SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported): November 12,
2010
NeoStem,
Inc.
(Exact
Name of Registrant as Specified in Charter)
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Delaware
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0-10909
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22-2343568
|
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(State
or Other Jurisdiction of
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(Commission
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(IRS
Employer
|
|
Incorporation)
|
File
Number)
|
Identification
No.)
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420 Lexington Avenue, Suite
450, New York, New York 10170
(Address
of Principal Executive Offices)(Zip Code)
(212)
584-4180
Registrant's
Telephone Number
Check
the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions (see General Instruction A.2.
below):
þ
Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c))
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Item
8.01.
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Other
Events.
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On
September 23, 2010, NeoStem, Inc., (“NeoStem”), filed a
Current Report on Form 8-K (the “September 23 Current
Report”), reporting that it had entered into an agreement with Progenitor
Cell Therapy, LLC, a Delaware limited liability company (“PCT”), whereby a
newly formed wholly-owned subsidiary of NeoStem (“Subco”) would be
merged with and into PCT (the “Merger Agreement”)
and PCT would become a wholly owned subsidiary of NeoStem.
The
September 23 Current Report had included, among other financial statements and
exhibits, (a) Progentor Cell Therapy, LLC and Subsidiaries Consolidated
Financial Statements for the Years Ended December 31, 2009, 2008 and 2007 and
the Six Months Ended June 30, 2010 and 2009 (Unaudited) and (b) Unaudited Pro
Forma Condensed Combined Financial Statements.
This
Current Report on Form 8-K is being filed to update financial information for
PCT for the nine months ended September 30, 2010 and 2009. Each of
(i) the consolidated financial statements of Progenitor Cell Therapy, LLC and
Subsidiaries for the years ended December 31, 2009, 2008 and 2007 and the Nine
Months Ended September 30, 2010 and 2009 (Unaudited), and (ii) the Unaudited Pro
Forma Condensed Combined Financial Statements, are attached hereto and
incorporated herein by reference.
Forward Looking
Statements
This
Current Report on Form 8-K contains “forward-looking” statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are typically preceded by words such as “believes,” “expects,”
“anticipates,” “intends,” “will,” “may,” “should,” or similar
expressions. These forward-looking statements are subject to risks and
uncertainties that may cause actual future experience and results to differ
materially from those discussed in these forward-looking
statements. Important factors that might cause such a difference include,
but are not limited to, events and factors disclosed previously and from time to
time in NeoStem’s filings with the SEC, including NeoStem’s Annual Report on
Form 10-K for the year ended December 31, 2009 (the “10-K”) and Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K filed after such
10-K. With respect to PCT, such important factors include, but are not
limited to, events and factors disclosed previously in the Current Report on
Form 8-K filed by NeoStem on September 23, 2010. Additionally, this
Current Report on Form 8-K contains forward-looking statements with respect to
the proposed Merger pursuant to the Merger Agreement among NeoStem, PCT and
Subco. Important factors that might cause such a difference relating
to the Merger include the factors disclosed in the Company’s filings as set
forth above and, when filed with the SEC, a registration statement on Form S-4
(including any amendments, supplements and exhibits thereto, the “S-4”) to
register the NeoStem securities issuable in the Merger. NeoStem does
not undertake any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
This
Current Report on Form 8-K may be deemed to be solicitation material in respect
of the proposed Merger. The directors and executive officers of each
of NeoStem and PCT may be deemed to be participants in the solicitation of
proxies from the holders of NeoStem Common Stock in respect of the proposed
transaction. Information about the directors and executive officers of
NeoStem is set forth in NeoStem’s Definitive Proxy Statement on Schedule 14A
filed with the SEC on April 30, 2010 in connection with its June 2010 Annual
Meeting of Stockholders. Investors may obtain additional information
regarding NeoStem and its directors and executive officers, and PCT and its
Board of Managers and executive officers, in connection with the proposed Merger
by reading the S-4 and the prospectus/joint proxy statement contained therein,
when it becomes available. The S-4 will contain a prospectus/joint
proxy statement pertaining to (a) the special meeting of stockholders of NeoStem
at which NeoStem’s stockholders will be asked to approve the NeoStem securities
issuable in the Merger and (b) the special meeting of Members of PCT at which
PCT's Members will be asked to approve the Merger Agreement and
Merger.
-2-
Item
9.01. Financial
Statements and Exhibits.
The
following financial statements and exhibits are filed with this Current Report
on Form 8-K.
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(a)
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Financial
Statements of Businesses Acquired:
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Progenitor
Cell Therapy, LLC and Subsidiaries Consolidated Financial Statements for the
years ended December 31, 2009, 2008 and 2007 and for the Nine Months Ended
September 30, 2010 and 2009 (Unaudited)
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(b)
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Pro
Forma Financial Information:
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Unaudited
Pro Forma Condensed Combined Financial Statements for the Nine Months Ended
September 30, 2010
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(c)
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Consent
EisnerAmper
LLP
|
-3-
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, NeoStem has duly caused this Report to be
signed on its behalf by the undersigned hereunto duly authorized.
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NEOSTEM,
INC.
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||
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By:
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/s/ Catherine M. Vaczy | |
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Name: Catherine
M. Vaczy
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||
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Title: Vice
President and General
Counsel
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||
Date: November
12, 2010
-4-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
AND
NINE MONTHS ENDED September 30, 2010 AND 2009 (UNAUDITED)
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Page
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||
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Report
of independent registered accounting firm
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6
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Consolidated
Balance Sheets
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7
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Consolidated
Statements of Operations
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8
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Consolidated
Statements of Members’ Equity
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9
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Consolidated
Statements of Cash Flow
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10
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Notes
to the Consolidated Financial Statements
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11 –
23
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-5-
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of
Progenitor
Cell Therapy, LLC and Subsidiaries
Allendale,
New Jersey
We have
audited the accompanying consolidated balance sheet of Progenitor Cell Therapy,
LLC and Subsidiaries as of December 31, 2009, 2008 and 2007 and the related
consolidated statements of operations, changes in members’ equity, and cash
flows for each of the three years in the period ended December 31,
2009. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Progenitor Cell
Therapy, LLC and Subsidiaries as of December 31, 2009, 2008 and 2007 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
EisnerAmper
LLP
Hackensack,
New Jersey
September
17, 2010
-6-
PROGENITOR
CELL THERAPY, LLC
CONSOLIDATED
BALANCE SHEETS
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September 30,
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December 31,
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December 31,
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December 31,
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|||||||||||||
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2010
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2009
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2008
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2007
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|||||||||||||
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(unaudited)
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||||||||||||||||
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ASSETS
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||||||||||||||||
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Current
Assets
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||||||||||||||||
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Cash
and cash equivalents
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$ | 192,885 | $ | 1,127,138 | $ | 1,582,026 | $ | 1,214,035 | ||||||||
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Accounts
receivable, less allowance for doubtful accounts
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||||||||||||||||
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of
$67,255, $67,255, $67,255 and
$67,255, at
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||||||||||||||||
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September
30, 2010 and December 31, 2009, 2008 and 2007,
respectively
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656,647 | 1,534,447 | 1,051,436 | 814,374 | ||||||||||||
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Prepaid
expenses and other current assets
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521,131 | 446,824 | 235,248 | 213,045 | ||||||||||||
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Deferred
project costs
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3,616,773 | 2,116,118 | 450,329 | 953,434 | ||||||||||||
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Total
Current Assets
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4,987,436 | 5,224,527 | 3,319,039 | 3,194,888 | ||||||||||||
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Property
and equipment, net of accumulated depreciation
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9,679,666 | 7,519,638 | 6,686,212 | 7,317,976 | ||||||||||||
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Other
Assets
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||||||||||||||||
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Restricted
cash and cash equivalents
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353,860 | 353,860 | 353,860 | 353,860 | ||||||||||||
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Other
assets
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196,090 | 146,090 | 99,646 | 200,449 | ||||||||||||
| $ | 15,217,052 | $ | 13,244,115 | $ | 10,458,757 | $ | 11,067,173 | |||||||||
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LIABILITIES
AND MEMBERS' EQUITY
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||||||||||||||||
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Current
Liabilities
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||||||||||||||||
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Current
maturities of long term debt
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$ | 167,470 | $ | 103,521 | $ | 98,413 | $ | 1,093,128 | ||||||||
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Borrowings
under line of credit - related party
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3,400,000 | 1,080,000 | 500,000 | - | ||||||||||||
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Accounts
payable
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1,704,921 | 1,032,974 | 559,106 | 480,562 | ||||||||||||
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Accrued
expenses and other current liabilities
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293,911 | 672,497 | 309,456 | 302,859 | ||||||||||||
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Due
to Amorcyte, Inc.
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500,000 | 500,000 | 500,000 | 500,000 | ||||||||||||
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Deferred
revenues
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5,898,457 | 4,295,965 | 1,606,923 | 3,118,433 | ||||||||||||
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Total
Current Liabilities
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11,964,759 | 7,684,957 | 3,573,898 | 5,494,982 | ||||||||||||
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Long-term
debt, net of current maturities
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2,736,113 | 2,817,172 | 2,920,704 | 3,011,747 | ||||||||||||
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Deferred
lease liability
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99,261 | 108,642 | 96,838 | 49,628 | ||||||||||||
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Total
Liabilities
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14,800,133 | 10,610,771 | 6,591,440 | 8,556,357 | ||||||||||||
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Commitments
and Contingencies
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||||||||||||||||
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Members'
Equity
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||||||||||||||||
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Members'
contributions and other, net
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13,084,046 | 12,678,399 | 12,104,722 | 9,961,784 | ||||||||||||
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Accumulated
deficit
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(12,667,127 | ) | (10,045,055 | ) | (8,237,405 | ) | (7,456,365 | ) | ||||||||
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Total
Members' Equity
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416,919 | 2,633,344 | 3,867,317 | 2,505,419 | ||||||||||||
| $ | 15,217,052 | $ | 13,244,115 | $ | 10,458,757 | $ | 11,061,776 | |||||||||
See
accompanying notes to consolidated financial statements.
-7-
PROGENITOR
CELL THERAPY, LLC
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
AND THE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
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Nine Months Ended September 30,
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Year Ended December 31,
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|||||||||||||||||||
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2010
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2009
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2009
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2008
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2007
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||||||||||||||||
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(unaudited)
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(unaudited)
|
|||||||||||||||||||
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Revenues
|
||||||||||||||||||||
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Clinical
services
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$ | 6,806,654 | $ | 6,373,098 | $ | 8,238,159 | $ | 9,741,581 | $ | 6,990,443 | ||||||||||
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Operating
expenses
|
||||||||||||||||||||
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Clinical
services
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4,427,503 | 3,984,320 | 5,479,897 | 6,618,197 | 4,978,891 | |||||||||||||||
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Selling,
general and administrative expenses
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4,483,161 | 3,396,367 | 4,369,808 | 3,688,919 | 5,050,646 | |||||||||||||||
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Total
operating expenses
|
8,910,664 | 7,380,687 | 9,849,705 | 10,307,116 | 10,029,537 | |||||||||||||||
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Loss
from operations
|
(2,104,010 | ) | (1,007,589 | ) | (1,611,546 | ) | (565,535 | ) | (3,039,094 | ) | ||||||||||
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Other
income (expense)
|
||||||||||||||||||||
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Interest
income
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1,547 | 4,254 | 5,502 | 16,487 | 142,987 | |||||||||||||||
|
Interest
expense
|
(519,609 | ) | (131,221 | ) | (280,220 | ) | (247,663 | ) | (56,426 | ) | ||||||||||
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Other
income (expense)
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- | (460 | ) | (460 | ) | 15,671 | (2,690 | ) | ||||||||||||
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Gain
on asset disposal
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- | - | 79,074 | - | - | |||||||||||||||
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Net
loss
|
$ | (2,622,072 | ) | $ | (1,135,016 | ) | $ | (1,807,650 | ) | $ | (781,040 | ) | $ | (2,955,223 | ) | |||||
See
accompanying notes to consolidated financial
statements.
