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 June 30, 2005
|_| 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 June 30, 2005 was 21,754,683.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
(Formerly: Golden Hand Resources Inc.)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
IN U.S. DOLLARS
UNAUDITED
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
June 30, March 31,
2005 2005
----------- -----------
Unaudited Audited
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 305,545 526,519
Restricted cash 29,515 31,134
Accounts receivable and prepaid expenses 116,459 87,566
----------- -----------
Total current assets 451,519 645,219
----------- -----------
SEVERANCE PAY FUND 10,783 5,871
----------- -----------
PROPERTY AND EQUIPMENT, NET 408,097 228,315
----------- -----------
Total assets 870,399 879,405
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables 211,617 37,850
Other accounts payable and accrued expenses 216,380 131,232
----------- -----------
Total current liabilities 427,997 169,082
----------- -----------
ACCRUED SEVERANCE PAY 10,783 5,871
----------- -----------
Total liabilities 438,780 174,953
----------- -----------
STOCKHOLDERS' EQUITY:
Share capital:
Common stock of $ 0.00005 par value - Authorized: 200,000,000 shares at June 30,
2005 and at March 31, 2005; Issued and outstanding: 21,754,683 and 20,867,808
at June 30, 2005 and at March 31, 2005 respectively (Note 5) 1,088 1,044
Preferred stock of $ 0.00005 par value - Authorized: 40,000,000 shares at June
30, 2005 and at March 31, 2005; none issued -- --
Additional paid-in capital 24,116,523 25,100,625
Deferred stock-based compensation (3,943,722) (5,394,735)
Deficit accumulated during the development stage (19,742,270) (19,002,482)
----------- -----------
Total stockholders' equity 431,619 704,452
----------- -----------
Total liabilities and stockholders' equity 870,399 879,405
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
In U.S. dollars (except share data)
Period from
September 22,
Three months ended 2000 (inception
June 30, date) through
-------------------------- June 30,
2005 2004 2005
----------- ----------- -----------
Unaudited
-----------------------------------------
Operating expenses:
Research and development 180,637 -- 652,679
Research and development expenses related to shares ,warrants
and options granted to employees and service providers 9,855 -- 15,888,306
General and administrative 234,708 -- 499,839
General and administrative expenses related to shares ,warrants
and options granted to employees and service providers 307,600 -- 2,519,022
----------- ----------- -----------
Total operating expenses 732,800 -- 19,559,846
Financial expenses, net 2,379 -- 8,375
----------- ----------- -----------
Loss before income taxes (735,179) (19,568,221)
Income taxes (Note 10) 4,609 -- 10,078
----------- ----------- -----------
Loss from continuing operations (739,788) -- (19,578,299)
Net loss from discontinued operations -- (20,866) (163,971)
----------- ----------- -----------
Net loss (739,788) (20,866) (19,742,270)
=========== =========== ===========
Basic net loss per share from continuing operations (0.04) --
=========== ===========
Weighted average number of shares outstanding 21,137,142 10,303,000
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
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 (except share data)
Deficit
accumulated Total
Common stock Additional Deferred during the stockholders'
------------------------- paid-in stock-based development equity
Number Amount capital compensation stage (deficiency)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of September 22, 2000 (inception
date) -- -- -- -- -- --
Stock issued on September 22, 2000 for
cash at $ 0.00188 per share 8,500,000 850 15,150 -- -- 16,000
Stock issued on March 31, 2001 for cash
at
$ 0.0375 per share 1,600,000 160 59,840 -- -- 60,000
Contribution of capital -- -- 7,500 -- -- 7,500
Net loss -- -- -- -- (17,026) (17,026)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2001 (audited) 10,100,000 1,010 82,490 -- (17,026) 66,474
Contribution of capital -- -- 11,250 -- -- 11,250
Net loss -- -- -- -- (25,560) (25,560)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2002 (audited) 10,100,000 1,010 93,740 -- (42,586) 52,164
Contribution of capital -- -- 15,000 -- -- 15,000
Net loss -- -- -- -- (46,806) (46,806)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2003 (audited) 10,100,000 1,010 108,740 -- (89,392) 20,358
2 for 1 stock split 10,100,000 -- -- -- -- --
Stock issued on August 31, 2003 to
purchase
mineral option at $ 0.065 per share 100,000 5 6,495 -- -- 6,500
Cancellation of shares granted to
Company's President (10,062,000) (503) 503 -- -- --
Contribution of capital -- -- 15,000 -- -- 15,000
Net loss -- -- -- -- (73,295) (73,295)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2004 (audited) 10,238,000 512 130,738 -- (162,687) (31,437)
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 -- -- 60,175
Stock-based compensation related to
shares granted to service providers 2,025,000 101 1,632,699 -- -- 1,632,800
Contribution of capital -- -- 7,500 -- -- 7,500
Stock issued in 2004 for private
placement at $ 0.75 per unit (Note
5c(2)) 1,894,808 95 1,418,042 -- -- 1,418,137
Cancellation of shares granted to service
providers (Note 5c(6)) (1,800,000) (90) 90 -- -- --
Deferred stock-based compensation related
to
options granted to employees -- -- 5,978,759 (5,978,759) -- --
Amortization of deferred stock-based
compensation related to options granted
to employees -- -- -- 584,024 -- 584,024
Compensation related to options granted
to service providers -- -- 15,873,048 -- -- 15,873,048
Net loss -- -- -- -- (18,839,795) (18,839,795)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2005 (audited) 20,867,808 1,044 25,100,625 (5,394,735) (19,002,482) 704,452
----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
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 (except share data)
Deficit
accumulated Total
Common stock Additional Deferred during the stockholders'
------------------------- paid-in stock-based development equity
Number Amount capital compensation stage (deficiency)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of March 31, 2005 (audited) 20,867,808 1,044 25,100,625 (5,394,735) (19,002,482) 704,452
Stock issued on May 12, 2005 for
private placement at $ 0.8 per share
(Note 5c(3)) 186,875 9 149,491 -- -- 149,500
Deferred stock-based compensation
related to options granted to
