Edgar Filing: BRAINSTORM CELL THERAPEUTICS INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2009

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

For the Transition Period from ________ to ________.

Commission File Number 333-61610

BRAINSTORM CELL THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

Delaware	20-8133057
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

110 East 59th Street

New York, NY 10022

(Address of principal executive offices)

(212) 557-9000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

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

As of August 13, 2009, the number of shares outstanding of the registrant’s common stock, $0.00005 par value per share, was 59,791,418.

TABLE OF CONTENTS

		Page Number
PART I		3

Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3. Quantitative and Qualitative Disclosures About Market Risk		38
Item 4. Controls and Procedures		38

PART II		39

Item 1. Legal Proceedings		39
Item 1A. Risk Factors		39
Item 5. Other Information		40
Item 6. Exhibits		40

PART I: FINANCIAL INFORMATION

SPECIAL NOTE

Unless otherwise specified in this quarterly report on Form 10-Q, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars.

Item 1. Financial Statements.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2009

UNAUDITED

U.S. DOLLARS IN THOUSANDS

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2009

UNAUDITED

U.S. DOLLARS IN THOUSANDS

INDEX

	Page

Consolidated Balance Sheets	5

Consolidated Statements of Operations	6

Statements of Changes in Stockholders' Equity (Deficiency)	7 -11

Consolidated Statements of Cash Flows	12 - 13

Notes to Consolidated Financial Statements	14 - 32

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share data)

	June 30,			December 31,
	2 0 0 9			2 0 0 8
	Unaudited			Audited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2		$	2
Restricted cash		35			36
Accounts receivable and prepaid expenses		52			21
Total current assets		89			59

LONG-TERM INVESTMENTS:
Prepaid expenses		7			11
Severance pay fund		65			62
Total long-term investments		72			73

PROPERTY AND EQUIPMENT, NET		664			743
Total assets	$	825		$	875

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short term Credit from bank	$	28		$	72
Trade payables		809			744
Other accounts payable and accrued expenses		2,009			1,672
Short-term convertible loans		178			172
Short-term loans		-			199
Total current liabilities		3,024			2,859

ACCRUED SEVERANCE PAY		93			92

Total liabilities		3,117			2,951

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Stock capital: (Note 7)
Common stock of $0.00005 par value - Authorized: 800,000,000 shares as of June 30, 2009 and December 31,2008; Issued and outstanding: 59,791,418 and 55,241,418 shares as of June 30, 2009 and December 31, 2008 respectively.		3			3
Additional paid-in-capital		34,722			33,881
Deficit accumulated during the development stage		(37,017	)		(35,960	)

Total stockholders' deficiency		(2,292	)		(2,076	)
Total liabilities and stockholders' deficiency	$	825		$	875

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except share data)

	Three months ended June 30,				Six months ended June 30,					Period from September 22, 2000 (inception date) through June 30,
	2 0 0 9		2 0 0 8		2 0 0 9			2 0 0 8		2 0 0 9
	Unaudited				Unaudited					Unaudited

Operating costs and expenses:

Research and development, net	$	210	$	283	$	499		$	873	$	22,003
General and administrative		314		479		565			1,023		12,254

Total operating costs and expenses		524		762		1,064			1,896		34,257

Financial expenses (income), net		19		94		(7	)		222		2,543

		543		856		1,057			2,118		36,800
Taxes on income		-		-		-			-		53

Loss from continuing operations		543		856		1,057			2,118		36,853
Net loss from discontinued operations		-		-		-			-		164

Net loss		543		856		1,057			2,118		37,017

Basic and diluted net loss per share from continuing operations	$	0.01	$	0.02	$	0.02		$	0.05

Weighted average number of shares outstanding used in computing basic and diluted net loss per share		59,294,165		47,697,713		57,278,987			44,736,029

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)

										Deficit accumulated			Total
						Additional		Deferred		during the			stockholders'
	Common stock					paid-in		stock-based		development			equity
	Number			Amount		capital		compensation		stage			(deficiency)

