)
212-557-9000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
The number of shares outstanding of the Issuer's Common Stock, $0.00005 Par
Value, as of December 31, 2004 was 19,914,407.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
BALANCE SHEETS
--------------------------------------------------------------------------------
In U.S. dollars
December 31, March 31,
2004 2003
--------------- ---------------
Unaudited Audited
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash 274,855 --
Accounts receivable and prepaid expenses 31,605 --
--------------- ---------------
Total current assets 306,460 --
--------------- ---------------
PROPERTY AND EQUIPMENT, NET 1,518 --
--------------- ---------------
ASSETS ATTRIBUTED TO DISCONTINUED OPERATIONS -- 16,230
--------------- ---------------
Total assets 307,978 16,230
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable 10,595 --
Other accounts payable and accrued expenses 97,633 --
--------------- ---------------
108,228 --
--------------- ---------------
LIABILITIES ATTRIBUTED TO DISCONTINUED OPERATIONS -- 47,667
--------------- ---------------
Total current liabilities 108,228 47,667
--------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock of $ 0.00005 par value - Authorized: 200,000,000 shares at
December 31, 2004 and March 31, 2004; Issued and outstanding: 19,914,407 and
10,238,000 at December 31, 2004 and March 31, 2004, respectively (Note 5) 996 512
Preferred stock of $ 0.00005 par value - Authorized: 40,000,000 shares at
December 31, 2004 and March 31, 2004; none issued -- --
Additional paid-in capital 24,906,715 81,988
Deferred compensation (6,325,187) --
Donated capital (Note 5) 56,250 48,750
Deficit accumulated during the development stage (18,439,024) (162,687)
--------------- ---------------
Total stockholders' equity (deficiency) 199,750 (31,437)
--------------- ---------------
Total liabilities and stockholders' equity (deficiency) 307,978 16,230
=============== ===============
The accompanying notes are an integral part of the financial statements.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
In U.S. dollars (except per share data)
Period from
September 22,
Three months ended Nine months ended 2000 (inception
December 31, December 31, date) through
------------------------- --------------------------- December 31,
2004 2003 2004 2003 2004
------------ ---------- ------------ ----------- ---------------
Unaudited
------------------------------------------------------------------------
Operating expenses:
Research and development cost
(including cost related to warrants
granted to non-employees at the
amount of $15,873,048 and $0 for
the nine months ended December
31, 2004 and 2003, respectively) 16,299,048 -- 16,299,048 -- 16,299,048
General & Administrative cost
(including cost related warrants
granted to services providers and
to employees at the amount of
$1,860,641 and $0 for the nine
months ended December 31, 2004
and 2003, respectively) 399,572 -- 1,974,206 -- 1,974,206
------------ ---------- ------------ ----------- ---------------
16,698,620 -- 18,273,254 -- 18,273,254
Financial expenses, net 1,457 -- 1,799 -- 1,799
------------ ---------- ------------ ----------- ---------------
Net loss from continuing operations (16,700,077) -- (18,275,053) -- (18,275,053)
Net loss from discontinued operations
of a segment of a business -- (14,598) (1,284) (37,510) (163,971)
------------ ---------- ------------ ----------- ---------------
Net loss for the period (16,700,077) (14,598) (18,276,337) (37,510) (18,439,024)
============ ========== =========== =========== ==============
Basic net loss per share from
continuing operations (1.107) (0.1) (1.212) (0.1)
============ ========== =========== ===========
Basic net loss per share from
discontinued operations -- -- -- --
============ ========== =========== ===========
Weighted average number of shares
outstanding 20,343,706 15,219,000 15,076,203 18,540,000
============ ========== =========== ===========
The accompanying notes are an integral part of the financial statements.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
--------------------------------------------------------------------------------
In U.S. dollars
Common stock
------------------------
Additional Deferred
Number of paid-in Stock
shares Amount capital compensation
---------- ----------- ------------ ------------
Balance as of September 22, 2000 (date of inception) -- -- -- --
Stock issued on September 22, 2000 for cash at $ 0.00188 per share 8,500,000 850 15,150 --
Stock issued on March 31, 2001 for cash at $ 0.0375 per share 1,600,000 160 59,840 --
Value of rent donated by a related party -- -- -- --
Value of services donated by a related party -- -- -- --
Net loss -- -- -- --
---------- ----------- ------------ ------------
Balance as of March 31, 2001 10,100,000 1,010 74,990 --
Value of rent donated by related party -- -- -- --
Value of services donated by related party -- -- -- --
Net loss -- -- -- --
---------- ----------- ------------ ------------
Balance as of March 31, 2002 10,100,000 1,010 74,990 --
Value of rent donated by related party -- -- -- --
Value of services donated by related party -- -- -- --
Net loss -- -- -- --
---------- ----------- ------------ ------------
Balance as of March 31, 2003 10,100,000 1,010 74,990 --
2 for 1 stock split 10,100,000 -- -- --
Stock issued on August 31, 2003 to purchase mineral option at $ 0.065 per
share 100,000 5 6,495 --
Cancellation of shares granted to Company's President (10,062,000) (503) 503 --
Value of rent donated by related party -- -- -- --
Value of services donated by related party -- -- -- --
Net loss -- -- -- --
---------- ----------- ------------ ------------
Balance as of March 31, 2004 10,238,000 512 81,988 --
Stock issued on June 24, 2004 for private placement at $ 0.01 per share,
net of
$ 25,000 issuance expenses 8,510,000 426 59,749 --
Stock based compensation related to shares granted to service providers
(note 5 a, c and d) 2,025,000 101 1,577,649 --
Value of rent donated by related party -- -- -- --
Value of services donated by related party -- -- -- --
Stock issued on Nov 3, 2004 for private placement at $ 0.75 per unit (note
1 h ) 941,412 47 706,012 --
Cancellation of shares granted to service providers (note 5 c ) (1,800,000) (90) 90 --
Deferred stock based compensation related to options granted to employees
(note 6 a and b ) -- -- 6,601,579 (6,601,579)
Amortization of deferred stock based compensation related to option granted
to employees -- -- 276,392 --
Compensation related to options granted to non-employees (notes 3 and 4 ) -- -- 15,879,648 --
Net loss -- -- -- --
---------- ----------- ------------ ------------
Balance as of December 31, 2004 19,914,412 996 24,906,715 (6,325,187)
========== =========== ============ ============
Deficit
accumulated
during the Total during
Donated development the equity
capital Stage (deficiency)
----------- ----------- -------------
Balance as of September 22, 2000 (date of inception) -- -- --
Stock issued on September 22, 2000 for cash at $ 0.00188 per share -- -- 16,000
Stock issued on March 31, 2001 for cash at $ 0.0375 per share -- -- 60,000
Value of rent donated by a related party 1,500 -- 1,500
Value of services donated by a related party 6,000 -- 6,000
Net loss -- (17,026) (17,026)
----------- ----------- -------------
Balance as of March 31, 2001 7,500 (17,026) 66,474
Value of rent donated by related party 2,250 -- 2,250
Value of services donated by related party 9,000 -- 9,000
Net loss -- (25,560) (25,560)
----------- ----------- -------------
Balance as of March 31, 2002 18,750 (42,586) 52,164
Value of rent donated by related party 3,000 -- 3,000
Value of services donated by related party 12,000 -- 12,000
Net loss -- (46,806) (46,806)
----------- ----------- -------------
Balance as of March 31, 2003 33,750 (89,392) 20,358
2 for 1 stock split -- -- --
Stock issued on August 31, 2003 to purchase mineral option at $ 0.065 per
share -- -- 6,500
Cancellation of shares granted to Company's President -- -- --
