Morningstar® Document Research℠ FORM 10-KCaladrius Biosciences, Inc. - CLBSFiled: March 31, 2005 (period: December 31, 2004)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, 2004 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 (State or other jurisdiction of 22-2343568 incorporation or organization) (I.R.S. Employer Identification No.) 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 4955 Securities 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, 2004 was approximately $ 2.8million. (For purposes of determining this amount, only directors, executiveofficers, and 10% or greater stockholders have been deemed affiliates).On March 15, 2005, 43,065,336 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 thisSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Annual Report, statements that are not statements of current or historical factmay be deemed to be forward-looking statements. Without limiting the foregoing,the words "plan," "intend," "may," "will," "expect," "believe," "could,""anticipate," "estimate," or "continue" or similar expressions or 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, inmultiple sectors of the healthcare and life science industries, in return for apercentage of revenues, royalty fees, licensing fees and other product sales ofthe target companies. Through June 30, 2002, the Company was a provider ofextended warranties and service contracts via the Internet atwarrantysuperstore.com. The business of the Company today comprises the "runoff" of its sale of extended warranties and service contracts via the Internetand the new business opportunity it is pursuing in the medical/bio-tech sector.In 2004, the Company launched its website: www.phase3med.com. The Company'sinformation as filed with the Securities and Exchange Commission is availablevia a link on the website.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 creditors. Thereafter through March 1998 the Companywas inactive. On March 4, 1998, the Company entered into a Stock PurchaseAgreement with certain individuals (the "Initial Purchasers") whereby theInitial 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 FloridaSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. corporation, David M. Veltman, William G. Buckles Jr., Jerome Bauman and JanArnett. The complaint sought recovery of the $1,250,000 loans, plus interest,costs and fees, and sought recovery against the individual defendants pursuantto their partial guarantees. On May 9, 2003, the Company was granted a finaljudgment in the amount of $1,415,622 from each corporate defendant, in theamount of $291,405 against each individual defendant and 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 and the legal action has been concluded.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.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"Medical/Biotech Business".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 theCompany 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 fourSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. distinct 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.MEDICAL/BIOTECH BUSINESSOn February 6, 2003, the Company appointed Mark Weinreb as a member of the Boardof Directors and as its President and Chief Executive Officer. Under hisdirection, the Company entered a new line of business where it provides capitaland guidance to companies, in multiple sectors of the healthcare and lifescience industries, in return for a percentage of revenues, royalty fees,licensing fees and other product sales of the target companies. The Companycontinues to recruit management, business development and technical personnel,and develop its business model. Accordingly, it will be necessary for theCompany to raise new capital. In accordance with its business plan, the Company,in 2003 raised $514,781 of capital, including $214,781, net of expenses of$67,719, through the sale of Common Stock, and $295,000, net of commissions of$30,000, from the sale of notes. In addition, the Company received a total ofapproximately $987,000 from the settlement with the StrandTek guarantors. Asignificant portion of the Standtek proceeds was used to pay outstandingliabilities for legal expenses, employment terminations, travel andentertainment expenses and consultants. The balance of the proceeds was used foroperating expenses and the retirement of certain debt. In the year endedDecember 31, 2004, the Company raised $1,114,375, net of expenses, of capitalthough the sales of Common Stock, and $660,000 from the sale of notes.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 has provided 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, 2004, theCompany has provided $805,324 to PSI pursuant to the royalty agreement. TheCompany is obligated to fund up to an additional $194,676 of expenses. The proofof concept study is continuing and there is no assurance of a favorable outcome.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. A definitive agreement was never reached. However, onMarch 31, 2004, the Company entered into a joint venture agreement. NeoStem,Inc. pioneers adult stem cell therapeutics, including the collection and storageof stem cells. The joint venture provides for the Company to assist NeoStem infinding uses of and customers for NeoStem's services and/or technology. TheCompany's initial efforts will concentrate on developing programs utilizingNeoStem's services and/or technology through the Department of Homeland Securityand/or other government agencies.On August 12, 2004 ("Commencement Date"), the Company and Dr. Wayne A. Marasco,a Company Director, entered into a Letter Agreement appointing Dr. Marasco asthe Company's Senior Scientific Advisor. Dr. Marasco will be responsible forassisting the Company in reviewing and evaluating business, scientific andmedical opportunities, and for other discussions and meetings that may ariseduring the normal course of the Company conducting business. For his services,during a three year period ("Term"), Dr. Marasco shall be entitled to annualcash compensation of $84,000 with increases each year of the Term and anadditional cash compensation based on a percentage of collected revenues derivedfrom the Company's royalty or revenue sharing agreements. Although the annualcash compensation and additional cash compensation stated above shall begin toaccrue as of the Commencement Date, Dr. Marasco will not be entitled to receiveSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 such amounts until the Company raises $1,500,000 in additional equityfinancing after the Commencement Date. In addition, Dr. Marasco was granted anoption, fully vested, to purchase 675,000 shares of the Company's common stockat an exercise price of $.10 cents per share. The shares will be subject to aone year lockup as of the date of grant. The exercise period will be ten years,and the grant will otherwise be in accordance with the Company's 2003 EquityParticipation Plan and Non-Qualified Stock Option Grant Agreement.On September 13, 2004 ("Commencement Date"), the Company entered into a letteragreement (the "Letter Agreement") with Mr. Robert Aholt Jr. pursuant to whichthe Company appointed Mr. Aholt as its Chief OperatingOfficer. Subject to the terms and conditions of the Letter Agreement, the termof Mr. Aholt's employment in such capacity will be for a period of three (3)years from the Commencement Date (the "Term").In consideration for Mr. Aholt's services under the Letter Agreement, Mr. Aholtwill be entitled to receive a monthly salary of $4,000 during the first year ofthe Term, $5,000 during the second year of the Term, and $6,000 during the thirdyear of the Term. In further consideration for Mr. Aholt's services under theLetter Agreement, on January 1, 2005 and on the first day of each calendarquarter thereafter during the Term, Mr. Aholt will be entitled to receive sharesof Common Stock with a "Dollar Value" of $26,750, $27,625 and $28,888,respectively, during the first, second and third years of the Term. The pershare price (the "Price") of each share granted to determine the Dollar Valuewill be the average closing price of one share of Common Stock on the BulletinBoard (or other similar exchange or association on which the Common Stock isthen listed or quoted) for the five (5) consecutive trading days immediatelypreceding the date of grant of such shares; provided, however, that if theCommon Stock is not then listed or quoted on an exchange or association, thePrice will be the fair market value of one share of Common Stock as of the dateof grant as determined in good faith by the Board of Directors of the Company.The number of shares of Common Stock for each quarterly grant will be equal tothe quotient of the Dollar Value divided by the Price. The shares granted willbe subject to a one year lockup as of the date of each grant.In the event Mr. Aholt's employment is terminated prior to the end of the Termfor any reason, earned but unpaid cash compensation and unreimbursed expensesdue as of the date of such termination will be payable in full. In addition, inthe event Mr. Aholt's employment is terminated prior to the end of the Term forany reason other than by the Company with cause, Mr. Aholt or his executor ofhis last will or the duly authorized administrator of his estate, as applicable,will be entitled (i) to receive severance payments equal to one year's salary,paid at the same level and timing of salary as Mr. Aholt is then receiving and(ii) to receive, during the one (1) year period following the date of suchtermination, the stock grants that Mr. Aholt would have been entitled to receivehad his employment not been terminated prior to the end of the Term; provided,however, that in the event such termination is by the Company without cause oris upon Mr. Aholt's resignation for good reason, such severance payment andgrant shall be subject to Mr. Aholt's execution and delivery to the Company of arelease of all claims against the Company.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 beadversely affected.PHASE III HAS A HISTORY OF OPERATING LOSSES AND A SUBSTANTIAL ACCUMULATEDEARNINGS DEFICIT AND IT WILL CONTINUE TO INCUR LOSSES.Since its inception in 1980, the Company has generated only limited revenuesfrom sales and has incurred substantial net losses of $1,748,372, $1,044,145 and$1,159,838 for the years ended December 31, 2004, 2003 and 2002, respectively.At December 31, 2004, the Company had a stockholders' deficit of approximately$1,900,000. The Company expects to incur additional operating losses as well asnegative cash flow from its new business operations until revenues from thepurchase of royalty interests are received.THE COMPANY HAS LIQUIDITY PROBLEMS.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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, 2004, the Company had a cash balance of $27,868, deficit workingcapital of $1,238,949 and a stockholders' deficit of $1,931,787. In addition,the Company sustained losses of $1,748,372, $1,044,145 and $1,159,838 for thethree fiscal years ended December 31, 2004, 2003 and 2002, respectively. TheCompany'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 toaccredited investors pursuant to Regulation D to raise up to $4,000,000 throughthe sale of up to 40,000,000 shares of its Common Stock in increments of $5,000or 50,000 shares. Through July 31, 2004, the Company sold only 14,957,913shares, resulting in proceeds to the Company of $1,319,781, net of offeringcosts of $67,719. This amended private placement was terminated in July 2004.Additional financing is needed. There can be no assurance that the Company willbe able to sell sufficient quantities of equity securities or borrow money so asto have sufficient funds to continue to operate.THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN IS QUESTIONABLE.The Company's auditors, Holtz Rubenstein Reminick LLP, modified its opinion inorder to disclose the substantial doubt about the Company's ability to continueas a going concern. It will be more difficult for the Company to raise capitalon favorable terms and fund the agreements currently in place or new agreementsas a result of the substantial doubt about the Company's ability to continue asa going concern.THE COMPANY WILL CONTINUE TO EXPERIENCE CASH OUTFLOWS.The Company continues to incur expenses, including the salary of its President,COO, 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. It isnot possible at this time to state whether the Company will be able to financethese cash outflows or when the Company will achieve 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 achieveprofitability 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, 2004, theCompany had a stockholders' deficit of $1,931,787 and had a working capitaldeficiency of $1,238,949. Although the Company continues to raise funds throughthe issuance of promissory notes, which have been substantially spent, 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 medical companies based on the Company'scurrent operating plan for its new business. In addition, the Company's cashrequirements may vary materially from those now planned because of results inresearch, consulting with experts and modeling sales forecasts for the potentialproducts of potential business partners. RISKS RELATING TO THE COMPANY'S PROPOSED NEW BUSINESSTHE COMPANY HAS ONLY TWO BUSINESS PARTNERS TO DATE AND IS UNCERTAIN OF ITSFUTURE PROFITABILITY 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.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Currently the Company has entered into one agreement with PSI, and one agreementwith NeoStem and since the agreements are in its early stages, it is prematureto predict any favorable outcome. There can be no assurance that any additionalagreements will be entered into. The failure to enter into any such necessaryagreements could delay or prevent the Company's new business from achievingprofitability and would have a material adverse effect on the business,financial position and results of operations of the Company. Further, there canbe no assurance that the Company's operations will become profitable even if theCompany enters into agreements 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 includeentering 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 theSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 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 onwhich 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 partnersSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. may 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 in the futue with the Company's position anddeem the Company to be an "investment company" under the Company Act and requirethe Company to register as an investment company. If this were to occur, theCompany's day-to-day operations would become subject to the regulatory anddisclosure requirements imposed by the Company Act. The Company does not havethe infrastructure to operate as an investment company. 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 ORITS 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.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 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 INVOLVED IN EXPENSIVE PATENTLITIGATION OR OTHER PROCEEDINGS, WHICH COULD RESULT IN THE COMPANY OR ITSBUSINESS PARTNERS INCURRING SUBSTANTIAL COSTS AND EXPENSES OR SUBSTANTIALLIABILITY FOR DAMAGES OR REQUIRE THE COMPANY OR ITS BUSINESS PARTNERS TO STOPTHEIR 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.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 has established new business operations, is intense.The Company's potential business partners may face competition from companieswith far greater financial, marketing, technical and research resources, namerecognition, distribution channels and market presence than the Company'spotential business partners who are marketing existing products or developingnew products that are similar to the products developed by the Company'spotential business partners. There can be no assurance that the Company'spotential business partners' products will be able to compete successfully withexisting products or products under development by other companies, universitiesand other institutions.EMPLOYEESAs of December 31, 2004, the Company had four employees.ITEM 2. PROPERTIESOn February 21, 2003 the Company began leasing office space in Melville, NewYork at an original annual rental of $18,000. The lease was extended for anadditional twelve months and expires on March 31, 2005. The annual rentalincreased to approximately $19,200 on April 1, 2004 and continues until theexpiration date. The lease has been renewed until March 2006 with an annualrental of approximately $20,100. This space will be sufficient for the Company'sneeds until the business plan of the Company has been successfully executed.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 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 and the legal action has been concluded.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 2004. 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 the 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 15, 2005, the closing bid price for the Company's Common Stock was $0.04. 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. 2004 High Low First Quarter $0.18 $0.13 Second Quarter 0.22 0.06 Third Quarter 0.10 0.07 Fourth Quarter 0.10 0.05 2003 High Low First Quarter $0.13 $ 0.3 Second Quarter 0.15 0.06 Third Quarter 0.31 0.08 Fourth Quarter 0.31 0.11(b) Holders. As of March 15, 2005, there were approximately 1,500 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.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 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, 1995through and including the Redemption Date of approximately $0.47 per share. TheRedemption, among other financial, legal and business conditions, was acondition precedent to the closing of the StrandTek Transaction. Similarly,completion of the Redemption was subject to closing the StrandTek Transaction.Upon termination of the StrandTek Transaction, the Company rescinded the Noticeof Redemption.At December 31, 2004, 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.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 remained unpaid. As of December 31, 2004, options topurchase an additional 1,875,000 shares of Common Stock at an aggregate purchaseprice of $9,375 were exercised pursuant to the default penalty. As of December31, 2004 all but two of these notes and related interest has been repaid andthere are no additional options to purchase Common Stock outstanding. Two of thenotes, totaling $50,000 was sold to an unrelated third party who agreed tocancel the two notes and replace them with a new note with does not contain thedefault penalty. This new note included a previous note of $25,000 and onOctober 1, 2004 a new promissory note in the amount $75,000 bearing interest at8% per annum was executed. This note, plus accrued interest, is due June 30,2005.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 offeringSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. costs. The notes contain 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, 2004, $170,000 of the principle amount of thesenotes remain unpaid. The due date of these notes has been extended to April 1,2005 and bears interest at 20%. All interest payments have been made and arecurrent.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 were not registered and will be subject to restrictions on resale.Only selected investors which qualify as "accredited investors" as defined inRule 501(a) under the Securities Act of 1933, as amended, were eligible topurchase these shares. The placement closed on December 31, 2003 upon the saleof 2,825,000 shares, resulting in proceeds to the Company of $214,781, net ofoffering costs of $67,719. The investment banker, Robert M. Cohen & Company, hasbeen fully paid for its efforts.The Company amended its equity private placement (see Note 7 to the AuditedFinancial Statements) pursuant to Regulation D to raise up to $4,000,000 throughthe sale of up to 40,000,000 shares of Common Stock in increments of $5,000 or50,000 shares. Such shares were not registered and will be subject torestrictions on resale. Only selected investors which qualify as "accreditedinvestors" as defined in Rule 501(a) under the Securities Act of 1933, asamended, are eligible to purchase these shares. The amended private placementclosed on July 31, 2004. As of July 31, 2004, 12,132,913 shares of common stockhave been sold with net proceeds to the Company of $1,105,000.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.These notes have a default provision that if they are not paid within 30 days,there is an additional interest payment of $250 per $25,000 for each 30 dayperiod or part thereof. These notes and interest have been repaid.