Caladrus Biosciences
Annual Report 2006

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KCaladrius Biosciences, Inc. - CLBSFiled: March 29, 2007 (period: December 31, 2006)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, 2006 OR[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 0-10909 NEOSTEM, INC. (Exact name of registrant as specified in its charter) Delaware 22-2343568 (State or other jurisdiction (I.R.S. Employer Identification No.)of incorporation or organization) 420 Lexington Avenue Suite 450 New York, New York 10170(Address of principal executive offices) (Zip Code)Registrant's telephone number, including area code: (212) 584-4180Securities 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. [X]Indicate by check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of "acceleratedfiler and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Checkone):Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act.[ ] Yes [X] NoThe aggregate market value of the voting and non-voting common equity held bynon-affiliates of the registrant as of June 30, 2006 was approximately$4,568,646, based upon the closing sales price of $.50 reported for such date.(For purposes of determining this amount, only directors, executive officers,and 10% or greater stockholders have been deemed affiliates).On March 26, 2007, 26,351,213 shares of the registrant's common stock, par value$0.001 per share, were outstanding.Documents incorporated by reference: Portions of the registrant's definitiveProxy Statement for the Annual Meeting of Stockholders scheduled to be held onJune 14, 2007 to be filed with the Commission not later than 120 days after theclose of the registrant's fiscal year, have been incorporated by reference, inwhole or in part, into Part III, Items 10, 11, 12, 13 and 14 of this AnnualReport on Form 10-K.-------------------------------------------------------------------------------- TABLE OF CONTENTS PART I Page ----Item 1 Business 3Item 1A. Risk Factors 13Item 1B. Unresolved Staff Comments 19Item 2 Properties 19Item 3 Legal Proceedings 19Item 4 Submission of Matters to a Vote of Security Holders 19 PART IIItem 5 Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 20Item 6 Selected Financial Data 26Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 27Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35Item 8 Financial Statements and Supplementary Data 36Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 36Item 9A. Controls and Procedures 36Item 9B. Other Information 37 PART IIIItem 10 Directors, Executive Officers and Corporate Governance 37Item 11 Executive Compensation 37Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 37Item 13 Certain Relationships and Related Transactions, and Director Independence 37Item 14 Principal Accounting Fees and Services 37 PART IVItem 15 Exhibits and Financial Statement Schedules 38--------------------------------------------------------------------------------Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. 2CAUTION REGARDING FORWARD LOOKING STATEMENTS--------------------------------------------This 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 ofNeoStem, Inc. (the "Company"), or industry results, to be materially differentfrom any future results, performance or achievements expressed or implied bysuch forward-looking statements. When used in this Annual Report, statementsthat are not statements of current or historical fact may be deemed to beforward-looking statements. Without limiting the foregoing, the words "plan,""intend," "may," "will," "expect," "believe," "could," "anticipate," "estimate,"or "continue" or similar expressions or other variations or comparableterminology 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) the Company's inability to obtain appropriate state licenses or anyother adverse effect or limitations caused by government regulation of thebusiness; and (vi) other risk factors discussed in Item 1A, "Risk Factors"contained herein. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof. Except asrequired 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. BUSINESS BUSINESS NeoStem, Inc. (the "Company") is in the business of operating a commercialautologous (donor and recipient are the same) adult stem cell bank and thepre-disease collection, processing and long-term storage of adult stem cellsthat donors can access for their own present and future medical treatment. OnJanuary 19, 2006 the Company consummated the acquisition of the assets of NSCalifornia, Inc., a California corporation ("NS California") relating to NSCalifornia's business of collecting and storing adult stem cells. Prior to theacquisition of NS California, the Company's business had been providing capitaland business guidance to companies in the healthcare and life scienceindustries, including NS California. The Company now is providing adult stemcell processing, collection and banking services with the goal of making stemcell collection and storage widely available, so that the general populationwill have the opportunity to store their own stem cells for current and futurehealthcare needs. Using its proprietary process, the Company provides theinfrastructure, methods and systems that allow adults to have their stem cellssafely collected and conveniently banked for future therapeutic use as needed inthe treatment of such life-threatening diseases as diabetes, heart disease andradiation sickness that may result from a bio-terrorist attack or nuclearaccident. The Company also hopes to become the leading provider of adult stemcells for therapeutic use in the burgeoning field of regenerative medicine.According to the National Institutes of Health, there are over 600 clinicaltrials underway relating to the use of adult stem cells, over 200 relating toautologous use, in the treatment of numerous serious diseases and conditions,Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.including those that address cardiac disease, degenerative, autoimmune,neurological and age-related musculoskeletal disorders, as well as diabetes,breast cancer and wound healing. See "--Current Business Operations." 3 The Company's prior business was providing capital and business guidance tocompanies in the healthcare and life science industries, in return for apercentage of revenues, royalty fees, licensing fees and other product sales ofthe target companies. Additionally, through June 30, 2002, the Company was aprovider of extended warranties and service contracts via the Internet atwarrantysuperstore.com. The Company is still engaged in the "run off" of suchextended warranties and service contracts, which is expected to end in 2007. Fora discussion of the Company's involvement in such other activities and Companyhistory, see "--Former Business Operations." In 2004, the Company launched itswebsite www.phase3med.com and in 2006, it launched another websitewww.neostem.com to support the Company's new business in adult stem cells. TheCompany's information as filed with the Securities and Exchange Commission isavailable via a link on its websites as well as at www.sec.gov.Current Business Operations On January 19, 2006, the Company, through a wholly-owned subsidiary,consummated its acquisition of the assets of NS California relating to NSCalifornia's business of collecting, processing and storing adult stem cells,pursuant to an Asset Purchase Agreement dated December 6, 2005. The purchaseprice consisted of 500,000 shares of the Company's Common Stock, plus theassumption of certain enumerated liabilities of NS California and liabilitiesunder assumed contracts. The Company also entered into employment agreementswith NS California's chief executive officer and one of its founders as part ofthe transaction. NS California was incorporated in California in July 2002, andfrom its inception through the acquisition by the Company was engaged in thesale of adult stem cell banking services. In October 2003, NS California leasedlaboratory space in a research facility at Cedars Sinai Hospital in Californiaand entered into an agreement with a third party to provide adult stem cellcollection services. By December 2003, NS California had outfitted itslaboratory with equipment for processing, cryopreservation and storage of adultstem cells. In May 2004, after a validation process and inspection and approvalby the State of California, NS California received a biologics license andcommenced commercial operations. In January 2005, NS California moved its adultstem cell processing and storage facility to Good Samaritan Hospital inCalifornia. NS California was compelled to cease operations because it did nothave sufficient assets to complete the revalidation of the new laboratory and NSCalifornia's biologics license was suspended. In October 2005, NS Californiarestarted the validation of the laboratory at Good Samaritan Hospital, and onMay 29, 2006 the Company was issued a new biologics license from the State ofCalifornia. Pursuant to the Asset Purchase Agreement, NS California wasobligated to return to the Company (out of the 500,000 shares of Common Stockissued) 1,666 shares per day for each day after February 15, 2006 that suchbiologics license had not been issued up to a total of 100,000. NS Californiahas returned 100,000 shares to the Company. The Company is developing NS California's business in the adult stem cellfield and seeking 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 thatembryonic stem cell therapies have certain barriers to development due topolitical, ethical, legal and technical issues. Medical researchers, scientists,medical institutions, physicians, pharmaceutical companies and biotechnologycompanies are currently developing therapies for the treatment of disease usingadult stem cells. As these adult stem cell therapies obtain necessary regulatoryapprovals and become standard of care, patients will need a service to collect,process and bank their stem cells. The Company intends to provide this service.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.Stem Cells Stem cells are very primitive and undifferentiated cells that have theunique ability to transform into many different cells, such as white bloodcells, nerve cells or heart muscle cells. Stem cells can be found in the bonemarrow or peripheral blood of adults. Certain processes can cause the stem cellsto leave the bone marrow and enter the blood where they can be collected. TheCompany currently only works with adult stem cells collected from peripheralblood. 