Morningstar® Document Research℠ FORM 10-KCaladrius Biosciences, Inc. - CLBSFiled: April 03, 2006 (period: December 31, 2005)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, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 0-10909 PHASE III MEDICAL, INC. (Exact name of registrant as specified in its charter) Delaware 22-2343568 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 330 South Service Road Suite 120 Melville, New York 11747(Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code: (631) 574 4955Securities registered pursuant to Section 12(b) of the Act: None.Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par valueIndicate by check mark if the registrant is a well-known seasoned issuer, asdefined in Rule 405 of the Securities Act. [ ] Yes [X] NoIndicate by check mark if the registrant is not required to file reportspursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [X] Yes[ ] NoIndicate 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. [X] Yes [ ] NoIndicate 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 a large accelerated filer, anaccelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of theExchange Act). Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]Indicate by check mark whether the Registrant is a shell company (as defined inRule 12b-2 of the Exchange Act. [X] Yes [ ] NoThe aggregate market value of the voting and non-voting common equity held bynon-affiliates of the Registrant as of June 30, 2005 was approximately$1,218,527 million. (For purposes of determining this amount, only directors,executive officers, and 10% or greater stockholders have been deemedaffiliates).On March 17, 2006, 78,571,087 shares of the Registrant's common stock, par value$0.001 per share, were outstanding.Documents incorporated by reference: NoneSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. TABLE OF CONTENTS PART I Item 1 Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2 Properties Item 3 Legal Proceedings Item 4 Submission of Matters to a Vote of Security Holders PART IIItem 5 Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6 Selected Financial Data Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART IIISource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13 Certain Relationships and Related Transactions Item 14 Principal Accounting Fees and Services PART IVItem 15 Exhibits and Financial Statement Schedules 2CAUTION REGARDING FORWARD LOOKING STATEMENTSThis Annual Report on Form 10-K contains "forward-looking statements" within themeaning of the Private Securities Litigation Reform Act of 1995. Suchforward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements ofPhase III Medical, Inc. (the "Company"), or industry results, to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. When used in this Annual Report,statements that are not statements of current or historical fact may be deemedto be forward-looking statements. Without limiting the foregoing, the words"plan," "intend," "may," "will," "expect," "believe," "could," "anticipate,""estimate," or "continue" or similar expressions or other variations orcomparable terminology are intended to identify such forward-looking statements.Additionally, statements concerning the Company's ability to develop the adultstem cell business, the future of regenerative medicine and the role of adultstem cells in that future, the future use of adult stem cells as a treatmentoption and the potential revenue growth of such business are forward-lookingstatements. The Company's ability to enter the adult stem cell arena and futureoperating results are dependent upon many factors, including but not limited to(i) the Company's ability to obtain sufficient capital or a strategic businessarrangement to fund its expansion plans; (ii) the Company's ability to build themanagement and human resources and infrastructure necessary to support thegrowth of its business; (iii) competitive factors and developments beyond theCompany's control; (iv) scientific and medical developments beyond the Company'scontrol; (v) any adverse effect or limitations caused by government regulationof the business; and (vi) other risk factors discussed in "Business - RiskFactors" contained herein. 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., a Delaware corporation ("Phase III" or the "Company")is currently engaged in the business of operating a commercial autologous (donorand recipient are the same) adult stem cell bank and is pioneering theSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. pre-disease collection, processing and storage of adult stem cells that donorscan access for their own present and future medical treatment. The Company'sprevious business had been providing capital and business guidance to companiesin the healthcare and life science industries. On January 19, 2006 the Companyconsummated the acquisition of the assets of NeoStem Inc., a Californiacorporation ("NeoStem") relating to NeoStem's business of collecting and storingadult stem cells. NeoStem had been a company to which Phase III had beenproviding business guidance. Effective with the acquisition, the business ofNeoStem became the principal business of the Company. The Company now intends toprovide adult stem cell processing, collection and banking services with thegoal of making stem cell collection and storage widely available, so that thegeneral population will have the opportunity to store their own stem cells forfuture healthcare needs. The Company also hopes to become the leading providerof adult stem cells for therapeutic use in the burgeoning field of regenerativemedicine for potentially addressing heart disease, certain types of cancer andother critical health problems. The Company will attempt to utilize the combinedPhase III and NeoStem management teams to develop and expand this business. Amarketing and operational plan is being developed to integrate both companies,and a corporate awareness campaign is being prepared. See "- Current BusinessOperations."Until the NeoStem acquisition, the business of the Company was providing capitaland business guidance to companies in the healthcare and life scienceindustries, in return for a percentage of revenues, royalty fees, licensing feesand other product sales of the target companies. Additionally, through June 30,2002, the Company was a provider of extended warranties and service contractsvia the Internet at warrantysuperstore.com. The Company is still engaged in the"run off" of such extended warranties and service contracts. For a discussion ofthe Company's involvement in such other activities and Company history, see "-Former Business Operations." In 2004, the Company launched its website:WWW.PHASE3MED.COM. The Company's information as filed with the Securities andExchange Commission is available via a link on the website as well as atwww.sec.gov. 3CURRENT BUSINESS OPERATIONSOn January 19, 2006, the Company through a wholly-owned subsidiary consummatedits acquisition of the assets of NeoStem relating to NeoStem's business ofcollecting and storing adult stem cells, pursuant to an Asset Purchase Agreementdated December 6, 2005. The purchase price consisted of 5 million shares of theCompany's Common Stock, plus the assumption of certain enumerated liabilities ofNeoStem and liabilities under assumed contracts. The Company also entered intoemployment agreements with NeoStem's chief executive officer and one of itsfounders. NeoStem was incorporated in California in July 2002 and from itsinception through the acquisition by the Company, was engaged in the sale ofadult stem cell banking services. In October 2003 NeoStem leased laboratoryspace in a research facility at Cedars Sinai Hospital in California and enteredinto an agreement with a third party to provide adult stem cell collectionservices. By December 2003 NeoStem had outfitted its laboratory with equipmentfor processing, cryopreservation and storage of adult stem cells. In May 2004,after a validation process and inspection and approval by the State ofCalifornia, NeoStem received a biologics license and commenced commercialoperations. In January 2005 NeoStem moved its adult stem cell processing andstorage facility to Good Samaritan Hospital. NeoStem was compelled to ceaseoperations because it did not have sufficient assets to complete therevalidation of the new laboratory and NeoStem's biologics license wassuspended. In October, 2005 NeoStem restarted the validation of the laboratoryat Good Samaritan Hospital and now the Company is currently seeking a newbiologics license from the State of California. Pursuant to the Asset PurchaseAgreement, NeoStem is obligated to return to the Company (out of the 5 millionshares of Common Stock issued) 16,666 shares per day for each day after February15, 2006 that such biologics license has not been issued. As of March 31, 2006,733,304 shares of Common Stock are subject to recall.The Company will attempt to develop NeoStem's business into a leader in theadult stem cell field and to capitalize on the increasing importance the Companybelieves adult stem cells will play in the future of regenerative medicine. Theuse of adult stem cells as a treatment option for those who develop heartdisease, certain types of cancer and other critical health problems is aburgeoning area of clinical research today. The adult stem cell industry is afield independent of embryonic stem cell research. The Company believes thatSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. adult stem cell therapies are more likely to be developed before embryonic stemcell therapies due to significant governmental, legal, ethical and technicalissues. Medical researchers, scientists, medical institutions, physicians,pharmaceutical companies and biotechnology companies are currently developingtherapies for the treatment of disease using adult stem cells. As these adultstem cell therapies become licensed or become standard of care, patients willneed a service which can collect, process and bank their stem cells. The Companyintends to provide this service.STEM CELLSStem cells are very primitive cells that have the unique ability to transforminto many different cells, such as white blood cells, nerve cells or heartmuscle cells. When collected from adults, stem cells can be found in bone marrowor peripheral blood. Certain processes can cause the stem cells to leave thebone marrow and enter the blood where they can be collected. The Company onlyworks with adult peripheral blood stem cells.PLAN OF OPERATIONSThe Company aims to become the leader in autologous adult stem cell banking bydeveloping a profitable service model which would create a source of stem cellsthat potentially enables physicians to treat a variety of diseases. It isexpected that the Company's revenue model will initially consist of fourdistinct revenue sources: collection fees and storage fees from subscribers;fees derived from a partner collection program to open stem cell collectioncenters; grants and fees for developing a first responder safety program forcertain government agencies, the military, regional and local agencies and feesfrom diagnostic testing. It also plans to catalogue and store adult stem cellsin a biorepository - and as this biorepository grows, it is anticipated therewill be revenues derived from B2B relationships with pharmaceutical companiesand other stem cell companies developing stem cell therapies. Source of Fees -------------- o The fee structure for subscribers will be an upfront collection fee and an annual storage fee. o The Company plans to initially own and operate collection centers in key metropolitan areas. o The Company plans to partner with qualified operators to open collection centers, in exchange for an upfront fee and ongoing revenues for collection and storage. o The Company intends to present a program to certain governmental agencies and large cities for first responders to bank and store their stem cells. o As a longer term goal, the Company hopes to receive diagnostic testing revenues based upon cell biomarker testing for predictive cardiovascular events.MARKETINGThe Company intends to embark on a significant marketing, advertising and salescampaign for the purpose of educating physicians and potential clients to thebenefits of adult stem cell collection and storage. The essence of the Company'sstrategy is to reach the end-customers as quickly as possible and to acceleratethe adoption curve of our service. In addition, the Company plans to utilizemarketing resources to develop and expand a stem cell collection partnerprogram. 4Several consumer segments may recognize and experience the long-term benefitsfrom banking their own stem cells. These include: o Individuals with a family history of serious diseases, i.e., diabetes, heart disease, or cancer o Wellness and regenerative medicine communities o Families who have already banked the umbilical cord blood from their newborns o Patients diagnosed with cancer, cardiovascular disease, orSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. diabetes.The Company expects its marketing efforts to be designed to educate physicianson the benefits both of referring their adult patients to the Company for stemcell banking and participating in our partner collection program. Thus, it isexpected that revenue will be generated in three stages, targeting and/orpromoting the following: Stage One o Wellness Physicians to refer patients to the Company for collection and banking the client's stem cells. o Partner Program to expand the opening of collection centers and increase the number of specimens being banked. o Cardiology Market by selective use of clinical experience trials with key interventional cardiologists throughout the United States. o Stem Cell Therapies currently used by medical professionals and hospitals or those who are developing new therapies. o Patients at Risk for cancer, heart disease, etc, through medical professionals, advertising, marketing and public service announcements. Stage Two o Safety programs for first responders and expand relationships with government agencies and initiatives by partnering with bio-defense companies and certain government agencies. o Diagnostic Testing program for a new biomarker for cardiac impairment. Stage Three o B2B Relationships relating to the use of the stem cell biorepository with biotechnology, pharmaceutical and stem cell research companies.The Company expects to hire an experienced medical service marketing executiveand a premier marketing and public relations company specializing in medicalservice related businesses. 5INTELLECTUAL PROPERTYWe are seeking patent protection for our proprietary technology. The Companyacquired two patent applications which had been submitted by NeoStem and arepending, which are of material importance to our business. The first patentaddresses the process by which we prepare and store stem cells derived fromadult peripheral blood following mobilization of the stem cells from the bonemarrow. The second patent contains a number of claims relating to, among otherthings, the use of stored stem cells to form the basis for medical informationthat will provide statistics on the etiology of disease, and the use of stemcells in the treatment of infectious diseases and breast cancer. The patentposition of biotechnology companies generally is highly uncertain and involvescomplex legal, scientific and factual questions. Our success will depend, inpart, on whether we can obtain patents to protect our own technologies; obtainlicenses to use the technologies of third parties if necessary, which may beprotected by patents; protect our trade secrets and know-how; and operatewithout infringing the intellectual property and proprietary rights of others.There can be no assurance of our success in this regard.COMPETITIONFor a description of matters relating to competition, please see "Item 1A - RiskFactors - Risks Related to Competition."Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. PRIOR RELATIONSHIP WITH NEOSTEMOn March 31, 2004, the Company entered into a joint venture agreement to assistNeoStem in finding uses of and customers for NeoStem's services and technology.The Company's initial efforts concentrated on developing programs utilizingNeoStem's services and technology through government agencies. That agreementwas terminated as a result of the NeoStem acquisition. On September 9, 2005, theCompany signed a revenue sharing agreement with NeoStem pursuant to which theCompany had agreed to fund NeoStem certain amounts to pay pre-approved expensesand other amounts based on a formula relating to the Company's ability to raisecapital. Once funded, NeoStem would pay the Company monthly based on the revenuegenerated in the previous month with a minimum payment due each month. Thatagreement was also terminated as a result of the NeoStem acquisition.FORMER BUSINESS OPERATIONSHISTORYThe 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") and commenced operation of aproperty and casualty insurance business. Stamford provided reinsurance coveragefor one domestic insurance company until the fourth quarter of 2000 when therelationship with the carrier was terminated. On April 30, 2001 the Company soldStamford and was no longer involved in property and casualty specialtyinsurance.In January 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"). Certain condition to closing were not met, and theExchange Agreement was formally terminated by the Company and StrandTek in June2002. In January 2002, the Company advanced to StrandTek a loan of $1,000,000 onan unsecured basis, which was personally guaranteed by certain of the principalshareholders of StrandTek and a further loan of $250,000 in February 2002 on anunsecured basis. StrandTek defaulted on the payment of $1,250,000 plus accruedinterest due to the Company in July 2002. As a result, the Company commencedlegal proceedings againt StrandTek and the guarantors to recover the principal,accrued interest and costs of recovery and in May 2003 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. The legal action concluded with the Company receiving paymentsfrom the guarantors totaling approximately $987,000 in 2003. 6WARRANTYSUPERSTORE.COM INTERNET BUSINESSThe Company's primary business focus through June 2002 was the sale of extendedwarranties and service contracts over the Internet covering automotive, home,office, personal electronics, home appliances, computers and garden equipment.While the Company managed most functions relating to its extended warranty andSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. service contracts, it did not bear the economic risk to repair or replaceproducts nor did it administer the claims function, all of which obligationsrested with the Company's appointed insurance carriers. The Company wasresponsible for marketing, recording sales, collecting payment and reportingcontract details and paying premiums to the insurance carriers. The Companycommenced operations initially by marketing its extended warranty productsdirectly to the consumer through its web site, and as a result of thedevelopment of proprietary software by January 2001 had four distinctdistribution 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 concernedby the slow progress being made by its warrantysuperstore.com business and beganto evaluate other opportunities. In June 2002, management determined, in lightof continuing operating losses, to discontinue its warranty and service contractbusiness and to seek new business opportunities for the Company (see theStrandtek Transaction, above, and Medical Biotech/Business, below). In additionto such activities, the Company has continued to "run off" the sale of itswarranties and service contracts.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 provided 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 Companycontinued to recruit management, business development and technical personnel,and developed its business model, in furtherance of its business plan. TheCompany engaged in various capital raising activities to pursue this business,raising $489,781 in 2003 and $1,289,375 in 2004 through the sale of Common Stockand notes. Additionally, in 2003, it received a total of approximately $987,000from the settlement with the StrandTek guarantors (a significant portion ofwhich was used to pay outstanding liabilities for legal expenses, employmentterminations, travel and entertainment expenses and consultants and the balanceof which was used for operating expenses and the retirement of certain debt). In2005 and through March 2006, the Company raised $1,600,000. Such capital raisingactivities since 2003 enabled the Company to pursue the arrangements with PSI(below) and NeoStem.On July 24, 2003, the Company changed its name to Phase III Medical, Inc., whichbetter described the Company's current business plan. In connection with thechange of name, the Company changed its trading symbol to "PHSM" from "CNGI".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 provided for PSIto pay the Company a percentage of the revenue received from the sale of certainspecified products or licensing activity. The Company 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. The Company paid a total of$720,000 since the inception of the agreement. The agreement also called for theCompany to pay on behalf of PSI $280,000 of certain expenses relating to testingof the bioshielding concept, and since inception through December 31, 2005, theCompany paid $85,324 of such expenses. In August 2005, the Company received fromPSI a letter stating that the proof of concept study under the royalty agreementhad been completed and that despite interesting preliminary IN VITRO results,the study did not meet the success standards set forth in the royalty agreementand that PSI had no definitive plans to move forward with the program. Phase IIIrequested pursuant to the royalty agreement that additional in vitro studies beperformed with other molecules; however PSI was under no obligation to performany additional studies. If no additional studies were performed under theroyalty agreement the likelihood of PSI generating revenues in which the Companywould share would have been substantially reduced. At this time the Company doesnot anticipate any further activity pursuant to the PSI Agreement. 7Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 March 2003 and September, 2004, the Company entered into a revenue sharingagreement and joint venture agreement, respectively, with NeoStem. As describedabove, such agreements were terminated in connection with the NeoStemacquisition.On June 16, 2005, the Company signed a revenue sharing agreement withHealthwave, a medical billing company that utilizes advanced, proprietarytechnology and connectivity to improve the efficiency of paper-andlabor-intensive routines of healthcare transaction processing. Under theagreement, Phase III was to fund Healthwave certain amounts and to provideguidance to them principally relating to developing and marketing Healthwave'shealthcare transaction processing services. In return, Healthwave was to payPhase III on a monthly basis a portion of its gross revenues. Performance underthe agreement was contingent upon certain conditions, and has not been pursuedby either party.EMPLOYEESAs of March 15, 2006, the Company had seven employees.ITEM 1A. RISK FACTORS.THE 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. RISKS RELATED TO THE COMPANY'S FINANCIAL CONDITION AND COMMON STOCKWE HAVE A HISTORY OF OPERATING LOSSES AND WE 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 $1,745,039, $1,748,372 and$1,044,145 for the years ended December 31, 2005, 2004 and 2003, respectively.The Company expects to incur additional operating losses as well as negativecash flow from its new business operations until, if ever, it successfullycommercializes the collection, processing and storage of adult stem cells.WE HAVE LIQUIDITY PROBLEMS AND OUR ABILITY TO CONTINUE AS A GOING CONCERN ISQUESTIONABLE.At December 31, 2005, the Company had a cash balance of $488,872, a workingcapital deficiency of $1,245,084 and a stockholders' deficit of $1,817,638. TheCompany's auditors, Holtz Rubenstein Reminick LLP, have expressed substantialdoubt about the Company's ability to continue as a going concern based on itslack of liquidity combined with its history of losses, and it will be moredifficult for the Company to raise capital on favorable terms as a result. Thefinancial statements of the Company do not reflect any adjustments relating tothe doubt of its ability to continue as a going concern. The Company has fromtime to time raised capital for its activities through the sale of its equitysecurities and promissory notes. Most recently, it raised $1,000,000 in grossproceeds from a private sale of equity and convertible debt. The net proceedsenabled the Company to complete the NeoStem acquisition, pay certain outstandingliabilities and provide the Company with working capital to facilitate thedevelopment of its new business, but the Company's financial condition stillraises substantial doubt about its ability to operate as a going concern.Substantial additional financing is needed.WE WILL NEED SUBSTANTIAL ADDITIONAL FINANCING AND WE ARE UNCERTAIN OF OUR ACCESSTO CAPITAL FUNDING.The Company will require substantial capital to fund the Company's currentoperating plan for its new business, including the payment of the assumedliabilities of NeoStem and other outstanding liabilities. In addition, theSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 cash requirements may vary materially from those now planned becauseof expenses relating to marketing, advertising, sales, distribution, researchand development and regulatory affairs, as well as the costs of maintaining,expanding and protecting our intellectual property portfolio, includinglitigation costs and liabilities. The Company may seek additional fundingthrough public or private financings. Additional financing may not be availableon acceptable terms, or at all. If additional capital is raised through the saleof equity, or securities convertible into equity, further dilution to thenexisting stockholders will result. If additional capital is raised through theincurrence of debt, business could be affected by the amount of leverageincurred. For instance, such borrowings could subject the Company to covenantsrestricting its business activities, paying interest would divert funds thatwould otherwise be available to support commercialization and other importantactivities, and holders of debt instruments would have rights and privilegessenior to those of equity investors. If the Company is unable to obtain adequatefinancing on a timely basis, it may be required to delay, reduce the scope of oreliminate some of its planned activities, any of which could have a materialadverse effect on the business. The Company is currently exploringcapital-raising opportunities, however there can be no assurance that it will besuccessful or that sufficient capital will be raised. 8WE WILL CONTINUE TO EXPERIENCE CASH OUTFLOWS.The Company continues to incur expenses, including the salary of its Presidentand executive officers, rent, legal and accounting fees, insurance and generaladministrative expenses, and was in arrears for certain of these expenses as ofDecember 31, 2005. The Company's new business activities are in the developmentstage and will therefore result in additional cash outflows in the comingperiod. It is not possible at this time to state whether the Company will beable to finance these cash outflows or when the Company will achieve a positivecash position, if at all. Our ability to become profitable will depend on manyfactors, including our ability to successfully commercialize the business. Wecannot assure you that we will ever become profitable. NeoStem itself hadnominal operations and nominal assets at the time of acquisition. From itsinception in 2002 through September 30, 2005, NeoStem had aggregate revenues of$25,950, and aggregate losses of $2,357,940.STOCKS TRADED ON THE OTC BULLETIN BOARD ARE SUBJECT TO GREATER MARKET RISKS THANTHOSE OF EXCHANGE-TRADED AND NASDAQ STOCKSThe Company's Common Stock currently trades on the OTC Bulletin Board, anelectronic, screen-based trading system operated by the National Association ofSecurities Dealers, Inc. Securities traded on the OTC Bulletin Board are, forthe most part, thinly traded and generally are not subject to the level ofregulation imposed on securities listed or traded on the Nasdaq Stock Market oron a national securities exchange. As a result, an investor may find itdifficult to dispose of our Common Stock or to obtain accurate quotations as toits price.OUR STOCK PRICE COULD BE VOLATILEThe price of the Company's Common Stock has fluctuated in the past and may bemore volatile in the future. Factors such as the announcements of governmentregulation, new products or services introduced by the Company or by thecompetition, healthcare legislation, trends in the health insurance, litigation,fluctuations in operating results and market conditions for healthcare stocks ingeneral could have a significant impact on the future price of the Company'sCommon Stock. In addition, the stock market has from time to time experiencedextreme price and volume fluctuations that may be unrelated to the operatingperformance of particular companies. The generally low volume of trading in theCompany's Common Stock makes it more vulnerable to rapid changes in price inresponse to market conditions. RISKS RELATING TO THE COMPANY'S NEW BUSINESSIF THE POTENTIAL OF STEM CELL THERAPY TO TREAT SERIOUS DISEASES IS NOT REALIZED,THE VALUE OF OUR STEM CELL COLLECTION, PROCESSING AND STORAGE AND OURDEVELOPMENT PROGRAMS COULD BE SIGNIFICANTLY REDUCED.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 potential of stem cell therapy to treat serious diseases is currently beingexplored. Other than hematopoietic stem cell transplants, stem cell therapy isnot a commonly used procedure and it has not been proven in clinical trials thatstem cell therapy will be an effective treatment for diseases other than thosecurrently addressed by hematopoietic stem cell transplants. No stem cellproducts have been successfully developed and commercialized to date, and nonehas received regulatory approval in the United States or internationally. Stemcell therapy may be susceptible to various risks, including undesirable andunintended side effects, unintended immune system responses, inadequatetherapeutic efficacy or other characteristics that may prevent or limit theirapproval or commercial use. If the potential of stem cell therapy to treatserious diseases is not realized, the value of our stem cell collection,processing and storage and our development programs could be significantlyreduced.BECAUSE OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL AND THERAPEUTIC CHANGES,OUR FUTURE SUCCESS WILL MATERIALLY DEPEND ON THE VIABILITY OF THE USE OF STEMCELLS.Our success materially depends on the development of therapeutic treatments andcures for disease using stem cells. The broader medical and research environmentfor such treatments and cures critically affects the utility of stem cells, theservices we offer to the public, and our future success. The use of stem cellsin the treatment of disease is subject to potentially revolutionarytechnological, medical and therapeutic changes. Future technological and medicaldevelopments could render the use of stem cells and our services and equipmentobsolete and unmarketable. As a result, there can be no assurance that ourservices will provide competitive advantages over other technologies. Iftechnological or medical developments arise that materially alter the commercialviability of our technology or services, we may be forced to incur significantcosts in replacing or modifying equipment in which we have already made asubstantial investment prior to the end of its anticipated useful life.Alternatively, significant advances may be made in other treatment methods or indisease prevention techniques which could significantly reduce or entirelyeliminate the need for the services we provide. The materialization of any ofthese risks could have a material adverse effect on our business, financialcondition and results of operations. 