SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from to --------------- ------------------
Commission file number 0-10909
NEOSTEM, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-2343568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 LEXINGTON AVE, SUITE 450 NEW YORK, NEW YORK 10170
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: 212-584-4180
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
3,954,168 SHARES, $.001 PAR VALUE, AS OF August 14, 2007
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
Transitional Small Business Disclosure Format (check one): Yes X No
--- ---
I N D E X
Page No.
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Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets
At June 30, 2007 and December 31, 2006 3
Consolidated Statements of Operations
For the three and six months
ended June 30, 2007 and 2006 4
Consolidated Statements of Cash Flows
for the six months ended
June 30, 2007 and 2006 5
Notes to Unaudited Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis or
Plan of Operations 12-14
Item 3. Controls and Procedures 15
Part II - Other Information:
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Securityholders 16
Item 5. Other Information 16
Item 6. Exhibits 16
Signatures 17
2
NEOSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
2007 2006
------------ ------------
Current assets:
Cash and cash equivalents $ 85,382 $ 436,659
Accounts receivable 46,252 9,050
Prepaid expenses and other current assets 182,074 82,451
------------------ ------------------
Total current assets 313,708 528,160
Property and equipment, net 95,395 96,145
Goodwill 558,169 558,169
Other assets 8,750 12,500
------------------ ------------------
$ 976,022 $ 1,194,974
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 479,907 $ 372,348
Accrued liabilities 129,453 241,388
Note payable, due related party - current portion 86,939 125,000
Notes payable 59,685 1,313
Unearned revenues 6,902 2,420
Convertible debentures - 75,000
Capitalized lease obligations - current portion 23,004 20,829
----------------- ------------------
Total current liabilities 785,890 838,298
Note payable, due related party - long-term portion - 24,439
Capitalized lease obligations 26,312 40,132
----------------- ------------------
Total Liabilities 812,202 902,869
----------------- ------------------
Stockholders' Equity:
Preferred stock; authorized, 5,000,000 shares
Series B convertible redeemable preferred stock,
liquidation value 10 shares of common stock per
share; $0.01 par value; authorized, 825,000 shares;
issued and outstanding, 10,000 shares 100 100
Common stock, $.001 par value; authorized,
500,000,000 shares; issued and outstanding,
2,683,258 shares at June 30, 2007 and
2,078,121 shares at December 31, 2006 2,683 2,078
Additional paid-in capital 24,625,512 20,968,358
Unearned compensation (383,114) (371,666)
Accumulated deficit (24,081,361) (20,306,765)
----------------- ------------------
Total stockholders' equity 163,820 292,105
----------------- ------------------
$ 976,022 $ 1,194,974
================= ==================
See accompanying notes to consolidated financial statements
3
NEOSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ---------------------------------------
2007 2006 2007 2006
--------------- ---------------- ---------------- ------------------
Earned revenues $ 6,017 $ 6,262 $ 61,912 $ 12,524
Direct costs (2,350) (4,467) (3,603) (8,934)
---------------- ---------------- ---------------- ------------------
Gross profit 3,667 1,795 58,309 3,590
Selling, general and
administrative 1,960,393 1,039,409 3,835,746 1,978,234
---------------- ---------------- ---------------- ------------------
Operating loss (1,956,726) (1,037,614) (3,777,437) (1,974,644)
Other income (expense):
Interest income 2,874 2,005 15,224 2,544
Interest expense (4,409) (209,473) (12,383) (402,492)
Interest expense - Series A
mandatorily redeemable
convertible preferred stock - - - (9,934)
---------------- ---------------- ---------------- ------------------
Net loss $ (1,958,261) $ (1,245,082) $ (3,774,596) $ (2,384,526)
================ ================ ================ ==================
Net loss per common share ($0.74) ($1.20) ($1.47) ($2.59)
================ ================ ================ ==================
Weighted average
common shares outstanding 2,657,053 1,038,029 2,564,806 920,637
================ ================ ================ ==================
See accompanying notes to consolidated financial statements
4
NEOSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30,
---------------------------------
2007 2006
---- ----
Cash flows from operating activities:
Net loss $(3,774,596) $(2,384,526)
Adjustments to reconcile net loss to net cash used in operating activities:
Common shares issued and stock options granted for services rendered and
interest expense 1,326,253 675,473
Depreciation 19,943 12,041
Amortization of debt discount - 136,696
Series A mandatorily redeemable convertible preferred stock dividends - 9,934
Deferred acquisition costs 1,253 8,934
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (97,125) (103,591)
Accounts receivable (37,202) -
Unearned revenues 4,482 (12,524)
Accounts payable, accrued expenses, and other current liabilities (66,873) (126,063)
---------------- --------------
Net cash used in operating activities (2,623,865) (1,783,626)
---------------- --------------
Cash flows from investing activities:
Acquisition property and equipment (19,194) -
---------------- --------------
Net cash used in investing activities (19,194) -
---------------- --------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 2,320,055 1,928,100
Proceeds from advances on notes payable 138,232 180,396
Payments of capitalized lease obligations (11,645) (9,631)
Proceeds from sale of convertible debentures - 250,000
Repayments of notes payable (154,860) (141,861)
---------------- --------------
Net cash provided by financing activities 2,291,782 2,207,004
---------------- --------------
Net increase/(decrease) in cash and cash equivalents (351,277) 423,378
Cash and cash equivalents at beginning of period 436,659 488,872
---------------- --------------
Cash and cash equivalents at end of period $ 85,382 $ 912,250
================ ===========
Six Months Ended June 30,
-------------------------
2007 2006
Supplemental Disclosure of Cash Flow Information: ---- ----
Cash paid during the period for:
Interest $ 12,383 $ 38,698
Supplemental Schedule of Non-cash Financing Activities:
Issuance of common stock for purchase of NS California - 200,000
Net accrual of dividends on Series A preferred stock - 9,934
Issuance of common stock for capital commitment 165,000 -
Issuance of restricted common stock for services 233,952 -
Issuance of common stock for services rendered 95,704 301,483
Issuance of common stock for compensation 55,410 -
Issuance of warrants for services 202,292 -
Compensatory element of stock options 573,895 298,516
See accompanying notes to consolidated financial statements.
5
NEOSTEM, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - The Company
- --------------------
NeoStem, Inc. ("NeoStem") was incorporated under the laws of the State of
Delaware in September 1980 under the name Fidelity Medical Services, Inc.
