-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FDjzQxazjLh9ydsNm1rh4VRHGz4o1xghNe8Ov4N6uWEEaPN+doi/GTcW7rgC8YnQ +RggBv6fzHtNRDl+aIBfIg== 0001144204-05-024399.txt : 20050810 0001144204-05-024399.hdr.sgml : 20050810 20050810102331 ACCESSION NUMBER: 0001144204-05-024399 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050810 DATE AS OF CHANGE: 20050810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAINSTORM CELL THERAPEUTICS INC CENTRAL INDEX KEY: 0001137883 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 912061050 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-61610 FILM NUMBER: 051012145 BUSINESS ADDRESS: STREET 1: 1350 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 250-519-0553 MAIL ADDRESS: STREET 1: 1350 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN HAND RESOURCES INC DATE OF NAME CHANGE: 20030827 FORMER COMPANY: FORMER CONFORMED NAME: WIZBANG TECHNOLOGIES INC DATE OF NAME CHANGE: 20010409 10QSB 1 v023340_10qsb.txt 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 EX-10.18 2 v023340_ex10-18.txt RESTRICTED STOCK AWARD AGREEMENT UNDER THE BRAINSTORM CELL THERAPEUTICS INC. 2005 U.S. STOCK OPTION AND INCENTIVE PLAN Name of Grantee: Scientific Advisory Board Members No. of Shares: 100,000 Purchase Price per Share (if any): $0.00005 Grant Date: April __, 2005 Final Acceptance Date: April __, 2005 Pursuant to the BrainStorm Cell Therapeutics Inc. 2005 U.S. Stock Option and Incentive Plan (the "Plan") as amended through the date hereof, BrainStorm Cell Therapeutics Inc. (the "Company") hereby grants a Restricted Stock Award (an "Award") to the Grantee named above. Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $0.00005 per share (the "Stock") of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. 1. Acceptance of Award. The Grantee shall have no rights with respect to this Award unless he or she shall have accepted this Award prior to the close of business on the Final Acceptance Date specified above by (i) making payment to the Company by certified or bank check or other instrument acceptable to the Administrator (as defined in Section 2 of the Plan) of the Purchase Price per Share, if any, times the number of shares to be accepted, and (ii) signing and delivering to the Company a copy of this Award Agreement. Upon acceptance of this Award by the Grantee, the shares of Restricted Stock so accepted shall be issued and held by the Company's transfer agent in book entry form or certificates evidencing the shares of Restricted Stock so accepted shall be issued and delivered to the Grantee, and the Grantee's name shall be entered as the stockholder of record on the books of the Company. Thereupon, the Grantee shall have all the rights of a shareholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below. 2. Restrictions and Conditions. (a) Any book entries or certificates evidencing the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan. (b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting. (c) If the Grantee ceases to be a member of the Company's Advisory Board for any reason (including death) prior to vesting of shares of Restricted Stock granted herein, the Company shall have the right, at the discretion of the Administrator, to repurchase such shares from the Grantee or the Grantee's legal representative at their purchase price. The Company must exercise such right of repurchase or forfeiture by written notice to the Grantee or the Grantee's legal representative not later than 90 days following the date the Grantee ceases to be a member of the Company's Advisory Board. 2 3. Vesting of Restricted Stock. The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains a member of the Company's Advisory Board on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date. Number of Shares of Restricted Stock Vested Vesting Date --------------------------------- ------------ 33,333 (33%) April ___, 2006 33,333 (66%) April ___, 2007 33,334 (100%) April ___, 2008 Subsequent to such Vesting Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock. Notwithstanding anything to the contrary herein, if the Company terminates the Grantee's membership on the Advisory Board without "Cause" prior to the date that the Award is fully vested, any shares of Restricted Stock that were scheduled to become vested within six months after the date of the Grantee's termination of Advisory Board membership shall become vested to the extent such Restricted Stock would have vested had the Grantee remained as a member of the Advisory Board for an additional six months. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3. For purposes hereof, "Cause" shall have the meaning given such term in the Company's standard Consulting Agreement for U.S. consultants. 4. Dividends. Dividends on Shares of Restricted Stock shall be paid currently to the Grantee. 5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein. 6. Transferability. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. 7. No Rights to Continue as Member of Advisory Board. This Agreement does not confer upon the Grantee any rights with respect to continuing as a member of the Company's Advisory Board. 