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. As of December 31, 2004, $25,000 has been repaid and$25,000 remains unpaid.In May 2004, the Company sold a 30 day 20% note pursuant to Regulation D in theamount of $40,000 to an accredited investor to fund current operations. Thisnote has been repaid.In July 2004, the Company sold a five month 20% note in the amount of $25,000and two six month 20% notes totaling $80,000 to three accredited investors tofund current operations. As of December 31, 2004, the $25,000 note has beenrepaid and the two notes totaling $80,000 remain unpaid.In August 2004, the Company sold a 30 day 20% note in the amount of $30,000 anda six month 20% note in the amount of $25,000 to two accredited investors tofund current operations. As of December 31, 2004, $30,000 has been repaid and$25,000 remains unpaid. All related interest has been paid.In August 2004, the Company sold a six month 20% $100,000 convertible note. Thisnote at maturity will be converted into shares of the Company's Common Stock at85% of the average price as quoted on the NASD Over-the-Counter Bulletin Boardfor the five days prior to the maturity date of the note. In March 2005, thisnote was converted into 1,960,784 shares of common stock. All interest paymentswere made on the note.In September 2004, 7,282,913 shares of common stock were purchased by RobertAholt, Jr., Chief Operating Officer of the Company for an aggregate purchaseprice of $650,000.In December 2004, the Company sold two six month 8% notes to an officer and adirector totaling $60,000 to fund current operations. In addition, the Companysold a six month 15% note and a six month 20% note totaling $40,000 to twoaccredited investors to fund operations. At December 31, 2004 these notes remainunpaid.ITEM 6. SELECTED FINANCIAL DATASource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The selected statements of operations and balance sheet data set forth below arederived from audited financial statements of the Company. The information setforth below should be read in conjunction with the Company's audited financialstatements and notes thereto. See Item 8 "Financial Statements and SupplementaryData" and Item 7 "Management's Discussion and Analysis of Financial Conditionand Results of Operation". On February 4, 1999 the Company changed its fiscalyear-end from March 31 each year to December 31 each year. The selectedfinancial data set out below has not been retroactively restated to reflect suchchange in fiscal year-end date and accordingly is presented as historicallyreported in the financial statements of the Company. The requirement to providegeographical information for the operations of the Company is not practical.Statement of Operations: Year Ended Year Ended Year Ended Year Ended Year Ended($'000 except net loss per share which is December 31, December 31, December 31, December 31, December 31,stated in $) 2004 2003 2002 2001 2000 Earned revenues $ 49 $ 65 $ 81 $ 107 $ 27Direct costs 34 44 60 70 33Gross profit 15 21 21 37 (6)Operating (loss) (1,474) (894) (1,149) (1,606) (2,516)Loss before discontinued operations andpreferred dividends (1,748) (1,044) (1,160) (1,792) (2,296)Net loss attributable to commonstockholders (1,748) (1,068) (1,208) (2,081) (2,075)Basic and diluted earnings per share: Loss from continuing operations Income (loss) from discontinued operations (.05) (0.05) (0.05) (0.08) (0.16) -- -- -- (0.01) (0.02)Net loss attributable to common shareholders (.05) (0.05) (0.05) (0.09) (0.14)Weighted average number of sharesoutstanding 32,541,845 23,509,343 22,344,769 22,284,417 14,902,184 As of As of As of As of As ofBalance Sheet Data: December 31, December 31, December 31, December 31, December 31,$'000 2004 2003 2002 2001 2000 Working Capital (Deficiency) $ (1,239) $ (794) $ (82) $ 1,085 $ 2,079Total Assets 99 312 1,183 1,836 3,757Current Liabilities 1,288 1,023 1,141 489 458Long Term Debt -- -- 9 32 53(Accumulated Deficit) (12,510) (10,762) (9,694) (8,486) (6,406)Total Stockholders' (Deficit)/ Equity (1,932) (1,503) (824) 373 2,450Add long term liab.Selected Quarterly Financial Data$'000 Quarter Quarter Quarter Quarter Quarter Quarter(except net loss per share Ended Ended Ended Ended Ended Endedwhich is stated in $) 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03 9/30/03 Earned Revenues $12 $3 $7 $27 $15 $15Direct Costs 8 2 5 19 8 11Gross profit 4 1 2 8 7 4Operating Loss (263) (417) (413) (381) (369) (197)Net Loss Attributable toCommon Stockholders (300) (500) (492) (456) (437) (216)Net loss per share (.00) (.01) (.02) (.02) (0.02) (0.01)$'000 Quarter Quarter Quarter Quarter Quarter Quarter(except net loss per share Ended Ended Ended Ended Ended Endedwhich is stated in $) 6/30/03 3/31/03 12/31/02 9/30/02 6/30/02 3/31/02 Earned Revenues $17 $18 $ 19 $ 20 $ 18 $ 24Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Direct Costs 12 13 13 14 14 19Gross profit 5 5 5 6 5 5Operating Loss (205) (123) (357) (225) (201) (366)Net Loss Attributable toCommon Stockholders (260) (155) (389) (231) * (246) (342)Net loss per share (0.01) (0.01) -- (0.01) (0.01) (0.02)* Includes 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. Mr. Weinreb wasappointed to finalize and execute the Company's new business plan. The Companynow provides capital and guidance to companies, in multiple sectors of thehealthcare and life science industries, in return for a percentage of revenues,royalty fees, licensing fees and other product sales of the target companies.The Company continues to recruit management, business development and technicalpersonnel, and develop its business model. Accordingly, it will be necessary forthe Company to raise new capital. There can be no assurance that any suchbusiness plan developed by the Company will be successful, that the Company willbe able to acquire such new business or rights or raise new capital, or that theterms of any transaction will be favorable to the Company.CRITICAL ACCOUNTING POLICIESRevenue Recognition: Stamford's reinsurance premiums are recognized on a prorata basis over the policy term. The deferred policy acquisition costs are thenet cost of acquiring new and renewal insurance contracts. These costs arecharged to expense in proportion to net premium revenue recognized. Theprovisions for losses and loss-adjustment expenses include an amount determinedfrom loss reports on individual cases and an amount based on past experience forlosses incurred but not reported. Such liabilities are necessarily based onestimates, and while management believes that the amount is adequate, theultimate liability may be in excess of or less than the amounts provided. Themethods for making such estimates and for establishing the resulting liabilityare continually reviewed, and any adjustments are reflected in earningscurrently.Income Taxes and Valuation Reserves: We are required to estimate our incometaxes in each of the jurisdictions in which we operate as part of preparing ourfinancial statements. This involves estimating the actual current tax inaddition to assessing temporary differences resulting from differing treatmentsfor tax and financial accounting purposes. These differences, together with netoperating loss carryforwards and tax credits, are recorded as deferred taxassets or liabilities on our balance sheet. A judgment must then be made of theSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. likelihood that any deferred tax assets will be realized from future taxableincome. A valuation allowance may be required to reduce deferred tax assets tothe amount that is more likely than not to be realized. In the event wedetermine that we may not be able to realize all or part of our deferred taxasset in the future, or that new estimates indicate that a previously recordedvaluation allowance is no longer required, an adjustment to the deferred taxasset is charged or credited to net income in the period of such determination.RESULTS OF CONTINUING OPERATIONSThe Company's "Critical 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 2004 COMPARED TO FISCAL 2003The Company generated recognized revenues from the sale of extended warrantiesand service contracts via the Internet of $49,000 in fiscal 2004 compared to$65,000 in fiscal 2003. The revenues generated in the year were derived entirelyfrom revenues deferred over the life of the contracts sold in prior years.Similarly, direct costs incurred were $34,000 and $44,000 for fiscal years 2004and 2003 respectively, which relate to costs previously deferred over the lifeof such contracts.General and administrative expenses totaled $764,000 during the year endedDecember 31, 2004 as compared to $685,000 for fiscal 2003, an increase of$79,000 or 11.5%. The increase was primarily attributable to increases insalaries and related expenses ($189,000), directors and officer's liabilityinsurance ($31,000), rent ($12,000) and investor relations ($29,000) partiallyoffset by decreases in legal ($59,000), consultants ($63,000), director's fees($13,000) travel and entertainment ($17,000), stockholder's meetings ($12,000),transfer agent fees ($5,000) and miscellaneous items ($13,000).In accordance with the PSI agreement, the Company paid PSI $725,324 in fiscal2004 as compared to $80,000 in fiscal 2003.Interest income decreased from $89,000 in fiscal 2003 to less than $1,000 infiscal 2004 due to the lack of funds. Interest expense increased in fiscal 2004to $227,000 from $215,000 in fiscal 2003 due to the higher level of debt andcertain debt being in default and therefore subject to a higher interest rate.In addition, the Company recorded interest expense in fiscal 2004 relating tothe Series A preferred in the amount of approximately $48,000 as compared toapproximately $24,000 in 2003 due to a recent accounting pronouncement.For the reasons cited above, the net loss before preferred stock dividendincreased to $1,748,000 in fiscal 2004 from the comparable loss of $1,044,000for fiscal 2003.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 CompanySource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. made 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.LIQUIDITY AND CAPITAL RESOURCESThe following chart represents the net funds provided by or used in operating,financing and investment activities for each period as indicated: Twelve Months Ended ------------------- December 31, 2004 December 31, 2003Cash used inoperating activities $(1,459,653) $(1,021,913)Cash (used by) provided byinvesting activities (3,288) 847,419Cash provided byfinancing activities 1,279,862 366,186At December 31, 2004, the Company had a cash balance of $27,868, deficit workingcapital of $1,238,949 and a stockholders' deficit of $1,931,787. In addition,the Company sustained losses of $1,748,372, $1,044,145 and $1,159,838 for thethree fiscal years ended December 31, 2004, 2003 and 2002, respectively. TheCompany'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 placement toaccredited investors pursuant to Regulation D to raise up to $4,000,000 throughthe sale of up to 40,000,000 shares of its Common Stock in increments of $5,000or 50,000 shares. Through July 31, 2004, the Company sold only 14,957,913shares, resulting in proceeds to the Company of $1,319,781, net of offeringcosts of $67,719. This amended private placement was terminated in July 2004.Additional financing is needed. There can be no assurance that the Company willbe able to sell sufficient quantities of equity securities or borrow money so asto have sufficient funds to continue to operate. Management has sold promissorynotes which bear interest at between 8% and 20% per annum to fund the Companyuntil such time as sufficient proceeds are received from the private placementof its Common Stock. No assurance can be given that future borrowings will beavailable.The following table reflects a summary of the Company's contractual cashobligations as of December 31, 2004: Payments due by period Less than 1 More than 5Contractual Obligations Total year 1-3 years 3-5 years years Notes payable $ 475,000 $ 475,000 $ 0 $ 0 $ 0Operating leases 24,900 19,875 5,025 0 0Employment agreements 668,340 374,950 293,390 0 0Series A mandatorily redeemable convertiblepreferred stock 572,208 47,684 143,052 143,052 238,420Purchase obligations 194,676 194,676 0 0 0 ---------- ---------- -------- -------- -------- Total $1,925,124 $1,064,501 $298,415 $ 0 $ 0 ========== ========== ======== ======== ========Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. INFLATIONThe Company does not believe that its operations have been materially influencedby inflation in the fiscal year ended December 31, 2004, 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 Reminick LLP("Holtz") as the Company's independent auditors for the fiscal year endedDecember 31, 2003.Travis Wolff's audit report on the Company's financial statements for the yearended December 31, 2002 contained a qualified opinion as to the uncertainty ofthe Company's ability to continue as a going concern. No modifications were madeto the financial statements as a result of this uncertainty.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 tobe 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.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 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, 2005:Name Age Position---- --- -------- Mark Weinreb 52 Director, President & Chief Executive OfficerRobert Aholt, Jr. 43 Chief Operating OfficerWayne Marasco 51 DirectorJoseph Zuckerman 53 DirectorMichael Lax 51 DirectorMark WeinrebPresident, Chief Executive Officer and DirectorMr. 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.Robert Aholt, Jr.Chief Operating OfficerMr. Aholt joined the Company in September of 2004 as Chief Operating Officer. Heis responsible for all operational aspects of the Company and is an integralpart of the management team. Prior to joining the Company, Mr. Aholt wasPrincipal and Chief Financial Officer of Systems Development, Inc. a privateconsulting firm focusing on strategic and technology consulting for Fortune 500companies. As a co-founder of Systems Development in 1993, Mr. Aholt helpedbuild the company into a multi-million dollar consulting practice. As CFO, heoversaw all financial and operational aspects of the firm. Prior to SystemsDevelopment, Mr. Aholt was CFO of IW Communications Group, a public relationsfirm that helps companies target Asian communities for public relationsoutreach. Mr. Aholt has also worked as a controller of First AffiliatedSecurities, a regional brokerage firm in Southern California. Mr. Aholt receiveda Bachelor of Arts degree from the University of California at Santa Barbara in1985 and a Masters of Business Administration from the University of SouthernCalifornia in 1988.Wayne Marasco, M.D., Ph.D.DirectorDr. Marasco joined the Board of Directors of the Company in June 2003. In AugustSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 2004 was the appointed the Company's Senior Scientific Advisor. Dr. Marasco isan Associate Professor in the Department of Cancer Immunology & AIDS at theDana-Farber Cancer Institute and Associate Professor of Medicine in theDepartment of Medicine, Harvard Medical School. Dr. Marasco is a licensedphysician- scientist with training in Internal Medicine and specialty trainingin infectious diseases. His clinical practice sub-specialty is in the treatmentof immunocompromised (cancer, bone marrow and solid organ transplants) patients.Dr. Marasco's research laboratory is 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 such as SARS and Avian Influenza are beingstudied. Dr. Marasco'slaboratory is recognized internationally for its pioneering development ofintracellular antibodies (sFv) or "intrabodies" as a new class of molecules forresearch and gene therapy applications. He is the author of more than 70 peerreviewed research publications, numerous chapters, books and monographs and hasbeen an invited speaker at many national and international conferences in theareas of antibody engineering, gene therapy and AIDS. Dr. Marasco is also theScientific Director of the National Foundation for Cancer Research Center forTherapeutic Antibody Engineering (the "Center"). The Center is located at theDana-Faber Cancer Institute and will work with investigators globally to developnew human monoclonal 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.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 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 also 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 auditcommittee.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. The following Forms 3 and 4 were filed late:Forms 3 for Joseph Zuckerman and Michael Lax upon becoming directors of theCompany and for Robert Aholt upon becoming an officer of the Company, and 2Forms 4 for Joseph Zuckerman relating to option grants. These late filings wereinadvertent and required filings were made promptly after noting the failures tofile. The following Forms 3 and 4 were filed late: Forms 3 for Joseph Zuckermanand Michael Lax upon becoming directors of the Company and for Robert Aholt uponbecoming an officer of the Company, and 2 Forms 4 for Joseph Zuckerman relatingto option grants.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 Annual Report on Form 10-K forthe year ended December 31, 2003.ITEM 11. EXECUTIVE COMPENSATIONThe following table sets forth the aggregate compensation paid during the threeyears ended December 31, 2004 to the Company's Chief Executive Officer. No otherexecutive officer of the Company earned in excess of $100,000 for servicesrendered during fiscal 2004. 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 Chief Executive Officer 2004 $223,192 2,550,000 $12,000 (Appointed February 6, 2003) (1) 2003 $157,154 2,500,000 $12,000Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Notes: (1) All other compensation comprises monthly automobile allowances.OPTION GRANTSThe following table provides certain information with respect to options grantedto the Company's chief executive officer during the fiscal years ended December31, 2004:Option Grants in Last Fiscal Year Percent of Potential Realizable Value Total at Assumed Annual Rates of Number of Options Market Stock Price Appreciation Securities Granted to Exercise Price on for Option Term(1) Underlying Employees Price Date of -------------------------- Options In per Share Grant Expiration Name Granted(2) Fiscal Year ($) ($) Date 5% 10%--------------------------------------- ----------- ---------- -------- ----------- ------- -------- Mark Weinreb 2,500,000 100% $0.03 $0.03 2/6/13 $53,275 $129,257 50,000 6% $0.10 $0.10 9/14/14 $8,552 $13,617----------(1) The Securities and Exchange Commission (the "SEC") requires disclosure of the potential realizable value or present value of each grant. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the SEC and do not represent the Company's estimate or projection of the Company's future Common Stock prices. The disclosure assumes the options will be held for the full ten-year term prior to exercise. Such options may be exercised prior to the end of such ten-year term. The actual value, if any, an executive officer may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. There can be no assurance that the stock price will appreciate at the rates shown in the table.(2) These options vested immediately.OPTION EXERCISES AND HOLDINGSThe following table provides information concerning options exercised during2004 and the value of unexercised options held by each of the executive officersnamed in the Summary Compensation Table at December 31, 2004. Option Values at December 31, 2004 Number of Securities Underlying Shares Unexercised Options Value of Acquired at December 31, 2004 In-the-Money Options at On (# of shares) December 31, 2004 ($)(1) Exercise Value ----------------------------- ------------------------------- Name (# shares) Realized Exercisable Unexercisable Exercisable Unexercisable---------------- ---------- -------- ----------- ------------- ----------- ------------- Mark Weinreb -- -- 2,500,000 -- $75,000 -- -- -- 50,000 -- -- ------------(1) Based on $0.06 per share, the closing price of the Company's Common Stock, as reported by the OTC Bulletin Board, on December 30, 2004.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,Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. $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 2,500,000shares of the Company's Common Stock for an exercise price of $0.50 per share,pursuant to the 2003 Equity Participation Plan and a Stock Option Agreement tobe entered into between the Company and Mr. Weinreb containing substantially thesame terms as the Initial Option Agreement, except for the exercise price andthat the option would be treated as an "incentive stock option" for tax purposesonly to the maximum extent permitted by law (the "Additional Option Agreement").The Company has agreed to promptly file with the Securities and ExchangeCommission a Registration Statement on Form S-8 (the "Registration Statement")pursuant to which the issuance of the shares covered by the 2003 EquityParticipation Plan, as well as the resale of the Common Stock issuable uponexercise of the Initial Option Agreement, are registered. Additionally, theCompany has agreed, following any grant under the Additional Option Agreement,to promptly file a post-effective amendment to the Registration Statementpursuant to which the Common Stock issuable upon exercise thereof shall beregistered for resale. Mr. Weinreb has agreed that he will not resell publiclyany shares of the Company's Common Stock obtained upon exercise of any InitialAgreement or the Additional Option Agreement prior to the first anniversary ofthe 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."On August 12, 2004 ("Commencement Date") the Company and Dr. Wayne A. Marasco, aCompany Director, entered into a Letter Agreement appointing Dr. Marasco as theCompany's Senior Scientific Advisor. Dr. Marasco will be responsible forassisting the Company in reviewing and evaluating business, scientific andmedical opportunities, and for other discussions and meetings that may ariseduring the normal course of the Company conducting business. For his services,during a three year period ("Term"), Dr. Marasco shall be entitled to annualcash compensation of $84,000 with increases each year of the Term and anadditional cash compensation based on a percentage of collected revenues derivedfrom the Company's royalty or revenue sharing agreements. Although the annualcash compensation and additional cash compensation stated above shall begin toaccrue as of the Commencement Date, Dr. Marasco will not be entitled to receiveany such amounts until the Company raises $1,500,000 in additional equityfinancing after the Commencement Date. In addition, Dr. Marasco was granted anoption, fully vested, to purchase 675,000 shares of the Company's common stockat an exercise price of $.10 cents per share. The shares will be subject to aone year lockup as of the date of grant. The exercise period will be ten years,and the grant will otherwise be in accordance with the Company's 2003 EquityParticipation Plan and Non-Qualified Stock Option Grant Agreement.On September 13, 2004, ("Commencement Date") the Company entered into a letteragreement (the "Letter Agreement") with Mr. Robert Aholt Jr. pursuant to whichthe Company appointed Mr. Aholt as its Chief Operating Officer. Subject to theterms and conditions of the Letter Agreement, the term of Mr. Aholt's employmentin such capacity will be for a period of three (3) years from the CommencementSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Date (the "Term").In consideration for Mr. Aholt's services under the Letter Agreement, Mr. Aholtwill be entitled to receive a monthly salary of $4,000 during the first year ofthe Term, $5,000 during the second year of the Term, and $6,000 during the thirdyear of the Term. In further consideration for Mr. Aholt's services under theLetter Agreement, on January 1, 2005 and on the first day of each calendarquarter thereafter during the Term, Mr. Aholt will be entitled to receive sharesof Common Stock with a "Dollar Value" of $26,750, $27,625 and $28,888,respectively, during the first, second and third years of the Term. The pershare price (the "Price") of each share granted to determine the Dollar Valuewill be the average closing price of one share of Common Stock on the BulletinBoard (or other similar exchange or association on which the Common Stock isthen listed or quoted) for the five (5) consecutive trading days immediatelypreceding the date of grant of such shares; provided, however, that if theCommon Stock is not then listed or quoted on an exchange or association, thePrice will be the fair market value of one share of Common Stock as of the dateof grant as determined in good faith by the Board of Directors of the Company.The number of shares of Common Stock for each quarterly grant will be equal tothe quotient of the Dollar Value divided by the Price. The shares granted willbe subject to a one year lockup as of the date of each grant.In the event Mr. Aholt's employment is terminated prior to the end of the Termfor any reason, earned but unpaid cash compensation and unreimbursed expensesdue as of the date of such termination will be payable in full. In addition, inthe event Mr. Aholt's employment is terminated prior to the end of the Term forany reason other than by the Company with cause, Mr. Aholt or his executor ofhis last will or the duly authorized administrator of his estate, as applicable,will be entitled (i) to receive severance payments equal to one year's salary,paid at the same level and timing of salary as Mr. Aholt is then receiving and(ii) to receive, during the one (1) year period following the date of suchtermination, the stock grants that Mr. Aholt would have been entitled to receivehad his employmentnot been terminated prior to the end of the Term; provided, however, that in theevent such termination is by the Company without cause or is upon Mr. Aholt'sresignation for good reason, such severance payment and grant shall be subjectto Mr. Aholt's execution and delivery to the Company of a release of all claimsagainst the Company.