9WE MAY BE FORCED TO UNDERTAKE LENGTHY AND COSTLY EFFORTS TO BUILD MARKETACCEPTANCE OF OUR STEM CELL STORAGE SERVICES, THE SUCCESS OF WHICH IS CRITICALTO OUR PROFITABILITY. THERE CAN BE NO ASSURANCE THAT THESE SERVICES WILL GAINMARKET ACCEPTANCE.We anticipate that service fees from the processing and storage of stem cellswill comprise a substantial majority of our revenue in the future and,therefore, our future success depends on the successful and continued marketacceptance of this service. Broad use and acceptance of our service requiresmarketing expenditures and education and awareness of consumers and medicalpractitioners, and the time and expense required to educate and build awarenessof our services and its potential benefits could significantly delay marketacceptance and our ultimate profitability. The successful commercialization ofour services will also require that we satisfactorily address the needs ofmedical practitioners in order to address potential resistance torecommendations for our services and ultimately reach our potential consumers.No assurances can be given that our business plan and marketing efforts will besuccessful, that the Company will be able to commercialize its services, or thatthere will be market acceptance of our services sufficient to generate anymaterial revenues for the Company.ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF STEM CELL THERAPY MAYNEGATIVELY AFFECT REGULATORY APPROVAL OR PUBLIC PERCEPTION OF OUR STEM CELLBANKING SERVICES, THEREBY REDUCING DEMAND FOR OUR SERVICES. 10The use of embryonic stem cells for research and stem cell therapy has been thesubject of debate regarding related ethical, legal and social issues. AlthoughSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. our business only utilizes adult stem cells and does not involve the use ofembryonic stem cells, the use of other types of human stem cells for therapycould give rise to similar ethical, legal and social issues as those associatedwith embryonic stem cells. The commercial success of our business will depend inpart on public acceptance of the use of stem cell therapy, in general, for theprevention or treatment of human diseases. Public attitudes may be influenced byclaims that stem cell therapy is unsafe, and stem cell therapy may not gain theacceptance of the public or the medical community. Adverse events in the fieldof stem cell therapy that may occur in the future also may result in greatergovernmental regulation of our business and potential regulatory delays relatingto the approval or licensing of any or all of the processes and facilitiesinvolved in our stem cell banking services. In the event that the use of stemcell therapy becomes the subject of adverse commentary or publicity, ourbusiness could be adversely affected and the market price for our common stockcould be significantly harmed.WE OPERATE IN A REGULATED ENVIRONMENT, AND OUR FAILURE TO COMPLY WITH APPLICABLEREGULATIONS, REGISTRATIONS AND APPROVALS WOULD MATERIALLY AND ADVERSELY AFFECTOUR BUSINESS.Historically, the FDA has not regulated banks that collect and store stem cells.Recent changes, however, require establishments engaged in the recovery,processing, storage, labeling, packaging or distribution of any Human Cells,Tissues, and Cellular and Tissue-Based Products (HCT/Ps) or the screening ortesting of a cell tissue donor to register with the FDA under the Public HealthService Act as of January 2004. The FDA also adopted rules in May 2005 thatregulate current Good Tissues Practices (cGTP). The Company may be or becomesubject to such registration requirements and regulations, and there can be noassurance that the Company will be able, or will have the resources, to comply.Future FDA regulations could also adversely impact or limit our ability tomarket or perform our services. Additionally, the states in which the Companyinitially plans to engage in processing and storage activities all currentlyhave licensing requirements with which the Company believes it will need tocomply. There can be no assurance that the Company will be able to obtain thenecessary licensing. Currently, the Company is seeking a new biologics licensefrom the State of California. This process was started by NeoStem in October,2005 when it restarted the validation of its laboratory at Good SamaritanHospital. There can be no assurance that the Company will receive this license,or a license from any state in which it plans to maintain a stem cell storagefacility. If the Company identifies other states with licensing requirements orif other states adopt such requirements, the Company would also have to obtainsuch licenses and/or comply with such requirements. We may be required to spendsubstantial amounts to comply with any such regulations and licensingrequirements, as well as any future legislative and regulatory initiatives.Failure to comply with applicable regulatory requirements can result in, amongother things, injunctions, operating restrictions, and civil fines and criminalprosecution. Delays or failure to obtain registrations or licensing would have amaterial adverse effect on the marketing and sales of our services and impairour ability to operate profitably in the future. 11OUR FAILURE TO COMPLY WITH LAWS RELATED TO HAZARDOUS MATERIALS COULD MATERIALLYHARM US.We are subject to state and federal laws regulating the proper disposal ofbiohazardous material. Although we believe we are in compliance with all suchapplicable laws, a violation of such laws, or the future enactment of morestringent laws or regulations, could subject us to liability, require us toincur costs and/or otherwise have an adverse effect on us.SIDE EFFECTS OF THE COLLECTION PROCESS OR A FAILURE IN THE PERFORMANCE OF OURCRYOPRESERVATION STORAGE FACILITY OR SYSTEMS COULD HARM OUR BUSINESS ANDREPUTATION.To the extent a customer experiences adverse side effects of the collectionprocess, or our cryopreservation storage service is disrupted, discontinued orthe performance is impaired, our business and operations could be adverselyaffected. Any equipment failure that causes a material interruption ordiscontinuance in our cryopreservation storage of stem cell specimens couldSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. result in stored specimens being damaged and unable to be utilized. Adverse sideeffects of the collection process or specimen damage (including loss in transitto the Company), could result in litigation against us and reduced futurerevenue to us, which in turn could be harmful to our reputation. Our insurancemay not adequately compensate us for any losses that may occur due to any suchadverse side effects or failures in our system or interruptions in our abilityto maintain proper, continued, cryopreservation storage services. Any claim ofadverse side effects or material disruption in our ability to maintain continueduninterrupted storage systems could have a material adverse effect on ourbusiness, operating results and financial condition. Our systems and operationsare vulnerable to damage or interruption from fire, flood, equipment failure,break-ins, tornadoes and similar events for which we do not have redundantsystems or a formal disaster recovery plan and may not carry sufficient businessinterruption insurance to compensate us for losses that may occur. 12WE ARE DEPENDENT ON EXISTING RELATIONSHIPS WITH THIRD PARTIES TO CONDUCT OURBUSINESS.The Company's process of collecting stem cells involves the injection of a"mobilizing agent" which causes the stem cells to leave the bone marrow andenter into the blood stream. The injection of this mobilizing agent is anintegral part of the Company's process. There is currently only one supplier ofthis mobilizing agent, and we are currently dependent upon our relationship withsuch supplier to maintain an adequate supply. Although the Company continues toexplore alternative methods of stem cell collection, there can be no assurancethat any such methods will prove to be successful. We are also using only oneoutside "collection" service. Although the Company has the ability to performthe collection services itself or through other third parties, any disruption inthe relationship with this collection service would cause a delay in thedelivery of our services. In order to commercialize our business, we willcontinue to depend upon our relationship with such companies. In particular, inthe event that our supplier is unable or unwilling to continue to produce amobilizing agent for us (and on commercially reasonable terms), and we areunable to identify alternative methods or find substitute suppliers oncommercially reasonable terms, we may not be able to successfully commercializeour business.OUR SUCCESS WILL DEPEND IN PART ON ESTABLISHING AND MAINTAINING EFFECTIVESTRATEGIC PARTNERSHIPS AND COLLABORATIONS.A key aspect of our business strategy is to establish strategic relationships inorder to gain access to critical supplies, to expand or complement ourdevelopment or commercialization capabilities, or to reduce the cost ofdeveloping or commercializing services on our own. We currently have strategicrelationships with two parties. While we are currently in discussions withothers to establish additional relationships and collaborations, there can be noassurance that the Company will enter into such relationships or that thearrangements will be on favorable terms. Even if we do enter into thesearrangements, we may not be able to maintain these relationships or establishnew ones in the future on acceptable terms. Furthermore, these arrangements mayrequire us to grant certain rights to third parties, including exclusive rightsor may have other terms that are burdensome to us. If any of our partnersterminate their relationship with us or fail to perform their obligations in atimely manner, the development or commercialization of our services may besubstantially delayed.WE DEPEND UPON MANAGEMENT, SCIENTIFIC AND MEDICAL PERSONNEL AND WE MAY FACEDIFFICULTIES IN MANAGING THE GROWTH OF OUR BUSINESS.The Company's future performance and success are dependent upon the efforts andabilities of our management, medical and scientific personnel. Furthermore, ourfuture growth will require hiring a significant number of qualified technical,medical, scientific, commercial and administrative personnel. Accordingly,recruiting and retaining such personnel in the future will be critical to oursuccess. If we are not able to continue to attract and retain, on acceptableterms, the qualified personnel necessary for the continued development of ourbusiness, we may not be able to sustain our operations or achieve our businessobjectives. Our failure to manage growth effectively could limit our ability toachieve our commercialization and other goals relating to, and we may fail indeveloping, our new business.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. RISKS RELATED TO COMPETITIONTHE STEM CELL PRESERVATION MARKET HAS AND CONTINUES TO BECOME INCREASINGLYCOMPETITIVE.Stem cell preservation is becoming an increasingly competitive business. Forexample, in the established market for cord blood stem cell banking, the growthin the number of families banking their newborn's cord blood stem cells has beenaccompanied by an increasing landscape of competitors. Our business, which hasbeen more recently developed, already faces competition from other operators ofstem cell preservation businesses and providers of stem cell storage services.We understand that LifeStem, a subsidiary of CalbaTech, Inc., desires to be anautologous adult stem cell collection and storage company and focuses on themicro-collection of stem cells and the storage of two different types of stemcells for autologous use. In addition, StemSource, a division of CytoriTherapeutics and Bio-Matrix Scientific Group Inc. each have established a stemcell banking service to process and store stem cells collected from adiposetissue (fat tissue). This type of stem cell banking will require partnering withcosmetic surgeons who perform liposuction procedures. In addition, the Companybelieves the use of adult stem cells from adipose tissue will require extensiveclinical trials to prove the safety and efficacy of such cells and the enzymaticprocess required to extract adult stem cells from fat. From a technologyperspective the ability to expand a small number of stem cells could present acompetitive alternative to stem cell banking. The ability to create atherapeutic quantity of stem cells from a small number of cells is essential tousing embryonic stem cells and would be desirable to treat patients who can onlysupply a small number of their own stem cells. There are many biotechnologylaboratories attempting to develop stem cell expansion technology, but to date,stem cell expansion techniques are very inefficient and typically the targetcells stop dividing naturally, keeping the yield low. However, stem cellexpansion could also complement adult stem cell banking by allowing individualsto extend the banking of an initial collection of cells for many applications. 13In general, we may face competition from companies with far greater financial,marketing, technical and research resources, name recognition, distributionchannels and market presence than the Company who are marketing or developingnew services that are similar to the services that are now being or may in thefuture be developed by the Company. There can be no assurance that the Companywill be able to compete successfully. In the event that we are not able tocompete successfully with our current or potential competitors, it may bedifficult for us to grow our revenue and maintain our existing business withoutincurring significant additional expenses to try and refine our technology,services or approach to our business to better compete, and even then therewould be no guarantee of success.WE MAY FACE COMPETITION IN THE FUTURE FROM ESTABLISHED CORD BLOOD BANKS AND SOMEHOSPITALS.In addition, future competition may come from several sources including cordblood banks and some hospitals. Cord blood banks such as ViaCord (a division ofViaCell International) or Cryo-Cell International may be drawn to the fieldbecause their processing labs and storage facilities can be used for processingadult stem cells from peripheral blood and their customer lists may provide themwith an easy access to the market. We estimate that there are 54 cord bloodbanks in the United States, 29 of which are autologous (donor and recipient arethe same) and 25 of which are allogeneic (donor and recipient are not the same).Hospitals that have transplant centers to serve cancer patients may elect toenter some phases of new stem cell therapies. We estimate that there are 110hospitals in the United States with stem cell transplant centers. All of thesecompetitors may have access to greater financial resources. In addition, otherestablished companies with greater access to financial resources may enter ourmarkets and compete with us. There can be no assurance that we will be able tocompete successfully.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. RISKS RELATED TO INTELLECTUAL PROPERTYTHERE IS SIGNIFICANT UNCERTAINTY ABOUT THE VALIDITY AND PERMISSIBLE SCOPE OFPATENTS IN THE BIOTECHNOLOGICAL INDUSTRY. WE MAY NOT BE ABLE TO OBTAIN PATENTPROTECTION. There can be no assurance that the patent applications to which we hold rightswill result in the issuance of patents, that any patents issued or licensed toour company will not be challenged and held to be invalid or of a scope ofcoverage that is different from what we believe the patent's scope to be, orthat our present or future patents related to these technologies will ultimatelyprovide adequate patent coverage for or protection of our present or futuretechnologies, products or processes. This could materially and adversely affectthe Company and result in our not being able to commercialize our new business.WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY FROM INFRINGEMENT BY THIRDPARTIES AND THIRD PARTIES MAY CLAIM THAT WE INFRINGE ON THEIR INTELLECTUALPROPERTY. THIS CAN RESULT IN SIGNIFICANT EXPENSE TO US AND MATERIALLY ANDADVERSELY AFFECT OUR BUSINESS. We will rely upon patent protection, trade secrets, technical know-how andcontinuing technological innovation to develop and maintain our competitiveposition, and we typically require our employees, consultants and advisors toexecute confidentiality agreements in connection with their employment,consulting or advisory relationships. There can be no assurance, however, thatthese agreements will not be breached or that we will have adequate remedies forany such breach.Despite our efforts to protect our intellectual property, third parties mayinfringe or misappropriate our intellectual property or may develop intellectualproperty competitive to ours. Our competitors may independently develop similartechnology, duplicate our processes, services or design around our intellectualproperty rights. As a result, we may have to litigate to enforce and protect ourintellectual property rights to determine their scope, validity orenforceability. Intellectual property litigation is expensive (particularly fora company of our size), time-consuming, diverts the attention of management andtechnical personnel and could result in substantial cost and uncertaintyregarding our future viability. The loss of intellectual property protection orthe inability to secure or enforce intellectual property protection would limitour ability to develop and/or market our services in the future and would likelyhave an adverse affect on the revenues generated by the sale or license of suchintellectual property. Furthermore, any public announcements related to suchlitigation or regulatory proceedings could adversely affect the price of ourcommon stock.We also may be subject to costly litigation in the event our technologyinfringes upon another party's proprietary rights. Third parties may have, ormay eventually be issued, patents that would be infringed by our technology. Anyof these third parties could make a claim of infringement against us withrespect to our technology. We may also be subject to claims by third parties forbreach of copyright, trademark or license usage rights. An adverse determinationin any litigation of this type could require us to design around a third party'spatent, license alternative technology from another party or otherwise result inlimitations in our ability to use the intellectual property subject to suchclaims. Litigation and patent interference proceedings could result insubstantial expense to us and significant diversion of efforts by our technicaland management personnel. An adverse determination in any such interferenceproceedings or in patent litigation to which we may become a party could subjectus to significant liabilities to third parties or, as noted above, require us toseek licenses from third parties. If required, the necessary licenses may not beavailable on acceptable financial or other terms or at all. Adversedeterminations in a judicial or administrative proceeding or failure to obtainnecessary licenses could prevent us, in whole or in part, from commercializingour products, which could have a material adverse effect on our business,financial condition and results of operations. 14Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 1B. UNRESOLVED STAFF COMMENTSNot applicableITEM 2. PROPERTIESSince February 21, 2003, the Company has leased office space in Melville, NewYork. The current lease provides for an annual rental of approximately $22,800and expires March 31, 2007. This space will be sufficient for our needs untilthe business plan of the Company has been successfully implemented. In January2005, NeoStem began leasing space at Good Samaritan Hospital in Los Angeles,California at an annual rental of approximately $26,000 for use as its stem cellprocessing and storage facility. The lease expired on December 31, 2005, but wecontinue to occupy the space on a month-to-month basis. This space will besufficient for the Company's needs in the short term and we are in the processof negotiating a new lease for the facility with the landlord. If suchnegotiations are unsuccessful, we believe that we will be able to find asuitable alternative location. NeoStem also leased office space in Agoura Hills,California on a month-to-month basis from Symbion Research International at amonthly rental of $1,687, and we plan to continue this arrangement to fill ourneed for office space in California.ITEM 3. LEGAL PROCEEDINGSThe 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 2005. On March 17, 2006, a Special Meeting of the stockholderswas held pursuant to which stockholders were asked to vote upon, and approved,an amendment to the Certificate of Designations for the Series A $0.07Convertible Preferred Stock to exchange all of the 681,171 shares of Series APreferred Stock and accrued dividends into 5,449,368 shares of Common Stock. SeeItem 5(a), "Market for Registrant's Common Equity and Related StockholderMatters - Series A Preferred Stock." 15 PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 5(A). MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION. The Company's Common Stock has 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, as reported by Nasdaq Trading and Market Services. On March 1, 2006, the closing bid price for the Company's Common Stock was $0.06. Information set forth in the table below reflects inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions. 2005 HIGH LOW First Quarter $0.07 $ 0.03 Second Quarter 0.05 0.02 Third Quarter 0.10 0.03Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. Fourth Quarter 0.09 0.03 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 HOLDERS. As of March 1, 2006, there were approximately 1,524 holders of record of the Company's Common Stock. 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. 16SERIES A PREFERRED STOCKOn March 17, 2006, the stockholders of the Company voted to approve an amendmentto the Certificate of Incorporation which permits the Company to issue inexchange for all 681,171 shares of Series A Preferred Stock outstanding and itsobligation to pay $528,564 (or $.78 per share) in accrued dividends thereon, atotal of 5,449,368 shares of Common Stock (eight (8) shares of Common Stock pershare of Series A Preferred Stock). Pursuant thereto, all outstanding shares ofSeries A Preferred Stock will be cancelled and converted into Common Stock. TheCertificate of Designation for the Company's Series A Preferred Stock hadprovided that at any time after December 1, 1999 any holder of Series APreferred Stock could require the Company to redeem his shares of Series APreferred Stock (if there were funds with which the Company could legally do so)at a price of $1.00 per share. Notwithstanding the foregoing redemptionprovisions, if any dividends on the Series A Preferred Stock were past due, noshares of Series A Preferred Stock could be redeemed by the Company unless alloutstanding shares of Series A Preferred Stock were simultaneously redeemed. Theholders of Series A Preferred Stock could convert their Series A Preferred Stockinto shares of Common Stock of the Company at a price of $5.20 per share. If thepreferred shareholders did not approve the exchange of their shares into CommonStock, and if the Company were required to redeem any significant number ofshares of Series A Preferred Stock, the Company's financial condition could havebeen materially adversely affected.EQUITY COMPENSATION PLAN INFORMATIONThe following table gives information about the Company's Common Stock that maybe issued upon the exercise of options, warrants and rights under the Company's2003 Equity Participation Plan as of December 31, 2005. This plan was theCompany's only equity compensation plan in existence as of December 31, 2005. (c) Number of Securities Remaining Available For Future Issuance Under (a) (b) Equity Compensation Plan Number of Securities to be Weighted-Average Exercise (Excluding Securities Issued Upon Exercise of Price of Outstanding Reflected In Outstanding Options, Options, Warrants and Column Plan Category Warrants and Rights Rights (a))-------------------------- ------------------------ ----------------------- ------------------------- Equity Compensation PlansApproved by Shareholders ..... 23,140,832 $0.08 26,859,168Equity Compensation Plans Not Approved by Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. Shareholders ................. 0 0 0 ---------------- ------ -----------TOTAL 23,140,832 $0.08 26,859,168 17RECENT SALES OF UNREGISTERED SECURITIESIn September 2002, the Company sold to accredited investors pursuant toRegulation D promulgated under the Securities Act of 1933, as amended (the"Securities Act"), five 60-day promissory notes in the principal sum of $25,000each, resulting in net proceeds to the Company of $117,500, net of offeringcosts. The notes bear interest at 15% per annum payable at maturity. The termsof the notes include a default penalty pursuant to which if the notes are notpaid on the due date, the holder shall have the option to purchase 25,000 sharesof the Company's Common Stock for an aggregate purchase price of $125. If thenon payment 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 had been repaid andthere were no additional options to purchase Common Stock outstanding.The two outstanding notes described above totaling $50,000, were sold to anunrelated third party who agreed to cancel the two notes and replace them with anew note which did not contain the default penalty. This new note also includeda previous note of $25,000 which was issued on August 26, 2003 in exchange for aloan from a then consultant of the Company. On October 1, 2004 a new promissorynote in the amount $75,000 bearing interest at 8% per annum was executed. Thisnote, plus accrued interest, was due June 30, 2005 and extended to August 31,2005. On November 30, 2005, this note was converted into 1,275,000 shares ofCommon Stock (as described later in this section).In February 2003, the Company issued a total of 100,000 shares of Common Stock(with a value of $3,000) to three of its major creditors in consideration of thedeferral of $523,887 in liabilities, subsequently paid in 2003.The offer and sale by the Company of the securities described in the twoimmediately preceding paragraphs were made to accredited investors, withoutgeneral solicitation or advertising, and in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act for transactions byan issuer not involving a public offering.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 qualified as "accredited investors" as defined in Rule 501(a) under theSecurities Act were eligible to purchase these promissory notes. The Companyraised the full $250,000 through the sale of such promissory notes, resulting innet proceeds to the Company of $225,000. The notes contained a default provisionwhich raised the interest rate to 20% if the notes were not paid when due. Thedue date of these notes had been extended to August 31, 2005. As of December 31,2005, $70,000 of the principal amount of these notes had been converted into1,190,000 shares of Common Stock and $80,000 of the principal amount of thesenotes remained outstanding bearing interest at 20% (of which $15,000 was paid inJanuary 2006). The due date has been extended to September 30, 2006.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(the "2003 Private Placement"). Such shares were not registered and were subjectto restrictions on resale. Only selected investors which qualified as"accredited investors" as defined in Rule 501(a) under the Securities Act wereeligible to purchase these shares. The 2003 Private Placement closed on December31, 2003 upon the sale of 2,825,000 shares, resulting in net proceeds to theCompany of $214,781. The investment banker, Robert M. Cohen & Company, wasSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. issued a five year warrant to purchase 282,500 shares of Common Stock at anexercise price of $0.12 per share. The warrant contains piggyback registrationrights.. In January 2004, the Company amended the 2003 Private Placement andsold additional shares of Common Stock thereunder, which closed on July 31,2004. As of July 31, 2004, 12,132,913 shares of Common Stock had been sold withnet proceeds to the Company of $1,105,000. Of these shares, 7,282,913 shareswere purchased by Robert Aholt, Jr., the Company's then Chief Operating Officer,for $650,000. In March 2004, the Company sold a 30 day 20% note pursuant toRegulation D in the amount of $50,000 to a director who qualifies as anaccredited investor to fund current operations. As of December 31, 2004, $25,000had been repaid and as of December 31, 2005 the remaining $25,000 had beenrepaid.In March 2004, the Company issued 30,000 shares of Common Stock to twonoteholders who were accredited investors in payment of interest.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 had beenrepaid together with accrued interest. The due date was extended to August 31,2005 on the remaining two notes for $80,000, which were subsequently convertedinto 1,360,000 shares of Common Stock (as later described in this section). Allinterest has been paid.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 had been repaid. Thedue date was extended to August 31, 2005 as to the remaining $25,000, whichsubsequently converted into 425,000 shares of Common Stock (as later describedin this section). All interest payments have been made. 18In August 2004, the Company sold a six month 20% $100,000 convertible note toits then Chief Operating Officer, an accredited investor. This note at maturitywas to be converted into shares of the Company's Common Stock at 85% of theaverage price as quoted on the NASD Over-the-Counter Bulletin Board for the fivedays prior to the maturity date of the note. In February 2005, this note wasconverted into 1,960,784 shares of common stock. All interest payments were madeon the note.The offer and sale by the Company of the securities described in the fourimmediately preceding paragraphs were made to accredited investors, withoutgeneral solicitation or advertising, and in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act for transactions byan issuer not involving a public offering.In each of the months August 2004 to December 2004, the Company issued 37,500shares (for a total of 187,500 shares) of Common Stock to Consulting forStrategic Growth Ltd., the Company's investor relations firm for services.In each of the months August 2004 to January 2005, the Company issued warrantsto purchase 25,000 shares of Common Stock (for a total of 150,000 shares) at$0.05 per share to Consulting for Strategic Growth Ltd, the Company's investorrelations firm. Such warrants are each exercisable for three years from the dateof issue.The offer and sale by the Company of the securities described in the twoimmediately preceding paragraphs were made to accredited investors, withoutgeneral solicitation or advertising, and in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act for transactions byan issuer not involving a public offering.In September 2004, 7,282,913 shares of common stock were purchased by RobertAholt, Jr., the then Chief Operating Officer of the Company and an accreditedinvestor, for an aggregate purchase price of $650,000.In December 2004, to fund current operations, the Company sold a 60 day 8% notein the amount of $35,000 to its President and Chief Executive Officer, a 180 day15% note in the amount of $25,000 to a related party, a 180 day 20% note in theamount of $15,000, of which $5,000 has been repaid and a 90 day 8% note in theamount of $25,000 to a Director, all accredited investors, totaling $100,000.The due dates of the notes were extended to August 31, 2005 except for the$15,000 note which was extended to September 30, 2005. As of December 31, 2005,Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. $85,000 converted into 1,445,000 shares of Common Stock (as later described inthis section). The due date of the remaining $10,000 was extended to September30, 2006 and was repaid in January 2006. All interest payments have been made.On January 1, 2005, the Company issued to Robert J. Aholt, Jr., the Company'sthen Chief Operating Officer, 477,679 shares of unregistered Common Stock inpartial payment of salary as per his Employment Agreement dated September 13,2004. Pursuant to this agreement, in partial consideration for Mr. Aholt'sservices thereunder, on January 1, 2005 and on the first day of each calendarquarter thereafter during the term thereof, Mr. Aholt was entitled to suchnumber of shares of Common Stock, with a "Dollar Value" of $26,750, $27,625 and$28,888 during the first, second and third years of the term, respectively, at a"Per Share Price" equal to the average closing price of one share of CommonStock on the Bulletin Board for the five (5) consecutive trading daysimmediately preceding the date of grant of such shares. Mr. Aholt's EmploymentAgreement was subsequently amended pursuant to which effective as of September30, 2005 he was compensated solely in cash.The offer and sale by the Company of the securities described in the threeimmediately preceding paragraphs were made to accredited investors, withoutgeneral solicitation or advertising, and in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act for transactions byan issuer not involving a public offering.On each of January and February 20, 2005, the Company issued 37,500 shares ofits Common Stock, for a total of 75,000 shares, as compensation to Consultingfor Strategic Growth Ltd, its public relations firm.In January 2005, the Company sold a six month 20% note in the amount of $25,000to an accredited investor to fund current operations. This note was subsequentlyconverted into 425,000 shares of Common Stock as described later in thissection. In February 2005, the Company sold a six month 20% note in the amountof $10,000 to an accredited investor to fund current operations (for which thedue date was extended until September 30, 2005). This note was subsequentlyconverted into 170,000 shares of Common Stock as described later in thissection. All interest payments have been made.On February 20, 2005, the Company issued 1,960,784 shares of its Common Stock inexchange for the conversion of a promissory note held by its Chief OperatingOfficer.In March 2005, the Company sold a 30 day 8% note in the amount of $17,000 to itsPresident and Chief Executive Officer (for which the due date was extended untilAugust 31, 2005) and a one year 15% note in the amount of $20,000 (which wassubsequently converted into 340,000 shares of Common Stock as described later inthis section) to two accredited investors to fund current operations. Allinterest payments on these notes were current. The due date on the note in theamount of $17,000 was extended to September 30, 2006, and it was paid in full inJanuary 2006.On April 1, 2005, the Company issued 800,898 shares of its Common Stock to Mr.Aholt, the Company's then Chief Operating Officer, in partial payment of salaryas per Mr. Aholt's Employment Agreement. 