8. Notices. Notice hereunder shall be mailed or delivered to the Company at its principal place of business, and shall be mailed or delivered to the Grantee at the address on file with the Company, or, in either case, at such other address as one party may subsequently furnish to the other party in writing. BRAINSTORM CELL THERAPEUTICS INC. By: /s/ Yaffa Beck ------------------------------------- Title: President & CEO The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Dated: ---------------------------- ----------------------------------------- Grantee's Signature Grantee's name and address: ----------------------------------------- ----------------------------------------- ----------------------------------------- 3 EX-10.19 3 v023340_ex10-19.txt EXECUTION COPY THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BRAINSTORM CELL THERAPEUTICS INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 47,500 shares of Common Stock of Brainstorm Cell Therapeutics Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT AT $1.62 PER SHARE Issue Date: May 16, 2005 BRAINSTORM CELL THERAPEUTICS INC., a corporation organized under the laws of the State of Washington (the "Company"), hereby certifies that, for value received, Trout Capital LLC a limited liability company, with its address at 740 Broadway, New York, New York 10003, or its assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time after the Issue Date up to 5:00 p.m., E.S.T. on the FIFTH anniversary of the Issue Date (the "Expiration Date") 47,500 fully paid and nonassessable shares of the common stock of the Company (the "Common Stock"), $.00005 par value per share at a per share purchase price of $1.62. The aforedescribed purchase price per share, as adjusted from time to time as herein provided, is referred to herein as the "Purchase Price." The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. The Company may reduce the Purchase Price without the consent of the Holder. This Warrant is that certain Warrant referred to in Section 4(e) of the Engagement Letter dated May __, 2005 between the Company and Trout Capital LLC (the "Engagement Letter"). All capitalized terms used but not defined in this Warrant which are defined in the Engagement Letter shall have the same meaning in this Warrant as in the Engagement Letter. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Brainstorm Cell Therapeutics Inc. and any corporation which shall succeed or assume the obligations of Brainstorm Cell Therapeutics Inc. (b) The term "Common Stock" includes (i) the Company's Common Stock, $.00005 par value per share, and (ii) any other securities into which or for which any of the securities described in (i) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. EXECUTION COPY (d) The term "person" or "Person" means any individual, corporation, partnership, limited liability company, trust, association, governmental agency or body or any other entity of any type. 1. Exercise of Warrant. 1.1 Number of Shares Issuable upon Exercise. From and after the Issue Date through and including the Expiration Date, the Holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection 1.2 or upon exercise of this Warrant in part in accordance with subsection 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2 Full Exercise. This Warrant may be exercised in full by the Holder hereof by delivery of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the "Subscription Form") duly executed by such Holder and surrender of the original Warrant (or such other instrument as may be required pursuant to Section 8) within seven (7) days of exercise, to the Company at its principal office or at the office of its Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 1.3 Partial Exercise. This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection 1.2 except that the amount payable by the Holder on such partial exercise shall be the amount obtained by multiplying (a) the number of whole shares of Common Stock designated by the Holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer taxes) may request, the whole number of shares of Common Stock for which such Warrant may still be exercised. 1.4 Fair Market Value. Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (a) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System, NASDAQ SmallCap Market or the American Stock Exchange, LLC, then the closing or last sale price, respectively, reported for the last trading day immediately preceding the Determination Date; (b) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc., but is quoted on the OTC Bulletin Board or, if such is not available, the Pink Sheets LLC (formerly the National Quotation Bureau), then the average of the closing bid and ask prices for the Common Stock quoted by two market makers of the Common Stock reported for the last trading day immediately preceding the Determination Date; 2 EXECUTION COPY (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree, or in the absence of such an agreement, by arbitration in accordance with the rules then standing of the American Arbitration Association, before a single arbitrator to be chosen from a panel of persons qualified by education and training to pass on the matter to be decided; or (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding at the Determination Date. 1.5 Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, acknowledge in writing its continuing obligation to afford to such Holder any rights to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. 1.6 Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the Holder of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 1.7 Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within ten (10) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share of Common Stock, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3 EXECUTION COPY 2. Exercise or Conversion. (a) This Warrant may be exercised in whole or in part for cash, wire transfer or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Purchase Price for the number of shares of Common Stock and/or Other Securities being purchased upon exercise of this Warrant. (b) (i) In lieu of the exercise of this Warrant as provided in Section 2(a), the Holder shall have the option to convert this Warrant in whole or in part into Common Stock at any time during the term of this Warrant (the "Conversion Right") having value equal to the