4Plan of Operations The Company is engaging in the business of autologous adult stem cellcollection, processing and banking. The Company intends to generate revenuesfrom the following: o initial collection of adult stem cells o storage of adult stem cells (generating recurring revenue) o utilization of adult stem cells (when stem cells are used) It is developing a service model to create a source of stem cells that potentially enables physicians to treat a variety of diseases and engage in research to progress therapeutic development using adult stem cells. The Company anticipates fees being derived from Company-owned collection centers, collection centers operated by members of its physician's network and medical institutions with which it collaborates. It may also seek to obtain government grants and catalogue and store adult stem cells in a biorepository. As this biorepository grows, it is anticipated there will be revenues derived from relationships with pharmaceutical companies and other companies developing stem cell therapies. Additionally, the Company plans to expand its patent portfolio in the adult stem cell arena.Marketing and Customers The Company intends to embark on a significant marketing, advertising andsales campaign individually and through collaborations with others for thepurpose of educating physicians and potential clients on the benefits of adultstem cell collection and storage. The Company's "Go-To-Market" strategy is todrive this general awareness. The essence of this strategy is to reach theend-customers as quickly as possible and to accelerate the adoption curve of ourservice. In addition, the Company plans to utilize marketing resources toincrease the membership in its physician's network which members will operatecollection centers. The Company believes several consumer segments may recognize and experiencethe long-term benefits from banking their own stem cells. These include: o Individuals with a family history of serious diseases that show potential for treatment with stem cell therapies being developed, 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, or diabetes. The Company is designing its marketing efforts to educate physicians on thebenefits both of referring their adult patients to the Company for stem cellbanking and participating in our collection program. The Company has appointed an experienced medical services marketingSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 and is utilizing the expertise of certain outside marketing consultantsin connection with the expansion of its marketing efforts and intends toincrease its marketing personnel.Company Initiatives The Company's current initiatives include plans to: o Develop strategic initiatives with cord blood companies, tissue banks and pharmaceutical companies 5 o Collaborate with academic institutions on licensing opportunities, build out of collection centers and provision of collection services for ongoing clinical trials o Develop partnerships with executive health programs, medical spas and first responder groups o Expand the Company's intellectual property portfolio within the stem cell arena o Submit grant applications to National Institutes of Health and others to fund Company programs o Establish an Adult Stem Cell Foundation to generate awareness of stem cell therapiesIntellectual Property We are seeking patent protection for our proprietary technology. TheCompany acquired two U.S. patent applications which had been submitted by NSCalifornia and are pending. The first patent application addresses the processby which we prepare and store stem cells derived from adult peripheral blood byapheresis following mobilization of the stem cells from the bone marrow. Thesecond patent application 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. There can be noassurance that either of these patent applications will issue as patents. Thepatent position of biotechnology companies generally is highly uncertain andinvolves complex legal, scientific and factual questions.Competition For a description of matters relating to competition, please see "RiskFactors--Risks Relating to Competition."Industry and Geographical Segmental Information As a result of the Company's acquisition of substantially all the assetsand operations of NS California on January 19, 2006, the Company now hasoperations in two segments. One segment is the collection, processing andbanking of adult stem cells and the other segment remains the "run off" of itssale of extended warranties and service contracts via the Internet. It isexpected that this "run-off" of warranty and service contracts will end in 2007.For further financial information regarding segments, please see the financialstatements and notes thereto included elsewhere in Item 8 of this report. TheCompany's operations are conducted entirely in the United States.Prior Relationship with NS California On March 31, 2004, the Company entered into a joint venture agreement toassist NS California in finding uses of and customers for NS California'sservices and technology. The Company's initial efforts concentrated ondeveloping programs utilizing NS California's services and technology throughSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.government agencies. That agreement was terminated as a result of the NSCalifornia acquisition. On September 9, 2005, the Company signed a revenuesharing agreement with NS California pursuant to which the Company had agreed tofund NS California certain amounts to pay pre-approved expenses and otheramounts based on a formula relating to the Company's ability to raise capital.Once funded, NS California 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 NS California acquisition. 6Recent Developments In March 2007, the Company signed agreements to expand its physician'snetwork into Las Vegas, Nevada and Eastern Pennsylvania. Agreements to openAdult Stem Cell Collection Centers were signed on terms substantially similar tothe Company's agreement for its Adult Stem Cell Collection Center in Encinitas,California (see below), which has already begun collecting patients' stem cells. Also in March 2007, the Company engaged Trilogy Capital Partners, Inc.("Trilogy") as a marketing and investor relations consultant. The agreement isfor a 12 month period, terminable by either party after six months upon 30 days'notice, at a monthly fee of $10,000 plus reimbursement of certain budgeted orapproved marketing expenses. Pursuant to this agreement, the Company issued toTrilogy warrants to purchase 1,500,000 shares of its Common Stock at a purchaseprice of $.47 per share. Such warrants vest over a 12 month period at a rate of125,000 per month, subject to acceleration in certain circumstances, and areexercisable until April 30, 2010. In January 2007, the Company entered into a strategic alliance with UTEKCorporation ("UTEK"), a specialty finance company focused on technologytransfer, as part of its plan to move forward to expand its proprietary positionin the adult stem cell collection and storage arena as well as the burgeoningfield of regenerative medicine. The purpose of the agreement is to identifypotential technology acquisition opportunities that fit the Company's strategicvision. Through its strategic alliance agreements with companies in exchange fortheir equity securities, UTEK assists such companies in enhancing their newproduct pipeline by facilitating the identification and acquisition ofinnovative technologies from universities and research laboratories worldwide.UTEK is a business development company with operations in the United States,United Kingdom and Israel. In January 2007, the Company issued 120,000 shares ofCommon Stock to UTEK, vesting as to 10,000 shares per month commencing January2007.2007 Financing Activities In January and February 2007, the Company raised an aggregate of $2,500,000through the private placement of 2,500,000 units at a price of $1.00 per unit(the "January 2007 private placement"). Each unit was comprised of two shares ofthe Company's Common Stock, one redeemable seven-year warrant to purchase oneshare of Common Stock at a purchase price of $.80 per share and onenon-redeemable seven-year warrant to purchase one share of Common Stock at apurchase price of $.80 per share. The Company issued an aggregate of 5,000,000shares of Common Stock, and warrants to purchase up to an aggregate of 5,000,000shares of Common Stock at an exercise price of $0.80 per share. Emerging GrowthEquities, Ltd ("EGE"), the placement agent for the January 2007 privateplacement, received a cash fee equal to $171,275 and is entitled to expensereimbursement not to exceed $50,000. The Company also issued to EGE redeemableseven-year warrants to purchase 343,550 shares of Common Stock at a purchaseprice of $.50 per share, redeemable seven-year warrants to purchase 171,275shares of Common Stock at a purchase price of $.80 per share and non-redeemableseven-year warrants to purchase 171,275 shares of Common Stock at a purchaseprice of $.80 per share. Pursuant to the terms of the January 2007 privateplacement, the Company was obligated to prepare and file, no later than ten daysafter the filing of the Company's Annual Report on Form 10-K, a registrationstatement with the SEC to register the shares of Common Stock issued to theinvestors and the shares of Common Stock underlying the warrants issued to theSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.investors and to EGE. Such registration statement was filed with the SEC onFebruary 7, 2007. The January 2007 private placement was conditioned upon entryby the Company's Board of Directors and executive officers into a lock-upagreement, pursuant to which such directors and officers will not, without theconsent of EGE, sell or transfer their Common Stock until the earlier of: (a)six months following the effective date of the registration statement filed toregister the shares underlying the units, or (b) twelve months following thesale of the units. 