Morningstar® Document Research℠ FORM 10-KCaladrius Biosciences, Inc. - CLBSFiled: March 30, 2004 (period: December 31, 2003)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K(Mark One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 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 PHASE III MEDICAL, INC. (Exact name of registrant as specified in its charter) Delaware 22-2343568 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 330 South Service Road Suite 120 Melville, New York 11747 (Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code: (631) 574 4955Securities registered pursuant to Section 12(b) of the Act: None.Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par valueIndicate by check mark whether the registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes [X] No [ ]Indicate by check mark if disclosure of delinquent filers pursuant to Item 405of Regulation S-K (ss. 229.405 of this Chapter) is not contained herein, andwill not be contained, to the best of Registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. [ ]Indicate by check mark whether the Registrant is an accelerated filer (asdefined in Rule 12b-2 of the Act). Yes [ ] No [X]The aggregate market value of the voting and nonvoting common equity held bynon-affiliates of the Registrant as of June 30, 2003 was approximately $ 3.1million. (For purposes of determining this amount, only directors, executiveofficers, and 10% or greater stockholders have been deemed affiliates).On March 8, 2004, 26,926,460 shares of the Registrant's common stock, par value$0.001 per share, were outstanding.Documents incorporated by reference: NoneThis Annual Report on Form 10-K and the documents incorporated herein contain"forward-looking statements" within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Such forward-looking statements involve known andunknown risks, uncertainties and other factors which may cause the actualresults, performance or achievements of the Company, or industry results, to bematerially different from any future results, performance or achievementsexpressed or implied by such forward-looking statements. When used in thisAnnual Report, statements that are not statements of current or historical factmay be deemed to be forward-looking statements. Without limiting the foregoing,Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. the words "plan," "intend," "may," "will," "expect," "believe," "could,""anticipate," "estimate," or "continue" or similar expressions or othervariations or comparable terminology are intended to identify suchforward-looking statements. Readers are cautioned not to place undue reliance onthese forward-looking statements, which speak only as of the date hereof. Exceptas required by law, the Company undertakes no obligation to update anyforward-looking statements, whether as a result of new information, futureevents or otherwise. PART IITEM 1. BUSINESSPhase III Medical, Inc. ("Phase III" or the "Company") (formerly known asCorniche Group Incorporated) provides capital and guidance to companies, withinthe medical sector, in exchange for revenues, royalties and other contractualrights known as "royalty interests", that entitle it to receive a portion ofrevenue from the sale of pharmaceuticals, medical devices and biotechnologyproducts. Previously, the Company was a provider of extended warranties andservice contracts via the Internet at warrantysuperstore.com through June 30,2002. The business of the Company today comprises the "run off" of its sale ofextended warranties and service contracts via the Internet and the new businessopportunity it is pursuing in the medical/bio-tech sector.HISTORYThe Company was incorporated under the laws of the State of Delaware inSeptember 1980 under the name Fidelity Medical Services, Inc. On July 28, 1983the Company changed its name to Fidelity Medical, Inc. From its inceptionthrough March 1995, the Company was engaged in the development and sale ofmedical imaging products through a wholly owned subsidiary. As a result of areverse merger on March 2, 1995 with Corniche Distribution Limited and itssubsidiaries, the Company was engaged in the retail sale and wholesaledistribution of stationery and related office products in the United Kingdom.Effective March 25, 1995 the Company sold its medical imaging productssubsidiary. On September 28, 1995 the Company changed its name to Corniche GroupIncorporated. In February 1996, the Company's United Kingdom operations wereplaced in receivership by their creditors. Thereafter through March 1998 theCompany was inactive. On March 4, 1998, the Company entered into a StockPurchase Agreement with certain individuals (the "Initial Purchasers") wherebythe Initial Purchasers acquired in aggregate 765,000 shares of a newly createdSeries B Convertible Redeemable Preferred Stock. Thereafter the InitialPurchasers endeavored to establish for the Company new business operations inthe property and casualty specialty insurance and warranty/service contractsmarkets. On September 30, 1998 the Company acquired all of the capital stock ofStamford Insurance Company, Ltd. ("Stamford"). On April 30, 2001 the Companysold Stamford and is no longer involved in property and casualty specialtyinsurance.On January 7, 2002, the Company entered into a Stock Contribution ExchangeAgreement, as amended (the "Exchange Agreement"), with StrandTek International,Inc., a Delaware corporation ("StrandTek"), certain of StrandTek's principalshareholders and certain non-shareholder loan holders of StrandTek (the"StrandTek Transaction"). Consummation of the StrandTek Transaction wasconditioned upon a number of closing conditions, including the Company obtainingfinancing via an equity private placement, which ultimately could not be met andas a result, the Exchange Agreement was formally terminated by the Company andStrandTek in June 2002. In January 2002, the Company advanced to StrandTek aloan of $1,000,000 on an unsecured basis, which was personally guaranteed bycertain of the principal shareholders of StrandTek and a further loan of$250,000 on February 19, 2002 on an unsecured basis. Such loans bore interest at7% per annum and were due on July 31, 2002 following termination of the ExchangeAgreement in June 2002.StrandTek defaulted on the payment of $1,250,000 plus accrued interest due tothe Company on July 31, 2002. As a result, on August 6, 2002, the Company fileda complaint in the Superior Court of New Jersey entitled Corniche GroupIncorporated v StrandTek International, Inc., a Delaware corporation, StrandTekInternational, Inc., a Florida corporation, David M. Veltman, William G. BucklesJr., Jerome Bauman and Jan Arnett. The complaint sought recovery of theSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. $1,250,000 loans, plus interest, costs and fees, and sought recovery against theindividual defendants pursuant to their partial guarantees. On May 9, 2003, theCompany was granted a final judgment in the amount of $1,415,622 from eachcorporate defendant, in the amount of $291,405 against each individual defendantand dismissing defendants' counterclaims.Because the February 2002 $250,000 loan was unsecured and not guaranteed, theCompany established an allowance of $250,000 at December 31, 2002. The Companywas informed that on April 16, 2003, StrandTek made an assignment for thebenefit of its creditors, so that any collection on its judgment other than onthe personal guarantees is highly unlikely.Between July 2003 and December 2003, guarantors Veltman, Buckles and Arnett paidtheir judgments in full, with payments totaling approximately $295,000, $295,000and $297,000 respectively. In December 2003, the Company settled with defendantBauman for a payment of $100,000. These payments, totaling approximately$987,000, complete the transaction.On July 24, 2003, the Company changed its name to Phase III Medical, Inc., whichbetter describes the Company's current business plan. In connection with thechange of name, the Company changed its trading symbol to "PHSM" from "CNGI".DISCONTINUED OPERATIONSThrough April 2001 the Company operated a property and casualty reinsurancebusiness through its wholly owned subsidiary, Stamford Insurance Company, Ltd.("Stamford"). Stamford is chartered under the laws of, and is licensed toconduct business as an insurance company by, the Cayman Islands. Stamfordprovided reinsurance coverage for one domestic insurance company until thefourth quarter of 2000 when the relationship with the carrier was terminated.Stamford was not able to obtain any additional reinsurance relationships. Inlight of the inability of Stamford to write new business and difficulty inforecasting future claims losses in the run off of its prior reinsurancecontract, on April 30, 2001, the Board of Directors of the Company approved thesale of Stamford to Butler Financial Solutions, LLC for consideration totaling$372,000. In the six months ended June 30, 2001, the Company recorded a loss ofapproximately $479,000 on the sale of Stamford. The closing and transfer offunds was completed on July 6, 2001.CURRENT BUSINESS OPERATIONSThe business of the Company today comprises the "run off" of its sale ofextended warranties and service contracts via the Internet and the new businessopportunity it is pursuing as described below under the sub-heading "RecentDevelopments".WarrantySuperstore.com Internet BusinessThe Company's primary business focus, through June 2002, was the sale ofextended warranties and service contracts over the Internet covering automotive,home, office, personal electronics, home appliances, computers and gardenequipment. The Company offered its products and services in the United States instates that permit program marketers to be the obligor on service contracts.This represented approximately 38 states for automobile service contracts andmost states for other product categories. While the Company managed mostfunctions relating to its extended warranty and service contracts, it did notbear the economic risk to repair or replace products nor did it administer theclaims function. The obligation to repair or replace products rested with theCompany's appointed insurance carriers, Great American Insurance Company andAmerican Home Shield. Great American Insurance Company provided contractualliability insurance covering the obligation to repair or replace products underthe Company's automobile and consumer products extended warranties and servicecontracts and American Home Shield covered all home warranty contracts. TheCompany was responsible for the marketing, recording sales, collecting paymentand reporting contract details and paying premiums to the insurance carriers. Inaddition, the Company provided information to the insurance carriers' appointedclaims administrators who handle all claims under the Company's contracts,including the payment of claims.The Company commenced operations initially by marketing its extended warrantyproducts directly to the consumer through its web site. During fiscal 2000 theCompany developed enhanced proprietary software to facilitate more efficientprocessing and tracking of online warranty transactions. This provided theSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Company with the ability to deliver its products over the Internet through anumber of distribution channels by enabling it to supply a number of differentextended warranty service contracts on a co-branded or private label basis tocorporations, by embedding the Company's suite of products on such corporation'sweb sites. This new capability was launched in January 2001. It was anticipatedthat this would result in substantially reduced direct marketing costs for theyears ending December 31, 2001 and thereafter. As a result the Company had fourdistinct distribution channels: (i) direct sales to consumers, (ii) co-brandeddistribution, (iii) private label distribution and (iv) manufacturer/retailerpartnerships.During the first half of fiscal 2001, management became concerned by the slowprogress being made by its warrantysuperstore.com business. Accordingly,alternative strategies for the Company were evaluated by the Board of Directors,including the acquisition of new business operations. As a result, the Companyentered into the StrandTek Transaction but, as previously reported, the closingconditions were not met and the Exchange Agreement was terminated by writtenagreement between the parties. In June 2002, management determined, in light ofcontinuing operating losses, to discontinue its warranty and service contractbusiness and to seek new business opportunities for the Company.RECENT DEVELOPMENTSOn February 6, 2003, the Company appointed Mark Weinreb as a member of the Boardof Directors and as its President and Chief Executive Officer. The Company andMr. Weinreb had been exploring business plans for the Company that would involveentering the medical sector by acquiring or participating in one or more biotechand/or medical companies or technologies, owning one or more drugs or medicaldevices that may or may not yet be available to the public, or acquiring rightsto one or more of such drugs or medical devices or the royalty streamstherefrom. Mr. Weinreb was appointed to finalize and execute the Company's newbusiness plan. The Company will need to recruit management, business developmentand technical personnel, and develop its business model. Accordingly, it will benecessary for the Company to raise new capital. In accordance with its businessplan, the Company raised $514,781 of capital, including $214,781, net ofexpenses of $67,719, through the sale of Common Stock, and $295,000, net ofcommissions of $30,000, from the sale of notes. In addition, the Companyreceived a total of approximately $987,000 from the settlement with theStrandTek guarantors. A significant portion of the Standtek proceeds was used topay outstanding liabilities for legal expenses, employment terminations, traveland entertainment expenses and consultants. The balance of the proceeds was usedfor operating expenses and the retirement of certain debt.On December 12, 2003, the Company signed a royalty agreement with ParallelSolutions, Inc. "(PSI") to develop a new bioshielding platform technology forthe delivery of therapeutic proteins and small molecule drugs in order to extendcirculating half-life to improve bioavailability and dosing regimen, whilemaintaining or improving pharmacologic activity. The agreement provides for PSIto pay the Company a percentage of the revenue received from the sale of certainspecified products or licensing activity. The Company will provide capital andguidance to PSI to conduct a proof of concept study to improve an existingtherapeutic protein with the goal of validating the bioshielding technology forfurther development and licensing the technology. As of December 31, 2003, theCompany has provided $80,000 to PSI pursuant to the royalty agreement.On January 19, 2004, the Company entered into a letter of intent with NeoStem,Inc., a California company, whose primary business is to establish an autologousadult stem cell bank. If a definitive agreement is reached, Phase III wouldprovide funding and guidance in connection with the adult stem cell bankingenterprise in exchange for a share of the revenues derived from such enterprise.No assurances can be given that a definitive revenue sharing agreement will befinalized, that NeoStem's collection, processing and storage technology will besuccessfully implemented, that NeoStem will be able to commercialize its adultstem cell banking enterprise, or that there will be market acceptance of anysuch enterprise sufficient to generate any material revenues for NeoStem or anymaterial royalty revenues for the Company, or that any stem cell therapeuticstrategies will be successfully developed or commercialized.RISK FACTORSThe risks described below are not the only risks facing the Company. Additionalrisks that the Company does not yet know of or that it currently thinks areimmaterial may also impair its business operations. If any of the risks occur,its business strategy, financial condition or operating results could beSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. adversely affected.PHASE III HAS A HISTORY OF OPERATING LOSSES AND A SUBSTANTIAL ACCUMULATEDEARNINGS DEFICIT AND IT MAY CONTINUE TO INCUR LOSSES.Since its inception in 1980, the Company has generated only limited revenuesfrom sales and has incurred substantial net losses of approximately $1,000,000,$1,200,000 and $2,100,000 for the years ended December 31, 2003, 2002 and 2001,respectively. At December 31, 2003, the Company had a stockholders' deficit ofapproximately $1,500,000. The Company expects to incur additional operatinglosses as well as negative cash flow from its new business operations untilrevenues from the purchase of royalty interests are received.THE COMPANY HAS LIQUIDITY PROBLEMS.At December 31, 2003, the Company had a cash balance of $210,947, deficitworking capital of $793,749 and a stockholders' deficit of $1,502,774. Inaddition, the Company sustained losses of $1,044,145, $1,159,838 and $2,033,030for the three fiscal years ended December 31, 2003, 2002 and 2001, respectively.The Company's lack of liquidity combined with its history of losses raisessubstantial doubt as to the ability of the Company to continue as a goingconcern. The financial statements of the Company do not reflect any adjustmentsrelating to the doubt of its ability to continue as a going concern. OnSeptember 22, 2003, the Company commenced an equity private placement pursuantto Regulation D to raise up to $4,000,000 through the sale of up to 40,000,000shares of its Common Stock in increments of $5,000 or 50,000 shares. Such shareswill not be registered and will be subject to restrictions on resale. Onlyselected investors which qualify as "accredited investors" as defined in Rule501(a) under the Securities Act of 1933, as amended, were eligible to purchasethese shares. Through December 31, 2003, the Company sold 2,825,000 shares,resulting in proceeds to the Company of $214,781, net of offering costs of$67,719. The Company continues to offer these securities without the assistanceof an investment banker and will collect the full proceeds from any sale. FromJanuary 1, 2004 to March 8, 2004, the Company sold an additional 400,000 sharesof its Common Stock with proceeds to the Company of $40,000 from the amendedprivate placement. Such shares will not be registered and will be subject torestrictions on resale. There can be no assurance that the Company will be ableto sell sufficient quantities of these securities and may have to rely on itsability to borrow money from new and/or existing investors. Management has soldpromissory notes in the aggregate principal amount of $75,000 which bearinterest at 20% per annum to fund the Company until such time as sufficientproceeds are received from the private placement of its Common Stock.THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN IS QUESTIONABLE.At December 31, 2003, the Company's auditors, Holtz Rubenstein & Co., LLP,qualified its opinion as to the Company's ability to continue as a goingconcern. This qualification will make it more difficult for the Company to raisecapital on favorable terms and fund the agreements currently in place.THE COMPANY WILL CONTINUE TO EXPERIENCE CASH OUTFLOWS.The Company continues to incur expenses, including the salary of its newpresident, rent, legal and accounting fees, insurance and general administrativeexpenses. The Company's new business activities are in the development stage andwill therefore result in additional cash outflows in the coming period. TheCompany commenced an amended private placement of its Common Stock to raiseadditional equity to fund its current liabilities and its on-going cash needsfor working capital, its remaining obligation to PSI of $680,000, as of March19, 2004 and to develop its planned business operations. There can be noassurance that it will be successful in such Common Stock offering or in raisingadditional funds through the issuance of notes, to satisfy the Company's needs.Additionally, it is not possible at this time to state when the Company willachieve a positive cash position, if at all.THE COMPANY'S LIMITED OPERATING HISTORY MAY IMPAIR ITS ABILITY TO PLAN.The Company's limited operating history in its planned business activities mayhinder its ability to evaluate its business and entails risks that the Companymay fail to adequately address business issues with which it has limitedexperience. There is no way to predict when, if ever, the Company will achieveSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. profitability or positive cash flow.BECAUSE OF ITS FINANCIAL POSITION, THERE IS SUBSTANTIAL DOUBT ABOUT ITS ABILITYTO OPERATE AS A GOING CONCERN.The Company has no cash generating revenues. As of December 31, 2003, theCompany had a stockholders' deficit of $1,502,774 and had a working capitaldeficiency of $793,749. Although the Company recently raised $254,781 in aCommon Stock private placement offering and $75,000 from the issuance ofpromissory notes to date, those funds have been substantially spent and theCompany's financial condition still raises substantial doubt about its abilityto operate as a going concern.THE COMPANY WILL NEED ADDITIONAL FINANCING AND IS UNCERTAIN OF ITS ACCESS TOCAPITAL FUNDING.The Company's proposed new business will require substantial capital to identifyand make alliances with one or more pharmaceutical and/or biotechnologycompanies based on the Company's current operating plan for its new business. Inaddition, the Company's cash requirements may vary materially from those nowplanned because of results in research, consulting with experts and modelingsales forecasts for the potential products of potential business partners. RISKS RELATING TO THE COMPANY'S PROPOSED NEW BUSINESSTHE COMPANY HAS ONLY ONE BUSINESS PARTNER TO DATE AND IS UNCERTAIN OF ITS FUTUREPROFITABILITY WITH ITS INTENDED VENTURE TO GENERATE REVENUES FROM SUCHRELATIONSHIPS.The Company's ability to achieve profitability in its new business is dependentin part on the agreements, if any, entered into with business partners.Currently the Company has entered into one agreement with PSI, and since theagreement is in its early stages, it is premature to predict any favorableoutcome. There can be no assurance that any additional agreements will beentered into. The failure to enter into any such necessary agreements coulddelay or prevent the Company's new business from achieving profitability andwould have a material adverse effect on the business, financial position andresults of operations of the Company. Further, there can be no assurance thatthe Company's operations will become profitable even if the Company enters intoagreements with business partners.THE PSI ARRANGEMENT MAY NOT BE SUCCESSFUL.The Company's contract with its first business partner, PSI, demonstratescertain of the risks of the Company's business. PSI is attempting to develop anew bioshielding platform technology for the delivery of therapeutic proteinsand small molecule drugs in order to extend circulating half-life to improvebioavailability and dosing regimen, while maintaining or improving pharmacologicactivity. The Company is providing funding and consulting services for PSI toconduct a proof of concept study. No assurances can be given that the proof ofconcept program will be successful, that any viable technology will arise fromthat program, that the Company or PSI will be able to commercialize any productor technology that is successfully developed, or that there will be marketacceptance of any such product or technology sufficient to generate any materialrevenues for the Company. Even if everything is successful, it will be a longtime before the Company receives any royalty revenues from the PSI project.THERE ARE RISKS RELATING TO POTENTIAL CORPORATE COLLABORATIONS.The Company's new business strategy includes identifying and partnering withvarious pharmaceutical and/or biotechnology companies that are developing a drugor medical device. There can be no assurance the Company will enter into anyadditional relationships with these business partners and, even if the Companydoes enter into such relationships, that the arrangements will be on favorableterms or that the Company's relationship will be successful. In some cases, theCompany will generate income from its relationship with these companies onlyafter its potential business partners' product has achieved significantpre-clinical and/or clinical development, has procured requisite regulatoryapprovals and/or has established its manufacturing capabilities.The Company's potential business partners' business strategy may includeSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. entering into collaborations or marketing and distribution arrangements withcorporate partners for the development (including clinical development),commercialization, marketing and distribution of certain of their productcandidates. The Company's potential business partners may be dependent on suchcorporate collaborations to fund clinical testing, to make certain regulatoryfilings and to manufacture and market products resulting from the collaboration.There can be no assurance that such arrangements with a corporate collaborationwill be scientifically, clinically or commercially successful. In the event thatany such arrangements are made and then terminated, such actions could adverselyaffect the Company's business partners' ability to develop, commercialize,market and distribute certain of their product candidates.If the Company's potential business partners breach or terminate theiragreements with the Company, or fail to develop or commercialize their productsor fail to develop or commercialize their products in a timely manner, thedevelopment of their products may be adversely affected, and thus not create aneconomic benefit for the Company.There can be no assurance that the Company's potential business partners willnot change their strategic focus or pursue alternative technologies or developalternative products either on their own or in collaboration with others. TheCompany's business will also be affected by the effectiveness of its potentialbusiness partners' corporate partners in marketing their products.THERE ARE COMPANIES, UNIVERSITIES AND RESEARCH INSTITUTIONS THAT MAY BERESEARCHING AND TRYING TO DEVELOP PRODUCTS THAT ARE SIMILAR TO THE PRODUCTS OFTHE COMPANY'S POTENTIAL BUSINESS PARTNERS.Competition in the medical, pharmaceutical and biotechnology industries, thesector in which the Company plans to establish new business operations, isintense. The Company's potential business partners may face competition fromcompanies with far greater financial, marketing, technical and researchresources, name recognition, distribution channels and market presence than theCompany's potential business partners who are marketing existing products ordeveloping new products that are similar to the products developed by theCompany's potential business partners. There can be no assurance that theCompany's potential business partners' products will be able to competesuccessfully with existing products or products under development by othercompanies, universities and other institutions.THE COMPANY'S POTENTIAL BUSINESS PARTNERS MAY DEPEND ON THIRD PARTIES.The Company's potential business partners may rely entirely on third parties fora variety of functions, including certain functions relating to research anddevelopment, manufacturing, clinical trials management, regulatory affairs andsales, marketing and distribution. There can be no assurance that the Company'spotential business partners will be able to establish and maintain any of theserelationships on acceptable terms or enter into these arrangements without unduedelays or expenditures. In addition, the business partners may require, and seekto raise, additional capital with third parties in order to develop products andmeet their working capital needs. There is no guarantee that the businesspartners will be able to raise such additional capital, and any agreementspreviously made between the business partners and the Company may make thebusiness partners less attractive to third parties in this regard.THERE ARE UNCERTAINTIES ASSOCIATED WITH PRE-CLINICAL AND CLINICAL TESTING.The grant of regulatory approvals for the commercial sale of any of theCompany's potential business partners' potential products will depend in part onthe Company's potential business partners and/or their collaboratorssuccessfully conducting extensive pre-clinical and clinical testing todemonstrate their products safety and efficacy in humans. The results