value (as determined below) of this Warrant, or any part hereof, in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y(A-B) ----- A Where: X = the number of shares of Common Stock to be issued to the Holder; Y = the number of shares of Common Stock issuable upon exercise of this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being canceled (at the date of such calculation); A = the Fair Market Value of one share of Common Stock (at the date of such calculation); B = the Purchase Price (as adjusted to the date of such calculation). (ii) No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the Fair Market Value of the resulting fractional share on the Conversion Date. (iii) The Conversion Right provided under this Section 2(b) may be exercised in whole or in part and at any time and from time to time while any Warrant remains outstanding. In order to exercise the Conversion Right, the Holder shall surrender to the Company, at its offices, this Warrant accompanied by a duly completed Form of Subscription in the form attached hereto as Exhibit A. The Warrant (or so much thereof as shall have been surrendered for conversion) shall be deemed to have been converted immediately prior to the close of business on the day (such day, the "Conversion Date") of surrender of the Warrant for conversion in accordance with the foregoing provisions. As promptly as practicable on or after the Conversion Date, the Company shall issue and shall deliver to the Holder (A) a certificate or certificates representing the number of shares of Common Stock to which the Holder shall be entitled as a result of the conversion, and (B) if the Warrant is being converted in part only, a new certificate in principal amount equal to the unconverted portion of the Warrant. 4 EXECUTION COPY 3. Adjustment for Reorganization, Consolidation, Merger, etc. The Purchase Price in effect at the time, and the number and kind of securities purchasable upon exercise of the Warrant, shall be subject to adjustment from time to time upon the happening of certain events as follows. 3.1 Reorganization, Consolidation, Merger, etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer all or substantially all of its properties or assets to any other person then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1, at any time after the consummation of such reorganization, consolidation or merger or the effective date of such transfer, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such transfer, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company (a "Trustee") as trustee for the Holder of the Warrants, pursuant to a trust or similar agreement in form and substance satisfactory to the Holder. 3.3 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the Other Securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of transfer or dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any Other Securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transaction described in this Section 3, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the Holder of the Warrants be delivered to the Trustee as contemplated by Section 3.2. 5 EXECUTION COPY 4. Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock or Other Securities as a dividend or other distribution on outstanding Common Stock or Other Securities, (b) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares of Common Stock, or (c) combine or reclassify its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the Holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise. In the event that any warrants issued to Trout Targets in the Transaction contain more favorable protection against dilution and other events to the holders of such warrants than the provisions contained in Section 3 and 4 of this Warrant, the provisions of this Warrant automatically shall be amended to include such more favorable provisions for the benefit of the Holder, and the Company, promptly, at its expense, shall provide to the Holder a revised Warrant containing such amended provisions. 5. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock (or Other Securities) to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder of the Warrant and any Warrant Agent of the Company (appointed pursuant to Section 3 hereof). 6 EXECUTION COPY 6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. The Company covenants and agrees that all shares of Common Stock and Other Securities which the Holder may purchase under this Warrant or are otherwise issuable hereunder, will, upon issuance and delivery against the payment therefore of the requisite Purchase Price, be duly and validly issued, fully paid and nonassesable. This Warrant entitles the Holder hereof to receive copies of all financial and other information distributed or required to be distributed to the holders of the Company's Common Stock. 7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor"). On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with an opinion of counsel reasonably satisfactory to the Company that the transfer of this Warrant will be in compliance with applicable securities laws, the Company at its expense, (but with payment by the Transferor of any applicable transfer taxes), will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. No such transfers shall result in a public distribution of the Warrant; and the Company shall be responsible for "blue sky" compliance expenses for resales under any registration statement. 