Value of rent donated by related party 3,000 -- 3,000
Value of services donated by related party 12,000 -- 12,000
Net loss -- (73,295) (73,295)
----------- ----------- -------------
Balance as of March 31, 2004 48,750 (162,687) (31,437)
Stock issued on June 24, 2004 for private placement at $ 0.01 per share,
net of
$ 25,000 issuance expenses -- -- 60,175
Stock based compensation related to shares granted to service providers
(note 5 a, c and d) -- -- 1,577,750
Value of rent donated by related party 1,500 -- 1,500
Value of services donated by related party 6,000 -- 6,000
Stock issued on Nov 3, 2004 for private placement at $ 0.75 per unit (note
1 h ) -- -- 706,059
Cancellation of shares granted to service providers (note 5 c ) -- -- --
Deferred stock based compensation related to options granted to employees
(note 6 a and b ) -- -- --
Amortization of deferred stock based compensation related to option granted
to employees -- 276,392
Compensation related to options granted to non-employees (notes 3 and 4 ) -- -- 15,879,648
Net loss -- (18,276,337) (18,276,337)
----------- ----------- -------------
Balance as of December 31, 2004 56,250 (18,439,024) 199,750
=========== =========== =============
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
In U.S. dollars
Period from
September 22,
nine months ended 2000 (inception
December 31, date) through
-------------------------------- December 31,
2004 2003 2004
-------------- -------------- ---------------
Unaudited
---------------------------------------------------
Cash flows form operating activities:
Net loss (18,275,053) -- (18,275,053)
Adjustments to reconcile net loss to net cash used in
operating activities:
Donated consulting services 3,000 -- 3,000
Expenses related to shares granted to service providers and to
non-employees 17,433,198 -- 17,433,198
Donated rent 750 750
Amortization of stock based compensation related option
granted to employees 276,392 276,392
Increase in prepaid expenses (31,450) (31,450)
Increase in accounts payable 10,395 -- 10,395
Increase in accrued liabilities 92,683 92,683
-------------- -------------- ---------------
Net cash used in continuing operating activities (490,085) -- (490,085)
Net cash provided by (used in) discontinued operating
activities 9,897 (8,466) (26,517)
-------------- -------------- ---------------
Total net cash provided by (used in) operating activities (480,188) (8,466) (516,602)
-------------- -------------- ---------------
Cash flows from investing activities
Purchase of property and equipment (1,518) -- (1,518)
-------------- -------------- ---------------
Net cash provided by (used in)investing activities (1,518) -- (1,518)
Net cash flows provided by (used in) discontinued investing
activities -- -- (16,000)
Total net cash provided by (used in) investing activities (1,518) -- (17,518)
-------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of Common stock, net 766,234 -- 766,234
-------------- -------------- ---------------
Net cash flows provided by continuing financing activities 766,234 -- 766,234
Net cash flows provided by (used in) discontinued financing
activities (14,277) 3,000 42,741
-------------- -------------- ---------------
Total net cash flows provided by financing activities 751,957 -- 808,975
-------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents 270,251 (5,466) 274,855
Cash and cash equivalents at beginning of the period 4,604 9,996 --
-------------- -------------- ---------------
Cash at end of the period 274,855 4,530 274,855
============== ============== ===============
Non-cash financing activities:
Non-cash financing activities from discontinued operations 30,700 10,000 90,700
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
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. The Company acquired the right to market and sell a digital data
recorder product line ("the license") in certain states in the U.S.
The license was acquired on September 22, 2000 and had a four-year
term. The license was purchased by the Company for $ 16,000 in cash
from Reach Technologies Inc. ("Reach"), which was 33% owned by the
President of the Company at that time. Reach manufactured all of the
products that the Company sold. Under the terms of the license
agreement, the Company purchased products from Reach and resold
them.
On October 31, 2001, the Company agreed to pay $ 20,000 in the form
of a note payable, due October 31, 2003, to amend the license
agreement to a worldwide exclusive license, except in certain
territories where the license will be non-exclusive. The Company has
repaid the note payable in full.
On June 10, 2002, the Company agreed to pay $ 30,000 in the form of
a note payable, due June 30, 2004, to amend the license agreement to
include a worldwide exclusive license for data recorders in the 41
to 160 mega bit per second range. Interest was accrued on the unpaid
principal amount of $ 20,974 at a rate of 7% per annum, was to
mature on June 30, 2004 and was due to be payable on demand in the
event of certain termination terms. The product license was
amortized on a straight-line basis over four years.
On May 4, 2004, the Company amended the license agreement with Reach
to a worldwide non-exclusive license, in exchange for a cash payment
of $ 4,233 and the forgiveness of the remaining balance on the
promissory note of $ 16,741 and accrued interest of $ 3,653.
Due to the non-exclusivity of the license, the Company cannot
determine whether the license will generate any future sales. As a
result, in the first quarter of 2004, the Company has recognized
impairment in the value of product license equal to its net book
value of $ 11,471, which has been charged to the statement of
operations.
c. On July 31, 2003, the Company acquired an option to purchase the
Dalhousie Mineral Claim, situated in the Stewart Area, Skeena Mining
Division in the Province of British Columbia, Canada. The purchase
price was $ 10,000 payable to the vendor within 90 days of the date
of the sale agreement ("the agreement"). The Company, pursuant to
the agreement, was required to split the shares of Common stock on a
two for one basis and cancel an appropriate number of shares held by
the Company's president to leave 10,100,000 post-split shares issued
and outstanding prior to any share issuances to the vendor. The
cancellation of shares held by the Company's president was completed
as of December 31, 2003. Pursuant to the sale agreement, the Company
was required to issue 100,000 post-split shares within 90 days of
the date of the agreement and 100,000 post-split shares on the
beginning of any exploration program which the Company carries out
on the Dalhousie Claim. Also, pursuant to the agreement, the Company
was to issue 100,000 shares of post-split Common stock to the
vendor, upon the Dalhousie Claim being put into commercial
production.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 1:- GENERAL (cont.)
On September 1, 2003, the Company amended the agreement such that
the cash purchase price of the Dalhousie Mineral Claim was made by
way of promissory note and that upon issuance of the first tranche
of 100,000 shares, the option portion of the agreement would
complete, and transfer of claims and title would pass to the Company
as described in the agreement.
On October 6, 2003, the Company completed its option on the
Dalhousie Mineral Claim by issuing 100,000 shares to the vendor
pursuant to the agreement. Also pursuant to the agreement, the
Company cancelled 10,062,000 shares owned by the president.
On May 4, 2004, the Dalhousie Mineral Claim was returned to the
vendor in exchange for the forgiveness of $ 10,305 including accrued
interest of $ 305 owed to the vendor. As a result, in the first
quarter of 2004, the Company has recorded a gain from forgiveness of
debt, which has been charged to the statement of operations.
d. On July 8, 2004, the Company entered into a licensing agreement with
Ramot of Tel Aviv University Ltd. (hereafter "Ramot"), an Israeli
corporation, to acquire certain stem cell technology (see Note 3).