-8-
PROGENITOR
CELL THERAPY, LLC
CONSOLIDATED
STATEMENT OF MEMBERS' EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
AND NINE
MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED)
|
Number of
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Contributions
|
Accumulated
|
||||||||||||||
|
Units
|
and other, net
|
Deficit
|
Total
|
|||||||||||||
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Balance
at January 1, 2007
|
6,820,843 | $ | 10,211,968 | $ | (4,501,142 | ) | $ | 5,710,826 | ||||||||
|
Distributions
to Members
|
- | (257,424 | ) | - | (257,424 | ) | ||||||||||
|
Stock-based
compensation
|
- | 7,240 | - | 7,240 | ||||||||||||
|
Net
loss for the year ended
|
- | |||||||||||||||
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December
31, 2007
|
- | - | (2,955,223 | ) | (2,955,223 | ) | ||||||||||
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Balance
at December 31, 2007
|
6,820,843 | 9,961,784 | (7,456,365 | ) | 2,505,419 | |||||||||||
|
Contributions
from members
|
322,458 | 2,125,000 | - | 2,125,000 | ||||||||||||
|
Stock-based
Compensation
|
- | 17,938 | - | 17,938 | ||||||||||||
|
Net
loss for the year ended
|
||||||||||||||||
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December
31, 2008
|
- | - | (781,040 | ) | (781,040 | ) | ||||||||||
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Balance
at December 31, 2008
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7,143,301 | 12,104,722 | (8,237,405 | ) | 3,867,317 | |||||||||||
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Contributions
from members
|
42,719 | 229,444 | - | 229,444 | ||||||||||||
|
Stock-based
Compensation
|
- | 17,938 | - | 17,938 | ||||||||||||
|
Warrants
issued in connection with line of credit
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- | 326,295 | - | 326,295 | ||||||||||||
|
Net
loss for the year ended
|
||||||||||||||||
|
December
31, 2009
|
- | - | (1,807,650 | ) | (1,807,650 | ) | ||||||||||
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Balance
at December 31, 2009
|
7,186,020 | 12,678,399 | (10,045,055 | ) | 2,633,344 | |||||||||||
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Stock-based
Compensation (unaudited)
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- | 13,455 | - | 13,455 | ||||||||||||
|
Warrants
issued in connection with line of credit
|
||||||||||||||||
|
(unaudited)
|
- | 392,192 | - | 392,192 | ||||||||||||
|
Net
loss for the nine months ended
|
||||||||||||||||
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September
30, 2010 (unaudited)
|
- | - | (2,622,072 | ) | (2,622,072 | ) | ||||||||||
|
Balance
at September 30, 2010 (unaudited)
|
7,186,020 | $ | 13,084,046 | $ | (12,667,127 | ) | $ | 416,919 | ||||||||
See
accompanying notes to consolidated financial
statements.
-9-
PROGENITOR
CELL THERAPY, LLC
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 AND
THE NINE
MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
|
Nine Months Ended September 30,
|
Year Ended December 31,
|
|||||||||||||||||||
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2010
|
2009
|
2009
|
2008
|
2007
|
||||||||||||||||
|
(unaudited)
|
(unaudited)
|
|||||||||||||||||||
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Cash
Flows from Operating Activities
|
||||||||||||||||||||
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Net
loss
|
$ | (2,622,072 | ) | $ | (1,135,016 | ) | $ | (1,807,650 | ) | $ | (781,040 | ) | $ | (2,955,223 | ) | |||||
|
Adjustments
to reconcile net loss to net
|
||||||||||||||||||||
|
cash
provided by (used in) operating activities:
|
||||||||||||||||||||
|
Depreciation
and amortization
|
719,530 | 641,523 | 848,979 | 882,832 | 730,989 | |||||||||||||||
|
Provision
for doubtful accounts
|
- | 125,000 | - | - | - | |||||||||||||||
|
Non-cash
compensation for services
|
13,455 | 13,453 | 17,938 | 17,938 | 7,240 | |||||||||||||||
|
Amortization
of deferred financing costs
|
304,129 | 17,174 | 120,214 | - | - | |||||||||||||||
|
Deferred
lease liability
|
(9,381 | ) | 12,430 | 11,805 | 47,210 | 42,528 | ||||||||||||||
|
Net
gain from sale of fixed assets
|
- | - | (79,074 | ) | - | - | ||||||||||||||
|
(Increase)
decrease in:
|
||||||||||||||||||||
|
Accounts
receivable
|
877,800 | 265,659 | (483,011 | ) | (237,062 | ) | 80,105 | |||||||||||||
|
Prepaid
expenses and other current assets
|
13,756 | 10,784 | (5,495 | ) | (22,203 | ) | 94,297 | |||||||||||||
|
Deferred
project costs
|
(1,500,655 | ) | (1,100,470 | ) | (1,665,789 | ) | 503,105 | (533,088 | ) | |||||||||||
|
Other
assets
|
- | (52,111 | ) | - | - | - | ||||||||||||||
|
Increase
(decrease) in:
|
||||||||||||||||||||
|
Accounts
payable
|
671,947 | 606,018 | 473,867 | 78,544 | (288,692 | ) | ||||||||||||||
|
Accrued
expenses and other current liabilities
|
(378,586 | ) | 205,959 | 363,041 | 6,597 | (207,437 | ) | |||||||||||||
|
Deferred
revenue
|
1,602,492 | 1,279,992 | 2,689,042 | (1,511,510 | ) | 1,113,482 | ||||||||||||||
|
Net
Cash Provided by (Used in) Operating Activities
|
(307,585 | ) | 890,395 | 483,867 | (1,015,589 | ) | (1,915,799 | ) | ||||||||||||
|
Cash
Flows from Investing Activities
|
||||||||||||||||||||
|
Payments
for purchases of property and equipment
|
(2,879,558 | ) | (748,125 | ) | (1,753,331 | ) | (251,068 | ) | (5,457,998 | ) | ||||||||||
|
Restricted
cash and cash equivalents
|
- | - | - | - | 120,775 | |||||||||||||||
|
Proceeds
from sale of equipment
|
- | - | 150,000 | - | - | |||||||||||||||
|
Change
in other assets
|
(50,000 | ) | - | (46,444 | ) | 100,803 | (69,991 | ) | ||||||||||||
|
Net
Cash Used in Investing Activities
|
(2,929,558 | ) | (748,125 | ) | (1,649,775 | ) | (150,265 | ) | (5,407,214 | ) | ||||||||||
|
Cash
Flows from Financing Activities
|
||||||||||||||||||||
|
Proceeds
from line of credit - related party
|
2,320,000 | - | 1,080,000 | 1,500,000 | 4,120,000 | |||||||||||||||
|
Proceeds
from other short term loan
|
74,928 | - | - | - | - | |||||||||||||||
|
Principal
payments of notes payable
|
(92,038 | ) | (565,206 | ) | (598,424 | ) | (2,085,758 | ) | (15,128 | ) | ||||||||||
|
Principal
payments on capital lease obligations
|
- | - | - | (5,397 | ) | (8,968 | ) | |||||||||||||
|
Distributions
to members
|
- | - | - | - | (257,424 | ) | ||||||||||||||
|
Contributions
from members
|
- | 229,444 | 229,444 | 2,125,000 | - | |||||||||||||||
|
Net
Cash Provided by (Used in) Financing Activities
|
2,302,890 | (335,762 | ) | 711,020 | 1,533,845 | 3,838,480 | ||||||||||||||
|
Net
change in cash and cash equivalents
|
(934,253 | ) | (193,492 | ) | (454,888 | ) | 367,991 | (3,484,533 | ) | |||||||||||
|
Cash
and cash equivalents - beginning of period
|
1,127,138 | 1,582,026 | 1,582,026 | 1,214,035 | 4,698,568 | |||||||||||||||
|
Cash
and cash equivalents - ending of period
|
$ | 192,885 | $ | 1,388,534 | $ | 1,127,138 | $ | 1,582,026 | $ | 1,214,035 | ||||||||||
|
Supplementary
Disclosures of Cash Flow Information
|
||||||||||||||||||||
|
Cash
paid during the period for interest
|
$ | 215,480 | $ | 131,221 | $ | 160,006 | $ | 246,849 | $ | 52,000 | ||||||||||
|
Fair
value of warrant issued in connection with line of credit
|
$ | 392,192 | $ | 326,295 | $ | 326,295 | $ | - | $ | - | ||||||||||
See
accompanying notes to consolidated financial statements.
-10-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1 -
|
NATURE
OF OPERATIONS AND LIQUIDITY
|
Nature of
Operations
Progenitor
Cell Therapy, LLC (“PCT” or the “Company”) was originally organized as a New
Jersey limited liability company. The Company was formed on
December 16, 1997 and began operations on February 27, 1999 pursuant
to an operating agreement (the “Operating Agreement”) entered into by the
members (the “Members”). Effective August 31, 2004, PCT was
merged into Progenitor Cell Therapy, LLC, a Delaware limited liability
company. Members are not personally liable for any debts or losses of
PCT in excess of the Members’ capital contributions. PCT is engaged
in a wide range of services in the stem cell therapy market for the treatment of
human disease. Substantially all of the Company’s operations are in
New Jersey and California.
DomaniCell,
LLC (“DomaniCell”) is a Delaware limited liability company and is wholly owned
by its sole member, PCT. DomaniCell was formed on May 10, 2005
and began its operations thereafter. DomaniCell is engaged in the
collection and storage of stem cells derived from umbilical cord blood units for
the treatment of human disease.
PCT
Allendale, LLC (“Allendale”) is a New Jersey limited liability company and is
wholly owned by its sole member, PCT. Allendale was formed on August
22, 2007 and is the owner of the Company’s building in Allendale, New
Jersey.
Liquidity
The
Company has experienced net losses in the past and has limited capital resources
to fund its operations. An affiliated company of our CEO (See Note
4) has provided short term financing as needed. The Company
believes there is adequate liquidity at September 30, 2010 combined with
projected operating results and the proceeds from the proposed second mortgage
to fund future operations through the summer of 2011. However, the Company
operates in a competitive industry and should projected future operations be
negatively impacted for any reason, or the pending Merger (See Note 12) is
not consummated the Company will need to raise external financing and/or future
operations would need to be scaled back or discontinued. See Note 12
for discussion of recent merger announcement and pending financing.
|
NOTE 2 -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of
Presentation
The
accompanying interim consolidated financial statements of the Company as of
September 30, 2010 and for the nine months ended September 30, 2010 and 2009 are
unaudited, but in the opinion of management, reflect all adjustments, consisting
of normal, recurring adjustments, necessary for a fair presentation of the
results for the interim period. Accordingly, they do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. The results of operations for interim periods
are not necessarily indicative of results to be obtained for a full fiscal
year.
Principles of
Consolidation
The
consolidated financial statements of the Company include the accounts of PCT,
DomaniCell, Allendale; all intercompany balances and transactions have been
eliminated in consolidation.
Revenue
Recognition
The
Company enters into contracts with corporations, hospitals, private physicians,
physicians’ practices and medical centers for the processing of human cells in
patient specimens. The cell processing involves multiple related
sequential procedures. The Company recognizes revenue from cell
processing of patient specimens as a multiple element arrangement in accordance
with Codification Topic 605: “Revenue Recognition.” In accordance with Topic
605, the Company recognizes revenue when there is persuasive evidence of an
arrangement, title and risk of loss have passed, product is shipped or the
services have been rendered, the sales price is fixed or determinable and
collection of the related receivable is reasonably assured.