8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. Registration Rights. The Company covenants and agrees with the Holder as follows: (a) The Company shall advise the Holder or its permitted transferee, whether the Holder holds the Warrant or has exercised the Warrant and holds shares of Common Stock or any Other Securities issuable upon exercise of the Warrant ("Registrable Securities"), by written notice at least ten (10) business days prior to the filing of any registration statement under the Act, covering any equity securities of the Company, for its own account or for the account of others, except for any registration statement filed on Form S-4 or S-8 (or other comparable form), or otherwise relating solely to the sale of securities to participants in a Company stock plan, relating solely to the issuance of securities pursuant to a corporate reorganization or other transaction under Rule 145 of the Act, a registration on any form that does not include substantially that same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered, and will, upon the request of the Holder, include in any such new registration statement (the "Registration Statement") all such information as may be required to permit a public offering of, all or any of the Registrable Securities. 7 EXECUTION COPY (b) For so long as the Registrable Securities included in any Registration Statement remain unsold, the Company shall, subject to Section 9(f), (i) use its commercially reasonable efforts to maintain the effectiveness of such Registration Statement; (ii) timely file all reports required under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder; (iii) file such post-effective amendments to the Registration Statement as may be necessary so that the Registration Statement does not contain any misstatement of a material fact or omit to state any material fact required to make the statements therein not misleading; (iv) supply prospectuses and such other documents as any Holder whose Registrable Securities are included in such Registration Statement may reasonably request in order to facilitate the public sale or other disposition of such Registrable Securities; (v) register and qualify any of the Registrable Securities for sale in such jurisdictions within the United States as any such Holder designates, provided that the nothing in this clause (v) shall require the Company to qualify to do business as a foreign corporation, submit to taxation in any jurisdiction or to file a general consent to service of process in any jurisdiction in which it is not otherwise so qualified or required to file such a consent at the time; (vi) list or quote or shall cause to be listed or quoted on the exchange or quotation system or other market on which the other securities covered by such Registration Statement are listed or quoted, all Registrable Securities of the Holders included in the Registration Statement; (vii) provide a transfer agent and registrar for all Registrable Securities registered pursuant to such Registration Statement and a CUSIP number for all such Registrable Securities; (viii) furnish, at the request of the Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (A) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities; and (B) a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to the Holder requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities; (ix) permit any Holder of Registrable Securities that might be deemed, in the reasonable opinion of counsel to such Holder, reasonably acceptable to the Company, to be an underwriter or a controlling person of the Company, to require the insertion in the registration statement of material, furnished to the Company in writing, that in the reasonable opinion of counsel to such Holder should be included; (x) otherwise comply with all applicable rules and regulations of the Commission and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12) months, but not more than eighteen (18) months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Act and (xi) do any and all other acts and things which may be commercially reasonable to enable any such Holder to consummate the public sale or other disposition of the Registrable Securities included in the Registration Statement, all at no expense to such Holder (except as provided in the immediately following sentence). All costs and expenses in connection with any Registration Statement shall be borne by the Company, except that the Holder(s) shall bear the fees of their own counsel and any other advisors retained by them and any underwriting discounts or sales or other commissions applicable to any of the Registrable Securities sold by them. In connection with any Registration Statement, the Company shall furnish indemnification in the manner provided in Section 10 hereof, and each Holder whose Registrable Securities are included therein shall furnish information and indemnification in the manner provided in Section 10. 8 EXECUTION COPY (c ) Notwithstanding the foregoing set forth in this Section 9, the Company shall not be required to include in any Registration Statement any Registrable Securities of a Holder if in the opinion of counsel to the Company (which counsel and opinion are reasonably acceptable to counsel to the Holder) all Registrable Securities held by such Holder (and any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) would be saleable without registration, restriction or limitation under the holding period requirements and volume limitations under Rule 144 (or its successor) if the Warrant was exercised or converted pursuant to this Agreement. (d) If any registration pursuant to this Section 9 is in the form of an underwritten offering, the Company will select and obtain the investment banker or investment bankers and manager or managers that will administer the offering and the Company shall not be required under this Section 9 to include any of the Holder's securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it and enter into an underwriting agreement in customary form with an underwriter or underwriters selected