employees -- -- (1,543,059) 1,543,059 -- --
Deferred stock-based compensation
related
to shares granted to directors 200,000 10 307,990 (308,000) -- --
Amortization of deferred stock-based
compensation related to options and
shares granted to employees and
directors -- -- -- 215,954 -- 215,954
Stock-based compensation related to
options and shares granted to
service providers 500,000 25 101,476 -- -- 101,501
Net loss -- -- -- -- (739,788) (739,788)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of June 30, 2005 (unaudited) 21,754,683 1,088 24,116,523 (3,943,722) (19,742,270) 431,619
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
In U.S. dollars
Period from
September 22,
Three months ended 2000 (inception
June 30, date) through
------------------------- June 30,
2005 2004 2005
----------- ----------- -----------
Unaudited
----------------------------------------
Cash flows from operating activities:
Net loss (739,788) -- (19,742,270)
Less - loss for the period from discontinued operations -- -- 163,971
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation 5,374 -- 5,619
Expenses related to shares and options granted to service
providers 101,501 -- 17,583,149
Amortization of deferred stock-based compensation related to
options granted to employees 215,954 -- 799,978
Increase in accounts receivable and prepaid expenses (28,893) -- (111,715)
Increase in trade payables 173,767 -- 211,617
Increase in other accounts payable and accrued expenses 85,148 -- 211,230
----------- ----------- -----------
Net cash used in continuing operating activities (186,937) -- (878,421)
Net cash provided by (used in) discontinued operating activities -- 9,698 (22,766)
----------- ----------- -----------
Total net cash provided by (used in) operating activities (186,937) 9,698 (901,187)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (185,156) -- (413,716)
Restricted cash 1,619 -- (29,515)
Investment in lease deposit -- -- (4,590)
----------- ----------- -----------
Net cash used in continuing investing activities (183,537) -- (447,821)
Net cash used in discontinued investing activities -- -- (16,000)
----------- ----------- -----------
Total net cash used in investing activities (183,537) -- (463,821)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Common stock and warrants, net 149,500 -- 1,627,812
----------- ----------- -----------
Net cash provided by continuing financing activities 149,500 -- 1,627,812
Net cash provided by discontinued financing activities -- 53,515 42,741
----------- ----------- -----------
Total net cash provided by financing activities 149,500 53,515 1,670,553
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (220,974) 63,213 305,545
Cash and cash equivalents at the beginning of the period 526,519 4,604 --
----------- ----------- -----------
Cash and cash equivalents at end of the period 305,545 67,817 305,545
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 1:- GENERAL
a. Brainstorm Cell Therapeutics Inc. (formerly: Golden Hand Resources
Inc.) ("the Company") was incorporated in the State of Washington on
September 22, 2000.
b. On May 21, 2004, the former major shareholders of the Company
entered into a purchase agreement with a group of private investors,
who purchased from the former major shareholders 6,880,000 shares of
the then issued and outstanding 10,238,000 shares of the Company's
Common stock.
c. On July 31, 2003, the Company acquired an option to purchase the
Dalhousie Mineral Claim, situated in Canada. The purchase price was
$ 10,000 and was made by way of a promissory note. On October 6,
2003, the Company issued 100,000 shares to the vendor pursuant to
the agreement.
d. The Company acquired the right to market and sell a digital data
recorder product line in certain States in the U.S. The license was
acquired on September 22, 2000 and had a four-year term. Under the
terms of the license agreement, the Company purchased products and
resold them.
On May 4, 2004, the Company amended the license agreement to a
worldwide non-exclusive license. Due to the non-exclusivity of the
license, the Company could not determine whether the license would
generate any future sales. As a result, in the first quarter of
2004, the Company recognized impairment in the value of the license,
which has been charged to the statement of operations. Since the end
of the first quarter of 2004, the Company has not engaged in any
activities related to the sale of the digital data recorder product.
e. On July 8, 2004, the Company entered into a licensing agreement with
Ramot of Tel Aviv University Ltd. ("Ramot"), an Israeli corporation,
to acquire certain stem cell technology (see Note 3). Subsequent to
this agreement, the Company decided to change its line of business
and to focus on the development of novel cell therapies for
neurodegenerative diseases, particularly, Parkinson's disease, based
on the acquired technology and research to be conducted and funded
by the Company.
Following the licensing agreement dated July 8, 2004, the management
of the Company has decided to abandon all activities related to the
sale of the digital data recorder product. The discontinuation of
this activity was accounted for under the provision of SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets".
- 7 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 1:- GENERAL (Cont.)
f. On October 25, 2004, the Company formed a wholly-owned subsidiary in
Israel, Brainstorm Cell Therapeutics Ltd. ("BCT"). On March 14,
2005, the Company signed an agreement with its subsidiary effective
as of November, 2004, according to which the subsidiary will provide
research, development and other services to the Company. In return,
the subsidiary will be entitled to receive reimbursement of expenses
incurred by it in the process of performing the research and
development services plus 10% of such reimbursement amounts.
g. As of June 30, 2005, the Company had an accumulated deficit of $
19,742,270 and incurred negative cash flows from operating
activities in the amount of $ 186,937 for the three months ended
June 30, 2005. In addition, the Company has not generated any
revenues yet.
The Company's ability to continue to operate as a going concern is
dependent upon additional financial support.
These financial statements do not include any adjustments relating
to the recoverability and classification of assets' carrying amounts
or the amount and classification of liabilities that may be required
should the Company be unable to continue as a going concern.