The Company's business will now focus on the development of novel
cell therapies for neurodegenerative diseases, particularly,
Parkinson's disease, based on the results of 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 discontinue all activities related to
the sales of Digital Data Recorder product. The discontinuation of
their activity was accounted for under the provision of SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets".
The results of discontinued operations are summarized as follows:
Nine months ended December 31,
------------------------------
2004 2003
----------- -----------
Unaudited
------------------------------
Amortization $ -- $ 17,400
Bank changes and interest 1,426
Communication 1,972 2,057
Donated services 3,000
Professional fees 926 5,377
Expenses related to shares granted to service providers 24,200 9,000
Donated rent 750 2,250
----------- -----------
30,848 37,510
Other income:
Consulting revenue 10,350 --
Gain on forgiveness of debt 30,700 --
Loss on impairment of intangible asset 11,471 --
----------- -----------
29,579 37,510
Financial expenses, net 15 --
----------- -----------
Net loss $ (1,284) $ (37,510)
=========== ===========
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 1:- GENERAL (cont.)
e. On November 22, 2004, the Company changed its name from Golden Hand
Resources Inc. to Brainstorm Cell Therapeutics Inc. to better
reflect its new line of business in development of novel cell
therapies for neurodegenerative diseases.
f. On October 25, 2004, the company incorporated a wholly owned
subsidiary in Israel, named Brainstorm Cell Therapeutics Ltd. (the
"BCT"). BCT issued 100 shares with par value of $0.23 to the
Company. The Company and BCT signed an agreement for the provision
of R&D services by BCT to the Company. On December 13, 2004 the
Company has advanced BCT $150,000 on account of services provided.
g. The Company has an accumulated deficit of $18,439,024 at December
31, 2004. The company's ability to continue to operate is dependant
upon additional financing 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 might result should the Company
be unable to continue as a going concern.
h. The Company is close to completing a private placement round for the
sale of up to 2,000,000 units, at a price per unit of $ 0.75. Each
unit consists of one share of Common stock, a one year warrant to
purchase one share of Common stock at $ 1.50 per share and a three
year warrant to purchase one share of Common stock at $ 2.50 per
share. As of December 31, 2004, the Company issued 941,412 units in
consideration for $ 706,059.
As of February 14, 2005 the Company has signed agreements with
additional investors for the issuance of additional 930,833 units in
consideration for $698,124, transferred to an escrow account. The
money has not yet been transferred to the Company's account.
The Company intends to raise additional capital for the continued
funding of 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. There can
be no assurance that additional funds will be available on terms
acceptable to the Company, or at all.
The company's management is of the opinion that it currently has the
necessary financial resources to carry out its operations for the
next 6 months.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation:
The financial statements of the Company have been prepared in
accordance with United States generally accepted accounting
principles.
The significant accounting policies applied in the annual
consolidated financial statements of the Company as of March 31,
2004 are applied consistently in these consolidated financial
statements.
These financial statements should be read in conjunction with the
audited annual financial statements of the Company as of March 31,
2004 and their accompanying notes.
b. Year end:
The Company's fiscal year end is March 31.
c. Discontinued operations:
In July 2004, the Company has decided to discontinue all activities
related to the sales of Digital Data Recorder product. The Company
ceased the operations and disposed of all assets related to this
operation. The operations and cash flows of the Digital Data
Recorder business have been eliminated from the operations of the
entity as a result of the disposal transaction. The Company has no
intent to continue its activity in the Digital Data Recorder
business.
d. Accounting for stock-based compensation:
The Company applies SFAS No. 123 and Emerging Issues Task Force No.
96-18 "Accounting for Equity Instruments that are Issued to other
than Employees for Acquiring, or in conjunction with selling, goods
or Services" ("EITF 96-18"), with respect to options and warrants
issued to employees and to non-employees.
e. Long-lived assets:
The company's long-lived assets are certain identifiable intangibles
reviewed for impairment in accordance with Statement of Financial
standard No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assents" ("SFAS No. 144"), whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying out
amount of the assets exceeds the fair value of the assets.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
The company's Long-lived assets consisted of: A product license,
which was amortized on a straight-line basis over four years. The
carrying value of the license was evaluated in each reporting period
to determine if there were events or circumstances, which would
indicate a possible inability to recover the carrying amount. Such
evaluation was based on various analyses including assessing the
Company's ability to bring the commercial applications to market,
related profitability projections and undiscounted cash flows
relating to each application. Where an impairment loss has been
determined, the carrying amount is written-down to fair market
value. During the nine months ended December 31, 2004, the product
license was impaired and an impairment charge of $ 11,471 was
charged to operations.
f. Interim financial statements:
The accompanying unaudited interim financial statements have been
prepared in a consolidated format and include the financial
operations of the Company's fully owned subsidiary as of December
31, 2004 and for the three months then ended, in accordance with
accounting principles generally accepted in the United States
relating to the preparation of
financial statements for interim periods. Accordingly, they do not
include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine-month period
ended December 31, 2004 are not necessarily indicative of the
results that may be expected for the year ended March 31, 2005.
NOTE 3:- RESEARCH AND LICENSE AGREEMENT
a. On July 8, 2004, the Company entered into a research and license
agreement ("the agreement") with Ramot, the technology transfer
company of Tel Aviv University Ltd. ("Ramot"). The license agreement
grants the Company an exclusive, worldwide, royalty-bearing license
to develop, use and sell its technology. In consideration of the
license, the Company was required to remit an upfront license fee
payment of $ 100,000; royalties at a rate of 5% of all net sales of
products and 30% of all sublicense receipts. In addition the company
shall grant Ramot, upon the completion of an investment of $ 750,000
in the company, a warrant to purchase 29% of the issued and
outstanding shares of the company on a fully diluted basis, at an
exercise price of $ 0.01 per share. The Company will also fund,
through Ramot, further research of $ 570,000 per year for an initial
two-year period and for a further two-year period if certain
research milestones are met. Ramot may terminate the agreement if
the Company fails to reach certain development milestones; fails to
raise a minimum of $ 750,000 of investment capital, or materially
breaches the agreement. As of December 31, the company raised the
minimum investment as described above.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 3:- RESEARCH AND LICENSE AGREEMENT (Cont.)
The warrants to be issued pursuant to the agreement were issued to
Ramot and its designees effective as of November 4, 2004. Each of
the warrants is exercisable for a five-year period beginning on
November 4, 2005. Ramot and its designees were granted certain
registration rights.
Ramot has instructed the Company that the warrants will be issued as
follows: Ramot shall be issued 60% of the warrants, the two
consultants (or trustees for their benefits) shall each be issued,
in addition to the consultants' warrants, 16% of Ramot warrants (see
note 4), and Mr. Yosef Levy (or a trustee for his benefit) shall be
issued 8% of the Ramot warrants.
Compensation expenses, totaling $13,151,955 were charged to the
statement of operations as research and development expenses.
b. On October 29, 2004, the Company transferred to Ramot $ 100,000 as
the upfront payment, $17,000 as reimbursement for patent expenses
and $ 285,000 as the first installment of the annual research
funding, on account of the research and license agreement.