19The offer and sale by the Company of the securities described in the fiveimmediately preceding paragraphs were made to accredited investors, withoutgeneral solicitation or advertising, and in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act for transactions byan issuer not involving a public offering.On April 20, 2005, the Company and Catherine M. Vaczy, the Company's ExecutiveVice President and General Counsel, entered into a stock purchase agreementpursuant to which the Company sold to Ms. Vaczy 1,666,666 shares of Common Stockin exchange for $100,000. This agreement also gave her the right to purchase upto an additional $200,000 of Common Stock at a per share price equal to 85% ofthe average closing price of one share of Common Stock Bulletin Board for thefive (5) consecutive trading days immediately preceding the date of Ms. Vaczy'snotice exercising the option; provided, that in no event would the price be lessthan $.06.In April, 2005, the Company sold a one year 15% note in the amount of $100,000Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. to its Executive Vice President and General Counsel. Ms. Vaczy had the option toconvert the Note into shares of Common Stock at any time up until the 90th dayafter the date of the Note at a per share price equal to 85% of the averageclosing price of one share of Common Stock on the Bulletin Board, provided, thatin no event would the price be less than $.06. Following the 90th day after thedate of the Note, Ms. Vaczy was obligated, at any time prior to the date ofmaturity of the Note, to convert the Note into shares of Common Stock unless Ms.Vaczy shall have provided to the Company a notice terminating her employmentwith the Company pursuant to her employment agreement. Effective as of November30, 2005, the Note was converted into 1,700,000 shares of Common Stock in theexchange offer described later in this section.The offer and sale by the Company of the securities described in the twoimmediately preceding paragraphs were made in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act, for transactions byan issuer not involving a public offering. The offer and sale of such securitieswere made without general solicitation or advertising and with representationsby the investors that they were "accredited investors," as such term is definedin Rule 501(a) of Regulation D promulgated under the Securities Act.On May 4, 2005, the Company sold 100,000 shares of its Common Stock to anunrelated third party at a price of $.06 per share resulting in net proceeds tothe Company of $6,000.On May 19, 2005, the Company, and Joseph D. Zuckerman, a Director of theCompany, entered into a subscription agreement pursuant to which the Companysold to Dr. Zuckerman 100,000 shares of unregistered Common Stock in exchangefor $6,000.On May 26, 2005, the Company and Wayne A. Marasco, the Company's SeniorScientific Advisor and a Director of the Company, entered into a subscriptionagreement pursuant to which the Company sold to Dr. Marasco 250,000 shares ofunregistered Common Stock in exchange for $15,000.The offer and sale by the Company of the securities described in the threeimmediately preceding paragraphs were made in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act, for transactions byan issuer not involving a public offering. The offer and sale of such securitieswere made without general solicitation or advertising and with representationsby the investors that they were "accredited investors," as such term is definedin Rule 501(a) of Regulation D promulgated under the Securities Act.On June 8, 2005, the Company entered into a subscription agreement pursuant towhich the Company sold to an investor 416,666 shares of unregistered CommonStock in exchange for $25,000.On July 1, 2005, the Company issued 668,750 shares of unregistered Common Stockto Mr. Aholt, the Company's then Chief Operating Officer, in partial payment ofsalary based on the formula in his Employment Agreement.On July 1, 2005, the Company issued to Consulting for Strategic Growth Ltd., itsinvestor relations and public relations consultant, 16,666 shares ofunregistered Common Stock pursuant to the terms of its consulting agreement inpartial consideration for services thereunder.On July 18, 2005, the Company sold 1,250,000 shares of its Common Stock toCatherine M. Vaczy, its Executive Vice President and General Counsel, at a pershare purchase price of $0.06 for aggregate consideration of $75,000. Thispurchase was as a result of Ms. Vaczy's exercise of the option contained in herApril 20, 2005 stock purchase agreement. 20The offer and sale by the Company of the securities described in the fourimmediately preceding paragraphs were made in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act, for transactions byan issuer not involving a public offering. The offer and sale of such securitieswere made without general solicitation or advertising and with representationsby the investors that they were "accredited investors," as such term is definedin Rule 501(a) of Regulation D promulgated under the Securities Act.On each of August 1, 2005 and September 1, 2005, the Company issued toConsulting for Strategic Growth Ltd, its investor relations and public relationsSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. consultant, 16,666 shares of its unregistered Common Stock pursuant to the termsof its consulting agreement in partial consideration for services thereunder.On August 16, 2005, the Company entered into a subscription agreement with WayneA. Marasco, the Company's Senior Scientific Advisor and a Director of theCompany, pursuant to which the Company sold to Dr. Marasco 833,333 shares ofunregistered Common Stock in exchange for $50,000.Pursuant to the terms of a letter agreement dated as of August 12, 2005 andentered into between the Company and Catherine M. Vaczy, the Company's ExecutiveVice President and General Counsel, on August 12, 2005 the Company issued to Ms.Vaczy 412,339 shares of unregistered Common Stock in payment of $24,740 insalary accrued during the period April 20, 2005 through August 12, 2005 at a pershare price of $.06, the closing price of one share of Common Stock on theBulletin Board on August 12, 2005. On October 3, 2005, the Company issued to Ms.Vaczy pursuant to the letter agreement, 260,817 shares of unregistered CommonStock in payment of $10,433 in salary accrued during the period August 15, 2005through September 30, 2005 at a per share price of $.04, the closing price ofone share of Common Stock on the Bulletin Board on September 30, 2005.In August 2005, the Company sold an 8% note in the amount of $10,000 to itsPresident and Chief Executive Officer, an accredited investor, which was due ondemand. The due date was extended to September 30, 2006, and the note was paidin full in January 2006.In September 2005, the Company sold two 8% notes in the amounts of $6,000 and$15,000 to its President and Chief Executive Officer, an accredited investor,which were due on demand. The due dates were extended to September 30, 2006, andthey were paid in full in January 2006.On September 14, 2005, the Company issued to Dr. Robin Smith 500,000 shares ofthe Company's unregistered Common Stock pursuant to the terms of a consultingagreement with Dr. Smith pursuant to which she serves as the Chairman of theCompany's Advisory Board. Dr. Smith was also issued three year warrants topurchase 240,000 shares of Common Stock at $0.08 per share. Such warrants vestat the rate of 20,000 per month.On September 29, 2005, the Company entered into a subscription agreementpursuant to which the Company sold to an investor 142,857 shares of unregisteredCommon Stock in exchange for $10,000.Pursuant to the terms of Mr. Aholt's Employment Agreement dated September 13,2004, as amended by a letter agreement dated July 20, 2005, on October 3, 2005,the Company issued to Mr. Aholt, 461,206 shares of unregistered Common Stock inpayment of accrued salary. The shares issued had an aggregate dollar value of$26,750, and the price per share was equal to the average closing price of oneshare of Common Stock on the Bulletin Board for the five (5) consecutive tradingdays immediately preceding the date of grant of such shares.The offer and sale by the Company of the securities described in the eightimmediately preceding paragraphs were made in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act, for transactions byan issuer not involving a public offering. The offer and sale of such securitieswere made without general solicitation or advertising and with representationsby the investors that they were "accredited investors," as such term is definedin Rule 501(a) of Regulation D promulgated under the Securities Act.On each of October 1, 2005 and November 1, 2005, 16,666 shares of the Company'sCommon Stock were issued to Consulting for Strategic Growth Ltd., the Company'sinvestor relations and public relations firm; as compensation for work to beperformed in October and November 2005.On October 6, 2005, the Company sold 250,000 shares of its Common Stock to anaccredited investor at a price of $.04 per share resulting in gross proceeds tothe Company of $10,000.On October 6, 2005, the Company sold 500,000 shares of its Common Stock to amember of its Advisory Board, an accredited investor, at a price of $.05 pershare resulting in gross proceeds to the Company of $25,000.On October 28, 2005, the Company issued 50,000 shares of Common Stock to ahospital in exchange for advertising in an event journal. Such shares werevalued at $3,500. 21Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. On November 10, 2005, the Company sold a total of 833,332 shares of its CommonStock to two accredited investors at a price of $.06 per share resulting ingross proceeds to the Company of $50,000.On November 28, 2005, the Company entered into a subscription agreement pursuantto which the Company sold to an investor 6,250,000 shares of unregistered CommonStock and short term warrants in exchange for $500,000.The offer and sale by the Company of the securities described in the siximmediately preceding paragraphs were made in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act, for transactions byan issuer not involving a public offering. The offer and sale of such securitieswere made without general solicitation or advertising and with representationsby the investors that they were "accredited investors," as such term is definedin Rule 501(a) of Regulation D promulgated under the Securities Act.Effective as of November 30, 2005, the Company effected the exchange (the"Exchange") of an aggregate of $445,000 in outstanding indebtedness of theCompany represented by certain promissory notes (the "Notes") for an aggregateof 7,565,000 shares of Common Stock of the Company. The rate at which the Noteswere exchanged for shares of Common Stock was 17,000 shares of Common Stock forevery $1,000 of indebtedness represented by the Notes. Of the Notes, anaggregate of $160,000 was held by certain officers and directors of the Companyand exchanged into 2,720,000 shares of Common Stock. The offer and sale by theCompany of the securities described above were made in reliance upon theexemption from registration provided by Section 3(a)(9) of the Securities Actfor exchange offers. The offer and sale of such securities were made withoutgeneral solicitation or advertising and no commissions were paid.On November 20, 2005, the Company issued to an employee an aggregate of 60,000shares of its restricted Common Stock in payment of an aggregate of $3,000 inaccrued salary.On January 19, 2006, the Company effected the issuance of 5,000,000 shares ofunregistered Common Stock to NeoStem in connection with the purchase of theNeoStem assets described in Item 1, Business. In addition, the Company issued anaggregate of 2,012,225 shares of Common Stock to various parties in satisfactionof $82,000 of $465,000 in assumed liabilities of NeoStem in connection with theacquisition, of which 675,227 shares were issued to Denis Rodgerson(subsequently the Company's Director of Stem Cell Science) and 96,148 shareswere issued to Larry A. May (subsequently the Company's Chief FinancialOfficer).On December 1, 2005, the Company issued to its investor relations consultant16,666 shares of unregistered Common Stock pursuant to the terms of itsconsulting agreement in partial consideration for services thereunder.On December 22, 2005, the Company issued to its Executive Vice President andGeneral Counsel an aggregate of 416,666 shares of its restricted Common Stock inpayment of an aggregate of $25,000 in accrued salary.The offer and sale by the Company of the securities described in the fourimmediately preceding paragraphs were made in reliance upon the exemption fromregistration provided by Section 4(2) of the Securities Act, for transactions byan issuer not involving a public offering. The offer and sale of such securitieswere made without general solicitation or advertising and with representationsby the investors that they were "accredited investors," as such term is definedin Rule 501(a) of Regulation D promulgated under the Securities Act.On December 30, 2005, the Company effected the exchange of $20,000 inoutstanding indebtedness of the Company represented by a promissory note, for340,000 shares of its Common Stock. 22Effective as of each of January 10, 2006 and January 11, 2006, respectively, theCompany effected the exchange (the "Exchange") of an aggregate of $45,000 inoutstanding indebtedness of the Company represented by certain promissory notes(the "Notes") for an aggregate of 765,000 shares of restricted Common Stock ofthe Company. The rate at which the Notes were exchanged for shares of CommonStock was 17,000 shares of Common Stock for every $1,000 of indebtednessrepresented by the Notes.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 offer and sale by the Company of the securities described in the twoimmediately preceding paragraphs were made in reliance upon the exemption fromregistration provided by Section 3(a)(9) of the Securities Act for exchangeoffers. The offer and sale of such securities were made without generalsolicitation or advertising and no commissions were paid.On December 30, 2005, and in January 2006, the Company entered into SubscriptionAgreements (the "Agreement") with certain accredited investors and consummatedthe sale of Units consisting of Convertible Promissory Notes and detachablewarrants under Regulation D under the Securities Act. Gross proceeds raised were$250,000 on December 30, 2005 and $250,000 in January 2006, totaling anaggregate of $500,000 in gross proceeds. Each Unit was comprised of: (a) a ninemonth note in the principal amount of $25,000 bearing 9% simple interest,payable semi-annually, with the 2nd payment paid upon maturity, convertible intoshares of the Company's Common Stock at a conversion price of $.06 per share;and (b) 416,666 detachable three year Warrants, each for the purchase of oneshare of Common Stock at an exercise price of $.12 per share. The Notes aresubject to mandatory conversion by the Company if the closing price of theCommon Stock has been at least $.18 for a period of at least 10 consecutivetrading days prior to the date on which notice of conversion is sent by theCompany to the holders of the Promissory Notes, and if the underlying shares arethen registered for resale with the SEC. Holders of the Units are entitled tocertain registration rights. The Company will, promptly following the lastclosing date, endeavor to file a Registration Statement with the SEC to includethe shares of Common Stock underlying the Promissory Notes, the shares of CommonStock underlying the Warrants, the shares of Common Stock issued to thePlacement Agent as its fee and the shares of Common Stock underlying thewarrants issued to the Placement Agent in payment of its fee. In the event thatthe Registration Statement is not declared effective by the SEC as of thesix-month anniversary of the last closing date, the conversion price of thePromissory Notes and the exercise price of the Warrants shall be decreased byfive percent for each 30-day period that the Registration Statement is notdeclared effective by the SEC; provided, however, that in no event shall theconversion price of the Promissory Notes and the exercise price of the Warrantsbe decreased pursuant to the operation of this provision to an amount that isless than $.04 and $.10 respectively.The Company issued to WestPark Capital, Inc., the placement agent for the Unitsdescribed above, (i) 500,000 shares of Common Stock (250,000 shares on December30, 2005 and 250,000 shares in January 2006); and (ii) warrants to purchase anaggregate of 833,332 shares of the Company's Common Stock (416,666 on December30, 2005 and 416,666 in January 2006).None of the shares of Common Stock, short term warrants, Units and theconvertible promissory notes and detachable warrant comprising the Units wereregistered under the Securities Act, and such securities were exempt fromregistration pursuant to Section 4(2) of the Securities Act and Rule 506 ofRegulation D promulgated thereunder.In March 2006, the Company issued warrants to purchase 120,000 shares of CommonStock at a price of $0.10 per share to its marketing consultant. These warrantvest 20,000 per month for six months. The warrants expire three years from dateof issue. These securities were issued to an accredited investor, withoutgeneral solicitation or advertising, and in reliance upon the exemption providedby Section 4(2) of the Securities Act for transactions by an issuer notinvolving a public offering.On March 17, 2006, the stockholders of the Company voted to approve an amendmentto the Certificate of Incorporation which permit the Company to issue inexchange for all 681,171 shares of Series A Preferred Stock outstanding and itsobligation to pay $528,564 (or $.78 per share) in accrued dividends thereon, atotal of 5,449,368 shares of Common Stock (eight shares of Common Stock pershare of Series A Preferred Stock). Pursuant thereto, all outstanding shares ofSeries A Common Stock will be cancelled and converted into 5,449,368 shares ofCommon Stock. The offer and sale by the Company of the securities described willbe made in reliance upon the exemption from registration provided by Section3(a)(9) of the Securities Act for exchange offers.On March 27, 2006, the Company sold 100,000 shares of its Common Stock to anAdvisory Board member at a price of $.053 per share resulting in net proceeds tothe Company of $5,300. These securities were issued to an accredited investor,without general solicitation or advertising, and in reliance upon the exemptionprovided by Section 4(2) of the Securities Act for transactions by an issuer notSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. involving a public offering.ITEM 5(B) USE OF PROCEEDSNot applicable.ITEM 5(C) REPURCHASES OF EQUITY SECURITIESThere were no repurchases of equity securities by the Company or any affiliatedpurchaser during the fourth quarter of the fiscal year ended December 31, 2005as to which information is required to be furnished. 23ITEM 6. SELECTED FINANCIAL DATAThe selected statements of operations and balance sheet data set forth below arederived from audited financial statements of the Company. The information setforth below should be read in conjunction with the Company's audited financialstatements and notes thereto. See Item 8 "Financial Statements and SupplementaryData" and Item 7 "Management's Discussion and Analysis of Financial Conditionand Results of Operation". The requirement to provide geographical informationfor the operations of the Company is not practical.STATEMENT OF OPERATIONS: YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED($'000 EXCEPT NET LOSS PER SHARE WHICH IS DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,STATED IN $) 2005 2004 2003 2002 2001 Earned revenues $ 35 $ 49 $ 65 $ 81 $ 107Direct costs 25 34 44 60 70Gross profit 10 15 21 21 37Operating (loss) (1,601) (1,474) (894) (1,149) (1,606)Loss before discontinued operations andpreferred dividends (1,745) (1,748) (1,044) (1,160) (1,792)Net loss attributable to commonstockholders (1,745) (1,748) (1,068) (1,208) (2,081)Basic and diluted earnings per share: Loss from continuing operations (.04) (.05) (0.05) (0.05) (0.08) Income (loss) from discontinued - - - - (0.01)operationsNet loss attributable to common (.04) (.05) (0.05) (0.05) (0.09)shareholdersWeighted average number of sharesoutstanding 49,775,746 32,541,845 23,509,343 22,344,769 22,284,417BALANCE SHEET DATA: AS OF AS OF AS OF AS OF AS OF$'000 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001Working Capital (Deficiency) $ (1,245) $ (1,239) $ (794) $ (82) $ 1,085Total Assets 643 99 312 1,183 1,836Current Liabilities 1,752 1,288 1,023 1,141 489Long Term Debt - - - 9 32(Accumulated Deficit) (14,255) (12,510) (10,762) (9,694) (8,486)Total Stockholders' (Deficit)/Equity (1,818) (1,932) (1,503) (824) 373ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 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. 24GENERALThe Company is currently engaged in the business of operating a commercialautologous (donor and recipient are the same) adult stem cell bank and ispioneering the pre-disease collection, processing and storage of adult stemcells that donors can access for their own present and future medical treatment.On January 19, 2006 the Company consummated the acquisition of the assets ofNeoStem Inc. ("NeoStem") relating to NeoStem's business of collecting andstoring adult stem cells. Effective with the acquisition, the business ofNeoStem became the principal business of the Company, rather than its historicbusiness of providing capital and business guidance to companies in thehealthcare and life science industries. The Company now intends to provide adultstem cell processing, collection and banking services with the goal of makingstem cell collection and storage widely available, so that the generalpopulation will have the opportunity to store their own stem cells for futurehealthcare needs. The Company also hopes to become the leading provider of adultstem cells for therapeutic use in the burgeoning field of regenerative medicinefor heart disease, types of cancer and other critical health problems.Until the NeoStem acquisition, the business of the Company was providing capitaland business guidance to companies in the healthcare and life scienceindustries, in return for a percentage of revenues, royalty fees, licensing feesand other product sales of the target companies. Additionally, through June 30,2002, the Company was a provider of extended warranties and service contractsvia the Internet at warrantysuperstore.com. The Company is still engaged in the"run off" of such extended warranties and service contracts. In June 2002management determined, in light of continuing operating losses, to discontinueits warranty and service contract business and to seek new businessopportunities for the Company. As a result, on January 7, 2002 the Companyentered into the StrandTek Transaction as previously reported. Consummation ofthe StrandTek Transaction was conditioned upon certain closing conditions, andthe arrangement was formally terminated by written agreement between the Companyand StrandTek in June 2002. The Company had loaned a total of $1,250,000 toStrandTek (which defaulted) and in 2003, the Company received a total ofapproximately $987,000 from a settlement with StrandTek guarantors.Management 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. Under hisdirection, the Company entered a new line of business where it provided 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 Companycontinued to recruit management, business development and technical personnel,and develop its business model, in furtherance of its business plan.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 provided for PSIto pay the Company a percentage of the revenue received for the sale of certainspecified products or licensing activity. The Company provided capital andguidance to PSI to conduct a Proof of Concept Study relating thereto. As aresult of the Proof of Concept Study, PSI advised the Company that it had nodefinitive plans to move forward with the program. Since the inception of thePSI agreement, the Company paid a total of $720,000 to PSI and paid $85,324 ofexpenses. The Company does not anticipate any further activity pursuant to thePSI agreement.The Company engaged in various capital raising activities to pursue its newbusiness opportunities, raising $489,781 in 2003, $1,289,375 in 2004, and atotal of $1,600,000 in 2005 through March 2006. Such capital raising activitiesenabled the Company to pursue the arrangement with PSI and NeoStem. It will benecessary for the Company to raise new capital. There can be no assurance thatSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. the Company's new business will be successful or that the Company will be ableto raise new capital.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. 25INCOME 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 thelikelihood 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 2005 COMPARED TO FISCAL 2004The Company generated recognized revenues from the sale of extended warrantiesand service contracts via the Internet of $35,000 in fiscal 2005 compared to$49,000 in fiscal 2004. 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 $25,000 and $34,000 for fiscal years 2005and 2004 respectively, which relate to costs previously deferred over the lifeof such contracts.General and administrative expenses totaled $1,611,000 during the year endedDecember 31, 2005 as compared to $764,000 for fiscal 2004, an increase of$847,000 or 190%. The increase was primarily attributable to increases insalaries and related expenses ($495,000), consultants ($50,000), legal andaccounting ($196,000), investment banking fees ($61,000) and investor relations($19,000).In accordance with the PSI agreement, the Company paid PSI $0 in fiscal 2005 ascompared to $725,000 in fiscal 2004.Interest expense decreased in fiscal 2005 to $144,000 from $274,000 in fiscal2004 due to the lower level of debt and certain loans from officers anddirectors at an interest rate of 8% compared with much higher rates fromnon-affiliated noteholders in the previous year.For the reasons cited above, the net loss decreased to $1,745,000 in fiscal 2005Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 the comparable loss of $1,748,000 for fiscal 2004.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 $274,000 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. 26LIQUIDITY 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, 2005 December 31, 2004 ----------------- -----------------Cash used inoperating activities $ (833,996) $(1,459,653)Cash used ininvesting activities $ 0 (3,288)Cash provided byfinancing activities $ 1,295,000 1,279,862At December 31, 2005, the Company had a cash balance of $488,872, deficitworking capital of $1,245,084 and a stockholders' deficit of $1,817,638. Inaddition, the Company sustained losses of $1,745,039, $1,748,372 and $1,044,145for the three fiscal years ended December 31, 2005, 2004 and 2003, respectively.The Company's lack of liquidity combined with its history of losses raisessubstantial doubt as to the ability of the Company to continue as a goingconcern. No assurance can be given as to the Company's ability to raiseadditional financing to cure its liquidity issues.On December 30, 2005 the Company commenced a private placement to sell 9% sixmonth convertible notes in $25,000 units. Each unit consisted of the 9% noteconvertible into shares of the Company's Common Stock at $0.06 per share and416,666 warrants to purchase the Company's Common Stock at an exercise price of$.12 per share. On December 30, 2005, the Company sold $250,000 of these notesand through January 31, 2006 an additional $250,000 of these notes for a totalSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. of $500,000. The net proceeds from the sales of these notes to the Company were$443,880.The following table reflects a summary of the Company's contractual cashobligations as of December 31, 2005: PAYMENTS DUE BY PERIOD --------------------------------------------------CONTRACTUAL OBLIGATIONS LESS THAN 1 MORE THAN 5 TOTAL YEAR 1-3 YEARS 3-5 YEARS YEARS ---------- ---------- ---------- ---------- ----------- Notes payable $ 433,000 $ 433,000 $ 0 $ 0 $ 0Operating leases 74,744 69,044 5,700 0 0Employment agreements 2,332,867 986,083 1,346,783 0 0 ----------SERIES A MANDATORILY REDEEMABLE CONVERTIBLEPREFERRED STOCK 572,208 47,684 143,052 143,052 238,420 ---------- ---------- ---------- ---------- ---------- Total $2,840,611 $1,535,811 $1,495,535 $ 143,052 $ 238,420 ========== ========== ========== ========== =========-The table above includes the contractual obligations acquired in the purchase ofsubstantially all the assets of NeoStem, Inc. on January 19, 2006.INFLATIONThe Company does not believe that its operations have been materially influencedby inflation in the fiscal year ended December 31, 2005, a situation which isexpected to continue for the foreseeable future.SEASONALITYThe Company does not believe that its operations are seasonal in nature. 27OFF-BALANCE SHEET ARRANGEMENTSThe Company does not have any off-balance sheet arrangements.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot Applicable. 28ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements required to be filed under this Item are presentedcommencing on page F-1 of the Annual Report on Form 10-K, and are incorporatedherein by reference. The supplementary financial information required to bedisclosed under this Item is presented below:SELECTED QUARTERLY FINANCIAL DATA$'000 QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTERSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. (EXCEPT NET ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDEDLOSS PER 12/31/05 9/30/05 6/30/05 3/31/05 12/31/04 9/30/04 6/30/04 3/31/04SHARE WHICHIS STATED IN $) Earned Revenues $8 $8 $9 $ 10 $12 $3 $7 $27Direct Costs 6 6 6 7 8 2 5 19Gross profit 2 2 3 3 4 1 2 8Operating Loss (491) (542) (356) (212) (263) (417) (413) (381)Net LossAttributable to (527) (575) (393) (250) (300) (500) (492) (456)CommonStockholdersNet loss per (.01) (.01) (.01) (.01) (.00) (.01) (.02) (.02)shareITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREInformation required pursuant to this Item has been previously reported, that onJanuary 6, 2004, upon recommendation and approval of the Company's Board ofDirectors, the Company dismissed Travis, Wolff & Company, LLP and engaged HoltzRubenstein Reminick LLP as the Company's independent auditors for the fiscalyear ended December 31, 2003. There were no "disagreements" or "reportableevents" that were required to be disclosed.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.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.ITEM 9B. OTHER INFORMATIONNone. 29 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 15, 2006:NAME AGE POSITIONSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Mark Weinreb 53 Director, President & Chief Executive OfficerLarry A. May 56 Chief Financial OfficerCatherine M. Vaczy 44 Executive Vice President and General CounselWayne Marasco 52 DirectorJoseph Zuckerman 54 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.LARRY A. MAYCHIEF FINANCIAL OFFICERLarry A. May joined the Company in connection with the NeoStem acquisition, andeffective March 1, 2006, is the Chief Financial Officer of the Company. Mr. May,the former Treasurer of Amgen (one of the world's largest biotechnologycompanies), initially became affiliated with Phase III Medical to assist withlicensing activities in September 2003. For the last 20 years, Mr. May hasworked in the areas of life science and biotechnology. From 1983 to 1998, Mr.May worked for Amgen as Corporate Controller (1983 to 1988), VicePresident/Corporate Controller/Chief Accounting Officer (1988 to 1997), and VicePresident/Treasurer (1997 to 1998). At Amgen, Mr. May helped build itsaccounting, finance and IT organizations. From 1998 to 2000, Mr. May served asthe Senior Vice President, Finance & Chief Financial Officer of BiosourceInternational, Inc., a provider of biologic research reagents and assays. From2000 to May 2003, Mr. May served as the Chief Financial Officer of Saronyx,Inc., a company focused on developing productivity tools and securecommunication systems for research scientists. From August 2003 to present, Mr.May served as the Chief Executive Officer and Chief Financial Officer ofNeoStem. Mr. May received a Bachelor of Science degree in BusinessAdministration & Accounting in 1971 from the University of Missouri. 30CATHERINE M. VACZYEXECUTIVE VICE PRESIDENT AND GENERAL COUNSELMs. Vaczy joined the Company in April 2005 as Executive Vice President andGeneral Counsel. Ms. Vaczy is responsible for overseeing the Company's legalaffairs as well as assisting the Company in reviewing and evaluating business,scientific and medical opportunities. From 1997 through 2003, Ms. Vaczy heldvarious senior positions at ImClone Systems Incorporated, a publicly-tradedcompany developing a portfolio of targeted biologic treatments to address themedical needs of patients with a variety of cancers, most recently as its VicePresident, Legal and Associate General Counsel. While at ImClone, Ms. Vaczyserved as a key advisor in the day-to-day operations of the company and helpedSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. forge a number of important strategic alliances, including a $1 billionco-development agreement for Erbitux(R), the company's targeted therapycurrently approved for the treatment of metastatic colorectal and head and neckcancers. From 1988 through 1996, Ms. Vaczy served as a corporate attorneyadvising clients in the life science industries at the New York City law firm ofRoss & Hardies. Ms. Vaczy received a Bachelor of Arts degree in 1983 from BostonCollege and a Juris Doctor from St. John's University School of Law in 1988.WAYNE MARASCO, M.D., PH.D.DIRECTORDr. Marasco joined the Board of Directors of the Company in June 2003. In August2004 he was appointed the Company's Senior Scientific Advisor. Dr. Marasco is anAssociate 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 training ininfectious diseases. His clinical practice sub-specialty is in the treatment ofimmunocompromised (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's laboratory is recognized internationally for itspioneering development of intracellular antibodies (sFv) or "intrabodies" as anew class of molecules for research and gene therapy applications. He is theauthor of more than 70 peer reviewed research publications, numerous chapters,books and monographs and has been an invited speaker at many national andinternational conferences in the areas of antibody engineering, gene therapy andAIDS. Dr. Marasco is also the Scientific Director of the National Foundation forCancer Research Center for Therapeutic Antibody Engineering (the "Center"). TheCenter is located at the Dana-Farber Cancer Institute and will work withinvestigators globally to develop new human monoclonal antibody drugs for thetreatment 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 was President of the American Shoulder and Elbow Surgeons andChair of the Council on Education for the American Academy of OrthopaedicSurgeons. He recently developed and successfully implemented a sponsorshipprogram between the hospital and the New York Mets. His clinical practice isfocused on shoulder surgery and hip and knee replacement and he is the author oreditor of ten textbooks, 60 chapters and more than 200 articles in theorthopaedic and scientific literature. 31SIGNIFICANT EMPLOYEESDENIS RODGERSON, PH.D.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. DIRECTOR OF STEM CELL SCIENCEDenis Rodgerson, Ph.D., the Company's Director of Stem Cell Science, joinedPhase III in connection with the NeoStem acquisition. Dr. Rodgerson, one of theoriginal founders of NeoStem, has over 36 years experience managing largetertiary care and reference clinical laboratories with many patents and articlesto his credit. Prior to joining NeoStem, he co-founded StemCyte, and oversaw thecompany to the world's second largest allogeneic umbilical cord stem cell bankwith multinational collection centers. His career has included being theVice-Chairman and Professor of the Department of Pathology and LaboratoryMedicine at the University of California Los Angeles ("UCLA") and Director ofPediatric Laboratories and Analytical Toxicology Service at the University ofColorado. At UCLA, where he was the Head of Clinical Chemistry and Toxicologyand Clinical Laboratory Computing, he was in charge of a laboratory andadministrative staff of more than 300 with an annual operating budget of $12million and revenues of $60 million. Prior to UCLA, he held the positions ofDirector of Pediatric Laboratories and Analytical Toxicology Service at theUniversity of Colorado for 12 years. He is a Fellow of the Association ofClinical Scientists and Institute of Medical Laboratory Science. As along-standing member of the American Association for Clinical Chemistry, heserved on its Board of Directors and was the Chairman of the 1969 NationalMeeting and many other committees. The committees that he has served on at UCLAand the University of California system-wide, include serving as the Director ofthe Office of Industry Relations, Chairman of the System-wide Library Committee,member of the System-wide Committee on Information Transfer and TechnologyPolicy and the President's Task-Force on the California Digital Library. Dr.Rodgerson has published more than 150 articles in the medical and scientificliterature. He has held consulting positions for many institutions andcorporations, including NASA, National Bureau of Standards, Hewlett Packard,Beckman Instruments, Hybridtech, Boehringer-Mannheim Corporation, 3M Company,Warren-Teed Pharmaceuticals, Micromedic Systems, Ortho Diagnostics, NationalHealth Laboratories, Consolidated Biomedical Laboratories, Bio-Dynamics, Inc.,Fisher Scientific, E. I. DuPont de Nemours, Ciba Pharmaceuticals, DNATechnology, and Diagnostic Products Corporation. Dr. Rodgerson received his M.S.and Ph.D. from the University of Colorado.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, nominatingcommittee or compensation committee at this time and the entire Board ofDirectors acts in such capacities. Accordingly, the Company's Board of Directorsalso has determined that the Company does not have an audit committee financialexpert. The Company continues to seek new board members in order to implementits reorganization and new business plan, and appoint a separately designatedaudit committee.SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 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 2005 each of thereporting persons complied with these filing requirements, except that one suchreport was inadvertently not timely filed by Dr. Joseph Zuckerman.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 forSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 year ended December 31, 2003. 32ITEM 11. EXECUTIVE COMPENSATIONThe following table sets forth the aggregate compensation paid during the threeyears ended December 31, 2005 to the Company's Chief Executive Officer and allother executive officers of the Company who earned in excess of $100,000 forservices rendered during fiscal 2005 (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE------------------------------------------------------------------------------------------------------------- ANNUAL COMPENSATION LONG TERM COMPENSATION -------------------------------------- ----------------------------- SECURITIES RESTRICTED UNDERLYING ALL OTHER STOCK OPTIONS/SAR'SNAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS-------------------------------------------------------------------------------------------------------------- Mark Weinreb (1) 2005 $ 245,741(2) $20,000 $18,500(3) $150,000 6,550,000Chief Executive Officer 2004 $203,192 $20,000 $18,500(3) - 2,550,000 2003 $157,154 - $18,500(3) - 2,500,000Robert Aholt, Jr. (4) 2005 $ 173,079(5) - $9,000(6) - 1,500,000Chief Operating Officer 2004 - - - - 2003 - - - -Catherine Vaczy (7) 2005 $ 97,062 - $6,000(6) - 1,100,000 (8)Executive Vice Presidentand General Counsel 2004 - - - - 2003 - - - -(1) Mr. Weinreb joined the Company as of February 6, 2003.(2) Payment of $201,391 of this amount was deferred and is currently outstanding. The Company and Mr. Weinreb are currently in discussions relating to the method by which such deferred amount will be satisfied, which could include the issuance of shares of Common Stock to Mr. Weinreb in full or partial payment of such amount.(3) Consists of (i) a car allowance of $12,000 and (ii) approximately $6,500 paid by the Company on behalf of Mr. Weinreb for disability insurance.(4) Mr. Aholt joined the Company as of September 13, 2004.(5) Payment of $57,940 of this amount was deferred. Mr. Aholt has resigned from his position with the Company. On March 31, 2006 the Company and Mr. Aholt entered into a Settlement Agreement and General Release relating to the satisfaction of this and certain severance obligations. In addition, $64,200 of the $173,079 was paid to Mr. Aholt in the form of shares of Common Stock with a per share price equal to the fair market value of the Common Stock on the date such amount was converted into shares of Common Stock.(6) Consists of a car allowance per the Named Executive Officer's employment agreement with the Company.(7) Ms. Vaczy joined the Company as of April 20, 2005.(8) Payment of $17,885 of this amount was deferred and is currently outstanding. The Company and Ms. Vaczy are currently in discussions relating to the method by which such deferred amount will be satisfied, which could include the issuance of shares of Common Stock to Ms. Vaczy in full or partial payment of such amount. In addition, $48,138 of this amount was paid to Ms. Vaczy in the form of shares of Common Stock with a per share price equal to the fair market value of the Common Stock on the date such amount was converted into shares of Common Stock. 33OPTION GRANTSThe following table provides certain information with respect to options grantedto the Company's Named Executive Officers during the fiscal year ended DecemberSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 31, 2005:Option Grants in Last Fiscal Year PERCENT TO TOTAL POTENTIAL REALIZABLE VALUE OPTIONS MARKET AT ASSUMED ANNUAL RATES OF SECURITIES GRANTED TO EXERCISE PRICE ON STOCK PRICE APPRECIATION UNDERLYING EMPLOYEES PRICE DATE OF FOR OPTION TERM(1) OPTIONS IN PER SHARE GRANT EXPIRATION ------------------------------ NAME GRANTED FISCAL YEAR ($) ($) DATE 5% 10%--------------------------------- -------------- ----------- ----------- ------------ ------------- ----------------- Mark Weinreb 2,500,000(2) 100% $.03 $.03 2-14-13 $ 53,275 $129,257 50,000(2) 6% $.10 $.10 9-13-14 $8,552 $ 13,617 4,000,000(3) 43% $.06 $.05 7-19-15 $325,779 $518,748------------------------------------------------------------------------------------------------------------------------------------------Robert Aholt, Jr. 1,500,000(4) 16% $.06 $.05 7-19-15 $122,167 $194,531-------------------------------------------------------------------------------------------------------------------------------------------Catherine Vaczy 150,000(5) 2% $.10 $.05 4-19-15 $ 12,217 $19,453 750,000(6) 8% $.06 $.05 7-19-15 $ 61,084 $97,265 200,000(2) 2% $.06 $.06 12-21-15 $ 16,289 $25,937---------------------------------------------------------------------------------------------------------------------(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 in their entirety on the date of grant.(3) These options vested as to 2,000,000 shares on the date of grant and are scheduled to vest as to an additional 1,000,000 shares on each of the first and second anniversaries of the date of grant.(4) These options vested as to 1,000,000 shares on the date of grant and were scheduled to vest as to an additional 250,000 shares on each of the first and second anniversaries of the date of grant. However, due to Mr. Aholt's resignation from the Company prior to the first anniversary of the date of grant, the option shall not vest as to any additional shares as provided in the Company's 2003 Equity Participation Plan.(5) These options are scheduled to vest as to 50,000 shares on each of the first, second and third anniversaries of the date of grant.(6) These options are scheduled to vest as to 375,000 shares on each of the first and second anniversaries of the date of grant. 34OPTION EXERCISES AND HOLDINGSSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 following table provides information concerning options exercised during2005 and the value of unexercised options held by each of the Named ExecutiveOfficers at December 31, 2005. OPTION VALUES AT DECEMBER 31, 2005 NUMBER OF SHARES SECURITIES UNDERLYING ACQUIRED UNEXERCISED OPTIONS VALUE OF ON AT DECEMBER 31, 2005 IN-THE-MONEY OPTIONS AT EXERCISE VALUE (# OF SHARES) DECEMBER 31, 2005 ($)(1) --------------------------------- ------------------------------------ NAME (# SHARES) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ------------------- ---------------------------------------------------------------------------- ---------------- Mark Weinreb - - 4,550,000 2,000,000 $165,000 $40,000 Robert Aholt, Jr. - - 1,000,000 500,000 $20,000 $10,000 Catherine Vaczy - - 200,000 900,000 $4,000 $15,000 ----------------------------------------------------------------------------------------------------------------- (1) Based on $0.08 per share, the closing price of the Company's Common Stock, as reported by the OTC Bulletin Board, on December 30, 2005.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 had 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 had agreed topay Mr. Weinreb an annual salary of $180,000 for the initial year of the term,$198,000 for the second year of the term, and $217,800 for the third year of theterm. In addition, he was entitled to an annual bonus in the amount of $20,000for the initial year in the event, and concurrently on the date, that theCompany 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 ("2003 EPP"), 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 exerciseprice of $0.03 per share and otherwise upon the terms set forth in the initialoption agreement. In addition, in the event that the closing price of theCompany's common stock equals or exceeds $0.50 per share for any fiveconsecutive trading days during the term of the employment agreement (whetherduring the initial term or an annual extension), the Company agreed to grant toMr. Weinreb, on the day immediately following the end of the five day period, anoption for the purchase of an additional 2,500,000 shares of the Company'scommon stock for an exercise price of $0.50 per share, pursuant to the 2003 EPPand a stock option agreement to be entered into between the Company and Mr.Weinreb containing substantially the same terms as the initial option agreement,except for the exercise price and that the option would be treated as an"incentive stock option" for tax purposes only to the maximum extent permittedby law (the "additional option agreement"). The Company agreed to promptly filewith the Securities and Exchange Commission a Registration Statement on Form S-8(the "registration statement") pursuant to which the issuance of the sharescovered by the 2003 EPP, as well as the resale of the common stock issuable uponexercise of the initial option agreement, are registered, which has been filed.Additionally, the Company agreed, following any grant under the additionaloption agreement, to promptly file a post-effective amendment to theregistration statement pursuant to which the common stock issuable upon exercisethereof would be registered for resale. Mr. Weinreb agreed that he would notresell publicly any shares of the Company's common stock obtained upon exerciseof any initial option agreement or the additional option agreement prior to thefirst anniversary of the date of the employment agreement.On May 4, 2005, the Board voted to approve an amendment to Mr. Weinreb'semployment agreement, subject to approval of the stockholders which was obtainedSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. on July 20, 2005, pursuant to which Mr. Weinreb's employment agreement wasamended to (a) extend the expiration date thereof from February 2006 to December2008; (b) change Mr. Weinreb's annual base salary of $217,800 (with an increaseof 10% per annum) to an annual base salary of $250,000 (with no increase perannum); (c) grant Mr. Weinreb 3,000,000 shares of common stock, 1,000,000 sharesof which shall vest on each of the date of grant and the first and secondanniversaries of the date of grant; (d) amend the severance provision of theexisting employment agreement to provide that in the event of terminationwithout cause (subject to certain exceptions), Mr. Weinreb will be entitled toreceive a lump sum payment equal to his then base salary and automobileallowance for a period of one year; (e) commencing in August 2006, increase Mr.Weinreb's annual bonus from $20,000 to $25,000; (f) in August 2005, pay Mr.Weinreb $15,000 to cover costs incurred by him on behalf of the Company; and (g)in 2006, provide for the reimbursement of all premiums in an annual aggregateamount of up to $18,000 payable by Mr. Weinreb for life and long term careinsurance covering each year during the remainder of the term of his employment. 35On 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. Pursuant thereto, Dr. Marasco wasresponsible for assisting the Company in reviewing and evaluating business,scientific and medical opportunities, and for other discussions and meetingsthat arise during the normal course of the Company conducting business. For hisservices, during a three year period ("Term"), Dr. Marasco was entitled toannual cash compensation with increases each year of the Term and an additionalcash compensation based on a percentage of collected revenues derived from theCompany's royalty or revenue sharing agreements. Although the annual cashcompensation and additional cash compensation stated above began to accrue as ofthe Commencement Date, Dr. Marasco was not be entitled to receive any suchamounts until the Company raises $1,500,000 in additional equity financing afterthe Commencement Date. In addition, Dr. Marasco was granted an option, fullyvested, to purchase 675,000 shares of the Company's common stock at an exerciseprice of $.10 cents per share. The shares will be subject to a one year lockupas of the date of grant. The exercise period will be ten years, and the grantwill otherwise be in accordance with the Company's 2003 EPP and Non-QualifiedStock Option Grant Agreement.On May 4, 2005, the Board voted to approve an amendment to Dr. Marasco's LetterAgreement, subject to approval of the stockholders which was obtained on July20, 2005, pursuant to which Dr. Marasco's Letter Agreement with the Company wasamended to (a) extend the term of the Letter Agreement from August 2007 toAugust 2008; (b) provide for an annual salary of $110,000, $125,000 and $150,000for the years ended August 2006, 2007 and 2008, payable in each such year duringthe term; (c) provide for a minimum annual bonus of $12,000, payable in Januaryof each year during the term, commencing in January 2006; (d) eliminate Dr.Marasco's right under his existing Letter Agreement to receive 5% of allcollected revenues derived from the Company's royalty or other revenue sharingagreements (which right is subject to the limitation that the amount of suchadditional cash compensation and Dr. Marasco's annual salary do not exceed, inthe aggregate, $200,000 per year); and (e) permit Dr. Marasco to begin receivingall accrued but unpaid cash compensation under his Letter Agreement upon theCompany's consummation of any financing, whether equity or otherwise, pursuantto which the Company raises $1,500,000.On April 20, 2005 (the "Commencement Date"), the Company entered into a letteragreement (the "Letter Agreement") with Catherine M. Vaczy pursuant to which Ms.Vaczy serves as the Company's Executive Vice President and General Counsel.Subject to the terms and conditions of the Letter Agreement, the term of Ms.Vaczy's employment in such capacity will be for a period of three (3) years fromthe Commencement Date (the "Term"). In consideration for Ms. Vaczy's servicesunder the Letter Agreement, Ms. Vaczy will be entitled to receive an annualsalary of $155,000 during the first year of the Term, a minimum annual salary of$170,500 during the second year of the Term, and a minimum annual salary of$187,550 during the third year of the Term. Ms. Vaczy and the Company haveagreed that from the Commencement Date until the 90th day thereafter (the"Initial 90 Day Period"), Ms. Vaczy's salary will be paid to her at a rate of50% of the annual rate and accrue as to the remainder. At the end of the Initial90 Day Period, and at the end of each additional 90 day period thereafter,whether to continue to accrue salary at this rate and provision for payment ofaccrued amounts will be discussed in good faith. Payment of accrued salary maybe made in cash, or, upon mutual agreement, shares of Common Stock. Any sharesSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. of Common Stock issued in payment of accrued salary shall have a per share priceequal to 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 issue of such shares; provided, however, that if theCommon Stock is not then quoted on the Bulletin Board or otherwise listed orquoted on an exchange or association, the price shall be the fair market valueof one share of Common Stock as of the date of issue as determined in good faithby the Board of Directors of the Company. The number of shares of Common Stockfor any issuance in payment of accrued salary shall be equal to the quotient ofthe amount of the accrued salary divided by the price. The shares issued will besubject to a one-year lock of up as of the date of each grant and shall beregistered with the Securities and Exchange Commission on a RegistrationStatement on Form S-8.Pursuant to Ms. Vaczy's Letter Agreement with the Company, on the CommencementDate she was granted an option to purchase 150,000 shares of Common Stock (the"Option") pursuant to the Company's 2003 EPP, with an exercise price equal to$.10 per share. The Option vests and becomes exercisable as to 50,000 shares oneach of the first, second and third year anniversaries of the Commencement Dateand remains exercisable as to any vested portion thereof in accordance with theterms of the 2003 EPP and the Incentive Stock Option Agreement.In the event Ms. Vaczy'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 Ms. Vaczy's employment is terminated prior to the end of the Term forany reason other than by the Company with Cause or Ms. Vaczy without GoodReason, Ms. Vaczy or her executor of her last will or the duly authorizedadministrator of her estate, as applicable, will be entitled (i) in the eventthe employment termination date is after April 20, 2006, to receive severancepayments equal to Ms. Vaczy's then one year's salary, paid in accordance withthe Company's standard payroll practices for executives of the Company and (ii)in the event the employment termination date is before April 20, 2006 but afterOctober 20, 2005, to receive severance payments equal to one-sixth of Ms.Vaczy's then one year's salary, paid in accordance with the Company's standardpayroll practices for executives of the Company. In addition, in the event Ms.Vaczy's employment is terminated prior to the end of the Term by the Companywithout Cause or by Ms. Vaczy for Good Reason, the Option granted to Ms. Vaczy(described above), shall vest and become immediately exercisable in its entiretyand remain exercisable in accordance with its terms. No other payments shall bemade, nor benefits provided, by the Company in connection with the terminationof employment prior to the end of the Term, except as otherwise required by law.In January 2006, Ms. Vaczy's Letter Agreement was amended to provide that (i)regardless of her employment termination date, severance payments payable to herwould equal her then one year's salary and (ii) no severance payments would bepayable without Ms. Vaczy first providing the Company with a release incustomary form. 36In August 2005, Ms. Vaczy's Letter Agreement was amended to provide that (i) asof October 1, 2005 she will cease to accrue salary and will as of that datebegin to receive payment of salary solely in cash in accordance with theCompany's standard payroll practices, and (ii) will be issued in payment ofsalary accruing during the period that commenced on April 20, 2005 and ended onSeptember 30, 2005, shares of Common Stock. With respect to the portion ofsalary that accrued from April 20, 2005 through August 12, 2005, the price pershare will be $.06, the closing price of the Common Stock on August 12, 2005.For the portion of salary that accrued from August 13, 2005 through September30, 2005, the price per share will be the closing price of the Common Stock onSeptember 30, 2005. Pursuant to the foregoing, on August 12, 2005, Ms. Vaczy wasissued 412,339 shares of Common Stock in payment of $24,740 in accrued salaryand on October 3, 2005, Ms. Vaczy was issued 260,817 shares in payment of$10,433 in accrued salary. On December 22, 2005, the Company and Ms. Vaczyentered into a letter agreement pursuant to which Ms. Vaczy agreed to accept416,666 shares of Common Stock in payment of $25,000 of additional accruedsalary. The price per share was equal to $.06, the closing price of a share ofCommon Stock on the date of the agreement.In connection with the Company's acquisition of the assets of NeoStem on January19, 2006, the Company entered into an employment agreement with Larry A. May.Mr. May is the former Chief Executive Officer of NeoStem. Pursuant to Mr. May'sSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. employment agreement, he is to serve as an officer of the Company reporting tothe CEO for a term of three years, subject to earlier termination as provided inthe agreement. In return, Mr. May will be paid an annual salary of $165,000,payable in accordance with the Company's standard payroll practices, will beentitled to participate in the Company's benefit plans generally available toother executives, including a car allowance equal to $750 per month and wasgranted on his commencement date an employee stock option under the Company's2003 EPP to purchase 150,000 shares of the Company's Common Stock at a per sharepurchase price equal to $.05, the closing price of the Common Stock on thecommencement date, which vests as to 50,000 shares of Common Stock on the first,second and third anniversaries of the commencement date. Under certaincircumstances, Mr. May is also entitled to a severance payment equal to oneyear's salary in the event of the early termination of his employment.In connection with the Company's acquisition of the assets of NeoStem on January19, 2006, the Company entered into an employment agreement with Denis O.Rodgerson. Dr. Rodgerson is one of the founders of NeoStem. Dr. Rodgerson'semployment agreement is identical to Mr. May's employment agreement, except that(i) its term is one year; (ii) he was granted an option to purchase 50,000shares of Common Stock under the EPP vesting in its entirety after one year; and(iii) his agreement does not contain a provision for severance.]On January 20, 2006, Mr. Robert Aholt, Jr. tendered his resignation as ChiefOperating Officer of the Company. In connection therewith, on March 31, 2006,the Company and Mr. Aholt entered into a Settlement Agreement and GeneralRelease (the "Settlement Agreement"). Pursuant to the Settlement Agreement, theCompany agrees to pay to Mr. Aholt the aggregate sum of $250,000 (lessapplicable Federal and California state and local withholdings and payrolldeductions), payable over a period of two years in biweekly installments of$4,807.69 commencing on April 7, 2006, except that the first payment will be inthe amount of $9,615,38. In the event the Company breaches its paymentobligations under the Settlement Agreement and such breach remains uncured, thefull balance owed shall become due. The Company and Mr. Aholt each providedcertain general releases. Mr. Aholt also agrees to continue to be bound by hisobligations not to compete with the Company and to maintain the confidentialityof Company proprietary information. Following is a summary of Mr. Aholt'sprevious employment arrangements.On September 13, 2004, ("Commencement Date") the Company entered into a letteragreement (the "Letter Agreement") with Mr. Aholt pursuant to which the Companyappointed Mr. Aholt as its Chief Operating Officer. Subject to the terms andconditions of the Letter Agreement, the term of Mr. Aholt's employment in suchcapacity was for a period of three (3) years from the Commencement Date (the"Term"). 