NeoStem is in the business of operating a commercial autologous (donor and
recipient are the same) adult stem cell bank and is pioneering the pre-disease
collection, processing and long-term storage of adult stem cells that donors can
access for their own present and future medical treatment. On January 19, 2006
we consummated the acquisition of the assets of NS California, Inc., a
California corporation ("NS California") relating to NS California's business of
collecting and storing adult stem cells. Effective with the acquisition, the
business of NS California became our principal business, rather than our
historic business of providing capital and business guidance to companies in the
healthcare and life science industries. The Company provides adult stem cell
processing, collection and banking services with the goal of making stem cell
collection and storage widely available, so that the general population will
have the opportunity to store their own stem cells for future healthcare needs.
Prior to the NS California acquisition, the business of the Company was to
provide capital and business guidance to companies in the healthcare and life
science industries, in return for a percentage of revenues, royalty fees,
licensing fees and other product sales of the target companies. Additionally,
through June 30, 2002, the Company was a provider of extended warranties and
service contracts via the Internet at warrantysuperstore.com. From June, 2002 to
March, 2007 the Company was engaged in the "run off" of such extended warranties
and service contracts. As of March 31, 2007 the recognition of revenue from the
sale of extended warranties and service contracts was completed.
On August 29, 2006, our stockholders approved an amendment to our Certificate of
Incorporation to effect a reverse stock split of our Common Stock at a ratio of
one-for-ten shares and to change our name from Phase III Medical, Inc. to
NeoStem, Inc. On June 14, 2007, our stockholders approved an amendment to our
certificate of incorporation to effect a reverse split of our Common Stock at a
ratio of one-for-ten shares in the event it was deemed necessary by our Board of
Directors to list our Common Stock on a stock exchange. On July 9, 2007, our
Board of Directors approved this reverse stock split and on August 9, 2007 the
Company's Common Stock commenced trading on The American Stock Exchange under
the symbol "NBS". All numbers in this report have been adjusted to reflect the
reverse stock splits which were effective as of August 31, 2006 and August 9,
2007.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions for Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, the statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the financial
position as of June 30, 2007 and December 31, 2006, the results of operations
for the three and six months ended June 30, 2007 and 2006 and the cash flows for
the six months ended June 30, 2007 and 2006. The results of operations for the
three and months ended June 30, 2007 are not necessarily indicative of the
results to be expected for the full year.
The December 31, 2006 consolidated balance sheet has been derived from the
audited consolidated financial statements at that date included in the Company's
Annual Report on Form 10-K. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K.
Revenue Recognition: The Company initiated the collection and banking of
autologous adult stem cells in the fourth quarter of 2006. The Company
recognizes revenue related to the collection and cryopreservation of autologous
adult stem cells when the cryopreservation process is completed which is
generally twenty four hours after cells have been collected. Revenue related to
advance payments of storage fees are recognized ratably over the period covered
by the advanced payments. The Company also earns revenue, in the form of start
up fees, from physicians seeking to establish autologous adult stem cell
collection centers. These fees are in consideration of the Company establishing
a service territory for the physician. Start up fees are recognized once the
agreement has been signed and the physician has been qualified by the Company's
accreditation committee.
6
The Company had sold, via the Internet, through partnerships and directly to
consumers, extended warranty service contracts for seven major consumer
products. The Company recognizes revenue ratably over the length of the
contract. The Company purchased insurance to fully cover any losses under the
service contracts from a domestic carrier. The insurance premium and other costs
related to the sale are amortized over the life of the contract.
Recently Issued Accounting Pronouncements:
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS No. 159 expands the scope of
specific types of assets and liabilities that an entity may carry at fair value
on its statement of financial position, and offers an irrevocable option to
record the vast majority of financial assets and liabilities at fair value, with
changes in fair value recorded in earnings. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company is currently evaluating the
impact, if any; SFAS No. 159 will have on its financial statements.
Note 3 - Acquisition of NS California
- -------------------------------------
On January 19, 2006, the Company consummated the acquisition of the assets of NS
California, Inc. ("NS California") relating to NS California 's business of
collecting and storing adult stem cells, issuing 40,000 shares of the Company's
common stock with a value of $200,000. In addition, the Company assumed certain
liabilities of NS California's which totaled $476,972. The underlying physical
assets acquired from NS California were valued at $109,123 resulting in the
recognition of goodwill in the amount of $558,169. Upon completion of the
acquisition the operations of NS California were assumed by the Company and have
been reflected in the Consolidated Statement of Operations since January 19,
2006. Effective with the acquisition, the business of NS California became the
principal business of the Company.
Note 4 - Notes Payable
- ----------------------
On December 30, 2005, the Company sold $250,000 of convertible nine month
Promissory Notes which bear 9% simple interest with net proceeds to the Company
of $220,000. These convertible notes were sold in connection with a subscription
agreement between the Company and certain investors and the placement agent was
WestPark Capital, Inc. ("WestPark"). (The convertible notes and warrants sold in
December, 2005 and January, 2006 in the transaction in which WestPark Capital,
Inc. acted as the placement agent is sometimes referred to herein as the
"WestPark Private Placement") The Company recorded a debt discount associated
with the conversion feature in the amount of $83,333, which was charged to
interest expense during the year ended December 31, 2006. The debt discount
recorded of $83,333 did not change the amount of cash required to payoff the
principal value of these Promissory Notes, at any time during the term, which
was $250,000. As part of the WestPark Private Placement, these Promissory Notes
had 4,167 detachable warrants for each $25,000 of debt, which entitle the holder
to purchase one share of the Company's Common Stock at a price of $12.00 per
share. The warrants are exercisable for a period of three years from the date of
the Promissory Note. The Promissory Notes convert to the Company's Common Stock
at $6.00 per share. The Promissory Notes are convertible at anytime into shares
of Common Stock at the option of the Company subsequent to the shares underlying
the Promissory Notes and the shares underlying the warrants registration if the
closing price of the Common Stock has been at least $18.00 for a period of at
least 10 consecutive days prior to the date on which notice of conversion is
sent by the Company to the holders of the Promissory Notes. Pursuant to the
terms of the WestPark Private Placement, the Company agreed to file with the SEC
and have effective by July 31, 2006, a registration statement registering the
resale by the investors in the WestPark Private Placement of the shares of
Common Stock underlying the convertible notes and the warrants sold in the
WestPark Private Placement. This registration statement was not made effective
by July 31, 2006 and certain additional rights have accrued to the Convertible
Promissory Noteholders (see below for a detailed description of these additional
rights). In 2005, the Company recorded an expense of $2,573 associated with the
warrants as their fair value using the Black Scholes method.