Thus,
revenue resulting from the processing of a patient’s specimen is recognized upon
completion of the processing. If revenue is deferred because such
processing is not complete, the associated costs, if material, are also deferred
and are classified as deferred costs on the accompanying Consolidated Balance
Sheets. Milestone contract billings in excess of revenue recognized
are included in deferred revenue on the balance sheet.
-11-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 2 -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Revenue Recognition
(continued)
The
Company also provides a cell storage service, for which a separate defined fee
is charged. Revenue for cell storage services is deferred and
recognized ratably over the storage period. In certain instances, the
Company will charge a customer a single fee, which will include cell processing
and storage. In these situations, the fair value fee of the storage
is separated from the total fee, and is deferred and recognized pro rata over
the cell storage period.
The
Company has adopted the requirements of ASC Codification Topic 605: “Revenue
Recognition,” for recognizing revenue on reimbursed program
costs. This pronouncement allows the Company to record its
contractual expense reimbursements as a component of its revenue on a gross
basis, since it is the primary obligor of the reimbursable costs, has discretion
over the supplier choice and bears the underlying credit risk. The
Company will reflect the expense reimbursements received as revenue and the
related expenses as a contra revenue account.
Interest
income is recognized as earned.
Accounts Receivable and
Allowance for Doubtful Accounts
The
Company extends credit to certain customers, primarily with terms up to 30
days. Bad debts are provided on the allowance method based on
management’s evaluation of outstanding accounts receivable based on the length
of time the receivables are outstanding, the current business environment and
historical experience. Accounts are written off when they are deemed
uncollectible. The Company does not require collateral from its
customers.
Property and
Equipment
Laboratory
and office equipment, computers, building and improvements, and furniture and
fixtures are stated at cost and are depreciated on a straight-line basis over
their estimated useful lives. Leasehold improvements are stated at
cost and are amortized on a straight-line basis over the life of the lease or of
the improvement, whichever is shorter.
Expenditures
for maintenance and repairs that do not materially extend the useful lives of
the assets are charged to expense as incurred. The cost and
accumulated depreciation of assets retired or sold are removed from the
respective accounts and any gain or loss is recognized in
operations.
Cash and Cash
Equivalents
The
Company considers all highly liquid investments that have maturities of three
months or less, when acquired, to be cash equivalents.
Restricted Cash and Cash
Equivalents
Restricted
cash and cash equivalents of $353,860 at September 30, 2010, and December 31,
2009, 2008 and 2007 is related to amounts held in escrow as required under the
mortgage agreement which is described in Note 4.
Deferred
Rent
The
Company recognizes rental expense for leases with scheduled rent increases on a
straight-line basis over the life of the lease. The Company records a
deferred rent liability to account for the difference between the actual
payments and the straight-line expense, which will reverse in future years when
the actual payments will exceed the straight-line expense.
Income
Taxes
PCT,
Allendale and DomaniCell are organized as limited liability companies, which are
treated as partnerships for income tax purposes. Accordingly, there
is no provision for income taxes in the accompanying financial
statements. Individual owners have the responsibility to include
their share of taxable income or to deduct their share of the Company’s losses
in their own income tax return.
-12-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 2 -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Income Taxes
(continued)
On July
1, 2007, the Financial Accounting Standards Board (“FASB”) issued ASC 740-10,
“Income Taxes” (“ASC 740-10”). ASC 740-10 provides recognition
criteria and a related measurement model for uncertain tax positions taken or
expected to be taken in income tax returns. ASC 740-10 requires that
a position taken or expected to be taken in a tax return be recognized in the
financial statements when it is more likely than not that the position would be
sustained upon examination by tax authorities. Tax positions that
meet the more likely than not threshold are then measured using a probability
weighted approach recognizing the largest amount of tax benefit that is greater
than 50% likely of being realized upon ultimate settlement. It also
provides guidance on derecognition, measurement, and classification of amounts
relating to uncertain tax positions, accounting for and disclosure of interest
and penalties, accounting in interim periods, disclosures and transition
relating to the adoption of the new accounting standard. The Company
adopted Topic 740-10 on January 1, 2009, and it did not have a material
impact on the Company’s financial position and results of
operation.
Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant estimates include
useful lives of fixed assets, estimates used to test asset impairments, deferred
project costs, collectability of accounts receivable and valuation of the
Company’s equity-based instruments. Actual results could differ from
those estimates.
Equity-Based
Compensation
The
Company follows ASC Codification Topic 718: “Compensation – Stock Compensation,”
which requires that compensation cost relating to share based payment awards
made to employees and directors be recognized in the financial
statements. The cost for awards issued is measured at the grant date
based on the calculated fair value of the award. The value of the
portion of the award that is ultimately expected to vest is recognized over the
requisite service periods (generally the vesting period of the equity award) in
the accompanying Consolidated Statements of Operations.
Advertising
The
Company expenses advertising costs as they are incurred. Advertising
expenses for the nine months ended September 30, 2010 and 2009 and the years
ended December 31, 2009, 2008 and 2007 were approximately $78,000, $85,000,
$86,000, $152,000 and $284,000, respectively.
Fair Value
Measurement
The
Company’s financial instruments include cash and cash equivalents, accounts
receivable from customers, accounts payable, and accruals which are short-term
in nature. The Company believes the carrying amounts of these financial
instruments reasonably approximate their fair value. We believe the
carrying value of our notes payable approximates their fair value given the
interest rates charged and other terms of the instruments.
The
Company adopted ASC 820 Fair
Value Measurements (“ASC 820”) in January 2009. ASC 820
defines fair value, establishes a common framework for measuring fair value
under U.S. GAAP, and expands disclosures about fair value measurements for
assets and liabilities. ASC 820 does not require additional assets or
liabilities to be accounted for at fair value beyond that already required under
other U.S. GAAP accounting standards.
-13-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 2 -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
New Accounting
Pronouncements
In April
2010, the FASB
issued ACS Topic 605,
Milestone Method of Revenue Recognition. FASB Topic 605 provides guidance
on defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
transactions. Consideration that is contingent on achievement of a milestone in
its entirety may be recognized as revenue in the period in which the milestone
is achieved only if the milestone is judged to meet certain criteria to be
considered substantive. Milestones should be considered substantive in their
entirety and may not be bifurcated. An arrangement may contain both substantive
and nonsubstantive milestones, and each milestone should be evaluated
individually to determine if it is substantive. FASB Topic 605 is
effective on a prospective basis for milestones achieved in fiscal years, and
interim periods within those years, beginning on or after June 15, 2010. The
adoption of FASB Topic 605 did not have a material impact on the Company’s
financial position and results of operations.
In June
2009, the FASB issued FASB ASC Topic 105, Generally Accepted Accounting
Principles, which establishes the FASB Accounting Standards Codification
as the sole source of authoritative generally accepted accounting
principles. Pursuant to the provisions of FASB ASC 105, the Company
has updated references to GAAP in its financial statements issued for the period
ended December 31, 2009. The adoption of FASB ASC Topic did not
impact the Company’s financial position or results of
operations.
|
NOTE 3 -
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consists of the following at:
|
Estimated
Useful
Lives
|
September 30,
2010
|
December 31,
2009
|
December 31,
2008
|
December 31,
2007
|
||||||||||||||
|
Computer
equipment
|
3
years
|
$ | 353,838 | $ | 292,661 | $ | 259,034 | $ | 244,559 | |||||||||
|
Laboratory
and office equipment*
|
7
years
|
3,271,437 | 2,938,007 | 2,667,467 | 2,497,311 | |||||||||||||
|
Furniture
and fixtures
|
12
years
|
182,503 | 179,311 | 174,279 | 173,007 | |||||||||||||
|
Leasehold
improvements
|
Life of lease
|
2,647,055 | 2,632,526 | 2,450,180 | 2,429,230 | |||||||||||||
|
Building
and improvements
|
25
years
|
7,966,448 | 5,503,038 | 4,332,585 | 4,298,280 | |||||||||||||
| 14,421,281 | 11,545,543 | 9,883,545 | 9,642,387 | |||||||||||||||
|
Less,
Accumulated depreciation and amortization
|
(4,741,615 | ) | (4,025,905 | ) | (3,197,333 | ) | (2,324,411 | ) | ||||||||||
| $ | 9,679,666 | $ | 7,519,638 | $ | 6,686,212 | $ | 7,317,976 | |||||||||||
Depreciation
and amortization expense for the nine months ended September 30, 2010 and 2009,
and the years ended December 31, 2009, 2008 and 2007 was approximately
$720,000, $641,000, $849,000, $883,000, and $731,000,
respectively.
*Net of
approximately $823,000 as of September 30, 2010, December 31, 2009 and 2008, and
$813,000 as of December 31, 2007, with respect of grant received (see Note 10 – Grant
Agreement).
|
NOTE 4 -
|
LONG-TERM
DEBT
|
Mortgage
On
October 31, 2007, the Company entered into a note to borrow $3,120,000 (the
“Note”) in connection with its $3,818,500 purchase of condominium units of an
existing building in Allendale, New Jersey (the “Property”) that the Company
intends to use as a laboratory and stem cell processing
facility.
-14-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 4 -
|
LONG-TERM
DEBT (continued)
|
Mortgage
(continued)
The Note
is payable in 239 consecutive monthly payments of principal and interest, based
on a 20 year amortization schedule; and one final payment of all outstanding
principal plus accrued interest then due. The current monthly
installment is $20,766, which includes interest at an initial rate of 5.00%; the
interest rate and monthly installments payments are subject to adjustment on
October 1, 2017. On that date, upon prior written notice, the lender
shall have the option to declare the entire outstanding principal balance,
together with all outstanding interest, due and payable in full. The
Note is secured by substantially all of the assets of the Company, including a
first mortgage on the Property and assignment of an amount approximately equal
to eighteen months debt service held in escrow (see Note 2 – Restricted Cash and
Cash Equivalents). The Note matures on October 1, 2027 if not called by the
lender on October 1, 2017. The Note is subject to certain debt service coverage
and total debt to tangible net worth financial covenant ratios semi-annually.
The next measurement period for financial covenants is December 31,
2010. The Company was not in compliance with such covenants through
June 30, 2010, and has obtained a covenant waiver letter from the lender for all
periods through June 30, 2010. The outstanding balance was
approximately $2,844,000 at September 30, 2010 and $2,921,000, $3,019,000 and
$3,105,000 at December 31, 2009, 2008 and 2007, respectively.
Northern New Jersey Cancer
Associates
On March
14, 2008 the Company arranged for a $2,000,000 line of credit with Northern New
Jersey Cancer Associates (“NNJCA”). The Company’s Chief Executive
Officer is also Co-Managing Partner of NNJCA. The term of the
agreement is one year and interest on amounts drawn down from the line of credit
will accrue at the prime rate plus 2% and will be payable
monthly. NNJCA may elect to receive payment of the outstanding
balance in cash or in membership interest of PCT. For calculating the
membership interest that NNJCA will receive if it so chooses, the Company will
be valued at the valuation offered to investors with the Company’s next round of
equity financing. A one-time origination fee of $20,000 was paid in
April 2008 for the line-of-credit.
On March
26, 2008, the Company borrowed $1,500,000 against the NNJCA line of credit and
used $1,000,000 of the proceeds to repay in full the StemCells, Inc. loan
borrowed in December 2007. The balance remaining at December 31, 2008
was $500,000. As of April 14, 2009, the entire amount of the loan was
re-paid.