NOTE 4:- CONSULTING AGREEMENTS
a. On July 8, 2004, the company entered into two consulting agreements,
with Prof. Eldad Melamed and Dr. Daniel Offen (together the
"Consultants"), upon which the Consultants shall provide the company
scientific and medical consulting services in consideration for a
monthly payment of $ 6,000 each. In addition, the Company shall
grant each of the Consultants, upon the completion of an investment
of $ 750,000 in the company, a warrant to purchase 3% of the issued
and outstanding shares of the company, on a fully diluted basis, at
an exercise price of $ 0.01 per share.
b. Compensation expenses, totaling $2,721,093 were charged to the
statement of operations as research and development expenses.
c. As of December 31, 2004, the Company has paid the Consultants a
total of $24,000 for services rendered.
NOTE 5:- SHAREHOLDERS' EQUITY
a. On June 1 and June 4, 2004, the Company issued 40,000 and 150,000
Common shares for 12 months filing services, legal and due-diligence
services with respect to private placement, respectively.
Compensation expenses related to filing expenses, totaling $ 26,400,
are amortized over a period of 12 months and were charged to the
statement of operations. Compensation expenses related to legal and
due-diligence services, totaling $ 105,000, were recorded and
deducted from additional paid in capital.
b. On June 24, 2004, the Company issued to investors 8,510,000 Common
shares for total proceeds of $ 60,175 (net of $ 25,000 issuance
expenses).
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 5:- SHAREHOLDERS' EQUITY (Cont.)
c. On August 10, 2004, the Company issued 1,800,000 shares to two
consultants for past and future consulting services. The
compensation is deemed earned upon the issuance of the shares. As a
result, compensation expenses, totaling $ 1,530,000, were charged to
the statement of operations in the second quarter of 2004.
On December 23, 2004, the consultants surrendered the shares to the
company and the shares were cancelled and returned to the status of
authorized but unissued shares. The consultants were granted
immediately vested options to purchase 1,800,000 shares of the
Company, exercisable for a period of ten years at an exercise price
of $0.0005 per share. The compensation is deemed earned upon the
issuance of the option. According to SFAS 123 the incremental value
of the shares was not materially different from the options value.
d. On July 1 and September 22, 2004, the Company issued 20,000 and
15,000 shares to a director for financial services for the first and
second quarters of 2004, respectively. Compensation expenses,
totaling $ 22,000 and $ 16,950, were charged to the statement of
operations in the first and second quarters of 2004, respectively.
e. As for warrants and options, see Notes 3, 4, 5c, and 6.
NOTE 6:- NEW OFFICERS
a. On November 8, 2004, the Company appointed a new officer to perform
as President and Chief Executive (the "President & CEO)"). Pursuant
to the agreement that was signed with the President & CEO (the
"Agreement"), on December 31, 2004, the Company has granted her an
option to purchase 1,828,692 shares of the Company's common stock at
a price per share of $ 0.15 each, which option will vest and become
exercisable in thirty-six equal monthly installments from November
8, 2004 (the "Effective Date"). Two years from the Effective Date,
the President & CEO will be entitled to receive an additional stock
option to purchase the number of shares of the Company's common
stock that represents two percent (2%) of the Company's issued and
outstanding share capital as of that date at a price per share of $
0.15. The additional option shall vest and become exercisable in
thirty six equal monthly installments commencing as of such date.
Each of these options shall be exercisable for a ten 10 year period
following the Effective Date, but in any case not later than four 4
years after termination of the Agreement.
The President & CEO will be entitled to an annual bonus in
connection with the achievement of milestones and/or objectives, in
each case as determined by the board of directors. In addition,
within a 10 days period following the 12 months anniversary of the
effective date of the President & CEO's employment agreement, she
will receive an additional bonus as determined by the board of
directors of at least $ 50,000.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In U.S. dollars
NOTE 6:- NEW OFFICERS (Cont.)
b. On November 16, 2004, the Company appointed a new officer to perform
as Chief Operating Officer (the "COO"). Pursuant to the agreement
that was signed with the COO (the "Agreement"), on December 31,
2004, the Company has granted the COO an option to purchase 685,760
shares of the Company's common stock at a price per share of $ 0.15
each, which options will vest and become exercisable in thirty-six
equal monthly installments from November 16, 2004 (the "Effective
Date"). The option shall be exercisable for a ten 10 year period
following the Effective Date, but in any case not later than four 4
years after termination of the Agreement.
ITEM 2. PLAN OF OPERATION
This report contains forward-looking statements relating to future events and
our future performance within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including, without limitation, statements regarding our expectations,
beliefs, intentions or future strategies that are signified by the words
"expects", "anticipates", "intends", "believes" or similar language. Actual
results could differ materially from those anticipated in such forward-looking
statements. All forward-looking statements included in this document are based
on information available to us on the date hereof. 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 immediately if they do. 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.
OVERVIEW; RAMOT AGREEMENT
On July 8, 2004, we entered into a Research and License Agreement with Ramot at
Tel Aviv University Ltd. ("Ramot"), the technology licensing company of Tel Aviv
University. Under the terms of this Agreement, Ramot granted to us an exclusive
license to (a) certain stem cell technology developed at the Felsenstein Medical
Research Center of Tel Aviv University and related patent applications, and (b)
the results of further research to be performed at Tel Aviv University relating
to this technology under the supervision of Professor Eldad Melamed and Dr.
Daniel Offen, the lead inventors. Simultaneously with the execution of the
Research and License Agreement with Ramot, we entered into individual consulting
agreements with Prof. Melamed and Dr. Offen pursuant to which, all intellectual
property developed by Prof. Melamed or Dr. Offen in the performance of services
thereunder will be owned by Ramot and licensed to us under the Research and
License Agreement. Prof. Melamed's and Dr. Offen's team will continue the
research of applications of adult stem cell transplantation for
neurodegenerative diseases with an initial focus on treatment for Parkinson's
Disease.
STEM CELL THERAPY
Our activities are within the overall stem cell therapy market. 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. Stem cell therapy aims to "cure" diseased tissue by the replacement
and/or addition of healthy cells by stem cell transplants.
Currently, two principal platforms for cell therapy products are being explored:
embryonic stem cells (ESC), isolated from the inner mass of a few day old
embryo, and adult stem cells, sourced from bone arrow, cord blood and various
organs. Although embryonic stem cells are the easiest to grow and differentiate,
their use in human therapy has generated much legal and ethical debate due to
their origin in early human embryos. Cell therapy using adult stem cells does
not suffer from the same controversy. Bone marrow harbors stem cells capable of
differentiation into both hemopoeitic (blood and lymph) and mesenchymal (muscle,
bone, fat and other) tissues. Bone marrow stem cells have even been shown
capable of differentiating into nerve and skin cells.
PARKINSON'S DISEASE (PD)
Parkinson's disease (PD) is a chronic, progressive neurodegenerative disorder,
affecting certain nerve cells in the brain that produce dopamine. Dopamine is a
chemical messenger (neurotransmitter) in a part of the brain that directs and
controls movement. In PD, these dopamine-producing nerve cells break down,
causing dopamine levels to drop and brain signals that direct movement to become
abnormal. The cause of the disease is unknown. The classic symptoms of
Parkinson's disease are shaking (tremor), stiff muscles (rigidity) and slow
movement. 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.