In January 2006, the Company sold an additional $250,000 of convertible nine
month Promissory Notes which bear 9% simple interest with net proceeds to the
Company of $223,880 as part of the WestPark Private Placement. The Company
recorded a debt discount associated with the conversion feature in the amount of
$129,167. For the year ended December 31, 2006, the Company charged $127,932 of
the debt discount to interest expense. The debt discount recorded of $129,167
does not change the amount of cash required to payoff the principal value of
these Promissory Notes, at any time during the term, which was $250,000. These
Promissory Notes also had 4,167 detachable warrants for each $25,000 of debt,
which entitle the holder to purchase one share of the Company's Common Stock at
a price of $12.00 per share. The warrants are exercisable for a period of three
years from the date of the Promissory Note. The Promissory Notes convert to the
Company's Common Stock at $6.00 per share. The Promissory Notes are convertible
at anytime into shares of Common Stock at the option of the Company subsequent
to the shares underlying the Promissory Notes and the shares underlying the
warrants registration if the closing price of the Common Stock has been at least
7
$18.00 for a period of at least 10 consecutive days prior to the date on which
notice of conversion is sent by the Company to the holders of the Promissory
Notes. Pursuant to the terms of the WestPark Private Placement, the Company
agreed to file with the SEC and have effective by July 31, 2006, a registration
statement registering the resale by the investors in the WestPark Private
Placement of the shares of Common Stock underlying the convertible notes and the
warrants sold in the WestPark Private Placement. This registration statement was
not made effective by July 31, 2006 and as a result certain additional rights
accrued to the Convertible Promissory Noteholders (see below for a detailed
description of these additional rights). For the year ended December 31, 2006,
the Company recorded as interest expense $263,612 associated with the warrants
as their fair value using the Black Scholes method.
As mentioned previously, pursuant to the terms of the WestPark Private
Placement, the Company agreed to file with the SEC and have effective by July
31, 2006, a registration statement registering the resale by the investors in
the WestPark Private Placement of the shares of Common Stock underlying the
convertible promissory notes and the warrants sold in the WestPark Private
Placement. In the event the Company did not do so, (i) the conversion price of
the convertible promissory notes was reduced by 5% each month, subject to a
floor of $4.00; (ii) the exercise price of the warrants was reduced by 5% each
month, subject to a floor of $10.00 and (iii) the warrants could be exercised
pursuant to a cashless exercise provision. The Company did not have the
registration statement effective by July 31, 2006 and requested that the
investors in the WestPark Private Placement extend the date by which the
registration statement is required to be effective until February 28, 2007. In
August, 2006 the Company filed with the SEC a registration statement registering
the resale by the investors of the WestPark Private Placement of the shares of
Common Stock underlying the convertible promissory notes and the warrants sold
in the WestPark Private Placement which was made effective in November, 2006.
In an effort to improve the financial position of the Company, in July 2006,
noteholders were offered the option of (A) extending the term of the convertible
note for an additional four months from the maturity date in consideration for
which (i) the Company shall issue to the investor for each $25,000 in principal
amount of the convertible note 568 shares of unregistered Common Stock; and (ii)
the exercise price per warrant shall be reduced from $12.00 to $8.00, or (B)
converting the convertible note into shares of the Company's Common Stock in
consideration for which (i) the conversion price per conversion share shall be
reduced to $4.40; (ii) the Company shall issue to the investor for each $25,000
in principal amount of the Note, 1,136 shares of Common Stock; (iii) the
exercise price per warrant shall be reduced from $12.00 to $8.00; and (iv) a new
warrant shall be issued substantially on the same terms as the original Warrant
to purchase an additional 4,167 shares of Common Stock for each $25,000 in
principal amount of the convertible note at an exercise price of $8.00 per
share. Pursuant to this, the investor was also asked to waive any and all
penalties and liquidated damages accumulated as of the date of the agreement.
This offer was terminated on August 31, 2006. By August 31, 2006 investors
owning $237,500 of the $500,000 of convertible promissory notes had agreed to
convert the convertible note into shares of the Company's Common Stock for
consideration described above and investors holding $162,500 of the $500,000 of
convertible promissory notes had agreed to extend the term of the convertible
note for an additional four months from the maturity date for consideration
described above.
In September 2006, a new offer was extended to the remaining noteholders to
convert the convertible note into shares of the Company's Common Stock in
consideration for which (i) the conversion price per conversion share shall be
reduced to $4.40; (ii) the exercise price per warrant shall be reduced from
$12.00 to $8.00 and (iii) a new warrant shall be issued substantially on the
same terms as the original Warrant to purchase an additional 4,167 shares of
Common Stock for each $25,000 in principal amount of the convertible note at an
exercise price of $8.00 per share. Pursuant to this, the investor was also asked
to waive any and all penalties and liquidated damages accumulated as of the date
of the agreement.
By December 31, 2006, investors owning $425,000 convertible promissory notes
agreed to convert the convertible note into shares of the Company's Common Stock
for consideration described above. The Company issued 107,386 shares of Common
Stock with a fair value of $692,896. In addition, the Company issued 60,417
warrants with a fair value of $472,741 for noteholders that agreed to an early
conversion of their convertible promissory notes. The Company also issued 3,693
shares of Common Stock as consideration for extending the term of the
convertible notes, totaling $162,500, for an additional four months with a fair
value of $21,023. The fair value of this Common Stock has been accounted for as
interest expense. Amounts in excess of the face value of the convertible
promissory notes and the fair value of the warrants issued as the result of
early conversion have been accounted for as interest expense. The balance,
$75,000, of convertible promissory notes was paid off in January, 2007.
In connection with the NS California acquisition, the Company assumed a 6% note
due to Tom Hirose, a former officer of NS California in the amount of $15,812.
As of June 30, 2007, $1,313 remains unpaid. Final payment will be made in 2007.
The Company has financed certain insurance polices and has notes payable at June
30, 2007 in the amount of $58,372 related to these policies. These notes require
monthly payments and mature in less than one year.