37In consideration for Mr. Aholt's services under the Letter Agreement, Mr. Aholtwas entitled to receive a monthly salary of $4,000 during the first year of theTerm, $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 was entitled to receive shares ofCommon 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 Valuewas to 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 was not then listed or quoted on an exchange or association, thePrice would 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 was to be equal tothe quotient of the Dollar Value divided by the Price. The shares granted weresubject to a one year lockup as of the date of each grant. Mr. Aholt received477,679 shares of the Company's Common Stock on January 1, 2005, 800,898 shareson April 1, 2005 and 668,750 shares on July 1, 2005.In the event Mr. Aholt's employment was 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 was to be payable in full. In addition,in the event Mr. Aholt's employment was terminated prior to the end of the TermSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 any reason other than by the Company with cause, Mr. Aholt or his executorof his last will or the duly authorized administrator of his estate, asapplicable, was to be entitled (i) to receive severance payments equal to oneyear's salary, paid at the same level and timing of salary as Mr. Aholt was thenreceiving and (ii) to receive, during the one (1) year period following the dateof such termination, the stock grants that Mr. Aholt would have been entitled toreceive had his employment not been terminated prior to the end of the Term;provided, however, that in the event such termination was by the Company withoutcause or was upon Mr. Aholt's resignation for good reason, such severancepayment and grant was to be subject to Mr. Aholt's execution and delivery to theCompany of a release of all claims against the Company.On May 4, 2005, the Board voted to approve an amendment to Mr. Aholt's LetterAgreement, subject to approval of the stockholders which was obtained on July20, 2005, to (a) replace the provision of Mr. Aholt's existing employmentagreement pursuant to which he would be compensated in shares of Common Stockwith a provision pursuant to which he would be compensated solely in cash,effective as of September 30, 2005; (b) replace the provision of Mr. Aholt'sexisting employment agreement pursuant to which his compensation accrued on amonthly and/or quarterly basis with a provision pursuant to which hiscompensation would be paid in accordance with the Company's normal payrollpractices, effective as of September 30, 2005; and (c) provide for a minimumannual bonus of $12,000, payable in January of each year during the term of hisemployment, commencing in January 2006.DIRECTOR COMPENSATIONDirectors who are employees of the Company do not receive additionalcompensation for serving as directors. Independent (non-employee) directors ofthe Company are reimbursed for out-of-pocket travel expenses incurred in theircapacity as directors of the Company. Independent directors also receive optionsto purchase 300,000 shares of the Company's Common Stock upon joining the Boardpursuant to the Company's 2003 EPP, and thereafter receive an annual grant topurchase 50,000 shares of the Company's Common Stock on the date of theCompany's annual stockholder's meeting (although no director may receive morethan one grant of such options in any calendar year). The Company's only currentindependent director, Joseph Zuckerman, has thus far received options topurchase 350,000 shares of the Company's Common Stock pursuant to the Company's2003 EPP pursuant to this standard arrangement. In addition, in July 2005 theshareholders approved a one-time grant to Dr. Zuckerman of an option to purchase1,500,000 shares of the Company's Common Stock at $0.06 per share (which wasgreater than the market price on the date the Board approved the grant), withrespect to which the option to purchase 1,000,000 shares vested immediately uponthe date of grant and 250,000 shares shall vest on each of the first and secondanniversaries of the date of grant. Upon achieving certain target increases instock price for a defined period of time during an existing independentdirector's 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.Thus far, no such options have been granted. 38 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 1, 2006 by (i) eachbeneficial owner of more than five percent of the outstanding Common Stock, (ii)each current executive officer and director and (iii) all current executiveofficers and directors of the Company as a group. All shares are owned bothbeneficially 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.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. NUMBER AND PERCENTAGE OF SHARES OF COMMON STOCK OWNED------------------------------------------------------------------------------------------------------------------ Percentage NAME AND ADDRESS OF NUMBER OF SHARES BENEFICIALLY OF COMMON STOCK BENEFICIAL HOLDER (1) OWNED (2) BENEFICIALLY OWNED (2)------------------------------------------------------------------------------------------------------------------ Mark Weinreb 8,185,000 (3) 9.50%-----------------------------------------------------President, Chief Executive Officer and DirectorDr. Wayne Marasco 3,608,333 (4) 4.48%Senior Scientific Advisor and DirectorDr. Joseph Zuckerman 2,135,000 (5) 2.67%DirectorCatherine M. Vaczy 5,956,488 (6) 7.56%Executive Vice President and General CounselDr. Armando Munoz 6,666,666 (7) 8.49%Caribbean Stem Cell Group, Inc.Box 800982-00780-0982Cotto Laurel, Puerto Rico 00780Larry A. May, Chief Financial Officer 639,969 (8) <1%Robert Aholt, Jr 12,191,024 (9) 15.90%20128 Cavern CourtSaugus, Los Angeles, CA 91390All Directors and Officers as a group (five persons) 20,330,969 (10) 23.02%------------------------------------------------------------------------------------------------------------------1. Unless otherwise noted, each stockholder's address is in care of Phase III Medical, Inc., 330 South Service Road, Suite 120, Melville, New York 11747.2. The percentage of Common Stock owned by each stockholder is calculated by dividing (i) the number of shares deemed to be beneficially owned by such stockholder as of March 1, 2006, as determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), by (ii) the sum of (A) 78,571,087 which is the number of shares of Common Stock outstanding as of March 1, 2006, plus (B) the number of shares of Common Stock issuable upon exercise of currently exercisable options and warrants held by such stockholder. For purposes of this security ownership table, "currently exercisable options and warrants" consist of options and warrants exercisable as of March 1, 2006 or within 60 days after March 1, 2006. Except as indicated by footnote, the stockholder has sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such stockholder.3. Includes currently exercisable options to purchase 4,550,000 shares of Common Stock; 3,000,000 shares of restricted Common Stock, vested as to 1,000,000 shares.1. Includes currently exercisable options to purchase 2,025,000 shares of Common Stock.2. Includes currently exercisable options to purchase 1,350,000 shares of Common Stock.3. Includes currently exercisable options to purchase 250,000 shares of Common Stock.4. Includes 6,250,000 shares of Common Stock held by Caribbean Stem Cell Group, Inc. of which Dr. Munoz is President.5. Includes currently exercisable options to purchase 400,000 shares of Common Stock. Mr. May became the Chief Financial Officer of the Company effective March 1, 2006.6. Includes 7,282,913 shares of Common Stock owned by the Robert J. Aholt, Jr. Family Trust dated 2/17/97 of which Mr. Aholt is Trustee and currently exercisable options to purchase 1,000,000 shares of Common Stock.7. Includes currently exercisable options to purchase 8,575,000 shares of Common Stock. 39Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSOn September 13, 2004, the Company and the Robert Aholt, Jr. Family Trust dated2/17/97 (the "trust"), the trustee of which is Robert Aholt, Jr., the Company'sChief Operating Officer, entered into a subscription agreement (the"subscription agreement"), pursuant to which the Company sold to the trust7,282,913 shares of common stock of the Company in exchange for $650,000.Pursuant to the subscription agreement, the Company and Mr. Aholt agreed thatupon maturity of a promissory note made by the Company in favor of Mr. Aholt onor about August 30, 2004 (the "note"), the Company would repay the note inshares of common stock, at a per share conversion price equal to 85% of theaverage of the closing price of one share of common stock on the NationalAssociation of Securities Dealers, Inc. Over-the-Counter Bulletin Board (the"Bulletin Board") for the five (5) days immediately preceding the maturity dateof the note, or, if the common stock is not then traded on the Bulletin Board,at 85% of fair market value as determined by the Board. The note, which was madein the principal amount of $100,000, bore interest at a rate of 20% per annumand matured on February 28, 2005. On February 20, 2005, Mr. Aholt converted theprincipal amount of the note and all accrued interest into 1,960,784 shares ofcommon stock.Mark Weinreb, the Company's President and Chief Executive Officer, has from timeto time loaned money to the Company to help fund its operations. In 2004 and2005, Mr. Weinreb loaned the Company a total of $35,000 and $48,000,respectively. All such loans were represented by promissory notes of the Companywhich bore interest at the rate of 8%. To date, an aggregate of $48,000 inprincipal has been repaid and $35,000 has been converted into 595,000 shares ofCommon Stock.On April 20, 2005, the Company and Catherine M. Vaczy, the Company's ExecutiveVice President and General Counsel, entered into a stock purchase agreement (the"Vaczy Stock Purchase Agreement"), pursuant to which the Company sold to Ms.Vaczy 1,666,666 shares of Common Stock in exchange for $100,000. Pursuant to theVaczy Stock Purchase Agreement, for a period of 90 days, Ms. Vaczy had the rightto purchase up to an additional $200,000 of Common Stock at a per share priceequal to 85% of the average closing price of one share of Common Stock on theBulletin Board for the five (5) consecutive trading days immediately precedingthe date of Ms. Vaczy's notice exercising the option; provided, however, that inno event would the price be less than $.06. Pursuant to the exercise of thisoption, on July 18, 2005, Ms. Vaczy purchased 1,250,000 shares of Common Stockat a per share purchase price of $.06 per share for aggregate consideration of$75,000.Also on April 20, 2005, Ms. Vaczy loaned to the Company the sum of $100,000 andaccepted from the Company a promissory note (the "Vaczy Note"). The Vaczy Notebears interest at a rate of 15% and matures on April 20, 2006. Ms. Vaczy has theoption to convert it into shares of Common Stock at any time up until the 90thday after the date of the Vaczy Note at a per share price equal to 85% of theaverage closing price of one share of Common Stock on the Bulletin Board (orother similar exchange or association on which the Common Stock is then listedor quoted) for the five (5) consecutive trading days immediately preceding thedate of Ms. Vaczy's notice; provided, however, that if the Common Stock is notthen quoted on the Bulletin Board or otherwise listed or quoted on an exchangeor association, the price shall be the fair market value of one share of CommonStock as of the date of issue as determined in good faith by the Board ofDirectors of the Company; and further provided, that in no event shall the pricebe less than $.06. Following the 90th day after the date of the Vaczy Note, Ms.Vaczy is obligated, at any time prior to the date of maturity of the Vaczy Note,to convert it into shares of Common Stock unless Ms. Vaczy shall have providedto the Company a notice terminating her employment with the Company pursuant toher Letter Agreement with the Company. Effective November 30, 2005, the VaczyNote was converted into 1,700,000 shares of Common Stock.On January 19, 2006, the Company consummated the acquisition of the assets ofNeoStem. Larry May, the Company's Chief Financial Officer, was the ChiefExecutive Officer of NeoStem at the time of the transaction. The purchase pricefor NeoStem's assets, in addition to the assumption of certain liabilities,included 5 million shares of the Company's Common Stock, of which Mr. Mayreceived a pro rata distribution of 143,821 shares in exchange for his shares ofNeoStem preferred stock, and 96,148 shares of Company Common Stock asconsideration for existing debt owed by NeoStem to Mr. May. Of the stockconsideration paid to NeoStem, 60% (or 3 million shares) has been retained inSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. escrow for a period of one (1) year from the date of the agreement, subject tocertain indemnification claims and setoffs. Provided that no claims are madeagainst the escrowed shares, Mr. May will be entitled to receive up to 350,563shares of Company Common Stock in escrow in exchange for his shares of NeoStemcommon stock. In addition, upon the acquisition, Mr. May entered into a threeyear employment agreement with the Company. See "Executive Compensation -Employment Agreements." 40ITEM 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 Boardis informed of each service actually rendered.AUDIT FEES. Audit fees billed or expected to be billed to the Company by theCompany's principal accountant for the audit of the financial statementsincluded in the Company's Annual Reports on Form 10-K, and reviews of thefinancial statements included in the Company's Quarterly Reports on Form 10-Q,for the years ended December 31, 2005 and 2004 totaled approximately $32,000 and$25,000, respectively.AUDIT-RELATED FEES. The Company was billed $54,000 and $0 by the Company'sprincipal accountant for the fiscal years ended December 31, 2005 and 2004,respectively, for assurance and related services that are reasonably related tothe performance of the audit or review of the Company's financial statements andare not reported under the caption Audit Fees above. Such fees were related toan audit in connection with the Company's acquisition of the assets of NeoStem.TAX FEES. The Company was billed or expected to be billed an aggregate of $8,000and $7,350 by the Company's principal accountant for the fiscal years endedDecember 31, 2005 and 2004, 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, 2005 and 2004, respectively, for all other services not specified above of$0 and $0, 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 years ended December 31, 2005, 2004 and 2003. The Company's independentauditors performed all work only with its full time permanent employees. 41 PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESThe 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 theSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. schedule, or because the information required is included in the FinancialStatements or Notes thereto.(A)(3) EXHIBITS: 3 (a) Certificate of Incorporation filed September 18, 1980 (1) 3 (b) Amendment to Certificate of Incorporation filed September 29, 1980 (1) 3 (c) Amendment to Certificate of Incorporation filed July 28, 1983 (2) 3(b) (d) Amendment to Certificate of Incorporation filed February 10, 1984 (2) 3(d) (e) Amendment to Certificate of Incorporation filed March 31, 1986 (3) 3(e) (f) Amendment to Certificate of Incorporation filed March 23, 1987 (4) 3(g) (g) Amendment to Certificate of Incorporation filed June 12, 1990 (5) 3.8 (h) Amendment to Certificate of Incorporation filed September 27, 1991 (6) 3.9 (i) Certificate of Designation filed November 12, 1994 (7) 3.8 (j) Amendment to Certificate of Incorporation filed September 28, 1995 (8) 3(j) (k) Certificate of Designation for the Series B Preferred Stock dated May 18, 1998 (9) C 3(f) (l) Amendment to Certificate of Incorporation dated May 18, 1998 (9) A (m) Amendment to Certificate of Incorporation filed July 24, 2003 (10) 3.1 (n) Amendment dated July 20, 2005 to Certificate of Incorporation (11) 3.2 (o) Amendment to Certificate of Incorporation filed March 24, 2006 (12) 3(o) (p) Amended and Restated By-laws (11) 3.14 (a) Form of Underwriter's Warrant (6) 4.9.1 (b) Form of Promissory Note - September 2002 Offering (13) 4.1 (c) Form of Promissory Note - February 2003 Offering (13) 4.2 (d) Form of Promissory Note - March 2003 Offering (13) 4.310 (a) Employment Agreement dated as of February 6, 2003 by and between Corniche Group Incorporated and Mark Weinreb* (14) 99.2 (b) Stock Option Agreement dated as of February 6, 2003 between Corniche Group Incorporated and Mark Weinreb* (14) 99.3 (c] Corniche Group Incorporated 2003 Equity Participation Plan* (14) 99.4 (d) Form of Stock Option Agreement* (13) 10.2 (e) Royalty Agreement, dated as of December 5, 2003, by and between Parallel Solutions, Inc. and Phase III Medical, Inc. (13)(14) 10.1 (f) Employment Agreement dated as of September 13, 2004 between Phase III Medical, Inc. and Robert Aholt, Jr.* (15) 10.3 (g) Stock Purchase Agreement, dated as of September 13, 2004, between Phase III Medical, Inc. and the Aholt, Jr. Family Trust (15) 10.4 (h) Form of Promissory Note - Robert Aholt, Jr. dated August 30, 2004 (15) 10.5 (i) Letter Agreement dated as of August 12, 2004 by and between Phase III Medical, Inc. and Dr. Wayne A. Marasco* (15) 10.6 (j) Board of Directors Agreement by and between Phase III Medical, Inc. and Joseph Zuckerman* (15) 10.8 (k) Stock Purchase Agreement, dated April 20, 2005, between Phase III Medical, Inc. and Catherine M. Vaczy (16) 10.1 (l) Promissory Note made by the Company in favor of Catherine M. Vaczy (16) 10.2 (m) Letter Agreement, dated April 20, 2005, between Phase III Medical, Inc. and Catherine M. Vaczy* (16) 10.3 (n) Stock Option Agreement dated April 20, 2005, between Phase III Medical, Inc. and Catherine M. Vaczy* (16) 10.4 (o) Amendment dated July 18, 2005 to Stock Purchase Agreement with Catherine M. Vaczy dated April 20, 2005 (11) 10.1 (p) Amendment dated July 20, 2005 to Employment Agreement with Mark Weinreb dated February 6, 2003* (11) 10.2 (q) Amendment dated July 20, 2005 to Employment Agreement with Wayne A. Marasco dated August 12, 2004* (11) 10.3 (r) Amendment dated July 20, 2005 to Employment Agreement with Robert Aholt dated September 13, 2004* (11) 10.4 (s) 203 Equity Participation Plan, as amended* (11) 99.1 (t) Form of Option Agreement dated July 20, 2005* (11) 10.5 (u) Form of Promissory Note Extension (11) 10.6 (v) Letter Agreement dated August 12, 2005 with Catherine M. Vaczy* (11) 10.7 (w) Restricted Stock Agreement with Mark Weinreb* (17) 10.8 (x) Asset Purchase Agreement dated December 6, 2005 by and among Phase III Medical, Inc., Phase III Medical Holding Company, and NeoStem, Inc. (18) 99.1 (y) Letter Agreement dated December 22, 2005 between Phase III Medical, Inc. and Catherine M. Vaczy* (12) 10(y)Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. (z) Form of Convertible Promissory Note (19) 10.1 (aa) Employment Agreement between the Company and Larry A. May dated January 19, 2006* (20) 10.1 (bb) Employment Agreement between the Company and Denis O. Rodgerson dated January 19, 2006 (20) 10.2 (cc) Letter Agreement dated January 30, 2006 between Phase III Medical, Inc. and Catherine M. Vaczy* (12) 10(cc) (dd) Settlement Agreement and General Release dated March 31, 2006 between Phase III Medical, Inc. and Robert Aholt, Jr. (12) 10(dd)14 (a) Code of Ethics for Senior Financial Officers (13) 14.121 (a) Subsidiaries of the Registrant (12) 21.123 (a) Consent of Holtz Rubenstein Reminick LLP (12) 23.131 (a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (12) 31.131 (b) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (12) 31.232 (a) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (12) 32.132 (b) Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (12) 32.299 (a) Form of Warrant. (19) 99.1Notes:* Management contract or compensatory plan or arrangement required to be filedas an exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.(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. 42(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, 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.(9) 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.(10) 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 bySource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. reference.(11) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the quarterly report of the Company on Form 10-Q for the quarter ended June 30, 2005, which exhibit is incorporated here by reference.(12) Filed herewith.(13) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the annual report of the Company on Form 10-K, dated December 31, 2003, which exhibit is incorporated here by reference. Certain portions of Exhibit 10(e) (10.1) were omitted based upon a request for confidential treatment, and the omitted portions were filed separately with the Securities and Exchange Commission on a confidential basis.(14) 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.(15) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's annual report on Form 10-K for the year ended December 31, 2004, which exhibit is incorporated here by reference.(16) 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 April 20, 2005, which exhibit is incorporated here by reference.(17) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the quarterly report of the Company on Form 10-Q for the quarter ended September 30, 2005, which exhibit is incorporated here by reference.(18) 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 December 6, 2005, which exhibit is incorporated here by reference.(19) 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 December 31, 2005, which exhibit is incorporated here by reference.(20) 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 January 19, 2006, which exhibit is incorporated here by reference. 43SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Company has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. PHASE III MEDICAL, INC. By: /s/Mark Weinreb --------------------------- Mark Weinreb, PresidentDated: March 31, 2006.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. Pursuant to the requirements of the Securities Exchange Act of 1934, this reporthas been signed below by the following persons onbehalf of the Company and in the capacities and on the dates indicated:SignaturesSignatures Title Date /s/Mark Weinreb Director, President and Chief Executive ---------------- Officer (Principal Executive Officer) Mark Weinreb March 31, 2006 /s/Larry A. May Chief Financial Officer (Principal --------------- Financial Officer and Principal AccountingLarry A. May Officer) March 31, 2006 /s/Wayne Marasco----------------- Wayne Marasco March 31, 2006 Director /s/Joseph Zuckerman -------------------- Joseph Zuckerman March 31, 2006 Director 44 PHASE III MEDICAL, INC. Table of Contents Page ----------Report of Independent Registered Public Accounting Firm - Holtz Rubenstein Reminick LLP F - 1Financial Statements: Balance Sheets at December 31, 2005 and 2004 F - 2 Statements of Operations Years Ended December 31, 2005, 2004 and 2003 F - 3 Statements of Stockholder's (Deficit) Years Ended December 31, 2005, 2004 and 2003 F - 4 Statements of Cash Flows Years Ended December 31, 2005, 2004 and 2003 F - 5 Notes to Financial Statements F - 7 - F - 23Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 -------------------------------------------------------To the Board of Directors and StockholdersPhase III Medical, Inc.We have audited the accompanying balance sheets of Phase III Medical, Inc. as ofDecember 31, 2005 and 2004 and the related statements of operations,stockholders' deficit and cash flows for each of the years in the three-yearperiod ended December 31, 2005. 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, 2005 and 2004 and the results of its operations and cash flows foreach of the years in the three year period ended December 31, 2005 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 LLP---------------------------------Melville, New YorkFebruary 23, 2006, except for Note 12,as to which the date is March 27, 2006 F-1 PHASE III MEDICAL, INC. Balance Sheets December 31, --------------------------------- 2005 2004 -------------- -------------- ASSETSCurrent assets:Cash and cash equivalents $ 488,872 $ 27,868Prepaid expenses and other current assets 18,447 21,233 -------------- --------------Total current assets 507,319 49,101Property and equipment, net 1,488 3,446Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Deferred acquisition costs 19,121 43,897Other assets 114,753 3,000 -------------- -------------- $ 642,681 $ 99,444 ============== ==============LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Interest and dividends payable - preferred stock $ 528,564 $ 480,880Accounts payable 256,976 149,169Accrued liabilities 617,196 88,883Notes payable 135,000 475,000Note payable - related party 48,000Convertible debentures, related party - net of debt discount of $5,882 - 94,118Convertible debentures - net of debt discount of $83,333 166,667 - -------------- --------------Total current liabilities 1,752,403 1,288,050Unearned revenues 26,745 62,007Series A mandatorily redeemable convertible preferred stock 681,171 681,171COMMITMENTS AND CONTINGENCIESStockholders' deficit:Preferred stock; authorized, 5,000,000 shares Series Bconvertible 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, 2005 and at December 31, 2004 100 100Common stock, $.001par value; authorized, 500,000,000 shares;issued and outstanding, 70,543,862 at December 31, 2005and 41,029,552 shares at December 31, 2004 70,545 41,031Additional paid-in capital 12,367,082 10,537,411Accumulated deficit (14,255,365) (12,510,326) -------------- --------------Total stockholders' deficit (1,817,638) (1,931,790) -------------- -------------- $ 642,681 $ 99,444 ============== ==============The accompanying notes are an integral part of these financial statements F-2 PHASE III MEDICAL, INC. Statements of Operations Years ended December 31, ----------------------------------------------------------- 2005 2004 2003 ---------------- ------------------ ------------------ Earned revenues $ 35,262 $ 48,561 $ 64,632Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 (24,776) (33,885) (43,608) ---------------- ------------------ ------------------Gross Profit 10,486 14,676 21,024Selling, general and administrative (1,611,398) (763,640) (685,353)Purchase of medical royalty stream - (725,324) (80,000)Realized loss on note receivable - (150,000) ---------------- ------------------ ------------------Operating loss (1,600,912) (1,474,288) (894,329)Other income (expense):Interest income 137 199 88,923Interest expense - Series A mandatorilyredeemable convertible preferred stock (47,684) (47,684) (23,842)Interest expense (96,580) (226,599) (214,897) ---------------- ------------------ ------------------ (1,745,039) (274,084) (149,816)Provision for income taxes - - - ---------------- ------------------ ------------------Loss before preferred dividend (1,745,039) (1,748,372) (1,044,145)Preferred dividend - - (23,842) ---------------- ------------------ ------------------Net Loss attributable to common stockholders $ (1,745,039) $ (1,748,372) $ (1,067,987) ================ ================== ==================Basic earnings per shareNet loss attributable to common stockholders $ (.04) $ (0.05) $ (0.05) ================ ================== ==================Weighted average common shares outstanding 49,775,746 32,541,845 23,509,343 ================ ================== ==================The accompanying notes are an integral part of these financial statements F-3 PHASE III MEDICAL, INC. Statements of Stockholders' Deficit Series B Convertible Preferred Stock Common Stock Additional -------------- ------------------- Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Total ------- ------ ----------- ------- ----------- ------------ ----------- Balance at December 31, 2002 10,000 $ 100 22,398,710 $22,399 $ 8,847,576 $ (9,693,967)$ (823,892)Issuance of common stock for cash,net of offering costs - - 2,825,000 2,825 211,956 - 214,781Issuance of common stock upon exercise ofcommon stock options - - 1,000,000 1,000 4,000 - 5,000Issuance of common stock for services - - 100,000 100 2,900 - 3,000Issuance of common stock to directors - - 2,750 3 300 - 303Series A convertible stock dividends - - - - - (23,842) (23,842)Stock options granted with debt - - - - 166,024 - 166,024Net loss - - - - - (1,044,145) (1,044,145) ------- ------ ----------- ------- ----------- ------------ -----------Balance at December 31, 2003 10,000 100 26,326,460 26,327 9,232,756 (10,761,954) (1,502,771)Issuance of common stock for cash,net of offering costs 12,132,913 12,133 1,092,867 1,105,000Issuance of common stock uponexercise of common stock options 1,875,000 1,875 7,500 9,375Issuance of common stock options for services 15,000 15,000Issuance of common stock for services 187,500 188 14,062 14,250Interest expense on loans in default 127,137 127,137Debt discount on loan from officer 17,647 17,647Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 30 4,170 4,200Issuance of common stock to officer for services 477,679 478 26,272 26,750Net loss (1,748,372) (1,748,372) ------- ------ ----------- ------- ----------- ------------ -----------Balance at December 31, 2004 10,000 100 41,029,552 41,031 10,537,411 (12,510,326) (1,931,784)Issuance of common stock for cash,net of offering costs 12,592,854 12,593 859,407 872,000Issuance of common stock for conversion of debt 9,865,784 9,865 555,135 565,000Issuance of common stock to officers and directors 6,020,676 6,021 231,265 237,286Issuance of common stock for services 1,034,996 1,035 75,073 76,108Equity component of issuance of convertible debt 83,333 83,333Issuance of common stock purchase warrants for services 25,458 25,458Net loss (1,745,039) (1,745,039) ------- ------ ----------- ------- ----------- ------------ -----------Balance at December 31, 2005 10,000 $ 100 70,543,862 $70,545 $12,367,082 $(14,255,365)$(1,817,638) ------- ------ ----------- ------- ----------- ------------ -----------The accompanying notes are an integral part of these financial statements F-4 PHASE III MEDICAL, INC. Statements of Cash Flows Years ended December 31, -------------------------------------------------- 2005 2004 2003 ---------------- --------------- --------------- Cash flows from operating activities: $ (1,745,039) $ (1,748,372) $ (1,044,145)Net lossAdjustments to reconcile net loss to net cash used in operating activities:Common shares issued and stock options grantedas payment for interest expense and for services rendered 338,852 187,337 169,327Depreciation 1,958 1,777 646Amortization of debt discount 5,882 11,765 - Series A mandatorily redeemableconvertible preferred stock dividends 47,684 47,684 23,842Unearned revenues (35,262) (48,561) (64,632)Deferred acquisition costs 24,776 33,885 46,053Realized loss on note receivable - - 150,000Changes in operating assets and liabilities :Prepaid expenses and other current assets 2,786 (3,209) 22,070Other assets (111,753) (3,000)Accounts payable, accrued expensesand other current liabilities 636,120 58,041 (322,074) --------------- --------------- ---------------Net cash used in operating activities (833,996) (1,459,653) (1,021,913) --------------- --------------- ---------------Cash flows from investing activities:Acquisition of property and equipment - (3,288) (2,581)Notes receivable - - 850,000 --------------- --------------- ---------------Net cash (used in) provided by investing activities - (3,288) 847,419Cash flows from financing activities:Net proceeds from issuance of capital stock 872,000 1,114,375 219,781Stockholder advances - (106,000)Proceeds from notes payable 203,000 75,000 275,000Repayment of notes payable (30,000)Proceeds from notes payable - related party 100,000 -Proceeds from sale of convertible debentures 250,000Repayment of long-term debt (9,513) (22,595) --------------- --------------- ---------------Net cash provided by financing activities 1,295,000 1,279,862 366,186 --------------- --------------- ---------------Net increase (decrease) in cash and cash equivalents 461,004 (183,079) 191,692Cash and cash equivalents at beginning of year 27,868 210,947 19,255 --------------- --------------- ---------------Cash and cash equivalents at end of year $ 488,872 $ 27,868 $ 210,947 =============== =============== ===============The accompanying notes are an integral part of these financial statementsSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 - continued Years ended December 31, ------------------------------------------------ 2005 2004 2003 ------------- --------------- -------------- Supplemental disclosures of cash flow information:Cash paid during the year for:Interest $ 92,010 $ 106,574 $ 26,483 ============= =============== ==============Supplemental schedule of non-cash investingand financing activitiesIssuance of common stock for services rendered $ 313,394 $ 32,027 $ 3,303 ============= =============== ==============Compensatory element of stock options $ 25,458 $ 127,137 $ 166,024 ============= =============== ==============Net accrual of dividends on Series A preferred stock $ - $ - $ 23,842 ============= =============== ==============Conversion of convertible debentures $ 565,000 $ - $ -The accompanying notes are an integral part of these financial statements F-6NOTE 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 ofSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. funds 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.