View:
July
18,
2008
Tia
Jenkins
Senior
Assistant Chief Accountant
Office
of
Beverages, Apparel and Healthcare Services
Division
of Corporate Finance
United
States Securities and Exchange Commission
100
F.
Street, N.E.
Washington,
D.C. 20549
| Re: |
NeoStem,
Inc. (the “Company”)
|
Form
10-K for the year ended December 31, 2007
File
No. 1-33650
Dear
Ms.
Jenkins:
We
are in
receipt of your letter dated June 27, 2008 (the “Letter”) regarding the review
by the Securities and Exchange Commission (the “Commission”) of the Annual
Report on Form 10-K of the Company for the year ended December 31, 2007 (the
“2007 Annual Report”). The following comment is made in the Letter:
“Note
8
- Stockholder’s Equity (Warrants), page F-19
We
note
you have classified the underwriter’s purchase option (UPO) and the warrants
issued in the August 2007 public offering as equity. We note also that the
UPO
and warrants are not exercisable unless, at the time of exercise, there is
an
effective registration statement relating to the securities and a related
current prospectus. In this situation, equity classification is appropriate
if
the agreement specifies that in the event you are unable to honor the holder’s
exercise request, you have no obligation to net cash settle the warrants and/or
unit purchase option. Please refer to paragraph 17 of EITF 00-19 and tell us
why
you believe the UPO and the warrants issued in August 2007 are appropriately
classified as equity.”
Company
Response:
The
Company respectfully submits that the warrants issued as part of the units
sold
in its August 2007 public offering (the “Public Warrants”), as well as the
purchase option/warrants granted to its underwriter (the “Underwriter Warrants”
and collectively with the Public Warrants, the “Warrants”), are appropriately
classified as equity in the financial statements contained in the 2007 Annual
Report for the reasons stated below.
420
Lexington Avenue, Suite 450, New York, NY 10170
212.584.4180 main 646.514.7787
fax
Paragraph
17 of EITF 00-19, to which you refer in the Letter, states in relevant part
that
the “Task Force observed that if (a) a derivative contract requires physical or
net share settlement by delivery of registered shares . . . and (b) the contract
does not specify how the contract would be settled in the event the company
is
unable to deliver registered shares, then net-cash settlement is assumed if
the
company is unable to deliver registered shares… Consequently,
the derivative must be classified as an asset or a liability… because share
settlement is not within the company’s control.”
(emphasis added)
It
is the
Company's position that Paragraph 17 of EITF 00-19 does not apply, due to the
presumption set forth in Paragraph 18 that in certain circumstances (such as
those that apply to the Company in this case), the requirement that share
delivery be within the control of the company is deemed to be met. Specifically,
Paragraph 14 of EITF 00-19 provides in relevant part that “[t]he events or
actions necessary to deliver registered shares are not controlled by a company
and, therefore, except
under the circumstances described in paragraph 18, below,
if the
contract permits the company to net-share or physically settle the contract
only
by delivering registered shares, it is assumed that the company will be required
to net-cash settle the contract. As a result, the contract must be classified
as
an asset or a liability.” (emphasis added) However, Paragraph 18 of EITF 00-19,
setting forth a consensus reached by the Task Force, states in relevant part
that “if
a
derivative involves the delivery of shares at settlement that are registered
as
of the inception of the derivative transaction and there are no further timely
filing or registration requirements, the requirement of Issue
00-19 that share delivery be within the control of the company is
met,
notwithstanding the Task Force's consensus in paragraph 14.” (emphasis
added)
In
the
instant case, at the time of the issuance of all the Warrants, the shares
underlying such Warrants were registered on the Company’s Pre-Effective
Amendment No. 3 to its Registration Statement on Form SB-2/A, File No.
333-142923, declared effective by the Commission on July 16, 2007, and there
are
no further timely filing or registration requirements. Neither the Warrant
Agreement governing the Public Warrants, nor the Underwriter Warrants, require
the Company to continually maintain an effective registration statement for
the
shares of the Company’s common stock underlying the Warrants. As a result,
applying the criteria specified by the Task Force, the Company respectfully
submits that it meets the requirements of Paragraph 18 of EITF 00-19.
For
the
reasons cited above, the Company believes that the Warrants are appropriately
classified as equity in the financial statements contained in the 2007 Annual
Report.
2
In
connection with the Company’s response, we acknowledge that:
|
·
|
The
Company is responsible for the adequacy and accuracy of the disclosure
in
the 2007 Annual Report;
|
|
·
|
Staff
comments or changes to disclosure in response to staff comments do
not
foreclose the Commission from taking any action with respect to the
2007
Annual Report; and
|
|
·
|
The
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
|
Please
contact me if you have any questions relating to the matters discussed in this
letter. I may be reached at (212) 584-4171 or the address set forth on the
first
page of this letter.
Very
truly yours,
/s/
Catherine M. Vaczy
Catherine
M. Vaczy
Vice
President and General Counsel
3