8
Note 5 - Series A Mandatorily Redeemable Convertible Preferred Stock
- --------------------------------------------------------------------
In connection with the settlement of securities class action litigation in 1994,
the Company issued 1,000,000 shares of Series A $0.07 Convertible Preferred
Stock (the "Series A Preferred Stock") with an aggregate value of $1,000,000.
The following summarizes the terms of Series A Preferred Stock. The Series A
Preferred Stock had a liquidation value of $1 per share, was non-voting and
convertible into common stock of the Company at a price of $5.20 per share.
Holders of Series A Preferred Stock were entitled to receive cumulative cash
dividends of $0.07 per share, per year, payable semi-annually. At December 31,
2005 there were 681,171 shares of Series A Preferred Stock outstanding.
On March 17, 2006, the stockholders of the Company voted to approve an amendment
to the Certificate of Incorporation which permitted the Company to issue in
exchange for all 681,171 shares of Series A Preferred Stock outstanding and its
obligation to pay $538,498 (or $.79 per share) in accrued dividends thereon, a
total of 544,937 shares of Common Stock (eight tenths (.8) shares of Common
Stock per share of Series A Preferred Stock). Pursuant thereto, all outstanding
shares of Series A Preferred Stock were cancelled and converted into Common
Stock. Therefore at June 30, 2007 and December 31, 2006 and there were no shares
of Series A Preferred Stock outstanding.
Note 6 - Stockholders' Equity
- -----------------------------
Common Stock:
In January 2007, the Company issued 12,000 shares of Common Stock to its
intellectual property acquisition consultant, vesting as to 1,000 shares per
month commencing January 2007.
In January 2007, the Company issued an aggregate of 9,000 shares of Common
Stock, pursuant to the Company's Equity Participation Plan, to Wayne Marasco
pursuant to Dr. Marasco's agreements to serve as Chairman of the Company's
Scientific Advisory Board and consultant to the Company.
In February 2007, the term of the Company's financial advisory agreement with
Duncan Capital Group LLC was extended through December 2007, and the Company
issued to Duncan 15,000 shares of Common Stock as an advisory fee payment
vesting monthly through December 2007. The vesting of these shares was
accelerated in July, 2007 such that they are fully vested and the advisory
agreement was canceled in August, 2007.
In January and February 2007, the Company raised an aggregate of $2,500,000
through the private placement of 250,000 units at a price of $10.00 per unit
(the "January 2007 private placement"). Each unit was comprised of two shares of
the Company's Common Stock, one redeemable seven-year warrant to purchase one
share of Common Stock at a purchase price of $8.00 per share and one
non-redeemable seven-year warrant to purchase one share of Common Stock at a
purchase price of $8.00 per share. The Company issued an aggregate of 500,000
shares of Common Stock, and warrants to purchase up to an aggregate of 500,000
shares of Common Stock at an exercise price of $8.00 per share. Emerging Growth
Equities, Ltd ("EGE"), the placement agent for the January 2007 private
placement, received a cash fee equal to $171,275 and was entitled to expense
reimbursement not to exceed $50,000. The Company also issued to EGE redeemable
seven year warrants to purchase 34,255 shares of Common Stock at a purchase
price of $5.00 per share, redeemable seven-year warrants to purchase 17,127
shares of Common Stock at a purchase price of $8.00 per share and non-redeemable
seven-year warrants to purchase 17,127 shares of Common Stock at a purchase
price of $8.00 per share. The net proceeds of this offering were approximately
$2,317,500.
In February 2007, the Company issued 30,000 shares of its Common Stock,
resulting in a charge to operations of $165,000, to a financial advisor in
connection with a commitment for the placement of up to $3,000,000 of the
Company's preferred stock.
In April, 2007, the Company issued 3,688 shares of its Common Stock, resulting
in a charge to operations of $22,500, to Rubenstein Public Relations, Inc., in
connection with public relations services rendered to the Company.
In May, 2007, the Company issued 1,000 shares of its Common Stock, resulting in
a charge to operations of $4,500, to Raymond Markman, in connection with
investor relations services rendered to the Company.
In May, 2007, the Company issued 15,000 shares of its Common Stock, resulting in
a charge to operations of $67,500, to Consulting for Strategic Growth, Inc., in
connection with investor relations services rendered to the Company.
In May and June, 2007, the Company issued an aggregate of 2,151 shares of its
Common Stock, to Duncan Capital Group LLC resulting in charges to operations
totaling $9,891, as partial payment for rent expense.
In June, 2007, the Company issued 12,000 shares of its Common Stock, with a
value of $50,400, to Sokol, Behot & Fiorenzo, a law firm, in connection with
services rendered to the Company, of which 6,000 shares vested by June, 2007 and
1,000 shares vest monthly through December, 2007.
9
In June, 2007, the Company issued 3,000 shares of its Common Stock, resulting in
a charge to operations of $1,410, to a consultant for certain management
services rendered to the Company.
Warrants:
The Company has issued common stock purchase warrants from time to time to
investors in private placements, certain vendors, underwriters, and directors
and officers of the Company. A total of 1,354,652 shares of common stock are
reserved for issuance upon exercise of outstanding warrants as of June 30, 2007
at prices ranging from $4.70 to $12.00 and expiring through June, 2014.
In connection with the January 2007 private placement the Company issued
warrants to purchase up to an aggregate of 500,000 shares of Common Stock at an
exercise price of $8.00 per share. The Company also issued to EGE redeemable
seven year warrants to purchase 34,255 shares of Common Stock at a purchase
price of $5.00 per share, redeemable seven-year warrants to purchase 17,127
shares of Common Stock at a purchase price of $8.00 per share and non-redeemable
seven-year warrants to purchase 17,127 shares of Common Stock at a purchase
price of $8.00 per share.
In March 2007, the Company engaged Trilogy Capital Partners, Inc. ("Trilogy") as
a marketing and investor relations consultant. Pursuant to this agreement, the
Company issued to Trilogy warrants to purchase 150,000 shares of its Common
Stock at a purchase price of $4.70 per share. Such warrants vest over a 12 month
period at a rate of 12,500 per month, subject to acceleration in certain
circumstances, and are exercisable until April 30, 2010. During the three and
six months ended June 30, 2007 the Company recognized $106,725 and $142,300,
respectively, as consulting expense related to the vesting of these warrants.