by the Company, and then only in such quantity as the underwriters determine in their good faith discretion will not jeopardize the success of the offering by the Company (as further described in Section 9(e) below). Each Holder hereby agrees that such Holder shall not sell or otherwise transfer any securities of the Company held by such Holder (other than those included in the registration) during a "lock-up" period specified by the managing underwriter(s) of such registration, which shall not exceed 6 months. All Holders hereby agree to abide by any customary "lock-up" period restrictions during the aforesaid applicable periods as may be required by the managing underwriter(s) in such registrations; provided however that all officers, directors and holders of at least five percent (5%) of the Company's issued and outstanding shares are similarly bound and, provided further, that, at the request of the Holder, the Company shall use commercially reasonable efforts to cause the managing underwriter(s) to permit the Holder to sell during any such restricted periods such number of Registrable Securities as may be required so as to yield net proceeds to the Holder equal to the amount of the Purchase Price and other costs, expenses and taxes paid or payable by the Holder as a result of the exercise of this Warrant. Each Holder agrees to execute and deliver such other agreements as may be reasonable requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 9 EXECUTION COPY (e) In the event that any registration pursuant to Section 9 shall be in connection with an underwritten offering, and the managing underwriter determines in good faith and advises that the number of Registrable Securities to be included in such offering, together with the number of shares of Common Stock to be included in the Registration Statement by the Company or other holders of the Company's securities with the right to request inclusion in the Registration Statement, if any, exceeds the number of shares of Common Stock that it is advisable to offer and sell at such time or would interfere with the successful marketing of the Common Stock covered by the Registration Statement, then priority for including shares of Common Stock in the Registration Statement, up to the number advised by the managing underwriter, shall be allocated first, to the Company and each other person who has requested inclusion of shares of Common Stock pursuant to a "demand" registration right, pro rata in proportion to the respective number of shares of Common Stock to be included by them, and second, to the extent of any remaining capacity as advised by the managing underwriter, to all other holders of the Company's securities with the right to request inclusion in the Registration Statement, including the Holders requesting registration of their Registrable Securities, pro rata in proportion to the respective number of shares of Common Stock (including Registrable Securities) to be included by them and, then, to all other persons. (f) In any registration in which Holders request inclusion of their Registrable Securities pursuant to Section 9(a), if at any time after giving notice of its intention to register securities and prior to the effective date of the Registration Statement the Company or such other person shall determine for any reason not to register or to delay registration of it securities, the Company may, at its election, delay, terminate or withdraw such registration. The Company shall give written notice of any such determination to each Holder that has requested inclusion of Registrable Securities in the Registration Statement (provided, that the failure to give such notice shall not prejudice the Company's request to delay, terminate or withdraw such registration) and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but shall be obligated to reimburse the Holder for any reasonable fees and expenses it has incurred in connection therewith) and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. If (iii) at any time when a prospectus relating to Registrable Securities is required to be delivered under the Act, the Company discovers that, or any event occurs as a result of which, the prospectus (including any supplement thereto) included in any Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iv) the Commission issues any stop order suspending the effectiveness of any Registration Statement or proceedings are initiated or threatened for that purpose, then the Company shall promptly deliver a written notice to such effect to each Holder whose Registrable Securities are included in such Registration Statement, and each such Holder shall immediately upon receipt of such notice discontinue its disposition of Registrable Securities pursuant to such Registration Statement until its receipt of the copies of the supplemented or amended prospectus contemplated by the immediately following sentence and, if so directed by the Company, shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus or prospectus supplement relating to such Registrable Securities current at the time of receipt of such notice. As promptly as practicable following the event or discovery referred to in clause (iii) of the immediately preceding sentence, the Company shall (at the Company's expense) prepare and file with the Commission such amendment or supplement to the Registration Statement or prospectus which does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and furnish to the Holders whose Registrable Securities are included in such Registration Statement a reasonable number of copies of an amendment or supplement of such prospectus so that, as thereafter delivered to purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10 EXECUTION COPY (g) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 9. (f) The selling Holder shall furnish the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to timely effect the Registration of their Registrable Securities. 