The Company intends to raise additional capital to fund its
operations. In the event the Company is unable to successfully raise
capital and generate revenues, it is unlikely that the Company will
have sufficient cash flows and liquidity to finance its business
operations as currently contemplated. Accordingly, the Company will
likely reduce general and administrative expenses and cease or delay
the development project until it is able to obtain sufficient
financing. There can be no assurance that sufficient revenues will
be generated and that additional funds will be available on terms
acceptable to the Company, or at all.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. The significant accounting policies applied in the consolidated
financial statements as of June 30, 2005, are consistent with those
applied in the consolidated financial statements as of March 31,
2005.
These financial statements should be read in conjunction with the
audited annual financial statements of the Company as of March 31,
2005 and their accompanying notes.
- 8 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b. Accounting for share-based compensation:
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB-25"), and FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" ("FIN 44") in accounting
for its employee stock options. Under APB-25, when the exercise
price of the Company's stock options is less than the market price
of the underlying stocks on the date of grant, compensation expense
is recognized over the option's vesting period.
Pro forma information regarding net loss and loss per share is
required by Statement of Financial Accounting Standard No. 123, and
has been determined assuming the Company had accounted for its
employee stock options under the fair value method prescribed by
that Statement. The fair value for these options was estimated on
the date of grant using the Black-Scholes option pricing model, with
the following weighted-average assumptions for grants during the
year ended March 31, 2005: weighted average volatility of 109%,
risk-free interest rate of 4.51%, dividend yield of 0% and an
expected life of five years.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized as an expense over the option's vesting
period. The Company's pro forma information is as follows:
Year ended June 30,
----------------------
2005 2004
--------- ---------
Unaudited
----------------------
Net loss as reported $ 739,788 $ 20,866
Deduct: share-based employee compensation expense included in
reported net loss in accordance with APB-25 (206,543) --
Add: stock-based employee compensation expense determined
under fair value method 249,373 --
--------- ---------
Pro forma net loss $ 782,618 $ 20,866
========= =========
Pro forma net loss per share (basic) $ 0.04 $ --
========= =========
The Company applies SFAS 123 and EITF 96-18, "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring,
or in Conjunction with Selling, Goods or Services" ("EITF 96-18")
with respect to options and warrants issued to non-employees.
- 9 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
SFAS 123 and EITF 96-18 require the use of an option valuation model
to measure the fair value of the options at the grant date.
c. Interim 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 June 30, 2005 and for the three months then ended, in
accordance with accounting principles generally accepted in the
United States relating to the preparation of financial statements
for interim periods. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended June
30, 2005 are not necessarily indicative of the results that may be
expected for the year ended March 31, 2006.
NOTE 3:- RESEARCH AND LICENSE AGREEMENT
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. The license agreement grants the
Company an exclusive, worldwide, royalty-bearing license to develop,
use and sell certain stem cell technology. In consideration of the
license, the Company was required to remit an upfront license fee
payment of $ 100,000; royalties at a rate of 5% of all net sales of
products and 30% of all sublicense receipts. In addition, the
Company granted Ramot and certain of its designees fully vested
warrants to purchase 10,606,415 shares of its Common stock at an
exercise price of $ 0.01 per share. The Company will also fund,
through Ramot, further research in consideration of $ 570,000 per
year for an initial two-year period and for a further two-year
period if certain research milestones are met. Ramot may terminate
the agreement if the Company fails to reach certain development
milestones or materially breaches the agreement.
The warrants issued pursuant to the agreement were issued to Ramot
and its designees effective as of November 4, 2004. Each of the
warrants is exercisable for a five-year period beginning on November
4, 2005. Ramot and its designees were granted certain registration
rights.
Ramot has instructed the Company that the warrants will be issued as
follows: Ramot shall be issued 60% of the warrants, the two
consultants (or trustees for their benefits) shall each be issued,
in addition to the consultants' warrants described in Note 4, 16% of
the Ramot warrants, and Mr. Yosef Levy (a member of the research
team) shall be issued 8% of the Ramot warrants.
- 10 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 3:- RESEARCH AND LICENSE AGREEMENT (Cont.)
On March 21, 2005, the Company entered into lock up agreements with Ramot
with respect to warrants held by it .Under the lock-up agreements, Ramot
may not transfer its securities to anyone other than permitted transferees
without the prior consent of the Company's Board of Directors, for the
period of time as follows: (i) eighty-five percent (85%) of the securities
shall be restricted from transfer for the twenty-four-month period
following July 8, 2004 and (ii) fifteen percent (15%) of the securities
shall be restricted from transfer for the twelve-month period following
July 8, 2004.
NOTE 4:- CONSULTING AGREEMENTS
On July 8, 2004, the Company entered into two consulting agreements with
Prof. Eldad Melamed and Dr. Daniel Offen (together "the Consultants"),
upon which the Consultants shall provide the Company scientific and
medical consulting services in consideration for a monthly payment of $
6,000 each. In addition, the Company granted each of the Consultants a
fully vested warrant to purchase 1,097,215 shares of the Company's Common
stock, at an exercise price of $ 0.01 per share. The warrants issued
pursuant to the agreement were issued to the Consultants effective as of
November 4, 2004. Each of the warrants is exercisable for a five-year
period beginning on November 4, 2005.
On March 21, 2005, the Company entered into lock up agreements with the
Consultants with respect to warrants held by them .Under the lock-up
agreements, the Consultants may not transfer their securities to anyone
other than permitted transferees without the prior consent of the
Company's Board of Directors, for the period of time as follows: (i)
eighty-five percent (85%) of the securities shall be restricted from
transfer for the twenty-four-month period following July 8, 2004 and (ii)
fifteen percent (15%) of the securities shall be restricted from transfer
for the twelve-month period following July 8, 2004.
- 11 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 5:- STOCK CAPITAL
a. The rights of Common stock are as follows:
Common shares confer 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 are registered and publicly traded on the
Over-the-Counter Bulletin Board service of the National Association
of Securities Dealers, Inc. under the symbol BCLI.
b. The former president of the Company donated services valued at $
6,000 and rent valued at $ 1,500 for the six months ended September
30, 2004. These amounts were charged to the statement of operations
as part of discontinued operations and classified as additional
paid-in capital in the stockholders' equity.
c. Issuance of shares, warrants and options:
Private placements
1. 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).