On
September 14, 2009, the Company entered into a line of credit and security
agreement with NNJCA for $3,000,000. The credit line has an interest
rate of 5.5% accruing on the first $2,000,000 and 6% thereafter. The
advance and accrued interest is due and payable on June 30, 2010. The
borrowings under the line of credit are secured by substantially all of the
assets of the Company. In conjunction with this credit line warrant
to purchase shares were issued by the company to NNJCA. The holder is
entitled to purchase, at its option, up to 73,052 Shares of Limited Liability
Company Interests at an exercise price of $6.16 per Share. The
warrant is for seven years and expires September 14, 2016. The fair
value of the warrant is determined under the Black-Scholes pricing model using
assumptions outlined in Note 9. This resulted in deferred financing
cost of approximately $326,000, which will be amortized to interest expense over
the term of the line credit of credit. During 2009, approximately
$120,000 was amortized to interest expense; in the nine months ended September
30, 2010.
On June
30, 2010, the above agreement with NNJCA was amended. The revised
credit line is $3,400,000; the entire amount with accrued interest is due and
payable on June 30, 2011. The remaining $400,000 of availability
under the credit line, which was drawn on June 30, 2010, is subject to an
interest rate of 6%. The amended agreement entitled the holder to
purchase at its option, up to an additional 85,000 units of Limited Liability
Company interest at an exercise price of $4.00 per Unit. The
fair value of the warrant is determined under the Black-Scholes pricing model
using assumptions outlined in Note 9. This resulted in additional
deferred financing cost of approximately $392,000, which will be amortized to
interest expense over the term of the line of credit. At
September 30, 2010, the unamortized portion of deferred financing cost included
in prepaid expenses and other current assets, was approximately $294,000. The
fair value warrants issued in connection with line of credit is considered
deferred financing costs since the issuances of the warrants is in
connection with the line of credit rather than a specified borrowing under a
note payable. Approximately $304,000 was amortized to interest
expense for both warrant issuances for the nine months ended September 30,
2010.
Interest
expense related to the stated interest rate of NNJCA loan for the nine months
ended September 30, 2010 and 2009, and the year ended December 31, 2009 and 2008
was approximately $115,500, $ 4,900, $13,200, and $76,900,
respectively.
-15-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 4 -
|
LONG-TERM
DEBT (continued)
|
Other
Loans
On
December 3, 2007, the Company borrowed $1,000,000 from StemCells, Inc, one of
its customers. The note carries an interest rate of 5.00% and was due
in full by the maturity date of July 30, 2008. The Company repaid the
entire amount of the loan on April 7, 2008.
Future
maturities of long-term debt, including the borrowings under the NNJCA facility
and a short-term insurance premium note of approximately $60,000, at September
30, 2010 are:
|
12 Months Ended
September 30,
|
September 30,
2010
|
|||
|
2011
|
$ | 3,567,470 | ||
|
2012
|
112,724 | |||
|
2013
|
118,956 | |||
|
2014
|
125,128 | |||
|
2015
|
131,621 | |||
|
Thereafter
|
2,247,684 | |||
| 6,303,583 | ||||
|
Less:
current maturities
|
3,567,470 | |||
|
Long-term
portion
|
$ | 2,736,113 | ||
|
NOTE 5 -
|
MEMBERS’
EQUITY
|
In
October, 1998, the founding Members entered into a Formation Agreement and
contributed a total of $82,564. Pursuant to the Operating Agreement
(see Note 1), as amended
on August 4, 1999, each Member is required to make an initial capital
contribution in exchange for a percentage ownership interest in the Company
(“Membership Interest”) and to make future contributions as determined by the
Members. New Members may be admitted to the Company, subject to
approval of the Company’s Board of Managers, upon execution of the Operating
Agreement and payment of a contribution determined by the Board of
Managers. Membership interests entitle each Member to the Member’s
share of the Company’s net profits, net losses and the right to receive
distributions of the Company’s assets in the event of liquidation and to vote,
as defined. There are 10,000,000 units authorized, and 7,186,020,
7,186,020, 7,143,301, and 6,820,843 are issued and outstanding at September 30,
2010 and December 31, 2009, 2008 and 2007, respectively.
On April
30, 2009, with the receipt of $229,444, the Company closed out Private Placement
#4 (the “Offering”). In connection with the offering, the Company
sold a total of 365,177 units for gross proceeds of $2,354,444 from 2008 to
2009. The Company received $2,125,000 during the fourth quarter of
2008.
|
NOTE 6 -
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Leases
On
April 1, 1999, the Company entered into an operating lease with Hackensack
University Medical Center (“HUMC”), a member – see Note 7, for stem cell
laboratory and office space at HUMC (the “HUMC Lease”). The HUMC
Lease has a term of 10 years with an option, by the Company, for renewal for an
additional five-year period. The HUMC Lease provides for an
escalation of base rent on the fifth anniversary date and for additional charges
for operating expenses and real estate taxes (the “Additional
Charges”). Upon expiration of the 10 year term, the Company began
renewing the lease on a month-to-month basis. Rent expense for the
nine months ended September 30, 2010 and 2009, and the years ended December 31,
2009, 2008 and 2007 was approximately $87,000,$85,000, $110,000, $110,000 and
$50,000, respectively.
In
October 2004, PCT entered into a two-year lease for laboratory space in the
Jurist Institute in Hackensack, New Jersey (the “Jurist Lease”). The
lease provides for monthly base rent which includes a provision for certain
utilities. The lease has been extended several times, most recently
through December 2010 at a monthly base rent of $3,174.
-16-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6 -
|
COMMITMENTS
AND CONTINGENCIES (continued)
|
Operating Leases
(continued)
In
September 2005, PCT entered into a one-year lease directly with Vanni
Business Park, LLC, the landlord for the Mountain View, California laboratory
space (the “Vanni Lease”), leasing the entire building. A portion of
this space was previously occupied by PCT under the “Jurist Lease”, which is
described above. This new lease commenced July 1, 2006, with a
monthly base rent of $26,275. In July 2006, PCT entered into an
agreement to amend this lease and extended the term through June 30, 2012,
for an initial monthly base rent of $33,782, with yearly escalations
thereafter.
In
February 2006, PCT entered into a five-year lease agreement for its new
office headquarters location in Hackensack, New Jersey (the “Court Plaza
Lease”). The Court Plaza Lease term commenced April 1, 2006 with
a base rent of $77,500 per annum, subject to a real estate tax and operating
expense escalation adjustment to be determined annually. The lease
included two months of free rent that is being expensed ratably over the life of
the lease.
In June
2010, PCT sublet the above mentioned headquarters office space in Hackensack,
New Jersey to Springstead & Maurice, LLC for the remaining term of the Court
Plaza lease. The sublease is for approximately $3,500 per
month.
For the
nine months ended September 30, 2010 and 2009, and the years ended December 31,
2009, 2008 and 2007, rent expense under all operating leases was approximately
$727,000, $699,271, $715,000, $728,000 and $696,000, respectively. As
of September 30, 2010 and December 31, 2009, 2008 and 2007 the cumulativel rent
expense recognized in excess of scheduled rent payments, referred to as
“deferred lease liability”, totaled approximately $99,000, $109,000, $97,000 and
$49,000, respectively.
Future
minimum rental payments under the operating leases noted above are
approximately:
|
12 months Ended
September 30,
|
Amount
|
|||
|
2011
|
$ | 595,933 | ||
|
2012
|
138,882 | |||
| $ | 734,815 | |||
Capital
Leases
The
Company leased certain equipment under various non-cancelable capital lease
agreements (the “Capital Leases”). The Capital Leases are for periods
ranging from two to four years, after which the Company: (i) either has the
option or is required to purchase the equipment at defined monthly amounts,
(ii) may extend the lease upon agreed-upon terms at defined monthly
amounts, or (iii) is required to return the equipment as per the respective
lease agreement. Leased equipment included as a component of fixed
assets at September 30, 2010 and December 31, 2009, 2008 and 2007 was $88,000 at
all dates. Related accumulated depreciation was $88,000,
$88,000, $87,000 and $82,000 for the same dates. The capital leases
were paid in full in 2009.
Funding Obligation -
Amorcyte
On
May 19, 2006, the Company entered into a line of credit agreement with
Amorcyte Inc. (“Amorcyte”), an entity which was spun out of the Company in 2006,
whereby PCT agreed to loan Amorcyte up to $500,000 at an annual interest rate of
5%. The line of credit agreement was a condition to Amorcyte closing
the Series A Preferred Stock Financing rounds completed during 2006, and
therefore could be required to be funded by the Company at the discretion of
Amorcyte. The Company did not loan any amount to Amorcyte under this
agreement through September 30, 2010; however, the maximum obligation of
$500,000 was recorded as a liability.
The line
of credit agreement expires on the earlier of (i) the date on which the
Company declares the outstanding principal and accrued interest due and payable
based on an event of default as defined within the agreement, or (ii) the
date of closing of the first debt or equity financing of Amorcyte following the
initial borrowing of the principal. These events have not occurred to
date.
-17-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6 -
|
COMMITMENTS
AND CONTINGENCIES (continued)
|
Litigation
The
Company may be subject to legal proceedings, claims and litigation arising in
the ordinary course of business, including one case of alleged breach of
employment contract with a former employee. Management does not believe any
provision is required for such matters as of December 31, 2009 or September
30, 2010. In 2007,
the Company paid approximately $70,000 of severance pay plus interest in
connection with this case; this amount was recorded as an accrued expense in the
Company's 2006 financial statements and was paid during 2007. In
February 2009, the parties have reached a settlement to resolve all claims under
which the former employee paid the Company $54,000 to purchase 0.23% of PCT's
fully diluted equity.
|
NOTE 7 -
|
RELATED
PARTY TRANSACTIONS
|
Hackensack University
Medical Center – Services Agreements
In
connection with the Company’s LLC agreement, HUMC is entitled to a seat on the
Company’s Board of Managers as long as it remains a member. On
February 27, 1999, the Company and HUMC, a Member, entered into two
services agreements
|
|
(i)
|
A
Stem Cell Services Agreement, under which HUMC agreed to use the Company
as the sole provider of stem cell services as long as HUMC remains a
Member. During the term of the Stem Cell Services Agreement,
the Company will provide such services, and related supply and testing
expenses, at its cost, which will be paid monthly by HUMC. In
the event HUMC is able to obtain stem cell services below the Company’s
cost, the Company will have the right to meet the lower
price. Either party may terminate the Stem Cell Services
Agreement upon written notice of breach by the other party that is not
cured within 30 days. For the nine months ended September 30,
2010 and 2009, and the years ended December 31, 2009, 2008 and 2007,
revenue recognized under the Stem Cell Services Agreement amounted to
approximately $1,601,000, $1,508,000, $2,003,000, $2,220,000
and $1,970,000, respectively. At September 30, 2010 and
December 31, 2009, 2008 and 2007 approximately $84,000, $94,000, $156,000
and $267,000 respectively, related to the Stem Cell Services Agreement
were recorded as accounts
receivable.
|
|
|
(ii)
|
A
Support Services Agreement, under which HUMC will be the exclusive
provider of support services, as defined, for the Company’s stem cell
laboratory at HUMC as long as HUMC remains a Member. During the
term of the Support Services Agreement, HUMC will provide services to the
Company at its cost, payable monthly. Either party may
terminate the Support Services Agreement without cause upon 90 days’
written notice or upon written notice of breach by the other party that is
not cured within 30 days. For the nine months ended September
30, 2010 and 2009, and the years ended December 31, 2009, 2008 and 2007,
expense recognized under the Support Services Agreement amounted to
approximately $20,600, $60,200, $76,900, $93,500 and $48,100,
respectively. At September 30, 2010 and December 31, 2009, 2008
and 2007, approximately $ 4,100, $17,400, $6,900 and $8,800, respectively,
related to the Support Services Agreement were recorded as accounts
payable.
|
Nexell of California,
Inc.