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 15, 2005, 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 OwnedSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Percentage of Common Stock # of Shares Beneficially Owned (SeeName and Address of Beneficial Owner Notes Beneficially Owned Note 1) Joel San Antonio56 North Stanwich RoadGreenwich, CT 06831 3,752,500 8.7%Mark Weinreb (2) (6) 2,590,000 5.7%Wayne Marasco (3) (6) 1,525,000 3.5%Michael Lax (4) (6) 300,000 .7%Joseph Zuckerman, M.D. (5) (6) 600,000 1.4%Robert Aholt, Jr. (6) 9,721,376 22.6%All current directors and officers as a group(five persons) (2) (3) (4) (5) 14,736,376 31.2%Notes:(1) Based on 43,065,336 shares of Common Stock outstanding on March 15, 2005.(2) Includes 2,550,000 currently exercisable options to purchase Common Stock.(3) Includes 1,025,000 currently exercisable options to purchase Common Stock.(4) Includes 300,000 currently exercisable options to purchase Common Stock.(5) Includes 350,000 currently exercisable options to purchase Common Stock.(6) Address is 330 South Service Road, Suite 120, Melville, NY 11747 EQUITYCOMPENSATION 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, 2004. This plan was theCompany's only equity compensation plan in existence as of December 31, 2004 (c) Number of Securities Remaining Available For (a) (b) Future Issuance Under Number of Securities to Weighted-Average Equity Compensation be Issued Upon Exercise Exercise Price of Plan (Excluding of Outstanding Options, Outstanding Options, Securities Reflected In Plan Category Warrants and Rights Warrants and Rights Column (a)) ------------- ------------------- ------------------- ------------------------ Equity Compensation PlansApproved byShareholders ............ 6,675,000 $ 0.08 8,325,000Equity Compensation PlansNot Approved by ......... 0 0 0Shareholders --------- --------- ---------TOTAL ................... 6,675,000 $ 0.08 8,325,000ITEM 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,Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 years ended December 31, 2004 and 2003 totaled approximately $25,000 and$48,185, respectively.Audit-Related Fees. The Company was billed $0 and $0 by the Company's principalaccountant for the fiscal years ended December 31, 2004 and 2003, 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 $7,350and $5,072 by the Company's principal accountant for the fiscal years endedDecember 31, 2004 and 2003, 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, 2004 and 2003, respectively, for permitted non-audit services of $0 and$3,230, respectively.The Company's Board of Directors pre-approved the Company's engagement of HoltzRubenstein Reminick LLP to act as the Company's independent auditor for thefiscal year ended December 31, 2004 and 2003. The Company's Board of Directorspre-approved Travis Wolff & Company, L.L.P. to act as the Company's independentauditor for the fiscal years ended December 31, 2002. The Company's independentauditors performed all work only with its full time permanent employees. 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.Allan please update(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)Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. (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) 99.4 (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) 10.2 (k) Employment Agreement dated as of September 13, 2004 between Phase III Medical, Inc. and Robert Aholt, Jr. (16) 10.3 (l) Stock Purchase Agreement, dated as of September 13, 2004, between Phase III Medical, Inc. and the Aholt, Jr. Family Trust (16) 10.4 (m) Form of Promissory Note - Robert Aholt, Jr. dated August 30, 2004 (16) 10.5 (n) Letter Agreement dated as of August 12, 2004 by and between Phase III Medical, Inc. and Dr. Wayne A. Marasco (16) 10.6 (o) Board of Directors Agreement by and between Phase III Medical, Inc. and Michael Lax (16) 10.7 (p) Board of Directors Agreement by and between Phase III Medical, Inc. and Joseph Zuckerman (16) 10.814 (a) Code of Ethics for Senior Financial Officers (13) 14.123 (a) Consent of Holtz Rubenstein Reminick LLP (16) 23.131 (a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (16) 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 (16) 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 theSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 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 with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the current report of the Company on Form 10-K, dated December 31, 2003, which exhibit is incorporated here by reference.(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.(16) Filed herewith 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 31, 2005. Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of the Companyand in the capacities and on the dates indicated:Signatures Title Date---------- ----- ---- /s/ Mark Weinreb Director, President and Chief Executive----------------------- Officer March 31, 2005Mark Weinreb/s/ Robert Aholt, Jr. Chief Operating Officer March 31, 2005-----------------------Robert Aholt, Jr./s/ Wayne Marasco Director March 31, 2005-----------------------Wayne Marasco/s/ Joseph Zuckerman Director March 31, 2005-----------------------Joseph Zuckerman/s/ Michael Lax Director March 31, 2005-----------------------Michael Lax Phase III Medical, Inc. Table of Contents PageSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. ----------Report of Independent Registered Public Accounting Firm - F - 1 Holtz Rubenstein Reminick LLPReport of Independent Registered Public Accounting Firm - F - 2Travis, Wolff & Company, L.L.P.Financial Statements: F - 3 Balance Sheets at December 31, 2004 and 2003 Statements of Operations F - 4 Years Ended December 31, 2004, 2003 and 2002 Statements of Stockholder's (Deficit) F - 5 Years Ended December 31, 2004, 2003 and 2002 Statements of Cash Flows F - 6 Years Ended December 31, 2004, 2003 and 2002 F - 8 - F - 21 Notes to Financial Statements Report of Independent Registered Public Accounting FirmTo the Board of Directors and StockholdersPhase III Medical, Inc.We have audited the accompanying balance sheets of Phase III Medical, Inc. as ofDecember 31, 2004 and 2003 and the related statements of operations,stockholders' equity (deficit) and cash flows for each of the years in thetwo-year period ended December 31, 2004. These financial statements are theresponsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on our audits.We conducted our audits in accordance with standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we planand perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, inall material respects, the financial position of Phase III Medical, Inc. as ofDecember 31, 2004 and 2003 and the results of its operations and cash flows foreach of the years in the two year period ended December 31, 2004 in conformitywith accounting principles generally accepted in the United States of America.The accompanying financial statements have been prepared assuming that theCompany will continue as a going concern. As discussed in Note 1 to thefinancial statements, the Company's recurring losses from operations raisesubstantial doubt about its ability to continue as a going concern. Management'splans in regard to these matters are also described in Note 1. The financialstatements do not include any adjustments that might result from the outcome ofthis uncertainty./s/ HOLTZ RUBENSTEIN REMINICK LLPMelville, New YorkFebruary 18, 2005 F-1REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSTo the Board of Directors ofPhase III Medical, Inc.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. We have audited the accompanying consolidated statements of operations,stockholders' equity, and cash flows for the year ended December 31, 2002 ofPhase III Medical, Inc. (the "Company"). These consolidated financial statementsare the responsibility of the Company's management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudit.We 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 provides a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated results of operations andcash flows of Phase III Medical, Inc. for the year ended December 31, 2002, inconformity with accounting principles generally accepted in the United States ofAmerica.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. The consolidated financial statements do not include anyadjustments that 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. Balance Sheets December 31, ------------------------------- 2004 2003 ------------ ------------ ASSETSCurrent assets: Cash and cash equivalents $ 27,868 $ 210,947 Prepaid expenses and other current assets 21,233 18,024 ------------ ------------ Total current assets 49,101 228,971Property and equipment, net 3,446 1,935Deferred acquisition costs 43,897 77,782Other assets 3,000 3,000 ------------ ------------ $ 99,444 $ 311,688 ============ ============LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities: Interest and dividends payable - preferred stock $ 480,880 $ 433,196 Accounts payable 149,169 87,896 Accrued liabilities 88,883 92,115 Notes payable 475,000 400,000 Convertible debentures, related party - net of debt discount of $5,882 94,118 --Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Current portion of long-term debt -- 9,513 ------------ ------------ Total current liabilities 1,288,050 1,022,720Unearned revenues 62,007 110,568Series A mandatorily redeemable convertible preferred stock 681,174 681,174COMMITMENTS AND CONTINGENCIESStockholders' 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, 2004 and at December 31, 2003 100 100 Common stock, $.001par value; authorized, 250,000,000 shares; issued and outstanding, 41,029,552 at December 31, 2004 and 26,326,460 shares at December 31, 2003 41,031 26,327 Additional paid-in capital 10,537,408 9,232,753 Accumulated deficit (12,510,326) (10,761,954) ------------ ------------ Total stockholders' deficit (1,931,787) (1,502,774) ------------ ------------ $ 99,444 $ 311,688 ============ ============The accompanying notes are an integral part of these financial statements F-3 PHASE III MEDICAL, INC. Statements of Operations Years ended December 31, -------------------------------------------------- 2004 2003 2002 ------------ ------------ ------------ Earned revenues $ 48,561 $ 64,632 $ 81,348Direct Costs (33,885) (43,608) (60,565) ------------ ------------ ------------ Gross Profit 14,676 21,024 20,783Selling, general and administrative (763,640) (685,353) (911,950)Purchase of medical royalty stream (725,324) (80,000) --Realized loss on note receivable (150,000) --Provision for uncollectible note receivable and accrued interest -- -- (258,103) ------------ ------------ ------------ Operating loss (1,474,288) (894,329) (1,149,270)Other income (expense): Realized loss on marketable securities -- -- (3,490) Property and equipment impairment charge -- -- (54,732) Interest income 199 88,923 70,676 Interest expense - Series A mandatorily redeemable convertible preferred stock (47,684) (23,842) -- Interest expense (226,599) (214,897) (23,022) ------------ ------------ ------------ (274,084) (149,816) (10,568)Provision for income taxes -- -- -- ------------ ------------ ------------Loss before preferred dividend (1,748,372) (1,044,145) (1,159,838)Preferred dividend -- (23,842) (47,684) ------------ ------------ ------------Net Loss attributable to common stockholders $ (1,748,372) $ (1,067,987) $ (1,207,522)Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. ============ ============ ============Basic earnings per shareNet loss attributable to common stockholders $ (0.05) $ (0.05) $ (0.05) ============ ============ ============Weighted average common shares outstanding 32,541,845 23,509,343 22,344,769 ============ ============ ============The accompanying notes are an integral part of these financial statements F-4 PHASE III MEDICAL, INC. Statements of Stockholders' Deficit Series B Convertible Preferred Stock Common Stock ------------------------------ ----------------------- Shares Amount Shares Amount ------------ ------------ ---------- ------- Balance at December 31, 2001 20,000 $ 200 22,290,710 $22,291Issuance of common stock to directors -- -- 8,000 8Conversion of Series B convertible preferred stock into common stock (10,000) (100) 100,000 100Series A convertible stock dividends -- -- -- --Stock options granted with debt -- -- -- --Net loss -- -- -- -- ------------ ------------ ---------- -------Balance at December 31, 2002 10,000 100 22,398,710 22,399Issuance of common stock for cash, net of offering costs -- -- 2,825,000 2,825Issuance of common stock upon exercise of common stock options -- -- 1,000,000 1,000Issuance of common stock for services -- -- 100,000 100Issuance of common stock to directors -- -- 2,750 3Series A convertible stock dividends -- -- -- --Stock options granted with debt -- -- -- --Net loss -- -- -- -- ------------ ------------ ---------- -------Balance at December 31, 2003 10,000 100 26,326,460 26,327Issuance of common stock for cash, net of offering costs 12,132,913 12,133Issuance of common stock upon exercise of common stock options 1,875,000 1,875Issuance of common stock options for servicesIssuance of common stock for services 187,500 188Interest expense on loans in defaultDebt discount on loan from officerSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Issuance of common stock for Interest 30,000 30Issuance of common stock to officer for services 477,679 478Net loss ------------ ------------ ---------- -------Balance at December 31, 2004 10,000 $ 100 41,029,552 $41,031 ============ ============ ========== ======= Additional Paid-in Accumulated Capital Deficit Total ----------- ------------ ----------- Balance at December 31, 2001 $ 8,837,687 $ (8,486,445) $ 373,733Issuance of common stock to directors 1,113 -- 1,121Conversion of Series B convertible preferred stock into common stock -- -- --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) ----------- ------------ -----------Balance at December 31, 2002 8,847,573 (9,693,967) (823,895)Issuance of common stock for cash, net of offering costs 211,956 -- 214,781Issuance of common stock upon exercise of common stock options 4,000 -- 5,000Issuance of common stock for services 2,900 -- 3,000Issuance of common stock to directors 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 9,232,753 (10,761,954) (1,502,774)Issuance of common stock for cash, net of offering costs 1,092,867 1,105,000Issuance of common stock upon exercise of common stock options 7,500 9,375Issuance of common stock options for services 15,000 15,000Issuance of common stock for services 14,062 14,250Interest expense on loans in default 127,137 127,137Debt discount on loan from officer 17,647 17,647Issuance of common stock for Interest 4,170 4,200Issuance of common stock to officer for services 26,272 26,750Net loss (1,748,372) (1,748,372) ----------- ------------ -----------Balance at December 31, 2004 $10,537,408 $(12,510,326) $(1,931,787) =========== ============ ===========The accompanying notes are an integral part of these financial statementsSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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-5 PHASE III MEDICAL, INC. Statements of Cash Flows Years ended December 31, ----------------------------------------------- 2004 2003 2002 ----------- ----------- ----------- Cash flows from operating activities: $(1,748,372) $(1,044,145) $(1,159,838) Net loss Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Property and equipment impairment charge -- 54,732 Common shares issued and stock options granted as payment for interest expense and for services rendered 187,337 169,327 9,894 Depreciation 1,777 646 16,766 Amortization of debt discount 11,765 Series A mandatorily redeemable convertible preferred stock dividends 47,684 23,842 -- Unearned revenues (48,561) (64,632) (84,579) Deferred acquisition costs 33,885 46,053 59,744 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 Prepaid expenses and other current assets (3,209) 22,070 (28,463) Other assets (3,000) 4,175 Accounts payable, accrued expenses and other current liabilities 58,041 (322,074) 371,468 ----------- ----------- ----------- Net cash (used in) provided by operating activities (1,459,653) (1,021,913) 1,005,376Cash flows from investing activities: Acquisition of property and equipment (3,288) (2,581) (1,133) Notes receivable -- 850,000 (1,250,000) Proceeds from sale of property and equipment -- -- 3,795 ----------- ----------- ----------- Net cash (used in) provided by investing activities (3,288) 847,419 (1,247,338)Cash flows from financing activities: Net proceeds from issuance of capital stock 1,114,375 219,781 -- Stockholder advances -- (106,000) 106,000 Net proceeds from notes payable 75,000 275,000 125,000 Proceeds from notes payable - related party 100,000 -- -- Repayment of long-term debt (9,513) (22,595) (21,051) ----------- ----------- ----------- Net cash provided by financing activities 1,279,862 366,186 209,949 ----------- ----------- -----------Net (decrease) increase in cash and cash equivalents (183,079) 191,692 (32,013)Cash and cash equivalents at beginning of year 210,947 19,255 51,268 ----------- ----------- -----------Cash and cash equivalents at end of year $ 27,868 $ 210,947 $ 19,255 =========== =========== ===========The accompanying notes are an integral part of these financial statements F-6 PHASE III MEDICAL, INC. Statements of Cash Flows - continued Years ended December 31, ----------------------------------------------- 2004 2003 2002 ------------ ------------ ------------ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 106,574 $ 26,483 $ 8,804 ============ ============ ============Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Supplemental schedule of non-cash investing and financing activitiesIssuance of common stock for services rendered $ 32,027 $ 3,303 $ 1,121 ============ ============ ============Compensatory element of stock options $ 127,137 $ 166,024 $ 8,773 ============ ============ ============Net accrual of dividends on Series A preferred stock $ -- $ 23,842 $ 47,684 ============ ============ ============The accompanying notes are an integral part of these financial statements F-7Note 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, theCompany 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 provides capital and guidance to companies, inmultiple sectors of the healthcare and life science industries, in return for apercentage of revenues, royalty fees, licensing fees and other product sales ofthe target companies. Mr. Weinreb was appointed to finalize and execute theCompany's new business plan.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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-8Note 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 continues to recruit management, business development and technicalpersonnel, and develop its business model. Accordingly, it will be necessary forthe Company to raise new capital. There can be no assurance that any suchbusiness plan developed by the Company will be successful, that the Company willbe able to acquire such new business or rights or raise new capital, or that theterms of any transaction 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.At December 31, 2004, the Company had a cash balance of $27,868, deficit workingcapital of $1,238,949 and a stockholders' deficit of $1,931,787. In addition,the Company sustained losses of $1,748,372, $1,044,145 and $1,159,838 for thethree fiscal years ended December 31, 2004, 2003 and 2002 respectively. TheCompany'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 rates between 8%and 20% per annum to fund the Company until such time as sufficient proceeds, ifany, are received from the private placement of its common stock. On September22, 2003 the Company commenced an equity private placement to raise up to $4million through the sale of up to 40 million shares of its Common Stock inincrements of $5,000 or 50,000 shares. Since February 2003, the Company sold14,957,913 shares, resulting in net proceeds to the Company of $1,319,781, ofwhich 7,282,913 shares with net proceeds of $650,000 were to Robert Aholt, Jr.,Chief Operating Officer of the Company. There can be no assurance that theCompany will be able to sell securities and may have to rely on its ability toborrow funds from new and or existing investors.Note 2 - Summary of Significant Accounting PoliciesUse of Estimates: The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect certainreported amounts and disclosures. Accordingly, actual results could differ fromthose estimates.Cash Equivalents: Short-term cash investments, which have a maturity of ninetydays or less when purchased, are considered cash equivalents in the consolidatedstatement of cash flows.Concentrations of Credit-Risk: Financial instruments that potentially subjectthe Company to significant concentrations of credit risk consist principally ofcash. The Company places its cash accounts with high credit quality financialinstitutions, which at times may be in excess of the FDIC insurance limit.Property and Equipment: The cost of property and equipment is depreciated overthe estimated useful lives of the related assets of 3 to 5 years. The cost ofcomputer software programs are amortized over their estimated useful lives offive years. Depreciation is computed on the straight-line method. Repairs andmaintenance expenditures that do not extend original asset lives are charged toexpense as incurred.Note 2 - Summary of Significant Accounting Policies - (Continued)Income Taxes: The Company, in accordance with SFAS 109, "Accounting for IncomeSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Taxes", recognizes (a) the amount of taxes payable or refundable for the currentyear and, (b) deferred tax liabilities and assets for the future taxconsequences of events that have been recognized in an enterprise's financialstatement or tax returns. Comprehensive income (loss) F-9Comprehensive income (loss): Refers to revenue, expenses, gains and losses thatunder generally accepted accounting principles are included in comprehensiveincome but are excluded from net income as these amounts are recorded directlyas an adjustment to stockholders' equity. At December 31, 2004, 2003 and 2002there were no such adjustments required.Pro Forma Effect of Stock Options: Financial Accounting Standards BoardInterpretation No. 44 is an interpretation of APB Opinion No. 25 and SFAS No.123 which requires that effective July 1, 2000, all options issued tonon-employees after January 12, 2000 be accounted for under the rules of SFASNo. 