ofpre-clinical studies by the Company's potential business partners and/or theircollaborators may be inconclusive and may not be indicative of results that willbe obtained in human clinical trials. In addition, results attained in earlyhuman clinical trials relating to the products under development by theCompany's potential business partners may not be indicative of results that willbe obtained in later clinical trials. As results of particular pre-clinicalstudies and clinical trials are received, the Company's potential businesspartners and/or their collaborators may abandon projects with which the Companyassisted in developing which they might otherwise have believed to be promising.The Company's potential business partners may be involved in developing drugs onSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. which they plan to file investigational new drug applications ("INDs") with theFDA or make equivalent filings outside of the United States. There can be noassurance that necessary pre-clinical studies on these products will becompleted satisfactorily, if at all, or that the Company's potential businesspartners otherwise will be able to make their intended filings. Clinical testingis very expensive, and the Company's potential business partners and/or theircollaborators will have to devote substantial resources for the cost of clinicaltrials.The Company's potential business partners may have no experience in conductingclinical trials and may have to rely, in part, on academic institutions and onclinical research organizations to conduct and monitor certain clinical trials.There can be no assurance that such entities will conduct the clinical trialssuccessfully.Failure to commence or complete any planned clinical trials by the Company'spotential business partners would have a material adverse effect on theCompany's new business.THE COMPANY'S POTENTIAL BUSINESS PARTNERS AND THEIR PRODUCTS WILL BE SUBJECT TOGOVERNMENT REGULATIONS AND THERE IS NO ASSURANCE OF REGULATORY APPROVAL.The Company's potential business partners and their products will be subject tocomprehensive regulation by the FDA in the United States and by comparableauthorities in other countries. These national agencies and other federal,state, and local entities regulate, among other things, the pre-clinical andclinical testing, safety, effectiveness, approval, manufacture, labeling,marketing, export, storage, record keeping, advertising, and promotion of theCompany's potential business partners' products.The process of obtaining FDA approvals can be costly, time consuming, andsubject to unanticipated delays and the Company's potential business partnersmay have had only limited experience in filing and pursuing applicationsnecessary to gain regulatory approvals. There can be no assurance that suchapprovals will be granted on a timely basis, or at all.The Company's potential business partners may also be subject to numerous andvarying foreign regulatory requirements governing the design and conduct ofclinical trials and the managing and marketing of their products. The approvalprocedure varies among countries and can involve additional testing, and thetime required to obtain approval may differ from that required to obtain FDAapproval.There can be no assurance that the Company's potential business partners ortheir partners will qualify for regulatory approvals or receive necessaryapprovals to commercialize product candidates in any market. Delays in receiptof or failure to receive regulatory approvals, or the loss of previouslyreceived approvals, would have a material adverse effect on the Company'spotential business partners' business, and therefore, on the Company's business.THE COMPANY'S NEW VENTURE MAY REQUIRE IT TO REGISTER AS AN INVESTMENT COMPANYUNDER THE INVESTMENT COMPANY ACT OF 1940.The Company is not registered as an investment company under the InvestmentCompany Act of 1940, as amended (or any similar state laws) (the "Company Act").The Company does not believe (i) it is an "investment company" pursuant to theCompany Act, or (ii) that it will hold "securities" pursuant to the Company Actor the Securities Act of 1933, as amended. However, the Securities and ExchangeCommission ("SEC") may disagree with the Company's position and deem the Companyto be an "investment company" under the Company Act and require the Company toregister as an investment company. If this were to occur, the Company'sday-to-day operations would become subject to the regulatory and disclosurerequirements imposed by the Company Act. The Company does not have theinfrastructure to operate as an investment company. The Company has soughtguidance from the SEC staff with respect to this issue. No assurance can begiven that the staff will respond favorably. RISKS RELATING TO INTELLECTUAL PROPERTYIF THE COMPANY OR ITS BUSINESS PARTNERS ARE UNABLE TO OBTAIN PATENT PROTECTIONFOR THE PRODUCTS THAT RESULT FROM THE MEDICAL DEVELOPMENT BUSINESS, THE VALUE OFTHE MEDICAL DEVELOPMENT BUSINESS WILL BE ADVERSELY AFFECTED. IF THE COMPANY ORSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITS BUSINESS PARTNERS INFRINGE PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS OFTHIRD PARTIES, THEY MAY NOT BE ABLE TO DEVELOP AND COMMERCIALIZE THE PRODUCTSAND SERVICES THAT WILL COMPRISE THE MEDICAL DEVELOPMENT BUSINESS OR THE COST OFDOING SO MAY INCREASE. Patent positions of pharmaceutical and biotechnology companies are generallyuncertain and involve complex legal, scientific and factual questions. Theability of the Company or its business partners to develop and commercializeproducts and services depends in significant part on the Company's or itsbusiness partners' ability to (i) obtain patents, (ii) obtain licenses to theproprietary rights of others on commercially reasonable terms, (iii) operatewithout infringing upon the proprietary rights of others, (iv) prevent othersfrom infringing on the Company's or its business partners' proprietary rights,and (v) protect trade secrets.THERE IS SIGNIFICANT UNCERTAINTY ABOUT THE VALIDITY AND PERMISSIBLE SCOPE OFPATENTS IN THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRY, WHICH MAY MAKE ITDIFFICULT FOR THE COMPANY OR ITS BUSINESS PARTNERS TO OBTAIN PATENT PROTECTIONFOR DISCOVERIES.The validity and permissible scope of patent claims in the pharmaceutical andbiotechnology fields, including the genomics field, involve important unresolvedlegal principles and are the subject of public policy debate in the UnitedStates and abroad. There is also some uncertainty as to whether human clinicaldata will be required for issuance of patents for human therapeutics. If theCompany is involved in a project in this field and if such data are required,the Company's or its business partners' ability to obtain patent protectioncould be delayed or otherwise adversely affected.THIRD PARTIES MAY OWN OR CONTROL PATENTS OR PATENT APPLICATIONS AND REQUIRE THECOMPANY OR ITS BUSINESS PARTNERS TO SEEK LICENSES, WHICH COULD INCREASE THECOMPANY'S OR ITS BUSINESS PARTNERS' DEVELOPMENT AND COMMERCIALIZATION COSTS, ORPREVENT THE COMPANY OR ITS BUSINESS PARTNERS FROM DEVELOPING OR MARKETING THECOMPANY'S OR ITS BUSINESS PARTNERS' PRODUCTS OR SERVICES.The Company or its business partners may not have rights under some patents orpatent applications related to some of their existing or proposed products,processes or services. Third parties may own or control these patents and patentapplications in the United States and abroad. Therefore, in some cases, in orderto develop, manufacture, sell or import some of the Company's or its businesspartners' existing and proposed products, processes or services, the Company orits business partners may choose to seek, or be required to seek, licenses underthird-party patents issued in the United States and abroad or those that mightissue from United States and foreign patent applications. In such event, theCompany or its business partners would be required to pay license fees orroyalties or both to the licensor. If licenses are not available to the Companyor its business partners on acceptable terms, the Company or its businesspartners may not be able to develop, manufacture, sell or import these products,processes or services.THE COMPANY OR ITS BUSINESS PARTNERS MAY BECOME INVOLVEDIN EXPENSIVE PATENT LITIGATION OR OTHER PROCEEDINGS, WHICH COULD RESULT IN THECOMPANY OR ITS BUSINESS PARTNERS INCURRING SUBSTANTIAL COSTS AND EXPENSES ORSUBSTANTIAL LIABILITY FOR DAMAGES OR REQUIRE THE COMPANY OR ITS BUSINESSPARTNERS TO STOP THEIR DEVELOPMENT AND COMMERCIALIZATION EFFORTS.There has been substantial litigation and other proceedings regarding the patentand other intellectual property rights in the pharmaceutical and biotechnologyindustries. The Company or its business partners may become a party to patentlitigation or other proceedings regarding intellectual property rights.The cost to the Company or its business partners of any patent litigation orother proceeding, even if resolved in the Company's or its business partners'favor, could be substantial. Some of the Company's or its business partners'competitors may be able to sustain the cost of such litigation or proceedingsmore effectively than the Company or its business partners because of theirsubstantially greater financial resources. If a patent litigation or otherproceeding is resolved against the Company or its business partners, the Companyor its business partners may be enjoined from developing, manufacturing, sellingor importing their products, processes or services without a license from theother party and the Company or its business partners may be held liable forsignificant damages. The Company or its business partners may not be able toobtain any required license on commercially acceptable terms or at all.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Uncertainties resulting from the initiation and continuation of patentlitigation or other proceedings could have a material adverse effect on theCompany's or its business partners' ability to compete in the marketplace.Patent litigation and other proceedings may also absorb significant managementtime.COMPETITIONCompetition in the medical, pharmaceutical and biotechnology industries, thesector in which the Company plans to establish new business operations, isintense. The Company's potential business partners may face competition fromcompanies with far greater financial, marketing, technical and researchresources, name recognition, distribution channels and market presence than theCompany's potential business partners who are marketing existing products ordeveloping new products that are similar to the products developed by theCompany's potential business partners. There can be no assurance that theCompany's potential business partners' products will be able to competesuccessfully with existing products or products under development by othercompanies, universities and other institutions.EMPLOYEESAs of December 31, 2003, the Company had one employee.ITEM 2. PROPERTIESOn February 21, 2003 the Company leased office space in Melville, New York at anoriginal annual rental of $18,000. The lease has been extended for an additionaltwelve months and expires on March 31, 2005. The annual rental increases toapproximately $19,200 on April 1, 2004 and continues until the expiration date.This space will be sufficient for the Company's needs until the business plan ofthe Company has been successfully executed.ITEM 3. LEGAL PROCEEDINGSAs discussed in Note 3 of the accompanying notes to the financial statements,StrandTek defaulted on the payment of $1,250,000 plus accrued interest due tothe Company on July 31, 2002. The Company ceased accruing interest as of July31, 2002 for financial statement purposes. As a result, on August 6, 2002, theCompany filed a complaint in the Superior Court of New Jersey entitled CornicheGroup Incorporated v StrandTek International, Inc., a Delaware corporation,StrandTek International, Inc., a Florida corporation, David M. Veltman, WilliamG. Buckles Jr., Jerome Bauman and Jan Arnett. The complaint sought recovery ofthe $1,250,000 loan, plus interest, costs and fees, and sought recovery againstthe individual defendants pursuant to their partial guarantees.Between July 2003 and December 2003, guarantors Veltman, Buckles and Arnett paidtheir judgments in full, with payments totaling approximately $295,000, $295,000and $297,000 respectively. In December 2003, the Company settled with defendantBauman for a payment of $100,000. These payments, totaling approximately$987,000, complete the transaction.The Company is not aware of any material pending legal proceedings or claimsagainst the Company.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNo matters were submitted to a vote of the Company's stockholders during thefourth quarter of 2003. PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS(a) Market Information. The Company's Common Stock is traded on the OTC Bulletin Board under the symbol "PHSM" since July 24, 2003. Prior to that date, the Company's Common Stock traded under the symbol "CNGI." The following table sets forth the high and low bid prices of theSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Company's Common Stock for each quarterly period within the two most recent fiscal years and the most recent quarter, as reported by Nasdaq Trading and Market Services. On March 8, 2004, the closing bid price for the Company's Common Stock was $0.14. Information set forth in the table below represents inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions. 2003 High Low First Quarter $ 0.13 $ 0.03 Second Quarter 0.15 0.06 Third Quarter 0.31 0.08 Fourth Quarter 0.31 0.11 2002 High Low First Quarter $ 0.68 $ 0.35 Second Quarter 0.37 0.06 Third Quarter 0.09 0.05 Fourth Quarter 0.10 0.04(b) Holders. As of March 8, 2004, there were approximately 1,068 holders of record of the Company's Common Stock. -------(c) Dividends. Holders of Common Stock are entitled to dividends when, as, and if declared by the Board of Directors out of funds legally available therefor. The Company has not paid any cash dividends on its Common Stock and, for the foreseeable future, intends to retain future earnings, if any, to finance the operations, development and expansion of its business. Future dividend policy is subject to the discretion of the Board of Directors.SERIES A PREFERRED STOCKThe Certificate of Designation for the Company's Series A Preferred Stockprovides that at any time after December 1, 1999 any holder of Series APreferred Stock may require the Company to redeem his shares of Series APreferred Stock (if there are funds with which the Company may legally do so) ata price of $1.00 per share. Notwithstanding the foregoing redemption provisions,if any dividends on the Series A Preferred Stock are past due, no shares ofSeries A Preferred Stock may be redeemed by the Company unless all outstandingshares of Series A Preferred Stock are simultaneously redeemed. The holders ofSeries A Preferred Stock may convert their Series A Preferred Stock into sharesof Common Stock of the Company at a price of $5.20 per share.On January 29, 2002 notice was given that, pursuant to the Company's RestatedCertificate of Incorporation, as amended, the Company has called for redemptionand will redeem (the "Redemption") on the date of the closing of the StrandTekTransaction (the "Redemption Date"), all shares of the Company's Series AConvertible Preferred Stock outstanding on that date at a redemption price of$1.05, plus accrued and unpaid dividends from July 1, 1995 through and includingthe Redemption Date of approximately $0.47 per share. The Redemption, amongother financial, legal and business conditions, was a condition precedent to theclosing of the StrandTek Transaction. Similarly, completion of the Redemptionwas subject to closing the StrandTek Transaction. Upon termination of theStrandTek Transaction, the Company rescinded the Notice of Redemption.At December 31, 2003, 681,174 shares of Series A Preferred Stock wereoutstanding. If the preferred shareholders do not convert their shares intoCommon Stock, and if the Company were required to redeem any significant numberof shares of Series A Preferred Stock, the Company's financial condition may bematerially affected.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. RECENT SALES OF UNREGISTERED SECURITIESIn September 2002, the Company sold to accredited investors, pursuant toRegulation D, five 60-day promissory notes in the principal sum of $25,000 each,resulting in net proceeds to the Company of $117,500, net of offering costs. Thenotes bear interest at 15% per annum payable at maturity. The terms of the notesinclude a default penalty pursuant to which if the notes are not paid on the duedate, the holder shall have the option to purchase 25,000 shares of theCompany's Common Stock for an aggregate purchase price of $125. If the nonpayment continues for 30 days, then on the 30th day, and at the end of eachsuccessive 30-day period until the note is paid in full, the holder has theoption to purchase an additional 25,000 shares of the Company's Common Stock foran aggregate purchase price of $125. As of December 31, 2003 a total of1,000,000 of such shares resulting in net proceeds to the Company of $5,000 wereexercised because the notes remain unpaid. Options to purchase an additional650,000 shares of Common Stock at an aggregate purchase price of $3,250 havebeen granted pursuant to the default penalty. Subsequent to December 31, 2003,200,000 shares of Common Stock were purchased resulting in net proceeds to theCompany of $1,000.In February 2003, the Company sold to accredited investors, pursuant toRegulation D, a series of 30-day promissory notes in the aggregate principal sumof $50,000. The notes bear interest at 20% per annum payable at maturity. InNovember 2003, the Company repaid all $50,000 of such promissory notes togetherwith all accrued interest of $6,854.On March 17, 2003, the Company commenced a private placement offering, pursuantto Regulation D, to raise up to $250,000 in 6-month promissory notes inincrements of $5,000 bearing interest at 15% per annum. Only selected investorswhich qualify as "accredited investors" as defined in Rule 501(a) under theSecurities Act of 1933, as amended, were eligible to purchase these promissorynotes. The Company raised the full $250,000 through the sale of such promissorynotes, resulting in net proceeds to the Company of $225,000, net of offeringcosts. The note contains a default provision which raises the interest rate to20% if the notes are not paid when due. The Company issued $250,000 of thesenotes and as of December 31, 2003, $60,000 of the principle amount of thesenotes was in default. All interest payments have been made and are current.On September 22, 2003, the Company commenced an equity private placementpursuant to Regulation D to raise up to $4,000,000 through the sale of up to40,000,000 shares of its Common Stock in increments of $5,000 or 50,000 shares.Such shares will not be registered and will be subject to restrictions onresale. Only selected investors which qualify as "accredited investors" asdefined in Rule 501(a) under the Securities Act of 1933, as amended, wereeligible to purchase these shares. The placement closed on December 31, 2003upon the sale of 2,825,000 shares, resulting in proceeds to the Company of$214,781, net of offering costs of $67,719.The Company amended its equity private placement (see Note 7) pursuant toRegulation D to raise up to $4,000,000 through the sale of up to 40,000,000shares of Common Stock in increments of $5,000 or 50,000 shares. Such shareswill not be registered and will be subject to restrictions on resale. Onlyselected investors which qualify as "accredited investors" as defined in Rule501(a) under the Securities Act of 1933, as amended, are eligible to purchasethese shares. The initial placement closed on December 31, 2003. The amendedprivate placement does not include any investment banking fees and therefore allproceeds, less expenses such as printing, transfer fees, etc., will be paiddirectly to the Company. The previous investment banker, Robert M. Cohen &Company, has been fully paid for its efforts. As of March 8, 2004, 400,000shares have been sold with proceeds to the Company of $40,000.In February 2004, the Company sold 30 day 20% notes pursuant to Regulation D inthe amount of $75,000 to two accredited investors to fund current operations. Itis anticipated that these notes will be repaid from the proceeds of the amendedequity private placement. These notes have a default provision that if they arenot paid within 30 days, there is an additional interest payment of $250 per$25,000 for each 30 day period or part thereof.In March 2004, the Company sold a 30 day 20% note pursuant to Regulation D inthe amount of $50,000 to a director who qualifies as an accredited investor tofund current operations. It is anticipated that this note will be repaid whensufficient proceeds of the amended equity private placement are received.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 6...SELECTED FINANCIAL DATAThe selected statements of operations and balance sheet data set forth below arederived from audited financial statements of the Company. The information setforth below should be read in conjunction with the Company's audited financialstatements and notes thereto. See Item 8 "Financial Statements and SupplementaryData" and Item 7 "Management's Discussion and Analysis of Financial Conditionand Results of Operation". On February 4, 1999 the Company changed its fiscalyear-end from March 31 each year to December 31 each year. The selectedfinancial data set out below has not been retroactively restated to reflect suchchange in fiscal year-end date and accordingly is presented as historicallyreported in the financial statements of the Company.Statement of Operations: Year Ended Year Ended Year Ended Year Ended Year Ended($'000 except net loss per share which is December 31, December 31, December 31, December 31, December 31,stated in $) 2003 2002 2001 2000 1999 Earned revenues $ 65 $ 81 $ 107 $ 27 $ -Direct costs 44 60 70 33 -Gross profit 21 21 37 (6) -Operating (loss) (894) (1,149) (1,606) (2,516) (1,023)Loss before discontinued operations andpreferred dividends (1,044) (1,160) (1,792) (2,296) (1,084)Net loss attributable to commonstockholders (1,068) (1,208) (2,081) (2,075) (1,170)Basic and diluted earnings per share: Loss from continuing operations (0.05) (0.05) (0.08) (0.16) (0.16) Income (loss) from discontinued operations - - (0.01) (0.02) -Net loss attributable to common shareholders (0.05) (0.05) (0.09) (0.14) (0.17)Weighted average number of sharesoutstanding 23,509,343 22,344,769 22,284,417 14,902,184 6,905,073Balance Sheet Data: As of As of As of As of As of$'000 December 31, December 31, December 31, December 31, December 31, 2003 2002 2001 2000 1999Working Capital (Deficiency) $ (794) $ (82) $ 1,085 $ 2,079 $ 3,192Total Assets 312 1,183 1,836 3,757 4,905Current Liabilities 1,023 1,141 489 458 868(Accumulated Deficit) (10,762) (9,694) (8,486) (6,406) (4,302)Total Stockholders' (Deficit)/Equity (1,503) (824) 373 2,450 3,140Selected Quarterly Financial Data$'000 Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter (except net loss per share Ended Ended Ended Ended Ended Ended Ended Ended Ended which is stated in $) 12/31/03 9/30/03 6/30/03 3/31/03 12/31/02 9/30/02 6/30/02 3/31/02 12/31/01 Earned Revenues $ 15 $ 15 $ 17 $ 18 $ 19 $ 20 $ 18 $ 24 $ 42 Direct Costs 8 11 12 13 13 14 14 19 17 Gross profit 7 4 5 5 5 6 5 5 25 Operating Loss (369) (197) (205) (123) (357) (225) (201) (366) (449) Net Loss Attributable toCommon Stockholders (437) (216) (260) (155) (389) (231) * (246) (342) * (725) Net loss per share (0.02) (0.01) (0.01) (0.01) - (0.01) (0.01) (0.02) (0.03) Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. $'000 Quarter Quarter Quarter(except net loss per share Ended Ended Endedwhich is stated in $) 9/30/01 6/30/01 3/31/01Earned Revenues $ 33 $ 21 $ 11Direct Costs 31 15 7Gross profit 2 6 4Operating Loss (386) (353) (418)Net Loss Attributable toCommon Stockholders (374) (329) (653)Net loss per share (0.02) (0.01) (0.03)* Includes write-off of unamortized capitalized software in fiscal 2001 of $305,333 and property and equipment impairment charges of $54,732 in fiscal 2002.ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONThe following discussion should be read in conjunction with the auditedfinancial statements and notes thereto, included in Item 8 of this report, andis qualified in its entirety by reference thereto.GENERALDuring the first half of fiscal 2001, management became concerned by the slowprogress being made by its warrantysuperstore.com business. Accordingly,alternative strategies for the Company were evaluated by the Board of Directors,including the acquisition of new business operations. As a result, on January 7,2002 the Company entered into the StrandTek Transaction as previously reported.Consummation of the StrandTek Transaction was conditioned upon certain closingconditions, including the Company obtaining financing via an equity privateplacement, which ultimately could not be met and as a result in June 2002, theExchange Agreement was formally terminated by written agreement between theCompany and StrandTek. In June 2002, management also determined, in light ofcontinuing operating losses, to discontinue its warranty and service contractbusiness and to seek new business opportunities for the Company.NEW BUSINESS OPPORTUNITIESManagement had been exploring new business opportunities for the Company and onFebruary 6, 2003, the Company appointed Mark Weinreb as a member of the Board ofDirectors and as its President and Chief Executive Officer. The Company and Mr.Weinreb had been exploring business plans for the Company that may involve,under the name "Phase III Medical, Inc.", entering the medical sector byacquiring or participating in one or more biotech and/or medical companies ortechnologies, owning one or more drugs or medical devices that may or may notyet be available to the public, or acquiring rights to one or more of such drugsor medical devices or the royalty streams therefrom. Mr. Weinreb was appointedto finalize and execute the Company's new business plan. The Company will needto recruit management, business development and technical personnel, and developits business model. Accordingly, it will be necessary for the Company to raisenew capital. There can be no assurance that any such business plan developed bythe Company will be successful, that the Company will be able to acquire suchnew business or rights or raise new capital, or that the terms of anytransaction will be favorable to the Company.RESULTS OF CONTINUING OPERATIONSSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company's "Significant Accounting Policies" are described in Note 2 to theaudited financial statements and notes thereto, included in Item 8 of thisreport. The Company recognizes revenue from its warranty service contractsratably over the length of the contracts executed. Additionally, the Companypurchased insurance to fully cover any losses under the service contracts from adomestic carrier. The insurance premium expense and other costs related to thesale are amortized ratably over the life of the contracts.FISCAL 2003 COMPARED TO FISCAL 2002The Company generated recognized revenues from the sale of extended warrantiesand service contracts via the Internet of $65,000 in fiscal 2003. The revenuesgenerated in the year were derived almost entirely from revenues deferred overthe life of the contracts sold in prior years. Similarly, direct costs of$44,000 incurred in fiscal 2003, relate to costs previously deferred over thelife of such contracts.General and administrative expenses totaled $685,000 during the year endedDecember 31, 2003 as compared to $912,000 for fiscal 2002, a decrease of$227,000 or 24.9%. The decrease was primarily attributable to decreases inemployee termination costs ($145,000), legal ($86,000), travel and entertainment($65,000), directors fees ($25,000), rents ($33,000) and depreciation ($16,000)partially offset by increases in insurance ($66,000) and salaries as a result ofthe employment agreement by and between the Company and Mark Weinreb ($41,000).Costs generally were significantly lower as the Company wound down itsoperations and closed its office facilities in Texas in July 2002.The Company realized a loss from the unsecured, un-guaranteed note receivablefrom StrandTek of $150,000 in fiscal 2003. Through March 1, 2004, the Companymade payments to PSI of $240,000. The Company's minimum commitment to PSIpursuant to the royalty agreement