UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 10-K/A
(Amendment No. 1)
x ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 333-61610
BRAINSTORM CELL
THERAPEUTICS INC.
(Exact Name of Registrant as specified in its charter)
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Delaware
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20-8133057
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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605 Third Avenue, 34th Floor
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New York NY
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10158
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:212 557-7200
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.00005 par value
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OTC Markets Group
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes¨ No x
Yes o No ¨
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Large accelerated filer¨
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Accelerated filer¨
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Non-accelerated filer ¨
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Smaller reporting company x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes¨ No x
The approximate aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer as of June 30, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter), was $13,930,908.
DOCUMENTS INCORPORATED BY REFERENCE
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (this “Amendment No. 1”) of Brainstorm Cell Therapeutics Inc. (the “Company”) amends the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which the Company previously filed with the Securities and Exchange Commission on March 31, 2011 (the “Form 10-K”).
The Company is filing this Amendment No. 1 to provide the reissued Report of Independent Registered Public Accounting Firm from the Company’s predecessor auditor, Kost Forer Gabbay & Kasierer as required by Rule 2-05 of Regulation S-X.
The Company has also made the following changes to its Consolidated Financial Statements:
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1.
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The Company has labeled as unaudited amounts for the periods from the Company’s inception (September 22, 2000) to March 31, 2004 presented in the Company’s Statements of Changes in Stockholders’ Equity (Deficiency);
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2.
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The Company has included a footnote to the cumulative column presented on the Statement of Operations that indicates that the Company’s net loss of $163,000 for the period from inception (September 22, 2000) through March 31, 2004, which is classified as discontinued operations, is unaudited; and
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3.
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The Company has included a footnote to the cumulative column presented on the Statement of Cash Flows that quantifies the amount of operating, investing and financing cash flows for the period from inception (September 22, 2000) through March 31, 2004, which are classified as cash flows from discontinued operations, indicating such amounts are unaudited.
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The Company is also providing a reissued Report of Independent Registered Public Accounting Firm from the Company’s current auditor, Brightman Almagor Zohar & Co., to reflect the changes to the Consolidated Financial Statements.
For convenience and ease of reference, the Company is filing its Consolidated Financial Statements in their entirety with this Amendment No. 1. Other than the addition of the reissued auditors’ reports and the changes indicated above, there have been no changes to these Consolidated Financial Statements.
Additionally, Part IV, Item 15 has been amended to include the Company’s currently dated certifications of the Company’s principal executive officer and principal financial officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Part IV, Item 15 has also been amended to include the Consent of Kost Forer Gabbay & Kasierer and an updated Consent of Brightman Almagor Zohar & Co. Other than the items outlined above, there are no changes to the Form 10-K. No attempt has been made in this Amendment No. 1 to modify or update the disclosures presented in the Form 10-K, including the exhibits to the Form 10-K. Except as otherwise specifically noted, all information contained herein is as of December 31, 2010 and does not reflect any events or changes that have occurred subsequent to that date. Accordingly, this Amendment No. 1 should be read in conjunction with our filings made with the SEC subsequent to the filing of the Form 10-K, including any amendments to those filings, if any.
The Company is not required to and has not updated any forward-looking statements previously included in the Form 10-K.
2
BRAINSTORM CELL THERAPEUTICS, INC.
ANNUAL REPORT ON FORM 10-K/A
(AMENDMENT NO. 1)
YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS
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ITEM
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PAGE
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PART II
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8. Financial Statements and Supplementary Data
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4
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PART IV
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15. Exhibits, Financial Statement Schedules
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48
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3
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2010
U.S. DOLLARS IN THOUSANDS
(Except share data)
4
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2010
U.S. DOLLARS IN THOUSANDS
(Except share data)
INDEX
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Page
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Report of Independent Registered Public Accounting Firm
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6 - 7
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Consolidated Balance Sheets
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8
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Consolidated Statements of Operations
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9
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Statements of Changes in Stockholders' Equity (Deficiency)
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10 - 17
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Consolidated Statements of Cash Flows
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18
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Notes to Consolidated Financial Statements
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19 - 47
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5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
BRAINSTORM CELL THERAPEUTICS Inc. (A Development Stage Company)
We have audited the accompanying consolidated balance sheet of BRAINSTORM CELL THERAPEUTICS Inc. and subsidiary (a development stage company) (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statement of income, stockholders' deficiency, and cash flows for each of the two years in the period ended December 31, 2010 and for the period from April 1, 2004 to December 31, 2010. These financial statements are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on the financial statements based on our audits.
The financial statements for the period from April 1, 2004 through December 31, 2007, were audited by other auditors. The consolidated financial statements for the period from April 1, 2004 through December 31, 2007 included a net loss of $32,325,000. Our opinion on the consolidated statements of operations, changes in stockholders' deficiency and cash flows for the period from April 1, 2004 through December 31, 2010, insofar as it relates to amounts for prior periods through December 31, 2007, is based solely on the report of other auditors. The other auditors report dated April 13, 2008 expressed an unqualified opinion, and included an explanatory paragraph concerning an uncertainty about the Company's ability to continue as a going concern, and regarding the status of the Company research and development license agreement with Ramot.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditor, such consolidated financial statements present fairly, in all material respects, the financial position of BRAINSTORM CELL THERAPEUTICS Inc. and subsidiary as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2010 and for the period from April 1, 2004 to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is a development stage enterprise engaged in 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 as discussed in Note 1 to the financial statements. The Company's working capital deficiency and operating losses since inception through December 31, 2010 raise substantial doubts about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ Brightman Almagor Zohar & Co.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, Israel
March 30, 2011
6
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
BRAINSTORM CELL THERAPEUTICS INC.
(A development stage company)
We have audited the accompanying consolidated balance sheet of Brainstorm Cell Therapeutics Inc. (a development stage company) ("the Company") and its subsidiary as of December 31, 2007, and the related consolidated statements of operations, statements of changes in stockholders' equity (deficiency) and the consolidated statements of cash flows for the year ended December 31, 2007, for the nine months ended December 31, 2006 and 2005 and for the period from March 31, 2004 through December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiary as of December 31, 2007, and the consolidated results of their operations and cash flows for the year ended December 31, 2007, for the nine months ended December 31, 2006 and 2005 and for the period from March 31, 2004 through December 31, 2007, in conformity with U.S generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 2007, the Company adopted Financial Accounting Standard Board Statement No. 123(R), "Share-Based Payment".