2. On February 23, 2005, the Company completed a private
placement round for the sale of 1,894,808 units for total
proceeds of $ 1,418,137. 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. This
private placement was consummated in four tranches which
closed in October 2004, November 2004 and February 2005.
3. On May 12, 2005, the Company issued to a certain investor
186,875 shares of its Common stock for total proceeds of $
149,500 at a price per share of $ 0.8.
4. On March 21, 2005, the Company entered into lock up agreements
with its 29 shareholders with respect to 15,290,000 shares
held by them .Under these lock-up agreements, these security
holders may not transfer their shares to anyone other than
permitted transferees without the prior consent of the
Company' Board of Directors, for the period of time as
follows: (i) eighty-five percent (85%) of the securities shall
be restricted from transfer for the twenty-four-month period
following July 8, 2004 and (ii) fifteen percent (15%) of the
securities shall be restricted from transfer for the
twelve-month period following July 8, 2004.
- 12 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 5:- STOCK CAPITAL (Cont.)
Shares and warrants to service providers
5. On June 1 and June 4, 2004, the Company issued 40,000 and
150,000 Common shares for 12 months filing services and legal
and due-diligence services with respect to private placement,
respectively. Compensation expenses related to filing
services, totaling $ 26,400, are amortized over a period of 12
months. Compensation related to legal services, totaling $
105,000, was recorded as equity issuance cost and did not
effect the statement of operations.
6. 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 for the year ended
March 31, 2005.
On December 23, 2004, the consultants surrendered the shares
to the Company and the shares were cancelled and are
considered authorized but unissued shares. Instead of the
cancelled 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.
7. On July 1 and September 22, 2004, the Company issued 20,000
and 15,000 shares to a former director for financial services
for the first and second quarters of 2004, respectively.
Compensation expenses, totaling $ 22,000 and $ 16,950, were
charged to the statement of operations for the year ended
March 31, 2005.
8. On November 4, 2004, the Company granted Ramot, 10,606,415
warrants at an exercise price of $ 0.01 per share (see Note
3a).
9. On November 4, 2004, the Company granted two consultants
2,194,430 warrants at an exercise price of $ 0.01 per share
(see Note 4a).
10. On February 10, 2005, the Company signed an agreement with one
of its service providers according to which the Company shall
issue to 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 will be subject to the Company's right to repurchase
them within one year of the grant date as follows: (i) in the
event that the 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. The restricted shares were issued in June
2005.
- 13 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 5:- STOCK CAPITAL (Cont.)
11. In March and April 2005, the Company signed an agreement with
four members of its Scientific Advisory Board according to
which the Company shall issue to the members of the Scientific
Advisory Board 400,000 share 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 are subject to the
Company's right to repurchase them if the grantees cease to be
members of the Company's Advisory Board for any reason. The
restrictions of the shares shall lapse in three annual and
equal portions commencing the grant date. The restricted
shares were issued in June 2005.
12. On June 6, 2005, the Company granted the constructor of its
facility options to purchase 30,000 of the Company's Common
stock at an exercise price of $ 0.75 per share as part of the
agreement signed on March 23, 2005.
13. On May 16, 2005, the Company issued to a financial consultant
warrants to purchase 47,500 shares of the Company's Common
stock, at an exercise price of $ 1.62 per share. The warrants
are exercisable immediately over a term of five years.
Options and shares to employees and to directors
14. On March 28, 2005, the Company's shareholders approved the
2004 Global Share Option Plan and the Israeli Appendix thereto
(which applies solely to participants who are residents of
Israel), the 2005 U.S. Stock Option and Incentive Plan, and
the reservation of 9,143,462 shares of Common stock for
issuance in aggregate under these stock option plans.
Unless sooner terminated, the options shall terminate ten (10)
years from the date of grant.
As of June 30, 2005, 3,916,952 warrants were issued under the
plans (3,339,452 to employees and directors and 500,000 to
service providers, see 10 and 11 above) leaving 5,226,510
shares available for future grants.
15. On May 27, 2005, the Company granted two of its directors
200,000 restricted shares (100,000 each). The restricted
shares are subject to the Company's right to repurchase them
at a purchase price of par value ($ 0.00005). The restrictions
of the shares shall lapse in three annual and equal portions
commencing the grant date.
16. On May 27, 2005, the Company granted one of its directors an
option to purchase 100,000 shares of its Common stock, at an
exercise price of $ 0.75. The options shall vest in three
annual and equal portions commencing the grant date.
- 14 -
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(Formerly: Golden Hand Resources Inc.)
(A development stage company)
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In U.S. dollars (except share data)
NOTE 6:- SUBSEQUENT EVENT
On July 27, 2005, the Company issued to certain investors 165,000 shares
of its Common stock, for total proceeds of $ 99,000.
- - - - - - - - - - - - - - - - - - -
- 15 -
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
Since July 8, 2004, the Company's business has focused on development of adult
stem cell therapies for treatment of neurodegenerative diseases. The Company's
business activities are based on technology, know-how and patent applications
exclusively licensed world-wide from Ramot at Tel Aviv University Ltd.
("Ramot"). Under the terms of the Research and License Agreement with Ramot
(which are described in more detail below), 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.
Stem Cell Therapy
Our activities are within the overall 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:
embryonic stem cells (ESC), isolated from the inner mass of a few days 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 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 have 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)
PD is a chronic, progressive disorder, affecting certain nerve cells, which
reside in the Substantia Nigra of the brain and which produce dopamine, a
neurotransmitter that directs and controls movement. In PD, these
dopamine-producing nerve cells break down, causing dopamine levels to drop below
the threshold levels and resulting in brain signals directing movement to become
abnormal. The cause of the disease is unknown.