Balance as of September 22, 2000 (date of inception)		-		$	-	$	-	$	-	$	-		$	-

Stock issued on September 22, 2000 for cash at $0.00188 per share		8,500,000			1		16		-		-			17
Stock issued on March 31, 2001 for cash at $0.0375 per share		1,600,000			* -		60		-		-			60
Contribution of capital		-			-		8		-		-			8
Net loss		-			-		-		-		(17	)		(17	)
Balance as of March 31, 2001		10,100,000			1		84		-		(17	)		68

Contribution of capital		-			-		11		-		-			11
Net loss		-			-		-		-		(26	)		(26	)

Balance as of March 31, 2002		10,100,000			1		95		-		(43	)		53

Contribution of capital		-			-		15		-		-			15
Net loss		-			-		-		-		(47	)		(47	)

Balance as of March 31, 2003		10,100,000			1		110		-		(90	)		21

2-for-1 stock split		10,100,000			* -		-		-		-			-
Stock issued on August 31, 2003 to purchase mineral option at $0.065 per share		100,000			* -		6		-		-			6
Cancellation of shares granted to Company's President		(10,062,000	)		* -		* -		-		-			-
Contribution of capital		-			* -		15		-		-			15
Net loss		-			-		-		-		(73	)		(73	)
Balance as of March 31, 2004		10,238,000		$	1	$	131	$	-	$	(163	)	$	(31	)

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)

											Deficit accumulated			Total
						Additional		Deferred			during the			stockholders'
	Common stock					paid-in		stock-based			development			equity
	Number			Amount		capital		compensation			stage			(deficiency)
Balance as of March 31, 2004		10,238,000		$	1	$	131	$	-		$	(163	)	$	(31	)

Stock issued on June 24, 2004 for private placement at $0.01 per share, net of $25,000 issuance expenses		8,510,000			* -		60		-			-			60
Contribution capital		-			-		7		-			-			7
Stock issued in 2004 for private placement at $0.75 per unit		1,894,808			* -		1,418		-			-			1,418
Cancellation of shares granted to service providers		(1,800,000	)		* -				-			-			-
Deferred stock-based compensation related to options granted to employees		-			-		5,979		(5,979	)		-			-
Amortization of deferred stock-based compensation related to shares and options granted to employees		-			-		-		584			-			584
Compensation related to shares and options granted to service providers		2,025,000			* -		17,506		-			-			17,506
Net loss		-			-		-		-			(18,840	)		(18,840	)
Balance as of March 31, 2005		20,867,808		$	1	$	25,101	$	(5,395	)	$	(19,003	)	$	704

* Represents an amount less than $1.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)

											Deficit accumulated			Total
					Additional			Deferred			during the			stockholders'
	Common stock				paid-in			stock-based			development			equity
	Number		Amount		capital			compensation			stage			(deficiency)

Balance as of March 31, 2005		20,867,808	$	1	$	25,101		$	(5,395	)	$	(19,003	)	$	704

Stock issued on May 12, 2005 for private placement at $0.8 per share		186,875		* -		149			-			-			149
Stock issued on July 27, 2005 for private placement at $0.6 per share		165,000		* -		99			-			-			99
Stock issued on September 30, 2005 for private placement at $0.8 per share		312,500		* -		225			-			-			225
Stock issued on December 7, 2005 for private placement at $0.8 per share		187,500		* -		135			-			-			135
Forfeiture of options granted to employees		-		-		(3,363	)		3,363			-			-
Deferred stock-based compensation related to shares and options granted to directors and employees		200,000		* -		486			(486	)		-			-
Amortization of deferred stock-based compensation related to options and shares granted to employees and directors		-		-		51			1,123			-			1,174
Stock-based compensation related to options and shares granted to service providers		934,904		* -		662			-			-			662
Reclassification due to application of EITF 00-19		-		-		(7,906	)								(7,906	)
Beneficial conversion feature related to a convertible bridge loan		-		-		164			-			-			164
Net loss		-		-		-			-			(3,317	)		(3,317	)
Balance as of March 31, 2006		22,854,587	$	1	$	15,803		$	(1,395	)	$	(22,320	)	$	(7,911	)