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1h, the Company has incurred operating losses and has a negative cash flow from operating activities and has a working capital deficiency. As for the Company research and development license agreement with Ramot, see Note 3. These conditions raise substantial doubt about the Company's ability to continue to operate as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
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/s/ Kost Forer Gabbay & Kasierer
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Tel-Aviv, Israel
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KOST FORER GABBAY & KASIERER
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April 13, 2008
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A Member of Ernst & Young Global
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7
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
(Except share data)
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December 31,
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December 31,
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|||||||
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2010
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2009
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$ | 93 | $ | 1 | ||||
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Other receivable and prepaid expenses (Note 5)
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486 | 86 | ||||||
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Total current assets
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579 | 87 | ||||||
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Long-Term Investments:
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Prepaid expenses
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1 | 7 | ||||||
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Severance pay fund
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90 | 88 | ||||||
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Total long-term investments
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91 | 95 | ||||||
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Property and Equipment, Net (Note 6)
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419 | 575 | ||||||
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Total assets
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$ | 1,089 | $ | 757 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
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Current Liabilities:
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Short term Credit from bank
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$ | - | $ | 46 | ||||
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Trade payables
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307 | 600 | ||||||
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Other accounts payable and accrued expenses (Note 7)
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979 | 1,418 | ||||||
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Short-term convertible note (Note 8)
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137 | 135 | ||||||
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Short-term convertible loans (Note 9)
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- | 189 | ||||||
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Total current liabilities
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1,423 | 2,388 | ||||||
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Accrued Severance Pay
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125 | 112 | ||||||
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Total liabilities
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1,548 | 2,500 | ||||||
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Stockholders' Deficiency:
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Stock capital: (Note 11)
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5 | 4 | ||||||
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Common stock of $0.00005 par value - Authorized: 800,000,000 shares at December 31, 2010 and December 31, 2009; Issued and outstanding: 95,832,978 and 76,309,152 shares at December 31, 2010 and December 31, 2009 respectively.
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Additional paid-in-capital
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39,696 | 35,994 | ||||||
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Deficit accumulated during the development stage
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(40,160 | ) | (37,741 | ) | ||||
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Total stockholders' deficiency
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(459 | ) | (1,743 | ) | ||||
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Total liabilities and stockholders' deficiency
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$ | 1,089 | $ | 757 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
8
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands
(Except share data)
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Year ended
December 31,
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Period from
September 22,
2000 (inception
date) through
December 31,
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2010
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2009
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2010(*)
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Operating costs and expenses:
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Research and development, net ( Note 12)
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$ | 1,045 | $ | 181 | $ | 22,730 | ||||||
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General and administrative
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1,544 | 1,569 | 14,798 | |||||||||
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Total operating costs and expenses
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2,589 | 1,750 | 37,528 | |||||||||
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Financial (income) expenses, net
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(189 | ) | 31 | 2,396 | ||||||||
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Operating loss
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2,400 | 1,781 | 39,924 | |||||||||
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Taxes on income (Note 13)
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19 | - | 72 | |||||||||
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Loss from continuing operations
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2,419 | 1,781 | 39,996 | |||||||||
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Net loss from discontinued operations
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- | - | 164 | |||||||||
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Net loss
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$ | 2,419 | $ | 1,781 | $ | 40,160 | ||||||
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Basic and diluted net loss per share from continuing operations
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$ | 0.03 | $ | 0.03 | ||||||||
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Weighted average number of shares outstanding used in computing basic and diluted net loss per share
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89,094,403 | 61,151,011 | ||||||||||
(*) Out of which, $163 thousands, relating to the period from inception to March 31 2004, is unaudited.
The accompanying notes are an integral part of the consolidated financial statements
9
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
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Deficit
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||||||||||||||||||||||||
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accumulated
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Total
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|||||||||||||||||||||||
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Common stock
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Additional
paid-in
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Deferred
Stock - based
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during the
development
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stockholders'
equity
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Number
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Amount
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capital
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compensation
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stage
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(deficiency)
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Balance as of September 22, 2000 (date of inception) (unaudited)