with PSI is $1,000,000.Interest income increased by $18,000 to $89,000 in fiscal 2003 as compared tofiscal 2002 due to the collection of the StrandTek note receivable and theadditional funds received from the sale of Common Stock and notes. Interestexpense increased in fiscal 2003 to $215,000 from $23,000 in fiscal 2002 due tothe higher level of debt and certain debt being in default and therefore subjectto a higher interest rate. In addition, the Company recorded interest expense infiscal 2003 relating to the Series A preferred in the amount of approximately$24,000 due to a recent accounting pronouncement.For the reasons cited above, the net loss before preferred stock dividenddecreased to $1,044,000 in fiscal 2003 from the comparable loss of $1,160,000for fiscal 2002.FISCAL 2002 COMPARED TO FISCAL 2001The Company generated recognized revenues from the sale of extended warrantiesand service contracts via the Internet of $81,000 in fiscal 2002. The revenuesgenerated in the year were derived almost entirely from revenues deferred overthe life of the contracts sold in prior years. Similarly, direct costs of$61,000 incurred in fiscal 2002, relate to costs previously deferred over thelife of such contracts. Revenues in fiscal 2001 totaled $225,000 of which$107,000 were recognized as earned revenues, the balance deferred over the lifeof the contracts sold. Direct costs in fiscal 2001 totaled $71,000.General and administrative expenses totaled $912,000 during the year endedDecember 31, 2002 as compared to $1,643,000 for fiscal 2001, a decrease of$731,000 or 44.5%. Costs generally were significantly lower as the Company wounddown its operations and closed its office facilities in Texas in July 2002. As aresult, selling, general and administrative expenses in fiscal 2002 are notcomparable to fiscal 2001 when the Company incurred operating expenses such asadvertising and significantly higher payroll costs. One time employeetermination and general closure costs totaling approximately $150,000 wereincurred in fiscal 2002 and an impairment charge of $55,000 was recorded in June2002 to adjust property and equipment to its net realizable value.In the year ended December 31, 2002, the Company provided an allowance for theunsecured, un-guaranteed note receivable from StrandTek of $250,000 plus accruedinterest of $8,103.Interest income decreased by $36,000 to $71,000 in fiscal 2002 as compared toSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. fiscal 2001 because interest income from the StrandTek loans, accrued throughJuly 31, 2002 was less than interest earned from investments in marketablesecurities in fiscal 2001. Interest expense increased from $6,000 in the yearended December 31, 2001 to $23,000 in fiscal 2002 primarily due to theshort-term loans secured in September 2002 to fund the Company's operatingexpenses.For the reasons cited above, net loss before preferred stock dividend decreasedby 35.3% to $1,160,000 in 2002 from the comparable loss of $1,792,000 for fiscal2001.LIQUIDITY AND CAPITAL RESOURCESThe following chart represents the net funds provided by or used in operating,financing and investment activities for each period asindicated: Twelve Months Ended ------------------- December 31, 2003 December 31, 2002Cash provided by (used in)operating activities $ (1,021,913) $ 1,005,376Cash provided by (used in)investing activities 847,419 (1,247,338)Cash provided by (used in)financing activities 366,186 209,949At December 31, 2003, the Company had a cash balance of $210,947, deficitworking capital of $793,749 and a stockholders' deficit of $1,502,774. Inaddition, the Company sustained losses of $1,044,145, $1,159,838 and $2,033,030for the three fiscal years ended December 31, 2003, 2002 and 2001, respectively.The Company's lack of liquidity combined with its history of losses raisessubstantial doubt as to the ability of the Company to continue as a goingconcern. On September 22, 2003 the Company commenced an equity private placementpursuant to Regulation D to raise up to $4,000,000 through the sale of up to40,000,000 shares of its Common Stock in increments of $5,000 or 50,000 shares.Such shares will not be registered and will be subject to restrictions onresale. Only selected investors which qualify as "accredited investors" asdefined in Rule 501(a) under the Securities Act of 1933, as amended, wereeligible to purchase these shares. Through December 31, 2003, the Company sold2,825,000 shares, resulting in proceeds to the Company of $214,781, net ofoffering costs of $67,719. The Company continues to offer these securitieswithout the assistance of an investment banker and will collect the fullproceeds from any sale. As of March 8, 2004, the Company has sold 400,000 sharesof its Common Stock with proceeds to the Company of $40,000 from the amendedprivate placement. There can be no assurance that the Company will be able tosell sufficient quantities of these securities and may have to rely on itsability to borrow money from new and/or existing investors. Management has soldpromissory notes which bear interest at 20% per annum to fund the Company untilsuch time as sufficient proceeds are received from the private placement of itsCommon Stock.The following table reflects a summary of the Company's contractual cashobligations as of December 31, 2003: Payments due by periodContractual Obligations Less than More than Total 1 year 1-3 years 3-5 years 5 years Long-term debt obligations $ 9,513 $ 9,513 $ 0 $ 0 $ 0Notes payable 400,000 400,000 0 0 0Operating leases 23,700 18,900 4,800 0 0Employment agreement 438,846 199,500 239,346 0 0Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Purchase obligations 920,000 920,000 0 0 0 ------- ------- -------- -- -- Total $1,792,059 $1,547,913 $244,146 $ 0 $ 0 ========= ========= ======== == ==INFLATIONThe Company does not believe that its operations have been materially influencedby inflation in the fiscal year ended December 31, 2003, a situation which isexpected to continue for the foreseeable future.SEASONALITYThe Company does not believe that its operations are seasonal in nature.OFF-BALANCE SHEET ARRANGEMENTSThe Company does not have any off-balance sheet arrangements.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot Applicable.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and supplementary financial information required to befiled under this Item are presented commencing on page F-1 of the Annual Reporton Form 10-K, and are incorporated herein by reference.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREAs previously reported on the Company's Form 8-K filed January 8, 2004, asamended on February 3, 2004, on January 6, 2004, upon recommendation andapproval of the Company's and Board of Directors, the Company dismissed Travis,Wolff & Company, LLP ("Travis Wolff") and engaged Holtz Rubenstein & Co., LLP("Holtz") as the Company's independent auditors for the fiscal year endedDecember 31, 2003.Travis Wolff's reports on the Company's financial statements for each of theyears ended December 31, 2002 and 2001 contained a qualified opinion as to theuncertainty of the Company's ability to continue as a going concern. Nomodifications were made to the financial statements as a result of thisuncertainty.During the years ended December 31, 2002 and 2001 and through January 6, 2004,there were no disagreements with Travis Wolff on any matter of accountingprinciples or practices, financial statement disclosure, or auditing scope orprocedure which if not resolved to Travis Wolff's satisfaction, would havecaused them to make reference to the subject matter in connection with theirreport on the Company's financial statements for such years; and there were noreportable events as defined in Item 304(a)(1)(v) of Regulation S-K.During the years ended December 31, 2002 and 2001 and through January 6, 2004,the Company did not consult Holtz with respect to the application of accountingprinciples as to a specified transaction, either completed or proposed, or thetype of audit opinion that might be rendered on the Company's financialstatements, or any other matters or reportable events as set forth in Items304(a)(2)(i) and (ii) of Regulation S-K.ITEM. 9A. CONTROLS AND PROCEDURESDISCLOSURE CONTROLS AND PROCEDURESAs of the end of the Company's most recently completed fiscal quarter (theregistrant's fourth fiscal quarter in the case of an annual report) covered bythis report, the Company carried out an evaluation, with the participation ofthe Company's management, including the Company's Chief Executive Officer, ofthe effectiveness of the Company's disclosure controls and procedures pursuantto Securities Exchange Act Rule 13a-15. Based upon that evaluation, theCompany's Chief Executive Officer concluded that the Company's disclosurecontrols and procedures are effective in ensuring that information required toSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. be disclosed by the Company in the reports that it files or submits under theSecurities Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC's rules and forms.CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTINGThere have been no changes in the Company's internal controls over financialreporting that occurred during the Company's last fiscal quarter to which thisreport relates that have materially affected, or are reasonably likely tomaterially affect, the Company's internal control over financial reporting. PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTThe following table sets forth certain information regarding the directors andexecutive officers of the Company as of March 8, 2004:Name Age Position---- --- --------Mark Weinreb 51 Director, President & Chief Executive OfficerWayne Marasco 50 DirectorJoseph Zuckerman 52 DirectorMichael Lax 50 DirectorMark WeinrebChief Executive OfficerMr. Weinreb joined the Company on February 6, 2003 as a Director, ChiefExecutive Officer and President. In 1976, Mr. Weinreb joined Bio HealthLaboratories, Inc., a state-of-the-art medical diagnostic laboratory providingclinical testing services for physicians, hospitals, and other medicallaboratories. He progressed to become the laboratory administrator in 1978 andthen an owner and the laboratory's Chief Operating Officer in 1982. Here heoversaw all technical and business facets, including finance, laboratory sciencetechnology and all the additional support departments. He left Bio Health Labsin 1989 when he sold the business to a biotechnology company listed on the NewYork Stock Exchange. In 1992, Mr. Weinreb founded Big City Bagels, Inc., anational chain of franchised upscale bagel bakeries and became Chairman andChief Executive Officer of such entity. The company went public in 1995 and in1999 he redirected the company and completed a merger with an Internet serviceprovider. In 2000, Mr. Weinreb became the Chief Executive Officer of Jestertek,Inc., a 12-year old software development company pioneering gesture recognitionand control using advanced inter-active proprietary video technology. In 2002,he left Jestertek after arranging additional financing. Mr. Weinreb received aBachelor of Arts degree in 1975 from Northwestern University and a Master ofScience degree in 1982 in Medical Biology, from C.W. Post, Long IslandUniversity.Wayne Marasco, M.D., Ph.D.DirectorDr. Marasco joined the Board of Directors of the Company in June 2003. Dr.Marasco is an Associate Professor in the Department of Cancer Immunology & AIDSat the Dana-Farber Cancer Institute and Associate Professor of Medicine in theDepartment of Medicine, Harvard Medical School. Dr. Marasco is a board-certifiedphysician specializing in the treatment of infectious diseases. His clinicalsub-specialty is in the treatment of immunocompromised (cancer, bone marrow andsolid organ transplants) and HIV-1 infected patients.The Marasco research laboratories are primarily focused on the areas of antibodyengineering and gene therapy. New immuno- and genetic- therapies for HIV-1infection / AIDS, HTLV-1, the etiologic agent in Adult T-cell Leukemia, andother emerging infectious diseases are being studied. Dr. Marasco's laboratoryis recognized internationally for its pioneering development of intracellularantibodies (sFv) or "intrabodies" as a new class of molecules for research andgene therapy applications. He is the author of more than 70 peer reviewedresearch publications, numerous chapters, books and monographs and has been anSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. invited speaker at many national and international conferences in the areas ofantibody engineering, gene therapy and AIDS. Dr. Marasco is also the ScientificDirector of the National Foundation for Cancer Research (NFCR) Center forTherapeutic Antibody Engineering. The NFCR Center is located at the Dana-FaberCancer Institute and will work with investigators globally to develop new humanmonoclonal antibody drugs for the treatment of human cancers.In 1995, Dr. Marasco founded IntraImmune Therapies, Inc., a gene therapy andantibody engineering company. He served as the Chairman of the ScientificAdvisory Board until the company was acquired by Abgenix in 2000. He has alsoserved as a scientific advisor to several biotechnology companies working in thefield of antibody engineering, gene discovery and gene therapy. He is aninventor on numerous issued and pending patent applications.Joseph Zuckerman, M.D.DirectorJoseph D. Zuckerman joined the Board of Directors of the Company in January2004. Since 1997, Dr. Zuckerman has been Chairman of the NYU-Hospital for JointDiseases Department of Orthopaedic Surgery and the Walter A. L. ThompsonProfessor of Orthopaedic Surgery at the New York University School of Medicine.He is responsible for one of the largest departments of orthopaedic surgery inthe country, providing orthopaedic care at five different hospitals includingTisch Hospital, the Hospital for Joint Diseases, Bellevue Hospital Center, theManhattan Veteran's Administration Medical Center and Jamaica Hospital. He isalso the Director of the Orthopaedic Surgery Residency Program, which trainsmore than 60 residents in a five year program.Dr. Zuckerman holds leadership positions in national organizations and isPresident of the American Shoulder and Elbow Surgeons and Chair of the Councilon Education for the American Academy of Orthopaedic Surgeons. He recentlydeveloped and successfully implemented a sponsorship program between thehospital and the New York Mets. His clinical practice is focused on shouldersurgery and hip and knee replacement and he is the author or editor of tentextbooks, 60 chapters and more than 200 articles in the orthopaedic andscientific literature.Michael LaxDirectorMichael Lax joined the Board of Directors of the Company in March 2004 andgraduated from the University of Rochester with degrees in Chemical andMechanical Engineering. Upon his graduation in 1975, Mr. Lax went to work forKodak as a Process and Product Development Engineer. Since 1988, Mr. Lax hasbeen the President and Chief Executive Officer of Autronic Plastics, Inc. andits subsidiaries, a plastic manufacturing concern specializing in plasticproduct design, mold construction and manufacturing of industrial and precisioncomponents such as medical devices, office products, life safety products andentertainment packaging. Autronic Plastics, Inc.'s clients include Pfizer,Borders Books & Music, Blockbuster, Circuit City, Nintendo, and Cooper LightingCompany. Mr. Lax's 28 years of experience at Autronic Plastics, Inc. havecentered on creative ideation, concept development and managing executions toensure that the integrity of the initial designs come alive. Taking the companyin a new direction, Mr. Lax founded Clear-Vu Products in 1990 to furtherspecialize in the entertainment-packaging sector.Mr. Lax has been awarded numerous patents for packaging designs, solid stateillumination, and life safety products. In addition, his work and collaborationshave received numerous design awards including a Gold Industrial DesignExcellence Award from the Industrial Designers Society of America.COMMITTEES OF THE BOARD OF DIRECTORSComposition of the Board of Directors. Because of the Company's recentreorganization and implementation of its new business plan, and its ongoingefforts to engage qualified board members under its new business plan, theCompany does not have a separately designated audit committee or compensationcommittee at this time. Accordingly, the Company's Board of Directors hasdetermined that the Company does not have an audit committee financial expert.The Company continues to seek new board members in order to implement itsreorganization and new business plan, and appoint a separately designated auditSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. committee.SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) of the Securities Exchange Act of 1934 requires the Company'sdirectors and officers, and persons who own more than 10% of a registered classof the Company's equity securities, to file initial reports of ownership andreports of changes in ownership with the Securities and Exchange Commission.These persons are required by the Securities and Exchange Commission to furnishthe Company with copies of all Section 16(a) reports that they file. Basedsolely on the Company's review of these reports and written representationsfurnished to the Company, the Company believes that in 2003 each of thereporting persons complied with these filing requirements, except that a reporton Form 4 reporting one transaction in February 2003 with respect to MarkWeinreb due on February 8, 2003 was not filed until February 17, 2003, a reporton Form 5 reporting four transactions for the year ended December 31, 2002 withrespect to James J. Fyfe due on February 14, 2003 was not filed until June 10,2003 and a report on Form 5 reporting four transactions for the year endedDecember 31, 2002 with respect to Paul L. Harrison due on February 14, 2003 wasnot filed until June 10, 2003. These late filings were inadvertent and requiredfilings were made promptly after noting the failures to file.CODE OF ETHICS The Company has adopted a Code of Ethics that applies to the Company'sprincipal executive officer, principal financial officer, principal accountingofficer or controller (or persons performing similar functions). A copy of suchCode of Ethics has been filed as Exhibit 14.1 to this Annual Report on Form10-K.ITEM 11. EXECUTIVE COMPENSATIONThe following table sets forth the aggregate compensation paid during the threeyears ended December 31, 2003 to the Company's Chief Executive Officer. No otherexecutive officer of the Company earned in excess of $100,000 for servicesrendered during fiscal 2003. Summary Compensation Table Annual Long-Term Compensation Compensation ------------ ------------ Securities Underlying All Other Name and Principal Position Notes Year Salary Options/SAR's Compensation --------------------------- ----- ---- ------ ------------ ------------ Mark Weinreb (1) 2003 $ 157,154 2,500,000 $ 11,000 Chief Executive Officer (Appointed February 6, 2003)Notes:(1) All other compensation comprises monthly automobile allowances.OPTION GRANTS IN 2003The following table provides certain information with respect to options grantedto the Company's chief executive officer during the fiscal year ended December31, 2003:Option Grants in Last Fiscal Year Percent of Potential Realizable Value Total at Assumed Annual Rates of Number of Options Exercise Market Stock Price Appreciation Securities Granted to Price Price on for Option Term(1) Underlying Employees Date of --------------------------- Options In per Share Grant Expiration Name Granted(2) Fiscal Year ($) ($) Date 5% 10%---------------------------------- -------------- ---------- ----------- ------------ ------------- ----------------Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mark Weinreb 2,500,000 100% $0.03 $0.03 2/6/13 $128,275 $204,257====================----------------------(1) The Securities and Exchange Commission (the "SEC") requires disclosure of the potential realizable value or present value of each grant. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the SEC and do not represent the Company's estimate or projection of the Company's future Common Stock prices. The disclosure assumes the options will be held for the full ten-year term prior to exercise. Such options may be exercised prior to the end of such ten-year term. The actual value, if any, an executive officer may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. There can be no assurance that the stock price will appreciate at the rates shown in the table.(2) These options vested immediately.OPTION EXERCISES AND HOLDINGSThe following table provides information concerning options exercised during2003 and the value of unexercised options held by each of the executive officersnamed in the Summary Compensation Table at December 31, 2003. Option Values at December 31, 2003 Number of Securities Underlying Shares Unexercised Options Value of Acquired at December 31, 2003 In-the-Money Options at On (# of shares) December 31, 2003 ($)(1) Exercise Value --------------------------------- ------------------------------------- Name (# shares) Realized Exercisable Unexercisable Exercisable Unexercisable --------------------- ------------- ------------- -------------- ------------------ ------------------- ----------------- Mark Weinreb -- -- 2,500,000 -- $300,000 -- ========================================================================================================================== --------------------- (1) Based on $0.15 per share, the closing price of the Company's Common Stock, as reported by the OTC Bulletin Board, on December 31, 2003.EMPLOYMENT AGREEMENTSOn February 6, 2003, Mr. Weinreb was appointed President and Chief ExecutiveOfficer of the Company and the Company entered into an employment agreement withMr. Weinreb. The employment agreement has an initial term of three years, withautomatic annual extensions unless terminated by the Company or Mr. Weinreb atleast 90 days prior to an applicable anniversary date. The Company has agreed topay Mr. Weinreb an annual salary of $180,000 for the initial year of the term,$198,000 for the second year of the term, and $217,800 for the third year of theterm. In addition, he is entitled to an annual bonus in the amount of $20,000for the initial year in the event, and concurrently on the date, that theCompany has received debt and/or equity financing in the aggregate amount of atleast $1,000,000 since the beginning of his service, and $20,000 for eachsubsequent year of the term, without condition.In addition, the Company, pursuant to its newly adopted 2003 EquityParticipation Plan, entered into a Stock Option Agreement with Mr. Weinreb (the"Initial Option Agreement"). Under the Initial Option Agreement, the Companygranted Mr. Weinreb the right and option, exercisable for 10 years, to purchaseup to 2,500,000 shares of the Company's Common Stock at an exercise price of$0.03 per share and otherwise upon the terms set forth in the Initial OptionAgreement. In addition, in the event that the closing price of the Company'sCommon Stock equals or exceeds $0.50 per share for any five consecutive tradingdays during the term of the employment agreement (whether during the initialterm or an annual extension), the Company has agreed to grant to Mr. Weinreb, onthe day immediately following the end of the five day period, an option for thepurchase of an additional 2,500,000 shares of the Company's Common Stock for anexercise price of $0.50 per share, pursuant to the 2003 Equity ParticipationPlan and a Stock Option Agreement to be entered into between the Company and Mr.Weinreb containing substantially the same terms as the Initial Option Agreement,except for the exercise price and that the option would be treated as an"incentive stock option" for tax purposes only to the maximum extent permittedby law (the "Additional Option Agreement"). The Company has agreed to promptlySource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. file with the Securities and Exchange Commission a Registration Statement onForm S-8 (the "Registration Statement") pursuant to which the issuance of theshares covered by the 2003 Equity Participation Plan, as well as the resale ofthe Common Stock issuable upon exercise of the Initial Option Agreement, areregistered. Additionally, the Company has agreed, following any grant under theAdditional Option Agreement, to promptly file a post-effective amendment to theRegistration Statement pursuant to which the Common Stock issuable upon exercisethereof shall be registered for resale. Mr. Weinreb has agreed that he will notresell publicly any shares of the Company's Common Stock obtained upon exerciseof any Initial Agreement or the Additional Option Agreement prior to the firstanniversary of the date of the employment agreement.In connection with the hiring of Mr. Weinreb and in anticipation of its newbusiness line, on July 24, 2003, the Company held a meeting of stockholders toelect two directors, to approve and ratify the Company's 2003 EquityParticipation Plan pursuant to which 15,000,000 shares of the Company's CommonStock are authorized to be issued, approve an amendment to the Company'sCertificate of Incorporation to increase the authorized number of shares ofCommon Stock to 250,000,000, and approve a change of the Company's name to"Phase III Medical, Inc."Director CompensationAll current independent directors have individually received options to purchase300,000 shares of the Company's Common Stock pursuant to the Company's 2003Equity Participation Plan at prices ranging from $0.05 to $0.15. In addition tothese options, all independent directors are reimbursed for out of pocket travelexpenses and will receive an annual option grant to purchase 50,000 shares ofthe Company's Common Stock on the date of the Company's annual stockholder'smeeting; provided; however, that no director may receive more than one grant ofthese options in any calendar year. Upon achieving certain target increases instock price for a defined period of time during an existing independentdirectors tenure, the Company has agreed to grant each director an additionaloption to purchase 100,000 shares of the Company's Common Stock substantiallyupon the same terms of the options to purchase 300,000 shares of the Company'sCommon Stock previously granted, except for the exercise price of such options. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe following table sets forth information as to the number of shares of theCompany's Common Stock beneficially owned, as of March 8, 2004, by (i) eachbeneficial owner of more than five percent of the outstanding Common Stock, (ii)each current named executive officer and director and (iii) all currentexecutive officers and directors of the Company as a group. All shares are ownedboth beneficially and of record unless otherwise indicated. Unless otherwiseindicated, the address of each beneficial owner is c/o Phase III Medical, Inc.,330 South Service Road, Suite 120, Melville, New York 11747. Number and Percentage of Shares of Common Stock Owned Percentage # of Shares of Common StockName and Address of Beneficial Notes Beneficially Beneficially Owned Owner Owned (See Note 1) Joel San Antonio56 North Stanwich RoadGreenwich, CT 06831 3,752,500 13.9%Mark Weinreb (2) 2,540,000 9.4%Wayne Marasco (3) 800,000 3.0%Michael Lax (3) 300,000 1.1%Joseph Zuckerman, M.D. (3) 550,000 2.0%All current directors and officers as a group (four persons) (2) (3) 4,190,000 15.6%Notes:(1) Based on 26,926,460 shares of Common Stock outstanding on March 8, 2004. Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (2) Includes 2,500,000 currently exercisable options to purchase Common Stock. (3) Includes 300,000 currently exercisable options to purchase Common Stock.EQUITY COMPENSATION PLAN INFORMATIONThe following table gives information about the Company's Common Stock that maybe issued upon the exercise of options, warrants and rights under the Company's2003 Equity Participation Plan as of December 31, 2003. This plan was theCompany's only equity compensation plan in existence as of December 31, 2003 (c) Number of Securities Remaining Available For Future Issuance (a) (b) Under Equity Number of Securities to Weighted-Average Compensation Plan be Issued Upon Exercise Exercise Price of (Excluding Securities of Outstanding Options, Outstanding Options, Reflected In Plan Category Warrants and Rights Warrants and Rights Column(a)) ------------- ------------------------- --------------------- ------------------------Equity Compensation PlansApproved by Shareholders............ 