Elimination of deferred stock compensation due to implementation of SFAS 123(R)		-		-		(1,395	)		1,395			-			-
Stock-based compensation related to shares and options granted to directors and employees		200,000		* -		1,168			-			-			1,168
Reclassification due to application of EITF 00-19		-		-		7,191			-			-			7,191
Stock-based compensation related to options and shares granted to service providers		1,147,225		-		453			-			-			453
Warrants issued to convertible note holder		-		-		11			-			-			11
Warrants issued to loan holder		-		-		110			-			-			110
Beneficial conversion feature related to convertible bridge loans		-		-		1,086			-			-			1,086
Net loss		-		-		-			-			(3,924	)		(3,924	)
Balance as of December 31, 2006		24,201,812	$	1	$	24,427		$	-		$	(26,244	)	$	(1,816	)

* Represents an amount less than $1.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)


					Additional				Deficit
					paid-in				accumulated			Total
					Capital and		Deferred		during the			stockholders'
	Common stock				subscription on		stock-based		development			equity
	Number		Amount		shares		compensation		stage			(deficiency)

Balance as of December 31, 2006		24,201,812	$	1	$	24,427	$	-	$	(26,244	)	$	(1,816	)

Stock-based compensation related to options and shares granted to service providers		544,095				1,446		-		-			1,446
Warrants issued to convertible note holder		-		-		109		-		-			109
Stock-based compensation related to shares and options granted to directors and employees		200,000		* -		1,232		-		-			1,232
Beneficial conversion feature related to convertible loans		-		-		407		-		-			407
Conversion of convertible loans		725,881		* -		224		-		-			224
Exercise of warrants		3,832,621		* -		214		-		-			214
Stock issued for private placement at $0.1818 per unit, net of finder's fee		11,500,000		1		1,999		-		-			2,000
Net loss		-		-		-		-		(6,244	)		(6,244	)

Balance as of December 31, 2007		41,004,409	$	2	$	30,058	$	-	$	(32,488	)	$	(2,428	)

Stock-based compensation related to options and stock granted to service providers		90,000		-		33		-		-			33
Stock-based compensation related to stock and options granted to directors and employees		-				731		-		-			731
Conversion of convertible loans		3,644,610		* -		1,276		-		-			1,276
Exercise of warrants		1,860,000		* -		-		-		-			-
Exercise of options		17,399		* -		3		-		-			3
Stock issued for private placement at $0.1818 per unit, net of finder's fee		8,625,000		1		1,499		-		-			1,500
Subscription of shares for private placement at $0.1818 per unit		-		-		281		-		-			281
Net loss		-		-		-		-		(3,472	)		(3,472	)
Balance as of December 31, 2008		55,241,418	$	3	$	33,881	$	-	$	(35,960	)	$	(2,076	)

* Represents an amount less than $1.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)

	Common stock				Additional paid-in		Deferred stock-based		Deficit accumulated during the development			Total stockholders'
	Number		Amount		capital		compensation		stage			(deficiency)

Balance as of December 31, 2008		55,241,418	$	3	$	33,881	$	-	$	(35,960	)	$	(2,076	)

Conversion of convertible loans		2,500,000		-		200		-		-			200
Stock-based compensation related to options and stock granted to service providers		2,050,000		-		183		-		-			183
Stock-based compensation related to stock and options granted to directors and employees		-		-		199		-		-			199
Subscription of shares for private placement						259							259
Net loss		-		-		-		-		(1,057	)		(1,057	)

Balance as of June 30, 2009		59,791,418	$	3	$	34,722	$	-	$	(37,017	)	$	(2,292	)

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Six months ended June 30,						Period from September 22, 2000 (inception date) through June 30,
	2 0 0 9			2 0 0 8			2 0 0 9
	Unaudited						Unaudited

Cash flows from operating activities:
Net loss	$	(1,057	)	$	(2,118	)	$	(37,017	)
Less - loss for the period from discontinued operations		-			-			164
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of deferred charges		79			73			599
Erosion of restricted cash		1			(5	)		(6	)
Accrued severance pay, net		(2	)		6			28
Accrued interest on loans		7			101			436
Amortization of discount on short-term loans		-			42			1,865
Change in fair value of options and warrants		-			-			(795	)
Expenses related to stocks and options granted to service providers		183			84			20,349
Amortization of deferred stock-based compensation related to options granted to employees and directors		199			349			5,088
Decrease (increase) in accounts receivable and prepaid expenses		(32	)		69			(53	)
Increase (decrease) in trade payables		65			(129	)		809
Increase in other accounts payable and accrued expenses		337			385			2,004
Net cash used in continuing operating activities		(220	)		( 1,143	)		(6,529	)
Net cash used in discontinued operating activities		-			-			(23	)
Total net cash used in operating activities		(220	)		(1,143	)		(6,552	)