On
August 4, 1999, the Company and Nexell, a Member, entered into a Supply
Agreement (the “Nexell Supply Agreement”) under which the Company will purchase,
exclusively from Nexell, all supplies, as defined, required by the Company for
use in its stem cell processing and storage business, subject to certain
exceptions, as defined. The Nexell Supply Agreement will continue as
long as Nexell remains a Member and may be extended upon mutual written
agreement of the parties. Either party may terminate the Nexell
Supply Agreement upon written notice of breach by the other party that is not
cured within ten days. During 2002, the parties agreed that Nexell’s
obligations under this agreement will be fulfilled by Baxter International,
Inc., which assumed the obligations of Nexell. For the nine months
ended September 30, 2010 and 2009, and the years ended December 31, 2009, 2008
and 2007, expense recognized under the Nexell Supply Agreement amounted to
approximately $107,100, $60,300, $153,000, $5,100 and $12,200,
respectively.
-18-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 7 -
|
RELATED
PARTY TRANSACTIONS (continued)
|
Nexell of California,
Inc. (continued)
At
September 30, 2010 and December 31, 2009, 2008 and 2007, approximately $0,
$33,100, $300 and $700, respectively, related to the Nexell Supply Agreement
were recorded as accounts payable.
Amorcyte,
Inc.
On
May 31, 2005, the Company entered into a Cell Processing Agreement with
Amorcyte (the “Amorcyte Agreement”) whereby Amorcyte engaged PCT to be its
exclusive provider of cell processing procedures and related services at rates
specified within the agreement that include a monthly fee during the clinical
trial period for oversight services. The term of the Amorcyte
Agreement extends beyond the initial clinical period (defined within the
agreement as of one year from initiation of clinical trials), after which time
the service rates can be renegotiated.
In the
event of commercialization of any product of Amorcyte, PCT and Amorcyte shall
mutually agree upon charges for services related to such
commercialization. In the event that the parties are unable to agree
on such charges, then Amorcyte shall pay to PCT an amount equal to 125% of PCT’s
direct and indirect costs in connection with the services
provided. Also pursuant to the Amorcyte Agreement, PCT paid $200,000
to Amorcyte in 2006 as consideration for exclusivity granted to PCT under the
Amorcyte Agreement. This amount is being amortized over the minimum
estimated benefit period of the exclusivity, which is the completion of
Amorcyte’s Phase I clinical trials. For the nine months ended
September 30, 2010 and 2009, and the years ended December 31, 2009, 2008 and
2007, $0, $0, $0, $50,000 and $95,000, respectively, of the consideration was
recorded as expense. The intangible asset was fully amortized as of
December 31, 2008.
For the
nine months ended September 30, 2010 and 2009, and the years ended December 31,
2009, 2008 and 2007, revenue recognized under the Amorcyte Agreement amounted to
approximately $144,000, $383,000, $428,000, $327,000 and $415,000, respectively.
At September 30, 2010 and December 31, 2009, 2008 and 2007, approximately $700,
$300, $500 and $47,200, respectively, due from Amorcyte were recorded as
accounts receivable.
During
June 2010, PCT made an investment in Amorcyte in the purchase of Series A
Redeemable Preferred Stock totaling $50,000, which is included in other assets
on the accompanying consolidated balance sheet.
Becton, Dickinson and
Company
On
August 25, 2006, the Company and Becton, Dickinson and Company (“BD”), a
Member, entered into a one year Consulting and Product Development Services
Agreement (the “BD Agreement”), whereby the Company will provide consulting and
product development services and advice to BD for fees not to exceed $480,000,
plus reimbursement for approved out-of-pocket expenses. On February
20, 2008, the parties entered into a subsequent agreement whereby PCT agrees to
provide a laboratory investigational study service to BD. For the
nine months ended September 30, 2010 and 2009, and the years ended December 31,
2009, 2008 and 2007, revenue recognized under the BD Agreement, amounted to
approximately $38,000, $35,000 $35,000, $25,000 and $230,000, respectively.
Amounts recorded as revenue for reimbursement for approved out-of-pocket
expenses under the BD Agreement for the nine months ended September 30, 2010 and
2009, and the years ended December 31, 2009, 2008 and 2007, totaled
approximately $0, $0, $0, $0 and $141,000. At September 30, 2010 and
December 31, 2009, 2008 and 2007, approximately $28,000, $0, $2,500 and $29,500,
respectively, due from BD were recorded as accounts receivable.
-19-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 7 -
|
RELATED
PARTY TRANSACTIONS (continued)
|
StemCells,
Inc.
On March
2, 2006, the Company entered into a Cell Processing Agreement with StemCells
Inc. whereby Stem Cells engaged PCT to be its exclusive provider of cell
processing procedures and related services at rates specified within the
agreement that include a monthly fee during the clinical trial period for
oversight services. For the nine months ended September 30, 2010 and
2009, and the years ended December 31, 2009, 2008 and 2007, revenue recognized
from Stem Cells amounted to approximately $1,090,000, $1,304,000, $1,724,000,
$1,460,000 and $1,303,000, respectively. As further explained in
Note 4, the Company
borrowed $1,000,000 from StemCells, Inc. on December 3, 2007 and repaid the
entire amount of the loan on April 7, 2008.
All of the Company’s related parties,
with the exception of StemCells, Inc., are also unit holders.
|
NOTE 8 -
|
OPTIONS
TO ACQUIRE MEMBER’S UNITS (“STOCK
OPTIONS”)
|
In August
2007 the Company entered into agreements with five individuals to serve on the
Wellness Advisory Board (the “WAB”) of Domani, all of whom are non-employees of
the Company. The WAB members agree to serve as advisors on the development of
Domani’s stem cell banking program and related business
activities. The term of the WAB Agreement is three years and can be
terminated by either party by written notice at any time and for any
reason. The Company paid four of the WAB members an initiation fee of
$10,000 upon execution of the WAB Agreement; one member received an option to
acquire 961 member units of PCT (“Shares”) at an exercise price of $10.41 per
share in lieu of the $10,000 cash payment. These 961 share options vested
immediately.
As
consideration of their service on the WAB, the Company has issued options to
purchase 3,756 member units of PCT to each of the five members of the WAB at an
exercise price of $10.41 per share. Options vest in tranches of 313 shares, with
the first tranche vesting on the last day of the fiscal quarter following the
fiscal quarter in which the options were granted and an additional tranche
vesting on the last day of each subsequent consecutive fiscal
quarter. Options are fully vested three years after the date of grant
and are exercisable within ten years after the date of grant. The
weighted average fair value of the options on the date of grant was $2.87, which
was calculated using the Black-Scholes option pricing model with the following
assumptions:
|
Risk-free
interest rate
|
4.61 | % | ||
|
Expected
life
|
6.00
years
|
|||
|
Expected
volatility
|
82.47 | % | ||
|
Expected
dividends
|
None
|
|||
The
Company had no historical data to use in determining its expected life
assumption and therefore used the simplified method for determining expected
life that is described in SEC Staff Accounting Bulletin No. 107. The
simplified method is used when companies have difficulty making an estimate of
the expected term and under this method the expected term would equal the
vesting term plus the contractual term divided by two. Additionally,
the Company had no historical data to determine expected volatility and
therefore estimated its volatility assumptions based on the volatility of
comparable companies. The Company did not calculate the forfeiture
rate for the stock options since there were only five grants issued to WAB
members and no forfeiture is forecasted.
Stock
based compensation recognized in the financial statements during for the nine
months ended September 30, 2010 and 2009 and the years ended December 31, 2009,
2008 and 2007 amounted to approximately $13,000, $13,000, $18,000,
$18,000 and $7,200, respectively. At September 30, 2010 total
unrecognized stock based compensation amounted to approximately
$0. The intrinsic value of stock options outstanding at December 31,
2009 is minimal.
-20-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 8 -
|
OPTIONS
TO ACQUIRE MEMBER’S UNITS (“STOCK OPTIONS”)
(continued)
|
There are
no changes in the stock options outstanding for the three years ended December
31, 2009 and the nine months ended September 30, 2010.
Summarized
information about stock options outstanding as of September 30, 2010 is as
follows:
|
Options Outstanding
|
Options Exercisable
|
||||||||||
|
Exercise Price
|
Number of
Options
|
Weighted
Average
Remaining Life
(in Years)
|
Number of Options
|
||||||||
|
$1.00
|
20,660 |
No
expiry date
|
20,660 | ||||||||
|
$10.00
|
8,529 |
3.41
|
8,529 | ||||||||
|
$10.41
|
19,741 |
7.87
|
8,786 | ||||||||
|
Total
|
48,930 | 37,975 | |||||||||
|
NOTE 9 -
|
PHANTOM
EQUITY PLAN
|
On
April 13, 2000 the Company adopted a Phantom Equity Plan (the “Plan”),
under which a committee of the Board of Managers (the “Committee”) may grant to
officers, full-time employees and independent contractors of the Company (the
“Grantee”) a right to receive in cash, or property of equal value, the
difference in the (a) fair value of the award on the date of grant and
(b) the fair value of the award on the date the award is exercised by the
Grantee (the “Award”). The fair value of an Award shall be equal to
the product of: (a) either the total value of the Company’s equity as most
recently determined by the Committee prior to the date of grant or payout, or an
amount determined by a triggering event, as defined, and (b) the percentage
interest represented by the Award. Awards vest on a straight-line
basis over five years, unless specified otherwise by the Committee, and may only
be exercised in the last two months of a fiscal year. Upon the
occurrence of a triggering event, all Awards will become immediately
vested. Upon termination of service by a Grantee, the Company, at the
discretion of the Committee, may choose to pay out the fair value of the
terminated Grantee’s vested balance. Cash payments made under the
Plan are subject to limitation clauses, whereby the amount payable at any time
will be limited to defined thresholds. The Plan may be terminated at
any time by the Committee, in which case the terms of all outstanding Awards
will continue until exercised or forfeited. As of December 31,
2009, 2008 and 2007 and September 30, 2010 there are no outstanding awards under
this plan.
-21-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 10 -
|
GRANT
AGREEMENT
|
On
August 26, 2005, the Company entered into a $900,000 grant agreement (the
“Grant”) with the New Jersey Economic Development Authority (the "EDA"), a
department of the State of New Jersey, to design and develop a software system
dealing with cell product testing and storage (the
“Project”). $810,000 of the Grant was advanced to the Company in
2005, and the remaining final disbursement of $90,000 was received by the
Company in April 2007. All costs for the Project in excess of
$900,000 are the sole responsibility of the Company. For financial
reporting purposes, the Grant proceeds reduced the amount capitalized as
internally developed software.
All Grant
funds advanced to PCT are included in current liabilities until actual Project
costs are incurred. Project costs are capitalized as assets when
incurred and are offset by the amount remaining in the Grant
liability. Through December 31, 2009, costs of approximately $
823,000, were incurred with respect to the Project, and at September 30, 2010
and December 31, 2009 was $77,000 of unexpended Grant funds are included in
deferred revenue.
|
NOTE
11 -
|
CONCENTRATION
OF CREDIT RISK
|
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash and cash equivalents. At September 30, 2010, the
Company held its cash and cash equivalents principally in two financial
institutions, respectively. The Company cash balances may exceed
federally insured limits at times during the year.
Major
Customers
The
Company enters into contracts for the processing and storing of human
cells. In 2010 and 2009, the Company’s revenue is mainly derived from
agreements with Hackensack University Medical Center (“HUMC”), StemCells, Inc.,
and Sangamo Biosciences, Inc. These three customers make up 19%, 13%
and 15% of revenue (total of 47% for all three customers) for the nine months
ended September 30, 2010, and 19%, 17%and 13% of revenue (total of 49% for all
three customers) for the nine months ended September 30, 2009,
respectively. These three customers make up 18%, 15% and 12% of
revenue (total of 45% for all three customers) for the year ended December 31,
2009. In 2008, the Company’s revenue is mainly derived from HUMC,
StemCells, Inc., and Microislet, Inc. These three customers make up
23%, 12% and 11% of revenue (total of 46% for all three customers) for the year
ended December 31, 2008. In 2007, the Company’s revenue is mainly
derived from agreements with HUMC and Dendreon Corporation. These two
customers make up 28% and 23% (total of 51% for both customers) for the year
ended December 31, 2007. The only major customer that is also
currently a related party is HUMC.