3,700,000 $0.05 11,300,000Equity CompensationPlans Not Approved byShareholders 0 0 0 ------------------------- --------------------- ------------------------TOTAL 3,700,000 $0.05 11,300,000ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSNot applicable.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESAll audit and audit-related work and all non-audit work performed by theCompany's independent accountants is approved in advance by the Board ofDirectors of the Company, including the proposed fees for such work. The AuditCommittee is informed of each service actually rendered.Audit Fees. Audit fees billed or expected to be billed to the Company by theCompany's principal accountant for the audit of the financial statementsincluded in the Company's Annual Reports on Form 10-K, and reviews of thefinancial statements included in the Company's Quarterly Reports on Form 10-Q,for the years ended December 31, 2003 and 2002 totaled approximately $48,185 and$48,228, respectively.Audit-Related Fees. The Company was billed $0 and $0 by the Company's principalaccountant for the fiscal years ended December 31, 2003 and 2002, respectively,for assurance and related services that are reasonably related to theperformance of the audit or review of the Company's financial statements and arenot reported under the caption Audit Fees above.Tax Fees. The Company was billed or expected to be billed an aggregate of $5,072and $2,900 by the Company's principal accountant for the fiscal years endedDecember 31, 2003 and 2002, respectively, for tax services, principally adviceregarding the preparation of income tax returns.All Other Fees. The Company incurred fees for the fiscal years ended December31, 2003 and 2002, respectively, for permitted non-audit services of $3,230 and$0, respectively.The Company's Board of Directors pre-approved the Company's engagement of HoltzRubenstein & Co., LLP to act as the Company's independent auditor for the fiscalyear ended December 31, 2003. The Company's Board of Directors pre-approvedTravis Wolff & Company, L.L.P. to act as the Company's independent auditor forthe fiscal years ended December 31, 2002 and December 31, 2001. The Company'sindependent auditors performed all work only with its full time permanentemployees.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KThe following documents are being filed as part of this Report:(a)(1) Financial Statements:Reference is made to the Index to Financial Statements and Financial StatementSchedule on Page F-1.(a)(2) Financial Statement Schedule.Reference is made to the Index to Financial Statements and Financial StatementSchedule on Page F-1.All other schedules have been omitted because the required information is notpresent or is not present in amounts sufficient to require submission of theschedule, or because the information required is included in the FinancialStatements or Notes thereto.(a)(3) Exhibits: 3 (a) Certificate of Incorporation filed September 18, 1980 (1) 3 (b) Amendment to Certificate of Incorporation filed September 29, 1980 (1) 3 (c) Amendment to Certificate of Incorporation filed July 28, 1983 (2) 3(b) (d) Amendment to Certificate of Incorporation filed February 10, 1984 (2) 3(d) (e) Amendment to Certificate of Incorporation filed March 31, 1986 (3) 3(e) (f) Amendment to Certificate of Incorporation filed March 23, 1987 (4) 3(g) (g) Amendment to Certificate of Incorporation filed June 12, 1990 (5) 3.8 (h) Amendment to Certificate of Incorporation filed September 27, 1991 (6) 3.9 (i) Certificate of Designation filed November 12, 1994 (7) 3.8 (j) Amendment to Certificate of Incorporation filed September 28, 1995 (9) 3(j) (k) Certificate of Designation for the Series B Preferred Stock dated May 18, 1998 (10) C 3(f) (l) Amendment to Certificate of Incorporation dated May 18, 1998 (10) A (m) Amendment to Certificate of Incorporation filed July 24, 2003 (15) 3.1 (n) By-laws of the Corporation, as amended on April 25, 1991 (6)4 (a) Form of Underwriter's Warrant (6) 4.9.1 (b) Form of Promissory Note - 1996 Offering (9) 4(b) (c) Form of Promissory Note - 1997 Offering (9) 4(c) (d) Form of Common Stock Purchase Warrant - 1996 Offering (9) 4(d) (e) Form of Common Stock Purchase Warrant - 1997 Offering (9) 4(e) (f) Form of Promissory Note - September 2002 Offering (13) 4.1 (g) Form of Promissory Note - February 2003 Offering (13) 4.2 (h) Form of Promissory Note - March 2003 Offering (13) 4.310 (a) 1992 Stock Option Plan (8) B (b) Stock Purchase Agreement, dated as of March 4, 1998, between the Company and the Initial Purchasers named therein (10) B (c) 1998 Employee Stock Option Plan (10) D (d) Stock Contribution Exchange Agreement with StrandTek International, Inc. dated January 7, 2002, as amended on February 11, 2002 (11) 10(o) (e) Supplemental Disclosure Agreement to Stock Contribution Exchange Agreement with StrandTek International, Inc. dated January 7, 2002 (11) 10(p) (f) Employment Agreement dated as of February 6, 2003 by and between Corniche Group Incorporated and Mark Weinreb (12) 99.2 (g) Stock Option Agreement dated as of February 6, 2003 between Corniche Group Incorporated and Mark Weinreb (12) 99.3 (h) Corniche Group Incorporated 2003 Equity Participation Plan (12) 99.4Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (i) Royalty Agreement, dated as of December 5, 2003, by and between Parallel Solutions, Inc. and Phase III Medical, Inc. (13)(14) 10.1 (j) Form of Stock Option Agreement (13) 10.214 (a) Code of Ethics for Senior Financial Officers (13) 14.123 (a) Consent of Holtz Rubenstein & Co., LLP (13) 23.131 (a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (13) 31.132 (a) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (13) 32.1Notes:(1) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's registration statement on Form S-18, File No. 2-69627, which exhibit is incorporated here by reference.(2) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's registration statement on Form S-2, File No. 2-88712, which exhibit is incorporated here by reference.(3) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's registration statement on Form S-2, File No. 33-4458, which exhibit is incorporated here by reference.(4) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's annual report on Form 10-K for the year ended September 30, 1987, which exhibit is incorporated here by reference.(5) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's registration statement on Form S-3, File No. 33-42154, which exhibit is incorporated here by reference.(6) Filed with the Securities and Exchange Commission as an exhibit to the Company's registration statement on Form S-1, File No. 33-42154, which exhibit is incorporated here by reference.(7) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's annual report on Form 10-K for the year ended September 30, 1994, which exhibit is incorporated here by reference.(8) Filed with the Securities and Exchange Commission as an exhibit, as indicated above, to the Company's proxy statement dated March 30, 1992, which exhibit is incorporated here by reference.(9) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's annual report on Form 10-K for the year ended March 31, 1996, which exhibit is incorporated here by reference.(10) Filed with the Securities and Exchange Commission as an exhibit, as indicated above, to the Company's proxy statement dated April 23, 1998, which exhibit is incorporated here by reference.(11) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's annual report on Form 10-K for the year ended December 31, 2001, which exhibit is incorporated here by reference.(12) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the current report of the Company on Form 8-K, dated February 6, 2003, which exhibit is incorporated here by reference.(13) Filed herewith.(14) Certain portions of this exhibit have been omitted based upon a request for confidential treatment. The omitted portions of this exhibit have been filed separately with the Securities and Exchange Commission on a confidential basis.(15) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the current report of the Company on Form 8-K, dated July 24, 2003, which exhibit is incorporated here by reference.(b) Reports on Form 8-KOn December 12, 2003, the Company filed a Current Report on Form 8-K (underItems 5 and 7) regarding the Royalty Agreement, dated as of December 5, 2003, byand between Parallel Solutions, Inc. and Phase III Medical, Inc.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the Company has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. Phase III Medical, Inc. By: /s/ Mark Weinreb ---------------- Mark Weinreb, PresidentDated: March 30, 2004. Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theCompany and in the capacities and on the dates indicated:Signatures Title Date---------- ----- ----/s/ Mark Weinreb Director, President ------------------------------ and Chief Executive Officer March 30, 2004Mark Weinreb /s/ Wayne Marasco Director March 30, 2004------------------------------Wayne Marasco/s/ Joseph Zuckerman Director March 30, 2004------------------------------Joseph Zuckerman/s/ Michael Lax Director March 30, 2004------------------------------Michael Lax PHASE III MEDICAL, INC. Table of Contents Page ----------------------Report of Independent Certified Public Accountants - Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Holtz Rubenstein & Co., LLP F - 1Report of Independent Certified Public Accountants - Travis, Wolff & Company, L.L.P. F - 2Financial Statements: Consolidated Balance Sheets at December 31, 2003 and 2002 F - 3 Consolidated Statements of Operations Years Ended December 31, 2003, 2002 and 2001 F - 4 Consolidated Statements of Stockholder's Equity (Deficit) Years Ended December 31, 2003, 2002 and 2001 F - 5 Consolidated Statements of Cash Flows Years Ended December 31, 2003, 2002 and 2001 F - 6 Notes to Consolidated Financial Statements F - 8 - F - 21 Independent Auditors' ReportBoard of Directors and StockholdersPhase III Medical, Inc.Melville, New YorkWe have audited the accompanying consolidated balance sheet of Phase IIIMedical, Inc. as of December 31, 2003 and the related consolidated statements ofoperations, stockholders' equity (deficit ) and cash flows for the year thenended. These consolidated financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our auditWe conducted our audit in accordance with auditing standards generally acceptedin the United States of America. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall consolidated financial statement presentation. Webelieve that our audit provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Phase III Medical,Inc. as of December 31, 2003 and the results of their operations and their cashflows for the year then ended in conformity with accounting principles generallyaccepted in the United States of America.The accompanying consolidated financial statements have been prepared assumingthat the Company will continue as a going concern. As discussed in Note 1 to theconsolidated financial statements, the Company's recurring losses fromoperations raise substantial doubt about its ability to continue as a goingconcern. Management's plans in regard to these matters are also described inNote 1. The consolidated financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty. /s/ HOLTZ RUBENSTEIN & CO., LLPMelville, New YorkFebruary 3, 2004Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. F-1REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSTo the Board of Directors ofPhase III Medical, Inc.We have audited the accompanying consolidated balance sheet of Phase IIIMedical, Inc. (the "Company") as of December 31, 2002 and the relatedconsolidated statements of operations, stockholders' equity, and cash flows forthe years ended December 31, 2002 and 2001. These consolidated financialstatements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.We conducted our audits in accordance with auditing standards generally acceptedin the United States of America. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall consolidated financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position of PhaseIII Medical, Inc. as of December 31, 2002 and the consolidated results of theiroperations and their cash flows for the years ended December 31, 2002 and 2001,in conformity with accounting principles generally accepted in the United Statesof America.The accompanying consolidated financial statements have been prepared assumingPhase III Medical, Inc. will continue as a going concern. As discussed in theaccompanying notes to the consolidated financial statements, the Company soldits insurance subsidiary in July 2001. Additionally, the Company discontinuedsales of its extended warranty service contracts through its website in December2001. Accordingly, the Company has no operations nor available means to financeits current expenses and with which to pay its current liabilities. Thesefactors raise substantial doubt about the Company's ability to continue as agoing concern. Management's plans in regard to these matters are described inNote 13. The consolidated financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty./s/TRAVIS, WOLFF & COMPANY, L.L.P.Dallas, TexasMarch 11, 2003 F-2 PHASE III MEDICAL, INC. Consolidated Balance Sheets December 31, ------------------------- 2003 2002 ------------ ----------- ASSETSCurrent assets:Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cash and cash equivalents $ 210,947 $ 19,255 Notes receivable, net of allowance of $250,000 in 2002 - 1,000,000 Prepaid expenses and other current assets, net of allowance of $8,103 in 2002 18,024 40,094 ------------ ----------- Total current assets 228,971 1,059,349Property and equipment, net 1,935 -Deferred acquisition costs 77,782 123,835Other assets 3,000 - ------------ ----------- $ 311,688 $ 1,183,184 ============ ===========LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilities: Interest and dividends payable - preferred stock $ 433,196 $ 385,512 Accounts payable 87,896 344,279 Accrued liabilities 92,115 157,806 Stockholder advances - 106,000 Notes payable 400,000 125,000 Current portion of long-term debt 9,513 22,595 ------------ ----------- Total current liabilities 1,022,720 1,141,192Unearned revenues 110,568 175,200Series A mandatorily redeemable convertible preferred stock 681,174 681,174Long-term debt - 9,513COMMITMENTS AND CONTINGENCIESStockholders' equity (deficit): Preferred stock; authorized, 5,000,000 shares Series B convertible redeemable preferred stock, liquidation value, 10 shares of common stock per share, $.01 par value; authorized, 825,000 shares; issued and outstanding, 10,000 shares at December 31, 2003 and at December 31, 2002 100 100 Common stock, $.001par value; authorized, 250,000,000 shares; issued and outstanding, 26,326,460 at December 31, 2003 and 22,398,710 shares at December 31, 2002 26,327 22,399 Additional paid-in capital 9,232,753 8,847,573 Accumulated deficit (10,761,954) (9,693,967) ------------ ----------- Total stockholders' equity (deficit) (1,502,774) (823,895) ------------ ----------- $ 311,688 $ 1,183,184 ============ ===========The accompanying notes are an integral part of the consolidated financialstatements F-3 PHASE III MEDICAL, INC. Consolidated Statements of Operations Years ended December 31, ----------------------------------------------------------- 2003 2002 2001 -------------------- ----------------- ------------------- Earned revenues $ 64,632 $ 81,348 $ 107,447Direct Costs (43,608) (60,565) (70,674) -------------------- ----------------- ------------------- Gross Profit 21,024 20,783 36,773Selling, general and administrative (685,353) (911,950) (1,642,874)Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Purchase of medical royalty stream (80,000) - -Realized loss on note receivable (150,000) - -Provision for uncollectible note receivable and accrued interest - (258,103) - -------------------- ----------------- ------------------- Operating loss (894,329) (1,149,270) (1,606,101)Other income (expense):Unrealized gain on marketable securities - - 18,779Realized loss on marketable securities - (3,490) -Property and equipment impairment charge - (54,732) -Capitalized software impairment charge - - (305,333)Interest income 88,923 70,676 107,183Interest expense - Series A mandatorilyredeemable convertible preferred stock (23,842) - -Interest expense (214,897) (23,022) (6,212) -------------------- ----------------- ------------------- (149,816) (10,568) (185,583) -------------------- ----------------- -------------------Loss before discontinuedoperations and preferred dividend (1,044,145) (1,159,838) (1,791,684)Discontinued operations:Income from operations - - 237,898Loss on disposal - - (479,244) -------------------- ----------------- ------------------- - - (241,346) -------------------- ----------------- -------------------Net loss (1,044,145) (1,159,838) (2,033,030)Preferred dividend (23,842) (47,684) (47,684) -------------------- ----------------- -------------------Net Loss attributable to common stockholders $ (1,067,987)$ (1,207,522)$ (2,080,714) ==================== ================= ===================Basic earnings per shareLoss before discontinued operations (0.05) (0.05) (0.08)Loss from discontinued operations $ - $ - $ (0.01) -------------------- ----------------- -------------------Net loss attributable to common stockholders $ (0.05)$ (0.05)$ (0.09) ==================== ================= ===================Weighted average common shares outstanding 23,509,343 22,344,769 22,284,417 ==================== ================= ===================The accompanying notes are an integral part of the consolidated financialstatements F-4 PHASE III MEDICAL, INC. Consolidated Statements of Stockholders' Equity (Deficit) Series B Convertible Preferred Stock Common Stock Additional --------------- ------------------- Paid-in Accumulated Shares Amount Shares Amount Capitol Deficit Total -------- ------ ----------- ------- ---------- ------------ ----------- Balance at December 31, 2000 20,000 $ 200 22,280,210 $22,280 $8,833,156 $ (6,405,731)$ 2,449,905Issuance of common stock to directors - - 10,500 11 4,531 - 4,542Series A convertible stock dividends - - - - - (47,684) (47,684)Net loss - - - - - (2,033,030) (2,033,030) -------- ------ ----------- ------- ---------- ------------ -----------Balance at December 31, 2001 20,000 200 22,290,710 22,291 8,837,687 (8,486,445) 373,733Issuance of common stock to directors - - 8,000 8 1,113 - 1,121Conversion of Series B convertible preferred stock into common stock (10,000) (100) 100,000 100 - - -Series A convertible stock dividends - - - - - (47,684) (47,684)Stock options granted with debt - - - - 8,773 - 8,773Net loss - - - - - (1,159,838) (1,159,838) -------- ------ ----------- ------- ---------- ------------ -----------Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Balance at December 31, 2002 10,000 100 22,398,710 22,399 8,847,573 (9,693,967) (823,895)Issuance of common stock for cash, net of offering costs - - 2,825,000 2,825 211,956 - 214,781Issuance of common stock uponexercise of common stock options - - 1,000,000 1,000 4,000 - 5,000Issuance of common stock for services - - 100,000 100 2,900 - 3,000Issuance of common stock to directors - - 2,750 3 300 - 303Series A convertible stock dividends - - - - - (23,842) (23,842)Stock options granted with debt - - - - 166,024 - 166,024Net loss - - - - - (1,044,145) (1,044,145) -------- ------ ----------- ------- ---------- ------------ -----------Balance at December 31, 2003 10,000 $ 100 26,326,460 $26,327 $9,232,753 $(10,761,954)$(1,502,774) ======== ====== =========== ======= ========== ============ ===========The accompanying notes are an integral part of the consolidated financialstatements F-5 PHASE III MEDICAL, INC. Consolidated Statements of Cash Flows Years ended December 31, ----------------------------------- 2003 2002 2001 ----------- ----------- ----------- Cash flows from operating activities: $(1,044,145)$(1,159,838)$(2,033,030) Net loss Adjustments to reconcile net loss to net cash (used in) Provided by operating activities: Net income from discontinued operations - - (237,898) Loss on sale of subsidiary - - 479,244 Property and equipment impairment charge - 54,732 - Capitalized software impairment charge - - 305,333 Common shares issued and stock options granted for interest expense and for services rendered 169,327 9,894 4,542 Depreciation 646 16,766 155,436Series A mandatorily redeemable convertible preferred stock 23,842 - - Unearned revenues (64,632) (84,579) 144,971 Deferred acquisition costs 46,053 59,744 (106,629) Realized loss on note receivable 150,000 - - Provision for uncollectible note receivable and accrued interest - 258,103 - Changes in operating assets and liabilities : Marketable securities - 1,503,374 872,840 Prepaid expenses and other current assets 22,070 (28,463) 55,557 Other assets (3,000) 4,175 - Accounts payable, accrued expenses and other current liabilities (322,074) 371,468 (14,209) ----------- ----------- ----------- Net cash (used in) provided by operating activities (1,021,913) 1,005,376 (373,843)Cash flows from investing activities: Acquisition of property and equipment (2,581) (1,133) (9,061) Notes receivable 850,000 (1,250,000) - Proceeds from sale of property and equipment - 3,795 - Proceeds from sale of subsidiary - - 372,000 ----------- ----------- ----------- Net cash provided by (used in) investing activities 847,419 (1,247,338) 362,939Cash flows from financing activities: Net proceeds from issuance of capital stock 219,781 - - Stockholder advances (106,000) 106,000 - Net proceeds from notes payable 275,000 125,000 - Repayment of long-term debt (22,595) (21,051) (23,432) ----------- ----------- ----------- Net cash provided by (used in) financing activities 366,186 209,949 (23,432) ----------- ----------- -----------Net increase (decrease) in cash and cash equivalents 191,692 (32,013) (34,336)Cash and cash equivalents at beginning of year 19,255 51,268 85,604 ----------- ----------- -----------Cash and cash equivalents at end of year $ 210,947 $ 19,255 $ 51,268Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. =========== =========== ===========The accompanying notes are an integral part of the consolidated financialstatements F-6 PHASE III MEDICAL, INC. Consolidated Statements of Cash Flows - continued Years ended December 31, ------------------------------------------------ 2003 2002 2001 ---------------- --------------- -------------Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 26,483 $ 8,804 $ 6,212 ================ =============== =============Supplemental schedule of non-cash investing and financing activitiesIssuance of common stock for services rendered $ 3,303 $ 1,121 $ 4,542 ================ =============== =============Compensatory element of stock options $ 166,024 $ 8,773 $ - ================ =============== =============Net accrual of dividends on Series A preferred stock $ 23,842 $ 47,684 $ 47,684 ================ =============== =============The accompanying notes are an integral part of the consolidated financialstatements F - 7 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 1 - The CompanyPhase III Medical, Inc. (hereinafter referred to as the "Company") was known asCorniche Group Incorporated until it changed its name on July 24, 2003. TheCompany was incorporated in Delaware on September 18, 1980 under the nameFidelity Medical Services, Inc. From its inception through March 1995, theCompany was engaged in the development, design, assembly, marketing, and sale ofmedical imaging products. As a result of a reverse merger with CornicheDistribution Limited and its Subsidiaries ("Corniche") the Company was engagedin the retail sale and wholesale distribution of stationery products and relatedoffice products, including office furniture, in the United Kingdom. EffectiveMarch 25, 1995, the Company sold its wholly-owned medical imaging productssubsidiary. On September 28, 1995 the Company changed its name to Corniche GroupIncorporated. In February 1996, the Company's United Kingdom operations wereplaced in receivership by their creditors. Thereafter, through May 1998, theSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Company had no activity. On March 4, 1998, the Company entered into a StockPurchase Agreement ("Agreement"), approved by the Company's stockholders on May18, 1998, with certain individuals (the "Initial Purchasers") whereby theInitial Purchasers acquired an aggregate of 765,000 shares of a newly createdSeries B Convertible Redeemable Preferred Stock, par value $0.01 per share.Thereafter the Initial Purchasers endeavored to establish for the Company newbusiness operations in the property and casualty specialty insurance and theservice contract markets. On September 30, 1998, the Company acquired all of thecapital stock of Stamford Insurance Company, Ltd. ("Stamford") from WarrantechCorporation ("Warrantech") for $37,000 in cash in a transaction accounted for asa purchase. On April 30, 2001, the Company sold Stamford for a consideration of$372,000. During 2001, the Company recorded a loss of approximately $479,000 onthe sale of Stamford. The closing was effective May 1, 2001 and transfer offunds was completed on July 6, 2001.On January 7, 2002, the Company entered into a Stock Contribution ExchangeAgreement (the "Exchange Agreement") and a Supplemental Disclosure Agreement(together with the Exchange Agreement, the "Agreements") with StrandtekInternational, Inc., a Delaware corporation ("Strandtek"), certain ofStrandtek's principal shareholders and certain non-shareholder loan holders ofStrandtek (the "StrandTek Transaction"). The Exchange Agreement was amended onFebruary 11, 2002. Had the transactions contemplated by the Agreements closed,StrandTek would have become a majority owned subsidiary of the Company and theformer shareholders of StrandTek would have controlled the Company. Consummationof the StrandTek Transaction was conditioned upon a number of closingconditions, including the Company obtaining financing via an equity privateplacement, which ultimately could not be met and, as a result, the Agreementswere formally terminated by the Company and StrandTek in June 2002.The Company was a provider of extended warranties and service contracts via theInternet at warrantysuperstore.com through June 30, 2002. In June 2002,management determined, in light of continuing operating losses, to discontinueits warranty and service contract business and to seek new businessopportunities for the Company. On February 6, 2003, the Company appointed MarkWeinreb as a member of the Board of Directors and as its President and ChiefExecutive Officer. The Company and Mr. Weinreb have been exploring businessplans for the Company that involve entering the medical sector by acquiring orparticipating in one or more biotech and/or medical companies or technologies,owning one or more drugs or medical devices that may or may not yet be availableto the public, or acquiring rights to one or more of such drugs or medicaldevices or the royalty streams therefrom. Mr. Weinreb was appointed to finalizeand execute the Company's new business plan. F-8 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 1 - The Company - (Continued)On December 12, 2003, the Company signed a royalty agreement with ParallelSolutions, Inc. "(PSI") to develop a new bioshielding platform technology forthe delivery of therapeutic proteins and small molecule drugs in order to extendcirculating half-life to improve bioavailability and dosing regimen, whilemaintaining or improving pharmacologic activity. The agreement provides for PSIto pay the Company a percentage of the revenue received from the sale of certainspecified products or licensing activity. The company will provide capital andguidance to PSI to conduct a Proof of Concept Study to improve an existingtherapeutic protein with the goal of validating the bioshielding technology forfurther development and licensing the technology. The Company will need torecruit management, business development and technical personnel, and developits business model. Accordingly, it will be necessary for the Company to raisenew capital. There can be no assurance that any such business plan developed bythe Company will be successful, that the Company will be able to acquire suchnew business or rights or raise new capital, or that the terms of anytransaction will be favorable to the Company.The business of the Company today comprises the "run off" of its sale ofextended warranties and service contracts via the Internet and the new businessopportunity it is pursuing in the medical/bio-tech sector.