OUR APPROACH
We intend to focus our efforts to develop cell therapeutic treatments for PD
based on the processing of human mesenchymal stem cells, present in adult bone
marrow, which are capable of self-renewal as well as differentiation into many
mesenchymal-derived tissues. Our aim is to "replace" damaged nerve cells and
diseased tissue by augmentation with healthy cells provided by stem cell
transplants.
The scientific team of Prof. Melamed and Dr. Offen is among the first to have
successfully demonstrated the physiological release of dopamine in vitro in
differentiated bone marrow cells. Moreover, in research conducted by this team,
implantation of these cells into the brains of mice and rats induced to
Parkinsonian behavior markedly improved their symptoms. We intend to optimize
this proprietary process for generation of neuron-like human bone marrow derived
cells that produce dopamine in a controlled manner for implantation to PD
patients. The optimization and process development will be conducted in an
effort to adhere strictly to FDA guidelines for Good Tissue Practice. In an
attempt to increase patient safety and minimize any chance of rejection or
immune reaction, we intend to develop NurOwnTM , as an autologous cell
therapeutic modality, comprising extracted bone marrow, processed into the
appropriate neuronal cells and re-implanted into the patient's brain.
BUSINESS STRATEGY
Our efforts are currently focused on the development of the technology from the
lab to the clinic with the main objectives:
o Developing the cell differentiation process according to FDA
guidelines
o Demonstrating safety and efficacy, first in animals and then in
patients
o Setting up centralized facilities to provide NurOwnTM therapeutic
products and services for transplantation in patients.
We intend to enter into strategic partnerships as we progress towards advanced
clinical development and commercialization with companies responsible for
advanced clinical development and commercialization. We intend to provide
strategic partners with services required to process the NurOwnTM products for
the clinical trials. This approach is intended to generate an early inflow of
up-front and milestone payments and to enhance our capacities in regulatory and
clinical infrastructure while minimizing expenditure and risk.
EMPLOYEES
As of February 12, 2004, we have two executive officers, Dr. Yaffa Beck, our
President and CEO and Yoram Drucker our Chief Operating Officer. Dudy Stolick
became our Chief Financial Officer effective February 13. We also have a
part-time controller. We have used consultants, attorneys and accountants as
necessary. We are in the process of recruiting additional employees and expect
to increase our staff significantly in the near future.
FACILITIES; EQUIPMENT
The address of our principal executive offices is 1350 Avenue of the Americas,
New York, NY 10019, where in consideration for $350 per month we have a license
to use office space and receive general office services until November 30, 2005
with a one-year renewal option.
On December 1, our Israeli subsidiary, Brainstorm Cell Therapeutics Ltd. (the
"Subsidiary") entered into a lease agreement for the lease of premises in Petach
Tikva, Israel, which include approximately 600 square meters of office and
laboratory space. The term of the lease is 36 months, with two options to extend
same - one for an additional 24 months (the "First Option"), and one for an
additional 36 months (the "Second Option"). Rent is to be paid on a quarterly
basis in the following amounts: (i) NIS 17,965 (approximately $US4,120) per
month during the first 12 months of the lease, (ii) NIS 19,527 (approximately
$US4,478) per month during the following 24 months of the lease, (iii) NIS
22,317 (approximately $US5,120) per month during the First Option period and
(iv) NIS 23,712 (approximately $US5,440) per month during the Second Option
period.
The Subsidiary undertook to design and construct the interior layout of the
leased premises, in accordance with a plan to be authorized by the lessor and
the lessor agreed to pay NIS 660 (approximately $US150) per square meter towards
this construction. We also intend to purchase certain laboratory equipment
necessary for us to undertake our development efforts.
CASH REQUIREMENTS
We have begun to increase our spending to execute our development programs. In
October 2004, we made a $402,000 payment to Ramot to cover the up-front license
fee, reimbursement of certain patent expenses and initial research funding
obligations under our agreement. Beginning May 1, 2005, we will be obligated to
pay Ramot $142,500 on a quarterly basis through April 2006, and, if certain
research milestones are met, for an additional two-year period. Our other
material cash needs for the next 12 months will include employee salaries and
benefits and facility lease and capital equipment expenses.
We will need to raise additional funds through public or private debt or equity
financings within the next 6 months to meet these expenses so that we can
execute against our business plan. At December 31, 2004, we had $306,460 in
total current assets and $108,228 in total current liabilities. In October and
November 2004, we raised approximately $706,000 in connection with several
closings on a private placement pursuant, of which $402,000 was used to pay
Ramot. We expect to close on an additional approximately $698,000 under this
private placement in the near future. We may not be able to raise additional
funds on favorable terms, or at all. If we are unable to obtain additional
funds, we will be unable to execute our business plan and we may be forced to
cease our operations.
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.
WE HAVE A LIMITED OPERATING HISTORY WHICH WILL LIMIT YOUR ABILITY TO EVALUATE
OUR OPERATIONS AND PROSPECTS.
We were incorporated under the laws of the State of Washington on September 22,
2000, but only changed our business model to focus on stem cell research in
connection with the signing of the Research and License Agreement with Ramot in
July 2004. We have a limited operating history upon which you may evaluate our
operations and prospects. Our limited operating history makes it difficult to
evaluate our commercial viability. Our potential success should be evaluated in
light of the problems, expenses and difficulties frequently encountered by new
businesses in general and biotechnology businesses specifically.
OUR COMPANY HAS A HISTORY OF LOSSES AND WE EXPECT TO INCUR LOSSES FOR THE
FORESEEABLE FUTURE.
We had no revenues for the fiscal year ended March 31, 2004 or for any interim
period since then. As a development stage company, we are at the earliest stages
of executing against our business plan, our ability to operate successfully is
materially uncertain and our operations are subject to significant risks
inherent in a developing business enterprise. Most notably, we do not expect
that any drugs resulting from our or our and our collaborators' research and
development efforts will be commercially available for a significant number of
years, if at all. We do also not expect to generate revenues from strategic
partnerships or otherwise for at least the next 12 months, and likely longer.
Furthermore, we expect to incur substantial and increasing operating losses for
the next several years as we increase our spending to execute our development
programs. These losses are expected to have, an adverse impact on our working
capital, total assets and stockholders' equity, and we may never achieve
profitability.
IN ORDER TO EXECUTE OUR BUSINESS PLAN, WE WILL NEED TO RAISE ADDITIONAL CAPITAL
IN THE NEXT 6 MONTHS. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, WE WILL NOT
BE ABLE TO ACHIEVE OUR BUSINESS PLAN, WE MAY BE FORCED TO CEASE OUR OPERATIONS
AND YOU COULD LOSE YOUR INVESTMENT.