In May 2007, the Company engaged Consulting for Strategic Growth, Inc. ("CFSG")
as an investor relations consultant. Pursuant to this agreement, the Company
issued to CSFG warrants to purchase 10,000 shares of its Common Stock at a
purchase price of $4.90 per share. Such warrants vested on issuance and during
the three months ended June 30, 2007 the Company recognized $37,480 as
consulting expense related to these warrants.
In June 2007, the Company engaged Blausen Lisi, Inc. ("Blausen") to create
marketing materials for our sales and marketing staff. Pursuant to this
agreement, the Company issued to Blausen warrants to purchase 4,000 shares of
its Common Stock at a purchase price of $6.50 per share. Such warrants vested on
issuance and during the three months ended June 30, 2007 the Company recognized
$22,512 as marketing expense related to these warrants.
At June 30, 2007 the outstanding warrants by range of exercise prices are as
follows:
Number Weighted Average Number
Outstanding Remaining Exercisable
Exercise Price June 30, 2007 Contractual Life (years) June 30, 2007
-------------- ------------- ------------------------ -------------
$4.70 to $7.60 234,011 4.00 121,511
$7.60 to $10.50 1,088,651 4.94 1,088,651
$10.50 to $12.00 31,992 1.52 31,992
------------ -----------
1,354,654 1,242,154
========= =========
Options:
The Company's Equity Participation Plan (the "Plan") permits the grant of share
options and shares to its employees, Directors, consultants and advisors for up
to 25,000,000 shares of common stock as stock compensation. Stock options under
the Equity Participation Plan are generally granted at the fair market value of
the common stock at the grant date. Employee stock options vest ratably over a
period determined at the time of grant and generally expire 10 years from the
grant date.
The Company's results for the six month periods ended June 30, 2007 and 2006
include share-based compensation expense totaling $573,895 and $383,078,
respectively. Such amounts have been included in the consolidated statements of
operations within general and administrative expenses.
Stock option compensation expense is the estimated fair value of options granted
amortized on a straight-line basis over the requisite service period for the
entire portion of the award.
10
The range of assumptions made in calculating the fair values of options are as
follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2007 2006 2007 2006
---- ---- ---- ----
Expected term (in years) 10 10 10 10
Expected volatility 133% 133% 133% to 152% 199%
Expected dividend yield 0% 0% 0% 0%
Risk-free interest rate 4.95% 4.95% 4.51% to 4.95% 4.50%
Stock option activity under the 2003 Equity Participation Plan is as
follows:
Weighted Weighted Average Aggregate
Number of Range of Exercise Average Remaining Intrinsic
Shares(1) Price Exercise Price Contractual Term Value
--------- ----------------- -------------- ----------------- -----------
Balance at December 31, 2006 444,600 $3.00 - $25.00 $ 7.28
Granted 137,000 $2.70 - $8.00 $ 5.09
Exercised -- -- --
Expired -- -- --
Cancelled -- -- --
-------- ---------------
Balance at June 30, 2007 581,600 $2.70 - $25.00 $ 6.77 6.95 $64,930
======== ================
Vested and Exercisable at
June 30, 2007 308,600 $ 6.97 5.15 $15,680
(1) -- All options are exercisable for a period of ten years.
Number Weighted Average Number
Outstanding Remaining Exercisable
Exercise Price June 30, 2007 Contractual Life (years) June 30, 2007
- -------------- ------------- ------------------------ -------------
$2.70 to $ 5.80 264,100 8.65 133,600
$5.80 to $ 8.80 220,650 9.05 124,650
$8.80 to $11.90 67,750 8.61 33,250
$11.90 to $14.90 3,000 6.68 3,000
$14.90 to $25.00 26,100 7.63 14,100
--------------- ------------
581,600 6.95 308,600
=============== ============
Options are usually granted at an exercise price at least equal to the fair
value of the common stock at the grant date and may be granted to employees,
directors, consultants and advisors of the Company.
As of June 30, 2007, there was approximately $1,445,000 of total unrecognized
compensation costs related to unvested stock option awards which are expected to
vest over a weighted average life of 1.49 years.
11
Weighted
Average Grant
Date Fair
Options Value
---------- ---------------
Non-Vested at December 31, 2006 211,583 $ 6.26
Issued 137,000 $ 5.08
Canceled -- --
Vested (75,583) $ 6.40
---------- ---------------
Non-Vested at June 30, 2007 273,000 $ 5.98
========== ================
The total value of shares vested during the six months ended June 30, 2007 was
$573,895.
Note 7 - Segment Information
- ----------------------------
Until April 30, 2001, the Company operated in two segments; as a reinsuror and
as a seller of extended warranty service contracts through the Internet. The
reinsurance segment has been discontinued and the Company's remaining revenues
are derived from the run-off of its sale of extended warranties and service
contracts via the Internet. Additionally, the Company established a new business
in the banking of adult autologous stem cells sector. The Company's operations
are conducted entirely in the U.S. Although the Company has realized minimal
revenue from the banking of adult autologous stem cells, the Company operated in
two segments until the "run-off" was completed. As of March 31, 2007 the run off
of the sale of extended warranties and service contracts was completed.
Note 8 - Related Party Transactions
- -----------------------------------
On January 20, 2006, Mr. Robert Aholt, Jr. tendered his resignation as Chief
Operating Officer of the Company. In connection therewith, on March 31, 2006,
the Company and Mr. Aholt entered into a Settlement Agreement and General
Release (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the
Company agreed to pay to Mr. Aholt the aggregate sum of $250,000 (less
applicable Federal and California state and local withholdings and payroll
deductions), payable, initially over a period of two years in biweekly
installments of $4,807.69 commencing on April 7, 2006, except that the first
payment was in the amount of $9,615. In July, 2006 this agreement was amended to
call for semi-monthly payments of $10,417 for the remaining 21 months. In the
event the Company breaches its payment obligations under the Settlement
Agreement and such breach remains uncured, the full balance owed shall become
due. The Company and Mr. Aholt each provided certain general releases. Mr. Aholt
also agreed to continue to be bound by his obligations not to compete with the
Company and to maintain the confidentiality of Company proprietary information.
At June 30, 2007, $86,939 was due Mr. Aholt pursuant to the terms of the
Settlement Agreement.