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. At December 31, 2003, the Company had a cash balance of $210,947, deficitworking capital of $793,749 and a stockholders' deficit of $1,502,774. Inaddition the Company sustained losses of $1,044,145, $1,159,838 and $2,033,030for the three fiscal years ended December 31, 2003, 2002 and 2001 respectively.The Company's lack of liquidity combined with its history of losses raisessubstantial doubt as to the ability of the Company to continue as a goingconcern. The consolidated financial statements of the Company do not reflect anyadjustments relating to the doubt of its ability to continue as a going concern.Management is presently selling notes which bear interest at 20% per annum tofund the Company until such time as sufficient proceeds, if any, are receivedfrom the private placement of its common stock. On September 22, 2003 theCompany commenced an equity private placement to raise up to $4 million throughthe sale of up to 40 million shares of its Common Stock in increments of $5,000or 50,000 shares. Through December 31, 2003, the Company sold 2,825,000 shares,resulting in proceeds to the Company of $214,781. The Company continues to offerthese securities without the assistance of an investment banker and will collectthe full proceeds from any sale. There can be no assurance that the Company willbe able to sell these securities and may have to rely on its ability to borrowmoney from new and or existing investors.Note 2 - Summary of Significant Accounting Policies(a) Basis of consolidation: The accompanying consolidated financial statements include the accounts of the Company and its subsidiary through April 30, 2001. All intercompany amounts and balances have been eliminated in consolidation.(b) Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.(c) Cash Equivalents: Short-term cash investments, which have a maturity of ninety days or less when purchased, are considered cash equivalents in the consolidated statement of cash flows. F-9 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 2 - Summary of Significant Accounting Policies - (Continued)(d) Concentrations of Credit-Risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash. The Company places its cash accounts with high credit quality financial institutions, which at times may be in excess of the FDIC insurance limit.(e) Property and Equipment: The cost of property and equipment is depreciated over the estimated useful lives of the related assets of 3 to 5 years. The cost of computer software programs are amortized over their estimated useful lives of five years. Depreciation is computed on the straight-line method. Repairs and maintenance expenditures that do not extend original asset lives are charged to expense as incurred.(f) Income Taxes: The Company, in accordance with SFAS 109, "Accounting for Income Taxes", recognizes (a) the amount of taxes payable or refundable for the current year and, (b) deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise's financial statement or tax returns.(g) Pro Forma Effect of Stock Options: Financial Accounting Standards Board Interpretation No. 44 is an interpretation of APB Opinion No. 25 and SFAS No. 123 which requires that effective July 1, 2000, all options issued to non-employees after January 12, 2000 be accounted for under the rules of SFAS No. 123. Options granted to non-employees after December 15, 1998 through January 12, 2000 are also required to follow SFAS No. 123 retrospectively from July 1, 2000. The effect ofSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. adoption of the Interpretation was a charge to operations in 2000 of $2,667 and an increase in additional paid in capital in the same amount. Assuming the fair market value of the stock at the date of grant to be $.3125 per share in May 1996, $.40625 per share in May 1997, $.6875 in January 1999 and $1.00 per share in September 1999, $1.94 in June 2000, $1.097 in September 2000 and $.03 in February 2003, $.05 in May, June and July 2003, and $.18 in September 2003, the life of the options to be from three to ten years, the expected volatility at 200%, expected dividends are none, and the risk-free interest rate of between 4% and 10%, the Company would have recorded compensation expense of $205,760, $43,593 and $59,129, respectively, for the years ended December 31, 2003, 2002 and 2001 as calculated by the Black-Scholes option pricing model. As such, proforma net loss and net loss per share would be as follows: 2003 2002 2001 --------------- ---------------- --------------- Net loss as reported $ (1,067,987) $ (1,159,838) $ (2,033,030)Additional compensation (205,760) (43,593) (59,129) --------------- ---------------- ---------------Adjusted net loss $ (1,273,747) $ (1,203,431) $ (2,092,159) =============== ================ ===============Net loss per share as reported $ (.05) $ (0.05) $ (0.09) =============== ================ ===============Adjusted net loss per share $ (.05) $ (0.05) $ (0.09) =============== ================ =============== F-10 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 2 - Summary of Significant Accounting Policies - (Continued)(h) Recent Accounting Pronouncements: In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34". FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit and warranty obligations. It also clarifies that at the time a company issues a guarantee, a company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The provisions of FIN 45 relating to initial recognition and measurement must be applied on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of the initial recognition and measurement provisions did not have a significant impact on the Company's financial condition or results of operations. The disclosure requirements of FIN 45, which were effective for both interim and annual periods that end after December 15, 2002. The adoption of FIN No. 45 did not have a material impact on the Company's consolidated financial statements. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities", to address perceived weaknesses in the accounting and financial reporting for investments or interests in entities commonly known as special purpose or off-balance-sheet entities. FIN 46Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was required to be applied to preexisting entities of the Company as of the beginning of the first quarter after June 15, 2003. FIN 46 was required to be applied to all new entities with which the Company became involved beginning February 1, 2003. The adoption of FIN No. 46 did not have a material impact on the Company's consolidated financial statements. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This Statement clarifies accounting and reporting for derivative instruments, including certain embedded derivatives, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. The adoption of SFAS No. 149 did not have a material impact on the Company's consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement was developed to respond to concerns expressed by users of financial statements about issuers' classification in the statement of financial position of certain financial instruments that have characteristics of both liabilities and equity but that have been presented either entirely as equity or between the liabilities section and the equity section of the statement of financial position "mezzanine equity"). This Statement also addresses questions about the classification of certain financial instruments that embody obligations to issue equity shares. SFAS No. 150 aims to eliminate diversity in practice by requiring certain types of F-11 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 2 - Summary of Significant Accounting Policies - (Continued) "freestanding" financial instruments, such as mandatorily redeemable instruments, to be reported as liabilities. Preferred dividends on these instruments are now classified as interest expense. Retroactive reclassification of amounts reported in historical financial statements for periods prior to the effective date of SFAS No. 150 is not permitted. The provisions of SFAS No. 150, which also include a number of new disclosure requirements, was effective for instruments entered into or modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commenced after June 15, 2003. Accordingly, the Company has classified the Series A Convertible Preferred Stock as a long-term liability in accordance with the provisions of SFAS No. 150. See Note 9 for a further discussion.(i) Advertising Costs: The Company expenses advertising costs as incurred. Advertising costs amounted to $107,117 for the year ended December 31, 2001. There were no advertising costs in 2003 or 2002.(j) Earnings Per Share: Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented as it is anti-dilutive in all periods presented.(j) Revenue Recognition: Stamford's reinsurance premiums are recognized onSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. a pro rata basis over the policy term. The deferred policy acquisition costs are the net cost of acquiring new and renewal insurance contracts. These costs are charged to expense in proportion to net premium revenue recognized. The provisions for losses and loss-adjustment expenses include an amount determined from loss reports on individual cases and an amount based on past experience for losses incurred but not reported. Such liabilities are necessarily based on estimates, and while management believes that the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates and for establishing the resulting liability are continually reviewed, and any adjustments are reflected in earnings currently. 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.(k) Purchase of Royalty Interests: The Company charges payments for the purchase of future potential royalty interests to expense as paid and will record revenues when royalty payments are received. F-12 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 3 - Notes ReceivableIn January 2002, the Company advanced to StrandTek a loan of $1 million on anunsecured basis, which is personally guaranteed by certain of the principalshareholders of StrandTek and a further loan of $250,000 on February 19, 2002 onan unsecured basis. Such loans bear interest at 7% per annum and were due onJuly 31, 2002 following termination of the Agreements (as discussed in Note 1)in June 2002. StrandTek failed to pay the notes on the due date and the Companycommenced legal proceedings against StrandTek and the guarantors to recover theprincipal, accrued interest and costs of recovery. The Company ceased accruinginterest on July 31, 2002. Subsequent to July 31, 2002, the notes accrueinterest at the default rate of 12% per annum. The Company provided an allowancefor the $250,000unsecured loan and interest of $8,103 at December 31, 2002. On July 24, 2003 theCompany entered into a Forbearance Agreement with personal guarantors Veltmenand Buckles pursuant to which they made payments totaling $590,640, includinginterest of $90,640. A similar Forbearance Agreement was reached with personalguarantor Arnett as of July 28, 2003 pursuant to which he paid $287,673,including interest of $37,673. A Settlement Agreement was reached with personalguarantor Bauman as of December 23, 2003 pursuant to which he paid $100,000 infull settlement of the judgment against him in the amount of $291,406. The payment was received on December 30, 2003 as stated in theagreement. These payments, totaling approximately $987,000 were paid as fullsatisfaction for the outstanding amounts owed to the Company. Accordingly, theCompany recorded a realized loss on these notes of $150,000 in 2003.Note 4 - Accrued ExpensesAccrued expenses are as follows: December 31, ------------------------------------- 2003 2002 ---------------- ---------------- Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Professional fees $ 49,009 $ 28,500 Interest on notes payable 27,835 5,446 Employment contract termination - 120,000 Other 15,271 3,860 ---------------- ---------------- $ 92,115 $ 157,806 ================ ================Note 5 - Notes PayableIn September 2002, the Company sold to accredited investors five 60-daypromissory notes in the principal sum of $25,000 each, resulting in net proceedsto the Company of $117,500, net of offering costs. The notes bear interest at15% per annum payable at maturity. The notes include a default penalty pursuantto which, if the notes are not paid on the due date, the holder shall have theoption to purchase twenty five thousand shares of the Company's common stock foran aggregate purchase price of $125. If the non payment continues for 30 days,then on the 30th day, and at the end of each successive 30-day period until thenote is paid in full, the holder shall have the option to purchase an F-13 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 5 - Notes Payable - (Continued)additional twenty five thousand shares of the Company's common stock for anaggregate purchase price of $125. At December 31, 2003, the Company had reserved750,000 (2002: 250,000) shares of the Company's common stock for issuanceagainst exercise of the options granted pursuant to the default penalty andrecognized $166,024 (2002: $8,773) as a charge to interest expense. See Note 7.On February 11, 2003, the Company commenced a private placement offering toraise up to $100,000 in 30-day promissory notes in increments of $5,000 bearinginterest at 20% per annum. Only selected investors which qualify as "accreditedinvestors" as defined in Rule 501(a) under the Securities Act of 1933, asamended, were eligible to purchase these promissory notes. The Company raised$50,000 through the sale of such promissory notes, resulting in net proceeds tothe Company of $45,000, net of offering costs. In November 2003, the Companyrepaid all $50,000 of such promissory notes together with all accrued interestof $6,854. On March 17, 2003, the Company commenced a private placement offering to raiseup to $250,000 in 6-month promissory notes in increments of $5,000 bearinginterest at 15% per annum. Only selected investors which qualify as "accreditedinvestors" as defined in Rule 501(a) under the Securities Act of 1933, asamended, were eligible to purchase these promissory notes. The Company raisedthe full $250,000 through the sale of such promissory notes, resulting in netproceeds to the Company of $225,000, net of offering costs. The notes contain adefault provision which raises the interest rate to 20% if the notes are notpaid when due. The Company issued $250,000 of these notes. As of December 31,2003, $60,000 of the principal amount of these notes were in default. Allinterest payments have been made and are current. As of March 15, 2004, all ofthese notes are in default and bear interest at 20%.Note 6 - Series A Mandatorily Redeemable Convertible Preferred StockIn connection with the settlement of securities class action litigation in 1994,the Company issued 1,000,000 shares of Series A $0.07 Convertible PreferredStock (the "Series A Preferred Stock") with an aggregate value of $1,000,000.The following summarizes the terms of Series A Preferred Stock as more fully setforth in the Certificate of Designation. The Series A Preferred Stock has aliquidation value of $1 per share, is non-voting and convertible into commonstock of the Company at a price of $5.20 per share. Holders of Series APreferred Stock are entitled to receive cumulative cash dividends of $0.07 pershare, per year, payable semi-annually. The Series A Preferred Stock is callableby the Company at a price of $1.05 per share, plus accrued and unpaid dividends.In addition, if the closing price of the Company's common stock exceeds $13.80per share for a period of 20 consecutive trade days, the Series A PreferredStock is callable by the Company at a price equal to $0.01 per share, plusaccrued and unpaid dividends.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Certificate of Designation for the Series A Preferred Stock also states thatat any time after December 1, 1999 the holders of the Series A Preferred Stocksmay require the Company to redeem their shares of Series A Preferred Stock (ifthere are funds with which the Company may do so) at a price of $1.00 per share.Notwithstanding any of the foregoing redemption provisions, if any dividends onthe Series A Preferred Stock are past due, no shares of Series A Preferred Stockmay be redeemed by the Company unless all outstanding shares of Series APreferred Stock are simultaneously redeemed. During the years ended December 31,2000 and 1999, 128,880 and 18,711, respectively, shares of Series A PreferredStock were converted into 24,743 and 3,586, respectively, shares of common F-14 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 6 - Series A Mandatorily Redeemable Convertible Preferred Stock -(Continued)stock. At December 31, 2003, 2002 and 2001, 681,174 shares of Series A PreferredStock were outstanding, and accrued dividends on these outstanding shares were$433,196, $385,512 and $337,827 respectively.On January 29, 2002, notice was given that, pursuant to the Company's RestatedCertificate of Incorporation, as amended, the Company called for redemption onthe date of closing the StrandTek Transaction, all shares of Series A PreferredStock outstanding on that date at a redemption price of $1.05, plus accrued andunpaid dividends of approximately $0.47 per share. The redemption, among otherfinancial, legal and business conditions, was a condition of closing theStrandTek Transaction. Similarly, the redemption was subject to closing theStrandTek Transaction. Upon termination of the StrandTek Transaction, theCompany rescinded the notice of redemption.Note 7 - Stockholders' Equity(a) Series B Convertible Redeemable Preferred Stock: The total authorized shares of Series B Convertible Redeemable Preferred Stock is 825,000. The following summarizes the terms of the Series B Stock whose terms are more fully set forth in the Certificate of Designation. The Series B Stock carries a zero coupon and each share of the Series B Stock is convertible into ten shares of the Company's common stock. The holder of a share of the Series B Stock is entitled to ten times any dividends paid on the common stock and such stock has ten votes per share and votes as one class with the common stock. The holder of any share of Series B Convertible Redeemable Preferred Stock has the right, at such holder's option (but not if such share is called for redemption), exercisable after September 30, 2000, to convert such share into ten (10) fully paid and non-assessable shares of common stock (the "Conversion Rate"). The Conversion Rate is subject to adjustment as stipulated in the Agreement. Upon liquidation, the Series B Stock would be junior to the Company's Series A Preferred Stock and would share ratably with the common stock with respect to liquidating distributions. During the year ended December 31, 2000, holders of 805,000 shares of the Series B Preferred Stock converted their shares into 8,050,000 shares of the Company's common stock. During the year ended December 31, 2002, the holders of 10,000 shares of the Series B Preferred Stock converted their shares into 100,000 shares of the Company's common stock. At December 31, 2003 and 2002, 10,000 Series B Preferred Shares were issued and outstanding. The Company's right to repurchase or redeem shares of Series B Stock was eliminated in fiscal 1999 pursuant to the terms of the Agreement and the Certificate of Designation.(b) Common Stock:Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. At the 2003 annual meeting, the stockholders approved an amendment increasing the authorized common stock to 250 million shares from 75 million shares. F-15 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------(b) Common Stock: -continued In 2001, the Company issued 10,500 shares of its common stock whose fair value was $4,542, in 2002 8,000 shares of its common stock whose fair value was $1,121 and in 2003 2,750 shares of its common stock whose fair value was $303 to its board members for director's fees. In 2003, the Company issued 1,000,000 shares of its common stock, resulting in net proceeds to the Company of $5,000 as a result of the exercise of stock options granted pursuant to the default provisions of the 60 day promissory notes discussed in Note 5. On February 6, 2003, the Company entered into a deferment agreement with three major creditors pursuant to which liabilities of approximately $523,887 in aggregate, were deferred, subject to the success of the Company's debt and equity financing efforts. In addition, in consideration for the deferral, the Company agreed to issue 100,000 restricted shares of the Company's common stock, whose fair value was $3,000. The deferred creditors were paid in full, during 2003 from the recoveries against the StrandTek (see Note 3) personal guarantors. On September 22, 2003 the Company commenced an equity private placement to raise up to $4 million through the sale of up to 40 million shares of its Common Stock in increments of $5,000 or 50,000 shares. Only selected investors which qualify as "accredited investors" as defined in Rule 501(a) under the Securities Act of 1933, as amended, were eligible to purchase these shares. The placement closed on December 31, 2003 upon the sale of 2,825,000 shares, resulting in proceeds to the Company of $214,781, net of offering costs of $67,719. The Company retained Robert M. Cohen & Company as placement agent, on a best efforts basis, for the offering. The Company agreed to pay the placement agent an amount equal to 10% of the proceeds of the offering as commissions for the placement agents' services in addition to reimbursement of the placement agents' expenses (by way of a 3% non-accountable expense allowance) and indemnification against customary liabilities.(c) 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. In connection with the September 2003 equity private placement, the Company issued a 5 year warrant to purchase 282,500 shares of its Common Stock at an exercise price of $.12 per share to its retained placement agent, Robert M. Cohen & Company. The warrant contains "piggyback registration rights. The fair value of these warrants were $13,500 at December 31, 2003. A total of 326,500 shares of common stock are reserved for issuance upon exercise of outstanding warrants as of December 31, 2003 at prices ranging from $.12 to $8.10 and expiring through December 2008. No warrants were exercised during any of the periods presented. F-16 PHASE III MEDICAL, INC.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------(d) Stock Option Plans: (i) The 1998 Employee Incentive Stock Option Plan provides for the granting of options to purchase shares of the Company's common stock to employees. Under the 1998 Plan, the maximum aggregate number of shares that may be issued under options is 300,000 shares of common stock. The aggregate fair market value (determined at the time the option is granted) of the shares for which incentive stock options are exercisable for the first time under the terms of the 1998 Plan by any eligible employee during any calendar year cannot exceed $100,000. Options are exercisable at the fair market value of the common stock on the date of grant and have five-year terms. The exercise price of each option is 100% of the fair market value of the underlying stock on the date the options are granted and are exercisable for a period of ten years, except that no option will be granted to any employee who, at the time the option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary unless (a) at the time the options are granted, the option exercise price is at least 110% of the fair market value of the shares of common stock subject to the options and (b) the option by its terms is not exercisable after the expiration of five years from the date such option is granted. The Board of Directors' Compensation Committee administers the 1998 Plan. The 1998 Employee Incentive Stock Option Plan was superceded by the 2003 Equity Participation Plan in February 2003. (see below). (ii) In April 1992, the Company adopted the 1992 Stock Option Plan to provide for the granting of options to directors. According to the terms of this plan, each director is granted options to purchase 1,500 shares each year. The maximum amount of the Company's common stock that may be granted under this plan is 20,000 shares. The plan expired by its own terms in 2002. Stock option activity under the 1992 and 1998 Stock Option Plans is as follows: Weighted Number of Average Exercise Shares Price ------------------ -------------------- Balances at December 31, 2000 403,000 $ 1.45 Granted 75,000 0.37 Expired (1,500) 0.31 Cancelled (175,000) 1.23 ------------------ -------------------- Balances at December 31, 2001 301,500 1.30 Granted - - Expired (1,500) 0.41 Cancelled (300,000) 1.31 ------------------ -------------------- Balances at December 31, 2003 and 2002 - $ - ================== ==================== F-17 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements-------------------------------------------------------------------------------- (e) Stock Option Plans:- Continued Under the 1998 and 1992 plans outstanding options expire 90 days afterSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. termination of the holder's status as employee or director. All options were granted at an exercise price equal to the fair value of the common stock at the grant date. Therefore, in accordance with the provisions of APB Opinion No. 25 related to fixed stock options, no compensation expense is recognized with respect to options granted or exercised. Under the alternative fair-value based method defined in SFAS No. 123, the fair value of all fixed stock options on the grant date would be recognized as expense over the vesting period. (iii) At the 2003 annual meeting, the stockholders approved the 2003 Equity Participation Plan. The Company has reserved 15,000,000 shares of common stock for the grant of incentive stock options and non-statutory stock options to employees and non-employee directors, consultants and advisors. Pursuant to such plan the Company entered into a Stock Option Agreement with Mr. Weinreb (the "Initial Option Agreement"). Under the Initial Option Agreement, the Company granted Mr. Weinreb the right and option, exercisable for 10 years, to purchase up to 2,500,000 shares of the Company's common stock at an exercise price of $0.03 per share. Additionally, in the event that the closing price of the Company's common stock equals or exceeds $0.50 per share for any five consecutive trading days during the term of the employment agreement (whether during the initial term or an annual extension), the Company has agreed to grant Mr. Weinreb, on the day immediately following the end of the five day period, an option to purchase an additional 2,500,000 shares of the Company's common stock at an exercise price of $0.50 per share, pursuant to the 2003 Equity Participation Plan. Mr. Weinreb has agreed that he will not sell any shares of the Company's common stock obtained upon exercise of the Initial Option Agreement or Additional Option Agreement prior to the first anniversary of the date of the employment agreement. Additionally, the Company has granted options to purchase 1,200,000 shares of Common Stock at exercise prices ranging from $.05 to $.18 to members of its board of directors and its advisory board. All options were granted at an exercise price equal to the fair value of the common stock at the date of grant. Stock option activity under the 2003 Equity Participation Plan is as follows: Range of Exercise Weighted Average Number of Shares (1) Price Exercise Price -------------------------- -------------- --------------------------- Balance at December 31, 2002 - - - Granted 3,700,000 $.03 - $.18 $.05 Exercised - - - Expired - - - Cancelled - - - -------------------------- -------------- --------------------------- Balance at December 31, 2003 3,700,000 $.03 - $.18 $ $.05 ============== =========================== (1) All options are exercisable for a period of ten years. F-18 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements-------------------------------------------------------------------------------- Note 8 - Income TaxesSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Deferred tax assets consisted of the following as of December 31: 2002 2003 2001 -------------------- -------------------- ------------------- Net operating loss carryforwards $ 2,566,000 $ 2,068,000 $ 1,828,000Depreciation and amortization 1,000 62,000 126,000Capital loss carryforward 149,000 166,000 166,000Deferred revenue 38,000 60,000 