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 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. F-7NOTE 1 - THE COMPANY - (CONTINUED)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.On January 19, 2006, the Company acquired all the assets of NeoStem, Inc.,("NeoStem") a company that specializes in the collection and storage of adultstem cells. NeoStem is a commercial autologous (donor and recipient are thesame) adult stem cell bank pioneering the pre-disease collection, processing andstorage of stem cells that donors can access for their own present and futuremedical treatment. The Company's new objective is to be the leading provider ofadult stem cells for therapeutic use in the burgeoning field of regenerativemedicine, including treatment for heart disease, certain types of cancer andother critical health problems.At December 31, 2005, the Company had a cash balance of $488,872, deficitworking capital of $1,245,084 and a stockholders' deficit of $1,817,638. Inaddition, the Company sustained losses of $1,745,039, $1,748,372 and $1,067,987for the three fiscal years ended December 31, 2005, 2004 and 2003 respectively.The Company's lack of liquidity combined with its history of losses raisesSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. substantial 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. There canbe no assurance that the Company will be able to sell securities and may have torely on its ability to borrow funds from new and or existing investors.USE 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.INCOME TAXES: The Company, in accordance with SFAS 109, "Accounting for IncomeTaxes", 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)COMPREHENSIVE 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, 2005, 2004 and 2003there 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.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)Assuming the fair market value of the stock at the date of grant to be $.03 inFebruary 2003, $.05 in May, June and July 2003, $.18 in September 2003, $.15 inJanuary 2004, $.14 in March 2004, $.11 in May 2004, $.10 in September andNovember 2004, $.06 in February 2005, $.05 in April and July 2005, $.08 inSeptember 2005 and $.06 in December 2005, the life of the options to be fromthree to ten years, the expected volatility at between 15% and 200%, expecteddividends are none, and the risk-free interest rate of approximately 3%, theCompany would have recorded compensation expense of $116,146, $218,597 and$205,760, respectively, for the years ended December 31, 2005, 2004 and 2003 ascalculated by the Black-Scholes option pricing model. The weighted average fairvalue per option of options granted during 2005, 2004 and 2003 was $0.06, $0.11and $0.06, respectively. F-8The 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:Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. 2005 2004 2003 ----------- ----------- ----------Net loss as reported $(1,745,039) $(1,748,372) $(1,067,987)Additional compensation (116,146) (218,597) (205,760) ----------- ----------- -----------Adjusted net loss $(1,861,185) $(1,966,969) $(1,273,747) =========== =========== ===========Net loss per share as reported $ (.04) $ (.05) $ (.05) =========== =========== ===========Adjusted net loss per share $ (.04) $ (.06) $ (.05) ============ ============ ===========RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In December 2004, the FASB issuedSFAS No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R)establishes standards for the accounting for transactions in which an entityexchanges its equity instruments for goods or services. This statement focusesprimarily on accounting for transactions in which an entity obtains employeeservices in share-based payment transactions. SFAS No. 123(R) requires that thefair value of such equity instruments be recognized as an expense in thehistorical financial statements as services are performed. Prior to SFAS No.123(R), only certain pro forma disclosures of fair value were required. Theprovisions of this statement are effective for the first interim or annualreporting period that begins after June 15, 2005.In June 2005, FASB issued SFAS No. 154 - Accounting Changes and ErrorCorrections, which replaces APB Opinion No. 20 and FASB Statement No. 3. Thisstatement applies to all voluntary changes in accounting principles and tochanges required by an accounting pronouncement in the unusual instance that thepronouncement does not include specific transition provisions. When apronouncement includes specific transition provisions, those provisions shouldbe followed. This pronouncement is effective for fiscal years beginning afterDecember 15, 2005. The Company does not believe that this statement will have amaterial effect on its financial statements.In March 2005, the FASB issued FASB Interpretation ("FIN") 47, ACCOUNTING FORCONDITIONAL ASSET RETIREMENT OBLIGATIONS -- AN INTERPRETATION OF FASB STATEMENTNO. 143. FIN 47 clarifies that conditional asset retirement obligations meet thedefinition of liabilities and should be recognized when incurred if their fairvalues can be reasonably estimated. The Company adopted the provisions of FIN 47effective December 31, 2005. The adoption of FIN 47 had no impact on theCompany's financial position or results of operations.In February 2006, the FASB issued SFAS No. 155, ACCOUNTING FOR CERTAIN HYBRIDFINANCIAL INSTRUMENTS. This Statement amends FASB Statements No. 133, ACCOUNTINGFOR DERIVATIVE INSTRUMENTS AND HEDGING F-9NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)ACTIVITIES, and No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIALASSETS AND EXTINGUISHMENTS OF LIABILITIES. This Statement resolves issuesaddressed in Statement 133 Implementation Issue No. D1, " Application ofStatement 133 to Beneficial Interests in Securitized Financial Assets. " SFASNo. 155 permits fair value remeasurement for any hybrid financial instrumentthat contains an embedded derivative that otherwise would require bifurcation,clarifies which interest-only strips and principal-only strips are not subjectto the requirements of Statement 133, and establishes a requirement to evaluateinterests in securitized financial assets to identify interests that arefreestanding derivatives or that are hybrid financial instruments that containan embedded derivative requiring bifurcation. It also clarifies thatconcentrations of credit risk in the form of subordination are not embeddedderivatives and amends Statement 140 to eliminate the prohibition on aqualifying special-purpose entity from holding a derivative financial instrumentthat pertains to a beneficial interest other than another derivative financialinstrument. This Statement is effective for all financial instruments acquiredSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 issued after the beginning of an entity's first fiscal year that begins afterSeptember 15, 2006. The Company has not yet determined the impact of theadoption of FAS 155 on its financial statements, if any.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 RECEIVABLEIn 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 theprincipal, accrued interest and costs of recovery. The Company ceased accruinginterest on July 31, 2002. Subsequent to July 31, 2002, the notes accrueinterest at the default rate of 12% per annum. The Company provided an allowancefor the $250,000 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 totalingNOTE 3 - NOTES RECEIVABLE - (CONTINUED)$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. F-10NOTE 4 - ACCRUED LIABILITIESSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. Accrued liabilities are as follows: December 31, ------------------- 2005 2004 -------------------Professional fees $173,649 $ 31,760Interest on notes payable 4,268 11,530Salaries and related taxes 424,950 45,368Other 14,329 225 -------- -------- $617,196 $ 88,883 ======== ========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) In September and October, 2004, these notes were repaid.On March 17, 2003, the Company commenced a private placement offering to raiseup to $250,000 in 6-month promissory notes in increments of $5,000 bearinginterest at 15% per annum. Only selected investors which qualify as "accreditedinvestors" as defined in Rule 501(a) under the Securities Act of 1933, asamended, were eligible to purchase these promissory notes. The Company raisedthe full $250,000 through the sale of such promissory notes, resulting in netproceeds to the Company of $225,000, net of offering costs. The notes contain adefault provision which raises the interest rate to 20% if the notes are notpaid when due. The Company issued $250,000 of these notes. As of December 31,2005, $70,000 has been converted into 1,190,000 shares of the Company's CommonStock and $80,000 of which $15,000 has been repaid in January 2006 and theremainder bears interest at 20% and the due date has been extended to September30, 2006.On August 26, 2003, the Company borrowed $25,000 from a then consultant to theCompany. In October 2004, this note was combined with a note of $50,000previously held by an unrelated third party. This new note accrues interest at8% and was due on August 31, 2005 together with the accrued interest. InNovember 30, 2005, this note was converted into 1,275,000 shares of theCompany's Common Stock. All interest payments have been accrued.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 default F-11NOTE 5 - NOTES PAYABLE - (CONTINUED)provision 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, 2005, these notes have been repaid.All interest payments have been paid timely. In May 2004, the Company sold anadditional 30 day 20% note in the amount of $40,000 to an accredited investor tofund current operations. This note plus interest has been repaid. In July 2004,the Company sold a five month 20% note in the amount of $25,000 and two sixmonth 20% notes totaling $80,000 to three accredited investors to fund currentSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. operations. As of December 31, 2005, $25,000 has been repaid and the balance hasbeen converted into 1,360,000 shares of the Company's Common Stock. All interestpayments have been paid timely. In August 2004, the Company sold additional 30day 20% notes in the amount of $55,000 to two accredited investors to fundcurrent operations. As of December 31, 2005, $25,000 of these notes remainsunpaid. All interest payments have been paid timely. In December 2004, theCompany sold four notes to four accredited investors totaling $100,000 withinterest rates that range from 8% to 20%. As of December 31, 2005, $5,000 hasbeen repaid, $85,000 converted into 1,445,000 shares of the Company's CommonStock and $10,000 of these notes remain unpaid. The $10,000 note was repaid inJanuary 2006. All interest payments have been made 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. InFebruary 2005, this note was converted into 1,960,784 shares of the Company'sCommon Stock. All interest payments have been paid timely. For the year endedDecember 31, 2005 the amortization of debt discount approximated $6,000.In January 2005, the Company sold a six month 20% note in the amount of $25,000to an accredited investor to fund current operations. This note was convertedinto 425,000 shares of the Company's Common Stock. All interest payments havebeen made. In February 2005, the Company sold a six month 20% note in the amountof $10,000 to an accredited investor to fund current operations. This note wasconverted into 170,000 shares of the Company's Common Stock. All interestpayments have been made. In March 2005, the Company sold a 30 day 8% note in theamount of $17,000 to the President and CEO of the Company. Additionally, theCompany sold a one year 15% note in the amount of $20,000, which wassubsequently converted into 340,000 shares of the Company's Common Stock, to anaccredited investor. All interest payments on these notes are current. The notein the amount of $17,000 was unpaid as of December 31, 2005, however, it wasrepaid in January 2006.In April 2005, the Company sold a one year 15% note in the amount of $100,000 toits Executive Vice President and General Counsel. The note contains certainrights and obligations regarding its conversion into shares of the Company'sCommon Stock. In November 2005, this note was converted into 1,700,000 shares ofthe Company's Common Stock. All interest payments on this note have been made.In August 2005, the Company sold an 8% note in the amount of $10,000 to itsPresident and CEO, an accredited investor which is due on demand. As of December31, 2005, this note remains unpaid, however it was repaid in January 2006.In September 2005, Company sold two 8% notes in the amounts of $6,000 and$15,000 to its President and CEO, an accredited investor which are due ondemand. As of December 31, 2005, these notes remain unpaid, however, it wasrepaid in January 2006.On December 30, 2005, the Company sold $250,000 of convertible nine monthPromissory Notes which bear 9% simple interest with net proceeds to the Companyof $220,000. In addition, these Promissory Notes have 416,666 detachablewarrants for each $25,000 of debt, which entitle the holder to purchase oneshare of the Company's Common Stock at a price of $.12 per share. The warrantsare exercisable for a period of three years from the date of the PromissoryNote. The Promissory Notes convert to the F-12NOTE 5 - NOTES PAYABLE - (CONTINUED)Company's Common Stock at $.06 per share. The Promissory Notes are convertibleat anytime into shares of Common Stock at the option of the Company subsequentto the shares underlying the Promissory Notes and the shares underlying thewarrants registration if the closing price of the Common Stock has been at least$.18 for a period of at least 10 consecutive days prior to the date on whichnotice of conversion is sent by the Company to the holders of the PromissoryNotes. The Company recorded a debt discount associated with the conversionSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. feature in the amount of $83,333. The Company recorded an expense of $2,573associated with the warrants as their fair value using the Black Scholes method. A summary of notes payable and convertible debentures is as follows: JANUARY 1, REPAYMENTS Less: Debt DECEMBER 31, 2005 ----------- ----------- ---------- ----------------- 2005 PROCEEDS /CONVERSIONS DISCOUNTS ---- -------- ------------ --------- March 2003 Notes $ 170,000 $ - $ (90,000) $ - $ 80,000 Consultant Note 75,000 (75,000) - 2004 Notes 230,000 (175,000) 55,000 2005 Notes - 203,000 (155,000) 48,000 Related Party Note 94,118 (94,118) - Convertible Debentures 250,000 (83,333) 166,667 --------------- ------------ ---------------- --------------- ------------------- Total $ 569,118 $453,000 $(589,118) $ (83,333) $ 349,667 =============== ============ ================ =============== =================== F-13NOTE 6 - SERIES A MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCKIn connection with the settlement of securities class action litigation in 1994,the Company issued 1,000,000 shares of Series A $0.07 Convertible PreferredStock (the "Series A Preferred Stock") with an aggregate value of $1,000,000.The following summarizes the terms of Series A Preferred Stock as more fully setforth in the Certificate of Designation. The Series A Preferred Stock has aliquidation value of $1 per share, is non-voting and convertible into commonstock of the Company at a price of $5.20 per share. Holders of Series APreferred Stock are entitled to receive cumulative cash dividends of $0.07 pershare, per year, payable semi-annually. The Series A Preferred Stock is callableby the Company at a price of $1.05 per share, plus accrued and unpaid dividends.In addition, if the closing price of the Company's common stock exceeds $13.80per share for a period of 20 consecutive trade days, the Series A PreferredStock is callable by the Company at a price equal to $0.01 per share, plusaccrued and unpaid dividends.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, 2005, 2004 and 2003, 681,174 shares of Series A Preferred Stockwere outstanding, and accrued dividends on these outstanding shares were$528,564, $480,880, and $433,196 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. F-14NOTE 7 - STOCKHOLDERS' EQUITY(A) SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK: The total authorized shares of Series B Convertible Redeemable PreferredSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 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, 2005 and 2004, 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 July 2005 annual meeting, the stockholders approved an amendment increasing the authorized common stock to 500 million shares from 250 million shares. 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 F-15COMMON STOCK: - (CONTINUED)Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. 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. In February 2005, the $100,000 convertible note sold to the Company's former COO was converted into 1,960,784 shares of the Company's Common Stock. For the twelve months ended December 31, 2005, the Company issued 174,996 shares of its common stock to its investor relations firms for services. The fair value of these shares was $10,208 which was charged to operations. For the twelve months ended December 31, 2005, the Company issued 3,080,676 shares of its common stock to its officers, directors and employees for services in lieu of salary. The fair value of these shares was $119,686 which was charged to operations. F-16 In 2005, the Company issued 12,592,854 shares of its Common Stock to accredited investors resulting in net proceeds to the Company of $872,000. In July 2005, the Company granted 3,000,000 shares of its Common Stock to its President and CEO. These shares vest 1,000,000 immediately and 1,000,000 on each of the next two anniversary dates. The fair value of these shares was $120,000 which was charged to expense. In September 2005, the Company granted 500,000 shares of its Common Stock to an Advisory Board member. The fair value of these shares was $40,000 which was charged to expense. In October 2005, the Company issued 50,000 shares to the Hospital for Joint Diseases in exchange for advertising in an event journal. The fair value of these shares was $3,500 which was charged to expense. On November 30, 2005, $445,000 of debt was converted into the Company's Common Stock at 17 shares for each one dollar of debt resulting in 7,565,000 shares being issued. On December 30, 2005, an additional $20,000 of debt was converted into 340,000 shares of the Company's Common Stock. On December 30, 2005, the Company issued 250,000 shares of its Common Stock to Westpark Capital, Inc. as additional compensation for the sale of the convertible debentures. The fair value of these shares was $20,000 which was charged to expense.(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-17Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. WARRANTS: - (CONTINUED) In each of the months of August 2004 through January 2005, the Company issued 25,000 warrants for a total of 150,000 warrants which entitles 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 the Company's investor relations firm. The fair value of these warrants was $874 in 2005 and $3,250 in 2004. Warrants to purchase 240,000 shares of the Company's Common Stock were issued in September 2005, to Dr. Robin Smith for her position as Chairperson of the Advisory Board. The warrants vest 20,000 per month for twelve months. Each warrant entitles Dr. Smith to purchase one share of common stock at a price of $.08. These warrants expire three years from the date of issue. The fair value of these warrants was $3,196 in 2005 and $6,392 will be charged to operations in 2006. In December 2005, the Company issued 4,166,666 warrants to the holders of the 9% convertible debt and 416,666 warrants to the placement agent as additional compensation. These warrants entitle the holder to purchase one share of common stock at a price of $.12 and expire three years from the date of issue. The Company recorded an expense of $2,573 associated with the warrants as their fair value using the Black Scholes method. A total of 8,380,832 shares of common stock are reserved for issuance upon exercise of outstanding warrants as of December 31, 2005 at prices ranging from $.05 to $.16 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). F-18 Under the 1998 plan 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. (ii) At the 2003 annual meeting, the stockholders approved the 2003 Equity Participation Plan. The Company has reserved 50,000,000 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,Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. 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. STOCK OPTION PLANS - (CONTINUED) 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. In April 2005, the Company granted an option to purchase 150,000 shares of its Common Stock at an exercise price of $.10 to Catherine Vaczy, its Executive Vice President and General Counsel. These options vest 50,000 per year on each anniversary of the grant date. In July 2005, the Company granted an option to purchase 750,000 shares of its Common Stock at an exercise price of $.06 to Catherine Vaczy, its Executive Vice President and General Counsel. These options vest 375,000 per year on each anniversary of the grant date. In July 2005, the Company granted an option to purchase 4,000,000 shares of its Common Stock at an exercise price of $.06 to Mark Weinreb, its President and CEO. These options vest 2,000,000 immediately and 1,000,000 per year on each anniversary of the grant date. In July 2005, the Company granted an option to purchase 1,500,000 shares of its Common Stock at an exercise price of $.06 to Robert Aholt, its former COO. These options vest 1,000,000 immediately and 250,000 per year on each anniversary of the grant date. Additionally, the Company has granted options to purchase 11,200,000 shares in 2005, 2,985,000 shares in 2004 and 3,700,000 shares in 2003 of Common Stock at exercise prices ranging from $.03 to $.18 to members of its board of directors, employees, consultants and its advisory board. All options were granted at an exercise price more than or equal to the fair value of the common stock at the date of grant. F-19 Stock option activity under the 2003 Equity Participation Plan is as follows: Weighted Average Range of Exercise Price Number of Shares(1) 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 2,985,000 $.10 - $.15 $ .13 Exercised -- -- -- Expired -- -- -- Cancelled -- -- -- ---------- ----------- -----------Balance at December 31, 2004 6,685,000 $.03 - $.18 $ .08 Granted 11,200,000 $.05 - $.10 $ .06 Exercised -- -- -- Expired -- -- -- Cancelled -- -- --Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ---------- ----------- -----------Balance at December 31, 2005 17,885,000 $.03 - $.18 $ .07 ========== =========== ===========(1) All options are exercisable for a period of ten years. Options exercisable at December 31, 2003 - 3,700,000 at a weighted average exercise price of $.05 Options exercisable at December 31, 2004 - 6,185,000 at a weighted average exercise price of $.07 Options exercisable at December 31, 2005 - 12,085,000 at a weighted average exercise price of $.07 F-20 STOCK OPTION PLANS: - (CONTINUED) NUMBER OUTSTANDING WEIGHTED AVERAGE REMAINING NUMBER EXERCISABLE EXERCISE PRICE DECEMBER 31, 2005 CONTRACTUAL LIFE (YEARS) DECEMBER 31, 2005 -------------- ----------------- ------------------------ ----------------- $.03 2,500,000 7.10 2,500,000 $.05 950,000 7.55 950,000 $.06 10,750,000 9.57 5,300,000 $.07 200,000 9.09 - $.10 1,575,000 8.81 1,425,000 $.11 200,000 8.42 200,000 $.14 300,000 8.17 300,000 $.15 1,110,000 8.01 1,110,000 $.18 300,000 7.70 300,000 ------- ------- 17,885,000 12,085,000 ========== ==========NOTE 8 - INCOME TAXESDeferred tax assets consisted of the following as of December 31: 2005 2004 -------------- ------------ Net operating loss carryforwards $ 3,807,000 $ 3,247,000 Depreciation and amortization - 1,000 ,000 Capital loss carryforward - 149,000 Deferred revenue 9,000 21,000 Deferred legal and other fees 87,000 51,000 -------------- ------------- Net deferred tax assets 3,903,000 3,469,000 Deferred tax asset valuation allowance (3,903,000) (3,469,000) -------------- ------------- $ - $ - ============== =============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: 2005 2004 2003 ------------------ ------------------ ----------------- Federal tax benefit at statutory rate (34.0%) (34.0%) (34.0%) Change in valuation allowance 34.0% 34.0% 34.0% ------------------ ------------------ ----------------- Provision for income taxes 0.00% 0.00% 0.00%Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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-21The Tax Reform Act of 1986 enacted a complex set of rules limiting theutilization of net operating loss carryforwards to offset future taxable incomefollowing a corporate ownership change. The Company's ability to utilize its NOLcarryforwards is limited following a change in ownership in excess of fiftypercentage points during any three-year period.Upon receipt of the proceeds from the last foreign purchasers of the Company'scommon stock in January 2000, common stock ownership changed in excess of 50%during the three-year period then ended. At December 31, 2005, the Company hadnet operating loss carryforwards of approximately $11,196,000. Included in thenet operating loss carryforward is approximately $2,121,000 that has beenlimited by the ownership change. The tax loss carryforwards expire at variousdates through 2025. The Company has recorded a full valuation allowance againstits net deferred tax asset because of the uncertainty that the utilization ofthe net operating loss and deferred revenue and fees will be realized.NOTE 9 - SEGMENT INFORMATIONUntil April 30, 2001, the Company operated in two segments; as a reinsuror andas a seller of extended warranty service contracts through the Internet. Thereinsurance segment has been discontinued with the sale of Stamford (see Note1), and the Company's remaining revenues are derived from the run-off of itssale of extended warranties and service contracts via the Internet.Additionally, the Company is currently establishing a new business in themedical, bio-tech sector. The Company's operations are conducted entirely in theU.S. Although the Company has not realized any revenue from its purchase ofroyalty revenue interests, the Company will be operating in two segments untilthe "run-off" is completed.NOTE 10 - RELATED PARTY TRANSACTIONS 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 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. On each of January1, 2005, April 1, 2005, July 1, 2005 and October 1. 2005 Mr. Aholt was issued477,679, 800,898, 668,750 and 461,206 respectively for a total of 2,408,533shares pursuant to the terms of his agreement.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,Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. 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 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 F-22NOTE 10 - RELATED PARTY TRANSACTIONS - CONTINUEDwill be subject to a one year lockup as of the date of grant. The exerciseperiod will be ten years, and the grant will otherwise be in accordance with theCompany's 2003 Equity Participation Plan and Non-Qualified Stock Option GrantAgreement.NOTE 11 - COMMITMENTS AND CONTINGENCIESOn February 6, 2003, Mr. Weinreb was appointed President and Chief ExecutiveOfficer of the Company and has entered into an employment agreement with Mr.Weinreb. The employment agreement has an initial term of three years, withautomatic annual extensions unless terminated by the Company or Mr. Weinreb atleast 90 days prior to an applicable anniversary date. The Company has agreed topay Mr. Weinreb an annual salary of $180,000 for the initial year of the term,$198,000 for the second year of the term, and $217,800 for the third year of theterm. In addition, he is entitled to an annual bonus in the amount of $20,000for the initial year in the event, and concurrently on the date, that theCompany has received debt and/or equity financing in the aggregate amount of atleast $1,000,000 since the beginning of his service, and $20,000 for eachsubsequent year of the term, without condition.In addition, the Company, pursuant to its 2003 EPP, entered into a Stock OptionAgreement with Mr. Weinreb (the "Initial Option Agreement"). Under the InitialOption 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'scommon stock at an exercise price of $0.03 per share and otherwise upon theterms set forth in the Initial Option Agreement. In addition, in the event thatthe closing price of the Company's common stock equals or exceeds $0.50 pershare for any five consecutive trading days during the term of the employmentagreement (whether during the initial term or an annual extension), the Companyhas agreed to grant to Mr. Weinreb, on the day immediately following the end ofthe five day period, an option for the purchase 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 agreed to promptly file with the Securities and Exchange Commissiona Registration Statement on Form S-8 (the "Registration Statement") pursuant towhich the issuance of the shares covered by the 2003 Equity Participation Plan,as well as the resale of the common stock issuable upon exercise of the InitialOption Agreement, are registered, which has been filed. Additionally, theCompany has agreed, following any grant under the Additional Option Agreement,to promptly file a post-effective amendment to the Registration StatementSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. pursuant 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.On April 25, 2005, the Company appointment of Catherine M. Vaczy, as itsExecutive Vice President and General Counsel, effective as of April 20, 2005(the "Commencement Date"). On the Commencement Date, the Company entered into aletter agreement (the "Letter Agreement") with Ms. Vaczy, pursuant to which theCompany appointed Ms. Vaczy as its Executive Vice President and General Counsel.Subject to the terms and conditions of the Letter Agreement, the term of Ms.Vaczy's employment in such capacity will be for a period of three (3) years fromthe Commencement Date (the "Term").In consideration for Ms. Vaczy's services under the Letter Agreement, Ms. Vaczywill be entitled to receive an annual salary of $155,000 during the first yearof the Term, a minimum annual salary of $170,500 during the second year of theTerm, and a minimum annual salary of $187,550 during the third year of the Term.Ms. Vaczy and the Company have agreed that from the Commencement Date until the90th day thereafter (the "Initial 90 Day Period"), Ms. Vaczy's salary will bepaid to her at a rate of 50% of the annual rate and accrue as to the remainder.At the end of the Initial 90 Day Period, and at the end of each additional 90day period thereafter, whether to continue to accrue salary at this rate andprovision for payment of accrued amounts will be discussed in good faith.Payment of accrued salary may be made in cash, or, upon mutual agreement, sharesof common stock. Any shares of common stock issued in payment of accrued salaryshall have a per share price equal to the average closing price of one share ofcommon stock on the Bulletin Board (or other similar exchange or association onwhich the common stock is then listed or quoted) for the five (5) consecutivetrading days immediately preceding the date of issue of such F-23NOTE 11 - COMMITMENTS AND CONTINGENCIES - (CONTINUED)shares; provided, however, that if the common stock is not then quoted on theBulletin Board or otherwise listed or quoted on an exchange or association, theprice shall be the fair market value of one share of common stock as of the dateof issue as determined in good faith by the Board of Directors of the Company.The number of shares of common stock for any