72006 Developments On December 15, 2006, the Company entered into a five year agreement withHemaCare Corporation ("HemaCare") pursuant to which HemaCare will provide theCompany with collection services for the procurement of adult stem cells fromperipheral blood for the purpose of long-term storage. HemaCare will provideservices consisting of apheresis collection of adult stem cells from peripheralblood for long-term storage and for other purposes, such as research purposes,if requested by the Company. These services will be provided at either aHemaCare facility, a Company facility or a third party center affiliated withthe Company, including members of the Company's physician's network, subject tothe terms of HemaCare's license and other regulatory requirements. HemaCare hasoperations on the West Coast and parts of the Northeast. Additionally, under theagreement HemaCare will provide to the Company standard operating procedures("SOPs") for the collection of peripheral blood progenitor cells to be used bythe Company as its own SOPs and will keep these SOPs up to date. The Company maycontinue to use the SOPs for up to ten years following termination of theagreement, subject to continued payment by the Company of a maintenance fee.HemaCare will also provide the Company with assistance in staff training andopening other facilities, whether Company owned facilities or a third partycenter affiliated with the Company, including members of the Company'sphysician's network. The provision of apheresis, services for the collection of adult stem cellsfrom peripheral blood for long term storage, will be provided to the Company onan exclusive basis during the term of the agreement. The Company has also givento HemaCare the first right to negotiate an arrangement with the Company for theprovision of other collection services should the Company choose to expand itsbusiness model. New inventions that may arise as a result of performance of theservices will be the sole property of the Company and we may seek intellectualproperty protection for such new inventions, if any. The parties have agreed tostandard confidentiality obligations during the term of the agreement and forthree years thereafter. The agreement is for a term of five years, subject toearlier termination by either party, generally upon 180 days' prior notice. TheCompany will provide to HemaCare payment for such services as set forth in theagreement, which will be fixed for a 12 month period and may thereafter beincreased based on mutual agreement of the parties. The services will beprovided by HemaCare in accordance with all FDA regulations and guidelines,licensing requirements of any jurisdiction in which the services are performedcGMP standards and all other applicable federal, state or local laws. Thisagreement supersedes the terms of a prior agreement with HemaCare acquired bythe Company in connection with the acquisition of its adult stem cell businessin January 2006 from NS California. On September 7, 2006, the Company entered into an Adult Stem CellCollection Agreement with Ronald Rothenberg, M.D. for the operation by Dr.Rothenberg of a center in Encinitas, California for the collection of adult stemcells from peripheral blood. The collection center has commenced operations andDr. Rothenberg is responsible for operating the center, including payingassociated costs and ensuring it is operated in accordance with applicable laws,regulations and standards of care. As a licensed physician, Dr. Rothenberg isalso subject to regulations of the Medical Board of California, as well asethical and practice standards promulgated by the American Medical Association,among other things. Dr. Rothenberg is also required to use his best efforts topromote the business in the territory of Encinitas and has agreed to customaryconfidentiality and noncompetition provisions and to pay to the Company aSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.specified fee for administrative, management and other services. Pursuant tothis agreement, the Company has granted to Dr. Rothenberg a non-exclusive,non-transferable license, without the right to sublicense, to use the Company'sintellectual property and marks in connection with the operation of thecollection center. The Company is also providing training and marketing supportfor the operation of the collection center and will process and store the adultstem cells collected at the collection center. The initial term of the agreementis one year, subject to earlier termination as specified in the agreement, andwill be automatically renewed for successive one-year terms unless either partyprovides 60 days' notice of such party's intent not to renew. On August 29, 2006, our stockholders approved an amendment to ourCertificate of Incorporation to effect a reverse stock split of our Common Stockat a ratio of one-for-ten shares. The primary purposes of effecting the reversestock split was (i) to raise the per share market price of the Company's CommonStock to facilitate future financing or to be able to use our capital stock inacquisitions, (ii) to raise the per share price to be able to possibly considera Nasdaq or other listing for our shares in the future and (iii) to saveadministrative expenses by reducing the number of our stockholders. All numbersin this report have been adjusted to reflect the reverse stock split which waseffective as of August 31, 2006. 8 Also on August 29, 2006, our stockholders approved an amendment to ourCertificate of Incorporation to change our name from Phase III Medical, Inc. toNeoStem, Inc. As the Company's business efforts are now focused on developing NSCalifornia's (previously known as NeoStem, Inc.) business of adult stem cellcollection and storage, it was appropriate to change the corporate name toNeoStem, Inc. to better reflect our current business operations.2006 Financing Activities In May 2006, the Company entered into an advisory agreement with DuncanCapital Group LLC ("Duncan"). Pursuant to the advisory agreement, Duncan isproviding to the Company on a non-exclusive best efforts basis, services as afinancial consultant in connection with any equity or debt financing, merger,acquisition as well as with other financial matters. In return for theseservices, the Company was paying to Duncan a monthly retainer fee of $7,500 (50%of which could be paid by the Company in shares of its Common Stock valued atfair market value) and reimbursing it for its reasonable out-of-pocket expensesup to $12,000. Pursuant to the advisory agreement, Duncan also agreed that it oran affiliate would act as lead investor in a proposed private placement ofsecurities, for a fee of $200,000 in cash and 240,000 shares of restrictedCommon Stock. On June 2, 2006 (the "June 2006 private placement"), the Companyentered into a securities purchase agreement with 17 accredited investors (the"June 2006 investors"). DCI Master LDC, an affiliate of Duncan, acted as leadinvestor. Duncan received its fee as described above. The Company issued to eachJune 2006 investor shares of its Common Stock at a per-share price of $0.44along with a five-year warrant to purchase a number of shares of Common Stockequal to 50% of the number of shares of Common Stock purchased by the June 2006investor (together with the Common Stock issued, the "June 2006 securities").The gross proceeds from this sale were $2,079,000. In February 2007, the term ofthis agreement was extended through December 2007. Additionally, it was amendedto provide that the monthly retainer fee be paid by issuing to Duncan anaggregate of 150,000 shares of Common Stock vesting monthly over the remainingterm of the agreement. Pursuant to the securities purchase agreement for the June 2006 privateplacement, the Company expanded the size of its Board to four directors, andappointed Dr. Robin L. Smith as Chairman of the Board and Chief ExecutiveOfficer of the Company. Dr. Smith, who was previously Chairman of the AdvisoryBoard of the Company, purchased 50,000 shares of Common Stock and warrants topurchase 24,000 shares of Common Stock pursuant to the terms of the securitiespurchase agreement. The Company also agreed to expand the size of the Board uponthe initial closing under the securities purchase agreement to permit DCI MasterLDC to designate one additional independent member to the Company's Board ofSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.Directors reasonably acceptable to the Company. Richard Berman was appointed tothe Company's Board of Directors in November 2006 and serves as such designee.The securities purchase agreement also prohibits the Company from taking certainaction without the approval of a majority of the Board of Directors for so longas the purchasers in the June 2006 private placement own at least 20% of theCommon Stock, including making loans, guarantying indebtedness, incurringindebtedness that is not already included in a Board approved budget on the dateof the securities purchase agreement that exceeds $100,000, encumbering theCompany's technology and intellectual property or entering into new or amendingemployment agreements with executive officers. DCI Master LDC is also grantedaccess to Company facilities and personnel and given other information rights.Pursuant to the securities purchase agreement, all then current and futureofficers and directors of the Company were to not, without the prior writtenconsent of DCI Master LDC, dispose of any shares of capital stock of theCompany, or any securities convertible into, or exchangeable for or containingrights to purchase, shares of capital stock of the Company until three monthsafter the effective date of the registration statement filed with the SEC toregister the securities issued in the June 2006 private placement (describedbelow). Such registration statement was declared effective on November 6, 2006. The officers of the Company, as a condition of the initial closing underthe securities purchase agreement for the June 2006 private placement, enteredinto letter agreements with the Company pursuant to which they converted anaggregate of $278,653 of accrued salary into shares of Common Stock at a pershare price of $0.44. After adjustments for applicable payroll and withholding 9taxes which were paid by the Company, the Company issued to such officers anaggregate of 379,982 shares of Common Stock. The Company also adopted anExecutive Officer Compensation Plan, effective as of the date of closing of thesecurities purchase agreement and pursuant to the letter agreements each officeragreed to be bound by the Executive Officer Compensation Plan. In addition tothe conversion of accrued salary, the letter agreements provided for a reductionby 25% in base salary for each officer until the Company achieves certainmilestones, the granting of options to purchase shares of Common Stock under theCompany's 2003 Equity Participation Plan which become exercisable upon theCompany achieving certain revenue milestones and the acceleration of the vestingof certain options and restricted shares held by the officers. In January 2007,the milestones relating to the reduction in base salary had been achieved;however, the same officers (and in addition the Chief Executive Officer whobecame an employee in connection with the June 2006 private placement) agreed tosubsequent amendments to or replacements of their employment agreements whichprovided instead for a 20% reduction in base salary and/or agreement by theofficer to extend their employment term, as well as certain additional oramended terms. In connection with the securities purchase agreement, on June 2, 2006 theCompany entered into a registration rights agreement with each of