Three
customers, one of which is a related party, made up approximately 21%, 19%, and
13% of total accounts receivable (a total of approximately 53%) at September 30,
2010. The significant customer base may change from year to year as
projects are completed and new contracts are entered into.
Major
customers are considered to be those who accounted for more than 10% of total
sales.
|
NOTE 12 -
|
MERGER
and SUBSEQUENT EVENTS
|
MERGER
AGREEMENT
On
September 23, 2010, the Company entered into an Agreement and Plan of
Merger (the "PCT Merger Agreement") with NeoStem, Inc. ("NeoStem") and NBS
Acquisition Company LLC, a wholly-owned subsidiary of NeoStem ("Subco") pursuant
to which Subco will merge (the "PCT Merger") with and into PCT, with PCT as the
surviving entity and a wholly-owned subsidiary of NeoStem. NeoStem, Inc.
is a publicly traded international biopharmaceutical company. The PCT Merger
Agreement provides that all of the membership interests of PCT outstanding
immediately prior to the effective time of the PCT Merger (the “Effective Time”)
will be converted into the right to receive, in the aggregate, 11,200,000 shares
of NeoStem common stock, par value $0.001 per share, subject to downward
adjustment as described below, and warrants to purchase an aggregate of no less
than 1,000,000 and a maximum of 3,000,000 shares of NeoStem common stock, based
on the following:
-22-
PROGENITOR
CELL THERAPY, LLC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(i)
common stock purchase warrants to purchase one million (1,000,000) shares of
NeoStem common stock exercisable over a seven year period at an exercise price
of $7.00 per share, and which will vest only if a specified business milestone
is accomplished within three (3) years of the closing date of the PCT Merger
(the “Closing Date”); and
(ii)
if the volume weighted average of the closing prices of sales of NeoStem common
stock on the NYSE-Amex for the three (3) trading days ending on the trading day
that is two (2) days prior to the Closing Date (the “Parent Per Share Value”) is
less than $2.50, common stock purchase warrants to purchase one million
(1,000,000) shares of NeoStem common stock exercisable over a seven year
term at an exercise price of $3.00 per share; and
(iii)
if the NeoStem Per Share Value is less than $1.70, common stock purchase
warrants to purchase one million (1,000,000) shares of NeoStem common stock
exercisable over a seven year period at an exercise price of $5.00 per
share.
The
shares of NeoStem common stock issuable in the PCT Merger are subject to
adjustment, provided that in no event will NeoStem be required to issue more
than 11,200,000 shares of NeoStem’s common stock, except pursuant to exercise of
any warrants. The shares of NeoStem’s common stock issuable in the PCT
Merger (not including any of NeoStem common stock issuable in the future upon
exercise of any warrants) are sometimes referred to herein as the “Stock
Consideration.” The PCT Merger Agreement provides that to the extent that
PCT’s adjusted working capital (calculated in the manner described in the PCT
Merger Agreement) on the Closing Date is less than the Target Working Capital
(as defined below) by more than Two Hundred Fifty Thousand Dollars ($250,000)
(the “Collar”), the Stock Consideration will be decreased by the amount by which
such adjusted working capital is less than the Target Working Capital minus the
Collar. Any such decrease will reduce the Stock Consideration on a dollar
for dollar basis, with each share of Stock Consideration valued at the Parent
Per Share Value. The “Target Working Capital” is $105,593, exclusive of at
least $353,860 of restricted cash (which restricted cash must also be available
to the PCT, as the surviving company, at the closing of the PCT Merger (the
“Closing”), but inclusive of $392,192 of deferred financing costs.
The Stock
Consideration will also be reduced (and not increased) by an amount equal to the
product of 250,000 shares of NeoStem common stock multiplied by any Net Lost
Agreements. “Net Lost Agreements” is defined in the PCT Merger Agreement
to mean a number (not less than zero) equal to (i) the number of material
service agreements of PCT which are terminated prior to the Closing Date, or as
to which PCT receives a notice of termination prior to the Closing Date minus
(ii) the number of comparable new material service agreements entered into and
as to which services are provided by PCT to the counterparty between the date of
the PCT Merger Agreement and the Closing Date.
The
consummation of the PCT Merger is subject to various conditions, including the
approval by NeoStem stockholders and PCT’s Members; the affirmation by NeoStem
that they have $3 million available to PCT to repay the indebtedness owed by PCT
to NNJCA within seven days of the Closing and that NeoStem will in fact make
such payment, and the absence of any legal proceeding preventing the
consummation of the PCT Merger and other legal and regulatory
requirements.
The
Company has recorded expenses of approximately $200,000 related to the Merger in
the nine months ended September 30, 2010, included in selling, general and
administrative expenses.
MORTGAGE
During
October 2010 the Company applied for a second mortgage in the amount of $1
Million on the Allendale property and was issued a Commitment Letter from TD
Bank. The Commitment Letter outlines a number of affirmative and negative
covenants including financial covenants that would apply to PCT, requires the
loan guarantees of PCT, DomaniCell, NNJCA as well as certain of the individual
partners of NNJCA and provides for the the right of the lender to call the loan
during a certain period prior to the interest reset date. The Commitment Letter
sets forth an interest rate of 6% for the first 64 months of the 124 month term.
If the PCT Merger is not consummated within 120 days of the closing date of the
proposed second mortgage, the loan will be immediately due and payable . It is
anticipated that the closing would occur in November 2010.
SUBSEQUENT
EVENTS
The
Company has evaluated events after September 30, 2010 and through November 10,
2010, which is the date the financial statements were available to be issued,
and determined that any events or transactions occurring during this period that
would require recognition or disclosure are appropriately addressed in these
financial statements.
-23-
Unaudited
Pro Forma Condensed Consolidated Balance Sheet
September
30, 2010
($
000)
|
NeoStem
|
Progenitor
Cell
Therapy
|
Proforma
Adjustments
|
Pro
Forma
|
|||||||||||||||
|
ASSETS
|
||||||||||||||||||
|
Current
assets:
|
||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 4,066.7 | $ | 192.9 | (e) | $ | - | $ | 4,259.6 | |||||||||
|
Short
term investments
|
257.4 | - | - | 257.4 | ||||||||||||||
|
Restricted
Cash
|
3,321.5 | 353.9 | (e) | - | 3,675.4 | |||||||||||||
|
Accounts
receivable trade, less allowances for doubtful accounts
|
4,522.3 | 656.6 | (e) | - | 5,178.9 | |||||||||||||
|
Inventories
|
14,670.6 | - | - | 14,670.6 | ||||||||||||||
|
Deferred
project costs
|
- | 3,616.9 | 2,411.2 |
(d)
|
6,028.1 | |||||||||||||
|
Prepaid
expenses and other current assets
|
1,419.3 | 521.1 | (294.2 | ) |
(k)
|
1,646.1 | ||||||||||||
|
Total
current assets
|
28,257.8 | 5,341.4 | 2,117.0 | 35,716.1 | ||||||||||||||
|
Property,
plant and equipment, net
|
33,208.0 | 9,679.8 |
(e)
|
- | 42,887.9 | |||||||||||||
|
Prepaid
Land use rights, net
|
4,718.2 | - | - | 4,718.2 | ||||||||||||||
|
Goodwill
|
35,116.0 | - | 14,293.1 |
(b)
|
49,409.1 | |||||||||||||
|
Intangible
assets, net
|
- | |||||||||||||||||
|
Lease
rights
|
381.7 | - | - | 381.7 | ||||||||||||||
|
Customer
list, net
|
14,213.3 | - | - | 14,213.3 | ||||||||||||||
|
Other
intangible assets, net
|
708.2 | - | 11,000.0 |
(c)
|
11,708.2 | |||||||||||||
|
Total
intangible assets
|
15,303.2 | - | 11,000.0 | 26,303.3 | ||||||||||||||
|
Other
assets
|
367.3 | 196.1 |
(e)
|
563.4 | ||||||||||||||
| $ | 116,970.5 | $ | 15,217.3 | $ | 27,410.1 | $ | 159,597.9 | |||||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY/(DEFICIT)
|
||||||||||||||||||
|
Current
liabilities:
|
||||||||||||||||||
|
Current
maturities of long-term debt
|
$ | $ | 167.5 |
(e)
|
$ | $ | 167.5 | |||||||||||
|
Notes
payable and related party credit line
|
6,544.7 | 3,400.0 |
(e)
|
- | 9,944.7 | |||||||||||||
|
Due
Amorcyte, Inc.