10. Indemnification. (a) Whenever pursuant to Section 9 a Registration Statement relating to any shares of Common Stock or Other Securities issued upon exercise of the Warrant is filed under the Act, amended or supplemented, the Company will indemnify and hold harmless each Holder of the securities covered by such Registration Statement, amendment or supplement (such Holder being hereinafter called the "Distributing Holder"), and each person, if any, who controls (within the meaning of the Act) the Distributing Holder, and each underwriter (within the meaning of the Act) of such securities and each person, if any, who controls (within the meaning of the Act) any such underwriter, against any losses, deficiencies, claims, actions, damages, liabilities, assessments, judgments, obligations, penalties, awards and other liabilities, costs and expenses, including, but not limited to, interest, penalties, and reasonable fees, disbursements, and expense of attorneys, accountants, financial and other advisors, experts and witnesses, both those incurred in connection with the defense or prosecution of the indemnifiable claim and those incurred in connection with the enforcement of this provision (collectively, "Damages"), joint or several, to which the Distributing Holder, any such controlling person or any such underwriter may become subject, under the Act or otherwise, insofar as such Damages are caused by, result from, arise out of or are based upon (i) any violation by the Company or any of its representatives of the federal or state securities laws, (ii) any untrue statement or alleged untrue statement of any material fact contained in any such Registration Statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto, (iii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iv) any act or failure to act, or any alleged act or failure to act, by any Distributing Holder in connection with, or relating in any manner to, the Registration Statement, the preliminary prospectus, final prospectus or the offering contemplated thereby, and which is included as part of or referred to in any Damage arising out of or based upon matters covered by clause (i), (ii) or (iii) above; provided, however, that (i) the Company will not be liable in any such case to the extent that any such Damage arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder or any other Distributing Holder for use in the preparation thereof , and (ii) the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Distributing Holder or underwriter, or any person controlling such Distributing Holder or underwriter, from whom the person asserting any such Damage purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Distributing Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such Damage. This indemnity agreement is not exclusive and will be in addition to any liability, which the Company might otherwise have and shall not limit any rights or remedies that may otherwise be available at law or in equity to each Distributing Holder. 11 EXECUTION COPY (b) The Distributing Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed said Registration Statement and such amendments and supplements thereto, and each person, if any, who controls the Company (within the meaning of the Act) against any Damages, joint or several, to which the Company or any such director, officer or controlling person may become subject, under the Act or otherwise, insofar as such Damages are caused by, results from, arise out of or are based upon (i) any untrue or alleged untrue statement of any material fact contained in said Registration Statement, said preliminary prospectus, said final prospectus, or said amendment or supplement, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such Damage is caused by, results from, arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder for use in the preparation thereof. This indemnity agreement is not exclusive and will be in addition to any liability, which each Distributing Holder might otherwise have and shall not limit any rights or remedies that may otherwise be available at law or in equity to the Company. 12 EXECUTION COPY (c) Promptly after receipt by an indemnified party under this Section 10 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 10, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for indemnity or contribution to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party, and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with any other indemnifying party similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, that if (i) the indemnified claim seeks an order, injunction or other equitable or declaratory relief; (ii) the indemnified party shall have reasonably concluded that there is an actual or potential conflict of interest between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action; (iii) there are legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party; (iv) the indemnifying party shall have failed to employ counsel reasonably satisfactory to the indemnified party, or (v) the indemnifying party is not timely or diligently defending such claim, then, in any such event, the indemnified party or parties shall have the right to select one separate counsel (plus such local counsel as may be necessary and, if there is more than one indemnified party, and such parties may not be represented by one counsel because of a conflict of interest, than such additional other counsel as may be necessary as a result of such conflicts) to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties, all at the expense of the indemnifying party. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel (which approval shall not be unreasonably withheld or delayed), the indemnifying party will not be liable to such indemnified party under this Section 10 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless: (i) the indemnified party shall have employed separate counsel in accordance with the preceding sentence; (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action; (iii) the indemnifying party is not permitted to defend the indemnified claim in accordance with the preceding sentence; (iv) the indemnifying party contests its obligations to indemnify such claim; or (v) the indemnifying party has authorized the employment of counsel for the indemnified party satisfactory to the indemnified party at the expense of the indemnifying party, in each of which cases the fees and expenses of counsel and the fees and expenses otherwise associated with the defense of such claim, shall be at the expense of the indemnifying party. 13 EXECUTION COPY (d) The indemnifying party under this Section 10 shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any Damage by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes: (i) an unconditional release of such indemnified party from all liability, claims or other Damages that are the subject matter of such action, suit or proceeding; and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (e) Any Damages for which an indemnified party is entitled to indemnification or contribution under this Section 10 shall be paid by the indemnifying party to the indemnified party as such Damages are incurred. (f) If the indemnification provided for in this Section 10 is unavailable to or insufficient to hold harmless an indemnified party under Section 10 in respect of any Damages (or actions or proceedings in respect thereof) then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party in such proportion as is appropriate to reflect the relative fault of such indemnifying party on the one hand and the Distributing Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the "control" stockholders on the one hand or the Distributing Holder on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Distributing Holder agree that it would not be just and equitable if contributions pursuant to this Section 10(f) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 10(f). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 10(f) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 10(f): (i) each Distributing Holder shall not be required to contribute any amount in excess of the amount of proceeds received by such Holder from sale(s) of such Holder's shares of Common Stock or Other Securities pursuant to the Registration Statement; and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 14 EXECUTION COPY 11. Notice of Certain Events. 11.1 In the event that: (a) the Company shall declare any cash dividend upon its Common Stock or Other Securities, or (b) the Company shall declare any dividend upon its Common Stock or Other Securities payable in stock or other securities or make any special dividend or other distribution to the holders of its Common Stock or Other Securities, or (c) the Company shall offer for subscription pro rata to the holders of its Common Stock or Other Securities any additional shares of stock of any class or other rights, or (d) there shall be any capital reorganization or reclassification of the capital stock of the Company, including any subdivision or combination of its outstanding shares of Common Stock or Other Securities, or consolidation or merger of the Company into or with another company, the merger or consolidation of any other company into or with the Company, or (e) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; or (f) there shall be a sale or other transfer of all or substantially all of the assts of the Company; then, in connection with such event, the Company shall give to the Holders: (i) at least fifteen (15) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, payment or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up or other event; and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up or other event, at least fifteen (15) days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution, payment or subscription rights, the date on which the holders of Common Stock or Other Securities shall be entitled thereto, and such notice in accordance with this clause (ii) shall also specify the date on which the holders of Common Stock or Other Securities shall be entitled to exchange their Common Stock or Other Securities for securities or other property deliverable upon such reorganization, reclassification consolidation, merger, sale, dissolution, liquidation or winding up or other event, as the case may be. Each such written notice shall be given in accordance with the provisions of Section 12 of this Warrant. 15 EXECUTION COPY 11.2 Failure to give any such notice or any defect therein shall not affect the validity of any action taken in connection with such dividend, distribution, subscription offer, payment, reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or other event; provided, however that any rights of the Holders with respect to any failure of the Company to give notice as provided herein of any such action shall not be prejudiced by any such action. 12. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges prepaid, or (d) transmitted by hand delivery, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective upon actual receipt (or if refused, upon such refusal). The addresses for such communications shall be: (i) if to the Company to: 1350 Avenue of Americas, New York, NY 10019 (ii) if to the Holder, to the address listed on the first paragraph of this Warrant. or such other address as either party may provide to the other in accordance with the provisions of this Section 12. 