Note 9 - Subsequent Events
- --------------------------
On June 14, 2007, our stockholders approved an amendment to our certificate of
incorporation to effect a reverse split of our Common Stock at a ratio of
one-for-ten shares in the event it was deemed necessary by our Board of
Directors to list our Common Stock on a stock exchange. On July 9, 2007, our
Board of Directors approved this reverse stock split.
On August 8, 2007, the Company completed the sale of 1,055,900 units at a price
of $5.00 per unit pursuant to a best efforts public offering. A registration
statement on Form SB-2A (File No. 333-142923) relating to these units was filed
with the Securities and Exchange Commission and declared effective on July 16,
2007. Each unit consists of one share of common stock and one-half of a five
year Class A warrant to purchase one-half a share of common stock at a price of
$6.00 per share. Thus, 1,000 units consist of 1,000 shares of common stock and
warrants to purchase 500 shares of common stock. Net proceeds to the Company are
approximately $4.8 million. On August 14, 2007 the Company completed the sale of
an additional 214,100 units for additional net proceeds of approximately
$974,000.
On August 8, 2007, subject to the closing of the above initial sale and
consummation of the reverse split, the American Stock Exchange accepted for
listing the Company's common stock, units as described above, and Class A
warrants under the symbols "NBS", "NBS.U", and "NBS.WS" respectively. Trading on
the American Stock Exchange commencd on August 9, 2007.
Since June 30, 2007 the Company has borrowed an aggregate of $200,000 through
the issuance of short term bridge notes to support operations pending the
closing of the above described public offering. These bridge notes provide that
they mature in six months from the date of issuance of the bridge note, subject
to the Company's right to prepay, and bear interest at a rate of 15% per annum.
Robin L. Smith MD, Chief Executive Office of the Company accepted a bridge note
for $125,000 and Richard Berman, a member of the Board of Directors, accepted a
bridge note for $50,000. On August 10, 2007, the Board authorized the repayment
in full of the bridge notes and all outstanding bridge notes were repaid in full
plus accrued interest.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Quarterly Report on Form 10-QSB and the documents incorporated herein
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. When used
in this Quarterly Report, statements that are not statements of current or
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "plan", "intend," "may," "will," "expect," "believe",
"could," "anticipate," "estimate," or "continue" or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Except
as required by law, the Company undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
GENERAL
On January 19, 2006 the Company consummated the acquisition of the assets of NS
California, Inc., a California corporation ("NS California") relating to NS
California's business of collecting and storing adult stem cells. NS California
had been a company to which NeoStem had been providing business guidance.
Effective with the acquisition, the business of NS California became the
principal business of the Company. The Company now provides adult stem cell
collection, cryopreservation and banking services with the goal of making stem
cell collection and storage widely available, so the general population will
have the opportunity to store their own stem cells for future healthcare needs.
The Company also hopes to become the leading provider of adult stem cells for
therapeutic use in the burgeoning field of regenerative medicine for potentially
addressing heart disease, certain types of cancer and other critical health
problems.
Until the NS California acquisition, the business of the Company was providing
capital and business guidance to companies in the healthcare and life science
industries, in return for a percentage of revenues, royalty fees, licensing fees
and other product sales of the target companies. Additionally, through June 30,
2002, the Company was a provider of extended warranties and service contracts
via the Internet at warrantysuperstore.com. From June 2002 to March 2007 the
Company was engaged in the "run off" of such extended warranties and service
contracts. As of March 31, 2007 the recognition of revenue from the sale of
extended warranties and service contracts was completed.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2007 Compared To Three and Six Months Ended
June 30, 2006
The Company's initial sales strategy is to develop a nationwide network of adult
stem cell collection centers and medical providers, enabling health conscious
consumers to donate and store their own stem cells with NeoStem for personal use
years or decades later in times of critical medical need. Medical providers that
are interested in participating in providing this service to patients in their
local area are required to pay a start up fee in consideration for exclusivity
in that service area. Sales and marketing efforts to create this network started
in the fourth quarter of 2006 and continued in the quarter ending June 30, 2007.
To that end the Company recognized revenues of $0 and $54,000 from the receipt
of start up fees in the three and six months ended June 30, 2007, respectively.
The Company has also recognized revenues from the sale of extended warranties
and service contracts of $0 and $1,697 for the three and six months ended June
30, 2007 as compared to $6,262 and $12,524 for the three and six months ended
June 30, 2006. These revenues were derived entirely from revenues deferred over
the life of extended warranties and service contracts sold in prior periods. As
of March 31, 2007 the recognition of revenue from the sale of extended
warranties and service contracts was completed.
Selling, general and administration expenses for the three months ended June 30,
2007 increased approximately $921,000 to $1,960,393 as compared to $1,039,409
for the three months ended June 30, 2006. Since the acquisition of NS California
in January, 2006 the Company's expenses have been increasing as the Company
initiated sales and marketing efforts to promote the collection and banking of
adult stems cells. The increase in selling, general and administrative expenses
is primarily due to increases in marketing efforts through the hiring of staff,
preparation of marketing materials, attending key marketing events and retaining
the services of specialized marketing consulting firms. To that end payroll and
related expenses increased $150,823, travel and entertainment expenses increased
$80,345, marketing expenses increased $201,253, investor relations and public
13
relations activities increased $156,504, consulting fees increased $137,808, and
the compensatory value of common stock options granted and common stock issued
for compensation increased by $49,460. The Company's application for licensure
for stem cell processing in New York, which was approved in April, 2007,
resulted in additional expenses of $30,820. Increases in expenses such as legal
expense, accounting fees, stock transfer fees, rent, and director fees (in the
form of restricted stock grants), investment banking fees, and laboratory
operations which resulted in a net increase in operating expenses of $117,720.