|
- | 500.0 |
(e)
|
500.0 | ||||||||||||||
|
Accounts
payable
|
7,622.2 | 1,704.9 | (e) | 9,327.1 | ||||||||||||||
|
Accrued
liabilities
|
4,709.1 | 294.0 | (e) | 5,003.1 | ||||||||||||||
|
Unearned
revenues
|
1,694.1 | 5,898.5 |
(e)
|
- | 7,592.6 | |||||||||||||
|
Total
current liabilities
|
20,570.1 | 11,964.9 | - | 32,535.0 | ||||||||||||||
|
Long-term
liabilities
|
||||||||||||||||||
|
Long
term debt
|
- | 2,736.1 |
(e)
|
- | 2,736.1 | |||||||||||||
|
Deferred
tax liability
|
4,345.9 | - | 5,364.4 |
(f)
|
9,710.3 | |||||||||||||
|
Unearned
revenues
|
217.5 | - | - | 217.5 | ||||||||||||||
|
Deferred
lease liability
|
49.6 | 99.3 |
(e)
|
- | 148.9 | |||||||||||||
|
Amount
due related party
|
8,074.1 | - | - | 8,074.1 | ||||||||||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||||||||||||
|
EQUITY
|
||||||||||||||||||
|
Shareholders'
equity:
|
||||||||||||||||||
|
Series
B convertible redeemable preferred stock
|
0.1 | - | - | 0.1 | ||||||||||||||
|
Common
stock
|
57.6 | - | 11.2 |
(a)
|
68.8 | |||||||||||||
|
Members'
contributions and other, net
|
- | 13,084.1 | (13,084.1 | ) |
(l)
|
0.0 | ||||||||||||
|
Additional
paid-in capital
|
132,974.3 | - | 22,451.5 |
(a)
|
155,425.8 | |||||||||||||
|
Accumulated
deficit
|
(88,978.7 | ) | (12,667.1 | ) | 12,667.1 |
(l)
|
(88,978.7 | ) | ||||||||||
|
Accumulated
other comprehensive loss
|
1,583.2 | - | - | 1,583.2 | ||||||||||||||
|
Total
shareholders' equity
|
45,636.5 | 417.0 | 22,045.7 | 68,099.2 | ||||||||||||||
|
Non
controlling interests
|
38,076.8 | - | - | 38,076.8 | ||||||||||||||
|
Total
equity
|
83,713.3 | 417.0 | 22,045.7 | 106,176.0 | ||||||||||||||
| $ | 116,970.5 | $ | 15,217.3 | $ | 27,410.1 | $ | 159,597.9 | |||||||||||
-24-
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For
the Nine Months Ended September 30, 2010
($
000)
|
NeoStem
|
Progenitor
Cell
Therapy
|
Proforma
Adjustments
|
Pro
Forma
|
|||||||||||||||
|
Revenues
|
$ | 51,716.3 | $ | 6,806.7 | $ | (958.7 | ) |
(h),(i)
|
$ | 57,564.3 | ||||||||
|
Cost
of Revenues
|
35,015.5 | 4,427.5 | 787.5 |
(g)
|
39,882.6 | |||||||||||||
| (61.7 | ) |
(i)
|
||||||||||||||||
| (286.2 | ) |
(h)
|
||||||||||||||||
|
Research
and Development
|
5,113.5 | - | (2.7 | ) |
(i)
|
5,110.9 | ||||||||||||
|
Selling,
general and administrative
|
23,442.3 | 4,483.2 | 112.5 |
(g)
|
28,400.5 | |||||||||||||
| 362.5 |
(j)
|
|||||||||||||||||
|
Operating
loss
|
(11,855.0 | ) | (2,104.0 | ) | (1,870.7 | ) | (15,829.7 | ) | ||||||||||
|
Other
income (expense)
|
5.9 | (518.1 | ) | 304.1 |
(k)
|
(208.1 | ) | |||||||||||
|
Loss
from operations before provision for income taxes and non-controlling
interests
|
(11,849.1 | ) | (2,622.1 | ) | (1,566.6 | ) | (16,037.8 | ) | ||||||||||
|
Provision
for taxes
|
1,191.2 | - | (360.0 | ) |
(g)
|
831.2 | ||||||||||||
|
Net
Loss
|
(13,040.3 | ) | (2,622.1 | ) | (1,206.6 | ) | (16,869.0 | ) | ||||||||||
|
Less
- Net income attributable to non-controlling
interests
|
4,085.7 | - | - | 4,085.7 | ||||||||||||||
|
Net
Loss attributable to controlling interests
|
(17,126.0 | ) | (2,622.1 | ) | (1,206.6 | ) | (20,954.7 | ) | ||||||||||
|
Preferred
Dividends
|
153.5 | - | - | 153.5 | ||||||||||||||
|
Net
Loss attributable to common shareholders
|
$ | (17,279.5 | ) | $ | (2,622.1 | ) | $ | (1,206.6 | ) | $ | (21,108.2 | ) | ||||||
|
Basic
and diluted loss per share
|
||||||||||||||||||
|
Weighted
average common shares outstanding
|
48,599,359 | 59,799,359 |
(m)
|
|||||||||||||||
|
Net
Loss attributable to common shareholders
|
$ | (0.36 | ) | $ | (0.35 | ) | ||||||||||||
-25-
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For
the Twelve Months Ended December 31, 2009
($
000)
|
NeoStem
|
Progenitor
Cell
Therapy
|
Proforma
Adjustments
|
Pro
Forma
|
|||||||||||||||
|
Revenues
|
$ | 11,565.1 | $ | 8,238.2 | (270.0 | ) |
(i)
|
19,533.3 | ||||||||||
|
Cost
of Revenues
|
9,504.2 | 5,479.9 | 1,050.0 |
(g)
|
15,902.9 | |||||||||||||
| (131.2 | ) |
(i)
|
||||||||||||||||
|
Research
and Development
|
4,318.8 | - | (8.1 | ) |
(i)
|
4,310.7 | ||||||||||||
|
Selling,
general and administrative
|
23,431.2 | 4,369.8 | 150.0 |
(g)
|
28,303.7 | |||||||||||||
| (130.7 | ) |
(i)
|
||||||||||||||||
| 483.4 |
(j)
|
|||||||||||||||||
|
Operating
loss
|
(25,689.1 | ) | (1,611.5 | ) | (1,683.4 | ) | (28,984.0 | ) | ||||||||||
|
Other
income (expense):
|
||||||||||||||||||
|
Other
income (expense)
|
- | - | - | - | ||||||||||||||
|
Interest
expense
|
(39.2 | ) | (196.1 | ) | 120.2 |
(k)
|
(115.1 | ) | ||||||||||
|
Loss
from operations before provision for income taxes and non-controlling
interests
|
(25,728.3 | ) | (1,807.6 | ) | (1,563.2 | ) | (29,099.1 | ) | ||||||||||
|
Provision
for taxes
|
64.2 | - | (480.0 | ) |
(g)
|
(415.8 | ) | |||||||||||
|
Net
Loss
|
(25,792.5 | ) | (1,807.6 | ) | (1,083.2 | ) | (28,683.3 | ) | ||||||||||
|
Less
- Net income attributable to non-controlling
interests
|
300.5 | - | - | 300.5 | ||||||||||||||
|
Net
Loss attributable to controlling interests
|
(26,093.0 | ) | (1,807.6 | ) | (1,083.2 | ) | (28,983.8 | ) | ||||||||||
|
Preferred
Dividends
|
5,612.0 | - | - | 5,612.0 | ||||||||||||||
|
Net
Loss attributable to common shareholders
|
$ | (31,705.0 | ) | $ | (1,807.6 | ) | $ | (1,083.2 | ) | $ | (34,595.8 | ) | ||||||
|
Basic
and diluted loss per share
|
||||||||||||||||||
|
Weighted
average common shares outstanding
|
13,019,518 | 24,219,518 |
(m)
|
|||||||||||||||
|
Net
Loss attributable to common shareholders
|
$ | (2.44 | ) | $ | (1.43 | ) | ||||||||||||
-26-
Notes
to the NeoStem Unaudited Proforma Condensed Combined Financial
Statements
On
September 16, 2010, the Board of Directors of NeoStem, Inc., a Delaware
corporation (“NeoStem”) and on
September 22, 2010 the Board of Managers of Progenitor Cell Therapy, LLC, a
Delaware limited liability company (“PCT”), unanimously
approved the merger (the “Merger”) of NBS
Acquisition Sub Co., LLC, a newly formed wholly-owned subsidiary of NeoStem
(“Subco”), with
and into PCT pursuant to an Agreement and Plan of Merger, dated
September 23, 2010 (as such agreement may be amended from time to time, the
“Agreement and Plan of
Merger”), among NeoStem, PCT and Subco.
Pursuant
to the terms of the Agreement and Plan of Merger, all of the membership
interests of PCT outstanding immediately prior to the effective time of the
Merger (the “Effective
Time”) will be converted into the right to receive, in the aggregate,
11,200,000 shares of the common stock, par value $0.001 per share, of NeoStem
(the “NeoStem Common
Stock” or the “Parent Common Stock”)
and, subject to the satisfaction of certain conditions, warrants to purchase up
to an aggregate of 3,000,000 shares of NeoStem Common Stock, as
follows:
|
(i)
|
common
stock purchase warrants to purchase one million (1,000,000) shares of
Parent Common Stock exercisable over a seven year period at an exercise
price of $7.00 per share (the “$7.00
Warrants”), and which will vest only if a specified business
milestone is accomplished within three (3) years of the closing date of
the Merger; and
|
|
(ii)
|
common
stock purchase warrants to purchase one million (1,000,000) shares of
Parent Common Stock exercisable over a seven year term at an exercise
price of $3.00 per share (the “$3.00
Warrants”), if the volume weighted average of the closing prices of
sales of Parent Common Stock on the NYSE-Amex for the three (3)
trading days ending on the trading day that is two (2) days prior to the
closing date of the Merger (the “Parent Per Share
Value”) is less than $2.50;
and
|
|
(iii)
|
common
stock purchase warrants to purchase one million (1,000,000) shares of
Parent Common Stock exercisable over a seven year period at an exercise
price of $5.00 per share (the “$5.00 Warrants”
and, collectively with the $7.00 Warrants and the $3.00 Warrants, the
“Warrants”), if
the Parent Per Share Value is less than
$1.70.
|
The
shares of Parent Common Stock issuable in the Merger are subject to adjustment,
provided that in no event will NeoStem be required to issue more than 11,200,000
shares of NeoStem Common Stock.
Pursuant
to a consent and voting agreement dated the same date as the Agreement and Plan
of Merger, holders of a sufficient number of membership interests of PCT to
approve the Agreement and Plan of Merger and the Merger have irrevocably
consented to the Agreement and Plan of Merger and the Merger and agreed to
certain transfer restrictions with respect to their membership interests prior
to the Effective Time. Stockholders of NeoStem owning greater than
50% of NeoStem Common Stock on the date of the Agreement and Plan of Merger have
agreed to vote their shares in favor of the issuance of the NeoStem Common Stock
and Warrants in the Merger at a special meeting of stockholders which will be
held for such purpose.
The
statements contained in this section may be deemed to be forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. Such statements are intended to be covered by the safe harbor to
“forward-looking statements” provided by the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by the
words “believe,” “expect, “anticipate,” “intend,” “estimate” and similar
expressions. These forward-looking statements are based largely on management’s
expectations and are subject to a number of uncertainties. Actual results could
differ materially from these forward-looking statements. NeoStem, Inc. does not
undertake any obligation to update publicly or revise any forward-looking
statements.
-27-
Basis
of Presentation
The
unaudited pro forma condensed combined financial statements set forth above have
been prepared by NeoStem and give effect to the following
transactions:
|
1)
|
The
acquisition of the membership interests of PCT for aggregate consideration
of approximately $22.5 million, and;
|
|
2)
|
The
issuance of 11.2 million shares of common stock and 3 million common stock
purchase warrants.
|
The
unaudited condensed combined proforma results of operations for the nine months
ended September 30, 2010 and the year ended December 31, 2009 are presented to
give effect to the acquisition of PCT as if it had occurred on January 1, 2010
and January 1, 2009, respectively. The unaudited condensed combined
proforma balance sheet is presented to give effect to the acquisition of PCT as
if it had occurred on September 30, 2010. This proforma information is based on,
derived from, and should be read in conjunction with, the historical
consolidated financial statements of NeoStem for the year ended December
31, 2009, included in our Annual Report on Form 10-K filed on March 31,
2010 and for the quarter ended September 30, 2010 included in our
Quarterly Report on Form 10-Q filed on November 12, 2010 and the historical
financial statements of PCT for the year ended December 31, 2009, and as of
and for the unaudited nine months ended September 30, 2010, which are included
elsewhere in this document. We have not adjusted the historical financial
statements of either entity for any costs recognized during the year that may be
considered to be nonrecurring.
All
unaudited interim financial statements incorporated by reference or furnished
herein reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the results for the interim periods
presented. All such adjustments are of a normal and recurring
nature.
The
unaudited proforma condensed combined financial statements were prepared using
the assumptions described below and in the related notes.
The
unaudited proforma condensed combined financial statements are provided for
illustrative purposes only. They do not purport to represent what NeoStem’s
consolidated results of operations and financial position would have been had
the transaction actually occurred as of the dates indicated, and they do not
purport to project NeoStem’ future consolidated results of operations or
financial position.
The
actual adjustments to our consolidated financial statements upon the closing of
the acquisition of PCT will depend on a number of factors, including additional
information that becomes available. Therefore, the actual adjustments
will differ from the unaudited pro forma adjustments, and the differences may be
material.
The
acquisition of PCT will be accounted for under the acquisition method of
accounting. For the purposes of determining the unaudited pro forma adjustments,
the assets and liabilities of PCT have been measured based on various
preliminary estimates using assumptions that NeoStem management believes are
reasonable utilizing information currently available. The
process for estimating the fair values of in-process research and development,
identifiable intangible assets, and certain tangible assets requires the use of
significant estimates and assumptions, including estimating future cash flows,
developing appropriate discount rates, and estimating the costs, timing and
probability of success to complete in-process projects. Transaction costs are
not included as a component of consideration transferred. The excess of the
purchase price (consideration transferred) over the estimated amounts of
identifiable assets and liabilities of PCT as of the effective date of the
acquisition will be allocated to goodwill. The purchase price allocation is
subject to finalization of NeoStem’s analysis of the fair value of the assets
and liabilities of PCT as of the effective date of the acquisition. Accordingly,
the purchase price allocation in the unaudited pro forma condensed combined
financial statements presented above is preliminary and will be adjusted upon
completion of the final valuation. Such adjustments could be material. The final
valuation is expected to be completed as soon as practicable but no later than
one year after the consummation of the acquisition.