Cash flows from investing activities:
Purchase of property and equipment		-			(153	)		(1,080	)
Restricted cash		-			-			(29	)
Increase in lease deposit		5			(4	)		(7	)
Net cash used in continuing investing activities		5			(157	)		(1,116	)
Net cash used in discontinued investing activities		-			-			(16	)
Total net cash used in investing activities		5			(157	)		(1,132	)

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

UNAUDITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Six months ended June 30,						Period from September 22, 2000 (inception date) through June 30,
	2 0 0 9			2 0 0 8			2 0 0 9
	Unaudited						Unaudited

Cash flows from financing activities:
Proceeds from issuance of common stock and warrants	$	259		$	1,241		$	6,127
Proceeds from loans, notes and issuance of warrants net		-			-			2,061
Credit from bank		(44	)		27			28
Repayment of loans		-			-			(601	)
Proceeds from exercise of warrants and options		-			3			28
Net cash provided by continuing financing activities		215			1,271			7,643
Net cash provided by discontinued financing activities		-			-			43
Total net cash provided by financing activities		215			1,271			7,686

Increase (decrease) in cash and cash equivalents		-			(29	)		2
Cash and cash equivalents at the beginning of the period		2			86			-
Cash and cash equivalents at end of the period		2			57			2

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 1

GENERAL

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 focus on the development of novel cell therapies for neurodegenerative diseases, particularly Parkinson's and ALS 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 decided to abandon all old activities related to the sale of the digital data recorder product. The discontinuation of this activity was accounted for under the provision of Statement of Financial Accounting Standard ("SFAS") 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".

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

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

In December 2006, the Company changed its state of incorporation from Washington to Delaware.

On September 17, 2006, the Company changed its fiscal year-end from March 31 to December 31.

Since its inception, the Company has devoted substantially most of its efforts to research and development, recruiting management and technical staff, acquiring assets and raising capital. In addition, the Company has not generated revenues. Accordingly, the Company is considered to be in the development stage, as defined in Statement of Financial Accounting Standards No. 7, "Accounting and reporting by development Stage Enterprises" ("SFAS No. 7").

GOING CONCERN

As reflected in the accompanying financial statements, the Company’s operations for the six months ended on June 30, 2009, resulted in a net loss of $1,057 and the Company’s balance sheet reflects a net stockholders’ deficiency of $2,292, accumulated deficit of $37,017 and working capital deficiency of $2,935. These conditions raise substantial doubt about the Company's ability to continue to operate as a going concern. The Company’s ability to continue operating as a “going concern” is dependent on several factors, among them is its ability to raise sufficient additional working capital. Management’s plans in this regard include, among others, raising additional cash from current and potential stockholders and lenders.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 1

GENERAL (Cont.)

GOING CONCERN (Cont.)

Accordingly, as a result of the current economic situation and the difficulty to raise immediate fund to support all of the Company’s projects, the Company decided to reduce its activity and downsize it workforce and focus only on the effort to reach clinical trials in ALS in 2009-2010.

The Company also reduced its general and administrative expenses and ceased and delayed some development projects 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.

The Company depends on Ramot to conduct its research and development activities. As discussed in Note 4, the Company did not make a certain payment in 2008 to Ramot. As a result, the Company did not meet the payment schedule according to the agreement with Ramot and Ramot is entitled to terminate the research and license agreement.

These financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.

NOTE 2 -

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2008, are applied consistently in these financial statements.

Recently Issued Accounting Standards

FSP FAS 157-4

In April 2009 the FASB issued FASB staff position 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP applies to all assets and liabilities within the scope of accounting pronouncements that require or permit fair value measurements, except as discussed in paragraphs 2 and 3 of statement 157. The FSP is Effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively.