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- | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||
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Stock issued on September 22, 2000 for cash at $0.00188 per share
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8,500,000 | 1 | 16 | - | - | 17 | ||||||||||||||||||
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Stock issued on June 30, 2001 for cash at $0.0375 per share
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1,600,000 | *- | 60 | - | - | 60 | ||||||||||||||||||
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Contribution of capital
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- | - | 8 | - | - | 8 | ||||||||||||||||||
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Net loss
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- | - | - | - | (17 | ) | (17 | ) | ||||||||||||||||
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Balance as of March 31, 2001(unaudited)
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10,100,000 | 1 | 84 | - | (17 | ) | 68 | |||||||||||||||||
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Contribution of capital
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- | - | 11 | - | - | 11 | ||||||||||||||||||
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Net loss
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- | - | - | - | (26 | ) | (26 | ) | ||||||||||||||||
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Balance as of March 31, 2002 (unaudited)
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10,100,000 | 1 | 95 | - | (43 | ) | 53 | |||||||||||||||||
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Contribution of capital
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- | - | 15 | - | - | 15 | ||||||||||||||||||
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Net loss
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- | - | - | - | (47 | ) | (47 | ) | ||||||||||||||||
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Balance as of March 31, 2003 (unaudited)
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10,100,000 | 1 | 110 | - | (90 | ) | 21 | |||||||||||||||||
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2-for-1 stock split
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10,100,000 | *- | - | - | - | - | ||||||||||||||||||
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Stock issued on August 31, 2003 to purchase mineral option at $0.065 per share
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100,000 | *- | 6 | - | - | 6 | ||||||||||||||||||
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Cancellation of shares granted to Company's President
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(10,062,000 | ) | *- | *- | - | - | - | |||||||||||||||||
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Contribution of capital
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- | *- | 15 | - | - | 15 | ||||||||||||||||||
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Net loss
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- | - | - | - | (73 | ) | (73 | ) | ||||||||||||||||
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Balance as of March 31, 2004 (unaudited)
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10,238,000 | $ | 1 | $ | 131 | $ | - | $ | (163 | ) | $ | (31 | ) | |||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements
10
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
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Deficit
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||||||||||||||||||||||||
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accumulated
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Total
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|||||||||||||||||||||||
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Common stock
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Additional
paid-in
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Deferred
Stock - based
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during the
development
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stockholders'
equity
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Number
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Amount
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capital
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compensation
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stage
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(deficiency)
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Balance as of March 31, 2004
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10,238,000 | $ | 1 | $ | 131 | $ | - | $ | (163 | ) | $ | (31 | ) | |||||||||||
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Stock issued on June 24, 2004 for private placement at $0.01 per share, net of $25,000 issuance expenses
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8,510,000 | *- | 60 | - | - | 60 | ||||||||||||||||||
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Contribution capital
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- | - | 7 | - | - | 7 | ||||||||||||||||||
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Stock issued in 2004 for private placement at $0.75 per unit
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1,894,808 | *- | 1,418 | - | - | 1,418 | ||||||||||||||||||
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Cancellation of shares granted to service providers
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(1,800,000 | ) | *- | - | - | - | ||||||||||||||||||
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Deferred stock-based compensation related to options granted to employees
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- | - | 5,979 | (5,979 | ) | - | - | |||||||||||||||||
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Amortization of deferred stock-based compensation related to shares and options granted to employees
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- | - | - | 584 | - | 584 | ||||||||||||||||||
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Compensation related to shares and options granted to service providers
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2,025,000 | *- | 17,506 | - | - | 17,506 | ||||||||||||||||||
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Net loss
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- | - | - | - | (18,840 | ) | (18,840 | ) | ||||||||||||||||
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Balance as of March 31, 2005
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20,867,808 | $ | 1 | $ | 25,101 | $ | (5,395 | ) | $ | (19,003 | ) | $ | 704 | |||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements
11
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
|
Deficit
|
||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||
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Common stock
|
Additional
paid-in
|
Deferred
Stock - based
|
during the
development
|
stockholders'
equity
|
||||||||||||||||||||
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Number
|
Amount
|
capital
|
compensation
|
stage
|
(deficiency)
|
|||||||||||||||||||
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Balance as of March 31, 2005
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20,867,808 | $ | 1 | $ | 25,101 | $ | (5,395 | ) | $ | (19,003 | ) | $ | 704 | |||||||||||
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Stock issued on May 12, 2005 for private placement at $0.8 per share
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186,875 | *- | 149 | - | - | 149 | ||||||||||||||||||
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Stock issued on July 27, 2005 for private placement at $0.6 per share
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165,000 | *- | 99 | - | - | 99 | ||||||||||||||||||
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Stock issued on September 30, 2005 for private placement at $0.8 per share
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312,500 | *- | 225 | - | - | 225 | ||||||||||||||||||
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Stock issued on December 7, 2005 for private placement at $0.8 per share
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187,500 | *- | 135 | - | - | 135 | ||||||||||||||||||
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Forfeiture of options granted to employees
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- | - | (3,363 | ) | 3,363 | - | - | |||||||||||||||||
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Deferred stock-based compensation related to shares and options granted to directors and employees
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200,000 | *- | 486 | (486 | ) | - | - | |||||||||||||||||
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Amortization of deferred stock-based compensation related to options and shares granted to employees and directors