123. Assuming the fair market value of the stock at the date of grant to be$.03 in February 2003, $.05 in May, June and July 2003, $.18 in September 2003,$.15 in January 2004, $.14 in March 2004, $.11 in May 2004 and $.10 in Septemberand November 2004, the life of the options to be from three to ten years, theexpected volatility at 200%, expected dividends are none, and the risk-freeinterest rate of between 3% and 10%, the Company would have recordedcompensation expense of $218,597, $205,760 and $43,593, respectively, for theyears ended December 31, 2004, 2003 and 2002 as calculated by the Black-Scholesoption pricing model. The weighted average fair value per option of optionsgranted during 2004 and 2003 was $0.11 and $0.06, respectively. There were noemployee stock options granted in 2002.The Black-Scholes option valuation model was developed for use in estimating thefair value of traded options, which have no vesting restrictions and are fullytransferable. In addition, option valuation models require the input of highlysubjective assumptions including the expected stock price volatility. Becausethe Company's stock options have characteristics significantly different fromthose of traded options, and because changes in the subjective input assumptionscan materially affect the fair value estimate, in management's opinion, theexisting models do not necessarily provide a reliable single measure of the fairvalue of its stock options.As such, proforma net loss and net loss per share would be as follows: 2004 2003 2002 ----------- ----------- ----------- Net loss as reported $(1,748,372) $(1,067,987) $(1,159,838) Additional compensation (218,597) (205,760) (43,593) Adjusted net loss $(1,966,969) $(1,273,747) $(1,203,431) =========== =========== =========== Net loss per share as reported $ (.05) $ (.05) $ (0.05) =========== =========== =========== Adjusted net loss per share $ (.06) $ (.05) $ (0.05) =========== =========== =========== F-10Note 2 - Summary of Significant Accounting Policies - (Continued)Recently Issued Accounting Pronouncements - In December 2003, the FASB issuedFASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable InterestEntities, an interpretation of ARB No. 51," as revised. A Variable InterestEntity ("VIE") is an entity with insufficient equity investment or in which theequity investors lack some of the characteristics of a controlling financialinterest. Pursuant to FIN 46, an enterprise that absorbs a majority of theexpected losses of the VIE must consolidate the VIE. The full adoption of FIN 46in fiscal 2004 did not have a material effect on the Company's financialposition and results of operations.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment" ("SFASNo. 123(R)"). SFAS No. 123(R) establishes standards for the accounting fortransactions in which an entity exchanges its equity instruments for goods orservices. This statement focuses primarily on accounting for transactions inwhich an entity obtains employee services in share-based payment transactions.SFAS No. 123(R) requires that the fair value of such equity instruments berecognized as an expense in the historical financial statements as services areperformed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fairvalue were required. The provisions of this statement are effective for smallbusiness filers the first interim reporting period that begins after June 15,2005.On December 16, 2004, the FASB issued SFAS No. 153, "Exchange of Non-monetaryAssets", an amendment of Accounting Principles Board ("APB") Opinion No. 29,which differed from the International Accounting Standards Board's ("IASB")method of accounting for exchanges of similar productive assets. Statement No.153 replaces the exception from fair value measurement in APB No. 29, with ageneral exception from fair value measurement for exchanges of non-monetaryassets that do not have commercial substance. The statement is to be appliedprospectively and is effective for non-monetary asset exchanges occurring infiscal periods beginning after June 15, 2005. The Company does not believe thatSFAS No. 153 will have a material impact on its results of operations or cashflows.Earnings Per Share: Basic earnings per share is based on the weighted effect ofall common shares issued and outstanding, and is calculated by dividing netincome available to common stockholders by the weighted average sharesoutstanding during the period. Diluted earnings per share, which is calculatedby dividing net income available to common stockholders by the weighted averagenumber of common shares used in the basic earnings per share calculation plusthe number of common shares that would be issued assuming conversion of allpotentially dilutive securities outstanding, is not presented as it isanti-dilutive in all periods presented.Advertising Policy: All expenditures for advertising is charged againstoperations as incurred.Revenue Recognition: Stamford's reinsurance premiums are recognized on a prorata basis over the policy term. The deferred policy acquisition costs are thenet cost of acquiring new and renewal insurance contracts. These costs arecharged to expense in proportion to net premium revenue recognized. Theprovisions for losses and loss-adjustment expenses include an amount determinedfrom loss reports on individual cases and an amount based on past experience forlosses incurred but not reported. Such liabilities are necessarily based onestimates, and while management believes that the amount is adequate, theultimate liability may be in excess of or less than the amounts provided. Themethods for making such estimates and for establishing the resulting liabilityare continually reviewed, and any adjustments are reflected in earningscurrently.The Company had sold via the Internet through partnerships and directly toconsumers, extended warranty service contracts for seven major consumerproducts. The Company recognizes revenue ratably over the length of thecontract. The Company purchased insurance to fully cover any losses under theservice contracts from a domestic carrier. The insurance premium and other costsrelated to the sale are amortized over the life of the contract.Purchase of Royalty Interests: The Company charges payments for the purchase offuture potential royalty interests to expense as paid and will record revenueswhen royalty payments are received.Note 3 - Notes Receivable F-11In January 2002, the Company advanced to StrandTek a loan of $1 million on anunsecured basis, which was 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 bore 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 theSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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, 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 $250,000 unsecured loan and interest of $8,103 at December 31, 2002. OnJuly 24, 2003 the Company entered into a Forbearance Agreement with personalguarantors Veltmen and Buckles pursuant to which they made payments totaling$590,640, including interest of $90,640. A similar Forbearance Agreement wasreached with personal guarantor Arnett as of July 28, 2003 pursuant to which hepaid $287,673, including interest of $37,673. A Settlement Agreement was reachedwith personal guarantor Bauman as of December 23, 2003 pursuant to which he paid$100,000 in full 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 LiabilitiesAccrued liabilities are as follows: December 31, -------------------------- 2004 2003 ---------- ---------- Professional fees $ 31,760 $ 49,009 Interest on notes payable 11,530 27,835 Salaries and related taxes 45,368 -- Other 225 15,271 ---------- ---------- $ 88,883 $ 92,115 ========== ==========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 additionaltwenty five thousand shares of the Company's common stock for an aggregatepurchase price of $125. During the year ended December 31, 2004, 1,875,000options granted pursuant to the default penalty were exercised resulting in netproceeds of $9,375. Interest expense on these notes approximated $127,000 and$166,000 for the years ended December 31, 2004 and 2003 respectively. See Note7.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 F-12Note 5 - Notes Payable - (Continued)qualify as "accredited investors" as defined in Rule 501(a) under the SecuritiesAct of 1933, as amended, were eligible to purchase these promissory notes. TheSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 raised the full $250,000 through the sale of such promissory notes,resulting in net proceeds to the Company of $225,000, net of offering costs. Thenotes contain a default provision which raises the interest rate to 20% if thenotes are not paid when due. The Company issued $250,000 of these notes. As ofDecember 31, 2004, $170,000 remain outstanding and although no longer indefault, due to an extension of the due date to April 1, 2005, the notes bearinterest at 20%.In February 2004, the Company commenced a sale of 30 day 20% notes in the amountof $125,000 to three accredited investors to fund current operations. It wasanticipated that these notes would be repaid from the proceeds of the January2004 amended equity private placement. Two of these notes have a defaultprovision that if they are not paid within 30 days, there is an additionalinterest payment of $250 per $25,000 of principal outstanding for each 30 dayperiod or part thereof. As of December 31, 2004, $25,000 of these notes remainsunpaid, the interest rate has been reduced to 8% and the due date has beenextended to April 1, 2005. All interest payments have been paid timely. In May2004, the Company sold an additional 30 day 20% note in the amount of $40,000 toan accredited investor to fund current operations. This note plus interest hasbeen repaid. In July 2004, the Company sold a five month 20% note in the amountof $25,000 and two six month 20% notes totaling $80,000 to three accreditedinvestors to fund current operations. As of December 31, 2004, $25,000 has beenrepaid and all interest payments have been paid timely. In August 2004, theCompany sold additional 30 day 20% notes in the amount of $55,000 to twoaccredited investors to fund current operations. As of December 31, 2004,$25,000 of these notes remains unpaid. All interest payments have been paidtimely. In December 2004, the Company sold four notes to four accreditedinvestors totaling $100,000 with interest rates that range from 8% to 20%. As ofDecember 31, 2004, these notes remain unpaid. All interest payments have beenmade timely.In August 2004, the Company sold a six month 20% convertible note in the amountof $100,000 to its Chief Operating Officer ("COO"). Upon maturity, the Companyand the COO have agreed to convert the principal amount of the new note intoshares of the Company's common stock at 85% of the average price as quoted onthe NASD Over-the-Counter Bulletin Board for the five days prior to the maturitydate of the note. Approximately $18,000 of the total debt was attributed to theintrinsic value of the beneficial conversion feature. This amount was recordedas an equity component. The remaining balance of approximately $82,000 wasrecorded as debt. For the year ended December 31, 2004 the amortization of debtdiscount approximated $12,000. All interest is paid monthly in arrears. As ofDecember 31, 2004 this note remains unpaid. All interest payments have been paidtimely. A summary of notes payable and convertible debentures is as follows: January 1, Less: Debt 2004 Proceeds Repayments Discounts December 31, 2004 ---------- -------- ---------- --------- ----------------- September 2002 Notes $125,000 $ -- $(125,000) $ -- $ -- March 2003 Notes 250,000 (80,000) -- 170,000 Consultant Note 25,000 50,000 -- 75,000 2004 Notes 510,000 (280,000) -- 230,000 Related Party Note -- 100,000 -- (5,882) 94,118 -------- --------- --------- --------- -------- Total $400,000 $ 660,000 $(485,000) $ (5,882) $569,118 ======== ========= ========= ========= ========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. F-13Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 Note 6 - Series A Mandatorily Redeemable Convertible Preferred Stock -(Continued)Series A Preferred Stock is callable by the Company at a price of $1.05 pershare, plus accrued and unpaid dividends. In addition, if the closing price ofthe Company's common stock exceeds $13.80 per share for a period of 20consecutive trade days, the Series A Preferred Stock is callable by the Companyat a price equal to $0.01 per share, plus accrued and unpaid dividends.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.At December 31, 2004, 2003 and 2002, 681,174 shares of Series A Preferred Stockwere outstanding, and accrued dividends on these outstanding shares were$480,880, $433,196, and $385,512 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, 2004 and 2003, 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: At the 2003 annual meeting, the stockholders approved an amendment increasing the authorized common stock to 250 million shares from 75 million shares. F-14Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. (b) Common Stock: - (Continued) In 2002, the Company issued 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 and 1,875,000 shares of its common stock in 2004, resulting in net proceeds to the Company of $9,375 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 the 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. In January 2004, the Company amended its equity private placement. During the year ended December 31, 2004, the Company sold 12,132,913 common shares resulting in net proceeds to the Company of $1,105,000. Of these shares, 7,282,913 were purchased by Robert Aholt, Jr., Chief Operating Officer of the Company in exchange for $650,000. Such shares have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption of registration requirements. In March 2004, the Company issued 30,000 shares of its common stock whose fair value was $4,200 to two note holders as additional interest. In each of the months of August through December 2004, the Company issued 37,500 shares for a total of 187,500 shares of its common stock to its investor relations firms for services. The fair value of these shares was $14,250 which was charged to operations. In December 2004, the Company issued 477,679 shares of its common stock to its Chief Operating Officer as compensation as stated in his employment contract. The fair value of these shares was $26,750 which was charged to operations.(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 was $13,500 at December 31, 2003. F-15Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. In each of the months of August through December 2004, the Company issued 25,000 warrants for a total of 125,000 warrants which entitles the holder to purchase one share of common stock at a price of(c) Warrants: - (Continued) $.05. These warrants expire in three years from date of issue and were issued the Company's investor relations firm. The fair value of these warrants was $3,250. A total of 407,500 shares of common stock are reserved for issuance upon exercise of outstanding warrants as of December 31, 2004 at prices ranging from $.05 to $.12 and expiring through December 2008. No warrants were exercised during any of the periods presented.(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 Average Number of Shares Exercise 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, 2004, 2003 and 2002 -- $ -- ======== ======== F-16Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. (e) Stock Option Plans:- (Continued) Under the 1998 and 1992 plans outstanding options expire 90 days after 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 2,675,000 shares in 2004 and 1,200,000 shares in 2003 of Common Stock at exercise prices ranging from $.05 to $.18 to members of its board of directors, employees, consultants 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 Granted 2,975,000 $.10 - $.15 $.13 Exercised -- Expired -- Cancelled -- --------------------- -------------- ------------------- Balance at December 31, 2004 6,675,000 $.03 - $.18 $ 08 ===================== ============== =================== (1) All options are exercisable for a period of ten years. F-17Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Options exercisable at December 31, 2003 - 3,700,000 at a weighted average exercise price of $.05 Options exercisable at December 31, 2004 - 5,675,000 at a weighted average exercise price of $.07 Stock Option Plans:- (Continued) Number Outstanding Weighted Average Remaining Number Exercisable Exercise Price December 31, 2004 Contractual Life (years) December 31, 2004 -------------- ----------------- ------------------------ ----------------- $.03 2,500,000 8.10 2,500,000 $.05 900,000 8.44 900,000 $.10 1,375,000 9.72 1,375,000 $.11 200,000 9.40 - $.14 300,000 9.17 300,000 $.15 1,100,000 9.05 300,000 $.18 300,000 8.70 300,000 --------- 6,675,000 5,675,000 ========= =========Note 8 - Income TaxesDeferred tax assets consisted of the following as of December 31: 2004 2003 ----------- -----------Net operating loss carryforwards $ 3,247,000 $ 2,566,000Depreciation and amortization 1,000 1,000Capital loss carryforward 149,000 149,000Deferred revenue 21,000 38,000Deferred legal and other fees 51,000 30,000Allowance for notes receivable -- -- ----------- -----------Net deferred tax assets 3,469,000 2,784,000Deferred tax asset valuation allowance (3,469,000) (2,784,000) ----------- ----------- $ -- $ -- =========== ===========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: 2004 2003 2002 ---- ---- ----Federal tax benefit at statutory rate (34.0%) (34.0%) (34.0%)Change in valuation allowance 34.0% 34.0% 33.0%Permanent difference -- -- 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 F-18during 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, 2004, the Company hadnet operating loss carryforwards of approximately $9,725,727. Included in thenet operating loss carryforward is approximately $2,121,000 that has beenSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. limited by the ownership change. The tax loss carryforwards expire at variousdates through 2024. The future tax benefit of the net operating losscarryforwards aggregating approximately $3,154,000 at December 31, 2004 has beenfully reserved as it is not more likely than not that the Company will be ableto use the operating loss in the future.