the June 2006investors (the "June 2006 registration rights agreement"). Pursuant to the June2006 registration rights agreement, the Company was obligated to prepare andfile no later than June 30, 2006 a registration statement with the SEC toregister the shares of Common Stock and the warrants issued in the June 2006private placement. The Company and the June 2006 investors agreed to amend theregistration rights agreement and extend the due date of the registrationstatement to August 31, 2006. A registration statement was filed pursuantthereto and declared effective by the SEC on November 6, 2006. Pursuant to the terms of the WestPark private placement (through which theCompany raised $500,000 through the sale of convertible promissory notes andwarrants in December 2005 and January 2006, in which WestPark Capital, Inc.acted as placement agent), the Company agreed to file with the SEC and haveeffective by July 31, 2006, a registration statement registering the resale bythe investors in the WestPark private placement of the shares of Common Stockunderlying the convertible promissory notes and the warrants sold in theWestPark private placement. In the event the Company did not do so, (i) theconversion price of the convertible promissory notes would be reduced by 5% eachSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.month, subject to a floor of $.40; (ii) the exercise price of the warrants wouldbe reduced by 5% each month, subject to a floor of $1.00; and (iii) the warrantscould be exercised pursuant to a cashless exercise provision. The Company didnot have the registration statement effective by July 31, 2006 and requestedthat the investors in the WestPark private placement extend the date by whichthe registration statement was required to be effective until February 28, 2007.The Company also offered to the investors the option of (A) extending the termof the convertible note for an additional four months from the maturity date inconsideration for which (i) the Company would issue to the investor for each$25,000 in principal amount of the convertible note 5,682 shares of unregisteredCommon Stock; and (ii) the exercise price per warrant would be reduced from$1.20 to $.80, or (B) converting the convertible note into shares of theCompany's Common Stock in consideration for which (i) the conversion price perconversion share would be reduced to $.44; (ii) the Company would issue to theinvestor for each $25,000 in principal amount of the Note, 11,364 shares ofCommon Stock; (iii) the exercise price per warrant would be reduced from $1.20to $.80; and (iv) a new warrant would be issued substantially on the same termsas the original Warrant to purchase an additional 41,667 shares of Common Stockfor each $25,000 in principal amount of the convertible note at an exerciseprice of $.80 per share. Pursuant to this, the investor was also being asked towaive any and all penalties and liquidated damages accumulated as of the date ofthe agreement. In September 2006, the Company revised the offer relating to the option ofconversion of the WestPark Notes by eliminating the issuance of the additional11,364 shares of Common Stock for each $25,000 in principal amount of the Noteconverted. As of October 30, 2006, investors holding $425,000 of the $500,000 ofconvertible promissory notes had agreed to convert them into shares of CommonStock and $162,500 (of which $137,500 in principal amount was subsequentlytransferred and converted by the transferees) had agreed to extend the term ofthe convertible promissory notes on the terms set forth above. On November 6,2006, the registration statement was declared effective. In January 2007, theremaining $75,000 in outstanding convertible promissory notes were repaid. During July and August 2006, the Company raised an aggregate of $1,750,000through the private placement of 3,977,273 shares of its Common Stock at $.44per share and warrants to purchase 1,988,637 shares of Common Stock at $.80 pershare (the "Summer 2006 private placement"). The terms of the Summer 2006private placement were substantially similar to the terms of the June 2006private placement. 10FORMER BUSINESS OPERATIONSHistory The 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 aSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.property 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 ContributionExchange Agreement, as amended, with StrandTek International, Inc., a Delawarecorporation ("StrandTek"), certain of StrandTek's principal shareholders andcertain non-shareholder loan holders of StrandTek (the "StrandTek transaction").Certain conditions to closing were not met, and the agreement was formallyterminated by the Company and StrandTek in June 2002. In January 2002, theCompany advanced to StrandTek a loan of $1,000,000 on an unsecured basis, whichwas personally guaranteed by certain of the principal shareholders of StrandTek,and a further loan of $250,000 in February 2002, on an unsecured basis.StrandTek defaulted on the payment of $1,250,000, plus accrued interest due tothe Company, in July 2002. As a result, the Company commenced legal proceedingsagainst StrandTek and the guarantors to recover the principal, accrued interestand costs of recovery and in May 2003 was granted a final judgment in the amountof $1,415,622 from each corporate defendant, in the amount of $291,405 againsteach individual defendant and dismissing defendants' counterclaims. The legalaction concluded with the Company receiving payments from the guarantorstotaling approximately $987,000 in 2003.WarrantySuperstore.com Internet Business The Company's primary business focus through June 2002 was the sale ofextended warranties and service contracts over the Internet covering automotive,home, office, personal electronics, home appliances, computers and gardenequipment. While the Company managed most functions relating to its extendedwarranty and service contracts, it did not bear the economic risk to repair orreplace products nor did it administer the claims function, all of whichobligations rested with the Company's appointed insurance carriers. The Companywas responsible 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. In June 2002, management determined, in light of continuingoperating losses, to discontinue its warranty and service contract business andto seek new business opportunities for the Company (see the Strandtektransaction, above, and Medical Biotech/Business, below). In addition to suchactivities, the Company has continued to "run off" the sale of its warrantiesand service contracts. It is expected that this run off will end in 2007. 11Medical/Biotech Business On February 6, 2003, the Company appointed Mark Weinreb as a member of theBoard of 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 life scienceindustries, in return for a percentage of revenues, royalty fees, licensing feesand other product sales of the target companies. The Company continued torecruit management, business development and technical personnel, and developedits business model, in furtherance of its business plan. The Company engaged invarious capital raising activities to pursue this business, raising $489,781 in2003 and $1,289,375 in 2004 through the sale of Common Stock and notes.Additionally, in 2003, it received a total of approximately $987,000 from thesettlement with the StrandTek guarantors (a significant portion of which wasused to pay outstanding liabilities for legal expenses, employment terminations,travel and entertainment expenses and consultants and the balance of which wasused for operating expenses and the retirement of certain debt). In 2005 and2006, the Company raised $1,325,000 and $3,573,000, respectively. Such capitalraising activities since 2003 enabled the Company to pursue the arrangementswith PSI (below) and NS California, and to launch the Company's adult stem cellSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.business. On July 24, 2003, the Company changed its name to Phase III Medical, Inc.,which better described the Company's then current business plan. In connectionwith the change 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 the Company paid $85,324 ofsuch expenses. No payments have been made to PSI since 2004. In August 2005, theCompany received from PSI a letter stating that the proof of concept study underthe royalty agreement had been completed and that despite interestingpreliminary in vitro results, the study did not meet the success standards setforth in the royalty agreement and that PSI had no definitive plans to moveforward with the program. The Company requested pursuant to the royaltyagreement that additional in vitro studies be performed with other molecules;however PSI was under no obligation to perform any additional studies. If noadditional studies were performed under the royalty agreement the likelihood ofPSI generating revenues in which the Company would share would have beensubstantially reduced. At this time the Company does not anticipate any furtheractivity pursuant to the PSI agreement. In March 2003 and September, 2004, the Company entered into a revenuesharing agreement and joint venture agreement, respectively, with NS California.As described above, such agreements were terminated in connection with the NSCalifornia acquisition.Employees As of March 26, 2007, the Company had twelve employees. 