Over four million people suffer from PD in the western world, of whom about 1.5
million are in the United States. In over 85% of cases, PD occurs in people over
the age of 65. Thus, prevalence is increasing in line with the general aging of
the population. We believe the markets for pharmaceutical treatments for PD have
a combined value of approximately $4 billion per year. However, these costs are
dwarfed when compared to the total economic burden of the disease which has been
estimated by the National Institute of Neurological Disease (NINDS) to exceed an
annual $26 billion in the U.S alone, including costs of medical treatment,
caring, facilities and other services, as well as loss of productivity of both
patients and caregivers.
Description
The classic symptoms of PD are shaking (tremor), stiff muscles (rigidity) and
slow movement (bradykinesia). A person with fully developed PD may also have a
stooped posture, a blank stare or fixed facial expression, speech problems and
difficulties with balance or walking. Although highly debilitating, the disease
is not life threatening and an average patient's life span is about 15 years.
Current Treatments
Current drug therapy for PD comprises dopamine replacement, either directly
(levodopa), with dopamine mimetics or by inhibition of its breakdown. Thus, the
current drugs focus on treating the symptoms of the disease and do not presume
to provide a cure.
Levodopa, which remains the standard and most potent PD medication available,
has a propensity to cause serious motor response complications 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 a
year in the U.S and the market is expected to grow to approximately $2.3 billion
by 2010, driven by the increase in size of the elderly population and the
introduction of new PD therapies that carry a higher price tag than the generic
levodopa.
There is a greatly unsatisfied need for novel approaches towards management of
PD. These include development of neurotrophic agents for neuroprotection and/or
neurorestoration, controlling levodopa-induced adverse side effects, developing
compounds targeting nondopaminergic systems (e.g., glutamate antagonists)
controlling the motor dysfunction such as gait, freezing, and postural
imbalance, treating and delaying the onset of disease-related dementia and
providing simplified dosing regimens.
In addition to the symptomatic drug development approaches, there is an intense
effort to develop cell and gene therapeutic "curative" approaches to restore the
neural function in patients with PD, by (i) replacing the dysfunctional cells
with dopamine producing cell transplant, or by (ii) providing growth factors and
proteins, such as glial derived neurotrophic factor (GDNF), that can maintain or
preserve the patient's remaining dopaminergic cells, protecting them from
further degeneration. Preclinical evaluation of cell therapeutic approaches
based on transplantation of dopaminergic neurons differentiated in vitro from
ESC, have been successful in ameliorating the parkinsonian behavior of animal
models, as has direct gene therapy with vectors harboring the GDNF gene. However
these approaches are limited, in the first case, by the safety and ethical
considerations associated with use of ESC, and in the second case, by the safety
risks inherent to gene therapy.
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 benefit has 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.
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 GDNF. Our aim is to provide
neural stem cell transplants that (i) "replace" damaged dopaminergic nerve cells
and diseased tissue by augmentation with healthy dopamine producing cells; and
that (ii) maintain and preserve the 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 two
types of brain cells, neurons and astrocytes, each having therapeutic potential,
as follows:
o NurOwnTM program 1 - human bone marrow derived dopamine producing neural
cells for restorative treatment in Parkinson's disease. 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
Parkinson's disease (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.
o NurOwnTM program 2 - human bone marrow derived GDNF producing astrocyte
for treatment of Parkinson's disease, ALS and spinal cord injury. In vitro
differentiation of the expanded human bone marrow derived mesenchymal stem
cells in a special proprietary medium, generated cells with astrocyte-like
morphology that expressed astrocyte specific markers. Moreover, the in
vitro differentiated cells were shown to express and secrete GDNF into the
growth medium. GDNF is a protein, previously been shown to protect and
preserve neurons in various models of neurodegenrative diseases. We intend
to study the therapeutic potential of such GDNF producing cells in animal
models of PD and ALS is underway.
We intend to optimize the proprietary processes for transformation of human bone
marrow expanded mesenchymal stem cells into differentiated cells that produce
dopamine and/or GDNF for implantation to PD patients. The optimization and
process development will be conducted in an effort to adhere strictly to FDA
guidelines for Good Tissue Practice (GTP) and Good Manufacturing Practice (GMP).
Once the optimization process is complete, we intend to evaluate the safety and
efficacy of each of our cell transplants in animal models, separately and in
combination, according to regulatory guidelines in rodents as well as in
non-human primates. Based on our results in animals we intend to produce the
differentiated cell products for conducting clinical trials to assess safety and
efficacy of the cell therapies in Parkinson's patients. In an attempt to
increase patient safety and minimize any chance of rejection or immune reaction,
we intend to develop the NurOwnTM products as an autologous cell therapeutic
modality, comprising extracted bone marrow, processed into the appropriate
neuronal cells and re-implanted into the patient's brain.
We believe that the therapeutic modality will comprise the following: o bone
marrow aspiration from patient;
o isolating and expanding the mesenchymal stem cells;
o Differentiating the expanded stem cells into neuronal-like dopamine
producing cells and/or astrocytes-like GDNF producing cells; and
o implantation of the differentiated cells into patient from whom the bone
marrow was extracted
Business strategy
Our efforts are currently focused on the development of the technology 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.
Intellectual Property
o The NurOwnTM technology for differentiation of dopamine producing
neuron-like cells is covered by PCT patent application number
PCT/IL03/00972 filed in November 17, 2003.
o A provisional patent application 60/690,879 was filed for the NurOwnTM
technology for differentiation of GDNF producing cells on June 16, 2005.
o The Company has filed for a trademark on NurOwnTM.
The patent applications, as well as relevant know-how and research results are
licensed from Ramot. BrainStorm intends to work with Ramot to protect and
enhance its intellectual property rights by filing continuations and new patent
applications on any improvements to NurOwnTM and any new discoveries arising in
the course of research and development.
Research and License Agreement with Ramot
On July 8, 2004, we entered into our Research and License Agreement (the "Ramot
Agreement") with Ramot, the technology licensing company of Tel Aviv University.