FSP FAS 157-4 relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms what Statement 157 states is the objective of fair value measurement—to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 2

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Recently Issued Accounting Standards (Cont.)

FSP FAS 157-4 provides guidance on (1) estimating the fair value of an asset or liability (financial and nonfinancial) when the volume and level of activity for the asset or liability have significantly decreased and (2) identifying transactions that are not orderly. The adoption of this standard did not have any impact on the consolidated results of operations or financial position of the Company.

SFAS 165

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for the interim or annual financial periods ending after June 15, 2009. The adoption of this standard did not have any impact on the consolidated results of operations or financial position of the Company.

FSP FAS 115-2 and FAS 124-2

In April 2009 the FASB issued FASB staff position 115-2 and 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" ("OTTI") for investment in debt securities. This FSP applies to all entities and are effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted.

Under the FSP, the primary change to the OTTI model for debt securities is the change in focus from an entity’s intent and ability to hold a security until recovery. Instead, an OTTI is triggered if (1) an entity has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery, or (3) it does not expect to recover the entire amortized cost basis of the security. In addition, the FSP changes the presentation of an OTTI in the income statement if the only reason for recognition is a credit loss (i.e., the entity does not expect to recover its entire amortized cost basis). That is, if the entity has the intent to sell the security or it is more likely than not that it will be required to sell the security, the entire impairment (amortized cost basis over fair value) will be recognized in earnings.

However, if the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security, but the security has suffered a credit loss, the impairment charge will be separated into the credit loss component, which is recorded in earnings, and the remainder of the impairment charge, which is recorded in other comprehensive income (OCI). The adoption of this standard did not have any impact on the consolidated results of operations or financial position of the Company.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 2

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Recently Issued Accounting Standards (Cont.)

SFAS 166

In June 2009 the FASB issued SFAS No.166 "Accounting for Transfers of Financial Assets" ("SAFS No. 166"). SAFS No. 166 is a revision to Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS No. 166 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and a company’s continuing involvement in transferred financial assets. SFAS No. 166 will be effective at the start of a company’s first fiscal year beginning after November 15, 2009. The Company is currently examining this new standard; The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.

NOTE 3

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements have been prepared in a condensed format and include the consolidated financial operations of the Company and its fully owned subsidiary as of June 30, 2009 and for the six 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 six months ended June 30, 2009, are not necessarily indicative of the results that may be expected for the year ended December 31, 2009.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 4 -

RESEARCH AND LICENSE AGREEMENT

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

Payment date	Amount

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

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

Payment date	Amount

August 4, 2008		60
November 20, 2008		150
February 20, 2009		170

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

As of August 13 , 2009, the Company paid to Ramot the first three payments total of $400 but has not made yet the last two payments total of $240 and for the extended research period. As a result, the Company is in breach of the new agreement with Ramot and Ramot may terminate the research and license agreement.

In January 29 2009, the Company received a breach warning from Ramot and the parties are currently negotiating an amendment to postpone the payments.

The Company's total current obligation to Ramot as of June 30, 2009 is in the amount of $961. The amount includes $665 for the extended research period.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 5 -

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 each. In addition, the Company granted each of the Consultants, a fully vested warrant to purchase 1,097,215 shares of Common Stock at an exercise price of $0.01 per share. The warrants issued pursuant to the agreement were issued to the Consultants effective as of November 4, 2004. Each of the warrants is exercisable for a seven-year period beginning on November 4, 2005.

As of June 30, 2009, the Company has a total obligation of $298 for services rendered by the Consultants.

NOTE 6 -

SHORT-TERM LOANS

On April 13, 2008, the Company entered into a new agreement with a lender which the lender agreed to partially defer and partially convert to the Company’s Common Stock the payment of $1,250 owed by the Company to the lender based on the payment agreement between the two parties.

Pursuant to the new agreement, the Company agreed to pay $250 of the Debt in accordance with the following schedule:

Payment date	Amount

May 30, 2008		50
July 31, 2008		50
September 30, 2008		50
December 31, 2008		50
February 28, 2009		50

In addition, the Company issued 2,857,142 shares of common stock to the lender in lieu of the repayment of $1,000 of the Debt.