12ITEM 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 RELATING TO THE COMPANY'S FINANCIAL CONDITION AND COMMON STOCKWe have a history of operating losses and we will continue to incur losses. Since our inception in 1980, we have generated only limited revenues fromsales and have incurred substantial net losses of $6,051,400, $1,745,039 and$1,748,372 for the years ended December 31, 2006, 2005 and 2004, respectively.We expect to incur additional operating losses as well as negative cash flowfrom our new business operations until we successfully commercialize thecollection, processing and storage of adult stem cells, if ever.We have liquidity problems, which may affect our ability to raise capital. At December 31, 2006, we had a cash balance of $436,659, working capitalSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.deficit of $310,138 and stockholders' equity of $292,105. Our lack of liquiditycombined with our history of losses may make it difficult for us to raisecapital on favorable terms. We have from time to time raised capital for ouractivities through the sale of our equity securities and promissory notes. Mostrecently, we raised $2,500,000 in January and February 2007 through the privateplacement sale of our common stock and warrants to purchase our common stock.Such capital raising activities are enabling us to pursue our business plan andgrow our adult stem cell collection and storage business, including expandingmarketing and sales activities as well as pay certain of our outstandingliabilities.We will need substantial additional financing to continue operations. We will require substantial capital to fund our current operating plan forour new business. In addition, our cash requirements may vary materially fromthose now planned because of expenses relating to marketing, advertising, sales,distribution, research and development and regulatory affairs, as well as thecosts of maintaining, expanding and protecting our intellectual propertyportfolio, including potential litigation costs and liabilities.Our inability to obtain future capital funding on acceptable terms will negatively affect our business operations and current investors. We expect that in the future we will seek additional funding through publicor private financings. Additional financing may not be available on acceptableterms, or at all. If additional capital is raised through the sale of equity, orsecurities convertible into equity, further dilution to then existingstockholders will result. If additional capital is raised through the incurrenceof debt, our business could be affected by the amount of leverage incurred. Forinstance, such borrowings could subject us to covenants restricting our businessactivities, paying interest would divert funds that would otherwise be availableto support commercialization and other important activities, and holders of debtinstruments would have rights and privileges senior to those of equityinvestors. If we are unable to obtain adequate financing on a timely basis, wemay be required to delay, reduce the scope of or eliminate some of our plannedactivities, any of which could have a material adverse effect on the business.We will continue to experience cash outflows. We continue to incur expenses, including the salary of our executiveofficers, rent, legal, marketing and accounting fees, insurance and generaladministrative expenses. Our business activities are in the early stages ofdevelopment and will therefore result in additional cash outflows in the comingperiod. It is not possible at this time to state whether we will be able tofinance these cash outflows or when we will achieve a positive cash position, if 13at all. Our ability to become profitable will depend on many factors, includingour ability to successfully commercialize the business. We cannot assure that wewill ever become profitable and we expect to continue to incur losses. NSCalifornia itself had nominal operations and nominal assets at the time of ouracquisition of its adult stem cell business. From its inception in 2002 throughSeptember 30, 2005, NS California had aggregate revenues of $25,500, andaggregate losses of $2,357,940.Stocks traded on the OTC Bulletin Board are subject to greater market risks than those of exchange-traded and Nasdaq stocks. Our Common Stock currently trades on the OTC Bulletin Board, an electronic,screen-based trading system operated by the National Association of SecuritiesDealers, Inc. Securities traded on the OTC Bulletin Board are, for the mostpart, thinly traded and generally are not subject to the level of regulationimposed on securities listed or traded on the Nasdaq Stock Market or on anational securities exchange. As a result, an investor may find it difficult todispose of our Common Stock or to obtain accurate quotations as to its price.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 stock price could be volatile. The price of our Common Stock has fluctuated in the past and may be morevolatile in the future. Factors such as the announcements of governmentregulation, new products or services introduced by us or by our competition,healthcare legislation, trends in health insurance, litigation, fluctuations inoperating results, our success in commercializing our business and marketconditions for healthcare stocks in general could have a significant impact onthe future price of our Common Stock. The generally low volume of trading in ourCommon Stock makes it more vulnerable to rapid changes in price in response tomarket conditions. RISKS RELATING TO THE COMPANY'S 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 our development programs could be significantly reduced. The potential of stem cell therapy to treat serious diseases is currentlybeing explored. Stem cell therapy is not a commonly used procedure and it hasnot been proven in clinical trials that stem cell therapy will be an effectivetreatment for diseases other than those currently addressed by hematopoieticstem cell transplants. No stem cell products have been successfully developedand commercialized to date, and none have received regulatory approval in theUnited States or internationally. Stem cell therapy may be susceptible tovarious risks, including undesirable and unintended side effects, unintendedimmune system responses, inadequate therapeutic efficacy or othercharacteristics that may prevent or limit its approval or commercial use. Thevalue of our stem cell collection, processing and storage and our developmentprograms could be significantly reduced if the use of stem cell therapy to treatserious diseases is not proven effective in the near future.Because the stem cell industry is subject to rapid technological and therapeutic changes, our future success will materially depend on the viability of the commercial use of stem cells for the treatment of disease. Our success materially depends on the development of therapeutic treatmentsand cures for disease using stem cells. The broader medical and researchenvironment for such treatments and cures critically affects the utility of stemcells, the services we offer to the public, and our future success. The value ofstem cells in the treatment of disease is subject to potentially revolutionarytechnological, medical and therapeutic changes. Future technological and medicaldevelopments or improvements in conventional therapies could render the use ofstem cells and our services and equipment obsolete and unmarketable. As aresult, there can be no assurance that our services will provide competitiveadvantages over other technologies. If technological or medical developmentsarise that materially alter the commercial viability of our technology orservices, we may be forced to incur significant costs in replacing or modifyingequipment in which we have already made a substantial investment prior to theend of its anticipated useful life. Alternatively, significant advances may bemade in other treatment methods or in disease prevention techniques which couldsignificantly reduce or entirely eliminate the need for the services we provide.The materialization of any of these risks could have a material adverse effecton our business, financial condition, the results of operations or our abilityto operate at all. 14We may be forced to undertake lengthy and costly efforts to build market acceptance of our stem cell collection, processing and storage services, the success of which is critical to our profitability. There can be no assurance that these services will gain market acceptance. We anticipate that service fees from the processing and storage of stemcells will 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 requiresSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.marketing expenditures and education and awareness of consumers and medicalpractitioners who, under present law, must order stem cell collection on behalfof a potential customer. The time and expense required to educate and buildawareness of our services and its potential benefits could significantly delaymarket acceptance and our ultimate profitability. The successfulcommercialization of our services will also require that we satisfactorilyaddress the concerns of medical practitioners in order to avoid potentialresistance to recommendations for our services and ultimately reach ourpotential consumers. No assurances can be given that our business plan andmarketing efforts will be successful, that we will be able to commercialize ourservices, or that there will be market acceptance of our services or clinicalacceptance of our services by physicians sufficient to generate any materialrevenues for us.Ethical and other concerns surrounding the use of stem cell therapy may increase the regulation of or negatively impact the public perception of our stem cell services, thereby reducing demand for our services. The use of embryonic stem cells for research and stem cell therapy has beenthe subject of debate regarding related ethical, legal and social issues.Although our business only utilizes adult stem cells and does not involve themore controversial use of embryonic stem cells, the use of other types of humanstem cells for therapy could give rise to similar ethical, legal and socialissues as those associated with embryonic stem cells. Additionally, it ispossible that our business could be negatively impacted by any stigma associatedwith the use of embryonic stem cells if the public fails to appreciate thedistinction between the use of adult versus embryonic stem cells. The commercialsuccess of our business will depend in part on public acceptance of the use ofstem cell therapy, in general, for the prevention or treatment of humandiseases. Public attitudes may be influenced by claims that stem cell therapy isunsafe or unnecessary, and stem cell therapy may not gain the acceptance of thepublic or the medical community. Public pressure or adverse events in the fieldof stem cell therapy that may occur in the future also may result in greatergovernmental regulation of our business creating increased expenses andpotential regulatory delays relating to the approval or licensing of any or allof the processes and facilities involved in our stem cell banking services. Inthe event that the use of stem cell therapy becomes the subject of adversecommentary or publicity, our business could be adversely affected and the marketprice for our common stock could be significantly harmed.We operate in a highly regulated environment, and our failure to comply with applicable regulations, registrations and approvals materially and adversely affect our business. Historically, the FDA has not regulated banks that collect and store stemcells. 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. The registration requirement was effective as of January 2004. TheFDA also adopted rules in May 2005 that regulate current Good Tissues Practices(cGTP). We may be or become subject to such registration requirements andregulations, and there can be no assurance that we will be able, or will havethe resources, to comply. Future FDA regulations could also adversely impact orlimit our ability to market or perform our services. In order to collect andstore blood stem cells we must conduct (or arrange for the conduct of) a varietyof laboratory tests which are regulated under the federal Clinical LaboratoryImprovement Amendments (CLIA). Any facility conducting regulated tests mustobtain a CLIA certificate of compliance and submit to regular inspection. 