Under the terms of the Ramot Agreement, Ramot granted to us an exclusive license
to (a) the know how and patent applications on the above mentioned stem cell
technology developed by the team led by Prof. Melamed and Dr. Offen, and (b) the
results of further research to be performed by the same team on the development
of the stem cell technology. We agreed to fund further research relating to the
licensed technology in an amount of $570,000 per year for an initial period of
two years, and for an additional two-year period if certain research milestones
are met.
In consideration for the license, we agreed to pay Ramot:
o an up front license fee payment of $100,000;
o an amount equal to 5% of all Net Sales of Products as those terms are
defined in the Research and License Agreement ; and
o an amount equal to all 30% of all Sublicense Receipts as such term is
defined in the Research and License Agreement.
In addition, we issued to Ramot and its designees, warrants to purchase an
aggregate of 10,606,415 shares of our common stock (29% of our issued and
outstanding shares as of November 4, 2004). Simultaneously with the execution of
the Ramot Agreement, we entered into individual consulting agreements with Prof.
Melamed and Dr. Offen pursuant to which, all intellectual property developed by
Prof. Melamed or Dr. Offen in the performance of services thereunder will be
owned by Ramot and licensed to us under the Ramot Agreement. As of November 4,
2004, we implemented these consulting agreements, under which we pay each of
Professor Melamed and Dr. Offen an annual consulting fee of $72,000, and we
issued each of them warrants to purchase 1,097,215 shares of our common stock
(3% of our issued and outstanding shares on the same terms as the warrants
issued to Ramot). Each of the warrants is exercisable for a five-year period
beginning on November 4, 2005.
In October 2004 we paid Ramot a total of $402,000 to cover the upfront license
fee payment, the first installment of research funding and patent expenses
reimbursement. Ramot has agreed to defer our second and third research funding
payments for the sum of $142,500 each, which were originally due May 1, 2005 and
August 1, 2005 until October 1, 2005. If we fail to make these payments by such
time (for which we will need to consummate an additional financing), or to
obtain an additional deferral from Ramot until we raise such capital, and Ramot
elects to terminate our license, we would need to change our business strategy
and we may be forced to cease operations.
Employees
As of June 30, 2005, we have three executive officers, Dr. Yaffa Beck, our
President and CEO, Yoram Drucker, our Chief Operating Officer, and David
Stolick, our Chief Financial Officer. We currently have four scientific and
administrative employees and are in the process of recruiting additional
employees. Assuming we consummate our intended financings, we 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, 2004 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 $US3,928) per
month during the first 12 months of the lease, (ii) NIS 19,527 (approximately
$US4,270) per month during the following 24 months of the lease, (iii) NIS
22,317 (approximately $US4,879) per month during the First Option period and
(iv) NIS 23,712 (approximately $US5,184) per month during the Second Option
period.
We recently completed leasehold improvements of the Petach Tikva facility for
which we paid the contractor approximately $368,000 and issued it fully-vested
options to purchase 30,000 shares of our common stock at an exercise price of
$0.75 per share. The lessor has reimbursed $82,000 in connection with these
improvements. We relocated to the new facility in May 2005 and we currently
intend to purchase certain additional laboratory equipment at an estimated cost
of $102,000.
Plan of Operations
Assuming we can successfully consummate our contemplated financings, our primary
objectives over the twelve months ending June 30, 2006 will be:
1. To define and optimize our NurOwnTM technology in human bone marrow cells,
so as to enable future processing and manufacturing for clinical studies
in accordance with FDA guidelines. We intend to perfect methods for the
stem cell growth and differentiation in specialized growth medias, as well
as methods for freezing, thawing, transporting and storing the expanded
mesenchymal stem cells, as well as the differentiated cells.
2. To conduct further studies in animal models of Parkinson's disease (mice
and rats) to evaluate the engraftment, survival and efficacy of our cell
implants for our dopamine producing and/or GDNF cells, separately and in
combination.
3. To develop analytical methodology and specifications to be used as release
criteria in setting up a quality control system for the processing of our
cells.
4. To conduct feasibility studies in non-primate models of Parkinson's
disease (MPTP - monkeys) to evaluate engraftment, survival and
functionality of our cell implants.
All of these activities will be coordinated with a view towards the execution of
safety and efficacy evaluation studies of the dopamine- and/or GDNF- producing
differentiated cell implants in MPTP - Parkinson's disease model monkeys, in
preparation for IND submission for conducting clinical trials. We intend to
crystallize our development plans with the assistance of our scientific advisory
board members as well as to retain external regulatory consultants, expert in
the FDA cell therapy regulation guidelines.
We also intend to continue our close cooperation and funding of the research
programs conducted by the scientific team led by Prof. Melamed and Dr. Offen at
the Tel Aviv University. These programs will focus on further understanding and
optimization of the technology towards the generation of better processes for
generation of dopaminergic and other neurons as well as oligodendrocytes, and,
longer-term, to target additional neurodegenerative diseases, such Amyotrophic
Lateral Sclerosis (ALS or Lou Gehrig disease) and Multiple Sclerosis (MS).
In addition we intend to identify and evaluate in-licensing opportunities for
development of innovative technologies utilizing cell and gene therapy for
diabetes, cardiac disease and other indications
Cash requirements
At June 30, 2005, we had $451,519 in total current assets and $427,997 in total
current liabilities and on July 31, 2005, we had approximately $180,000 in cash.
On July 27, 2005, we raised an additional $99,000 through private placement of
165,000 shares of our common stock at $0.60 per share. We will need to raise
additional funds through public or private debt or equity financings within the
next two months to meet our anticipated expenses so that we can execute against
our business plan. Although we have begun to seek such additional financings and
have retained a financial advisor to assist us in our efforts, no definitive
commitments to provide additional funds have been made by management, other
shareholders or third parties. We may not be able to raise additional funds on
favorable terms, or at all. If we are unable to obtain additional funds in a
timely manner, we will be unable to execute our business plan and we may be
forced to cease our operations.