We expect to incur substantial and increasing net losses for the foreseeable
future as we increase our spending to execute our development programs. Our
auditors have expressed that there is substantial doubt regarding our ability to
continue as a going concern. We will need to raise additional funds through
public or private debt or equity financings within the next 6 months to execute
against our business plan. At December 31, 2004, we had $306,460 in total
current assets and $108,228 in total current liabilities. In October and
November 2004, we raised approximately $706,000 in connection with several
closings on a private placement pursuant, of which $402,000 was used to pay
Ramot. We expect to close on an additional approximately $698,000 under this
private placement in the near future, but we cannot assure you that any
additional closings will occur. No definitive commitments to provide additional
funds have been made by management or other shareholders. When additional
capital is needed, we may not be able to raise additional funds on favorable
terms, or at all. If we are unable to obtain additional funds in a timely
fashion, we will be unable to execute our business plan, we may be forced to
cease our operations and you could lose your investment. If we raise additional
funds through the issuance of equity, equity related or convertible debt
securities, these securities may have rights, preferences or privileges senior
to those of the rights of our common stock and our stockholders may experience
additional dilution. In the event of a bankruptcy in either case, shareholders
could loose their entire investments as a result of the senior preferences or
privileges.
OUR BUSINESS IN THE FORESEEABLE FUTURE WILL BE BASED ON TECHNOLOGY LICENSED FROM
RAMOT AND IF THIS LICENSE WERE TO BE TERMINATED FOR ANY REASON, INCLUDING
FAILURE TO PAY THE REQUIRED RESEARCH FUNDING OR ROYALTIES, WE WOULD NEED TO
CHANGE OUR BUSINESS STRATEGY AND WE MAY BE FORCED TO CEASE OUR OPERATIONS.
Our Research and License Agreement with Ramot imposes on us development and
commercialization obligations, milestone and royalty payment obligations and
other obligations. In October 2004, we made payments to Ramot to cover the
up-front license fee, reimbursement of certain patent expenses and initial
research funding. Beginning May 1, 2005 we are obligated to pay Ramot $142,500
on a quarterly basis through April 2006, and, if certain research milestones are
met, for an additional two-year period. If we fail to comply with these
obligations to Ramot, Ramot may have the right to terminate the license. If
Ramot elects to terminate our license, we would need to change our business
strategy and we may be forced to cease operations.
STEM CELL THERAPY IS NEW AND OUR DEVELOPMENT EFFORTS MAY NOT YIELD AN EFFECTIVE
TREATMENT OF HUMAN DISEASES.
The field of stem cell therapy is new and, except for bone marrow transplants
for neoplastic disease, it remains largely untested in the clinical setting. Our
intended cell therapeutic treatment methods for PD involve a new approach that
has never proven to work in human testing. We are still conducting experimental
testing in animals for our treatment which, together with other stem cell
therapies, may ultimately prove ineffective in treatment of human diseases. If
we cannot successfully implement our stem cell therapy in human testing, we
would need to change our business strategy and we may be forced to cease
operations.
WE DEPEND UPON KEY PERSONNEL, NEED ADDITIONAL PERSONNEL AND IF WE ARE UNABLE TO
MAINTAIN OUR CURRENT PERSONNEL OR OBTAIN NEW PERSONNEL OUR RESULTS OF OPERATIONS
WILL BE NEGATIVELY IMPACTED.
Our success depends on services of our President and Chief Executive Officer,
Dr. Yaffa Beck and our consultants, Prof. Melamed and Dr. Offen. The loss of any
of these individuals could have a material and adverse effect on our business
operations. Additionally, the success of our company will largely depend upon
our ability to successfully attract and maintain competent and qualified key
management and scientific personnel. As with any startup company, there can be
no guarantee that we will be able to attract such individuals or that the
presence of such individuals will necessarily translate into profitability for
our company. Our inability to attract and retain key personnel may materially
and adversely affect our business operations.
OUR ABILITY TO COMMERCIALIZE THE PRODUCTS WE INTEND TO DEVELOP WILL DEPEND UPON
OUR ABILITY TO PROVE THE EFFICACY AND SAFETY OF THESE PRODUCTS ACCORDING TO
GOVERNMENT REGULATIONS
Our present and proposed activities are subject to extensive and rigorous
regulation by governmental authorities in the United States and other countries.
To clinically test, produce and market our proposed future products for human
use, we must satisfy mandatory procedural and safety and efficacy requirements
established by the FDA and comparable state and foreign regulatory agencies.
Typically, such rules require that products be approved by the government agency
as safe and effective for their intended use prior to being marketed. The
approval process is expensive, time consuming and subject to unanticipated
delays. It takes years to complete the testing of a product, and failure can
occur at any stage of testing. Our product candidates may not be approved. In
addition, our product approvals could be withdrawn for failure to comply with
regulatory standards or due to unforeseen problems after the product's marketing
approval.
Testing is necessary to determine safety and efficacy before a submission may be
filed with the FDA to obtain authorization to market regulated products. In
addition, the FDA imposes various requirements on manufacturers and sellers of
products under its jurisdiction, such as labeling, Good Manufacturing Practices,
record keeping and reporting requirements. The FDA also may require
post-marketing testing and surveillance programs to monitor a product's effects.
Furthermore, changes in existing regulations or the adoption of new regulations
could prevent us from obtaining, or affect the timing of, future regulatory
approvals or could negatively affect the marketing of our existing products.
We may not be able to obtain regulatory approval of potential products, or may
experience delays in obtaining such approvals, and we may consequently never
generate revenues from product sales because of any of the following risks
inherent in the regulation of our business:
o we may not be successful in obtaining the approval to perform
clinical studies, an investigational new drug application, or IND,
with respect to a proposed product;
o preclinical or clinical trials may not demonstrate the safety and
efficacy of proposed products satisfactory to the FDA or foreign
regulatory authorities; or
o completion of clinical trials may be delayed, or costs of clinical
trials may exceed anticipated amounts (for example, negative or
inconclusive results from a preclinical test or clinical trial or
adverse medical events during a clinical trial could cause a
preclinical study or clinical trial to be repeated, additional tests
to be conducted or a program to be terminated, even if other studies
or trials relating to the program are successful).
WE MAY NOT BE ABLE TO SUCCEED IN OUR BUSINESS MODEL OF SEEKING TO ENTER INTO
COLLABORATIONS AT APPROPRIATE STAGES OF DEVELOPMENT.
We intend to enter into strategic partnerships as we progress towards advanced
clinical development and commercialization with companies responsible for such
activities. We intend to provide strategic partners with services required to
process the NurOwnTM products for the clinical trials. It may be difficult for
us to find third parties that are willing to enter into collaborations for our
potential products at the appropriate stage of development, on economic terms
that are attractive to us or at all. If we are not able to continue to enter
into acceptable collaborations, we could fail in our strategy of generating an
early inflow of up-front and milestone payments and to enhance our capacities in
regulatory and clinical infrastructure while minimizing expenditure and risk and
we could be required to undertake and fund further development, clinical trials,
manufacturing and marketing activities solely at our own expense.
WE MAY BE DEPENDENT UPON ANY COMPANY WITH WHICH WE ENTER INTO COLLABORATIONS TO
CONDUCT CLINICAL TRIALS AND TO COMMERICALIZE OUR POTENTIAL PRODUCTS.