88,000Deferred legal and other fees 30,000 158,000 -Allowance for notes receivable - 88,000 -Other, net - - - -------------------- -------------------- -------------------Net deferred tax assets 2,784,000 2,602,000 2,208,000Deferred tax asset valuation allowance (2,784,000) (2,602,000) (2,208,000) -------------------- -------------------- ------------------- $ - $ - $ - ==================== ==================== ===================The provision for income taxes is different than the amount computed using theapplicable statutory federal income tax rate with the difference for each yearsummarized below: 2003 2002 2001 ------------------ ------------------ -----------------Federal tax benefit at statutory rate (34.0%) (34.0%) (34.0%)Change in valuation allowance 34.0% 33.0% 33.0%Permanent difference - 1.0% 1.0% ------------------ ------------------ -----------------Provision for income taxes 0.00% 0.00% 0.00% ================== ================== =================The Tax Reform Act of 1986 enacted a complex set of rules limiting theutilization of net operating loss carryforwards to offset future taxable incomefollowing a corporate ownership change. The Company's ability to utilize its NOLcarryforwards is limited following a change in ownership in excess of fiftypercentage points during any three-year period.Upon receipt of the proceeds from the last foreign purchasers of the Company'scommon stock in January 2000, common stock ownership changed in excess of 50%during the three-year period then ended. At December 31, 2003, the Company hadnet operating loss carryforwards of approximately $7,547,000. Included in thenet operating loss carryforward is approximately $2,121,000 that has beenlimited by the ownership change. The tax loss carryforwards expire at variousdates through 2023. The future tax benefit of the net operating losscarryforwards aggregating approximately $2,566,000 at December 31, 2003 has beenfully reserved as it is not more likely than not that the Company will be ableto use the operating loss in the future. F-19 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 9 - Segment InformationUntil April 30, 2001, the Company operated in two segments; as a reinsuror andas a seller of extended warranty service contracts through the Internet. Thereinsurance segment has been discontinued with the sale of Stamford (see Note1), and the Company's remaining revenues are derived from the run-off of itssale of extended warranties and service contracts via the Internet.Additionally, the Company is currently establishing a new business in themedical, bio-tech sector. The Company's operations are conducted entirely in theU.S. Although the Company has not realized any revenue from its purchase ofroyalty revenue interests, the Company will be operating in two segments untilthe "run-off" is completed.Note 10 - Related Party Transactions The Company processes claims on its warranty contracts through WarrantechCorporation (Warrantech), in which a principal shareholder of the Company isalso a significant shareholder and Chief Executive Officer, President andChairman of the Board of Directors. Warrantech receives an administration fee of$50 per contract for processing the claim. Total administrative fees paid toSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Warrantech in 2003, 2002 and 2001 totaled $0, $0 and $48,506, respectively.Note 11 - Commitments and ContingenciesOn February 21, 2003 the Company leases office space in Melville, New York at anoriginal annual rental of $18,000. The lease has been extended for an additionaltwelve months and expires on March 31, 2005. The annual rental increases toapproximately $19,200 on April 1, 2004 and continues until the expiration date.On February 6, 2003, the Company entered into an employment agreement with thePresident and CEO. The employment agreement has an initial term of three years,with automatic annual extensions unless terminated by the Company or by thePresident at least 90 days prior to an applicable anniversary date. The Companyhas agreed to pay the President an annual salary of $180,000 for the initialyear of the term, $198,000 for the second year of the term, and $217,800 for thethird year of the term. In addition, the Company will pay an annual bonus in theamount of $20,000 for the initial year in the event, and concurrently on thedate, that the Company has received debt and/or equity financing in theaggregate amount of at least $1,000,000 since the beginning of the President'sservice, and $20,000 for each subsequent year of the term, without condition.On December 5, 2003 the Company entered into a royalty agreement with ParallelSolutions, Inc. ("PSI") to develop a new bioshielding platform technology forthe delivery of therapeutic proteins and small molecule drugs in order to extendcirculating half-life to improve bioavailability and dosing regimen, whilemaintaining or improving pharmacologic activity. The Royalty Agreement providesfor PSI to pay Phase III a percentage of the revenue received from the sale ofcertain specified products or licensing activity. Phase III shall providecapital in nine monthly installments of $80,000, commencing in December 2003,for a total payment of $720,000 and guidance to PSI to conduct a Proof ofConcept Study to improve an existing therapeutic protein with the goal ofvalidating the bioshielding technology for further commercial development andlicensing the technology. There can be no assurances that the Company will beable to raise sufficient capital to pay this obligation or if fully paid, aroyalty will be paid to the Company by PSI under the terms of the agreement. F-20 PHASE III MEDICAL, INC. Notes to the Consolidated Financial Statements--------------------------------------------------------------------------------Note 12 - Subsequent Events As described in Note 5, the Company granted purchasers of the Company'sSeptember 2002 60-day promissory notes, options to purchase shares of commonstock if the Company defaulted on the payment of principal or interest on suchpromissory notes. For each 30 day period, the purchaser is granted the option topurchase 25,000 shares of common stock for an aggregate price of $125 on the30th day. In January 2004, two holders of such promissory notes exercised theiroptions and purchased 200,000 shares of common stock resulting in net proceedsto the Company of $1,000.The Company amended its equity private placement (see Note 7) to raise up to $4million through the sale of up to 40 million shares of Common Stock inincrements of $5,000 or 50,000 shares. Only selected investors which qualify as"accredited investors" as defined in Rule 501(a) under the Securities Act of1933, as amended, are eligible to purchase these shares. The initial placementclosed on December 31, 2003 as stated in Note 9. The amended private placementdoes not include any investment banking fees and therefore all proceeds, lessexpenses such as printing, transfer fees, etc., will be paid directly to theCompany. The previous investment banker, Robert M. Cohen & Company, has beenfully paid for its effortsIn February 2004, the Company sold 30 day 20% notes in the amount of $75,000 totwo accredited investors to fund current operations. It is anticipated thatthese notes will be repaid from the proceeds of the amended equity privateplacement. These notes have a default provision that if they are not paid within30 days, there is an additional interest payment of $250 per $25,000 for each 30day period or part thereof. F-21Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBITS FORM 10-KSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 4.1 Form of Promissory Note September 2002 Exhibit 4.1 PROMISSORY NOTE PRINCIPLE TERMS:Effective Date:Maker: Corniche Group IncorporatedMaker's Mailing Address:Payee:Annual Interest Rate on UnpaidPrincipal from Effective Date: Fifteen percent (15%) per annumAnnual Interest Rate onMatured Unpaid Amounts: Fifteen percent (15%) per annumTerms of Payment(principal and interest): The entire Principal Amount, together with accrued interest thereon, is payable in one installment 60 days from the Effective Date. Maker reserves the right to prepay this Promissory Note in any amount at any time prior to maturity without penalty------------------------------------------------------------------------------OTHER TERMS:1. General. Maker promises to pay to the order of Payee at the place forpayment, and according to the terms of payment, the principal amount plusinterest at the rates stated above under Principle Terms. All unpaid amountsshall be due by the scheduled payment date.2. Default Penalty. If there occurs an Event of Default (as defined below inparagraph 8), then Payee shall have the option to purchase twenty-five thousand(25,000) shares of common stock of Maker par value $.0001 per share ("CommonStock") for an aggregate purchase price of one hundred and twenty five andno/100 dollars ($125.00). If the Event of Default continues for 30 days, then onthe 30th day (and at the end of each successive 30-day period until thisPromissory Note is paid in full), Payee shall have the option to purchase anadditional twenty-five thousand (25,000) shares of common stock of Maker parvalue $.0001 per share ("Common Stock") for an aggregate purchase price of onehundred and twenty-five and no/100 dollars ($125.00) for each additionalpurchase of Common Stock.3. Costs of Collection. If this note is given to an attorney for collection, orif suit is brought for collection, or if it is collected through probate,bankruptcy, or other judicial proceeding, then Maker shall pay Payee all costsof collection, including reasonable attorneys' fees and court costs, in additionto other amounts due.4. Savings Clause. Interest on the debt evidenced by this note shall not exceedthe maximum amount of non-usurious interest that may be contracted for, taken,Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. reserved, charged, or received under law, any interest in excess of that maximumamount shall be credited on the principal of the debt or, if that has been paid,refunded. On any acceleration or required or permitted prepayment, any suchexcess shall be canceled automatically as if the acceleration or prepayment or,if already paid, credited on the principal of the debt or, if the principal ofthe debt has been paid, refunded. This provision overrides other provisions inthis and all other instruments concerning the debt.5. Accredited Investor. The Payee hereby certifies that Payee is an "AccreditedInvestor" (as that term is defined by Regulation D under the Securities Act of1933, as amended) by checking the following statements that are applicable toPayee:[Please CHECK all of the following statements that are applicable to Payee. Atleast one of the following must be checked.] (a) I am an "Accredited Investor" because I had individual income of more than $200,000 in each of the two prior calendar years and I reasonably expect to have individual income in excess of $200,000 during the current calendar year. (b) I am an "Accredited Investor" because my spouse and I together had income of more than $300,000 in each of the two prior calendar years and we reasonably except to have joint income in excess of $300,000 during the current calendar year. (c) I am an "Accredited Investor" because I have an individual net worth, or my spouse and I have a joint net worth of more than $1,000,000. 6. Representations of Payee. Payee represents and warrants to Maker as follows: (a) Payee has received and examined all information, including financial statements, of or concerning Maker which Payee considers necessary to making an informed decision regarding an investment in the Common Stock. In addition, Payee has had the opportunity to ask questions of, and receive answers from, the officers and agents of Maker concerning Maker and to obtain such information, to the extent such persons possessed the same or could acquire it without unreasonable effort or expense, as Payee deemed necessary to verify the accuracy of the information referred to herein. (b) Payee is acquiring the Common Stock for his own account, for investment purposes only, and not with a view to the resale or distribution of all or any part thereof. (c) Payee acknowledges that the Common Stock (i) has not been registered under applicable securities laws, (ii) will be "restricted securities" as defined in applicable securities laws, (iii) has been issued in reliance on the statutory exemptions from registration contemplated by applicable securities laws based (in part) on the accuracy of Payee's representations contained herein, (iv) will not be transferable without registration under applicable securities laws, unless an exemption from such registration requirements is available, and (v) certificates representing the Common Stock will bear a restrictive legend evidencing such restrictions. (d) Payee has reviewed and understands Maker's (i) Annual Report on Form 10-K for the fiscal year ended December 31, 2001; (ii) Quarterly Report on Form 10-Q for the three and six months ended June 30, 2002 and (iii) Current Report on Form 8-K dated June 18, 2002.7. Governing Law. This Promissory Note, and all rights and remedies hereunder,will be governed by the laws of the State of New York.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 8. Event of Default. An "Event of Default" shall have occurred if Maker fails topay any payment of principal or interest on this Note when due.MAKER:CORNICHE GROUP INCORPORATEDBy:_____________________________ James J. Fyfe, DirectorPAYEE:--------------------------------Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 4.2 Form of Promissory Note February 2003 Exhibit 4.2 PROMISSORY NOTE PRINCIPLE TERMS:Effective Date:Maker: Corniche Group IncorporatedMaker's Mailing Address: Corniche Group Inc. 330 South Service Road Suite 120 Melville, New York 11747Payee:Place for Payment:Principal Amount:Annual Interest Rate on Unpaid Twenty percent (20%) per annumPrincipal from Effective Date:Annual Interest Rate on Twenty percent (20%) per annum.Matured Unpaid Amounts:Terms of Payment (principal and interest) The entire Principal Amount, together with accrued interest thereon, is payable in one installment 30 days from the Effective Date. Maker reserves the right to prepay this Promissory Note in any amount at any time prior to maturity without penalty.------------------------------------------------------------------------------OTHER TERMS:1. General. Maker promises to pay to the order of Payee at the place for payment, and according to the terms of payment, the principal amount plus interest at the rates stated above under Principal Terms. All unpaid amounts shall be due by the scheduled payment date.2. Costs of Collection. If this note is given to an attorney for collection, or if suit is brought for collection, or if it is collected through probate, bankruptcy, or other judicial proceeding, then Maker shall pay Payee all costs of collection, including reasonable attorneys' fees and court costs, in addition to other amounts due.3. Savings Clause. Interest on the debt evidenced by this note shall not exceed the maximum amount of non-usurious interest that may be contracted for, taken, reserved, charged, or received under law, any interest in excess of that maximum amount shall be credited on theSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. principal of the debt or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess shall be canceled automatically as if the acceleration or prepayment or, if already paid, credited on the principal of the debt or, if the principal of the debt has been paid, refunded. This provision overrides other provisions in this and all other instruments concerning the debt.4. Accredited Investor. The Payee hereby certifies that Payee is an "Accredited Investor" (as that term is defined by Regulation D under the Securities Act of 1933, as amended) by checking the following statements that are applicable to Payee: [Please CHECK all of the following statements that are applicable to Payee. At least one of the following must be checked.] (a) I am an "Accredited Investor" because I had individual income of more than $200,000 in each of the two prior calendar years and I reasonably expect to have individual income in excess of $200,000 during the current calendar year. (b) I am an "Accredited Investor" because my spouse and I together had income of more than $300,000 in each of the two prior calendar years and we reasonably expect to have joint income in excess of $300,000 during the current calendar year. (c) I am an "Accredited Investor" because I have an individual net worth, or my spouse and I have a joint net worth of more than $1,000,000.5. Representations of Payee. Payee represents and warrants to Maker as follows: (a) Payee has received and examined all information, including financial statements, of or concerning Maker which Payee considers necessary to making an informed decision regarding an investment in this Promissory Note. In addition, Payee has had the opportunity to ask questions of, and receive answers from, the officers and agents of Maker concerning Maker and to obtain such information, to the extent such persons possessed the same or could acquire it without unreasonable effort or expense, as Payee deemed necessary to verify the accuracy of the information referred to herein. (b) This Promissory Note is one of a series of Promissory Notes in the aggregate principal amount of up to $100,000. Payee acknowledges and understands that: (i) Maker will use the proceeds of this Promissory Note to enable Maker to commence the establishment of new business operations; (ii) the proceeds of this Promissory Note will not be sufficient to provide Maker with the necessary funds to achieve its current business plan; (iii) Maker does not have sufficient cash available to repay this Promissory Note; and (iv) Payee bears the economic risk of never being repaid on this Promissory Note. (c) Payee is acquiring this Promissory Note for his own account, for investment purposes only, and not with a view to the resale or distribution of all or any part thereof. (d) Payee acknowledges that this Note (i) has not been registered under applicable securities laws, (ii) will be a "restricted security" as defined in applicable securities laws, (iii) has been issued in reliance on the statutory exemptions from registration contemplated by applicable securities laws based (in part) on the accuracy of Payee's representations contained herein, and (iv) will not be transferable without registration under applicable securities laws, unless an exemption from such registration requirements is available. (e) Payee understands that the Maker currently has no business operations but plans to establish a business in the medical sector as more fully described in Maker's Current Report on Form 8-K dated February 6, 2003.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (f) Payee has reviewed and understands Maker's Current Report on Form 8-K dated February 6, 2003 and its quarterly report on the Form 10-Q, three and nine month ended September 30, 2002.6. Governing Law. This Promissory Note, and all rights and remedies hereunder, will be governed by the laws of the State of New York, without regard to conflicts of law principles.IN WITNESS WHEREOF, Maker has executed and delivered this Promissory Note as ofthe Effective Date first stated above.MAKER: PAYEE:CORNICHE GROUP INCORPORATED NAME:_______________________By:________________________________ ______________________________Name: Mark Weinreb Title: President and Chief Executive OfficSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 4.3 Form of Promissory Note March 2003 Exhibit 4.3THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED. THE NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MUST BE HELDINDEFINITELY and MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS ITIS SUBSEQUENTLY REGISTERED UNDER SAID ACT OR, IN THE OPINION OF COUNSEL TO THECOMPANY, AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAIABLE. PROMISSORY NOTE$ ___________________ Date: _______________ , 2003FOR VALUE RECEIVED, Corniche Group Incorporated, a Delaware corporation,("Maker") promises to pay to _____________________________________ ("Payee"), inlawful money of the United States of America, the principal sum of_________________________ ($ __________ ), together with interest thereonaccruing at an annual rate equal to 15%, in the manner provided below. Interestshall be calculated on the basis of a year of 365 or 366 days, as applicable,and charged for the actual number of days elapsed.1. PAYMENTS 1.1 Principal and interest. Interest on the unpaid principal amount shall be payable monthly in arrears on the last day of each calendar month, commencing __________________ , 2003 until the entire principal amount shall be paid in full. All principal and accrued interest shall be paid in full on __________ , 2003. 1.2 Manner of Payment All payments of principal and interest on this Note shall be made by check at ____________________________ or at such other place in the United States of America as Payee shall designate to Maker in writing. If any payment of principal or interest on this Note is due on a day which is not a Business Day, such payment shall be due on the next succeeding Business Day. "Business Day" means any day other than a Saturday, Sunday or legal holiday in the State of New York. 1.3 Prepayment Maker may, without premium or penalty, at any time and from time to time, prepay all or any portion of the outstanding principal balance due under this Note, provided that each such prepayment is accompanied by accrued interest on the amount of principal prepaid calculated to the date of such prepayment. Any partial prepayments shall be applied first to accrued interest and then to principal.2. DEFAULTSSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2.1 Events of Default The occurrence of any one or more of the following events with respect to Maker shall constitute an event of default hereunder ("Event of Default"): (a)If Maker shall fail to pay when due any payment of principal or interest on this Note. (b)If, pursuant to or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency or relief of debtors (a "Bankruptcy Law"), Maker shall (i) commence a voluntary case or proceeding; (ii) consent to the entry of an order for relief against it in an involuntary case; (iii) consent to the appointment of a trustee, receiver, assignee, liquidator or similar official; (iv) make an assignment for the benefit of its creditors; or (v) admit in writing its inability to pay its debts as they become due. (c)If a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (i) is for relief against Maker in an involuntary case; (ii) appoints of a trustee, receiver, assignee, liquidator or similar official for the Maker or substantially all of the Maker's properties; or (iii) orders the liquidation of the Maker, and in each case the order is not dismissed within 90 days. 2.2 Remedies Upon the occurrence of an Event of Default hereunder (unless all Events of Default have been cured or waived by Payee), (a) the interest rate will increase to a default rate of 20% per annum effective upon such Event of Default, and (b) Payee may, at its option, (i) by written notice to Maker, declare the entire unpaid principal balance of this Note, together with all accrued interest thereon, immediately due and payable, and (ii) exercise all and any rights and remedies available to it under applicable law, including, without limitation, the right to collect from maker all sums due under this Note. Maker shall pay all reasonable costs and expenses incurred by or on behalf of Payee in connection with Payee's exercise of any or all of its rights and remedies under this Note, including, without limitation, reasonable attorneys' fees and expenses. 3. REPRESENTATIONS BY PAYEE Payee represents and warrants to Maker as follows: (a)Payee has received and examined all information, including financial statements, of or concerning Maker which Payee considers necessary to making an informed decision regarding this Note. In addition, Payee has had the opportunity to ask questions of, and receive answers from, the officers and agents of Maker concerning Maker and to obtain such information, to the extent such persons possessed the same or could acquire it without unreasonable effort or expense, as Payee deemed necessary to verify the accuracy of the information referred to herein. (b) The Payee acknowledges and understands that (i) the Maker will use the proceeds of this Note to enable Maker to commence the establishment of new business operations; (ii) the proceeds of this Note will not be sufficient to provide Maker with the necessary funds to achieve its current business plan; (iii) the Maker does not have sufficient cash available to repay this Note; (iv) this Note will not be guaranteed nor will it be secured by any assets of Maker nor senior to any other indebtedness of Maker; (v) the Maker will pay a commission to Maker's agent, Robert M. Cohen & Company, Inc. equal to 10% of the principal amount loaned pursuant to this Note; and (v) Payee bears the economic risk of never being repaid on this Promissory Note.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (c) The Payee hereby certifies that Payee is an "Accredited Investor" (as that term is defined by Regulation D under the Securities Act of 1933, as amended) because at least one of the following statements is applicable to Payee: (i) Payee is an Accredited Investor because the Payee had individual income of more than $200,000 in each of the two prior calendar years and reasonably expects to have individual income in excess of $200,000 during the current calendar year. (ii) The Payee is an Accredited Investor because the Payee and his spouse together had income of more than $300,000 in each of the two prior calendar years and reasonably expect to have joint income in excess of $300,000 during the current calendar year. (iii) The Payee is an Accredited Investor because the Payee has an individual net worth, or the Payee and his spouse have a joint net worth of more than $1,000,000. (d) Payee is acquiring this Note for his own account, for investment purposes only, and not with a view to the resale or distribution of all or any part thereof. (e) Payee acknowledges that this Note (i) has not been registered under applicable securities laws, (ii) will be a "restricted security" as defined in applicable securities laws, (iii) has been issued in reliance on the statutory exemptions from registration contemplated by applicable securities laws based (in part) on the accuracy of Payee's representations contained herein, and (iv) will not be transferable without registration under applicable securities laws, unless an exemption from such registration requirements is available. (f) Payee has reviewed and understands Maker's (i) Annual Report on Form 10-K for the fiscal year ended December 31, 2001; (ii) Quarterly Report on Form10-Q for the three and nine months ended September 30, 2002; (iii) Current Report on Form 8-K dated February 6, 2003; and (iv) Current Report on Form 8-K dated February 28, 2003.4. MISCELLANEOUS 4.1 Waiver The rights and remedies of Payee under this Note shall be cumulative and not alternative. No waiver by Payee of any right or remedy under this Note shall be effective unless it is in writing and signed by Payee. Neither the failure nor any delay in exercising any right, power or privilege under this Note will operate as a waiver of such right, power or privilege and no single or partial exercise of any such right, power or privilege by Payee will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum amount permitted by applicable law, (i) no claim or right of Payee arising out of this Note can be discharged by Payee, in whole or in part, by a waiver or renunciation of the claim or right unless in a writing, signed by Payee; (b) no waiver that may be given by Payee will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on Maker will be deemed to be a waiver of any obligation of Maker or of the right of Payee to take further action without notice or demand as provided in this Note. Maker acknowledges that this Note and Maker's obligations under this Note are, and shall at all times continue to be, absolute and unconditional in all respects, and shall at all times be valid and enforceable. To the extent permitted by applicable law, Maker hereby absolutely, unconditionally and irrevocably forever waives any and all right to assert any defense, set-off, off-set, counterclaim, cross-claim, or claim of any nature whatsoever with respect to this Note or Maker's obligations hereunder. 