In May 2005, we raised $149,500 through a private placement of our common stock
at $0.80 per share. This followed a private placement in which we raised about
$1.4 million that closed in three tranches in October and November 2004 and
February 2005.
In late 2004 and early 2005 we began to increase our spending significantly in
order to execute our development programs. In October 2004, we made a $402,000
payment to Ramot to cover the up-front license fee, reimbursement of certain
patent expenses and initial research funding obligations under our agreement. We
have also made capital expenditures in the approximate amount of $335,000 in
order to build out our laboratory and office facilities to which we relocated in
the end of May 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.
Ramot has agreed to defer our second and third research funding payment for the
sum of $142,500 each, which were originally due May 1, 2005 and August 1, 2005
until October 1, 2005. If we fail to make these payments by such time (for which
we will need to consummate an additional financing), or to obtain an additional
deferral from Ramot until we raise such capital, and Ramot elects to terminate
our license, we would need to change our business strategy and we may be forced
to cease operations. Our other material cash needs for the next 12 months will
include, among others, employee salaries and benefits, facility lease, capital
equipment expenses, legal and audit fees, patent prosecution fees, consulting
fees, payments for outsourcing of certain animal experiments and possibly,
upfront payments for in-licensing opportunities.
Research and Development
Our research and development efforts have focused on development of growth
conditions and tools to evaluate the differentiation of bone marrow stem cells
into neural-like cells, suitable for transplantation as a restorative therapy
for neurodegenerative diseases.
For the twelve months ending June 30, 2006, we estimate that our research and
development costs will be approximately $1,350,000. We intend to spend our
research and development costs on development of our core NurOwn(TM) technology
by developing the cell differentiation process according to FDA guidelines. We
intend to continue to fund our collaborators at the university lab and in
parallel, we have constructed and set up a facility, which includes laboratories
for continued development of our proprietary processes. We also intend to extend
our business to the development of novel adult stem cell and/or genetic therapy
for diabetes and/or cardiac disease.
General and Administrative Expenses
For the twelve months ending June 30, 2006, we estimate that our general and
administrative expenses will be approximately $1,000,000. These expenses will
include among others salaries, legal and audit expenses, business development,
investor and public relations and office maintenance.
We do not expect to generate any revenues in the twelve month period ending June
30, 2006.
In our management's opinion, we need to achieve the following events or
milestones in the next twelve months in order for us to reach clinical trials
for our NurOwn(TM) dopamine producing cell differentiation process as planned
within two to three years:
o Raise equity or debt financing or a combination of equity and debt
financing of at least $7,000,000
o Complete optimization of our NurOwn(TM) process for further evaluation in
monkeys
o Conduct preclinical studies in rodents Parkinson's model to confirm safety
and efficacy
o Conduct feasibility studies in MPTP-monkeys to evaluate cell engraftment
and survival of the cell implants
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 ORDER TO EXECUTE OUR BUSINESS PLAN, WE WILL NEED TO RAISE ADDITIONAL CAPITAL
IN THE NEXT TWO 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 two months to meet
our anticipated expenses so that we can execute against our business plan.
As highlights of our cash position, recent financings and recent and planned
expenditures:
o At June 30, 2005, we had $451,519 in total current assets and
$427,997 in total current liabilities and on July 31, 2005, we had
approximately $ 180,000 in cash.
o In October and November 2004 and February 2005, we raised
approximately $1.4 million in connection with several closings on a
private placement.
o On May 12, 2005 we raised an additional $149,500 through a private
placement of our common stock at $0.80 per share and on July 27,
2005 we raised an additional $99,000 through a private placement of
165,000 shares of our common stock at $0.60 per share. .
o In late 2004 and early 2005 we began to increase our spending
significantly to execute our development programs.
o In October 2004, we made a $402,000 payment to Ramot to cover the
up-front license fee, reimbursement of certain patent expenses and
initial research funding obligations under our agreement. We 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. Ramot has agreed to defer our second and third
research funding payments for the sum of $142,500 each, which were
originally due May 1, 2005 and August 1, 2005 until October 1, 2005.
o We have also made capital expenditures in the approximate amount of
$335,000 in order to build out our laboratory and office facilities
to which we relocated in the end of May 2005.
o Our other material cash needs for the next 12 months will include,
among others, employee salaries and benefits, facility lease,
capital equipment expenses, legal and audit fees, patent prosecution
fees, and consulting fees.
o For the twelve months ending June 30, 2006, we estimate that our
research and development costs will be approximately $1,350,000 and
our general and administrative expenses will be approximately
$1,000,000.
Although we have begun to seek such additional financings and have retained a
financial advisor to assist us in our efforts, no definitive commitments to
provide additional funds have been made by management, other shareholders or
third parties. 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 (including registration rights) senior to those of the
rights of our common stock and our stockholders will 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. Ramot
has agreed to defer our second and third research funding payments for the sum
of $142,500 each, which were originally due May 1, 2005 and August 1, 2005 until
October 1, 2005. If we fail to make these payments by such time (for which we
will need to consummate an additional financing), or to obtain an additional
deferral from Ramot until we raise such capital, and Ramot elects to terminate
our license, we would need to change our business strategy and we may be forced
to cease operations.
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 years ended March 31, 2004 or March 31, 2005
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 therapies resulting from our or our collaborators'
research and development efforts will be commercially available for a
significant number of years, if at all. We 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.
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 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
PARKINSON'S DISEASE 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.