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 TransactionsOn September 13, 2004, ("Commencement Date") the Company entered into a letteragreement (the "Letter Agreement") with Mr. Robert Aholt Jr. pursuant to whichthe Company appointed Mr. Aholt as its Chief Operating Officer. Subject to theterms and conditions of the Letter Agreement, the term of Mr. Aholt's employmentin such capacity will be for a period of three (3) years from the CommencementDate (the "Term").In consideration for Mr. Aholt's services under the Letter Agreement, Mr. Aholtwill be entitled to receive a monthly salary of $4,000 during the first year ofthe Term, $5,000 during the second year of the Term, and $6,000 during the thirdyear of the Term. In further consideration for Mr. Aholt's services under theLetter Agreement, on January 1, 2005 and on the first day of each calendarquarter thereafter during the Term, Mr. Aholt will be entitled to receive sharesof Common Stock with a "Dollar Value" of $26,750, $27,625 and $28,888,respectively, during the first, second and third years of the Term. The pershare price (the "Price") of each share granted to determine the Dollar Valuewill be the average closing price of one share of Common Stock on the BulletinBoard (or other similar exchange or association on which the Common Stock isthen listed or quoted) for the five (5) consecutive trading days immediatelypreceding the date of grant of such shares; provided, however, that if theCommon Stock is not then listed or quoted on an exchange or association, thePrice will be the fair market value of one share of Common Stock as of the dateof grant as determined in good faith by the Board of Directors of the Company.The number of shares of Common Stock for each quarterly grant will be equal tothe quotient of the Dollar Value divided by the Price. The shares granted willbe subject to a one year lockup as of the date of each grant.In the event Mr. Aholt's employment is terminated prior to the end of the Termfor any reason, earned but unpaid cash compensation and unreimbursed expensesdue as of the date of such termination will be payable in full. In addition, inthe event Mr. Aholt's employment is terminated prior to the end of the Term forany reason other than by the Company with cause, Mr. Aholt or his executor ofhis last will or the duly authorized administrator of his estate, as applicable,will be entitled (i) to receive severance payments equal to one year's salary,paid at the same level and timing of salary as Mr. Aholt is then receiving and(ii) to receive, during the one (1) year period following the date of suchtermination, the stock grants that Mr. Aholt would have been entitled to receivehad his employment not been terminated prior to the end of the Term; provided,however, that in the event such termination is by the Company without cause oris upon Mr. Aholt's resignation for good reason, such severance payment andgrant shall be subject to Mr. Aholt's execution and delivery to the Company of arelease of all claims against the Company.On August 12, 2004 ("Commencement Date") the Company and Dr. Wayne A. Marasco, aCompany Director, entered into a Letter Agreement appointing Dr. Marasco as theCompany's Senior Scientific Advisor. Dr. Marasco will be responsible forassisting the Company in reviewing and evaluating business, scientific andmedical opportunities, and for other discussions and meetings that may ariseduring the normal course of the Company conducting business. For his services,during a three year period ("Term"), Dr. Marasco shall be entitled to annualcash compensation of $84,000 with increases each year of the Term and anadditional cash compensation based on a percentage of collected revenues derivedfrom the Company's royalty or revenue sharing agreements. Although the annualcash compensation and additional cash compensation stated above shall begin toSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. accrue as of the Commencement Date, Dr. Marasco will not be entitled to receiveany such amounts until the Company raises $1,500,000 in additional equityfinancing after the Commencement Date. In F-19Note 10 - Related Party Transactions - (Continued)addition, Dr. Marasco was granted an option, fully vested, to purchase 675,000shares of the Company's common stock at an exercise price of $.10 cents pershare. The shares will be subject to a one year lockup as of the date of grant.The exercise period will be ten years, and the grant will otherwise be inaccordance with the Company's 2003 Equity Participation Plan and Non-QualifiedStock Option Grant Agreement.Note 11 - Commitments and ContingenciesOn February 21, 2003 the Company began leasing office space in Melville, NewYork at an original annual rental of $18,000. The lease has been extended for anadditional twelve months and expires on March 31, 2005. The annual rentalincreased to approximately $19,200 on April 1, 2004 and continues until theexpiration date. The lease has been renewed until March 2006 with an annualrental of approximately $20,100. Rent expense approximated $24,900, $13,000 and$33,500 for the years ended December 31, 2004, 2003 and 2002, respectively.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 April 22, 2004, the Company entered into an agreement with an advisor inconnection with its amended private placement to provide assistance in findingqualified investors. The agreement calls for the payment of 10% of the fundsraised by the Company as a direct result of introductions made by the advisor.In addition, the Company is obligated to pay a 2% non-accountable expenseallowance on all funds received that are subject to the 10% payment. As ofDecember 31, 2004, the Company paid a total of $21,000 under this agreement.On March 20, 2004, the Company entered into a consulting agreement which willprovide the Company with advice as to business development possibilities for theservices and technology of NeoStem Inc. The agreement provides for the issuanceof options to purchase 300,000 shares of the Company's common stock at anexercise price of $.10 per share. This option is immediately vested and expiresten years from the date of issue. The agreement also provides for the payment of$2,500 per month for each month after the Company has received capitalcontributions of $1,000,000 from the date of the agreement. If certainperformance levels are met, the Company is obligated to issue an additionaloption to purchase 500,000 shares of the Company's common stock for an exerciseprice of $.10 per share.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 is providing 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. During the year ended December31, 2004, the Company paid $640,000 as specified in the agreement which broughtthe total paid since the inception of the agreement to $720,000. The agreementalso calls for the Company to pay on behalf of PSI $280,000 of certain expensesrelating to testing of the bioshielding concept. During the year ended December31, 2004, the Company paid $85,324 of such expenses.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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-20Note 12 - Subsequent EventsIn January 2005, the Company sold a 6 month 20% note in the amount of $25,000 toan accredited investor to fund current operations.In February 2005, the Company sold a 6 month 20% note in the amount of $10,000to an accredited investor to fund future operations.Note 12 - Subsequent Events - (Continued)In February and March 2005, the Company borrowed a total of $17,000 from itsPresident to fund current operations. This note bears interest at 8% and will berepaid when the Company has sufficient cash.In February 2005, the Company issued options to purchase 200,000 shares of itscommon stock to Jeff Trugman upon becoming an Advisory Board member. Theseoptions have an exercise price of $.07 and vest 50% after one year and thebalance at the end of two years. The options have a life of ten years.In January and February 2005, the Company issued 37,500 shares of its commonstock for a total of 75,000 shares of its common stock to its investor relationsfirms for services. In addition, the Company issued 25,000 warrants whichentitles the holder to purchase one share of common stock at a price of $.05.These warrants expire in three years from date of issue and were issued to theCompany's investor relations firm.In March 2005, the Company issued 1,960,784 shares of its common stock to RobertAholt, Jr. as per the terms of his convertible note. The note in the amount of$100,000 is deemed paid and has been recorded as equity. All related interestpayments have been made.In March 2005, the Company sold a one year 15% note to an accredited investor inthe amount of $20,000 to fund current operations. F-21Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 10.3 Employment Agreement Robert Aholt, Jr. Exhibit 10.3 PHASE III MEDICAL, INC. 330 South Service Road Suite 120 Melville, New York 11747 631 574.4955September 13, 2004Mr. Robert Aholt, Jr.20128 Cavern CourtSaugus, California 91390Dear Mr. Aholt: We are pleased to extend to you an invitation to become the ChiefOperating Officer ("COO") of Phase III Medical, Inc. (the "Company"). As you know, the Company is a public company that, among other things,provides capital and guidance to companies, within the medical sector, inexchange for revenues, royalties and other contractual rights known as "royaltyinterests," that entitle it to receive a portion of revenue from the sale ofpharmaceuticals, medical devices and biotechnology products. As COO, you will beresponsible for assisting the Company in reviewing and evaluating business,scientific and medical opportunities, and for other discussions and meetingsthat may arise during the normal course of the Company conducting its business. This Letter Agreement shall be effective as of September 13, 2004 (the"Commencement Date") and shall continue for a period of three (3) years from theCommencement Date (the "Term"). For all services rendered by you in any capacityrequired hereunder during the Term, you shall be entitled to a monthly salary of$4,000 during the first year of the Term, $5,000 during the second year of theTerm, and $6,000 during the third year of the Term, payable within normalpayroll practices of the Company, provided that all conditions to paymentspecified herein have been met. In further consideration for your services hereunder, on January 1, 2005and on the first day of each calendar quarter thereafter during the Term, theCompany shall grant you a number of shares of common stock, $0.001 par value pershare, of the Company ("Common Stock"), with a "Dollar Value" of $26,750.00,$27,625.00 and $28,887.50, respectively, during the first, second and thirdyears of the Term. The per share price (the "Price") of each share granted todetermine the Dollar Value shall be the average closing price of one share ofCommon Stock on the National Association of Securities Dealers, Inc.Over-the-CounterBulletin Board (the "Bulletin Board") (or other similar exchange or associationon which the Common Stock is then listed or quoted) for the five (5) consecutivetrading days immediately preceding the date of grant of such shares; provided,however, that if the Common Stock is not then quoted on the Bulletin Board orotherwise listed or quoted on an exchange or association, the Price shall be thefair market value of one share of Common Stock as of the date of grant asdetermined in good faith by the Board of Directors of the Company. The number ofshares of Common Stock for each quarterly grant shall be equal to the quotientof the Dollar Value divided by the Price. The shares granted will be subject toa one year lockup as of the date of each grant. At the end of each year, the parties will discuss variations in the cashand stock proportions of your compensation. In the absence of an alternativemutual agreement, the foregoing shall apply. Your employment with the Company shall automatically terminate upon yourdeath or Disability (as defined below). The Company may terminate youremployment prior to the end of the Term with or without Cause (as defined below)immediately upon written notice to you. You may terminate your employment uponthirty (30) days' prior written notice to the Company. For purposes of thisLetter Agreement, the terms set forth below shall have the meanings ascribed tothem below:Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. "Cause" shall mean (i) willful malfeasance or willful misconduct by you in connection with your employment; (ii) your gross negligence in performing any of your duties under this Letter Agreement; (iii) your conviction of, or entry of a plea of guilty to, or entry of a plea of nolo contendre with respect to, any crime other than a traffic violation or infraction which is a misdemeanor; (iv) your material breach of any written policy applicable to all employees adopted by the Company that is not cured to the reasonable satisfaction of the Company within fifteen (15) business days after notice thereof; or (v) material breach by you of any of your agreements in this Letter Agreement which is not cured to the reasonable satisfaction of the Company within fifteen (15) business days after notice thereof. "Disability" shall mean your inability to perform an essential function of your duties and responsibilities to the Company by reason of a physical or mental disability or infirmity, which inability has continued for a period of more than six (6) consecutive months, or for a period aggregating more than six (6) months, whether or not continuous, during any nine (9) month period. The existence of a Disability shall be determined by the Company in its absolute discretion. "Good Reason" shall mean (i) the Company's reassignment of your base of operations outside of Los Angeles, California without your consent, (ii) the material reduction by the Company of your duties during the Term, (iii) the Company's material breach of the Company's obligations under this Letter Agreement, or (iv) the Company not retaining you as COO. In the event your employment is terminated prior to the end of the Termdue to your death or Disability, by the Company with or without Cause or uponyour resignation from your position as COO for Good Reason, earned but unpaidcash compensation and unreimbursed expenses due as of the date of such termination (the "EmploymentTermination Date") shall be payable in full. In addition, in the event youremployment is terminated prior to the end of the Term for any of the reasonsidentified in the preceding sentence other than by the Company with Cause, youor your executor of your last will or the duly authorized administrator of yourestate, as applicable, will be entitled (i) to receive severance payments equalto one year's salary, paid at the same level and timing of salary as you arethen currently receiving and (ii) to receive, during the one (1) year periodfollowing the Employment Termination (the "Severance Period"), the stock grantsthat you would have been entitled to receive had your employment not beenterminated prior to the end of the Term; provided, however, that in the eventsuch termination is by the Company without Cause or is upon your resignation forGood Reason, such severance payment and grant shall be subject to your executionand delivery to the Company of a release of all claims against the Company. Noother payments shall be made, nor benefits provided, by the Company inconnection with the termination of employment prior to the end of the Term,except as otherwise required by law. The Company shall pay or reimburse you for all reasonable travel or otherexpenses (including, without limitation, digital subscriber line (DSL), car (at$750 per month), cell phone and insurance expenses) incurred by you inconnection with the performance of your duties and obligations under this LetterAgreement, subject to your presentation of appropriate vouchers in accordancewith such procedures as the Company may from time to time establish (includingany procedures established to preserve any deductions for Federal incometaxation purposes to which the Company may be entitled). I will also pay theexecutive search firm that you engaged up to $5,000 of the amounts that you oweto such firm. All payments provided for under this Letter Agreement shall be paid incash from the general funds of the Company. The Company shall not be required toestablish a special or separate fund or other segregation of assets to assuresuch payments, and, if the Company shall make any investments to aid it inmeeting its obligations hereunder, you shall have no right, title or interestwhatever in or to any such investments except as may otherwise be expresslyprovided in a separate written instrument relating to such investments. You acknowledge that, as COO, you will have access to the Company'sconfidential information and that all confidential information shall be andremain the sole property of the Company and that you will not at any time, nowSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. or in the future, disclose, disseminate or otherwise make public any of theconfidential information without the express written permission of the Company. You acknowledge and agree that your services pursuant to this LetterAgreement are unique and extraordinary; that the Company will be dependent uponyou for development, financial, marketing and other expertise; and that you willhave access to and control of confidential information of the Company. Youfurther acknowledge that the business of the Company is international in scopeand cannot be confined to any particular geographic area. You furtheracknowledge that the scope and duration of the restrictions set forth in thisparagraph are reasonable in light of the specific nature and duration of thetransactions contemplated by this Letter Agreement. For the foregoing reasonsand to induce the Company to enter this Letter Agreement, you covenant and agreethat during the Term andthe period beginning at the end of the Term and ending one (1) year after theend of the Term, you shall not unless with written consent of the Company: (i) engage in any business directly related to the business of providing capital and guidance to companies, within the medical pharmaceutical and biotechnology sector, or in any other business conducted by the Company during the Term (collectively, the "Prohibited Activity") in the world for your own account; (ii) become interested in any individual, corporation, partnership or other business entity (a "Person") engaged in any Prohibited Activity in the world, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, employee, trustee, consultant or in any other relationship or capacity; provided, however, that you may own directly or indirectly, solely as an investment, securities of any Person which are traded on any national securities exchange if you (x) are not a controlling person of, or a member of a group which controls, such person or (y) do not, directly or indirectly, own 5% or more of any class of securities of such person; or (iii) directly or indirectly hire, employ or retain any person who at any time during the last twelve (12) months of the Term was an employee of the Company or directly or indirectly solicit, entice, induce or encourage any such person to become employed by any other person. You hereby acknowledge that the covenants and agreements contained in the immediately preceding paragraph are reasonable and valid in all respects and that the Company is entering into this Letter Agreement on such acknowledgment. If you breach, or threaten to commit a breach, of any of the restrictive covenants set forth in this Letter Agreement (the "Restrictive Covenants"), the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity: (i) the right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company; and (ii) the right and remedy to require you to account for and pay over to the Company such damages as are recoverable at law as the result of any transactions constituting a breach of any of the Restrictive Covenants. You hereby represent and warrant that (i) you have the legal capacity toexecute and perform this Letter Agreement, (ii) this Letter Agreement is a validand binding agreement enforceable against you according to its terms, (iii) theexecution and performance of this Letter Agreement does not violate the terms ofany existing agreement or understanding to which you are a party or by which youmay be bound and (iv) you have, and will, maintain during the Term, allrequisite licenses, permits and approvals necessary to perform the duties of COOSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. set forth herein. You also hereby agree that you shall not participate in anymedical, health, and insurance plans which may from time to time be in effectfor employees of, or consultants to, or other agents of, the Company. You hereby acknowledge to theCompany that you desire to, and are capable of, securing such benefitsindependent of your relationship with the Company. This Letter Agreement shall be governed by, and construed in accordancewith, the internal laws of the State of New York, without reference to thechoice of law principles thereof. Any claim, controversy or dispute between theparties hereto, arising out of, relating to, or in connection with this LetterAgreement or any aspect of your services to the Company hereunder, including butnot limited to the termination of this Letter Agreement and any and all claimsin tort or contract, shall be submitted to arbitration in Melville, New York,pursuant to the American Arbitration Association ("AAA") National ArbitrationRules for the Resolution of Employment Disputes. This provision shall apply toclaims against the Company and/or its affiliates and their respective current orformer employees, agents, managers, officers and/or directors. Any issue aboutwhether a claim is covered by this Letter Agreement shall be determined by thearbitrator. There shall be one arbitrator, who (a) shall be chosen from a panelprovided by the AAA and who shall apply the substantive law of the State of NewYork, (b) may award injunctive relief or any other remedy available from ajudge, including attorney fees and costs to the prevailing party, and (c) shallnot have the power to award punitive damages. Judicial review of thearbitrator's award shall be strictly limited to the issue of whether said awardwas obtained through fraud, corruption or misconduct. This Letter Agreement shall be binding upon, and shall inure to thebenefit of, the Company and you and its and your respective permittedsuccessors, assigns, heirs, beneficiaries and representatives. This LetterAgreement is personal to you and may not be assigned by you without the priorwritten consent of the Company. Any attempted assignment in violation of thisparagraph shall be null and void. This Letter Agreement shall constitute theentire agreement among the parties with respect to the matters covered herebyand shall supersede all previous written, oral or implied understandings amongthem with respect to such matters. We are excited about your involvement with the Company and look forward toa long and mutually rewarding scientific and business relationship. For our records, I would appreciate your countersigning the attached copyof this Letter Agreement and returning the same to me at your earliestconvenience. Sincerely, PHASE III MEDICAL, INC. By: ----------------------------- Mark Weinreb, President & CEOAccepted and agreed to:-----------------------------Robert AholtSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 10.4 Aholt Stock Purchase Agreement Exhibit 10.4Phase III Medical, Inc.SUBSCRIPTION AGREEMENT This SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of September 13,2004, is by and between Phase III Medical, Inc., a Delaware corporation (the"Company"), and Aholt Jr. Family Trust dated 2/17/97 (the "Investor"). WHEREAS, the Company desires to issue and sell to the Investor, and theInvestor desires to purchase from the Company, shares of common stock, $0.001par value per share, of the Company (the "Common Stock"), upon and subject tothe terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the foregoing recitals and the mutualcovenants and agreements of the parties set forth in this Agreement, and forother good and valuable consideration, the receipt and sufficiency of which areacknowledged, the parties agree as follows: 1. Purchase and Sale of the Shares. 1.1. Agreement to Sell and Purchase Shares. Subject to the terms andconditions hereof, the Company agrees to issue and sell to the Investor and theInvestor agrees to purchase from the Company, at the Closing (as defined below),an aggregate of 7,282,913(1) shares of Common Stock (the "Shares"), for anaggregate purchase price of $650,000 (the "Purchase Price"), payable inimmediately available funds at the Closing. 