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- | - | 51 | 1,123 | - | 1,174 | ||||||||||||||||||
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Stock-based compensation related to options and shares granted to service providers
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934,904 | *- | 662 | - | - | 662 | ||||||||||||||||||
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Reclassification due to application of ASC 815-40-25 (formerly EITF 00-19)
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- | - | (7,906 | ) | (7,906 | ) | ||||||||||||||||||
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Beneficial conversion feature related to a convertible bridge loan
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- | - | 164 | - | - | 164 | ||||||||||||||||||
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Net loss
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- | - | - | - | (3,317 | ) | (3,317 | ) | ||||||||||||||||
|
Balance as of March 31, 2006
|
22,854,587 | $ | 1 | $ | 15,803 | $ | (1,395 | ) | $ | (22,320 | ) | $ | (7,911 | ) | ||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements
12
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
|
Deficit
|
||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||
|
Common stock
|
Additional
paid-in
|
Deferred
Stock - based
|
during the
development
|
stockholders'
equity
|
||||||||||||||||||||
|
Number
|
Amount
|
capital
|
compensation
|
stage
|
(deficiency)
|
|||||||||||||||||||
|
Balance as of March 31, 2006
|
22,854,587 | $ | 1 | $ | 15,803 | $ | (1,395 | ) | $ | (22,320 | ) | $ | (7,911 | ) | ||||||||||
|
Elimination of deferred stock compensation due to implementation of ASC 718-10 (formerly SFAS 123(R))
|
- | - | (1,395 | ) | 1,395 | - | - | |||||||||||||||||
|
Stock-based compensation related to shares and options granted to directors and employees
|
200,000 | *- | 1,168 | - | - | 1,168 | ||||||||||||||||||
|
Reclassification due to application of ASC 815-40-25 (formerly EITF 00-19)
|
- | - | 7,191 | - | - | 7,191 | ||||||||||||||||||
|
Stock-based compensation related to options and shares granted to service providers
|
1,147,225 | - | 453 | - | - | 453 | ||||||||||||||||||
|
Warrants issued to convertible note holder
|
- | - | 11 | - | - | 11 | ||||||||||||||||||
|
Warrants issued to loan holder
|
- | - | 110 | - | - | 110 | ||||||||||||||||||
|
Beneficial conversion feature related to convertible bridge loans
|
- | - | 1,086 | - | - | 1,086 | ||||||||||||||||||
|
Net loss
|
- | - | - | - | (3,924 | ) | (3,924 | ) | ||||||||||||||||
|
Balance as of December 31, 2006
|
24,201,812 | $ | 1 | $ | 24,427 | $ | - | $ | (26,244 | ) | $ | (1,816 | ) | |||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements
13
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
|
Deficit
|
||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||
|
Common stock
|
Additional
paid-in
|
Deferred
Stock - based
|
during the
development
|
stockholders'
equity
|
||||||||||||||||||||
|
Number
|
Amount
|
capital
|
compensation
|
stage
|
(deficiency)
|
|||||||||||||||||||
|
Balance as of December 31, 2006
|
24,201,812 | $ | 1 | $ | 24,427 | $ | - | $ | (26,244 | ) | $ | (1,816 | ) | |||||||||||
|
Stock-based compensation related to options and shares granted to service providers
|
544,095 | 1,446 | - | - | 1,446 | |||||||||||||||||||
|
Warrants issued to convertible note holder
|
- | - | 109 | - | - | 109 | ||||||||||||||||||
|
Stock-based compensation related to shares and options granted to directors and employees
|
200,000 | *- | 1,232 | - | - | 1,232 | ||||||||||||||||||
|
Beneficial conversion feature related to convertible loans
|
- | - | 407 | - | - | 407 | ||||||||||||||||||
|
Conversion of convertible loans
|
725,881 | *- | 224 | - | - | 224 | ||||||||||||||||||
|
Exercise of warrants
|
3,832,621 | *- | 214 | - | - | 214 | ||||||||||||||||||
|
Stock issued for private placement at $0.1818 per unit, net of finder's fee
|
11,500,000 | 1 | 1,999 | - | - | 2,000 | ||||||||||||||||||
|
Net loss
|
- | - | - | - | (6,244 | ) | (6,244 | ) | ||||||||||||||||
|
Balance as of December 31, 2007
|
41,004,409 | $ | 2 | $ | 30,058 | $ | - | $ | (32,488 | ) | $ | (2,428 | ) | |||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements
14
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
|
Deficit
|
||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||
|
Common stock
|
Additional
paid-in
|
Deferred
Stock - based
|
during the
development
|
stockholders'
equity
|
||||||||||||||||||||
|
Number
|
Amount
|
capital
|
compensation
|
stage
|
(deficiency)
|
|||||||||||||||||||
|
Balance as of December 31, 2007
|
41,004,409 | $ | 2 | $ | 30,058 | $ | - | $ | (32,488 | ) | $ | (2,428 | ) | |||||||||||
|
Stock-based compensation related to options and stock granted to service providers
|
90,000 | - | 33 | - | - | 33 | ||||||||||||||||||
|
Stock-based compensation related to stock and options granted to directors and employees
|
- | - | 731 | - | - | 731 | ||||||||||||||||||
|
Conversion of convertible loans
|
3,644,610 | *- | 1,276 | - | - | 1,276 | ||||||||||||||||||
|
Exercise of warrants
|
1,860,000 | *- | - | - | - | - | ||||||||||||||||||
|
Exercise of options
|
17,399 | *- | 3 | - | - | 3 | ||||||||||||||||||
|
Stock issued for private placement at $0.1818 per unit, net of finder's fee
|
8,625,000 | 1 | 1,499 | - | - | 1,500 | ||||||||||||||||||
|
Subscription of shares for private placement at $0.1818 per unit
|
- | - | 281 | - | - | 281 | ||||||||||||||||||
|
Net loss
|
- | - | - | - | (3,472 | ) | (3,472 | ) | ||||||||||||||||
|
Balance as of December 31, 2008
|
55,241,418 | $ | 3 | $ | 33,881 | $ | - | $ | (35,960 | ) | $ | (2,076 | ) | |||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements
15
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
|
Deficit
|
||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||
|
Common stock
|
Additional
paid-in
|
Deferred
Stock - based
|
during the
development
|
stockholders'
equity
|
||||||||||||||||||||
|
Number
|
Amount
|
capital
|
compensation
|
stage
|
(deficiency)
|
|||||||||||||||||||
|
Balance as of December 31, 2008
|
55,241,418 | $ | 3 | $ | 33,881 | $ | - | $ | (35,960 | ) | $ | (2,076 | ) | |||||||||||
|
Stock-based compensation related to options and stock granted to service providers
|
5,284,284 | *- | 775 | - | 775 | |||||||||||||||||||
|
Stock-based compensation related to stock and options granted to directors and employees
|
- | - | 409 | - | 409 | |||||||||||||||||||
|
Conversion of convertible loans
|
2,500,000 | *- | 200 | - | 200 | |||||||||||||||||||
|
Exercise of warrants
|
3,366,783 | *- | - | - | - | |||||||||||||||||||
|
Stock issued for amendment of private placement
|
9,916,667 | 1 | - | - | 1 | |||||||||||||||||||
|
Subscription of shares
|
- | - | 729 | - | 729 | |||||||||||||||||||
|
Net loss
|
- | - | - | - | (1,781 | ) | (1,781 | ) | ||||||||||||||||
|
Balance as of December 31, 2009
|
76,309,152 | $ | 4 | $ | 35,994 | $ | - | $ | (37,741 | ) | $ | (1,743 | ) | |||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements
16
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
U.S. dollars in thousands
(Except share data)
|
Deficit
|
||||||||||||||||||||||||
|
accumulated
|
Total
|
|||||||||||||||||||||||
|
Common stock
|
Additional
paid-in
|
Deferred
Stock - based
|
during the
development
|
stockholders'
equity
|
||||||||||||||||||||
|
Number
|
Amount
|
capital
|
compensation
|
stage
|
(deficiency)
|
|||||||||||||||||||
|
Balance as of December 31, 2009
|
76,309,152 | $ | 4 | $ | 35,994 | - | $ | (37,741 | ) | $ | (1,743 | ) | ||||||||||||
|
Stock-based compensation related to options and stock granted to service providers
|
443,333 | *- | 96 | - | - | 96 | ||||||||||||||||||
|
Stock-based compensation related to stock and options granted to directors and employees
|
466,667 | *- | 388 | - | - | 388 | ||||||||||||||||||
|
Stock issued for amendment of private placement
|
7,250,000 | 1 | 1,750 | - | - | 1,751 | ||||||||||||||||||
|
Conversion of convertible note
|
402,385 | *- | 135 | - | - | 135 | ||||||||||||||||||
|
Conversion of convertible loans
|
1,016,109 | *- | 189 | - | - | 189 | ||||||||||||||||||
|
Issuance of shares
|
2,475,000 | 400 | 400 | |||||||||||||||||||||
|
Exercise of options
|
1,540,885 | *- | 77 | - | - | 77 | ||||||||||||||||||
|
Exercise of warrants
|
3,929,446 | *- | 11 | - | - | 11 | ||||||||||||||||||
|
Subscription of shares for private placement at $0.12 per unit
|
455 | - | - | 455 | ||||||||||||||||||||
|
Conversion of trade payable to stock
|
201 | 201 | ||||||||||||||||||||||
|
Issuance of shares on account of previously subscribed shares (See also Note 11B.1.f)
|
2,000,001 | *- | - | - | - | - | ||||||||||||||||||
|
Net loss
|
(2,419 | ) | (2,419 | ) | ||||||||||||||||||||
|
Balance as of December 31, 2010
|
95,832,978 | $ | 5 | $ | 39,696 | $ | - | $ | (40,160 | ) | $ | (459 | ) | |||||||||||
* Represents an amount less than $1.