4.2 NoticesSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Any notice or communication to be given hereunder by any party, to the other party shall be in writing and shall be deemed to have been given when personally delivered, or one day after the date sent by recognized overnight courier or transmitted by facsimile, which transmission by facsimile has been confirmed or 3 (three) days after the date sent by registered or certified mail, postage prepaid, as follows: If to Maker, addressed to it at: Corniche Group Incorporated 330 South Service Road Suite 120 Melville, NY 11747 Attn: Mark Weinreb Facsimile Number: (631) 574 4956 If to Payee, addressed to: Name: ______________________________ Address: ___________________________ ___________________________ Or persons or addresses as may be designated in writing by the party to receive such notice. 4.3 Severability If any provision of this Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Note will remain in full force and effect. Any provision of this Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 4.4 Governing Law. This Promissory Note will be governed by the laws of the State of New York without regard to conflicts of laws principles. 4.5 Assignment; Parties in Interest This Note shall bind Maker and its successors and assigns. This Note shall not be assigned or transferred by Maker, without the express prior written consent of Payee, and this Note will inure to the benefit of Payee and his heirs, estates, representatives, administrators, successors and assigns. 4.6 Section Headings, Construction The headings of Sections in this Note are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Note unless otherwise specified. All words used in this Note will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the words "hereof" and "hereunder" and similar references refer to this Note in its entirety and not to any specific section or subsection hereof. 4.7 Savings Clause If, at any time, the rate of interest under this Note shall be deemed by any competent court of law, governmental agency or tribunal to exceed the maximum rate of interest permitted by the laws of any applicable jurisdiction or the rules or regulations of any regulatory authority or agency, then during such time as such rate of interest would be deemed excessive, that portion of each interest payment attributable to that portion of such interestSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. rate that exceeds the maximum rate of interest so permitted shall be deemed a voluntary prepayment of principal or, if all principal has been paid, that portion of each interest payment attributable to that portion of such interest rate that exceeds the maximum rate of interest so permitted shall be promptly refunded to Maker. 4.8 Waiver of Jury Trial MAKER AND PAYEE EACH HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRAIL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE, IT BEING AGREED THAT ALL SUCH TRAILS SHALL BE CONDUCTED SOLELY BY A JUDGE. MAKER AND PAYEE EACH CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF EITHER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS. MAKER AND PAYEE EACH AGREE AND ACKNOWLEDGE THAT IT HAS BEEN REPRESENTED BY INDEPENDENT COUNSEL IN CONNECTION WITH THIS NOTE OR BEEN ADVISED THAT IT SHOULD BE REPRESENTED BY INDEPENDENT COUNSEL IN CONNECTION WITH THIS NOTE. IF MAKER OR PAYEE HAS DECIDED NOT TO BE REPRESENTED BY INDEPENDENT COUNSEL IN CONNECTION WITH THIS NOTE, IT IRREVOCABLY AND FOREVER WAIVES ANY AND ALL DEFENSES OR RIGHTS ARISING OUT OF OR RELATED TO SAID DECISION.IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the datefirst stated above. CORNICHE GROUP INCORPORATED By: _______________________________ Name: Mark Weinreb Title: President and Chief Executive OfficerAccepted and agreed to:-----------------------------------PayeeSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 10.1 Royalty Agreement between Parallel Solutions, Inc. and Phase III Medical, Inc. Exhibit 10.1 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks. Denote such omissions. ROYALTY AGREEMENTTHIS ROYALTY AGREEMENT (this "Agreement") is made as of the 5th day of December,2003 (the "Effective Date") by and between Parallel Solutions, Inc., a Delawarecorporation with offices at 763D Concord Avenue, Cambridge MA 02138 ("PSI"), andPhase III Medical, Inc., a Delaware corporation with offices at 330 SouthService Road, Suite 120, Melville, New York 11747 ("Phase III") (PSI and PhaseIII are referred to individually as a "Party" and collectively as the"Parties"). NOW, THEREFORE, in consideration of the mutual covenants and premisesherein contained, the parties agree as follows: Definitions. "Affiliate".Affiliate shall mean, with respect to any person, any other person controlling,controlled by or under common control with such person. For purposes of thisSection, "control" shall mean (a) in the case of corporate entities, direct orindirect ownership of at least fifty percent (50%) of the stock or shares havingthe right to vote for the election of directors, and (b) in the case ofnon-corporate entities, direct or indirect ownership of at least fifty percent(50%) of the equity interest with the power to direct the management andpolicies of such non-corporate entities."Field". Field shall mean therapeutic protein drugs and/or small molecule drugsthat have been [**] characteristics, including, without limitation, (i) [**] ofthe pharmaceutical substance, (ii) [**], (iii) [**], and/or (iv) [**]. The Fieldshall not include any other molecules, or applications of [**], including, butnot limited to, [**]. For purposes of clarity, if a [**], so as to confer [**]characteristics as set forth above, subject to the terms, conditions andexceptions set forth above, such Product shall be included in the Field."Intellectual Property". Intellectual Property shall have the meaning set forthin Section 8(b). "Net Sales". Net Sales shall mean, with respect to a Product,the gross amount invoiced by PSI and/or its Affiliates (but not its or theirlicensees) on sales of Products for use in the Field by PSI and/or itsAffiliates to unaffiliated third parties, less the following deductions: Trade,cash and/or quantity discounts actually allowed and taken directly with respectto such sales, as reflected in the amount invoiced; Tariffs, duties, excises, sales taxes or other taxes imposed upon and paiddirectly by PSI and/or its Affiliates with respect to the production, sale oruse of the Product (excluding national, state or local taxes based on income),as reflected in the amount invoiced; Amounts paid to third parties to licensepatents covering such third party's technology if, in the absence of suchlicense, the sale by PSI or its Affiliates of a Product would or is likely to,in the reasonable judgment of PSI, infringe such patents;Amounts repaid or credited by reason of rejections, defects, recalls or returnsor because of chargebacks, refunds, rebates or retroactive price reductions; andFreight, insurance and other transportation charges incurred in shipping aProduct, as reflected in the amount invoiced."Product". Product shall mean any product in the Field comprised in part of a[**] molecule."Program Patent Rights" shall mean all United States and/or foreign patents andpatent applications, and all substitutions, divisions, continuations,continuations-in-part, reissues, reexaminations and extensions thereof thatSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. during the term of this Agreement are owned or otherwise controlled by PSI thatrelate exclusively to the Field."POC Study". POC Study shall have the meaning set forth in Section 3(a)."Proof of Concept Guidelines". Proof of Concept Guidelines shall mean theguidelines applicable to the POC Study and set forth in Exhibit A. "Term". Term shall have the meaning set forth in Section 7(a)."Valid Claim". Valid Claim means a claim (i) of any issued, unexpired UnitedStates or foreign patent that shall not have been donated to the public,disclaimed, nor held invalid or unenforceable against the other Party by a courtof competent jurisdiction in an unappealed or unappealable decision, or (ii) ofany United States or foreign patent application that shall not have beencancelled, withdrawn, abandoned nor been pending for more than seven (7) years.Development Funding.-------------------In consideration for rights received by Phase III under this Agreement and theobligations assumed by PSI hereunder with respect to the conduct of the POCStudy, Phase III hereby agrees to pay PSI: an aggregate sum of [**] Dollars (US$[**]), payable to PSI, for synthetic and invitro work carried out by PSI ("PSI Research", which term is further defined inExhibit A hereto), [**] Dollars (US $[**]) starting upon the Effective Date andthen every thirty (30) days thereafter (collectively, the "PSI Funding" to bepaid to PSI over such nine month period, hereinafter referred to as the "PSIFunding Period"); andamounts reasonably required in order for PSI to complete the in vitro and invivo evaluation of target molecules contemplated by the POC Study and the Proofof Concept Guidelines which are to be carried out by third party subcontractorsengaged by PSI in reasonable consultation with Phase III ("Evaluation Study"),(collectively, the "Evaluation Funding", and together with the PSI Funding, the"Development Funding"). Phase III shall pay to each such third partysubcontractor amounts constituting Evaluation Funding within fifteen (15) daysafter its receipt from time to time from PSI of a written funding requestspecifying the subcontractor, the purpose of the study, and amounts required tobe paid to the subcontractor. So long as Phase III provides as and when requiredunder this paragraph at least $[**] of Evaluation Funding in addition to all PSIFunding as required in Section 2.2(a)(i), any right of Phase III under Section4(a) or Section 4(b) only that is conditioned on it providing DevelopmentFunding or Evaluation Funding shall be deemed fully satisfied. If the POC Studyis successful (as defined in Exhibit A), the Parties acknowledge that fundingwill be necessary beyond the Development Funding in order for PSI to develop amarketable product. At PSI's request, the Parties shall negotiate in good faiththe terms and conditions of an agreement or amendment hereto under which PhaseIII provides to PSI such additional development funding; provided that, neitherParty shall be obligated to enter into any such agreement.The Parties also acknowledge that PSI may enter into a license with a thirdparty pharmaceutical company that relates exclusively to the Field prior toPhase III making all contemplated Development Funding payments. In such event,upon consummation of such a license, and if PSI expressly waives in a signedwriting to Phase III PSI's right to further Development Funding, Phase III shallhave no further obligations to make such payments hereunder, but shallnevertheless still be entitled to receive its full [**] percent ([**]%) paymentas set forth in Section 4 received by PSI from such third party or otherwise. Inaddition to the Development Funding, Phase III shall pay [**] percent ([**]%) ofall legal and regulatory costs incurred by PSI for the prosecution of patentapplications and maintenance of patents related exclusively to the Field andsuch other patents related to the Field which Phase III shall determine inconsultation with PSI.Development Program.--------------------POC Study. (i) Subject to the terms and conditions of this Agreement (includingthe payment in full of the Development Funding), PSI shall use commerciallyreasonable efforts to perform the activities described in the proof of conceptvalidation study for development of the [**] therapeutic protein deliveryprogram as set forth as Exhibit A hereto (the "POC Study") for no longer thanthe PSI Funding Period plus the period required to do the Evaluation Studies;provided that, PSI may elect at its discretion for the three (3) month periodimmediately following the PSI Funding Period to continue to conduct the POCStudy. Notwithstanding the foregoing, Evaluation Studies may, subject to paymentin full of Development Funding, continue until complete or otherwise mutuallyagreed, regardless of the period of time required to complete such studies. ThePOC Study shall conform to the Proof of Concept Guidelines set forth in ExhibitA. Not later than the date two (2) weeks after execution of this Agreement, PSIshall deliver to Phase III a more detailed POC Study plan with detailed monthlySource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. benchmarks or activity goals, and PSI shall thereafter use commerciallyreasonable efforts to meet the goals and benchmarks in such timetable. In noevent shall PSI have any obligation to conduct any activity outside the scope ofthe Required Research (as defined in Exhibit A hereto) of the POC Study, and, inthe event that Phase III fails to pay Development Funding as and when requiredin Section 2(a) above, PSI shall have no further obligation to conduct the POCStudy as set forth herein. (ii) Within thirty (30) days following the conclusion of thePOC Study and receipt by PSI of all relevant subcontractor reports, PSI shalldeliver to Phase III a written report including all subcontractor reportssummarizing the results of the POC Study.Notice of Transfer. If PSI determines to sell, assign or otherwise transferownership of or title to (a "Transfer") the Program Patent Rights and/ornon-patented intellectual property owned by PSI that relates exclusively to theField (collectively, the "Program Rights"), and PSI enters into substantivenegotiations regarding the material terms and conditions of such potentialTransfer with a third party, then PSI shall, on a one-time basis for each suchpotential Transfer, provide Phase III with reasonable advance written notice ofthe material terms and conditions of such Transfer and reasonable updatesthereto. Such information shall be deemed to be the Confidential Information ofPSI.Reports. PSI shall provide written progress reports at the completion of eachphase of the POC Study (e.g. [**]). Phase III shall have reasonable access tothe facilities of PSI during normal working hours to review the POC Study uponreasonable prior notice to PSI.Researcher. [**], or another capable immunologist or scientist appropriatelyskilled in the execution of the listed animal studies and approved by Phase III,shall be hired or contracted as a consultant by PSI during the three (3) monthevaluation phase of the POC Study to oversee the external in vitro and in vivoresearch of the POC Study. PSI shall pay all compensation for such immunologistor scientist during such period, at no additional cost to Phase III beyond theamounts described in Section 2 of this Agreement. Revenue Sharing.---------------Licensing Income. Subject to Phase III's payment in full (to the extent thendue) of the PSI Funding and, to the extent required pursuant to Section2(a)(ii), the Evaluation Funding, PSI shall pay to Phase III an amount equal to[**] percent ([**]%) of "Licensing Income" (in each case, as defined below). Theterm "Licensing Income" shall mean (A) amounts received by PSI and/or itsAffiliates from unaffiliated third parties in consideration for the grant of anexpress license to manufacture, use, sell or otherwise exploit a Product for usein the Field, or otherwise to use in the Field the Program Rights, including,without limitation, all up-front fees, milestone payments, royalties, and otherlicense fees, but specifically excluding (i) any payments for research anddevelopment activities or for the performance of any manufacturing or otherservices, to the extent reasonably related to the fair value of those services,(ii) proceeds from the purchase of any assets or equity securities of PSI and/orits Affiliates acquired by a licensee or acquiror, whether by purchase, merger,consolidation or otherwise, provided that if there is both a license and anacquisition of assets or securities, only to the extent that the proceeds fromthe sale of such assets or securities are reasonably related to the value ofsuch assets or securities; and (iii) proceeds from any loan or debt transactionwith a licensee, less (B) amounts paid by PSI to third parties to licensepatents covering such third party's technology if, in the absence of suchlicense, the license by PSI or its Affiliates to manufacture, use, sell orotherwise exploit a Product would or is likely to, in the reasonable judgment ofthe Parties, infringe such patents.Sales Income. Subject to Phase III's payment in full (to the extent then due) ofthe PSI Funding and, to the extent required pursuant to Section 2(a)(ii), theEvaluation Funding, PSI shall pay to Phase III an amount equal to the [**]percent ([**]%) of the "Benchmark Percentage" (as defined below) of Net Sales.As used above, the term "Benchmark Percentage" shall mean a mutually agreedpercentage equal to the average percentage royalty charged by companies similarto PSI for [**] drugs similar to the Products at the time of sale of suchProducts; provided, however, if the Parties are unable to reach an agreement onsuch percentage within sixty (60) days after either Party requested in writingthat the Parties negotiate concerning such percentage, then either Party maysubmit this dispute to a single arbitrator with relevant industry experienceappointed jointly by the Parties, or failing agreement on a joint appointment,appointed by the President of the American Arbitration Association ("AAA"), andsuch arbitrator shall then determine the Benchmark Percentage through anarbitration conducted in Cambridge, Massachusetts in accordance with theSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. commercial arbitration rules of the AAA.Payment Period. The payment obligations described in Section 4(a) and 4(b) aboveshall commence on the date hereof and shall continue so long as PSI is receivingany Licensing Income or Net Sales. Actions by PSI. In the event that (i) any of the Program Patent Rights isinfringed by a third party, (ii) PSI elects, at its sole discretion, to bring anaction for infringement against such third party, and (iii) Phase III pays toPSI, from time to time as incurred by PSI, [**] percent ([**]%) of theout-of-pocket expenses and attorneys' fees of PSI relating to such action, then,any recovery of damages, including settlement proceeds and royalties, by PSIfrom any such action, shall be applied first in satisfaction of any unreimbursedout-of-pocket expenses and attorneys' fees of the Parties relating to suchaction, and then the remaining amounts from any such recovery shall beconsidered Licensing Income hereunder subject to Section 4(a) above.Payments; Reporting-------------------Payment. All payments hereunder (whether pursuant to Section 2 or 4) shall bemade by check or wire transfer to such bank and account as the recipient mayfrom time to time designate in writing. All payments due hereunder are expressedin and shall be paid in United States Dollars.Foreign Exchange. If any amounts due to Phase III under Section 4 hereunder areinitially stated in a currency other than United States Dollars, then, for thepurpose of calculating the amount due, such amounts shall be converted intoUnited States Dollars at the exchange rate between those two currencies mostrecently quoted in the Wall Street Journal in New York as of the last businessday of the calendar quarter for which such amounts are being paid.Reports and Payments. (i) Monthly. Not later than thirty (30) days after the endof each month, PSI shall deliver to Phase III a monthly statement, setting forththe amounts due under Section 4(a) during the preceding month. Together withsuch report, PSI will pay Phase III payments accruing during such precedingmonth. (ii) Quarterly. Not later than 30 days after the end of each calendarquarter, PSI shall deliver to Phase III a quarterly statement, setting forth theamounts due under Section 4(b) during the preceding calendar quarter. Togetherwith such report, PSI will pay Phase III payments accruing during such precedingcalendar quarter. (iii) All reports and payments of amounts under this Section5(c) not disputed as to correctness by Phase III within three (3) years afterreceipt thereof shall thereafter conclusively be deemed correct for allpurposes.Responsibility for Taxes. Sales, use or similar taxes now or hereafter imposedwith respect to the transactions contemplated hereunder (but not income taxes orother taxes imposed upon PSI and measured by the gross or net income of PSI)shall be the responsibility of Phase III, and if paid or required to be paid byPSI, the amount thereof shall be added to and become a part of the amountspayable by Phase III hereunder.Payable Only Once. The amounts payable under this Agreement shall be imposedonly once with respect to the same unit of a Product. Audits by Phase III of Licensing Income and Sales Income. PSI shall keep andshall require its Affiliates to keep within their control, complete and accuraterecords of the latest three (3) years of sales or licenses pursuant to whichpayments are due to Phase III under Sections 4(a) and (b) above. For the solepurpose of verifying amounts payable to Phase III, Phase III shall have theright annually at Phase III's expense to retain an independent certified publicaccountant selected by Phase III and reasonably acceptable to PSI, to reviewsuch records in the location(s) where such records are maintained by PSI or itsAffiliates upon thirty (30) days written notice and during regular businesshours. Any information made available during an audit shall be treated as theconfidential information of PSI. Such review by Phase III shall be limited toone review per calendar year. If the review reflects an underpayment to PhaseIII, such underpayment shall be remitted to Phase III within thirty (30) days ofwritten notice. If the underpayment is equal to or greater than seven percent(7%) of the amount that was otherwise due, PSI shall pay all of Phase III'sreasonable costs of such review. If the review reflects an overpayment to PhaseIII, the amount of such overpayment shall be remitted to PSI within thirty (30)days of receipt of written notice thereof.Cooperation.------------Consulting Services. Phase III shall provide to PSI, without charge, consultingservices in connection with and during the course of the POC Study, to bedetermined by the mutual consultation of the parties. During the POC Study andPost-Study Period, Phase III will be provided with reasonable access to PSI'schief scientist working on the POC Study.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Licensing. PSI and Phase III shall cooperate to identify potential licensingpartners and to secure licensing or royalty agreements with third parties. PSIshall use reasonable efforts to consult with Phase III prior to making alicensing decision, and to consider Phase III's advice in good faith. PSI shallprovide Phase III with reasonable notice prior to PSI entering into a license orother agreement with respect to a Product with any third party.Board Observer Rights. During the POC Study and for a period of nine (9) monthsafter its conclusion (but in no event after the expiration or earliertermination of the Term), Phase III shall have the right to attend the portionsof convened PSI Board of Directors meetings relating to the POC Study or toother matters related exclusively to the Field as a non-voting observer, subjectto execution of an appropriate confidentiality agreement. Notwithstanding theforegoing, in no event shall Phase III have any right to observe or be presentat the portion of any such meetings (i) during which PSI receives or discusseslegal advice of any kind if its presence would impair or compromiseattorney-client privilege or confidentiality, (ii) during discussions relatingto any dispute under this Agreement, or (iii) during discussions regarding anyother matter that PSI deems in the good faith exercise of its reasonablediscretion to be in conflict of interest with Phase III.Publications. To the extent permitted under publication guidelines andstandards, Phase III shall be identified, either as a co-investigator or ashaving funded the study, as appropriate, with PSI in any publication of theresults of the POC Study in peer reviewed scientific journals selected by PSI.PSI will use reasonable efforts to submit the results of the in vitro and invivo studies for publication in a peer-reviewed journal within a reasonableperiod after the completion of the POC Study, subject to such delay as is deemedreasonably necessary by PSI to ensure appropriate patent filings to protectPSI's intellectual property and competitive position. PSI in good faith willattempt to have its studies published in journals identified by Phase III.Publicity. Phase III and PSI must approve all public announcements of therelationship contemplated by this Agreement jointly, provided that neitherParty's consent shall be required with respect to such announcements ordisclosures that such other Party reasonably determines are necessary to complywith the federal securities laws, rules and regulations and any other legalrequirements.Term; Termination.-----------------Term. Unless sooner terminated pursuant to this Section 7, this Agreement willbe effective as of the Effective Date and will remain in effect until thelast-to-expire payment obligation of the Parties hereunder (such period of timereferred to as the "Term"). Termination. In the event that either Party commits a material breach of itsobligations under this Agreement (including, without limitation, an obligationto make a payment when due), and such Party fails to cure such breach withinthirty (30) days after written notice from the other Party (or in the case of abreach of a payment obligation with respect to PSI Funding, within fifteen (15)days), the notifying Party shall have the right to terminate this Agreement atany time thereafter upon further notice to the breaching Party.Survival. Sections 8, 19 and 20 shall survive any expiration or earliertermination of this Agreement. Insolvency. Each Party acknowledges and agrees that it intends that itsobligations under this Agreement shall survive the insolvency of such Party.Further, to the extent applicable, all rights and licenses granted under orpursuant to any section of this Agreement are, and shall otherwise be deemed tobe, for purposes of Section 365(n) of the Bankruptcy Code licenses of rights to"intellectual property" as defined under Section 101(35A) of the BankruptcyCode. The Parties shall retain and may fully exercise all of their respectiverights and elections under the Bankruptcy Code.Confidential Information.------------------------Phase III and PSI each agree that all information received by one from the otherpursuant to this Agreement (1) shall be received in strict confidence, (2) shallbe used only for the purposes of this Agreement, and (3) shall not be disclosedby the recipient Party, its agents or employees without the prior writtenconsent of the disclosing Party, except to the extent that the recipient Partycan establish competent written proof that such information:was in the public domain at the time of disclosure;later became part of the public domain through no act or omission of therecipient Party, its employees, agents, successors or assigns; was lawfully disclosed to the recipient Party by a third party having the rightSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. to disclose it without such third party violating its confidentialityobligations to the disclosing Party; was already known by the recipient Party atthe time of disclosure;was independently developed by the recipient Party;is required by law or regulation to be disclosed, provided however, that (a) thedisclosing Party shall first give the other Party written notice and adequateopportunity to object to such order for disclosure or to request confidentialtreatment; and (b) information disclosed pursuant to this Section 8(a)(vi) shallotherwise remain Confidential Information for the purposes of this Agreement; oris disclosed to potential investors or lenders on a need-to-know basis andpursuant to confidentiality agreements no less protective of such informationthan the terms and conditions of this Section 8.PSI understands that Phase III is a publicly held corporation and that tradingin its securities while in possession of material, non-public informationrelated to Phase III may violate federal and state securities laws.Intellectual Property. Each Party shall retain all rights to all inventions,patents, copyrights, trade secrets and other intellectual property("Intellectual Property") conceived or reduced to practice by such Party priorto or during the course of this Agreement. The Parties expressly agree that allIntellectual Property conceived, reduced to practice or otherwise arising fromthe POC Study shall be owned exclusively by PSI. Phase III shall have no rightor license implied or otherwise in or to any intellectual property or data ownedor controlled or utilized by PSI, including, without limitation, anyintellectual property conceived in the course of the POC Study. All inventionsand results of the POC Study shall be the Confidential Information of PSI, butsubject to disclosure by Phase III pursuant to 8(a) above.Representations and Warranties.