1.2. Delivery of Shares; Legend. (a) As soon as reasonably practicable after the Closing, theCompany shall deliver to the Investor one or more certificates, registered inthe name of the Investor, representing the Shares. Delivery of certificatesrepresenting the Shares shall be made against receipt by the Company of a checkpayable to the order of the Company or a wire transfer of U.S. funds to anaccount designated by the Company in the full amount of the Purchase Price.----------(1) The aggregate number of shares shall be equal to the quotient of $650,000divided by the Per Share Purchase Price. The Per Share Purchase Price shall beequal to 85% of the average of the closing price of one share of Common Stock onthe NASD Over-The-Counter Bulletin Board for the five (5) days immediatelypreceding the date of this Agreement. Notwithstanding the foregoing, the PerShare Purchase Price shall not be more than $0.10 per share nor less than $0.085per share. (b) The certificates representing the Shares deliveredpursuant to Section 1.2(a), and any securities issued in exchange for or inrespect thereof, shall bear a legend to the following effect."THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDERTHE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIESLAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANTTO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLESTATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THEREGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH STATE SECURITIES LAWS." 1.3. Closing. The closing (the "Closing") of the transactionscontemplated by this Agreement shall take place on the date hereof at theoffices of the Company. 1.4 Additional Purchase/Conversion of Note. The Investor has alsoloaned to the Company on or about August 30, 2004 the sum of $100,000 pursuantto a six month promissory note bearing interest at 20% per annum (the "Note").The Investor and the Company hereby irrevocably agree that upon the Maturity ofthat Note, the Company shall repay the Note in shares of its Common Stock, at aconversion price equal to a per share purchase price equal to 85% of the averageof the closing price of one share of Common Stock on the NASD Over-the-CounterSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Bulletin Board for the five (5) days immediately preceding the Maturity Date ofthe Note, or, if the Company's Common Stock is not then traded on the OTCBulletin Board, at 85% of fair market value as determined by the Board ofDirectors of the Company. 2. Representations, Warranties and Covenants of the Investor.2.1. Authorization; Enforceability. The Investor is (i) a bona fide resident ofthe state contained in the address set forth on the signature page as theInvestor's home address, (ii) at least 21 years of age and (iii) legallycompetent to execute this Agreement. This Agreement has been duly executed anddelivered by the Investor and, assuming the due authorization, execution anddelivery of this Agreement by the other party hereto, constitutes the legal,valid and binding obligation of the Investor, enforceable against the Investorin accordance with its terms, subject to the effects of any applicablebankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium orgeneral laws of applicability affecting creditors' rights generally and togeneral equitable principles.2.2. No Conflict. The execution, delivery and performance by the Investor ofthis Agreement will not result in the violation by the Investor of any law,statute, rule, regulation, order, writ, injunction, judgment or decree of anycourt or governmental authority to or by which the Investor is bound, and willnot conflict with, or result in a breach or violation of, any of the terms orprovisions of, or constitute (with due notice or lapse of time or both) adefault under, any lease, loan agreement, mortgage, security agreement, trustindenture or other agreement or instrument to which the Investor is a party orby which he is bound or to which any of his properties or assets is subject.2.3. Governmental Consents. No consent, approval, authorization or other orderof any governmental authority or other third party is required to be obtained bythe Investor in connection with the authorization, execution, delivery andperformance by the Investor of this Agreement.2.4. Investment Representations. (a) The Investor hereby represents and warrants to the Companythat the Investor is an "accredited investor" as that term is defined in Rule501(a) of Regulation D promulgated under the Securities Act of 1933, as amended(the "Securities Act"). Specifically, the Investor certifies that (initial allappropriate spaces on the following pages): _________ (1) The Investor is an accredited investor because (Initial) he has an individual net worth, or with his spouse has a joint net worth, in excess of $1,000,000. For purposes of this Agreement, "net worth" means the excess of total assets at fair market value, including home, home furnishings and automobiles, over total liabilities. _________ (2) The Investor is an accredited investor because (Initial) he has individual income (exclusive of any income attributable to his spouse) of more than $200,000 in each of the past two years, or joint income with his spouse in excess of $300,000 in each of those years, and such investor reasonably expects to reach the same income level in the current year. _________ (3) The Investor is an accredited investor because (Initial) he is a director, executive officer or managing member of the Company. (b) The Investor hereby certifies that he is not anon-resident alien for purposes of income taxation (as such term is defined inthe Internal Revenue Code of 1986, as amended, and Income Tax Regulations). TheInvestor hereby agrees that if any of the information in this Section 2.4(b)changes, the Investor will notify the Company within 60 days thereof. TheInvestor understands that the information contained in this Section 2.4(b) maybe disclosed to the Internal Revenue Service by the Company and that any falsestatement contained in this Section 2.4(b) could be punished by fine,imprisonment or both.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 Investor will not sell or otherwise transfer the Shares withoutregistration under the Securities Act or an exemption therefrom, and fullyunderstands and agrees that he must bear the economic risk of his investment foran indefinite period of time because, among other reasons, the Shares have notbeen registered under the Securities Act or under the securities laws of certainstates and, therefore, cannot be resold, pledged, assigned or otherwise disposedof unless they are subsequently registered under the Securities Act and underapplicable securities laws of such states or an exemption from such registrationis available. The Investor understands that the Company is under no obligation toregister the Shares on his behalf or to assist him in complying with anyexemption from such registration under the Securities Act, except that if anysale proposed by the Investor is exempt from registration, the Company willcause its counsel, at the Company's expense, to provide an appropriate opinionto that effect to the Company's transfer agent. It also understands that salesor transfers of the Shares are further restricted by state securities laws. TheInvestor further understands that the Company is not registered as an investmentcompany under the Investment Company Act of 1940, as amended. (d) The Investor acknowledges that in making a decision to subscribe forthe Shares, the Investor has relied solely upon independent investigations madeby the Investor. The Investor understands the business objectives and policiesof, and the strategies which may be pursued by, the Company. The Investor'sinvestment in the Shares is consistent with the investment purposes andobjectives and cash flow requirements of the Investor and will not adverselyaffect the Investor's overall need for diversification and liquidity. TheInvestor acknowledges that he is not subscribing pursuant hereto for any Sharesas a result of or subsequent to (a) any advertisement, article, notice or othercommunications published on-line, in any newspaper, magazine or similar media orbroadcast over television or radio, or (b) any seminar or meeting whoseattendees, including the Investor, had been invited as a result of, subsequentto or pursuant to any of the foregoing. (e) The Investor has not reproduced, duplicated or delivered thisAgreement to any other person, except professional advisors to the Investor oras instructed by the Company. (f) The Investor has such knowledge and experience in financial andbusiness matters that the Investor is capable of evaluating the merits and risksof the Investor's investment in the Shares and is able to bear such risks, andhas obtained, in the Investor's judgment, sufficient information from theCompany or its authorized representatives to evaluate the merits and risks ofsuch investment. The Investor has evaluated the risks of investing in the Sharesand has determined that the Shares is a suitable investment for the Investor. (g) The Investor can afford a complete loss of the investment in theShares, can afford to hold the investment in the Shares for an indefinite periodof time, and acknowledges that distributions may be paid in cash or in kind. (h) The Investor's overall commitment to investments that are not readilymarketable is not disproportionate to his net worth, and his investment in theShares will not cause such overall commitment to become excessive. (i) The Investor has adequate means of providing for his current needs andcontingencies and has no need for liquidity in its investment in the Shares. (j) The Investor is acquiring the Shares subscribed for herein for his ownaccount, for investment purposes only and not with a view to distribute orresell such Shares in whole or in part. (k) The Investor agrees and is aware that:(1) the Company has a limited operating history under its current business plan;(2) no federal or state agency has passed upon the Shares or made any findingsor determination as to the fairness of this investment;(3) there are substantial risks of loss of investment incidental to the purchaseof the Shares; andSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. (4) the Shares cannot be resold readily because the Shares have not beenregistered by the Securities and Exchange Commission and the Shares cannot beresold without (A) the Company's consent, which may require an effectiveregistration statement, or (B) an opinion of counsel that an exemption ofregistration is available, and the Investor may have to bear the risk of thisinvestment for an indefinite period of time. (l) The Investor and its advisors, if any, have been furnished with allmaterials relating to the business, finances and operations of the Company andmaterials relating to the offer and sale of the Shares, which have beenrequested by the Investor. The Investor and his advisors, if any, have beenafforded the opportunity to ask questions of the Company and have receivedcomplete and satisfactory answers to any such inquiries. The Investor has hadaccess to all additional information necessary to verify the accuracy of theinformation set forth in this Agreement and any other materials furnishedherewith, and has taken all the steps necessary to evaluate the merits and risksof an investment as proposed hereunder. Except as set forth in this Agreement,the Company has made no representation or warranty on which the Investor hasrelied to enter into this Agreement and acquire the Shares. (m) The Investor does not have a present intention to sell the Shares nora present arrangement or intention to effect any distribution of any of theShares to or through any person or entity for purposes of selling, offering,distributing or otherwise disposing of any of the Shares. (n) The Investor understands that the legend set forth in Section 1.2(b),to the effect that the Shares have not been registered under the Securities Actor applicable state securities laws, shall be placed on the certificateevidencing the Shares and appropriate notations to such effect will be made inthe Company's stock books. (o) The Investor understands that the net proceeds to theCompany from this subscription will be used by the Company for general operatingexpenses. 2.5. Brokers. There is no broker, investment banker, financialadvisor, finder or other person which has been retained by or is authorized toact on behalf of the Investor who is entitled to any fee or commission inconnection with the execution of this Agreement. 3. Indemnification. The Investor agrees to indemnify and hold harmless theCompany, and its managers, officers, directors, employees, agents andshareholders, and each other person, if any, who controls or is controlled by,within the meaning of Section 15of the Securities Act, any thereof, against any and all loss, liability, claim,damage, cost and expense whatsoever (including, but not limited to, legal feesand disbursements and any and all other expenses whatsoever incurred ininvestigating, preparing for or defending against any litigation, arbitrationproceeding, or other action or proceeding, commenced or threatened, or any claimwhatsoever) arising out of or in connection with, or based upon or resultingfrom, (a) any false representation or warranty or breach or failure by theInvestor to comply with any covenant or agreement made by the Investor in thisAgreement or in any other document furnished by the Investor to any of theforegoing in connection with this transaction or (b) any action for securitieslaw violations instituted by the Investor which is finally resolved by judgmentagainst the Investor. 4. Power of Attorney. The Investor, as a shareholder of the Company,hereby appoints the Company as its true and lawful representative andattorney-in-fact, in its name, place and stead to make, execute, sign,acknowledge, swear to and file:(a) any Company certificate, business certificate, fictitious name certificate,amendment thereto, or other instrument or document of any kind necessary ordesirable to accomplish the business, purpose and objectives of the Company, orrequired by any applicable federal, state, or local or foreign law; and(b) any and all instruments, certificates and other documents which may bedeemed necessary or desirable to effect the winding-up and termination of theCompany (including, but not limited to, a notice of dissolution of theShareholder).Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. This power of attorney is coupled with an interest, is irrevocable, and shallsurvive and shall not be affected by the subsequent death, disability,incompetency, termination, bankruptcy, insolvency or dissolution of theInvestor; provided, however, that this power of attorney will terminate upon thesubstitution of another shareholder of the Company for the Investor, upon thewithdrawal of the Investor from the Company or upon the redemption of all of theShares owned by the Investor. 5. Miscellaneous. 5.1. Notices. All notices, demands and other communications to begiven or delivered under or by reason of the provisions of this Agreement shallbe in writing and shall be deemed to have been given when delivered personallyor when mailed by certified or registered mail, return receipt requested andpostage prepaid, and addressed to the address of such party set forth below orto such changed address as such party may have fixed by written notice to theother given in accordance with this Section 5.1; provided, however, that anynotice of change of address shall be effective only upon receipt:If to the Company:Phase III Medical, Inc.330 South Service Road, Suite 120Melville, NY 11747Attn: Mark Weinreb, President and CEOIf to the Investor:the same address as indicated on the signature page hereto. 5.2. Entire Agreement; Amendment. This Agreement sets forth theentire agreement and understanding between the parties as to the subject matterhereof and merges and supersedes all prior discussions, agreements andunderstandings of any and every nature among them. This Agreement may be amendedonly by mutual written agreement of the Company and the Investor. No course ofdealing between or among any persons having any interest in this Agreement willbe deemed effective to modify, amend or discharge any part of this Agreement orany rights or obligations of any person under or by reason of this Agreement. 5.3. Successors and Assigns. This Agreement shall be binding uponthe Investor and his heirs, legal representatives, successors, and permittedassigns and shall inure to the benefit of the Company and its successors andassigns. The Investor shall not assign any of its obligations hereunder withoutthe prior written consent of the Company. 5.4. Governing Law. This Agreement shall be governed by andconstrued under the laws of the State of New York without regard to its choiceof law provisions. 5.5. Jurisdiction. The Investor hereby irrevocably agrees that anysuit, action or proceeding with respect to this Agreement and any or alltransactions relating hereto and thereto may be brought in U.S. federal andstate courts in the State of New York. The Investor hereby irrevocably submitsto the jurisdiction of such courts with respect to any such suit, action orproceeding and agrees and consents that service of process as provided by U.S.federal and New York law may be made upon the Investor in any such suit, actionor proceeding brought in any of said courts, and may not claim that any suchsuit, action or proceeding has been brought in an inconvenient forum. TheInvestor hereby further irrevocably consents to the service of process out ofany of the aforesaid courts, in any such suit, action or proceeding, by themailing of copies thereof, by certified or registered mail, return receiptrequested, addressed to the Investor at the address of the Investor thenappearing on the records of the Company. Nothing contained herein shall affectthe right of the Company to commence any action, suit or proceeding or otherwiseto proceed against the Investor in any other jurisdiction or to serve processupon the Investor in any manner permitted by any applicable law in any relevantjurisdiction. 5.6. Additional Information and Subsequent Changes toRepresentations. (a) The Company may request from time to time such informationas it may deem necessary to determine the eligibility of the Investor to holdSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Stock or to enable the Company's compliance with applicable regulatoryrequirements or tax status, and the Investor shall provide such information asmay reasonably be requested. (b) The Investor agrees to notify the Company promptly if there is anychange with respect to any of the information or representations given or madeby the Company pursuant to this Agreement and to provide the Company with suchfurther information as the Company may reasonably require. In addition, theInvestor agrees that at any time in the future at which the Investor may acquire additional shares of Common Stock, theInvestor shall be deemed to have reaffirmed, as of the date of such acquisitionof additional shares of Common Stock, each and every representation made by theInvestor in this Agreement, except to the extent modified in writing by theInvestor and consented to by the Company.5.7. Severability. In the event that any provision of this Agreement or theapplication of any provision hereof is declared to be illegal, invalid orotherwise unenforceable by a court of competent jurisdiction, the remainder ofthis Agreement shall not be affected except to the extent necessary to deletesuch illegal, invalid or unenforceable provision unless the provision heldinvalid shall substantially impair the benefit of the remaining portion of thisAgreement.5.8. Headings. The headings of the sections hereof are inserted as a matter ofconvenience and for reference only and in no way define, limit or describe thescope of this Agreement or the meaning of any provision hereof. 5.9. Counterparts. This Agreement may be executed in any number ofcounterparts, each of which when so executed and delivered shall be deemed to bean original and all of which together shall be deemed to be one and the sameagreement. A facsimile transmission of this signed Agreement shall be legal andbinding on all parties hereto to the same extent as if delivered personally.[Signature Pages Follow] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as ofthe date set forth above under penalties of perjury.COMPANY:PHASE III MEDICAL, INC.By: ---------------------------------Name:Title:INVESTOR:------------------------------------Robert Aholt, Jr. TrusteeAholt Jr. Family Trust dated 2/17/97Address: 20128 Cavern CourtSaugus, California 91390Tax I.D. Number: xxx-xx-xxxxSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 10.5Aholt Promissory Note Exhibit 10.5THIS 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 available.PROMISSORY NOTE$100,000 August 30, 2004FOR VALUE RECEIVED, Phase III Medical, Inc., a Delaware corporation, ("Maker")promises to pay to Robert Aholt ("Payee"), in lawful money of the United Statesof America, the principal sum of One Hundred Thousand Dollars ($100,000.00 ),together with interest thereon accruing at an annual rate equal to 20%, in themanner provided below. Interest shall be calculated on the basis of a year of365 or 366 days, as applicable, and charged for the actual number of dayselapsed.1. PAYMENTS 1.1 Principal and interest. Interest on the unpaid principal amount shall be payable monthly in arrears until the entire principal amount shall be paid in full. All principal and accrued interest shall be paid in full on February 30, 2005 (6 months after the date of issuance of this Note). 1.2 Manner of Payment All payments of principal and interest on this Note shall be made by check at Robert Aholt, 20128 Cavern Court, Saugus, CA, 91390, 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. DEFAULTS 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 aSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 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), 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 in its 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; and (v) Payee bears the economic risk of never being repaid on this Promissory Note. (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 spouseSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 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, 2003; (ii) Quarterly Reports on Form10-Q for the quarters ended March 31, June 30, September 30, 2003, and March 31, June 30, 2004; (iii) proxy statement for its 2003 annual meeting of shareholders and (iv) all Current Report on Form 8-K filed since the filing of its last Form 10-K.