The accompanying notes are an integral part of the consolidated financial statements.
17
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
(Except share data)
|
Year ended
December 31
|
Period from
September 22, 2000
(inception date)
Through
December 31,
|
|||||||||||
|
2010
|
2009
|
2010(*)
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net loss
|
$ | (2,419 | ) | $ | (1,781 | ) | $ | (40,160 | ) | |||
|
Less - loss for the period from discontinued operations
|
- | - | 164 | |||||||||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
|
Depreciation
|
162 | 168 | 698 | |||||||||
|
amortization of deferred charges
|
- | - | 150 | |||||||||
|
Severance pay, net
|
11 | (6 | ) | 35 | ||||||||
|
Accrued interest on loans
|
- | 19 | 448 | |||||||||
|
Amortization of discount on short-term loans
|
- | - | 1,864 | |||||||||
|
Change in fair value of options and warrants
|
- | - | (795 | ) | ||||||||
|
Expenses related to shares and options granted to service providers
|
96 | 775 | 21,037 | |||||||||
|
Amortization of deferred stock-based compensation related to options granted to employees
|
388 | 409 | 5,686 | |||||||||
|
Increase in accounts receivable and prepaid expenses
|
(400 | ) | (65 | ) | (486 | ) | ||||||
|
Increase (decrease) in trade payables and convertible note
|
45 | (9 | ) | 780 | ||||||||
|
Increase (decrease) in other accounts payable and accrued expenses
|
48 | (254 | ) | 1,461 | ||||||||
|
Erosion of restricted cash
|
- | - | (6 | ) | ||||||||
|
Net cash used in continuing operating activities
|
(2,069 | ) | (744 | ) | (9,124 | ) | ||||||
|
Net cash used in discontinued operating activities (*)
|
- | - | (23 | ) | ||||||||
|
Total net cash used in operating activities
|
(2,069 | ) | (744 | ) | (9,147 | ) | ||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of property and equipment
|
(5 | ) | - | (1,085 | ) | |||||||
|
Restricted cash
|
35 | 6 | ||||||||||
|
Investment in lease deposit
|
6 | 4 | (1 | ) | ||||||||
|
Net cash used in continuing investing activities
|
1 | 39 | (1,080 | ) | ||||||||
|
Net cash used in discontinued investing activities (*)
|
- | - | (16 | ) | ||||||||
|
Total net cash provided by (used in) investing activities
|
1 | 39 | (1,096 | ) | ||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from issuance of Common stock, net
|
2,118 | 730 | 8,717 | |||||||||
|
Proceeds from loans, notes and issuance of warrants, net
|
- | - | 2,061 | |||||||||
|
Credit from bank
|
(46 | ) | (26 | ) | - | |||||||
|
Proceeds from exercise of warrants and options
|
88 | - | 116 | |||||||||
|
Repayment of short-term loans
|
- | - | (601 | ) | ||||||||
|
Net cash provided by continuing financing activities
|
2,160 | 704 | 10,293 | |||||||||
|
Net cash provided by discontinued financing activities (*)
|
- | - | 43 | |||||||||
|
Total net cash provided by financing activities
|
2,160 | 704 | 10,336 | |||||||||
|
Increase in cash and cash equivalents
|
92 | (1 | ) | 93 | ||||||||
|
Cash and cash equivalents at the beginning of the period
|
1 | 2 | - | |||||||||
|
Cash and cash equivalents at end of the period
|
$ | 93 | $ | 1 | 93 | |||||||
|
Non-cash financing activities:
|
||||||||||||
|
Conversion of a trade payable to Common Stock
|
$ | 200 | ||||||||||
|
Conversion of a other accounts payable to Common Stock
|
$ | 487 | ||||||||||
|
Conversion of convertible note
|
$ | 135 | ||||||||||
|
Conversion of convertible loan
|
$ | 189 | ||||||||||
(*) Out of the which, cash flows used used in discontinued operating activities of $36, cash flows used in discontinued investing activities of $16 and cash flows provided in discontinued financing activities of $57, relating to the period from inception to March 31 2004, is unaudited.
The accompanying notes are an integral part of the consolidated financial statements.