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 6 -

SHORT-TERM LOANS (Cont.)

The Company paid to the lender first payment and on April 6, 2009 the Company and the lender agreed to convert the entire debt of $200 to 2,500,000 restricted shares of common stock.

Since the outcome of the issuance of the shares was to relieve the debtor from its obligation, based on guidance in FASB No 140 “Accounting for Transfer and Servicing of Financial Assets and Extinguishment of Liabilities“ the Company derecognized the liability with the difference recognized in earning.

NOTE 7

- STOCK CAPITAL

The rights of Common Stock are as follows:

Holders of Common Stock have the right to receive notice to participate and vote in meetings of stockholders 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 is publicly traded on the Over-the-Counter Bulletin Board service of the National Association of Securities Dealers, Inc. under the symbol BCLI.

Issuance of shares, warrants and options:

Private placements:

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

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

On May 12, 2005, the Company issued to an investor 186,875 shares of Common Stock for total proceeds of $149 at a price of $0.8 per share.

On July 27, 2005, the Company issued to investors 165,000 shares of Common Stock for total proceeds of $99 at a price of $0.6 per share.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 7

- STOCK CAPITAL (Cont.)

Issuance of shares, warrants and options: (Cont.)

Private placements: (Cont.)

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

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

Purchase date	Purchase price		Number of subscription shares		Number of warrant shares

August 30, 2007	$1,250 (includes $250 paid as a convertible loan (Note 8i))			6,875,000		7,562,500
November 15, 2007	$	750		4,125,000		4,537,500
February 15, 2008	$	750		4,125,000		4,537,500
May 15, 2008	$	750		4,125,000		4,537,500
July 30, 2008	$	750		4,125,000		4,537,500
November 15, 2008	$	750		4,125,000		4,537,500

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 7 -

STOCK CAPITAL (Cont.)

Issuance of shares, warrants and options: (Cont.)

Private placements: (Cont.)

Cont.

As of June 30, 2009, the investor completed payment of the first four installments and $ 540 of the fifth installment and the Company issued to the investor and its designee an aggregate of 19,250,000 shares of common stock and a warrant to purchase 10,083,333 shares of the Company's common stock at an exercise price of $0.20 per share , a warrant to purchase 10,083,333 shares of common stock at an exercise price of $0.29 per share and a warrant to purchase 1,008,334 shares of common stock at an exercise price of $0.36 per share. The warrants may be exercised at any time and expire on November 5, 2011.

On August 18, 2009, the Company entered into an amendment to the investment agreement (See note 8).

In addition, the Company agreed to issue an aggregate of 1,250,000 shares of Common Stock to a related party as an introduction fee for the investment. The shares shall be issued pro rata to the funds received from the investor.

As of June 30, 2009, 875,000 shares of Common Stock had been issued as an introduction fee.

Share-based compensation to employees and to directors:

Options to employees and directors:

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

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 7

- STOCK CAPITAL (Cont.)

Issuance of shares, warrants and options: (Cont.)

Share-based compensation to employees and to directors: (Cont.)

Options to employees and directors: (Cont.)

On June 5, 2008, the Company's stockholders approved to amend and restate the Company’s 2004 Global Share Option Plan and 2005 U.S. Stock Option and Incentive Plan to increase the number of shares of common stock available for issuance under these stock option plans in the aggregate by 5,000,000 shares.

As of June 30, 2009, 3,671,684 options are available for future grants.

On May 27, 2005, the Company granted one of its directors an option to purchase 100,000 shares of Common Stock at an exercise price of $0.75 per share. The options are fully vested and expire after 10 years.

On February 6, 2006, the Company entered into an amendment to the Company's option agreement with the Company's Chief Financial Officer. The amendment changes the exercise price of the 400,000 options granted to him on February 13, 2005 from $0.75 to $0.15 per share.

On May 2, 2006, the Company granted to one of its directors an option to purchase 100,000 shares of Common Stock at an exercise price of $0.15 per share. The options are fully vested and expire after 10 years. The compensation related to the options, in the amount of $48, was recorded as general and administrative expense.