If we are ultimately successful in executing on our strategy of securing
collaborations with companies that would undertake advanced clinical development
and commercialization of our products, we may not have day-to-day control over
their activities. Any such collaborator may adhere to criteria for determining
whether to proceed with clinical development program under circumstances where
we might have continued such a program. Potential collaborators may have
significant discretion in determining the efforts and amount of resources that
they dedicate to our collaborations or may be unwilling or unable to fulfill its
obligations to us, including its development and commercialization. Potential
collaborators may underfund or not commit sufficient resources to the testing,
marketing, distribution or other development of our products. They may also not
properly maintain or defend our intellectual property rights or they may utilize
our proprietary information in such a way as to invite litigation that could
jeopardize or potentially invalidate our proprietary information or expose us to
potential liability. Potential collaboration partners may have the right to
terminate the collaboration on relatively short notice and if they do so or if
they fail to perform or satisfy their obligations to us, the development or
commercialization of products would be delayed and our ability to realize any
potential milestone payments and royalty revenue would be adversely affected.
WE FACE SIGNIFICANT COMPETITION IN OUR EFFORTS TO DEVELOP CELL THERAPIES FOR PD
AND OTHER NEURODEGENERATIVE DISEASES.
We face significant competition in our efforts to develop cell therapies and
other treatment or procedures to cure or slow the effects of PD and other
neurodegenerative diseases. Among our competitors are companies that are
involved in the fetal cell transplant or embryonic stem cell derived cell
therapy and companies developing adult stem cells. Other companies are
developing traditional chemical compounds, new biological drugs, cloned human
proteins and other treatments which are likely to impact the markets which we
intend to target. Many of our competitors possess longer operating histories and
greater financial, managerial, scientific and technical resources than we do and
some possess greater name recognition and established customer bases. Many also
have significantly more experience in preclinical testing, human clinical
trials, product manufacturing, the regulatory approval process and marketing and
distribution than we do. All of these factors put us at a competitive
disadvantage.
IF RAMOT IS UNABLE TO OBTAIN PATENTS ON THE PATENT APPLICATIONS AND TECHNOLOGY
EXCLUSIVELY LICENSED TO US OR IF PATENTS ARE OBTAINED BUT DO NOT PROVIDE
MEANINGFUL PROTECTION, WE MAY NOT BE ABLE TO SUCCESSFULLY MARKET OUR PROPOSED
PRODUCTS.
We rely upon the patent application as filed by Ramot with the Israeli Patent
Office and the license granted to us by Ramot under the Research and License
Agreement. We have agreed with Ramot in the Research and License Agreement to
seek comprehensive patent protection for all inventions licensed to us under the
Research and License Agreement. However, we cannot be sure that any patents will
be issued to Ramot as a result of its domestic or future foreign patent
applications or that any issued patents will withstand challenges by others.
We also rely upon unpatented proprietary technology, know-how and trade secrets
and seek to protect them through confidentiality agreements with employees,
consultants and advisors. If these confidentiality agreements are breached, we
may not have adequate remedies for the breach. In addition, others may
independently develop or otherwise acquire substantially the same proprietary
technology as our technology and trade secrets.
AS A RESULT OF OUR RELIANCE ON CONSULTANTS, WE MAY NOT BE ABLE TO PROTECT THE
CONFIDENTIALITY OF OUR TECHNOLOGY, WHICH, IF DISSEMINATED, COULD NEGATIVELY
IMPACT OUR PLAN OF OPERATIONS
We currently have relationships with two academic consultants who are not
employed by us, and we may enter into additional such relationships in the
future. We have limited control over the activities of these consultants and can
expect only limited amounts of their time to be dedicated to our activities.
These persons may have consulting, employment or advisory arrangements with
other entities that may conflict with or compete with their obligations to us.
Our consultants typically sign agreements that provide for confidentiality of
our proprietary information and results of studies. However, in connection with
every relationship, we may not be able to maintain the confidentiality of our
technology, the dissemination of which could hurt our competitive position and
results of operations. To the extent that our scientific consultants develop
inventions or processes independently that may be applicable to our proposed
products, disputes may arise as to the ownership of the proprietary rights to
such information, we may expend significant resources in such disputes and we
may not win those disputes.
THE PRICE OF OUR STOCK IS EXPECTED TO BE HIGHLY VOLATILE
The market price of our common stock has fluctuated significantly in the short
time it has been traded, and is likely to continue to be highly volatile. To
date, the trading volume in our stock has been relatively low and significant
price fluctuations can occur as a result. An active public market for our common
stock may not continue to develop or be sustained. If the low trading volumes
experienced to date continue, such price fluctuations could occur in the future
and the sale price of our common stock could decline significantly. Investors
may therefore have difficulty selling their shares.
ACTUAL OR PERCEIVED SUBSTANTIAL SALES OF SHARES OF OUR COMMON STOCK THAT ARE
CURRENTLY AND MAY IN THE FUTURE BE SUBJECT TO REGISTRATION RIGHTS COULD RESULT
IN A SIGNIFICANT DECLINE IN OUR STOCK PRICE.
In late October and early November 2004, we issued a total of 941,412 Units for
$.75 per Unit pursuant to a private placement, each unit of which consists of
(i) one share of our common stock, (ii) a warrant to purchase one share of our
common stock at an exercise price of $1.50 per share, which warrant is
exercisable for a one-year period from the date of issuance, and (iii) a warrant
to purchase one share of our common stock at an exercise price of $2.50 per
share, which warrant is exercisable for a three-year period from the date of
issuance. We expect to issue an additional approximately 930,000 of these Units
for $.75 per Unit pursuant to an additional closing under this offering in the
near future. The shares of common stock and warrants that comprise the Units
have "piggy back" registration rights, subject to underwriter discretion, to be
included by the Company in a registration statement filed with the Securities
and Exchange Commission.
We are also issued the following warrants effective the fourth quarter of 2004:
(i) to Ramot and its designees, Dr. Daniel Offen, Professor Eldad Melamed and
Mr. Yosef Levy, warrants to purchase, in the aggregate, 10,606,415 shares of our
common stock at a purchase price of $.01 per share; (ii) to each of our
consultants, Dr. Daniel Offen and Professor Eldad Melamed, warrants to purchase
1,097,215 shares of our common stock at a purchase price of $.01 per share. We
have agreed to register the shares underlying these warrants (whether by demand,
piggy back registration or otherwise) by no later than twenty-one (21) months
from July 8, 2004 (the execution date of our License Agreement with Ramot) and
agreed to maintain the effectiveness of a registration statement covering such
shares until the earlier of (i) the time at which, in the opinion of counsel to
the Company, all of the shares underlying the warrant then held by the Holder
could be sold in any 90 day period pursuant to Rule 144 under the Securities Act
or (ii) the expiration date of the warrant. These registration rights shall be
set forth fully in a separate registration rights agreement to be entered into
between us and the holders which agreement shall include customary provisions
regarding, inter alia, deferrals, cutbacks, lockups and indemnification by the
Company of the Holder.