15 Some states require additional regulation and oversight of clinicallaboratories operating within their borders and some impose obligations onout-of-state laboratories providing services to their residents. The states inwhich we initially plan to engage in processing and storage activities allcurrently have licensing requirements with which we believe we will need toSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.comply. Additionally, there may be state regulations impacting the storage anduse of blood products that would impact our business. We obtained our biologicslicense from the State of California in May 2006 but there can be no assurancethat we will be able to obtain the necessary licensing required to conduct ourbusiness in other states, or maintain licenses that we do obtain in such states,including California. If we identify other states with licensing requirements orif other states adopt such other requirements, or if we plan to conduct businessin a new state with such licensing requirements, we would also have to obtainsuch licenses and/or comply with such other requirements. We may also be subjectto state and federal privacy laws related to the protection of our customers'personal health information to which we would have access through the provisionof our services. We may be required to spend substantial amounts of time andmoney to comply with any regulations and licensing requirements, as well as anyfuture legislative and regulatory initiatives. Failure to comply with applicableregulatory requirements or delay in compliance may result in, among otherthings, injunctions, operating restrictions, and civil fines and criminalprosecution which would have a material adverse effect on the marketing andsales of our services and impair our ability to operate profitably or precludeour ability to operate at all in the future.Our failure to comply with laws related to hazardous materials could materially harm us. We are subject to state and federal laws regulating the proper disposal ofbiohazardous material. Although we believe we are currently in compliance withall such applicable laws, a violation of such laws, or the future enactment ofmore stringent laws or regulations, could subject us to liability fornoncompliance and may require us to incur costs and/or otherwise have a materialadverse effect on our ability to do business.Side effects of the stem cell collection process or a failure in the performance of our cryopreservation storage facility or systems could harm our business and reputation. To the extent a customer experiences adverse side effects from the stemcell collection process, or our cryopreservation storage service is disrupted,discontinued or our ability to provide banked stem cells is impaired for anyreason, our business and operations could be adversely affected. Any equipmentfailure that causes a material interruption or discontinuance in ourcryopreservation storage of stem cell specimens could result in stored specimensbeing damaged and unable to be utilized. Adverse side effects of the collectionprocess or specimen damage (including contamination or loss in transit to us),could result in litigation against us and reduced future revenue, as well asharm to our reputation. Our insurance may not adequately compensate us for anylosses that may occur due to any such adverse side effects or failures in oursystem or interruptions in our ability to maintain proper, continued,cryopreservation storage services. Our systems and operations are vulnerable todamage or interruption from fire, flood, equipment failure, break-ins, tornadoesand similar events for which we do not have redundant systems or a formaldisaster recovery plan and may not carry sufficient business interruptioninsurance to compensate us for losses that may occur. Any claim of adverse sideeffects or material disruption in our ability to maintain continueduninterrupted storage systems could have a material adverse effect on ourbusiness, operating results and financial condition.We are dependent on existing relationships with third parties to conduct our business. Our 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 collection 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 we continue to explorealternative methods of stem cell collection, there can be no assurance that anysuch methods will prove to be successful. In the event that our supplier isunable or unwilling to continue to supply a mobilizing agent to us oncommercially reasonable terms, and we are unable to identify alternative methodsSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. 16or find substitute suppliers on commercially reasonable terms, we may not beable to successfully commercialize our business. We are also using only oneoutside "apheresis" provider, which is an integral part of the collectionprocess. Although other third parties could provide apheresis services, anydisruption in the relationship with this service would cause a delay in thedelivery of our services. In order to successfully commercialize our business,we will continue to depend upon our relationship with such companies.Our success will depend in part on establishing and maintaining effective strategic partnerships and collaborations. A key aspect of our business strategy is to establish strategicrelationships in order to gain access to critical supplies, to expand orcomplement our development or commercialization capabilities, or to reduce thecost of developing or commercializing services on our own. There can be noassurance that we will enter into such relationships or that the arrangementswill be on favorable terms. Relationships with licensed professionals such asphysicians may be subject to state and federal fraud and abuse regulationsrestricting the referral of business, prohibiting certain payments tophysicians, or otherwise limiting our options for structuring a relationship. Ifour services become reimbursable by government or private insurers in thefuture, we could be subject to additional regulation and perhaps additionallimitations on our ability to structure relationships with physicians.Additionally, state regulators may impose restrictions on the types of businessrelationships into which licensed physicians or other licensed professionals mayenter. Failure to comply with applicable fraud and abuse regulations or otherregulatory requirements could result in civil fines, criminal prosecution orother sanctions. Even if we do enter into these arrangements, we may not be ableto maintain these relationships or establish new ones in the future onacceptable terms. Furthermore, these arrangements may require us to grantcertain rights to third parties, including exclusive rights or may have otherterms that are burdensome to us. If any of our partners terminate theirrelationship with us or fail to perform their obligations in a timely manner,the development or commercialization of our services may be substantiallydelayed. If we fail to structure our relationships with physicians in accordancewith applicable fraud and abuse laws or other regulatory requirements it couldhave a material adverse effect on our business.We are dependent upon our management, scientific and medical personnel and we may face difficulties in attracting qualified employees or managing the growth of our business. Our 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, business and administrative personnel.Accordingly, recruiting and retaining such personnel in the future will becritical to our success. If we are not able to continue to attract and retain,on acceptable terms, the qualified personnel necessary for the continueddevelopment of our business, we may not be able to sustain our operations orachieve our business objectives. Our failure to manage growth effectively couldlimit our ability to achieve our commercialization and other goals relating to,and we may fail in developing, our new business. RISKS RELATING TO COMPETITIONThe stem cell preservation market has and continues to become increasingly competitive. We may face competition from companies with far greater financial,marketing, technical and research resources, name recognition, distributionchannels and market presence than us, who are marketing or developing newservices that are similar to the services that are now being or may in theSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.future be developed by us. There can be no assurance that we will be able tocompete successfully. For example, in the established market for cord blood stem cell banking,the growth in the number of families banking their newborn's cord blood stemcells has been accompanied by an increasing landscape of competitors. Ourbusiness, which has been more recently developed, already faces competition fromother established operators of stem cell preservation businesses and providersof stem cell storage services. We believe that certain of our competitors haveestablished stem cell banking services to process and store stem cells collectedfrom adipose tissue (fat tissue). This type of stem cell banking will require 17partnering with cosmetic surgeons who perform liposuction procedures. Inaddition, we believe the use of adult stem cells from adipose tissue willrequire extensive clinical trials to prove the safety and efficacy of such cellsand the enzymatic process required to extract adult stem cells from fat. From atechnology perspective this ability to expand a small number of stem cells couldpresent a competitive 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. In the event that we are not able to compete successfully with our currentor potential competitors, it may be difficult for us to grow our revenue andmaintain our existing business without incurring significant additional expensesto try and refine our technology, services or approach to our business to bettercompete, and even then there would be no guarantee of success.We may face competition in the future from established cord blood banks and some hospitals. Cord blood banks such as ViaCord (a division of ViaCell International) orCryo-Cell International may be drawn to the field of stem cell collectionbecause 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 approximately 43cord blood banks in the United States, approximately 25 of which are autologous(donor and recipient are the