-28-
For
purposes of measuring the estimated fair value of the assets acquired and
liabilities assumed as reflected in the unaudited pro forma condensed combined
financial statements, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price). Market participants are
assumed to be buyers and sellers in the principal (most advantageous) market for
the asset or liability. Additionally, fair value measurements for an asset
assume the highest and best use of that asset by market participants. As a
result, NeoStem may be required to value assets at fair value measures that do
not reflect NeoStem’s intended use of those assets. Use of different estimates
and judgments could yield different results.
In
connection with the Merger, four PCT executives have entered into employment
agreements with PCT that will become effective on the closing date of the
Merger. These employment agreements are specific to each executive and specify
the employment term (3 to 4 years), salary levels and in certain circumstances
performance bonuses. Each employment agreement contains non-compete provisions
and each individual will be granted a NeoStem stock option vesting over term of
the agreement. A total of 1,200,000 stock options will be granted to these
individuals.
When
these transactions are completed, NeoStem will account for these transactions in
accordance with Accounting Standards Codification 805-10 (“ASC 805-10”). ASC
805-10 provides revised guidance for recognizing and measuring identifiable
assets and goodwill acquired, liabilities assumed, and any noncontrolling
interest in the acquiree. ASC 805-10 also requires that assets acquired and
liabilities assumed in a business combination that arise from contingencies be
recognized at fair value if fair value can be reasonably estimated. If the fair
value of an asset or liability cannot be determined, the asset or liability that
arises from a contingency, the asset or liability would be recognized in
accordance with Accounting Standards Codification 30-1 (“ASC 30-1”) and if the
fair value is not determinable no asset or liability would be recognized. At the
present time, we are not in possession of all of the information to apply ASC
805-10 or ASC 30-1 to these unaudited proforma condensed combined financial
statements and will not be in possession of such information until the Effective
Date. Therefore, for the purposes of preparing these unaudited proforma
condensed combined financial statements we have established an estimated fair
value of the equities being offered in this transaction as of November 5, 2010.
The preliminary purchase price allocation is based on management’s estimate of
acquired tangible and intangible assets and will be adjusted based on the final
valuation to be completed within one year from the acquisition date. The excess
of the total purchase price over the fair value of the net assets acquired,
including the estimated fair value of the identifiable intangible assets, has
been allocated to goodwill. We expect that the fair value of current assets
and remaining machinery and equipment will approximate the book value of these
assets and that the excess of purchase price over net deficit will be assigned
to Goodwill and intangible assets including, customer lists, in process research
and development, specialized manufacturing knowledge and any non-compete
agreements. The useful lives of these intangible assets are expected to range
between 5 years and 10 years based on the useful lives of the various
assets.
Calculation
of Estimated Consideration Transferred and Preliminary Allocation of
Consideration Transferred to Net Assets Acquired
The fair
value of equity securities issued as consideration transferred will be measured
using the market price of NeoStem common stock on the closing date. As of
November 5, 2010 the estimated fair value of the various equities being issued
is as follows:
-29-
|
Calculation
of Estimated Consideration Transferred (in $000's)
|
||||||||||||
|
Number
of
Shares
|
Fair
Value Per Share
at November
5, 2010
|
Fair
Value at November 5, 2010
|
||||||||||
|
Common
Stock
|
11,200,000
|
$
|
1.85
|
$
|
20,720.0
|
|||||||
|
Common
Stock Purchase Warrants
|
3,000,000
|
1,742.6
|
||||||||||
|
$
|
22,462.6
|
|||||||||||
Based on
the terms and conditions of each of the warrants to be issued, we have
determined that all warrants are to be accounted for as an equity instrument and
included in the purchase price based on the probability that each warrant will
be issued or vested.
Assuming
a $0.50 change in NeoStem’s closing common stock price, the estimated
consideration transferred would increase or decrease by approximately $5.6
million which would have a corresponding offset to estimated
goodwill.
|
Preliminary
Allocation of Consideration Transferred to Net Assets
Acquired
|
||||
|
(in
$000's)
|
||||
|
Identifiable
intangible assets
|
$
|
11,000.0
|
||
|
Property,
plant and equipment
|
9,679.7
|
|||
|
Deferred
costs
|
6,028.0
|
|||
|
Other
non-current assets
|
196.1
|
|||
|
Current
assets, excluding deferred costs
|
1,430.4
|
|||
|
Current
liabilities
|
(11,964.8
|
)
|
||
|
Deferred
income taxes
|
(5,364.5
|
)
|
||
|
Long-term
debt, net of current maturities
|
(2,736.1
|
)
|
||
|
Deferred
lease liability
|
(99.3
|
)
|
||
|
Goodwill
|
14,293.1
|
|||
|
Estimated
purchase price to be allocated
|
$
|
22,462.6
|
||
Proforma
Adjustments for the Unaudited Proforma Condensed Combined Financial Statements
(Dollar amounts in $000’s):
|
(a)
|
This
entry records the acquisition of the membership interests of PCT for
aggregate consideration of approximately $22,462.6, through the issuance
of 11,200,000 shares of NeoStem common stock and 3,000,000 common stock
purchase warrants.
|
|
(b)
|
This
entry records the estimated goodwill that will be recorded in connection
with the Merger.
|
|
(c)
|
This
entry records the intangible assets management expects to acquire in the
Merger. The preliminary purchase price allocation is based on management’s
estimate of acquired tangible and intangible assets and will be adjusted
based on the final valuation to be completed within one year from the
acquisition date. The excess of the total purchase price over the fair
value of the net assets acquired, including the estimated fair value of
the identifiable intangible assets, has been allocated to goodwill. Below
is a preliminary summary of the significant intangible assets that NeoStem
expects to acquire in the Merger:
|
-30-
|
Preliminary
Summary of Intangible Assets (in $000's)
|
||||||||||||
|
Estimated
Value
|
Useful
Life
|
Estimated
Annual
Amortization
|
||||||||||
|
Customer
list and other related intangibles
|
$
|
1,500.0
|
10
|
$
|
150.0
|
|||||||
|
In
process R&D
|
500.0
|
*
|
-
|
|||||||||
|
Non-compete
agreements
|
1,500.0
|
5
|
300.0
|
|||||||||
|
Knowledge
related to manufacturing clinical and patient specific
therapeutics
|
7,500.0
|
10
|
750.0
|
|||||||||
|
$
|
11,000.0
|
$
|
1,200.0
|
|||||||||
*
This amount will be capitalized and accounted for as an indefinite-life
intangible asset, subject to impairment testing. NeoStem will evaluate this
intangible asset at least annually to determine if any impairment has
occurred.
|
(d)
|
This
entry records the capitalization of estimated gross profit associated with
PCT projects in process at September 30, 2010 based on the total estimated
gross profit to be earned and the estimated percentage of completion for
each project at September 30, 2010.
|
|
(e)
|
For
the purposes of these proforma combined financial statements it is assumed
that the carrying value of this asset or liability approximates its fair
value.
|
|
(f)
|
This
entry records the estimated tax liability to be paid in the future due to
the non-deductibility of the identifiable intangible assets and increase
in deferred project costs expected to be acquired in the
Merger.
|
|
(g)
|
This
entry reflects the impact of amortizing the estimated value of the
intangible assets that will be acquired in the Merger and realization of
the related deferred tax liability. The amortization is based on the
estimated useful lives of these intangibles ranging between 5 and 10
years.
|
|
(h)
|
On
December 31, 2009, NeoStem and PCT entered into a construction management
agreement for the construction of NeoStem’s stem cell laboratory in
Beijing, China. This transaction has been reflected on NeoStem’s balance
sheet at September 30, 2010 in property, plant and equipment, and PCT
reflected this transaction in revenue and cost of revenue in its statement
of operations for the nine months ended September 30, 2010. This entry
eliminates the intercompany revenue and intercompany profit that exists on
these transactions.
|
|
(i)
|
On
January 9, 2009, NeoStem and PCT entered into an agreement which calls for
PCT to provide stem cell cryopreservation services and stem cell storage
services, and on March 6, 2009, NeoStem and PCT entered into a consulting
agreement in connection with the design of a stem cell laboratory in
Beijing, China. This entry eliminates the intercompany sales and
intercompany profit that exists on these transactions for the year ended
December 31, 2009 and the nine months ended September 30,
2010.
|
|
(j)
|
In
connection with the Merger, four PCT executives have entered into
employment agreements with PCT that will become effective on the closing
date of the Merger. These employment agreements are specific to each
executive and specify the employment term (3 to 4 years), salary levels
and in certain circumstances performance bonuses. Each employment
agreement contains non-compete provisions and each individual will be
granted NeoStem stock options vesting over term of the agreement. A total
of 1,200,000 stock options will be granted to these individuals. This
entry records the stock option compensation associated with these
collective grants, assuming they were issued January 1,
2009.
|
-31-
|
(k)
|
On
September 14, 2009, PCT entered into a line of credit for $3.0
million. The credit line has an interest rate of 5.5% accruing
on the first $2.0 million and 6% thereafter. The advance and
accrued interest was due and payable on June 30, 2010. In
conjunction with the original credit line a warrant to purchase shares
were issued by PCT to the lender. The holder is entitled to
purchase, at its option, up to 73,052 Shares of Limited Liability Company
Interests (PCT’s ownership interests are expressed as shares of ownership
with a maximum of 10,000,000 ownership shares authorized to be issued) at
an exercise price of $6.16 per Share. NeoStem has agreed to payoff this
credit line shortly after the Closing Date. The warrant is for seven years
and expires September 14, 2016. The warrant was accounted for
as deferred financing costs and valued using the Black-Scholes pricing
model. This resulted in deferred financing cost of
approximately $326 thousand which was amortized as interest expense over
the term of the loan ($120.2 thousand in 2009 and $206.1 thousand in
2010). On June 30, 2010, PCT increased the maximum amount of
the line of credit from $3.0 million to $3.4 million and the line of
credit now has a revised maturity date of June 30, 2011. In connection
with the revision of the credit line PCT issued an additional warrant
for 85,000 Shares of Limited Liability Company Interests that had a fair
value of $392.2 thousand and has been reflected on PCT’s balance sheet as
deferred financing costs categorized within prepaids and other current
assets. This entry reverses the expense charges associated with the
warrant issued in June 2009, that were recognized in 2009 and 2010, since
the charges will not continue after the close of the Merger. In addition,
this entry also eliminates the value of the warrant issued in June 2010
for the extension of the credit line. In accordance with the terms of the
Merger Agreement these warrants will be cancelled and not replaced with
equity instruments issued by
NeoStem.
|
|
(l)
|
This
entry eliminates the equity accounts of
PCT.
|
|
(m)
|
At
the conclusion of this transaction, an additional 11,200,000 common shares
will have been issued and for the purposes of calculating the unaudited
proforma earnings/(loss) per share it has been assumed that these shares
were outstanding as of January 1,
2009.
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-32-
23.1
CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
NeoStem,
Inc.
New York,
New York
We hereby
consent to the incorporation by reference in the Registration Statements on Form
S-8 (Registration No. 333-107438, Registration No. 333-144265, Registration No.
333-159282 and Registration No. 333-162733) and in the Registration Statements
on Form S-3 (Registration No. 333-145988 and Registration No. 333-166169) of
NeoStem, Inc. of our report dated September 17, 2010 with respect to the
consolidated financial statements of Progenitor Cell Therapy, LLC and
Subsidiaries as of and for the years ended December 31, 2009, 2008 and 2007,
which appears in NeoStem, Inc.'s Current Report on Form 8-K dated November 12,
2010.
/s/
EisnerAmper LLP
Hackensack,
New Jersey
November
12, 2010