-------------------------------Representations of Authority. PSI and Phase III each represents and warrants tothe other that as of the Effective Date it has full right, power and authorityto enter into this Agreement and to perform its respective obligations underthis Agreement. Consents. PSI and Phase III each represents and warrants thatall necessary consents, approvals and authorizations of all governmentauthorities and other persons required to be obtained by such Party inconnection with execution, delivery and performance of this Agreement have beenand shall be obtained.No Conflict. PSI and Phase III each represents and warrants that the executionand delivery of this Agreement, the performance of such Party's obligationshereunder (i) do not conflict with or violate any requirement of applicable lawsor regulations and (ii) do not and will not conflict with, violate or breach orconstitute a default or require any consent under, any contractual obligationsof such Party.Intellectual Property. PSI represents and warrants to Phase III as of theEffective Date that: To PSI's actual knowledge, PSI has the full power and rightto grant to Phase III the rights set forth in this Agreement, free of any liens,claims, fees, commissions or other encumbrances, other than pursuant to licensesand any research, development and consulting agreements that have been providedto Phase III.To PSI's actual knowledge, without having made an investigation, the operationsof PSI in the Field do not infringe upon or conflict with the IntellectualProperty of any other person in the Field. [**]. To PSI's actual knowledge, all such Intellectual Property owned or licensed byPSI, has not been challenged in any judicial or administrative proceeding, andno written claim has been received by PSI, and to its actual knowledge, no claimis pending or threatened against PSI, to the effect that any such IntellectualProperty owned or licensed by PSI is invalid or unenforceable by PSI.With respect to the Field, to PSI's actual knowledge, no person nor suchperson's business or products has infringed or misappropriated the IntellectualProperty owned or licensed by PSI or currently is infringing or misappropriatingsuch Intellectual Property owned, purported to be owned or licensed by PSI.Each present or past employee or officer has executed a written agreement withPSI that (a) conveys any and all right, title and interest in and to allIntellectual Property developed by such person in connection with such person'semployment or contract to PSI, (b) requires such person, during and after theterm of employment or contract, to cooperate with PSI in the prosecution of anypatent applications filed in connection with such Intellectual Property, (c)establishes that to the extent such Person is an author of a copyrighted workcreated in connection with such person's employment or contract, such work isassigned to PSI, (d) includes a representation and covenant by such person thatno process, technique, innovation or other work product provided to PSI is orSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. will be derived from or otherwise constitute the proprietary information of aprior employer or contractor, in contravention of any prior confidentialityagreement, and (e) obligates the employee or contractor to keep any confidentialinformation, including trade secrets, of PSI confidential both during and afterthe term of employment or contract.To PSI's actual knowledge, it is not necessary for the business of PSI in theField to use any Intellectual Property owned by any present or past director,officer, or employee of PSI. Covenant. PSI shall notify Phase III of patentableinventions for which PSI files a Program Patent Right. PSI shall usecommercially reasonable efforts during the POC Study and Post-Study Period (i)to evaluate potentially patentable inventions in the Field, and (ii) todetermine whether to file patent applications covering such inventions, takinginto account relevant factors, including, without limitation, PSI's pastpractices, intellectual property strategy, and PSI's financial constraints.Assignment. Either Party may in its sole discretion assign this Agreement or anyof its rights, interests or obligations hereunder with or without the priorwritten approval of the other Party; provided that, the assignee assumes allobligations of such Party under this Agreement; and, provided further, that ifsuch assignment is made by PSI in connection with the transfer or sale of all orsubstantially all of the business of PSI to which this Agreement relates,whether by merger, sale of stock, sale of assets (including a transfer of theProgram Rights), or otherwise, it is understood and agreed that (i) the productsof such Acquiring Party conceived, reduced to practice, developed orindependently acquired prior to such acquisition or after such acquisitionwithout use of the technology acquired from PSI shall not be deemed Productshereunder, (ii) the intellectual property, technology and other rights of theAcquiring Party conceived, reduced to practice, developed or independentlyacquired prior to such acquisition or after such acquisition without use of thetechnology acquired from PSI shall not be deemed to be Program Patent Rights orotherwise subject to the terms or conditions of this Agreement, and (iii)following such acquisition, PSI's (or the Acquiring Party's or its successor's)obligation to pay amounts due under Section 4 hereof shall be assumed andcontinue, subject to the terms of this Agreement, so long as PSI or suchAcquiring Party (or its successor) is receiving any Licensing Income or NetSales (as provided in paragraph 4(c). This Agreement shall inure to the benefitof the Parties hereto and be binding on their respective successors andpermitted assigns. It is understood and agreed by the Parties that, upon thesale or assignment by PSI and/or any of its Affiliates of the Program Rights toany unaffiliated person or entity (the "Acquiring Party") (whether on astand-alone basis or pursuant to a transaction involving the transfer or sale ofall or substantially of the business of PSI to which this Agreement relates,whether by merger, sale of stock, sale of assets or otherwise), PSI shall assignthis Agreement to the Acquiring Party and the Acquiring Party shall assume therights and obligations of PSI under this Agreement.Severability. If any provision of this Agreement is held to be invalid, illegal,or unenforceable, in whole or part, such invalidity will not affect anyotherwise valid provision, and all other valid provisions will remain in fullforce and effect. Counterparts. This Agreement may be executed and delivered (including byfacsimile transmission) in one or more counterparts, all of which shall beconsidered one and the same agreement and shall become effective when one ormore counterparts have been signed by each of the Parties and delivered to theother Party, it being understood that all Parties need not sign the samecounterpart.Titles. The titles and headings preceding the text of the paragraphs of thisAgreement have been inserted solely for convenience of reference and do notconstitute a part of this Agreement or affect its meaning, interpretation oreffect.Waiver. The failure of any Party to insist in any one or more instances uponperformance of any terms or conditions of this Agreement will not be construedas a waiver of future performance of any such term, covenant, or condition andthe obligations of any Party with respect to such term, covenant or conditionwill continue in full force and effect.Notices. All notices and other communications hereunder shall be in writing andshall be deemed given if delivered personally, sent by facsimile, mailed byregistered or certified mail (return receipt requested) or sent by overnightcourier to the Parties at the following addresses (or at such other address fora party as shall be specified by like notice):If to PSI, to Parallel Solutions, Inc.763D Concord AvenueCambridge MA 02138Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Attention: Dermot Liddy, CEOTelephone: 617-876-2178Facsimile: 617-876-0728If to Phase III, to330 South Service Road, Suite 120Melville, NY 11747Attention: Mark Weinreb, President and CEOTelephone: 631.574.4955Facsimile: 631.574.4956Any of the above addresses may be changed at any time by notice given asprovided above; provided, that any such notice of change of address shall beeffective only upon receipt. All notices, requests or instructions given inaccordance herewith shall be deemed given (i) on the date of delivery, if handdelivered, (ii) on the date of receipt, if sent by facsimile, (iii) threebusiness days after the date of mailing, if mailed by registered or certifiedmail, return receipt requested, and (iv) one business day after the date ofsending, if sent by Federal Express or other recognized overnight courier.Entire Agreement. This Agreement (which term shall be deemed to include theExhibits hereto and the other certificates, documents and instruments deliveredhereunder) constitutes the entire agreement of the Parties hereto with respectto the subject matter hereof and supersedes all prior agreements, letters ofintent and understandings, both written and oral, among the Parties with respectto the subject matter hereof. There are no representations or warranties,agreements, or covenants other than those expressly set forth in this Agreement.Modification. Except as otherwise provided herein, this Agreement cannot beamended or modified except by subsequent written agreement among Phase III andPSI. Governing Law and Jurisdiction. This Agreement shall be governed by andconstrued in accordance with the laws of the Commonwealth of Massachusetts. EachPSI and Phase III submits to the exclusive jurisdiction of the state and federalcourts located in the Commonwealth of Massachusetts.No Consequential Damages. NEITHER PARTY HERETO WILL BE LIABLE FOR SPECIAL,INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, PUNITIVE, MULTIPLE OR OTHER INDIRECTDAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER,OR FOR LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES ARISING FROM ORRELATING TO ANY BREACH OF THIS AGREEMENT WHETHER BASED UPON WARRANTY, CONTRACT,TORT, STRICT LIABILITY OR OTHERWISE, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES.Warranty Disclaimer. Except as expressly set forth in Section 9, THE PARTIESMAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND UNDER THISAGREEMENT, EITHER EXPRESS OR IMPLIED, AND PARTICULARLY THAT PRODUCTS WILL BESUCCESSFULLY DEVELOPED HEREUNDER, AND IF PRODUCTS ARE DEVELOPED, WITH RESPECT TOSUCH PRODUCTS, AND THE PARTIES DISCLAIM ALL IMPLIED WARRANTIES OFNON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.[Signature Page Follows]IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date andyear first above written.PARALLEL SOLUTIONS, INC.By: /s/Dermot Liddy ---------------------- Name: Dermot Liddy --------------------- Title: CEO. ------------------- PHASE III MEDICAL, INC.By: /s/Mark Weinreb ---------------------- Name: Mark Weinreb -------------------- Title: President & CEO ------------------- EXHIBIT A PROOF OF CONCEPT GUIDELINESSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For the sake of clarity, both Parties agree that the POC Study shall consist of Required Research only (as defined below) and that the duration of this POC Study is no longer than nine (9) months (plus, at PSI's discretion, an additional three (3) months), absent further mutual agreement between the Parties. Both Parties also agree that potential additional research, as further described below, may be added to the POC Study by mutual agreement of both Parties. The Parties agree that both the Required Research and any such additional research shall be at the expense of Phase III Medical to the extent described herein and that such additional research may involve extending the duration of the POC Study. The compound that will be tested during the Required Research shall be [**]. [**]The definition of a successful Required Research study shall be as follows: The POC Study shall be deemed successful if the results indicate that [**] than the [**], as determined from [**] with respect to [**]; and (b) is likely to be [**]. The Parties understand and agree that there is no requirement or assurance that the Required Research will be successful."Required Research" shall mean PSI Research and Evaluation Study, as those termsare defined below. PSI Research Up to [**] during the duration of the POC Study. The Parties recognize thepossibility that [**]. Both Parties agree that they will [**].A number of lead compounds may be [**] performed by PSI. Such candidates [**].These lead compounds will [**]. [**](b) Evaluation Study[**] testing of a lead candidate or candidates as outlined above will [**]. Suchtesting shall be [**] to the extent described herein.[**] testing of the lead candidates in the [**]. Such testing shall be [**] tothe extent described herein.[**] testing will also include [**]. Such testing shall be [**] to the extentdescribed herein[**] testing will include [**]. In this regard, [**]. Such review shall [**] tothe extent described herein.Potential Additional ResearchAt Phase III's request and as agreed by PSI, PSI shall [**] the lead candidateor candidates. The expense for such studies shall be as determined hereafter bythe Parties.At Phase III's request and as agreed by PSI, PSI shall [**].Such testing shall [**] as determined hereafter by the Parties.At Phase III's request, and as agreed by PSI, [**] shall be [**]. The expensefor such studies shall be as determined hereafter by the Parties.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 10.2 Form of Stock Option Agreement Exhibit 10.2 STOCK OPTION AGREEMENT, made as of the 2nd day of March, 2004 (the"Agreement"), between PHASE III MEDICAL, INC., a Delaware corporation (the"Company"), and ________________(the "Optionee"). ------------------- WHEREAS, the Company has adopted the 2003 Equity Participation Plan subjectto shareholder approval (the "Plan"). WHEREAS, the Optionee has become a Director of the Company. WHEREAS, the Company has agreed to grant to the Optionee an option topurchase Common Shares of the Company pursuant to the Plan. NOW, THEREFORE, in consideration of the foregoing, the Company herebygrants to the Optionee the right and option to purchase Common Shares under andpursuant to the terms and conditions of the Plan and upon and subject to thefollowing terms and conditions: 1. GRANT OF OPTION. The Company hereby grants to the Optionee the rightand option (the "Option") to purchase up to _________________________CommonShares of the Company (the "Option Shares") during the period commencing on thedate hereof and terminating at 5:00 P.M. on __________(the "Expiration Date"). 2. NATURE OF OPTION. The Option is not intended to meet therequirements of Section 422 of the Internal Revenue Code of 1986, as amended,relating to "incentive stock options". 3. EXERCISE PRICE. The exercise price of each of the Option Sharesshall be ___________(the "Exercise Price"). The Company shall pay all originalissue or transfer taxes on the exercise of the Option. 4. EXERCISE OF OPTIONS. The Option shall be exercised in accordancewith the provisions of the Plan. In addition to the permissible methods ofexercise provided for in the Plan, the Optionee may elect to have the Companyreduce the number of shares otherwise issuable to him upon exercise of theOption by a number of shares having a fair market value (determined inaccordance with the provisions of the Plan) equal to the Exercise Price of theOption being exercised (a "Net Exercise"). As soon as practicable after thereceipt of notice of exercise and payment of the Option Price as provided for inthe Plan, or upon a Net Exercise, the Company shall tender to the Optioneecertificates issued in the Optionee's name evidencing the number of OptionShares covered thereby. 5. TERMINATION OF SERVICE. The Option shall remain exercisable untilthe Expiration Date notwithstanding any termination or cessation of service as aDirector with the Company or its subsidiaries for any reason whatsoever. 6. INCORPORATION BY REFERENCE. The terms and conditions of the Plan arehereby incorporated by reference and made a part hereof. 7. NOTICES. Any notice or other communication given hereunder shall bedeemed sufficient if in writing and hand delivered or sent by registered orcertified mail, return receipt requested, addressed to the Company, 330 SouthService Road, Suite 120, Melville, New York 11747, Attention: President and tothe Optionee at the address indicated below. Notices shall be deemed to havebeen given on the date of hand delivery or mailing, except notices of change ofaddress, which shall be deemed to have been given when received. 8. BINDING EFFECT. This Agreement shall be binding upon and inure tothe benefit of the parties hereto and their respective legal representatives,successors and assigns.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 9. ENTIRE AGREEMENT. This Agreement, together with the Plan, containsthe entire understanding of the parties hereto with respect to the subjectmatter hereof and may be modified only by an instrument executed by the partysought to be charged. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties have executed this Agreement as of the dayand year first above written. PHASE III MEDICAL, INC. By: ------------------------------------------------- President Signature of Optionee Name of Optionee Address of Optionee:Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 14.1 Code of Ethics for Senior Financial Officers Exhibit 14.1 CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS PURPOSE.The Board of Directors (the "Board") of Phase III Medical, Inc. (the "Company")has adopted the following Code of Ethics (the "Code") to apply to the Company'sChief Executive Officer, Chief Financial Officer, Chief Accounting Officer orController, or persons performing similar functions (the "Senior FinancialOfficers"). This Code is intended to focus Senior Financial Officers on areas ofethical risk, provide guidance to help them recognize and deal with ethicalissues, provide mechanisms to report unethical conduct, foster a culture ofhonesty and accountability, deter wrongdoing and promote fair and accuratedisclosure and financial reporting.No code or policy can anticipate every situation that may arise. Accordingly,this Code is intended to serve as a source of guiding principles. SeniorFinancial Officers are encouraged to bring questions about particularcircumstances that may involve one or more of the provisions of this Code to theattention of the Audit Committee, who may consult with inside or outside legalcounsel as appropriate. INTRODUCTIONEach Senior Financial Officer is expected to adhere to a high standard ofethical conduct. The good name of the Company depends on the way SeniorFinancial Officers conduct business and the way the public perceives thatconduct. Unethical actions, or the appearance of unethical actions, are notacceptable. Senior Financial Officers are expected to be guided by the followingprinciples in carrying out their responsibilities. - Loyalty. Senior Financial Officers should not be, or appear to be, subject to influences, interests or relationships that conflict with the best interests of the Company. - Compliance with Applicable Laws. Senior Financial Officers are expected to comply with all laws, rules and regulations applicable to the Company's activities. - Observance of Ethical Standards. Senior Financial Officers must adhere to high ethical standards in the conduct of their duties. These include honesty and fairness. INTEGRITY OF RECORDS AND FINANCIAL REPORTING.Senior Financial Officers are responsible for the accurate and reliablepreparation and maintenance of the Company's financial records. Accurate andreliable preparation of financial records is of critical importance to propermanagement decisions and the fulfillment of the Company's financial, legal andreporting obligations. Diligence in accurately preparing and maintaining theCompany's records allows the Company to fulfill its reporting obligations and toprovide stockholders, governmental authorities and the general public with full,fair, accurate, timely and understandable disclosure. Senior Financial Officersare responsible for establishing and maintaining adequate disclosure controlsand procedures, and internal controls and procedures, including procedures thatare designed to enable the Company to: (a) accurately document and account fortransactions on the books and records of the Company; and (b) maintain reports,vouchers, bills, invoices, payroll and service records, business measurement andperformance records and other essential data with care and honesty.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Senior Financial Officers shall immediately bring to the attention of the AuditCommittee any information they may have concerning:Defects, deficiencies, or discrepancies related to the design or operation ofinternal controls which may affect the Company's ability to accurately record,process, summarize, report and disclose its financial data; or Any fraud,whether or not material, that involves management or other employees who haveroles in the Company's financial reporting, disclosures or internal controls.CONFLICT OF INTEREST.Senior Financial Officers must avoid any conflicts of interest betweenthemselves and the Company. Any situation that involves, or may involve, aconflict of interest with the Company, should be disclosed promptly to the AuditCommittee, who may consult with inside or outside legal counsel as appropriate.A "conflict of interest" can occur when an individual's personal interest isadverse to - or may appear to be adverse to - the interests of the Company as awhole. Conflicts of interest also arise when an individual, or a member of hisor her family, receives improper personal benefits as a result of his or herposition with the Company.This Code does not attempt to describe all possible conflicts of interest whichcould develop. Some of the more common conflicts from which Senior FinancialOfficers must refrain, however, are set forth below: - Improper conduct and activities. Senior Financial Officers may not engage in any conduct or activities that are inconsistent with the Company's best interests or that disrupt or impair the Company's relationship with any person or entity with which the Company has, or proposes to enter into, a business or contractual relationship. - Compensation from non-Company sources. Senior Financial Officers may not accept compensation for services performed for the Company from any source other than the Company. - Gifts. Senior Financial Officers and members of their immediate families may not accept gifts from persons or entities where any such gift is being made in order to influence their actions in their position with the Company, or where acceptance of the gifts could create the appearance of a conflict of interest. - Personal use of Company assets. Senior Financial Officers may not use Company assets, labor or information for personal use, other than incidental personal use, unless approved by the Audit Committee or as part of a compensation or expense reimbursement program. - Financial Interests in other Businesses. Senior Financial Officers should avoid having an ownership interest in any other enterprises, such as a customer, supplier or competitor, if that interest compromises the officer's loyalty to the Company. CORPORATE OPPORTUNITIES.Senior Financial Officers are prohibited from: (a) taking for themselvespersonally opportunities related to the Company's business without firstpresenting those opportunities to the Company and obtaining approval from theBoard; (b) using the Company's property, information, or position for personalgain; or (c) competing with the Company for business opportunities. CONFIDENTIALITY.Senior Financial Officers should maintain the confidentiality of informationentrusted to them by the Company and any other confidential information aboutthe Company, its business or finances, customers or suppliers, that comes tothem, from whatever source, except when disclosure is authorized or legallymandated. For purposes of this Code, "confidential information" includes allnon-public information relating to the Company, its business or finances,customers or suppliers. COMPLIANCE WITH LAWS, RULES AND REGULATIONS.Senior Financial Officers shall comply with laws, rules and regulationsapplicable to the Company, including insider trading laws, and all other Companypolicies. ENCOURAGING THE REPORTING OF ANY ILLEGAL OR UNETHICAL BEHAVIOR.Senior Financial Officers must promote ethical behavior and create a culture ofSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ethical compliance. Senior Financial Officers should foster an environment inwhich the Company: (a) encourages employees to talk to supervisors, managers andother appropriate personnel when in doubt about the best course of action in aparticular situation; (b) encourages employees to report violations of laws,rules and regulations to appropriate personnel; and (c) informs employees thatthe Company will not allow retaliation for reports made in good faith. CONCLUSION.Senior Financial Officers should communicate any suspected violations of thisCode promptly to the Audit Committee. The Board or a person or personsdesignated by the Board will investigate violations, and appropriatedisciplinary action will be taken in the event of any violation of this Code, upto and including termination. Only the Audit Committee may grant any waivers ofthis policy.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 23.1 Consent of Holtz Rubenstein & Co., LLP Exhibit 23.1Consent of Independent AuditorsWe hereby consent to the incorporation by reference into the RegistrationStatement on Form S-8 (Registration No. 0-10909) of Phase III Medical, Inc. ofour report dated February 3, 2004 with respect to the consolidated financialstatements of Phase III Medical, Inc. appearing in this Annual Report on Form10-K of Phase III Medical, Inc. for the year ended December 31, 2003./s/ Holtz Rubenstein & Co., LLPMelville, New YorkMarch 30, 2004Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.1 302 Certification Exhibit 31.1 CERTIFICATIONI, Mark Weinreb, certify that:1. I have reviewed this Annual Report on Form 10-K of Phase III Medical, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financialinformation included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this report;4. The registrant's board of directors and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and5. The registrant's board of directors and I have disclosed, based on our mostrecent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board ofdirectors (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 registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Date: March 30, 2004 /s/ Mark Weinreb Mark Weinreb Chief Executive OfficerSource: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.1 906 Certification Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report of Phase III Medical, Inc. (the "Company")on Form 10-K for the year ended December 31, 2003 filed with the Securities andExchange Commission (the "Report"), I, Mark Weinreb, Chief Executive Officer ofthe Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of Section 13(a) of theSecurities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all materialrespects, the financial condition of the Company as of the dates presented andresults of operations of the Company for the periods presented.Dated: March 30, 2004 /s/ Mark Weinreb Mark Weinreb Chief Executive OfficerThis certification has been furnished solely pursuant to Section 906 of theSarbanes-Oxley Act of 2002.Source: Caladrius Biosciences, Inc., 10-K, March 30, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.