same) and approximately 18 of which are allogeneic(donor and recipient are not the same). Hospitals that have transplant centersto serve cancer patients may elect to enter some phases of new stem celltherapies. We estimate that there are approximately 123 hospitals in the UnitedStates with stem cell transplant centers. All of these competitors may haveaccess to greater financial resources. In addition, other established companieswith greater access to financial resources may enter our markets and competewith us. There can be no assurance that we will be able to compete successfully. RISKS RELATING TO INTELLECTUAL PROPERTYThere is significant uncertainty about the validity and permissible scope of patents in the biotechnological industry. We may not be able to obtain patent protection. There can be no assurance that the patent applications to which we holdrights will result in the issuance of patents, or that any patents issued orlicensed to our company will not be challenged and held to be invalid or of ascope of coverage that is different from what we believe the patent's scope tobe. Further, there can be no assurance that any future patents related to thesetechnologies will ultimately provide adequate patent coverage for or protectionof our present or future technologies, products or processes. Our success willdepend, in part, on whether we can obtain patents to protect our ownSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.technologies; obtain licenses to use the technologies of third parties ifnecessary, which may be protected by patents; protect our trade secrets andknow-how; and operate without infringing the intellectual property andproprietary rights of others.We may be unable to protect our intellectual property from infringement by third parties. 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 or services or design around ourintellectual property rights. As a result, we may have to litigate to enforceand protect our intellectual property rights to determine their scope, validityor enforceability. Intellectual property litigation is costly, time-consuming,diverts the attention of management and technical personnel and could result insubstantial uncertainty regarding our future viability. The loss of intellectual 18property protection or the inability to secure or enforce intellectual propertyprotection would limit our ability to develop and/or market our services in thefuture. This would also likely have an adverse affect on the revenues generatedby any sale or license of such intellectual property. Furthermore, any publicannouncements related to such litigation or regulatory proceedings couldadversely affect the price of our common stock.Third parties may claim that we infringe on their intellectual property. 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.ITEM 1B. UNRESOLVED STAFF COMMENTSNot applicable.ITEM 2. PROPERTIES Effective as of July 1, 2006, the Company entered into an agreement for theuse of space at 420 Lexington Avenue, New York, New York. This space issubleased from an affiliate of Duncan Capital Group LLC (a financial advisor toand investor in the Company) and DCI Master LDC (the lead investor in theCompany's June 2006 private placement). Pursuant to the terms of the Agreement,the Company will pay $7,500 monthly for the space, including the use of variousoffice services and utilities. The agreement is on a month to month basis,subject to a thirty day prior written notice requirement to terminate. The spaceserves as the Company's principal executive offices. On October 27, 2006, theCompany amended this agreement to increase the utilized space for an additionalpayment of $2,000 per month. The Company believes this space should beSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.sufficient for its needs in the short term but anticipates that we will requireadditional facilities as we expand. Effective October 1, 2006, the Companyterminated the lease for its Melville, New York facility. In January 2005, NSCalifornia 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 theCompany continues to occupy the space on a month-to-month basis. This space willbe sufficient for the Company's needs in the short term but we anticipate thatwe will require additional facilities as we expand. NS California also leasedoffice space in Agoura Hills, California on a month-to-month basis from SymbionResearch International at a monthly rental of $1,687, and we plan to continuethis arrangement to fill our need 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 2006. 19 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. Our Common Stock trades on the OTC Bulletin Board under the symbol "NEOI"and from July 24, 2003 to August 30, 2006 traded under the symbol "PHSM." Thefollowing table sets forth the high and low bid prices of our Common Stock foreach quarterly period within the two most recent fiscal years, and for thecurrent year to date, as reported by Nasdaq Trading and Market Services. OnMarch 26, 2007, the closing bid price for our Common Stock was $.56. Informationset forth in the table below reflects inter-dealer prices without retailmark-up, mark-down, or commission, and may not necessarily represent actualtransactions.2007 High Low------ ------- -------First Quarter (to March 26, 2007) $ 0.80 $ 0.252006 High Low------ ------- -------First Quarter $ 1.00 $ 0.50Second Quarter 0.80 0.50Third Quarter 0.90 0.40Fourth Quarter 1.01 0.452005 High Low------ ------- -------First Quarter $ 0.70 $ 0.30Second Quarter 0.50 0.20Third Quarter 1.00 0.30Fourth Quarter 0.90 0.30HOLDERS. As of March 26, 2007, there were approximately 826 holders of record ofthe Company's Common Stock.DIVIDENDS. Holders of Common Stock are entitled to dividends when, as, and ifSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.declared by the Board of Directors out of funds legally available therefor. Wehave not paid any cash dividends on our Common Stock and, for the foreseeablefuture, intend to retain future earnings, if any, to finance the operations,development and expansion of our business. Future dividend policy is subject tothe discretion of the Board of Directors.SERIES A PREFERRED STOCKOn March 17, 2006, the stockholders of the Company voted to approve an amendmentto the Certificate of Incorporation which permitted the Company to issue inexchange for all 681,171 shares of Series A Preferred Stock outstanding and itsobligation to pay $528,564 (or $.79 per share) in accrued dividends thereon, atotal of 544,937 shares of Common Stock (eight/tenths (.80) of a share of CommonStock per share of Series A Preferred Stock). Pursuant thereto, all outstandingshares of Series A Preferred Stock were cancelled and converted into CommonStock. The Certificate of Designation for the Company's Series A Preferred Stockhad provided 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) 20at 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.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, 2006. This plan was theCompany's only equity compensation plan in existence as of December 31, 2006. (c) Number of Securities Remaining Available (a) For Future Issuance Number of Securities (b) Under Equity to be Issued Upon Weighted-Average Compensation Plan Exercise of Exercise Price of (Excluding Outstanding Outstanding Securities Options, Warrants Options, Warrants Reflected In Column Plan Category and Rights and Rights (a))--------------------------------------------------------------------------------Equity Compensation Plans Approved by Shareholders 4,446,000 $0.729 20,554,000Equity Compensation Plans Not Approved by Shareholders 0 0 0 ------------------------------------------------------------TOTAL 4,446,000 $0.729 20,554,000 21RECENT SALES OF UNREGISTERED SECURITIES On September 14, 2005, the Company issued to Dr. Robin L. Smith (now ChiefExecutive Officer and Chairman of the Board) 50,000 shares of the Company'sunregistered Common Stock pursuant to the terms of a consulting agreement withSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.Dr. Smith pursuant to which she served as the Chairman of the Company's AdvisoryBoard. Dr. Smith was also issued three year warrants to purchase 24,000 sharesof Common Stock at $0.80 per share. Such warrants were scheduled to vest at therate of 2,000 per month; however, in connection with the June 2006 privateplacement the vesting of such warrants was accelerated such that they vested intheir entirety as of June 2, 2006. On January 19, 2006, the Company effected the issuance of 500,000 shares ofunregistered Common Stock to NS California (of which 100,000 shares weresubsequently returned to the Company) in connection with the purchase of the NSCalifornia assets (see "Business"). In addition, the Company issued an aggregateof 201,223 shares of Common Stock to various parties in satisfaction of $82,000of $465,000 in assumed liabilities of NS California in connection with theacquisition, of which 67,523 shares were issued to Denis Rodgerson (subsequentlythe Company's Director of Stem Cell Science) and 9,615 shares were issued toLarry A. May (subsequently the Company's Chief Financial Officer). Effective as of each of January 10, 2006 and January 11, 2006,respectively, the Company effected the exchange of an aggregate of $45,000 inoutstanding indebtedness of the Company represented by certain promissory notesfor an aggregate of 76,500 shares of restricted Common Stock of the Company. Therate at which the notes were exchanged for shares of Common Stock was 1,700shares of Common Stock for every $1,000 of indebtedness represented by thenotes. The offer and sale by the Company of the securities described in thisparagraph were made in reliance upon the exemption from registration provided bySection 3(a)(9) of the Securities Act of 1933, as amended (the "Securities Act")for exchange offers. The offer and sale of such securities were made withoutgeneral solicitation or advertising and no commissions were paid. On December 30, 2005, and in January 2006, the Company entered intoSubscription Agreements with certain accredited investors and consummated thesale of Units consisting of convertible promissory notes and detachable warrantsunder Regulation D under the Securities Act ("the Westpark Private Placement").Gross proceeds raised were $250,000 on December 30, 2005 and $250,000 in January2006, totaling an aggregate of $500,000 in gross proceeds. Each unit wascomprised of: (a) a nine month note in the principal amount of $25,000 bearing9% simple interest, payable semi-annually, with the 2nd payment paid uponmaturity, convertible into shares of the Company's Common Stock at a conversionprice of $.60 per share; and (b) 41,667 detachable three year warrants, each