Selling, general and administration expenses increased for the six months ended
June 30, 2007 approximately $1,857,500 to $3,835,746 as compared to $1,978,234
for the six months ended June 30, 2006. Since the acquisition of NS California
in January, 2006 the Company's expenses have been increasing as the Company
initiated sales and marketing efforts to promote the collection and banking of
adult stems cells. The increase in selling, general and administrative expenses
is primarily due to increases in marketing efforts through the hiring of staff,
preparation of marketing materials, attending key marketing events and retaining
the services of specialized marketing consulting firms. To that end payroll and
related expenses increased $325,598, marketing expenses increased $312,483,
travel and entertainment expenses increased $171,506, consulting fees increased
$264,070, investor relations and public relations activities increased $268,200
and the compensatory value of common stock options granted and common stock
issued for compensation increased by $329,319. The Company issued 300,000 shares
of its Common Stock, resulting in a charge to operating expenses of $165,000, to
a financial advisor in connection with a commitment for the placement of up to
$3,000,000 of the Company's preferred stock. The Company applied for licensure
for stem cell processing in New York which resulted in additional expenses of
$54,650. Increases in expenses such as legal expense, accounting fees, investor
relations, stock transfer fees, rent, and director fees (in the form of
restricted stock grants) were offset by decreases in settlement expenses with
the Company's former Chief Operating Officer, investment banking fees, and
laboratory operations which resulted in a net decrease in operating expenses of
$27,827.
Interest expense decreased by approximately $205,100 for the three months ended
June 30, 2007 in comparison to the three months ended June 30, 2006. This
decrease is due, primarily, to the conversion or payoff of the WestPark
convertible debt issued in December 2005 and January 2006 which resulted in a
$198,093 reduction in interest expense..
Interest expense decreased by approximately $390,100 for the six months ended
June 30, 2007 in comparison to the six months ended June 30, 2006. This decrease
is due, primarily, to the conversion or payoff of the WestPark convertible debt
issued in December 2005 and January 2006 which resulted in a $383,602 reduction
in interest expense. This decrease was offset by a small increase in interest
related to financing insurance policies. The conversion of Series A mandatorily
redeemable convertible preferred stock to common stock eliminated the obligation
to accrue dividends in 2006 and therefore no interest expense related to this
dividend obligation was incurred in the three or six months ending June 30,
2007.
For the reasons cited above the net loss for the three months ended June 30,
2007 increased to $2,010,773 from $1,245,082 for the three months ended June 30,
2006 and the net loss for the six months ended June 30, 2007 increased to
$3,827,108 from $2,384,256 for the three months ended June 30, 2006.
LIQUIDITY AND CAPITAL RESOURCES
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period indicated:
Six Months Ended
----------------
June 30, 2007 June 30, 2006
------------- -------------
Cash used in
Operating Activities $ (2,623,866) $ (1,783,626)
Cash used in
Investing Activities $ (19,194) $ -
Cash provided by
Financing Activities $ 2,291,782 $ 2,204,004
The Company incurred a net loss of $3,774,596 for the six months ended June 30,
2007. Such loss adjusted for non-cash charges consisting of common stock,
options and warrants issued for services totaling $1,326,253 and amortization
and depreciation of $19,943 resulted in cash used in operations totaling
$2,623,866 for the six months ended June 30, 2007. This use of cash included
additions to prepaid expenses and other current assets of $97,125, accounts
receivable of $37,202 and reductions in accounts payable, accrued expenses and
other current liabilities of $66,873.
To meet its cash requirements for the six months ended June 30, 2007, the
Company relied primarily on the sale of shares of Common Stock resulting in net
14
proceeds of $2,320,055. In addition, the Company incurred new debt totaling
$138,232 to finance certain insurance policies for the company offset by debt
repayments totaling $154,860 to pay off WestPark Convertible debt of $75,000 and
payments of $79,860 for new debt incurred to finance insurance policies.
Since June 30, 2007 the Company has borrowed an aggregate of $200,000 through
the issuance of short term bridge notes to support operations pending the
closing of the above described public offering. These bridge notes provide that
they mature in six months from the date of issuance of the bridge note, subject
to the Company's right to prepay, and bear interest at a rate of 15% per annum.
Robin L. Smith MD, Chief Executive Office of the Company accepted a bridge note
for $125,000 and Richard Berman, a member of the Board of Directors, accepted a
bridge note for $50,000. On August 10, 2007, the Board authorized the repayment
in full of the bridge notes and all outstanding bridge notes were repaid in full
plus accrued interest.
On August 8, 2007, the Company completed the sale of 1,055,900 units at a price
of $5.00 per unit pursuant to a best efforts public offering. A registration
statement on Form SB-2A (File No. 333-142923) relating to these units was filed
with the Securities and Exchange Commission and declared effective on July 16,
2007. Each unit consists of one share of common stock and one-half of a five
year Class A warrant to purchase one-half a share of common stock at a price of
$6.00 per share. Thus, 1,000 units consist of 1,000 shares of common stock and
warrants to purchase 500 shares of common stock. Net proceeds to the Company are
approximately $4.8 million. On August 14, 2007 the Company completed the sale of
an additional 214,100 units for additional net proceeds of approximately
$974,000.
INFLATION
The Company does not believe that its operations have been materially influenced
by inflation for the six months ended June 30, 2007, a situation which is
expected to continue for the foreseeable future.
15
ITEM 3 CONTROLS AND PROCEDURES
(a) Our chief executive officer and chief financial officer have concluded,
based on their evaluation of the effectiveness of our "disclosure controls
and procedures" as of the end of the period covered by this quarterly
report on Form 10-QSB (as defined under Rule 13a-15(e) and Rule 15d-15(e)
of the Securities Exchange Act of 1934) were effective as of such date to
ensure that information we are required to disclose in the reports we file
or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms,
and include controls and procedures designed to ensure that information we
are required to disclose in such reports is accumulated and communicated to
management, including our principal executive, as appropriate, to allow
timely decisions regarding required disclosure. Due to the inherent
limitations of control systems, not all misstatements may be detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty and the breakdowns can occur because of a
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. Our controls and procedures can only
provide reasonable, not absolute, assurance that the above objectives have
been met.
(b) During our last fiscal quarter and subsequent to our evaluation, there
were no significant changes in internal controls or other factors that have
materially affected, or reasonably likely to materially affect our internal
controls over financial reporting.
16
NEOSTEM, INC.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In April, 2007, the Company issued 3,688 shares of its Common Stock, resulting
in a charge to operations of $22,500, to Rubenstein Public Relations, Inc., in
connection with a public relations campaign undertaken on behalf of the Company.
In May, 2007, the Company issued 1,000 shares of its Common Stock, resulting in
a charge to operations of $4,500, to Raymond Markman., in connection with
investor relations services rendered to the Company.
In May, 2007, the Company issued 15,000 shares of its Common Stock, resulting in
a charge to operations of $67,500, to Consulting for Strategic Growth, Inc., in
connection with investor relations services rendered to the Company.