18
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 1
|
-
|
GENERAL:
|
|
|
A.
|
Brainstorm Cell Therapeutics Inc. (formerly: Golden Hand Resources Inc.) (the "Company") was incorporated in the State of Washington on September 22, 2000.
|
|
|
B.
|
On May 21, 2004, the former major stockholders of the Company entered into a purchase agreement with a group of private investors, who purchased from the former major stockholders 6,880,000 shares of the then issued and outstanding 10,238,000 shares of Common Stock.
|
|
|
C.
|
On July 8, 2004, the Company entered into a licensing agreement with Ramot of Tel Aviv University Ltd. ("Ramot"), to acquire certain stem cell technology (see Note 3). Subsequent to this agreement, the Company decided to focus on the development of novel cell therapies for neurodegenerative diseases based on the acquired technology and research to be conducted and funded by the Company.
|
Following the licensing agreement dated July 8, 2004, the management of the Company decided to abandon all old activities related to the sale of the digital data recorder product. The discontinuation of this activity was accounted for under the provision of Statement of Financial Accounting Standard ASC 360-10 (formerly "SFAS" 144), "Accounting for the Impairment or Disposal of Long-Lived Assets".
|
|
D.
|
On November 22, 2004, the Company changed its name from Golden Hand Resources Inc. to Brainstorm Cell Therapeutics Inc. to better reflect its new line of business in the development of novel cell therapies for neurodegenerative diseases. BCT, as defined below, owns all operational property and equipment.
|
|
|
E.
|
On October 25, 2004, the Company formed a wholly-owned subsidiary in Israel, Brainstorm Cell Therapeutics Ltd. ("BCT").
|
|
|
F.
|
In December 2006, the Company changed its state of incorporation from Washington to Delaware.
|
|
|
G.
|
On September 17, 2006, the Company's changed the Company's fiscal year-end from March 31 to December 31.
|
|
|
H.
|
Since its inception, the Company has devoted substantially most of its efforts to research and development, recruiting management and technical staff, acquiring assets and raising capital. In addition, the Company has not generated revenues. Accordingly, the Company is considered to be in the development stage, as defined in Statement of Financial Accounting Standards No. 7, "Accounting and reporting by development Stage Enterprises" ASC 915-10 (formerly "SFAS No. 7").
|
|
|
I.
|
In October 2010 the Israeli Ministry of Health (“MOH”) granted clearance for a Phase I/II clinical trial using the Company’s autologous NurOwn™ stem cell therapy in patients with ALS. The clearance granted by the MOH to initiate the clinical trials is subject to some additional process specifications as well as completion of the sterility validation study for tests performed in the course of the process (in process controls) and at the end of the process. After the balance sheet date, the sterility validation study report was submitted to the MOH for approval (See Note 15 J).
|
GOING CONCERN:
As reflected in the accompanying financial statements, the Company’s operations for the year ended on December 31, 2010, resulted in a net loss of $2,419 and the Company’s balance sheet reflects a net stockholders’ deficiency of $459, accumulated deficit of $40,160 and working capital deficiency of $844. These conditions raise substantial doubt about the Company's ability to continue to operate as a going concern. The Company’s ability to continue operating as a “going concern” is dependent on several factors, among them is its ability to raise sufficient additional working capital.
19
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 1
|
-
|
GENERAL (Cont.)
|
Accordingly, as a result of the current economic situation and the difficulty to raise immediate funds to support all of the Company’s projects, including Parkinson disease and spinal cord injury, the Company decided to reduce its activity and focus only on the effort to reach clinical trials in ALS in 2010. The Company entered into an agreement with Hadassah Medical Centre to conduct clinical trials in up to 24 ALS patients in 2011. The Company also reduced its general and administrative expenses and ceased and delayed some development projects until it was able to obtain sufficient financing.
After the balance sheet date, the Company raised approximately 4 million dollars from institutional and private investors (see Note 15 E and Note 15 I). However, there can be no assurance that additional funds will be available on terms acceptable to the Company, or at all.
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.
|
NOTE 2
|
-
|
SIGNIFICANT ACCOUNTING POLICIES
|
|
|
A.
|
Basis of presentation:
|
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.
|
|
B.
|
Use of estimates:
|
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
|
|
C.
|
Financial statement in U.S. dollars:
|
The functional currency of the Company is the U.S dollar ("dollar") since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Part of the transactions of the subsidiary, are recorded in new Israeli shekels ("NIS"); however, a substantial portion of the subsidiary's costs is incurred in dollars or linked to the dollar. Accordingly, management has designated the dollar as the currency of its subsidiary's primary economic environment and thus it is their functional and reporting currency.
Transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with the provisions of ASC 830-10 (formerly Statement of Financial Accounting Standard 52), "Foreign Currency Translation". All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate.
|
|
D.
|
Principles of consolidation:
|
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated upon consolidation.
|
|
E.
|
Cash equivalents:
|
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less as of the date acquired.
20
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 2
|
-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
F.
|
Property and equipment:
|
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets.
The annual depreciation rates are as follows:
|
%
|
|
|
Office furniture and equipment
|
7
|
|
Computer software and electronic equipment
|
33
|
|
Laboratory equipment
|
15
|
|
Leasehold improvements
|
Over the shorter of the lease term
(including the option) or useful life |
|
|
G.
|
Impairment of long-lived assets:
|
The Company’s and its subsidiary’s long-lived assets are reviewed for impairment in accordance with ASC 360-10 (formerly Statement of Financial Accounting Standard 144), "Accounting for the Impairment or Disposal of Long-Lived Assets". Whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. During 2009 and 2010, no impairment losses were identified.
|
|
H.
|
Research and development expenses, net:
|
Research and development expenses, are charged to the statement of operations as incurred.
Royalty-bearing grants from the Government of Israel for funding approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred and applied as a deduction from research and development expenses. Such grants are included as a deduction of research and development costs since at the time received it is not probable the Company will generate sales from these projects and pay the royalties resulting from such sales.
|
|
I.
|
Severance pay:
|
The liability of the subsidiary for severance pay is calculated pursuant to the Severance Pay Law in Israel, based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date and is presented on an undiscounted basis.
The subsidiary's employees are entitled to one month's salary for each year of employment or a portion thereof. The subsidiary's liability for all of its employees is fully provided by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset in the Company's balance sheet.
The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Severance Pay Law in Israel or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies.
Severance expenses for the year ended December 31, 2010 were $34.
21
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 2
|
-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
J.
|
Accounting for stock-based compensation:
|
Effective April 1, 2006, the Company adopted ASC 718-10 (formerly Statement of Financial Accounting Standards 123 (Revised 2004)), "Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options under the Company's stock plans based on estimated fair values. ASC 718-10 supersedes the Company's previous accounting under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25"). In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin 107 ("SAB 107") relating to ASC 718-10. The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10.