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 Notices 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: Phase III Medical, Inc. 330 South Service Road Suite 120 Melville, NY 11747Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Attn: Mark Weinreb Facsimile Number: (631) 574 4956 If to Payee, addressed to: Name: Robert Aholt Address: 20128 Cavern Court Saugus, CA 91390 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 interest 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 BEENSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. 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.PHASE III MEDICAL, INC. Bye : -------------------------------- Name: Mark Weinreb Title: President and Chief Executive OfficerAccepted and agreed to:-----------------------------------Payee: Robert AholtSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 10.6Marasco Letter Agreement Exhibit 10.6PHASE III MEDICAL, INC.330 South Service RoadSuite 120Melville, New York 11747631 574.4955August 12, 2004Wayne A. Marasco, M.D., Ph.D.Department of Cancer Immunology & AIDSDana-Farber Cancer Institute - Harvard Medical School44 Binney StreetBoston, MA 02115Dear Dr. Marasco: We are pleased to extend to you an invitation to become the SeniorScientific Advisor ("SSA") of Phase III Medical, Inc. (the "Company"). As you know, the Company is a public company that, among other things,provides capital and guidance to companies, within the medical sector, inexchange for revenues, royalties and other contractual rights known as "royaltyinterests," that entitle it to receive a portion of revenue from the sale ofpharmaceuticals, medical devices and biotechnology products. As SSA, you will beresponsible for assisting the Company in reviewing and evaluating business,scientific and medical opportunities, and for other discussions and meetingsthat may arise during the normal course of the Company conducting its business.You will report your reviews and evaluations to the Chief Executive Officer andPresident who will have direct responsibilities for Business Developmentdecisions. In keeping with Harvard Medical School's new policies on Conflicts ofInterest and Commitment for full-time Faculty Members (accepted May 26, 2004),your position will not include any fiduciary or other responsibilities that arerequired to operate a material segment of the operations of the business. This Letter Agreement shall be effective as of August 12, 2004 (the"Commencement Date") and shall continue for a period of three (3) years from theCommencement Date (the "Term"). For all services rendered by you in any capacityrequired hereunder during the Term, you shall be entitled to an annual salary of$84,000 for the first year of the Term, $92,400 for the second year of the Term,and $101,640 for the third year of the Term payable within normal payrollpractices of the Company, provided that all conditions to payment specifiedherein have been met. In addition to the annual cash compensation stated in thepreceding sentence, you shall also be entitled to five (5%) percent of allcollected revenues ("additional cash compensation") derived from the Company'sroyalty or other revenue sharing agreements, provided that the amount of annualsalary and additional cash compensation (in the form of such revenue sharing)shall not exceed $200,000 per year during the Term. Such additional cashcompensation shall be payable quarterly within 45 days of the end of eachquarter, provided that all conditions to payment specified herein have been met. Although the annual cash compensation and additional cash compensationstated above shall begin to accrue as of the Commencement Date, you will not beentitled to receive any such amounts until the Company raises $1,500,000 inadditional equity financing after the Commencement Date. In light of suchrepayment restrictions, and in further consideration for your serviceshereunder, upon execution of this Letter Agreement, you will be granted anoption, fully vested, to purchase 675,000 shares of the Company's common stockat an exercise price of ten cents per share. The shares will be subject to a oneyear lockup as of the date of grant. The exercise period will be ten years, andthe grant will otherwise be in accordance with the Company's 2003 EquityParticipation Plan and Non-Qualified Stock Option Grant Agreement. In addition,in the event that the closing price of the Company's common stock equals orexceeds fifty cents per share for any five consecutive trading days during theTerm, the Company shall grant you, on the day immediately following the end ofthe five day period, pursuant to the 2003 Equity Participation Plan and a StockOption Agreement, an option for the purchase of an additional 1,000,000 sharesof common stock substantially upon the terms of the initial option and in theSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. form of the initial option agreement, except that the exercise price shall befifty cents per share. You will not be entitled to any further option grants asa director of the Company under any existing or future plans, but you will beentitled to participate in any future option plans established by the board forthe officers of the Company so long as you remain as SSA. The Company shall pay or reimburse you for all reasonable travel or otherexpenses incurred by you in connection with the performance of your duties andobligations under this Letter Agreement, subject to your presentation ofappropriate vouchers in accordance with such procedures as the Company may fromtime to time establish (including any procedures established to preserve anydeductions for Federal income taxation purposes to which the Company may beentitled). This Letter Agreement shall automatically terminate upon your death orpermanent disability. In addition, the Company may also terminate this Agreementwith or without cause immediately upon written notice to you. A termination forcause would occur in the event that you, after written notice and an opportunityto cure, consistently and willfully refuse to perform the services required byyou under this Letter Agreement. You may terminate this Letter Agreement uponthirty days' prior written notice to the Company. In the event this LetterAgreement terminates due to your death, permanent disability or upon notice fromthe Company with or without cause, earned but unpaid cash and additional cashcompensation and unreimbursed expenses due as of the date of termination of thisLetter Agreement shall be payable in full. However, no other payments shall bemade, nor benefits provided, by the Company under this Letter Agreement exceptas otherwise required by law. In the event that the Company decides to terminateyour employment without cause prior to the end of the three year term, you willbe entitled to receive a severance payment equal to oneyear's salary, paid at the same level of salary as you are then currentlyreceiving and as a single payment to be paid promptly after the last day ofemployment as SSA, in exchange for your execution of a release of all otherclaims against the Company. You acknowledge that, as SSA, you will have access to the Company'sconfidential information and that all confidential information shall be andremain the sole property of the Company and that you will not at any time, nowor in the future, disclose, disseminate or otherwise make public any of theconfidential information without the express written permission of the Company. You hereby represent and warrant that (i) you have the legal capacity toexecute and perform this Letter Agreement, (ii) this Letter Agreement is a validand binding agreement enforceable against you according to its terms, (iii) theexecution and performance of this Letter Agreement does not violate the terms ofany existing agreement or understanding to which you are a party or by which youmay be bound and (iv) you have, and will, maintain during the Term, allrequisite licenses, permits and approvals necessary to perform the duties of SSAset forth herein. You also hereby agree that you shall not participate in anymedical, health, and insurance plans which may from time to time be in effectfor employees of, or consultants to, or other agents of, the Company. You herebyacknowledge to the Company that you desire to, and are capable of, securing suchbenefits independent of your relationship with the Company. This Agreement shall be governed by, and construed in accordance with, theinternal laws of the State of New York, without reference to the choice of lawprinciples thereof. Any claim, controversy or dispute between the partieshereto, arising out of, relating to, or in connection with this Letter Agreementor any aspect of your services to the Company hereunder, including but notlimited to the termination of this Letter Agreement and any and all claims intort or contract, shall be submitted to arbitration in Melville, New York,pursuant to the American Arbitration Association ("AAA") National ArbitrationRules for the Resolution of Employment Disputes. This provision shall apply toclaims against the Company and/or its affiliates and their respective current orformer employees, agents, managers, officers and/or directors. Any issue aboutwhether a claim is covered by this Letter Agreement shall be determined by thearbitrator. There shall be one arbitrator, who (a) shall be chosen from a panelprovided by the AAA and who shall apply the substantive law of the State of NewYork, (b) may award injunctive relief or any other remedy available from ajudge, including attorney fees and costs to the prevailing party, and (c) shallnot have the power to award punitive damages. Judicial review of thearbitrator's award shall be strictly limited to the issue of whether said awardwas obtained through fraud, corruption or misconduct.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. This Letter Agreement shall be binding upon, and shall inure to thebenefit of, the Company and you and its and your respective permittedsuccessors, assigns, heirs, beneficiaries and representatives. This LetterAgreement is personal to you and may not be assigned by you without the priorwritten consent of the Company. Any attempted assignment in violation of thisparagraph shall be null and void. This Letter Agreement shall constitute theentire agreement among the parties with respect to the matters covered herebyand shall supersede all previous written, oral or implied understandings amongthem with respect to such matters. The Company acknowledges the Dana-Farber Cancer Institute's standardconsulting agreement provisions. These provisions, which were attached asExhibit A to a Board of Director's Engagement Letter dated May 19, 2003 by theCompany, as agreed to and accepted by you, have been reviewed and approved bythe Company. The company recognizes the constraints on your time and agrees that yourefforts on behalf of the Company, as a Director and SSA, will not require morethan four (4) hours per week, scheduled to accommodate your existingcommitments. We are excited about your involvement with the Company and look forward toa long and mutually rewarding scientific and business relationship. For our records, I would appreciate your countersigning the attached copyof this Letter Agreement and returning the same to me at your earliestconvenience. Sincerely, Mark Weinreb, President & CEO Date Signed: November 18, 2004Accepted and agreed to:-----------------------------Wayne A. Marasco, M.D., Ph.D.Date Signed: November 18, 2004Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 10.7Lax Board of Directors Agreement Exhibit 10.7PHASE III MEDICAL, INC.330 South Service RoadSuite 120Melville, New York 11747631.574.4955March 2, 2004Michael Lax1303 Ridge RoadLaurel Hollow, NY 11791Dear Mr. Lax: We are pleased to extend to you an invitation to become a Director of thePhase III Medical, Inc. (the "Company"). As you know, the Company is a public company that, among other items, isentering the medical sector by acquiring or participating in one or morebiotechnology and/or medical companies or technologies, owning one or more drugsor medical devices that may or may not yet be available to the general publicand/or acquiring rights to one or more of such drugs or medical devices or theroyalty streams therefrom. We are requesting that you serve as a Director for an initial term untilour next annual meeting of shareholders. In consideration of your agreeing toaccept the Directorship, you will be granted an option, fully vested, topurchase Three Hundred Thousand (300,000) shares of the Company's common stockat an exercise price of Fourteen ($.14) cents per share. The shares will besubject to a one year lockup as of the date of grant. The exercise period willbe ten (10)years and otherwise the grant will be in accordance with the Company's 2003Equity Participation Plan and Non-Qualified Stock Option Grant Agreement. In addition, in the event that the closing price of the Company's CommonShares equals or exceeds One Dollar ($1.00) per share for any five (5)consecutive trading days during your term as a Director, the Company shall grantyou, on the day immediately following the end of the five (5) day period,pursuant to the Equity Participation Plan and a Stock Option Agreement, anoption for the purchase of an additional One Hundred Thousand (100,000) CommonShares substantially upon the terms of the Initial Option and in the form of theInitial Option Agreement, except that the exercise price shall be $1.00 pershare. While a Director, you will be covered by the Company's D&O insurancepolicy and, to the extent permitted by law, will also be indemnified by theCompany. You will be responsible to attend Annual and Special Meetings of the Boardof Directors (either in person or telephonically), to attend the Annual and/orSpecial Shareholder Meetings as necessary, to participate in appropriatecommittees and to generally assist the Company in reviewing and evaluatingbusiness, scientific and medical opportunities, and for other discussions andmeetings that may arise during the normal course of the Company conducting itsbusiness. You acknowledge that, as member of the Board of Directors, you will haveaccess to the Company's Confidential Information and that all ConfidentialInformation shall be and remain the sole property of the Company and that youwill not at any time, now or in the future, disclose, disseminate or otherwisemake public any of the Confidential Information without the express writtenpermission of the Company. We will ask you to sign a confidentiality agreementsimilar to that signed by our board of advisor members, attached hereto. We are excited about your involvement with the Company and look forward toa long and mutually rewarding scientific and business relationship.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 our records, I would appreciate your countersigning the attached copyof this Engagement Agreement and returning the same to me at your earliestconvenience. Sincerely, Mark Weinreb, President & CEOAccepted and agreed to:---------------------Michael LaxPhase III Medical, Inc.Confidentiality, Proprietary Informationand Inventions AgreementI recognize that Phase III Medical, Inc., a Delaware corporation (the"Company"), is engaged in a continuous program of 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 (the "Business"). Anycompany with which the Company enters into, or seeks or considers entering into,a business relationship in furtherance of the Business is referred to as a"Business Partner".I understand that as part of my performance of duties as a director of theCompany (the "Engagement"), I will have access to confidential or proprietaryinformation of the Company and the Business Partners, and I may make newcontributions and inventions of value to the Company. I further understand thatmy Engagement creates in me a duty of trust and confidentiality to the Companywith respect to any information: (1) related, applicable or useful to thebusiness of the Company, including the Company's anticipated research anddevelopment or such activities of its Business Partners; (2) resulting fromtasks performed by me for the Company; (3) resulting from the use of equipment,supplies or facilities owned, leased or contracted for by the Company; or (4)related, applicable or useful to the business of any partner, client or customerof the Company, which may be made known to me or learned by me during the periodof my Engagement.For purposes of this Agreement, the following definitions apply:"Proprietary Information" shall mean information relating to the Business or thebusiness of any Business Partner and generally unavailable to the public thathas been created, discovered, developed or otherwise has become known to theCompany or in which property rights have been assigned or otherwise conveyed tothe Company or a Business Partner, which information has economic value orpotential economic value to the business in which the Company is or will beengaged. Proprietary Information shall include, but not be limited to, tradesecrets, processes, formulas, writings, data, know-how, negative know-how,improvements, discoveries, developments, designs, inventions, techniques,technical data, patent applications, customer and supplier lists, financialinformation, business plans or projections and any modifications or enhancementsto any of the above."Inventions" shall mean all Business-related discoveries, developments, designs,improvements, inventions, formulas, software programs, processes, techniques,know-how, negative know-how, writings, graphics and other data, whether or notpatentable or registrable under patent, copyright or similar statutes, that arerelated to or useful in the business or future business of the Company or itsBusiness Partners or result from use of premises or other property owned, leasedor contracted for by the Company. Without limiting the generality of theforegoing, Inventions shall also include anything related to theBusiness that derives actual or potential economic value from not beinggenerally known to the public or to other persons who can obtain economic valueSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. from its disclosure or use.As part of the consideration for my Engagement or continued Engagement, as thecase may be, and the compensation received by me from the Company from time totime, I hereby agree as follows: 1. Proprietary Information and Inventions. All ProprietaryInformation and Inventions related to the Business shall be the sole property ofthe Company and its assigns, and the Company or its Business Partners, as thecase may be, and their assigns shall be the sole owner of all patents,trademarks, service marks, copyrights and other rights (collectively referred toherein as "Rights") pertaining to Proprietary Information and Inventions. Ihereby assign to the Company any rights I may have or acquire in ProprietaryInformation or Inventions or Rights pertaining to the Proprietary Information orInventions which Rights arise in the course of my Engagement. I further agree asto all Proprietary Information or Inventions to which Rights arise in the courseof my Engagement to assist the Company or any person designated by it in everyproper way (but at the Company's expense) to obtain and from time to timeenforce Rights relating to said Proprietary Information or Inventions in any andall countries. I will execute all documents for use in applying for, obtainingand enforcing such Rights in such Proprietary Information or Inventions as theCompany may desire, together with any assignments thereof to the Company orpersons designated by it. My obligation to assist the Company or any persondesignated by it in obtaining and enforcing Rights relating to ProprietaryInformation or Inventions shall continue beyond the cessation of my Engagement("Cessation of my Engagement). In the event the Company is unable, afterreasonable effort, to secure my signature on any document or documents needed toapply for or enforce any Right relating to Proprietary Information or to anInvention, whether because of my physical or mental incapacity or for any otherreason whatsoever, I hereby irrevocably designate and appoint the Company andits duly authorized officers and agents as my agents and attorneys-in-fact toact for and in my behalf and stead in the execution and filing of any suchapplication and in furthering the application for and enforcement of Rights withthe same legal force and effect as if such acts were performed by me. I herebyacknowledge that all original works of authorship that are made by me (solely orjointly with others) within the scope of my Engagement and which are protectableby copyright are "works for hire" as that term is defined in the United StatesCopyright Act (17 USCA, Section 101). 2. Confidentiality. At all times, both during my Engagement andafter the Cessation of my Engagement, whether the cessation is voluntary orinvoluntary, for any reason or no reason, or by disability, I will keep instrictest confidence and trust all Proprietary Information, and I will notdisclose or use or permit the use or disclosure of any Proprietary Informationor Rights pertaining to Proprietary Information, or anything related thereto,without the prior written consent of the Company, except as may be necessary inthe ordinary course of performing my duties for the Company. I recognize thatthe Company has received and in the future will receive from third parties(including Business Partners) their confidential or proprietary informationsubject to a duty on the Company's part to maintain the confidentiality of suchinformation and to use it only for certain limited purposes. I agree that I owethe Company and such third parties (including Business Partners), during myEngagement and thereafter, a duty to hold all such confidential or proprietaryinformation inthe strictest confidence, and I will not disclose or use or permit the use ordisclosure of any such confidential or proprietary information without the priorwritten consent of the Company, except as may be necessary in the ordinarycourse of performing my duties for the Company consistent with the Company'sagreement with such third party. 