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

On September 17, 2006, the Company entered into an amendment to the Company's option agreement with one of its directors. The amendment changes

the exercise price of 100,000 options granted to the director from $0.75 to $0.15 per share.

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

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 7

- STOCK CAPITAL (Cont.)

Issuance of shares, warrants and options: (Cont.)

Share-based compensation to employees and to directors: (Cont.)

Options to employees and directors: (Cont.)

On July 1, 2007, the Company granted to one of its directors an option to purchase 100,000 shares of Common Stock at an exercise price of $0.15 per share. The option is fully vested and is exercisable for a period of 10 years. The compensation related to the option, in the amount of $38, was recorded as general and administrative expense. On October 22, 2007, the Company and the director agreed to cancel and relinquish all the options which were granted on July 1, 2007.

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

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

On October 23, 2007, the Company granted to its CEO an option to purchase 1,000,000 shares of Common Stock at an exercise price of $0.87 per share. The option vests with respect to 1/6 of the option on each six month anniversary and expires after 10 years. The total compensation related to the option is $733, which is amortized over the vesting period as general and administrative expense.

On November 5, 2008, the Company entered into an amendment to the Company's option to purchase 1,000,000 shares of common stock agreement with the Company's CEO. The amendment changes the exercise price of the option from $0.87 to $0.15 per share. The compensation related the modification of the purchase price in the amount of $4 was recorded as general and administrative expense.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 7

- STOCK CAPITAL (Cont.)

Issuance of shares, warrants and options: (Cont.)

Share-based compensation to employees and to directors: (Cont.)

Options to employees and directors: (Cont.)

On June 29, 2009, the Company granted to its CEO and director an option to purchase 1,000,000 shares of Common Stock at an exercise price of $0.067 per share. The option vests with respect to 1/3 of the option on each year anniversary and expires after 10 years. The total compensation related to the option is $68, which is amortized over the vesting period as general and administrative expense.

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

	Six months ended December 31,						Year ended December 31,
	2 0 0 9						2 0 0 8
	Amount of options		Weighted average exercise price		Aggregate intrinsic value		Amount of options			Weighted average exercise price		Aggregate intrinsic value
			$		$					$		$
Outstanding at beginning of period		5,433,361		0.244		-		5.280.760			0.372		-
Granted		1,350,000		0.067				170,000			0.49
Exercised		-		-				(17,399	)		0.15

Outstanding at end of period		6,783,361		0.209		-		5,433,361			*0.244		-

Vested and expected-to-vest at end of period		4,371,684		0.243		-		4,324,437			0.238		-

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 7

- STOCK CAPITAL (Cont.)

Issuance of shares, warrants and options: (Cont.)

Share-based compensation to employees and to directors: (Cont.)

Restricted shares to directors:

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

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

In addition, on April 20, 2007, based on a board resolution dated March 21, 2007, the Company issued to another director 100,000 restricted shares of common stock. The restricted shares are not subject to any right to repurchase, and the compensation related to the shares issued amounted to $47 was recorded as prepaid general and administrative expenses in the three months ended March 31, 2007.

On August 27, 2008 the Company issued to its director 960,000 shares of common stock upon a cashless exercise by a shareholder of a warrant to purchase 1,000,000 shares of Common Stock at an exercise price of $.01 per share that was acquired by the shareholder from Ramot. The shares were allocated to the director by the shareholder.

Shares and warrants to service providers:

The Company accounts for shares and warrant grants issued to non-employees using the guidance of SFAS 123(R), "Accounting for Stock-Based Compensation" 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," whereby the fair value of such option and warrant grants is determined using a Black-Scholes options pricing model at the earlier of the date at which the non-employee's performance is completed or a performance commitment is reached.

BRAINSTORM CELL THERAPEUTICS INC. AND SUBSIDIARY

(A development stage company)

NOTE 7

- STOCK CAPITAL (Cont.)

Issuance of shares, warrants and options: (Cont.)

Shares and warrants to service providers: (Cont.)

Warrants:

Issuance date

Number of

warrants

issued

Exercised

Forfeited

Outstanding

Exercise

Price

Warrants

exercisable

Exercisable

through