YOUR PERCENTAGE OWNERSHIP WILL BE DILUTED BY OPTIONS, WARRANTS OR SHARES 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, in November 2004
and February 2005, our Board of Directors approved our 2004 Global Share Option
Plan and the 2005 U.S. Stock Option Plan and Incentive Plan (the "Global Plan"
and "U.S. Plan" respectively and the "Plans" together), respectively, and
further approved the reservation of 9,143,462 shares of the Company's common
stock for issuance thereunder. The Company's shareholders approved the Plans and
the shares reserved for issuance thereunder in a special meeting of shareholders
that was held on March 28, 2005. We have made and intend to make further option
and restricted stock grants under our stock option and incentive plans or
otherwise issue warrants or shares of our common stock to such individuals. For
example:
o under our Global Plan, we have granted a total of 3,466,952 options
with various exercise prices (a weighted average exercise price of
$0.27) and expiration dates, to officers, services providers and
employees;
o under our U.S. Plan we have issued an additional 750,000 shares of
restricted stock for grants to Scientific Advisory Board members,
consultants and directors;
o we have agreed to issue, in November 2006, to our President and CEO,
Dr. Beck, 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.
Such issuances will, if and when made (and if options or warrants, subsequently
exercised), dilute your percentage ownership in the company.
ACTUAL OR PERCEIVED SUBSTANTIAL SALES OF SHARES OF OUR COMMON STOCK THAT ARE
CURRENTLY AND MAY IN THE FUTURE BE SUBJECT TO REGISTRATION RIGHTS OR THAT MAY BE
SOLD PURSUANT TO EXEMPTIONS FROM REGISTRATION REQUIREMENTS COULD RESULT IN A
SIGNIFICANT DECLINE IN OUR STOCK PRICE.
On July 8, 2005, lockup agreements that we had entered into with (a) 29
shareholders with respect to 15,290,000 shares of our common stock held by them,
and (b) holders of warrants to purchase 12,800,844 shares of our common stock,
expired with respect to fifteen percent (15%) of these securities (it remains in
place with respect to the remaining eighty-five percent (85%) of the securities
until July 8, 2006).
An additional 1,894,808 shares of our common stock were issued in private
placements in late October and early November 2004 and in February 2005 (each
share accompanied by 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 (ii) 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. The shares of
common stock will be eligible for sale in the public markets pursuant to Rule
144 later this year and in early 2006 and also 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.
In May 2005, we issued 186,875 shares at $.80 per share pursuant to a private
placement and in August 2005 we issued an additional 165,000 shares at $0.60 per
share pursuant to a private placement. We are seeking additional financings and
have retained a financial advisor to assist us in our efforts.
We 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. We also issued (i) a warrant in May 2005 to purchase
47,500 shares of our common stock as a retainer to the financial advisor, which
warrant has certain piggy back registration rights and (ii) 50,000 shares of
common stock to consultants in consideration for EDGAR filing services, which
shares have certain piggy-back registration rights.
Finally, we expect to register the shares subject to our Global Plan and U.S.
Plan pursuant to an S-8 registration statement, and 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.
When we register the shares or those underlying these convertible securities
referred to above 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. As these registrations are effected or restrictions on resale end,
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.
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 the
scientific team funded by us under the Ramot Agreement 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 June 30, 2005, our Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness 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 provide reasonable assurances
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 Chief 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 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 27, 2005 we raised $99,000 through a private placement of 165,000 shares
of our common stock at $0.60 per share, which shares were issued under
Regulation D promulgated under the Securities Act.
On June 7, 2005, we issued 100,000 restricted shares to each of the four members
of our Scientific Advisory Board, which restricted shares are subject to the
terms and conditions of our 2005 U.S. Stock Option Plan and Incentive Plan and
the Restricted Stock Award Agreement between the Company and each of the
members, providing for the Company's right to repurchase them at a purchase
price of par value ($0.00005), which repurchase right expires in three (3) equal
annual installments beginning on April 2006.
On July 7, 2005, in consideration for EDGAR filing services, we issued to
certain consultants 50,000 shares of our common stock, which shares have certain
piggy-back registration rights.
On June 6, 2005, as partial consideration for certain leasehold improvements at
out subsidiary's Petach Tikva facility, we issued to the contractor a
fully-vested option to purchase 30,000 shares of our common stock at an exercise
price of $0.75 per share, which option is subject to the terms and conditions of
our Global Plan and the Israeli Appendix thereto.
On May 12, 2005 we raised $149,500 through a private placement of 186,875 shares
of our common stock at $0.80 per share, which shares were issued under
Regulation S promulgated under the Securities Act.
On May 16, 2005, in consideration for certain financial services, we issued to a
financial advisor a fully exercisable warrant to purchase 47,500 shares of our
common stock at an exercise price of $1.62, which warrant has a term of five (5)
years and has certain piggy-back registration rights.
On May 27, 2005, pursuant to the new compensation scheme for non-employee
directors, (i) two of our non-employee directors were granted 100,000 restricted
shares, which are subject to the terms and conditions of our Incentive Plan and
to the Restricted Stock Award Agreement between the Company and the director,
providing for the Company's right to repurchase them at a purchase price of par
value ($0.00005), which repurchase right expires in three (3) equal annual
installments beginning on May 27, 2006 and (ii) one of our non-employee
directors was granted an option to purchase 100,000 shares of our common stock
at an exercise price of $0.75, which option is subject to the terms and
conditions of our Global Plan and the Israeli Appendix thereto and shall vest in
three (3) equal annual installments beginning on May 27, 2006.
None of these transactions involved any underwriters, underwriting discounts or
commissions and we believe that such transactions were exempt from the
registration requirements of the Securities Act of 1933.
ITEM 6. EXHIBITS
10.18 Form of Restricted Stock Award Agreement with C. Warren Olanow, Ole
Isacson, Andres Lozano, and Jeffery H. Kordower dated March and April
2005.
10.19 Warrant to purchase 47,500 shares issued to Trout Capital LLC dated May
16, 2005.
31.1 Certification by the Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
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: August 10, 2005
By: /s/ Yaffa Beck
-----------------------------------------
Name: Yaffa Beck
Title: President & CEO, Director
Principal Executive Officer