In May and June, 2007, the Company issued an aggregate of 2,151 shares of its
Common Stock, to Duncan Capital Group LLC resulting in charges to operations
totaling $9,891, as partial payment for rent expense.
In June, 2007, the Company issued 12,000 shares of its Common Stock, with a
value of $50,400, to Sokol, Behot & Fiorenzo, a law firm, in connection with
services rendered to the Company, of which 6,000 shares were vested by in June,
2007 and 1,000 shares vest monthly through December, 2007.
In May 2007, the Company engaged Consulting for Strategic Growth, Inc. ("CFSG")
as a investor relations consultant to provide, among other things, database
maintenance and due diligence advice. Pursuant to this agreement, the Company
issued to CFSG warrants to purchase 10,000 shares of its Common Stock at a
purchase price of $4.90 per share. Such warrants vested on issuance and during
the three months ended June 30, 2007 the Company recognized $37,480 as
consulting expense related to these warrants.
In June 2007, the Company engaged Blausen Lisi, Inc. ("Blausen") to create
marketing materials for our sales and marketing staff. Pursuant to this
agreement, the Company issued to Blausen warrants to purchase 4,000 shares of
its Common Stock at a purchase price of $6.50 per share. Such warrants vested on
issuance and during the three months ended June 30, 2007 the Company recognized
$22,512 as marketing expense related to these warrants.
In July, 2007 the Company issued 909 shares of its Common Stock, to Duncan
Capital Group LLC resulting in charges to operations totaling $5,000, as partial
payment for rent expense.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders was held on June 14, 2007.
(b) The Directors elected at the annual meeting were Robin L. Smith, Mark
Weinreb, Joseph Zuckerman, Richard Berman and Steven S. Myers. Such persons are
all of the Directors of the Company whose term of office continued after the
annual meeting.
17
(c) The matters voted upon at the annual meeting and the results of the voting,
including broker non-votes where applicable, are set forth below:
(i) Election of Directors
Name In Favor Witheld
---- -------- -------
Robin L. Smith 1,649,833 11,974
Mark Weinreb 1,647,426 14,381
Joseph Zuckerman 1,649,901 11,906
Richard Berman 1,649,778 12,029
Steven S. Myers 1,649,905 11,902
(ii) The stockholders approved an amendment to the Amended and Restated
Certificate of Incorporation effecting a reverse stock split of the Company's
Common Stock at a ratio within the range of 3:1 to 10:1 in the event it is
deemed necessary by the Board of Directors in order to be accepted onto a
securities exchange. The stockholders voted 1,618,309 in favor and 31,330
against. 12,168 shares abstained from voting.
(iii) The stockholders ratified the appointment by the Board of Holtz
Rubenstein Reminick LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 2007. The stockholders
voted 1,639,366 shares in favor and 9,039 shares against. 13,402 shares
abstained from voting.
ITEM 5. OTHER INFORMATION
RISK FACTORS
Our business was not contemplated by many existing laws or regulations.
The service that we provide is unique. It is not medical treatment, although it
involves medial procedures and it is not research, although research
participation is part of our business plan. Our business was not contemplated by
many of the regulations in the field in which we operate and as a result there
is often considerable uncertainty when we are analyzing the applicability of
regulatory requirements. We have devoted significant resources to ensuring
compliance with those laws that we believe to be applicable and when
applicability of a law is in doubt, we have opted to comply in order to minimize
risk. It is possible, however, that regulators may disagree with some of our
interpretations of the law prompting additional compliance requirements or even
enforcement actions. Such enforcement actions may have a material adverse effect
on our operations or may require re-structuring of our operations or impair our
ability to operate profitably.
ITEM 6. EXHIBITS
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEOSTEM, INC. (Registrant)
By: /s/ Robin Smith, MD
----------------------
Robin Smith MD, Chief Executive Officer
Date: August 14, 2007
Exhibit 31.1
CERTIFICATION
I, Robin Smith, MD, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of NeoStem, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly;
4. The small business registrant's other certifying officer(s) (if any) and I
are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the small business registrant's
disclosure controls and procedures and presented in this Report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly report
based on such evaluation; and
c) disclosed in this quarterly report any change in the small business
registrant's internal control over financial reporting that occurred during
the small business registrant's most recent fiscal quarter (the small
business registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the small business registrant's internal control over financial
reporting;
5. I have disclosed, based on our most recent evaluation of internal control
over financial reporting to the small business registrant's auditors and the
audit committee of the small business registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business
registrant's internal control over financial reporting.
Date: August 14, 2007
/s/ Robin, Smith, MD
- --------------------
Name: Robin Smith, MD
Title: Chief Executive Officer of NeoStem, Inc.
A signed original of this written statement required by Section 302 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 31.2
CERTIFICATION
I, Larry A. May, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of NeoStem, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly;
4. The small business registrant's other certifying officer(s) (if any) and I
are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the small business registrant's
disclosure controls and procedures and presented in this Report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly report
based on such evaluation; and
c) disclosed in this quarterly report any change in the small business
registrant's internal control over financial reporting that occurred during
the small business registrant's most recent fiscal quarter (the small
business registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the small business registrant's internal control over financial
reporting;
5. I have disclosed, based on our most recent evaluation of internal control
over financial reporting to the small business registrant's auditors and the
audit committee of the small business registrant's board of directors (or
persons performing the equivalent functions):
b) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business
registrant's internal control over financial reporting.
Date: August 14, 2007
/s/ Larry A. May
- ----------------
Name: Larry A. May
Title: Chief Financial Officer of NeoStem, Inc.
A signed original of this written statement required by Section 302 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NeoStem, Inc. (the "Company") on
Form 10-QSB for the period ended June 30, 2007 filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Robin Smith MD, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition of the Company as of the
dates presented and the result of operations of the Company for the
periods presented.
Dated: August 14, 2007
/s/ Robin Smith, MD
----------------------------
Robin Smith, MD
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and is not being filed as part of the Form
10-QSB or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NeoStem, Inc. (the "Company") on
Form 10-QSB for the period ended June 30, 2007 filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Larry A. May, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition of the Company as of the
dates presented and the result of operations of the Company for the
periods presented.
Dated: August 14, 2007
/s/ Larry A. May
----------------------
Larry A. May
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and is not being filed as part of the Form
10-QSB or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.