issuance in payment of accruedsalary shall be equal to the quotient of the amount of the accrued salarydivided by the price. The shares issued will be subject to a one-year lock up asof the date of each grant and shall be registered with the Securities andExchange Commission on a Registration Statement on Form S-8.In the event Ms. Vaczy'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 Ms. Vaczy's employment is terminated prior to the end of the Term forany reason other than by the Company with cause or Ms. Vaczy without goodreason, Ms. Vaczy or her executor of her last will or the duly authorizedadministrator of her estate, as applicable, will be entitled in the event theemployment termination date is after April 20, 2006, to receive severancepayments equal to Ms. Vaczy's then one year's salary, paid in accordance withthe Company's standard payroll practices for executives of the Company and (ii)in the event the employment termination date is before April 20, 2006 but afterOctober 20, 2005, to receive severance payments equal to one-sixth of Ms.Vaczy's then one year's salary, paid in accordance with the Company's standardpayroll practices for executives of the Company. In addition, in the event Ms.Vaczy's employment is terminated prior to the end of the Term by the Companywithout Cause or by Ms. Vaczy for good reason, the Option (as defined below)shall vest and become immediately exercisable in its entirety and remainexercisable in accordance with its terms. No other payments shall be made, norbenefits provided, by the Company in connection with the termination ofemployment prior to the end of the Term, except as otherwise required by law.On May 4, 2005, the Board voted to amend the Company's agreements with each ofMr. Weinreb, Mr. Aholt and Dr. Marasco, as described below, subject to approvalof the Stockholders. On July 12, 2005, the Stockholders approved theseamendments.Mr. Weinreb's employment agreement was amended to (a) extend the expiration datethereof from February 2006 to December 2008; (b) change Mr. Weinreb's annualSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. base salary of $217,800 (with an increase of 10% per annum) to an annual basesalary of $250,000 (with no increase per annum); (c) grant Mr. Weinreb 3,000,000shares of Common stock, 1,000,000 shares of which shall vest on each of the dateof grant and the first and second anniversaries of the date of grant; (d) amendthe severance provision of the existing employment agreement to provide that inthe event of termination without cause (subject to certain exceptions), Mr.Weinreb will be entitled to receive a lump sum payment equal to his then basesalary and automobile allowance for a period of one year; (e) commencing inAugust 2006, increase Mr. Weinreb's annual bonus from $20,000 to $25,000; (f) inAugust 2005, pay Mr. Weinreb $15,000 to cover costs incurred by him on behalf ofthe Company; and (g) in 2006, provide for the reimbursement of all premiums inan annual aggregate amount of up to $18,000 payable by Mr. Weinreb for life andlong term care insurance covering each year during the remainder of the term ofhis employment.Mr. Aholt's employment agreement with the Company was amended to (a) replace theprovision of Mr. Aholt's existing employment agreement pursuant to which he iscompensated in shares of common stock with a provision pursuant to which he willbe compensated solely in cash, effective as of September 30, 2005; (b) replacethe provision of Mr. Aholt's existing employment agreement pursuant to which hiscompensation accrues on a monthly and/or quarterly basis with a provisionpursuant to which his compensation will be paid in accordance with the Company'snormal payroll practices, effective as of September 30, 2005; and (c) providefor a minimum annual bonus of $12,000, payable in January of each year duringthe term of his employment, commencing in January 2006. As of May 9, 2005, Mr.Aholt beneficially owned approximately 23.1% of the then outstanding shares ofcommon stock (excluding the Options to purchase 1,500,000 shares of Common stockgranted to Mr. Aholt by the Board of Directors, subject to approval of theStockholders, as discussed above).Dr. Marasco's letter agreement with the Company was amended to (a) extend theterm of the letter agreement from August 2007 to August 2008; (b) provide for anannual salary of $110,000, $125,000 and $150,000 for the years ended August2006, 2007 and 2008, payable in each such year during the term; (c) provide fora minimum annual bonus of $12,000, payable in January of each year during theterm, commencing in January 2006; (d) eliminate Dr. Marasco's right under hisexisting letter agreement to receive 5% of all collected revenues derived fromthe Company's royalty or other revenue sharing agreements (which right issubject to the limitation that the amount of such additional cash compensationand Dr. Marasco's annual salary do not exceed, in the aggregate, $200,000 peryear); and (e) permit Dr. Marasco to begin receiving all accrued but unpaid cashcompensation under his letter agreement upon the Company's consummation of anyfinancing, whether equity or otherwise, pursuant to which the Company raises$1,500,000. F-24NOTE 11 - COMMITMENTS AND CONTINGENCIES - (CONTINUED)On February 21, 2003 the Company began leasing office space in Melville, NewYork at an original annual rental of $18,000. The lease has been renewed throughMarch 2007 with an annual rental of approximately $22,800. Rent expenseapproximated $28,900, $24,900 and $13,000 for the years ended December 31, 2005,2004 and 2003, respectively.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. For theyears ended December 31, 2005 and 2004, the Company paid a total of $0 and$21,000 respectively 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 exerciseSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. price 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 years ended December31, 2005 and 2004, the Company paid $0 and $85,324 of such expenses.NOTE 12 - SUBSEQUENT EVENTS In January 2006, the Company sold $250,000 of convertible nine month PromissoryNotes which bear 9% simple interest with net proceeds to the Company of$223,880. In addition, these Promissory Notes have 416,666 detachable warrantsfor each $25,000 of debt, resulting in 4,166,666 warrants being issued, whichentitle the holder to purchase one share of the Company's Common Stock at aprice of $.12 per share. The warrants are exercisable for a period of threeyears from the date of the Promissory Note. These notes contain the sameconvertible provision as described in Note 5. As compensation, the Companyissued 250,000 shares of its common stock and 416,666 warrants to theunderwriter. The warrants have the same terms and conditions as the warrantsissued in connection with the debt.In January 2006, two holders of promissory notes converted their debt in theamount of $45,000 into 765,000 shares of the Company's Common Stock.In January 2006, the Company repaid $73,000 of promissory notes, of which,$48,000 was to its President and CEO.On January 19, 2006, Phase III Medical, Inc. ("Phase III" or the "Company")consummated its acquisition of the assets of NeoStem, Inc. ("NeoStem"), aCalifornia corporation. The purchased assets were those F-25NOTE 12 - SUBSEQUENT EVENTS - (CONTINUED)relating to NeoStem's business of collecting and storing adult stem cells. Thepurchase price for NeoStem's assets consisted of 5 million shares of theCompany's common stock, plus the assumption of certain liabilities of NeoStemand liabilities under assumed contracts. Of the stock consideration, 60% (or 3million shares) will be retained in escrow for a period of one (1) year subjectto certain indemnification claims. The assumed liabilities of NeoStem as of theClosing Date, including accounts payable and accrued liabilities, professionalfees incurred in the acquisition and capitalized lease obligations, wereapproximately $465,000, of which holders agreed to the satisfaction ofapproximately $82,000 of such liabilities by the issuance of an additional2,012,225 shares of the Company's Common Stock. The amount of the considerationpaid pursuant to the Agreement was determined based on arms length negotiationsbetween the parties. The shares issued to NeoStem are subject to certainpiggyback registration rights. A copy of the Asset Purchase Agreement datedDecember 6, 2005 among the Company, its wholly-owned subsidiary, Phase IIIMedical Holding Company and NeoStem was annexed to the Company's Current Reporton Form 8-K filed on December 12, 2005. Effective with the acquisition, thebusiness of the Company has changed, so that the business of NeoStem now will bethe principal business of the Company. The Company will attempt to utilize thecombined Phase III and NeoStem management teams to develop and expand NeoStem'sadult stem cell processing and storage business, instead of its historicbusiness of providing capital and business guidance to companies in thehealthcare and life science industries.In January 2006, the Company granted options to Larry May, the Company's ChiefFinancial Officer, to purchase 150,000 shares of the Company's Common Stock atSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. an exercise price of $.05. These options vest 50,000 per year for each of thenext three years. These options expire 10 years from the date of grant. TheCompany also granted options to Denis Rodgerson, the Company's Director of StemCell Science, to purchase 50,000 shares of the Company's Common Stock at anexercise price of $.05. These options vest one year from the date of grant.These options expire 10 years from the date of grant.On January 20, 2006, Robert Aholt tendered his resignation as Chief OperatingOfficer of the Company. On March 31, 2006, the Company and Mr. Aholt enteredinto a Settlement Agreement and General Release pursuant to which the Companyagrees to pay Mr. Aholt the aggregate sum of $250,000 (less applicablewithholdings and deductions), payable over a period of two years in biweeklyinstallments of $4,807.69 commencing on April 7, 2006, except that the firstpayment will be $9,615.38. In the event of an uncured breach by the Company ofits payment obligations, the entire amount becomes due.In March 2006, the Company granted options to a consultant to purchase 25,000shares of the Company's Common Stock at an exercise price of $.08 which vestimmediately. These options expire tens years from the date of grant.In March 2006, the Company issued warrants to purchase 120,000 shares of itsCommon Stock at a price of $.10 per share to its marketing consultant. Thesewarrants vest 20,000 per month for six months. The warrants expire three yearsfrom the date of issue.On March 17, 2006, the stockholders of the Company voted to approve an amendmentto the Certificate of Incorporation which permits the Company to issue inexchange for all 681,171 shares of Series A Preferred Stock outstanding and itsobligation to pay $528,564 (or $.78 per share) in accrued dividends thereon, atotal of 5,449,368 shares of Common Stock (eight (8) shares of Common Stock pershare of Series A Preferred Stock). Pursuant thereto, all outstanding shares ofSeries A Preferred Stock will be cancelled and converted into Common Stock.On March 27, 2006, the Company sold 100,000 shares of its Common Stock to anAdvisory Board member at a price of $.053 per share resulting in net proceeds tothe Company of $5,300. F-26Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 3(O) ------------ CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF PHASE III MEDICAL, INC. (Under Section 242 of the General Corporation Law) The undersigned, being the President of Phase III Medical, Inc., acorporation organized and existing under the laws of the State of Delaware (the"Corporation"), do hereby amend and certify as follows: 1. The name of the Corporation is Phase III Medical, Inc. 2. The Certificate of Incorporation of the Corporation is hereby amendedto effect the following amendments which were set forth in a resolution adoptedby the board of directors and adopted by the holders of a majority of theoutstanding shares of Common Stock of the Corporation entitled to vote thereon,in accordance with the provisions of Section 242 of the Delaware GeneralCorporation Law to provide that the Series A $.07 Convertible Preferred Stockmay be exchanged commencing on February 1, 2006. 3. To accomplish the foregoing amendment, section 4(a) of the certificateof designation for the Series A $.07 Convertible Preferred Stock is herebyamended to read in its entirety as follows: Section 4. Redemption and Mandatory Exchange.The shares of Series A Preferred Stock are not redeemable prior to December 1,1995. At any time on or after such date, the shares of Series A Preferred Stockare redeemable, in whole or in part, at the option of the corporation, duringthe twelve-month periods commencing on December 1 of the years indicated belowat the following redemption prices per share of Series A Preferred Stock, plusaccrued and unpaid dividends thereon to the date fixed for redemption:------------------------------------ ----------------------------------------- Year Redemption Price------------------------------------ ----------------------------------------- 1995 $1.01------------------------------------ ----------------------------------------- 1996 1.02------------------------------------ ----------------------------------------- 1997 1.03------------------------------------ ----------------------------------------- 1998 1.04------------------------------------ ----------------------------------------- 1999 through May 31, 2005 1.05------------------------------------ -----------------------------------------Commencing on February 1, 2006, the Company may cause an exchange (the"Mandatory Exchange"), in whole or in part, of the shares of Series A PreferredStock, including accrued and unpaid dividends thereon, by issuing eight (8)shares of Common Stock for each share of Series A Preferred Stock outstanding.Upon delivery to the holders of the Series A Preferred Stock of notice of theCompany's election to cause the Mandatory Exchange, all of the shares of theSeries A Preferred Stock then outstanding shall be exchanged without any furtheraction on the part of the Company or the holders of such Series A PreferredStock into the number of shares of Common Stock set forth in the immediatelypreceding sentence at the time of the Mandatory Exchange. Notice of theSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. Mandatory Exchange shall be mailed to each holder of Series A Preferred Stock byfirst-class mail, postage prepaid, to such holder's address shown on the booksof the Company, such notice to specify the date on which the Mandatory Exchangeoccurred and to call upon such holder to surrender to the Company, in the mannerand at the place designated in such notice, the certificate or certificatesrepresenting the shares of Series A Preferred Stock so converted. Each stockcertificate of Series A Preferred Stock surrendered for exchange shall beendorsed by its holder, with signatures guaranteed, and otherwise shall be inproper form for transfer. In the event of a Mandatory Exchange and upon receiptby the Company of the stock certificates of the Series A Preferred Stock to besurrendered for conversion, the Company shall cancel the stock certificates ofthe Series A Preferred Stock surrendered for exchange and forthwith transmit toeach holder of Series A Preferred Stock stock certificates for the shares ofCommon Stock issued as a result thereof, dated the date of such MandatoryExchange, and such holders shall be deemed for all purposes to be the holders ofsuch Common Stock as of the date of such Mandatory Exchange. IN WITNESS WHEREOF, the undersigned being a duly elected officer of theCorporation, has executed this Certificate of Amendment and affirms thestatements herein contained this 17th day of March, 2006. PHASE III MEDICAL, INC. By: /s/Mark Weinreb ---------------------- Mark Weinreb, PresidentSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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(CC) -------------- PHASE III MEDICAL, INC. 330 South Service Road Suite 120 Melville, New York 11747 631. 574.4955January 30, 2006Ms. Catherine M. Vaczy 140 East 28th StreetApartment #11CNew York, New York 10016Dear Catherine: Reference is made to that certain letter agreement (the "Agreement") datedas of April 20, 2005 and entered into between you and Phase III Medical, Inc.(the "Company") pursuant to which you agreed to serve as the Executive VicePresident and General Counsel of the Company. The Agreement is hereby amended to provide that in the event severancepayments are payable to you pursuant to the Agreement, the amount of suchseverance payments shall equal one year's salary and shall be payable to yousubject to your providing to the Company a release in customary form, releasingthe Company and its officers and directors from claims against them. Except for the foregoing, the Agreement shall remain unchanged. 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: /s/ Mark Weinreb ------------------------------- Mark Weinreb, President & CEOAccepted and agreed to:/s/ Catherine M. Vaczy----------------------Catherine M. VaczySource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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(DD) -------------- SETTLEMENT AGREEMENT AND GENERAL RELEASE ---------------------------------------- This Settlement Agreement and General Release (this "Agreement") is herebyentered into as of this 31st day of March, 2006 by and among Robert J. Aholt,Jr., an individual (the "Executive"), and Phase III Medical, Inc., a Delawarecorporation (the "Company"). RECITALS A. The Executive was employed by the Company pursuant to an EmploymentAgreement by and between the Company and the Executive dated as of September 13,2004, as amended pursuant to an amendment thereto dated as of August 12, 2005(the "Employment Agreement"), serving as the Company's Chief Operating Officer; B. The Executive's employment has terminated as of February 19, 2006 (theTermination Date"); and C. Each of the parties hereto believes it to be in their respective bestinterests to enter into an agreement to set forth the terms of their respectiverights and obligations relating to the Executive's separation from the Company. AGREEMENT In consideration of the mutual promises contained herein and for other goodand valuable consideration, the receipt and adequacy of which are herebyacknowledged, the parties hereby agree as follows: 1. EFFECTIVE DATE. This Agreement shall be effective on the date hereof(the "Effective Date"). 2. END OF EMPLOYMENT. The Executive's status as an employee and anofficer of the Company has previously terminated. Each party hereto understandsthat, except as otherwise provided under this Agreement, each party hereto isentitled to nothing further from the other party (whether arising out of (i) theEmployment Agreement or the termination thereof, or (ii) Employee's employmentwith the Company or the termination thereof or otherwise). 3. SEPARATION PAYMENT. As consideration for the Executive's execution,delivery, and non-revocation of this Agreement, the Company shall pay toExecutive the aggregate amount of $250,000 (less applicable Federal andCalifornia state and local withholdings and payroll deductions), payable in 51consecutive biweekly installments of $4,807.69 each (less in each caseapplicable Federal and California State and local withholdings and payrolldeductions ("Payroll Taxes")) commencing on April 7, 2006 and continuing everytwo weeks thereafter until the full amount of $250,000 (less applicable Federaland California state and local withholdings and payroll deductions) is paid infull; except that (a) the first payment (and only the first payment) will be inan amount of $9,615,38 less Payroll Taxes and (b) the first payment will be madeon the later of April 7, 2006 or the date that the rescission rights underSection 10 have expired. 4. STOCK OPTIONS. Nothing in this Agreement shall adversely effectExecutive's stock option agreement ("Stock Option Grant Agreement") pursuant towhich he was granted, under the Company's 2003 Equity Participation Plan (the"EPP"), an option to purchase 1,500,000 shares of the Company's common stock,$.001 par value (the "Common Stock"), which agreement shall remain in full forceand effect in accordance with its terms and the terms of the EPP. 5. ACKNOWLEDGMENT OF COMPENSATION. The Executive acknowledges and agreesthat, except as otherwise specifically set forth herein, the payments underSection 3 of this Agreement shall extinguish any and all obligations for monies,additional stock options, additional equity grants, or compensation or benefitsof any kind that the Executive claims or could claim to have earned or areotherwise owed to him as a result of his employment by the Company through theSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 hereof, under the Employment Agreement or otherwise. 6. STATUS OF RELATED AGREEMENTS OR PURPORTED AGREEMENTS. (a) AGREEMENTS OR PURPORTED AGREEMENTS BETWEEN THE EXECUTIVE AND THECOMPANY. The Executive and the Company agree that, except for this Agreement,the Employment Agreement and the Stock Option Grant Agreement, there are noother executed agreements or purported agreements between the Company and theExecutive. (b) EMPLOYMENT AGREEMENT. Except as otherwise provided herein, theparties agree that the Employment Agreement has been terminated as of theTermination Date. Notwithstanding the termination of the Employment Agreement,the Executive acknowledges that the duties and obligations set forth thereinrelating to confidentiality, non-solicitation and noncompetition as set forthbelow (the "Surviving Employment Agreement Provisions") extend beyond the datehereof. In the event that any provision of this Agreement conflicts with suchSurviving Employment Agreement Provisions, the terms and provisions of thefollowing Surviving Employment Agreement Provisions shall control. "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, nowor 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 and the period beginning at the end of the Term and endingone (1) year after the end of the Term, you shall not unless with writtenconsent of the Company: (i) engage in any business directly related to the business of providingcapital and guidance to companies, within the medical pharmaceutical andbiotechnology sector, or in any other business conducted by the Company duringthe Term (collectively, the "Prohibited Activity") in the world for your ownaccount; (ii) become interested in any individual, corporation, partnership or otherbusiness 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 otherrelationship or capacity; provided, however, that you may own directly orindirectly, solely as an investment, securities of any Person which are tradedon 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 orindirectly, 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 anytime during the last twelve (12) months of the Term was an employee of theCompany or directly or indirectly solicit, entice, induce or encourage any suchperson to become employed by any other person.You hereby acknowledge that the covenants and agreements contained in theimmediately preceding paragraph are reasonable and valid in all respects andthat the Company is entering into this Letter Agreement on such acknowledgment.If you breach, or threaten to commit a breach, of any of the restrictivecovenants set forth in this Letter Agreement (the "Restrictive Covenants"), theCompany shall have the following rights and remedies, each of which rights andremedies shall be independent of the other and severally enforceable, and all ofwhich rights and remedies shall be in addition to, and not in lieu of, any otherrights and remedies available to the Company under law or in equity: (i) theSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. right and remedy to have the Restrictive Covenants specifically enforced by anycourt having equity jurisdiction, it being acknowledged and agreed that any suchbreach or threatened breach will cause irreparable injury to the Company andthat 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 Companysuch damages as are recoverable at law as the result of any transactionsconstituting a breach of any of the "Restrictive Covenants."For purposes of interpretation of the Surviving Employment Agreement Provisions,the last day of the "Term" shall be deemed to have been the Termination Date. 7. RELEASES. (a) The Executive, for himself and his heirs, executors,administrators, assigns, affiliates, successors and agents, as well as (in hiscapacity as trustee) for and on behalf of the Robert J. Aholt, Jr. Family Trust(collectively, the "Executive's Affiliates") hereby fully and without limitationirrevocably releases and forever discharges the Company, its affiliates and eachof its and their respective agents, representatives, officers, directors,shareholders, members, partners, employees, consultants, attorneys, auditors,accountants, investigators, affiliates, successors and assigns (collectively,the "Company Releasees"), both individually and collectively, from any and allrights, claims, demands, liabilities, actions, causes of action, suits, charges,controversies, damages, losses, costs, expenses and compensation, of whatevernature whatsoever, known or unknown, fixed or contingent, which the Executive orany of the Executive's Affiliates has or may have or may claim to have againstthe Company Releasees by reason of any matter, cause, or thing whatsoever,arising on or prior to the Effective Date ("Claims"), including, withoutlimiting the generality of the foregoing, any Claims arising out of, based upon,or relating to the recruitment, hiring, employment, or termination of theExecutive by any of the Company Releasees, the Executive's tenure as an employeeand/or an officer of any of the Company Releasees, any agreement or compensationarrangement between the Executive and any of the Company Releasees (including,without limitation, the Employment Agreement), or any act or occurrence inconnection with any actual, existing, proposed, prospective or claimed ownershipinterest of any nature of the Executive or the Executive's Affiliates in equitycapital or rights in equity capital or other securities of any of the CompanyReleasees to the maximum extent permitted by law. The Executive specifically andexpressly releases any Claims arising out of or based on: the New York StateHuman Rights Law, the New York City Human Rights Law; the California FairEmployment and Housing Act, as amended; Title VII of the Civil Rights Act of1964, as amended; the Civil Rights Act of 1991; the Family and Medical LeaveAct; the Vietnam Era Veterans Readjustment Act; the Fair Credit Reporting Act;the Americans With Disabilities Act; the Sarbanes-Oxley Act of 2002; the AgeDiscrimination in Employment Act; the National Labor Relations Act, as amended;the Equal Pay Act; ERISA; any provision of the California Labor Code; theCalifornia common law on fraud, misrepresentation, negligence, defamation,infliction of emotional distress or other tort, breach of contract or covenant,violation of public policy or wrongful termination; state or federal wage andhour laws; state of federal whistleblower laws; or any other state or federallaw, rule, or regulation dealing with the employment relationship. This Section7(a) releases all Claims including those of which Executive is not aware andthose not mentioned in this Agreement. Nothing in this Agreement shall precludethe Executive from participating in any manner in an investigation, hearing orproceeding conducted by the Equal Employment Opportunity Commission, but theExecutive hereby waives any and all rights to recover under, or by virtue of,any such investigation, hearing or proceeding. Notwithstanding the foregoing,nothing in this Section 7(a) shall be deemed to release Company Releasees fromactions and claims by Executive against any Company Releasee for contributionand/or indemnification if a third party has brought an action or claim againstExecutive arising out of a Company Releasee's willful misconduct or grossnegligence while employed by, or serving as an officer or director of, Company. (b) In consideration of the releases by Executive set forth inSection 7(a) above, the Company, for itself and its, affiliates, subsidiaries,successors, and assigns (collectively the "Company Group") hereby fully andwithout limitation irrevocably releases and forever discharges the Executive,and the Executive Affiliates, (collectively, the "Executive Releasees"), bothindividually and collectively, from any and all rights, claims, demands,liabilities, actions, causes of action, suits, charges, controversies, damages,Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. losses, costs, expenses and compensation, of whatever nature whatsoever, knownor unknown, fixed or contingent, which the Company or any of the Company Grouphas or may have or may claim to have against the Executive Releasees by reasonof any matter, cause, or thing whatsoever, arising on or prior to the EffectiveDate ("Claims"), including without limitation, any and all actions, charges,controversies, demands, causes of action, suits, rights, and/or claimswhatsoever that the Company may have against Executive arising out of: (i) theEmployment Agreement and/or the termination of the Employment Agreement orotherwise arising out of Executive's employment with, or position as an officerof, the Company or termination of Executive's employment with, or position as anofficer of, the Company; or (ii) by reason of any other matter, cause, or thingwhatsoever from the date of the Executive's employment to the date thisAgreement is executed by Company and delivered to Executive, whether arisingdirectly or indirectly from any act or omission, whether intentional orunintentional. This Section 7(b) releases all Company Claims including those ofwhich Company is not aware and those not mentioned in this Agreement up to thedate of Company's execution and delivery of this Agreement to Executive.Notwithstanding the foregoing, nothing in this Section 7(b) shall be deemed torelease Employee from (i) any of Executive's acts or omissions involving orarising from fraud, deceit or theft, (ii) Executive's obligations with respectto the Surviving Employment Agreement Provisions, or (iii) actions and claims byCompany against Executive for contribution and/or indemnification of any actionor claim brought by any third party person arising out of Executive's willfulmisconduct or gross negligence while employed by, or serving as an officer of,Company; provided, however, that exceptions (i) and (iii) are exceptions fromthe release only if the Company would generally have a cause of action againstany officer if such officer's conduct was as described in clauses (i) and (iii). 8. WAIVER OF CIVIL CODE SECTION 1542. (a) Both parties hereto understand and agree that the releaseprovided herein extends to all Claims and Company Claims released in Section7(a) and 7(b), respectively, above, whether known or unknown, suspected orunsuspected. Both parties expressly waive and relinquish any and all rights theymay have under California Civil Code Section 1542, which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOTKNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THERELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HERSETTLEMENT WITH THE DEBTOR." (b) Both parties expressly waive and release any rights and benefitsthat they have or may have under any similar law or rule of any otherjurisdiction. It is the intention of each party through this Agreement and withthe advice of counsel to fully, finally and forever settle and release theClaims and the Company Claims as set forth in Section 7 above. In furtherance ofsuch intention, the release herein given shall be and remain in effect as a fulland complete release of such matters notwithstanding the discovery of anyadditional Claims, Company Claims or facts relating thereto. 