ASC 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company's consolidated statement of operations.
The Company recognizes compensation expense for the value of non-employee awards, which have graded vesting, based on the accelerated attribution method over the requisite service period of each award, net of estimated forfeitures.
The Company recognizes compensation expense for the value of employee awards that have graded vesting, based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures.
The Company estimates the fair value of restricted shares based on the market price of the shares at the grant date and estimates the fair value of stock options granted using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are, expected stock price volatility and the expected option term (the time from the grant date until the options are exercised or expire). Expected volatility was calculated based upon actual historical stock price movements over the period, equal to the expected option term. The expected option term was calculated for options granted to employees and directors in accordance with SAB 107 and SAB 110, using the "simplified" method. Grants to non-employees are based on the contractual term. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term.
|
|
K.
|
Basic and diluted net loss per share:
|
Basic net loss per share is computed based on the weighted average number of shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of shares outstanding during each year, plus the dilutive potential of the Common Stock considered outstanding during the year, in accordance with ASC 260-10 (formerly Statement of Financial Accounting Standard 128), "Earnings per Share".
All outstanding stock options and warrants have been excluded from the calculation of the diluted loss per share for the year ended December 31, 2010 and December 31, 2009, since all such securities have an anti-dilutive effect.
22
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 2
|
-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
|
L.
|
Income taxes:
|
The Company and its subsidiary account for income taxes in accordance with ASC 740-10 (formerly Statement of Financial Accounting Standard 109), "Accounting for Income Taxes." This Statement requires the use of the liability method of accounting for income taxes, whereby deferred tax asset and liability account balances are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiary provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
In September 2006, the Financial Accounting Standards Board ("FASB") issued ASC 740-10 (formerly FASB interpretation ("FIN") 48), "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement 109". ASC 740-10 establishes a single model to address accounting for uncertain tax positions. ASC 740-10 clarified the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740-10 also provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of the provisions of ASC 740-10 did not have an impact on the Company's consolidated financial position and results of operations.
|
|
M.
|
Fair value of financial instruments:
|
The carrying values of cash and cash equivalents, accounts receivable and prepaid expenses, trade payables and other accounts payable approximate their fair value due to the short-term maturity of these instruments.
|
|
N.
|
Impact of recently issued accounting standards:
|
ASU 2010-13 - Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.
In April 2010, the FASB issued this ASU to clarify the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades.
This update provides amendments to Topic 718 to clarify that employee share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should also be classified as an equity award. The update is effective for periods beginning after December 15, 2010. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
23
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 3
|
-
|
RESEARCH AND LICENSE AGREEMENT
|
On July 8, 2004, the Company entered into a research and license agreement (the "Original Agreement") with Ramot. The license agreement grants the Company an exclusive, worldwide, royalty-bearing license to develop, use and sell certain stem cell technology. In consideration of the license, the Company was required to remit an upfront license fee payment of $100; 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 Common Stock at an exercise price of $0.01 per share. The Company also agreed to fund, through Ramot, further research in consideration of $570 per year for an initial two-year period (“initial research period”). The Company also agreed to fund research for a further two-year period if certain research milestones are met additional $1,140 (“extended research period”).
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 seven-year period beginning on November 4, 2005.
On March 30, 2006, the Company entered into an Amended Research and License Agreement with Ramot, for the purpose of amending and restating the Original Agreement. According to the agreement, the initial period was amended to an initial research period of three years. The Amended Research and License Agreement also extends the additional two-year research period in the Original Agreement to an additional three-year research period if certain research milestones are met. The Amended Research and License Agreement retroactively amended the consideration to $380 per year, instead of $570 per year. As a consequence, an amount of $300 was charged to the statement of operations as research and development expenses in the year ended in March 31, 2006. In addition, the Amended Research and License Agreement reduced royalties that the Company may have to pay Ramot, in certain cases, from 5% to 3% of net sales and also reduces the sublicenses receipt from 30% to 20%-25% of sublicense receipts.
On July 26, 2007, the Company entered into a Second Amended and Restated Research and License Agreement with Ramot. On August 1, 2007, the Company obtained a waiver and release from Ramot pursuant to which Ramot agreed to an amended payment schedule regarding the Company's payment obligations under the Amended Research and License Agreement, dated March 30, 2006, and waived all claims against the Company resulting from the Company's previous defaults and non-payment under the Original Agreement and the Amended Research and License Agreement. The payments described in the waiver and release covered all payment obligations that were past due and not yet due pursuant to the Original Agreement. The waiver and release amended and restated the remaining unpaid balance of $640 of the original payment schedule for the initial research period.
As of December 24, 2009, the Company had not made the payments totaling $240.
On December 24, 2009, the Company and Ramot entered into a settlement under which, among other
things, the following matters were agreed upon:
|
|
a)
|
Ramot released the Company from the Company’s obligation to fund the extended research period in the total amount of $1,140.Therefore the company removed an amount of $ 760 from its research and development expenses that had accumulated in the past.
|
|
|
b)
|
Past due amounts of $240 for the initial research period plus interest of $32 owed by the Company to Ramot was converted into 1,120,000 restricted shares of common stock on December 30, 2009. Ramot deposited the shares with a broker and may sell the shares in the free market after 185 days from the issuance day.
|
In the event that the total proceeds generated by sales of the shares are less than $120 on or prior to September 30, 2010 ("September Payment"), then on such date the Company had to pay to Ramot the difference between the aggregate proceeds that had been received by Ramot up to such date, and $120. In the event that the total proceeds generated by sales of the shares, together with the September 30, 2010 payment, are less than $240 on or prior to December 31, 2010, then the Company had to pay to Ramot the difference between the proceeds that Ramot had received from sales of the shares up to such date together with the September Payment (if any) that had been transferred to Ramot up to such date, and $240. Related compensation in the amount of $51 was recorded as research and development expenses.