13. Miscellaneous. (a) This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. (b) This Warrant shall be construed and enforced in accordance with and governed by the laws of New York. THE PARTIES HERETO IRREVOCABLY: (I) AGREE THAT ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE COURTS OF THE STATE OF NEW YORK OR THE COURTS OF THE UNITED STATES LOCATED WITHIN THE STATE OF NEW YORK, IN EACH CASE IN THE COUNTY OF NEW YORK, (II) CONSENT AND SUBMIT TO THE EXCLUSIVE JURISDICTION AND VENUE OF EACH SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, (III) WAIVE ANY OBJECTION WHICH THEY, OR ANY OF THEM, MAY HAVE TO PERSONAL JURISDICTION OR THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OF SUCH COURTS, AND AGREE NOT TO SEEK TO CHANGE VENUE, (IV) WAIVE THE RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING AND (V) CONSENT TO SERVICE OF PROCESS IF GIVEN IN WRITING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 12. 16 EXECUTION COPY (c) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. (d) The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 17 EXECUTION COPY IN WITNESS WHEREOF, the Company has caused this Warrant to be issued at the date first above written. BRAINSTORM CELL THERAPEUTICS INC. By: /s/ Yaffa Beck ------------------------------------- Name: Yaffa Beck Title: President & CEO ------------------------------------- ------------------------------------- ------------------------------------- 18 EXECUTION COPY EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: BRAINSTORM CELL THERAPEUTICS INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase ________ shares of the Common Stock covered by such Warrant. The undersigned herewith either: |_| makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of $__________ in lawful money of the United States; or |_| elects pursuant to Section 2(b) of the Warrant to convert such Warrant into Common Stock in accordance with the formula set forth in Section 2(b). The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________ whose address is __________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated:___________________ --------------------------------------- (Signature to conform to name of holder as specified on the face of the Warranty) --------------------------------------- --------------------------------------- --------------------------------------- (Address) A-1 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of BRAINSTORM CELL THERAPEUTICS INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of BRAINSTORM CELL THERAPEUTICS INC. with full power of substitution in the premises. -------------------------------------------------------------------------- Transferees Percentage Transferred Number Transferred -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- Dated: ______________, ___________ --------------------------------------- (Signature to conform to name of holder as specified on the face of the Warranty) Signed in the presence of: --------------------------------------- (Name) --------------------------------------- --------------------------------------- (Address) B-1 ACCEPTED AND AGREED: --------------------------------------- [TRANSFEREE] --------------------------------------- (address) --------------------------------------- (Name) B-2 EX-31.1 4 v023340_ex31-1.txt EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULE 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. I, Yaffa Beck certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brainstorm Cell Therapeutics Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 10, 2005 /s/ Yaffa Beck ---------------------------------------------- President & CEO, Director, Principal Executive Officer and Principal Financial Officer EX-31.2 5 v023340_ex31-2.txt EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. I, David Stolick, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of BrainStorm Cell Therapeutics Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control of financial reporting. August 10, 2005 /s/ David Stolick ----------------------------------------- Name: David Stolick Title: Chief Financial Officer (Principal Financial Officer) EX-32.1 6 v023340_ex32-1.txt EXHIBIT 32.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In connection with the accompanying Quarterly Report on Form 10-QSB of BrainStorm Cell Therapeutics Inc. for the period ended June 30, 2005, the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) The Quarterly Report on Form 10-QSB for the period ended June 30, 2005, which this statement accompanies, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Quarterly Report on Form 10-QSB fairly presents, in all material respects, the financial condition and result of operations of the Registrant. Date: August 10, 2005 /s/ Yaffa Beck ---------------------------------------------- President & CEO, Director, Principal Executive Officer and Principal Financial Officer EX-32.2 7 v023340_ex32-2.txt EXHIBIT 32.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. In connection with the accompanying Quarterly Report on Form 10-QSB of BrainStorm Cell Therapeutics Inc. for the period ended June 30, 2005, the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) such Quarterly Report on Form 10-QSB for the period ended June 30, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-QSB for the period ended June 30, 2005 fairly presents, in all material respects, the financial condition and results of operations. August 10, 2005 /s/ David Stolick ----------------------------------------- Name: David Stolick Title: Chief Financial Officer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----