In November 2004, our Board of Directors approved our 2004 Global Share Option
Plan (the "2004 Plan") as well as the reservation of 9,143,162 shares of our
Common Stock for issuance thereunder, subject to the approval of our
shareholders. Pursuant to this Plan, on December 31, 2004, our Board issued (i)
to our President and CEO, Dr. Beck, options to purchase 1,828,692 shares of our
common stock at a price per share of $0.15 each, which options will vest and
become exercisable in thirty six equal monthly installments from November 8,
2004; and (ii) to our COO, Yoram Drucker, options to purchase 685,760 shares of
our common stock at a price per share of $0.15 each, which options will vest and
become exercisable in thirty six equal monthly installments from November 16,
2004. In addition, (i) we have signed an agreement with David Stolick to join us
as our CFO effective February 13, 2005 pursuant to which Mr. Stolick will be
granted options to purchase 400,000 shares of our common stock at a price per
share of $0.75 each, which options will vest and become exercisable in thirty
six equal monthly installments from February 13, 2005; and (ii) in November
2006, Dr. Beck will be entitled to receive an additional stock option grant to
purchase the number of shares of our common stock that represents two percent
(2%) of our issued and outstanding share capital as of that date at a price per
share of $0.15 each, which additional options shall vest and become exercisable
in thirty six equal monthly installments commencing as of such date. We have
agreed to register the shares underlying Dr. Beck's, Mr. Drucker's and Mr.
Stolick's options on an S-8 registration statement; provided that this
obligation shall not take effect until the one year anniversary of the grant of
the options.
If we register the shares underlying these convertible securities, they can be
sold in the public market. They will also 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 other of our
existing stockholders, sell a large number of shares of our common stock, or the
public market perceives that existing stockholders might sell shares of common
stock, the market price of our common stock could decline significantly.
YOUR PERCENTAGE OWNERSHIP WILL BE DILUTED BY OPTIONS WE INTEND TO GRANT TO
MANAGEMENT, EMPLOYEES, DIRECTORS AND CONSULTANTS.
In anticipation of hiring new management members and employees, recruiting new
directors and retaining additional advisors and consultants, we intend to issue
options to such individuals. Such issuances will, if and when made, dilute your
percentage ownership in the company.
INVESTORS MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR STOCK DUE TO
THE WAY IN WHICH STOCK TRADES ARE HANDLED BY BROKER-DEALERS
Brokers may be less willing to execute transactions in securities subject to
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our stock. Because
of large broker-dealer spreads, investors may be unable to sell the stock
immediately back to the broker-dealer at the same price the broker-dealer sold
the stock to the investor. In some cases, the stock may fall quickly in value.
Investors may be unable to reap any profit from any sale of the stock, if they
can sell it at all. The market among broker-dealers may not be active. Investors
in penny stocks often are unable to sell stock back to the dealer that sold them
the stock. The mark ups or commissions charged by the broker-dealers may be
greater than any profit a seller may make.
YOU MAY EXPERIENCE DIFFICULTIES IN ATTEMPTING TO ENFORCE LIABILITIES BASED UPON
U.S. FEDERAL SECURITIES LAWS AGAINST US AND OUR NON-U.S. RESIDENT DIRECTORS AND
OFFICERS.
Our principal operations are located through our subsidiary in Israel and our
principal assets are located outside the United States. Our President and
directors are foreign citizens and do not reside in the United States. It may be
difficult for courts in the United States to obtain jurisdiction over our
foreign assets or these persons and as a result, it may be difficult or
impossible for you to enforce judgments rendered against us or our directors or
executive officers in United States courts. Thus, should any situation arise in
the future in which you have a cause of action against these persons or
entities, you are at greater risk in investing in our company rather than a
domestic company because of greater potential difficulties in bring lawsuits or,
if successful, collecting judgments against these persons or entities as opposed
to domestic persons or entities.
POLITICAL, ECONOMIC AND MILITARY INSTABILITY IN ISRAEL MAY IMPEDE OUR ABILITY TO
EXECUTE OUR PLAN OF OPERATIONS.
Our principal offices and the research and development facilities of Ramot are
located in Israel. Accordingly, political, economic and military conditions in
Israel may affect directly our business. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have occurred between Israel and its
Arab neighbors. Since October 2000, terrorist violence in Israel has increased
significantly and until they were recently revived, negotiations between Israel
and Palestinian representatives had effectively ceased. Ongoing or revived
hostilities or other factors related to Israel could harm our operations and
research and development process and could impede on our ability to execute our
plan of operations.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of the Quarterly Report for the period
ended December 31, 2004, we carried out an evaluation, under the supervision and
with the participation of our management, including the company's Chief
Executive Officer and Principal Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rule
3a-14 of the Securities Exchange Act of 1934 (the "Exchange Act"), which
disclosure controls and procedures are designed to insure that information
required to be disclosed by a company in the report that it files under the
Exchange Act is recorded, processed summarized and reported within required time
periods specified by the SEC's rules and forms. Based upon that evaluation, the
Chief Executive Officer and Principal Financial Officer concluded that our
disclosure controls and procedures are effective in timely providing alerts to
material information relating to the company required to be included in the
company's period SEC filings.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph (a)
above, there were no significant changes in our internal controls or other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. Litigation is
subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse affect on our business,
financial condition or operating results.
ITEM 6. EXHIBITS.
4.05 Warrant to purchase common stock dated as of December 23, 2004
issued to Malcolm E. Taub (incorporated by reference to Current
Report on form 8-K dated December 23, 2004).
4.06 Warrant to purchase common stock dated as of December 23, 2004
issued to Ernest Muller (incorporated by reference to Current Report
on form 8-K dated December 23, 2004).
4.07 Form of Warrant to purchase common stock dated as of November 4,
2004 issued pursuant to research and license agreement with Ramot at
Tel-Aviv University Ltd. (incorporated by reference to Amendment No.
1 to Current Report on Form 8-K/A dated November 4, 2004, filed on
February 14, 2005).
4.08 Form of Warrant to purchase common stock dated as of November 4,
2004 issued pursuant to consulting agreements with Eldad Melamed and
Daniel Offen (incorporated by reference to Amendment No. 1 to
Current Report on Form 8-K/A dated November 4, 2004, filed on
February 14, 2005).
10.05 Employment agreement, dated as of November 8, 2004, between Yaffa
Beck and the Company (incorporated by reference to Current Report on
Form 8-K dated November 9, 2004).
10.06 Employment agreement, dated as of November 16, 2004, between Yoram
Drucker and the Company (incorporated by reference to Current Report
on Form 8-K dated November 16, 2004).
10.07 Consulting agreement, dated December 23, 2004 between Malcolm E.
Taub and the Company (incorporated by reference to Current Report on
Form 8-K dated December 23, 2004).
10.08 Consulting agreement, dated December 23, 2004 between Ernest Muller
and the Company (incorporated by reference to Current Report on Form
8-K dated December 23, 2004).
10.09 Employment agreement, dated as of January 16, 2005, between David
Stolick and the Company (incorporated by reference to Current Report
on Form 8-K dated January 16, 2005).
10.10 Lease Agreement, dated as of December 1, 2004, between Brainstorm
Cell Therapeutics Ltd. and Kiryat HaMada VeHaTechnologia `A' Petach
Tikva Ltd., Kiryat HaMada VeHaTechnologia `B' Petach Tikva Ltd., and
Otzma & Co., Investment Maccabim Ltd.
31.1 Certification by the Principal Executive Officer and Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRAINSTORM CELL THERAPEUTICS INC.
Dated: February 14, 2005
By: /s/ Yaffa Beck
-----------------------------------
Name: Yaffa Beck
Title: President & CEO, Director
Principal Executive Officer and
Principal Financial Officer