24
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 3
|
-
|
RESEARCH AND LICENSE AGREEMENT (Cont.)
|
As of December 31, 2010, Ramot had sold 952,470 shares of Common Stock of the Company out of the 1,120,000 Ramot was issued under the settlement agreement Common Stock for $200. After the balance sheet date, Ramot sold an additional 167,530 shares Common Stock of the Company for $35 and the Company paid the remaining balance of $5 (See note 15 B).
|
NOTE 4
|
-
|
CONSULTING AGREEMENTS
|
|
|
A.
|
On July 8, 2004, the Company entered into two consulting agreements with Prof. Eldad Melamed and Prof. 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 each. In addition, the Company granted each of the Consultants, a fully vested warrant to purchase 1,097,215 shares of 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 seven-year period beginning on November 4, 2005. As of December 31, 2010 the two consultants exercised the above options to Common Stock of the Company.
|
|
|
B.
|
On December 16, 2010, the Company approved a grant of 1,100,000 shares of the Company's Common Stock to the two Consultants, for services rendered through December 31, 2010. Related compensation in the amount of $220 is recorded as research and development expense. A sum of $487 was cancelled concurrent the issuance of the 1,100,000 shares of Common Stock of the Company.
|
|
NOTE 5
|
-
|
ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
|
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Government authorities
|
427 | 14 | ||||||
|
Prepaid expenses
|
59 | 72 | ||||||
| 486 | 86 | |||||||
|
NOTE 6
|
-
|
PROPERTY AND EQUIPMENT
|
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Cost:
|
||||||||
|
Office furniture and equipment
|
9 | 9 | ||||||
|
Computer software and electronic equipment
|
105 | 101 | ||||||
|
Laboratory equipment
|
349 | 347 | ||||||
|
Leasehold improvements
|
655 | 655 | ||||||
| 1,118 | 1,112 | |||||||
|
Accumulated depreciation:
|
||||||||
|
Office furniture and equipment
|
3 | 3 | ||||||
|
Computer software and electronic equipment
|
100 | 84 | ||||||
|
Laboratory equipment
|
200 | 128 | ||||||
|
Leasehold improvements
|
396 | 322 | ||||||
| 699 | 537 | |||||||
|
Depreciated cost
|
419 | 575 | ||||||
25
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 6
|
-
|
PROPERTY AND EQUIPMENT (Cont.)
|
Depreciation expenses for the year ended December 31, 2010 and December 31, 2009 were $162, and $168, respectively.
|
NOTE 7
|
-
|
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Employee and payroll accruals
|
471 | 404 | ||||||
|
Ramot accrued expenses
|
60 | - | ||||||
|
Accrued expenses
|
448 | 992 | ||||||
|
Other
|
- | 22 | ||||||
| 979 | 1,418 | |||||||
|
NOTE 8
|
-
|
SHORT-TERM CONVERTIBLE NOTE
|
On December 13, 2009, the Company issued a $135 Convertible Promissory Note to its legal advisor for $217 in legal fees accrued through October 31, 2009. Interest on the Note accrued at the rate of 4%. The legal advisor has the right at any time to convert all or part of the outstanding principal and interest amount of the note into shares of Common Stock based on the five day average closing stock price prior to conversion election.
The gap between the amount the Company owed to the legal advisor and the principal of the Convertible Promissory Note in the amount of $82 was deducted from general and administrative expenses.
On February 19, 2010, the Company's legal advisor converted the entire accrued principal and interest of $135 Convertible Promissory Note into 402,385 shares of Common Stock.
On September 15, 2010, the Company issued a $135 Convertible Promissory Note to its legal advisor for legal fees accrued through December 31, 2010. Interest on the Note was at the rate of 4%. The legal advisor has the right at any time to convert all or part of the outstanding principal and interest amount of the note into shares of Common Stock based on the five day average closing stock price prior to conversion election.
On February 18, 2011, the legal advisor converted the entire accrued principal and interest into 445,617 shares of Common Stock (See note15 H).
|
NOTE 9
|
-
|
SHORT-TERM CONVERTIBLE LOANS
|
|
|
A.
|
On March 5, 2007, the Company issued a $150 Convertible Promissory Note to a third party. Interest on the note accrues at the rate of 8% per annum for the first year and 10% per annum afterward .The note will become immediately due and payable upon the occurrence of certain events of default, as defined in the note. The third party has the right at any time prior to the close of business on the maturity date to convert all or part of the outstanding principal and interest amount of the note into shares of Common Stock. The conversion price, as defined in the note, will be 75% (60% upon the occurrence of an event of default) of the average of the last bid and ask price of the Common Stock as quoted on the Over-the-Counter Bulletin Board for the five trading days prior to the Company's receipt of the third party written notice of election to convert, but in no event shall the conversion price be greater than $0.35 or more than 3,000,000 shares of Common Stock be issued. The conversion price will be adjusted in the event of a stock dividend, subdivision, combination or stock split of the outstanding shares.
|
26
BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY
(A development stage company)
Notes to the financial statements
|
NOTE 9
|
-
|
SHORT-TERM CONVERTIBLE LOANS (Cont.)
|
In addition, the Company granted to the third party warrants to purchase 150,000 shares of Common Stock at an exercise price of $0.45 per share. The warrants are fully vested and are exercisable at any time after March 5, 2007 until the second anniversary of the issue date. The fair value of the warrants is $43.
In accordance with ASC 470-20, the Company allocated the proceeds of the convertible note issued with detachable warrants based on the relative fair values of the two securities at the time of issuance. As a result, the Company recorded in its statement of changes in stockholders' equity for 2007 an amount of $22 with respect to the warrants and the convertible note was recorded in the amount of $128.
The Company agreed to pay a finder's fee of $15; $13 was allocated to deferred charges and is amortized as financial expense over the note period and $2 was allocated to stockholder's equity.
The BCF, in the amount of $122, embedded in the note was calculated based on a conversion rate of 60%, as defined upon the occurrence of an event of default and according to the notes’ effective conversion price. The amount was recorded as discount on the note against additional paid-in capital and is amortized to financial expense over the note period.
The balance of the convertible loan is comprised as follows:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Note
|
- | 150 | ||||||
|
Accrued interest
|
- | 39 | ||||||
| - | 189 | |||||||
On January 27, 2010, the third party converted the entire accrued principal a