9. RELEASE OF FEDERAL AGE DISCRIMINATION CLAIMS BY THE EXECUTIVE. TheExecutive hereby knowingly and voluntarily waives and releases all rights andclaims, known or unknown, arising under the Age Discrimination In Employment Actof 1967, as amended, which he might otherwise have had against the Company orany of the Company Releasees regarding any actions which occurred prior to theEffective Date. 10. RIGHTS UNDER THE OLDER WORKERS BENEFIT PROTECTION ACT. In accordancewith the Older Workers Benefit Protection Act of 1990, the Executive hereby isadvised of the following: (a) The Executive has the right to consult with an attorney beforesigning this Agreement and is encouraged by the Company to do so; (b) The Executive has twenty-one (21) days from his receipt of thisAgreement to consider it; and (c) The Executive has seven (7) days after signing this Agreement torevoke Sections 7(a), 8, 9, and 11(a) of this Agreement (which must be revokedin their entirety and as a group), and the Executive understands he will notreceive any of the pay and benefits under this Agreement until that revocationSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. period has expired without exercise. The Executive understands that to exercisehis right to revoke this Agreement within such seven (7) day period, he must doso in a signed writing delivered to the Company's Chief Executive Officer beforethe close of business on the seventh calendar day after he signs this Agreement.In the event that the Executive exercises his right to revoke this Agreement,this Agreement shall be null and void and of no force and effect. 11. REPRESENTATIONS; COVENANT NOT TO SUE. (a) Executive hereby represents and warrants to the Company Releaseesthat (i) Executive has not filed, caused or permitted to be filed any pendingproceeding (nor has Executive lodged a complaint with any governmental orquasi-governmental authority) against the Company or any other Company Releasee,nor has Executive agreed to do any of the foregoing, (ii) Executive has notassigned, transferred, sold, encumbered, pledged, hypothecated, mortgaged,distributed, or otherwise disposed of or conveyed to any third party any rightor Claim against Company or any Company Releasee that has been released in thisAgreement, and (iii) Executive has not knowingly assisted (and will notknowingly assist) any third party in filing, causing or assisting to be filed,any Claim against Company or any other Company Releasee. In addition, Executiveshall not knowingly encourage or solicit or, unless compelled by a lawfullyissued governmental order or decree or any other legal requirement, knowinglyassist or participate in any way in the filing, reporting or prosecution byitself or any third party of a proceeding or Claim against Company or any otherCompany Releasee based upon or relating to any Claim released by Executive inthis Agreement. It shall not be a breach of this Section 11(a) for either partyto testify truthfully in any judicial or administrative proceeding. (b) Company hereby represents and warrants to Executive that (i)Company has not filed, caused or permitted to be filed any pending proceeding(nor has Company lodged a complaint with any governmental or quasi-governmentalauthority) against Executive, nor has Company agreed to do any of the foregoing,(ii) Company has not assigned, transferred, sold, encumbered, pledged,hypothecated, mortgaged, distributed or otherwise disposed of or conveyed to anythird party any right or Company Claim against Executive that has been releasedin this Agreement, and (iii) Company has not knowingly assisted (and will notknowingly assist) any third party in filing, causing or assisting to be filed,any claim against Executive. In addition, Company shall not knowingly encourageor solicit or, unless compelled by a lawfully issued governmental order ordecree or any other legal requirement, knowingly assist or participate in anyway in the filing, reporting or prosecution by itself or any third party of aproceeding or Company Claim against Employee based upon or relating to anyCompany Claim released by Company in this Separation Agreement. It shall not bea breach of this Section 11(b) for Company to testify truthfully in any judicialor administrative proceeding. 12. PROPRIETARY INFORMATION. The Executive acknowledges that certaininformation, observations and data obtained by him during the course of orrelated to his employment with the Company (including, without limitation,projection programs, business plans, business matrix programs (I.E., measurementof business), strategic financial projections, financial information,shareholder information, product design information, marketing plans orproposals, personnel information, customer lists and other customer information)are the sole property of the Company and constitute Confidential Information ofthe Company. In addition to his promises in Surviving Employment AgreementProvisions, the Executive agrees that he will not disclose to any person or useany such information, observations or data. If the Executive is served with adeposition subpoena or other legal process calling for the disclosure of suchinformation he will notify the Company's Chief Executive Officer as soon as isreasonably practicable after receiving notice to enable the Company to seek aprotective order at Company's sole cost and expense. 13. COVENANTS. Until such time as the entire payment described in Section3 above is paid in full, Company hereby agrees as follows (the "PayrollCovenants"): (a) Company shall not pay any deferred compensation to any officerthat was earned by them, but unpaid, as of December 31, 2005, unless,simultaneously with such payment of deferred compensation, the Company pays toExecutive the same proportionate amount of deferred compensation which was dueSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. to him at December 31, 2005. Executive was owed approximately $58,000 ofdeferred compensation at December 31, 2005. All officers (including theExecutive), were owed $278,241 of deferred compensation at such date.Accordingly, the Executive must received at least 20% of all deferredcompensation payments made by the Company hereafter until all amounts due to himare paid in full. Furthermore, no deferred compensation payments may be made ifthe Company is late in making scheduled payment under Section 3 to theExecutive. Any amount paid to Executive pursuant to Section 13(a) shall beoffset against the last payment(s) due under Section 3 above.Nothing contained herein shall prevent or give the Executive any rights orclaims if any officer or employee of the Company is paid any compensation ordeferred compensation in securities of the Company. The foregoing covenant shallonly affect cash payments. 14. REMEDIES. (a) If the Executive breaches any of the material terms or conditionsof this Agreement, it shall constitute a breach and Company shall be entitled toall remedies available hereunder (including, without limitation, injunctiverelief herein), or otherwise available at law or in equity. Notwithstanding theforegoing, to the extent any such breach by the Executive is curable, Executiveshall have 10 days following notice from Company to cure such breach. Withoutlimiting the foregoing, the Executive acknowledges that any unfair competitionor misuse of trade secret or Confidential Information belonging to the Company,or any violation of the Surviving Employment Agreement Provisions or Sections 12and 16 of this Agreement, will result in irreparable harm to the Company, andtherefore, the Company shall, in addition to any other remedies available at lawor in equity, be entitled to immediate injunctive relief. (b) If Company breaches any of the material terms or conditions ofthis Agreement (including, without limitation, the failure to pay any paymentinstallment to Executive hereunder when due after the expiration of the cureperiod set forth in Section 30(c) below or failure to adhere to the provisionsof Section 13), it shall constitute a breach of this Agreement if such breach isnot cured within ten (10) days after written notice, and in addition to and notinstead of Executive's other remedies hereunder or otherwise at law or inequity, Company's obligation to pay the unpaid balance of the payment set forthin Section 3, at the option of Executive, shall accelerate and be due andpayable in full ten (10) days after written notice of the acceleration fromExecutive, without delay or discount. If the accelerated amount is not paid whendue, time being of the essence, the consideration for Executive's release hereinagainst Company shall be deemed to have failed and such release against theCompany shall be deemed withdrawn. The release against the Company's agents,representatives, officers, directors, shareholders, and other Company Releaseesshall not be withdrawn and shall remain at all times in full force and effect.Notwithstanding the foregoing, Company shall during the term hereof have oneninety day grace period after notice to cure a failure to pay the biweeklypayments due Executive herein; provided that such 90 day grace period may not beexercised by the Company prior to July 15, 2006. Company shall notify Executivewithin five (5) days after receiving a notice of default relating to a bi-weeklypayment of Company's election to exercise its one time grace period, in whichcase, Company shall be in breach of its obligations hereunder only if it doesnot cure such breach within ninety days after such notice of breach. (c) In the event Company fails to make the payments when due as setforth in Section 3 herein, or defaults in its obligations under Section 13herein, Company shall provide to Executive upon Executive's written request, theCompany's most recently filed Federal IRS form 941 for Company, its affiliatesand subsidiaries, if applicable, concurrently with the filing thereof . 15. NO FUTURE EMPLOYMENT. The Executive understands that his employmentwith the Company has ended and will not be resumed at any time in the future.The Executive agrees that he will not apply for, seek or accept employment bythe Company at any time, unless invited to do so by the Company. 16. NON-DISPARAGEMENt. The Executive agrees not to disparage or otherwisepublish or communicate derogatory statements about the Company, its management,products and services to any third party. Company agrees to use commerciallyreasonable efforts to cause its executive officers and directors not toSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. disparage or other publish or communicate derogatory statements about Executive.It shall not be a breach of this Section 16 for the Executive or Company'sexecutive officers and/or directors to testify truthfully in any judicial oradministrative proceeding, or to make factually accurate statements in legal orpublic filings. 17. TAXES. The Executive acknowledges that the payments set forth inSection 3 will be subject to customary payroll withholding and deductions andagrees that he is solely responsible for all other tax obligations, including,but not limited to, all payment obligations, which may arise as a consequence ofthis settlement. The Executive further agrees to promptly pay and to indemnifyand hold the Company Releasees harmless from and against any and all loss, cost,damage or expense, including, without limitation, attorneys' fees, interest,assessments, withholdings and penalties, arising out of any dispute over the taxtreatment of any of the proceeds paid to the Executive as a result of thissettlement. The Executive further agrees not to seek or make any claims againstthe Company Releasees for any loss, cost, damage or expense if a claim oradverse determination is made in connection with the tax treatment of any of theproceeds of this settlement or a portion thereof. The Executive understands andagrees that the Company Releasees shall not have any duty to defend against anyclaim or assertion in connection with the tax treatment of the proceeds of thissettlement or any portion thereof, and the Executive agrees to assume fullresponsibility for defending against any such claim or assertion. In addition,the Executive agrees to notify the Company within ten (10) business days of anycommunication or action by any government agency relating the tax treatment ofany of the proceeds paid to the Executive as a result of this settlement. 18. GOVERNING LAW. This Agreement shall be governed by and construed inaccordance with the laws of the State of New York, without giving effect toprinciples of conflict of laws. 19. VENUE; ARBITRATION. The arbitration provisions of the EmploymentAgreement are incorporated herein as follows: This Agreement shall be governed by, and construed in with, the internal laws of the State of New York, without reference to the choice of law principles thereof. Any claim, controversy or dispute between the parties hereto, arising out of, relating to, or in connection with this Agreement or any aspect of your services to the Company hereunder, including but not limited to the termination of this Agreement and any and all claims in tort or contract, shall be submitted to arbitration in Melville, New York, pursuant to the American Arbitration Association ("AAA") National Arbitration Rules for the Resolution of Employment Disputes. This provision shall apply to claims against the Company and/or its affiliates and their respective current or former employees, agents, managers, officers and/or directors. Any issue about whether a claim is covered by this Agreement shall be determined by the arbitrator. There shall be one arbitrator, who (a) shall be chosen from a panel provided by the AAA and who shall apply the substantive law of the State of New York, (b) may award injunctive relief or any other remedy available from a judge, including attorney fees and costs to the prevailing party, and (c) not have the power to award punitive damages. Judicial review of the arbitrator's award shall be strictly limited to the issue of whether said award was obtained through fraud, corruption or misconduct. 20. SALE OF STOCK. Company agrees that if Executive elects to sell any ofhis stock in Company in the future and if the sale by the Executive is exemptfrom registration under applicable securities laws, the Company will cause itscounsel, at the Company's expense, to provide an appropriate opinion to thateffect to the Company's transfer agent. 21. ATTORNEYS' FEES. In any action, litigation or proceeding between theparties arising out of or relating to this Agreement, including any purportedbreach of this Agreement, the prevailing party shall be entitled toreimbursement of its reasonable attorneys fees and costs. 22. NON-ADMISSION OF LIABILITY. The parties understand and agree thatneither the payment of any sum of money nor the execution of this Agreement bythe parties will constitute or be construed as an admission of any wrongdoing orliability whatsoever by any party.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. 23. SEVERABILITY. If any one or more of the provisions contained herein(or parts thereof) or in the Surviving Employment Agreement Provisions (or partsthereof), or the application thereof in any circumstances, is held invalid,illegal or unenforceable in any respect for any reason, the validity andenforceability of any such provision in every other respect and of the remainingprovisions hereof and thereof will not be in any way impaired or affected, itbeing intended that all of the rights and privileges shall be enforceable to thefullest extent permitted by law. 24. ENTIRE AGREEMENT. This Agreement and the Surviving EmploymentAgreement Provisions represent the sole and entire agreement among the partiesand, except as expressly stated herein, supersedes all prior agreements,negotiations and discussions among the parties with respect to the subjectmatters contained herein. 25. WAIVER. No waiver by any party hereto at any time of any breach of, orcompliance with, any condition or provision of this Agreement or the SurvivingEmployment Agreement Provisions to be performed by any other party hereto may bedeemed a waiver of similar or dissimilar provisions or conditions at the sametime or at any prior or subsequent time. 26. AMENDMENT. This Agreement may be modified or amended only if suchmodification or amendment is agreed to in writing and signed by duly authorizedrepresentatives of the parties hereto, which writing expressly states the intentof the parties to modify this Agreement. 27. COUNTERPARTS. This Agreement may be executed in one or morecounterparts, each of which will be deemed to be an original as against anyparty that has signed it, but all of which together will constitute one and thesame instrument. 28. ASSIGNMENT. This Agreement inures to the benefit of and is bindingupon both parties and their respective successors and assigns. 29. NOTICE. All notices, requests, demands, claims and othercommunications hereunder shall be in writing and shall be deemed to have beenduly given (a) if personally delivered; (b) if sent by telecopy or facsimile; or(c) if mailed by overnight or by first class, certified or registered mail,postage prepaid, return receipt requested, and properly addressed as follows:If to the Executive: Robert J. Aholt, Jr. 20128 Cavern Court Saugus, California 91390If to the Company: Phase III Medical, Inc. 330 South Service Road Suite 120 Melville, New York 11747 Att: Principal Executive Officer Fax: (631) 574-4956Such addresses may be changed, from time to time, by means of a notice given inthe manner provided above. Notice will conclusively be deemed to have been givenwhen personally delivered (including, but not limited to, by messenger orcourier); or if given by mail, on the fifth postal day after being sent by firstclass, certified or registered mail; or if given by Federal Express or othersimilar overnight service, on the date of delivery; or if given by telecopy orfacsimile machine during normal business hours on a business day, whenconfirmation of transmission is indicated by the sender's machine; or if givenby telecopy or facsimile machine at any time other than during normal businesshours on a business day, the first business day following when confirmation oftransmission is indicated by the sender's machine, provided that a duplicatecopy is deposited in the United States mail and mailed by first class mail tothe addressee on the same date as the facsimile transmission. Notices, requests,Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. demands and other communications delivered to legal counsel of any party hereto,whether or not such counsel shall consist of in-house or outside counsel, shallnot constitute duly given notice to any party hereto. 30. MISCELLANEOUS PROVISIONS. (a) The parties represent that they have read this Agreement and fullyunderstand all of its terms; that they have conferred with their attorneys andfinancial advisors, or have knowingly and voluntarily chosen not to confer withtheir attorneys and financial advisors about this Agreement; that they haveexecuted this Agreement without coercion or duress of any kind; and that theyunderstand any rights that they have or may have and sign this Agreement withfull knowledge of any such rights. (b) Each party has been represented by counsel who has participated in thedrafting of this Agreement. The language in all parts of this Agreement must bein all cases construed simply according to its fair meaning and not strictly foror against any party. Whenever the context requires, all words used in thesingular must be construed to have been used in the plural, and vice versa, andeach gender must include any other gender. The captions of the Sections of thisAgreement are for convenience only and must not affect the construction orinterpretation of any of the provision herein. (c) Each provision of this Agreement and the Surviving EmploymentAgreement Provisions to be performed by a party hereto is both a covenant and acondition, and is a material consideration for the other party's performancehereunder, and any breach thereof by the party will be a material defaulthereunder. All rights, remedies, undertakings, obligations, options, covenants,conditions and agreements contained in this Agreement are cumulative and no oneof them is exclusive of any other. Notwithstanding anything contained herein tothe contrary, the Company shall have ten (10) days following notice from theExecutive to cure any payment default under this Agreement. In addition to anyother rights and remedies hereunder or pursuant to applicable law or equity, anypayments not made within such 10 day grace period shall thereafter accrueinterest on the amount past due at the rate of 1% per month. (d) Each party acknowledges that no representation, statement or promisemade by any other party, or by the agent or attorney of any other party, exceptfor those in this Agreement, has been relied on by him or it in entering intothis Agreement. (e) Each party understands that the facts with respect to which thisAgreement is entered into may be materially different from those the parties nowbelieve to be true. Except in the case where the existence of any additional ordifferent facts constitutes the material breach of a representation or warranty,each party accepts and assumes this risk and agrees that this Agreement and thereleases in it shall remain in full force and effect, and legally binding,notwithstanding the discovery or existence of any additional or different facts,or of any claims with respect to those facts. (f) EACH OF THE PARTIES ACKNOWLEDGES THAT HE/IT HAS READ THIS AGREEMENT,UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT, AND SPECIFICALLY, EXECUTIVEUNDERSTANDS THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWNCLAIMS. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on thedates indicated below."EXECUTIVE"/s/ Robert J. Aholt, Jr.------------------------------Robert J. Aholt, Jr."COMPANY"PHASE III MEDICAL, INC., a Delaware corporationBy: /s/ Mark Weinreb ------------------------------ Mark Weinreb, President and CEOSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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(Y) ------------- Catherine M. Vaczy 140 East 28th Street #11C New York, NY 10016Phase III Medical, Inc.330 South Service RoadSuite 120Melville, New York 11747Attention: Mark Weinreb, President & CEOAs of December 22, 2005Dear Mark:As you know, at a meeting of the Board of Directors held on December 22, 2005, Iagreed and the Board approved a total of $25,000 of my accrued salary (the"Converting Salary") be converted into shares of the Company's common stock,$.001 par value (the "Common Stock"). The price at which the Converting Salarywill be converted into shares of Common Stock is $.06 per share, which is theclosing price of the Common Stock on the date of such agreement, resulting in atotal of 416,666 shares (the "Shares") being issued to me as of the date hereof.We both confirm that appropriate withholding taxes must be paid with respect tothe Shares. These shares carry the same registration rights as my other sharespurchased from the Company.In connection with my purchase of the Shares I hereby make to you the followingrepresentations in which I am hereafter referred to as "Investor":(a) The Investor hereby represents and warrants to the Company that theInvestor is an "accredited investor" as that term is defined in Rule 501(a) ofRegulation 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): CMV ___ (1) The Investor is an accredited investor because he (Initial) has an individual net worth, or with his spouse as 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 he (Initial) 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 he (Initial) is a director, executive officer or managing member of the Company. (b) The Investor hereby certifies that he is not a non-resident alien forpurposes of income taxation (as such term is defined in the Internal RevenueCode of 1986, as amended, and Income Tax Regulations). The Investor herebyagrees that if any of the information in this section changes, the Investor willnotify the Company within 60 days thereof. The Investor understands that theinformation contained in this Section 2.4(b) may be disclosed to the InternalRevenue Service by the Company and that any false statement contained in thisSection 2.4(b) could be punished by fine, imprisonment or both. (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 forSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. an 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 obligationto register 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. (d) The Investor acknowledges that in making a decision to subscribe forthe Shares, the Investor has relied solely upon independent investigations madeby the Investor and the representations contained herein. The Investorunderstands the business objectives and policies of, and the strategies whichmay be pursued by, the Company. The Investor's investment in the Shares isconsistent with the investment purposes and objectives and cash flowrequirements of the Investor and will not adversely affect the Investor'soverall need for diversification and liquidity. The Investor acknowledges thathe is not subscribing pursuant hereto for any Shares as a result of orsubsequent to (a) any advertisement, article, notice or other communicationspublished on-line, in any newspaper, magazine or similar media or broadcast overtelevision or radio, or (b) any seminar or meeting whose attendees, includingthe Investor, had been invited as a result of, subsequent to or pursuant to anyof 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. (h) 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. (i) 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 findings or determination as to the fairness of this investment; and (3) there are substantial risks of loss of investment incidental to the purchase of the Shares. (j) The Investor and his 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 receivedsatisfactory answers to any such inquiries. Except as set forth in thisAgreement, the Company has made no representation or warranty on which theInvestor has relied to enter into this Agreement and acquire the Shares. (k) 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.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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. (l) The Investor understands that the net proceeds to the Company fromthis subscription will be used by the Company for general operating expenses.Please acknowledge your agreement with the foregoing by countersigning thisletter agreement as provided below.Very truly yours,/s/ Catherine M. Vaczy----------------------Catherine M. VaczyAccepted and agreed:Phase III Medical, Inc.By: /s/ Mark Weinreb ----------------Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 21.1 ------------ SUBSIDIARIES OF THE REGISTRANT ------------------------------NeoStem, Inc., a Delaware corporationSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 23.1 ------------ CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------- We hereby consent to the incorporation by reference into the RegistrationStatement on Form S-8 (Registration No. 333-107438) of Phase III Medical, Inc.of our report dated February 23, 2006 except for Note 12, as to which the dateis March 27, 2006 with respect to the financial statements of Phase III Medical,Inc. appearing in this Annual Report on Form 10-K of Phase III Medical, Inc. forthe year ended December 31, 2005./s/ Holtz Rubenstein Reminick LLP---------------------------------Holtz Rubenstein Reminick LLPMelville, New YorkMarch 31, 2006Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 ------------ CERTIFICATIONSI, Mark Weinreb, as Chief Executive Officer (Principal Executive Officer),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 ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading 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 other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused suchdisclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including itsconsolidated 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 disclosurecontrols and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internalcontrol over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting;and5. The registrant's other certifying officer and I have disclosed, based onour most recent 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 thedesign or operation of internal control over financial reporting which arereasonably 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 orother employees who have a significant role in the registrant's internal controlover financial reporting.Date: March 31, 2006 /s/ Mark Weinreb ------------------------------ Name: Mark Weinreb Title: Chief Executive OfficerSource: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 31.2 ------------ CERTIFICATIONSI, Larry A. May, as Chief Financial Officer (Principal Financial Officer),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 ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading 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 other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused suchdisclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including itsconsolidated 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 disclosurecontrols and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internalcontrol over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting;and5. The registrant's other certifying officer and I have disclosed, based onour most recent 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 thedesign or operation of internal control over financial reporting which arereasonably 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 orother employees who have a significant role in the registrant's internal controlover financial reporting. Date: March 31, 2006 /s/ Larry A. May ----------------------------------- Name: Larry A. May Title: Chief Financial Officer (Principal Financial Officer)Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 ------------ 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 on Form 10-K (the "Report") of Phase IIIMedical, Inc. (the "Corporation") for the year ended December 31, 2005, as filedwith the Securities and Exchange Commission on the date hereof, I, Mark Weinreb,Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to myknowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations of theCorporation.Dated: March 31, 2006 /s/ Mark Weinreb ------------------------- Mark Weinreb Chief Executive OfficerThe foregoing certification is being furnished solely pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter63 of Title 18, United States Code) and is not being filed as part of the Reportor as a separate disclosure document.A signed original of this written statement required by Section 906, or otherdocument authenticating, acknowledging, or otherwise adopting the signature thatappears in typed form within the electronic version of this written statementrequired by Section 906, has been provided to the Corporation and will beretained by the Corporation and furnished to the Securities and ExchangeCommission or its staff upon request.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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 32.2 ------------ 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 on Form 10-K (the "Report") of Phase IIIMedical, Inc.(the "Corporation") for the year ended December 31, 2005, as filedwith the Securities and Exchange Commission on the date hereof, I, Larry May,Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to myknowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations of theCorporation.Dated: March 31, 2006 /s/ Larry A. May --------------------------- Larry A. May Chief Financial OfficerThe foregoing certification is being furnished solely pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter63 of Title 18, United States Code) and is not being filed as part of the Reportor as a separate disclosure document.A signed original of this written statement required by Section 906, or otherdocument authenticating, acknowledging, or otherwise adopting the signature thatappears in typed form within the electronic version of this written statementrequired by Section 906, has been provided to the Corporation and will beretained by the Corporation and furnished to the Securities and ExchangeCommission or its staff upon request.Source: Caladrius Biosciences, Inc., 10-K, April 03, 2006Powered 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.