3. Noncompetition and Nonsolicitation. During my Engagement, and fora period of two (2) years after the Cessation of my Engagement, I will notdirectly or indirectly, whether alone or in concert with others or as a partner,officer, director, consultant, agent, employee or stockholder of any company orcommercial enterprise, directly or indirectly, engage in any activity in theUnited States or Canada that the Company shall determine in good faith is or maybe in competition with the Company concerning its work in the Business. Duringmy Engagement and for a period of two (2) years after the Cessation of myEngagement, I will not, either directly or indirectly, either alone or inconcert with others, solicit or encourage any employee of or consultant to theCompany to leave the Company or engage directly or indirectly in competitionwith the Company in the Business. During my Engagement and for a period of twoSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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) years after the Cessation of my Engagement, I agree not to plan or otherwisetake any preliminary steps, either alone or in concert with others, to set up orengage in any business enterprise that would be in competition with the Companyin the Business. The following shall not be deemed to be competitive with theCompany: (i) my ownership of stock, partnership interests or other securities ofany entity not in excess of two percent (2%) of any class of such interests orsecurities which is publicly traded; and (ii) my continued research engagementsfor academic institutions. 4. Delivery of Company Property and Work Product. In the event ofthe Cessation of my Engagement, I will deliver to the Company all biologicalmaterials, devices, records, sketches, reports, memoranda, notes, proposals,lists, correspondence, equipment, documents, photographs, photostats, negatives,undeveloped film, drawings, specifications, tape recordings or other electronicrecordings, programs, data and other materials or property of any naturebelonging to the Company or its clients or customers, and I will not take withme, or allow a third party to take, any of the foregoing or any reproduction ofany of the foregoing. 5. No Conflict. I represent, warrant and covenant that myperformance of all the terms of this Agreement and the performance of my dutiesfor the Company does not and will not breach any agreement to keep in confidenceproprietary information acquired by me in confidence or in trust prior to myEngagement. I have not entered into, and I agree that I will not enter into, anyagreement, either written or oral, in conflict herewith. 6. No Use of Confidential Information. I represent, warrant andcovenant that I have not brought and will not bring with me to the Company oruse in my Engagement any materials or documents of a former employer, or anyperson or entity for which I have acted as an independent contractor orconsultant, that are not generally available to the public, unless I haveobtained written authorization from any such former employer, person or firm fortheir possession and use. I understand and agree that, in my service to theCompany, I am not to breach any obligation of confidentiality that I have toformer employers or other persons. 7. Equitable Relief. I acknowledge that irreparable injury mayresult to the Company from my violation or continued violation of the terms ofthis Agreement and, in such event, I expressly agree that the Company shall beentitled, in addition to damages and any other remedies provided by law, to aninjunction or other equitable remedy respecting such violation or continuedviolation by me. 8. Severability. If any provision of this Agreement shall bedetermined by any court of competent jurisdiction to be unenforceable orotherwise invalid as written, the same shall be enforced and validated to theextent permitted by law. All provisions of this Agreement are severable, and theunenforceability or invalidity of any single provision hereof shall not affectthe remaining provisions. 9. Miscellaneous. This Agreement shall be governed by and construedunder the laws of the State of New York applied to contracts made and performedwholly within such state. No implied waiver of any provision within thisAgreement shall arise in the absence of a waiver in writing, and no waiver withrespect to a specific circumstance, event or occasion shall be construed as acontinuing waiver as to similar circumstances, events or occasions. ThisAgreement, together with the Advisory Board Agreement dated this date, containsthe sole and entire agreement and understanding between the Company and myselfwith respect to the subject matter hereof and supersedes and replaces any prioragreements to the extent any such agreement is inconsistent herewith. ThisAgreement can be amended, modified, released or changed in whole or in part onlyby a written agreement executed by the Company and myself. This Agreement shallbe binding upon me, my heirs, executors, assigns and administrators, and itshall inure to the benefit of the Company and each of its successors or assigns.This Agreement shall be effective as of the first day of my being retained torender services to the Company, even if such date precedes the date I sign thisAgreement. 10. Thorough Understanding of Agreement. I have read all of thisAgreement and understand it completely, and by my signature below I representthat this Agreement is the only statement made by or on behalf of the Companyupon which I have relied in signing this Agreement.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed on thedate written below.DATED: March 2, 2004 Director: ----------------------------------- Name: Michael Lax Address: 1303 Ridge Road Laurel Hollow, NY 11791 PHASE III MEDICAL, INC. By: -------------------------------- Mark Weinreb, PresidentSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 10.8Zuckerman Board of Directors Agreement Exhibit 10.8PHASE III MEDICAL, INC.330 South Service RoadSuite 120Melville, New York 11747631.574.4955January 20, 2004Joseph D. Zuckerman, M.D.Professor and ChairmanNYU-Hospital for Joint DiseasesDepartment of Orthopaedic Surgery301 East 17th StreetNew York, New York 10003Dear Dr. Zuckerman: We are pleased to extend to you an invitation to become a Director of thePhase III Medical, Inc. (the "Company"). As you know, the Company is a public company that, among other items, isentering the medical sector by acquiring or participating in one or morebiotechnology and/or medical companies or technologies, owning one or more drugsor medical devices that may or may not yet be available to the general publicand/or acquiring rights to one or more of such drugs or medical devices or theroyalty streams therefrom. We are requesting that you serve as a Director for an initial term untilour next annual meeting of shareholders. In consideration of your agreeing toaccept the Directorship, you will be granted an option, fully vested, topurchase Three Hundred Thousand (300,000) shares of the Company's common stockat an exercise price of Fifteen (.15(cent)) cents per share. The shares will besubject to a one year lockup as of the date of grant. The exercise period willbe ten (10)years and otherwise the grant will be in accordance with the Company's 2003Equity Participation Plan and Non-Qualified Stock Option Grant Agreement. In addition, in the event that the closing price of the Company's CommonShares equals or exceeds One Dollar ($1.00) per share for any five (5)consecutive trading days during your term as a Director, the Company shall grantyou, on the day immediately following the end of the five (5) day period,pursuant to the Equity Participation Plan and a Stock Option Agreement, anoption for the purchase of an additional One Hundred Thousand (100,000) CommonShares substantially upon the terms of the Initial Option and in the form of theInitial Option Agreement, except that the exercise price shall be $1.00 pershare. While a Director, you will be covered by the Company's D&O insurancepolicy and, to the extent permitted by law, will also be indemnified by theCompany. You will be responsible to attend Annual and Special Meetings of the Boardof Directors (either in person or telephonically), to attend the Annual and/orSpecial Shareholder Meetings as necessary, to participate in appropriatecommittees and to generally assist the Company in reviewing and evaluatingbusiness, scientific and medical opportunities, and for other discussions andmeetings that may arise during the normal course of the Company conducting itsbusiness. You acknowledge that, as member of the Board of Directors, you will haveaccess to the Company's Confidential Information and that all ConfidentialInformation shall be and remain the sole property of the Company and that youwill not at any time, now or in the future, disclose, disseminate or otherwisemake public any of the Confidential Information without the express writtenpermission of the Company. We will ask you to sign a confidentiality agreementsimilar to that signed by our board of advisor members, attached hereto.Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. We are excited about your involvement with the Company and look forward toa long and mutually rewarding scientific and business relationship. For our records, I would appreciate your countersigning the attached copyof this Engagement Agreement and returning the same to me at your earliestconvenience. Sincerely, Mark Weinreb, President & CEOAccepted and agreed to:---------------------------Joseph D. Zuckerman, M.D.Phase III Medical, Inc.Confidentiality, Proprietary Informationand Inventions AgreementI recognize that Phase III Medical, Inc., a Delaware corporation (the"Company"), is engaged in a continuous program of 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 (the "Business"). Anycompany with which the Company enters into, or seeks or considers entering into,a business relationship in furtherance of the Business is referred to as a"Business Partner".I understand that as part of my performance of duties as a director of theCompany (the "Engagement"), I will have access to confidential or proprietaryinformation of the Company and the Business Partners, and I may make newcontributions and inventions of value to the Company. I further understand thatmy Engagement creates in me a duty of trust and confidentiality to the Companywith respect to any information: (1) related, applicable or useful to thebusiness of the Company, including the Company's anticipated research anddevelopment or such activities of its Business Partners; (2) resulting fromtasks performed by me for the Company; (3) resulting from the use of equipment,supplies or facilities owned, leased or contracted for by the Company; or (4)related, applicable or useful to the business of any partner, client or customerof the Company, which may be made known to me or learned by me during the periodof my Engagement.For purposes of this Agreement, the following definitions apply:"Proprietary Information" shall mean information relating to the Business or thebusiness of any Business Partner and generally unavailable to the public thathas been created, discovered, developed or otherwise has become known to theCompany or in which property rights have been assigned or otherwise conveyed tothe Company or a Business Partner, which information has economic value orpotential economic value to the business in which the Company is or will beengaged. Proprietary Information shall include, but not be limited to, tradesecrets, processes, formulas, writings, data, know-how, negative know-how,improvements, discoveries, developments, designs, inventions, techniques,technical data, patent applications, customer and supplier lists, financialinformation, business plans or projections and any modifications or enhancementsto any of the above."Inventions" shall mean all Business-related discoveries, developments, designs,improvements, inventions, formulas, software programs, processes, techniques,know-how, negative know-how, writings, graphics and other data, whether or notpatentable or registrable under patent, copyright or similar statutes, that arerelated to or useful in the business or future business of the Company or itsBusiness Partners or result from use of premises or other property owned, leasedor contracted for by the Company. Without limiting the generality of theforegoing, Inventions shall also include anything related to theSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. Business that derives actual or potential economic value from not beinggenerally known to the public or to other persons who can obtain economic valuefrom its disclosure or use.As part of the consideration for my Engagement or continued Engagement, as thecase may be, and the compensation received by me from the Company from time totime, I hereby agree as follows: 1. Proprietary Information and Inventions. All ProprietaryInformation and Inventions related to the Business shall be the sole property ofthe Company and its assigns, and the Company or its Business Partners, as thecase may be, and their assigns shall be the sole owner of all patents,trademarks, service marks, copyrights and other rights (collectively referred toherein as "Rights") pertaining to Proprietary Information and Inventions. Ihereby assign to the Company any rights I may have or acquire in ProprietaryInformation or Inventions or Rights pertaining to the Proprietary Information orInventions which Rights arise in the course of my Engagement. I further agree asto all Proprietary Information or Inventions to which Rights arise in the courseof my Engagement to assist the Company or any person designated by it in everyproper way (but at the Company's expense) to obtain and from time to timeenforce Rights relating to said Proprietary Information or Inventions in any andall countries. I will execute all documents for use in applying for, obtainingand enforcing such Rights in such Proprietary Information or Inventions as theCompany may desire, together with any assignments thereof to the Company orpersons designated by it. My obligation to assist the Company or any persondesignated by it in obtaining and enforcing Rights relating to ProprietaryInformation or Inventions shall continue beyond the cessation of my Engagement("Cessation of my Engagement). In the event the Company is unable, afterreasonable effort, to secure my signature on any document or documents needed toapply for or enforce any Right relating to Proprietary Information or to anInvention, whether because of my physical or mental incapacity or for any otherreason whatsoever, I hereby irrevocably designate and appoint the Company andits duly authorized officers and agents as my agents and attorneys-in-fact toact for and in my behalf and stead in the execution and filing of any suchapplication and in furthering the application for and enforcement of Rights withthe same legal force and effect as if such acts were performed by me. I herebyacknowledge that all original works of authorship that are made by me (solely orjointly with others) within the scope of my Engagement and which are protectableby copyright are "works for hire" as that term is defined in the United StatesCopyright Act (17 USCA, Section 101). 2. Confidentiality. At all times, both during my Engagement andafter the Cessation of my Engagement, whether the cessation is voluntary orinvoluntary, for any reason or no reason, or by disability, I will keep instrictest confidence and trust all Proprietary Information, and I will notdisclose or use or permit the use or disclosure of any Proprietary Informationor Rights pertaining to Proprietary Information, or anything related thereto,without the prior written consent of the Company, except as may be necessary inthe ordinary course of performing my duties for the Company. I recognize thatthe Company has received and in the future will receive from third parties(including Business Partners) their confidential or proprietary informationsubject to a duty on the Company's part to maintain the confidentiality of suchinformation and to use it only for certain limited purposes. I agree that I owethe Company and such third parties (including Business Partners), during myEngagement and thereafter, a duty to hold all such confidential or proprietaryinformation in thestrictest confidence, and I will not disclose or use or permit the use ordisclosure of any such confidential or proprietary information without the priorwritten consent of the Company, except as may be necessary in the ordinarycourse of performing my duties for the Company consistent with the Company'sagreement with such third party. 3. Noncompetition and Nonsolicitation. During my Engagement, and fora period of two (2) years after the Cessation of my Engagement, I will notdirectly or indirectly, whether alone or in concert with others or as a partner,officer, director, consultant, agent, employee or stockholder of any company orcommercial enterprise, directly or indirectly, engage in any activity in theUnited States or Canada that the Company shall determine in good faith is or maybe in competition with the Company concerning its work in the Business. Duringmy Engagement and for a period of two (2) years after the Cessation of myEngagement, I will not, either directly or indirectly, either alone or inconcert with others, solicit or encourage any employee of or consultant to theSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 to leave the Company or engage directly or indirectly in competitionwith the Company in the Business. During my Engagement and for a period of two(2) years after the Cessation of my Engagement, I agree not to plan or otherwisetake any preliminary steps, either alone or in concert with others, to set up orengage in any business enterprise that would be in competition with the Companyin the Business. The following shall not be deemed to be competitive with theCompany: (i) my ownership of stock, partnership interests or other securities ofany entity not in excess of two percent (2%) of any class of such interests orsecurities which is publicly traded; and (ii) my continued research engagementsfor academic institutions. 4. Delivery of Company Property and Work Product. In the event ofthe Cessation of my Engagement, I will deliver to the Company all biologicalmaterials, devices, records, sketches, reports, memoranda, notes, proposals,lists, correspondence, equipment, documents, photographs, photostats, negatives,undeveloped film, drawings, specifications, tape recordings or other electronicrecordings, programs, data and other materials or property of any naturebelonging to the Company or its clients or customers, and I will not take withme, or allow a third party to take, any of the foregoing or any reproduction ofany of the foregoing. 5. No Conflict. I represent, warrant and covenant that myperformance of all the terms of this Agreement and the performance of my dutiesfor the Company does not and will not breach any agreement to keep in confidenceproprietary information acquired by me in confidence or in trust prior to myEngagement. I have not entered into, and I agree that I will not enter into, anyagreement, either written or oral, in conflict herewith. 6. No Use of Confidential Information. I represent, warrant andcovenant that I have not brought and will not bring with me to the Company oruse in my Engagement any materials or documents of a former employer, or anyperson or entity for which I have acted as an independent contractor orconsultant, that are not generally available to the public, unless I haveobtained written authorization from any such former employer, person or firm fortheir possession and use. I understand and agree that, in my service to theCompany, I am not to breach any obligation of confidentiality that I have toformer employers or other persons. 7. Equitable Relief. I acknowledge that irreparable injury mayresult to the Company from my violation or continued violation of the terms ofthis Agreement and, in such event, I expressly agree that the Company shall beentitled, in addition to damages and any other remedies provided by law, to aninjunction or other equitable remedy respecting such violation or continuedviolation by me. 8. Severability. If any provision of this Agreement shall bedetermined by any court of competent jurisdiction to be unenforceable orotherwise invalid as written, the same shall be enforced and validated to theextent permitted by law. All provisions of this Agreement are severable, and theunenforceability or invalidity of any single provision hereof shall not affectthe remaining provisions. 9. Miscellaneous. This Agreement shall be governed by and construedunder the laws of the State of New York applied to contracts made and performedwholly within such state. No implied waiver of any provision within thisAgreement shall arise in the absence of a waiver in writing, and no waiver withrespect to a specific circumstance, event or occasion shall be construed as acontinuing waiver as to similar circumstances, events or occasions. ThisAgreement, together with the Advisory Board Agreement dated this date, containsthe sole and entire agreement and understanding between the Company and myselfwith respect to the subject matter hereof and supersedes and replaces any prioragreements to the extent any such agreement is inconsistent herewith. ThisAgreement can be amended, modified, released or changed in whole or in part onlyby a written agreement executed by the Company and myself. This Agreement shallbe binding upon me, my heirs, executors, assigns and administrators, and itshall inure to the benefit of the Company and each of its successors or assigns.This Agreement shall be effective as of the first day of my being retained torender services to the Company, even if such date precedes the date I sign thisAgreement. 10. Thorough Understanding of Agreement. I have read all of thisAgreement and understand it completely, and by my signature below I representthat this Agreement is the only statement made by or on behalf of the CompanySource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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. upon which I have relied in signing this Agreement.IN WITNESS WHEREOF, the parties have caused this Agreement to be signed on thedate written below.DATED: January 20, 2004 Director: ---------------------------------- Name: Joseph D. Zuckerman, M.D. Address: NYU-Hospital for Joint Diseases Department of Orthopaedic Surgery 301 East 17th Street New York, New York 10003 PHASE III MEDICAL, INC. By: ------------------------------- Mark Weinreb, President~Source: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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 31, 2005 /s/ Mark Weinreb ---------------- Mark Weinreb Chief Executive OfficerSource: Caladrius Biosciences, Inc., 10-K, March 31, 2005Powered 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, 2004 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 31, 2005 /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 31, 2005Powered 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.