forthe purchase of one share of Common Stock at an exercise price of $1.20 pershare. The notes were subject to mandatory conversion by the Company if theclosing price of the Common Stock had been at least $1.80 for a period of atleast 10 consecutive trading days prior to the date on which notice ofconversion was sent by the Company to the holders of the promissory notes, andif the underlying shares were then registered for resale with the SEC. Holdersof the units are entitled to certain registration rights (see below). TheCompany issued to WestPark Capital, Inc., the placement agent for the WestparkPrivate Placement, (i) 50,000 shares of Common Stock (25,000 shares on December30, 2005 and 25,000 shares in January 2006); and (ii) warrants to purchase anaggregate of 83,334 shares of the Company's Common Stock (41,667 on December 30,2005 and 41,667 in January 2006). Pursuant to the terms of the WestPark Private Placement, the Company agreedto file with the SEC and have effective by July 31, 2006, a registrationstatement registering the resale by the investors in the WestPark PrivatePlacement of the shares of Common Stock underlying the convertible promissorynotes and the warrants sold in the WestPark Private Placement. In the event theCompany did not do so, (i) the conversion price of the convertible promissorynotes would be reduced by 5% each month, subject to a floor of $.40; (ii) theexercise price of the warrants would be reduced by 5% each month, subject to afloor of $1.00; and (iii) the warrants could be exercised pursuant to a cashlessexercise provision. The Company did not have the registration statementeffective by July 31, 2006 and requested that the investors in the WestParkPrivate Placement extend the date by which the registration statement wasrequired to be effective until February 28, 2007. The Company also offered tothe investors the option of (A) extending the term of the convertible note for 22Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 additional four months from the maturity date in consideration for which (i)the Company would issue to the investor for each $25,000 in principal amount ofthe convertible note 5,682 shares of unregistered Common Stock; and (ii) theexercise price per warrant would be reduced from $1.20 to $.80, or (B)converting the convertible note into shares of the Company's Common Stock inconsideration for which (i) the conversion price per conversion share would bereduced to $.44; (ii) the Company would issue to the investor for each $25,000in principal amount of the convertible note, 11,364 shares of Common Stock;(iii) the exercise price per warrant would be reduced from $1.20 to $.80; and(iv) a new warrant would be issued substantially on the same terms as theoriginal Warrant to purchase an additional 41,667 shares of Common Stock foreach $25,000 in principal amount of the convertible note at an exercise price of$.80 per share. Pursuant to this, the investor was also being asked to waive anyand all penalties and liquidated damages accumulated as of the date of theagreement. In September 2006, the Company revised the offer relating to theoption of conversion by eliminating the issuance of the additional 11,364 sharesof Common Stock for each $25,000 in principal amount of the note converted. Asof October 30, 2006, investors holding $425,000 of the $500,000 of convertiblepromissory notes had agreed to convert their notes, and accordingly, thefollowing securities were issued: 965,907 shares of Common Stock in conversionof the notes, an additional 107,958 shares of Common Stock, and warrants topurchase an additional 708,341 shares of Common Stock at $.80 per share. Also asof October 30, 2006, investors holding $162,500 of convertible promissory notes(of which $137,500 in principal amount was subsequently transferred andconverted by the transferees, the securities issued being included in the totalsabove) had agreed to extend the term of the convertible promissory notes on theterms set forth above, and an additional 36,932 shares of Common Stock weretherefore issued to such investors. In January 2007, the remaining outstanding$75,000 of convertible promissory notes were paid. In March 2006, the Company issued warrants to purchase 12,000 shares ofCommon Stock at a price of $1.00 per share to its marketing consultant. Thesewarrants were scheduled to vest as to 2,000 per month for six months and toexpire three years from date of issue. In June 2006, the agreement with themarketing consultant was terminated and warrants to purchase 4,000 shares ofCommon Stock were cancelled. In March 2006, the Company sold 60,227 shares of its Common Stock to fiveaccredited investors at a per share price of $.44 resulting in gross proceeds tothe Company of $26,500. On March 17, 2006, the stockholders of the Company voted to approve anamendment to the Certificate of Incorporation which permitted the Company toissue in exchange for all 681,171 shares of Series A Preferred Stock outstandingand its obligation to pay $538,498 (or $.79 per share) in accrued dividendsthereon, a total of 544,937 shares of Common Stock (0.80 of a share of CommonStock per share of Series A Preferred Stock). Pursuant thereto, all outstandingshares of Series A Common Stock were cancelled and converted into 544,937 sharesof Common Stock. The offer and sale by the Company of the securities describedwas made in reliance upon the exemption from registration provided by Section3(a)(9) of the Securities Act. On March 27, 2006, the Company sold 10,000 shares of its Common Stock to anAdvisory Board member at a price of $.53 per share resulting in net proceeds tothe Company of $5,300. In April and May 2006, the Company sold an aggregate of 351,319 shares ofits Common Stock to eleven accredited investors at a price of $0.44 per share,resulting in gross proceeds to the Company of $154,581. In May and June 2006, the Company issued an aggregate of 48,047 shares ofCommon Stock (valued at $21,140) in conversion of accounts payable and certainemployee's reimbursable expenses. On June 2, 2006, as part of the June 2006 private placement described in"Business--2006 Financing Activities," the Company issued an aggregate ofSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.4,725,000 shares of Common Stock to the June 2006 investors pursuant to thesecurities purchase agreement, at a price per share of $0.44, for an aggregateoffering price of $2,079,000. The Company also issued to each June 2006investor, in addition to the shares of Common Stock, five-year warrants topurchase up to an aggregate of 2,362,500 shares of Common Stock, at an exerciseprice of $0.80 per share. In connection with the June 2006 private placement, onJune 2, 2006 the Company also entered into a registration rights agreement witheach of the June 2006 investors (the "June 2006 registration rights agreement").Pursuant to the June 2006 registration rights agreement, the Company wasobligated to prepare and file no later than June 30, 2006 a registrationstatement with the SEC to register the shares of Common Stock and the warrantsissued in the June 2006 private placement. The Company and the June 2006investors agreed to amend the registration rights agreement and extend the duedate of the registration statement to August 31, 2006. A registration statementwas filed and subsequently declared effective on November 6, 2006. 23 In connection with the June 2006 private placement and pursuant to theterms of the securities purchase agreement, the Company issued an aggregate of379,982 shares of Common Stock to certain officers of the Company for conversionof an aggregate of $278,653 of accrued salary (less adjustments for applicablepayroll and withholding taxes). The Company also issued to its Chief FinancialOfficer 28,974 shares of Common Stock in conversion of certain expenses that theCompany was required to reimburse. Also on June 2, 2006, the Company issued 100,000 shares of unregisteredCommon Stock to Dr. Robin L. Smith, the Company's Chief Executive Officer andChairman of the Board, in connection with financial advisory services renderedto the Company under her advisory agreement in connection with the initialclosing under the June 2006 private placement. The advisory agreement wasterminated upon Dr. Smith entering into her employment agreement. Pursuant to the Company's financial advisory agreement with Duncan CapitalGroup LLC, the Company issued to Duncan 240,000 shares of Common Stock inconnection with the initial closing under the June 2006 private placement. InAugust 2006, the Company issued to Duncan 17,046 shares of Common Stock as anadvisory fee payment pursuant to the terms of this agreement. In July and August 2006, the Company sold an aggregate of 3,977,273 sharesof Common Stock to 34 accredited investors at a per share price of $.44resulting in gross proceeds to the Company of $1,750,000. In connection withthis transaction, the Company issued 1,988,637 Common Stock purchase warrantswith a term of five years and per share exercise price of $.80. In July and August 2006, the Company issued an aggregate of 83,405 sharesof Common Stock in conversion of an aggregate of $40,657 in accounts payableowed to certain vendors. The per share conversion price ranged from $.44 to$.56. In addition, in August 2006, the Company issued 41,667 shares of CommonStock to a service provider in payment for services rendered equal to $25,000,at a per share price of $.60. In August 2006, the Company issued warrants to purchase an aggregate of170,000 shares of Common Stock at $0.80 per share to four persons under advisoryagreements. Such warrants are each exercisable for five years from the date ofissue. On October 1, 2006, the Company issued to its investor relations consultant34,000 shares of Common Stock pursuant to the terms of a Consulting Agreemententered into as of October 1, 2006. In December 2006, the Company issued 10,416 shares to a service provider inpayment for services rendered equal to $6,250, at a per share price of $.60. In January 2007, the Company issued 120,000 shares of Common Stock to itsintellectual property acquisition consultant, vesting as to 10,000 shares permonth commencing January 2007.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 February 2007, the term of the Company's financial advisory agreementwith Duncan Capital Group LLC was extended through December 2007, and theCompany issued to Duncan 150,000 shares of Common Stock as an advisory feepayment pursuant to the terms of the agreement, vesting as to 13,636 shares permonth. In January 2007 and February 2007 and as described in "Business - 2007Financing Activities," the Company entered into Subscription Agreements withcertain accredited investors, pursuant to which the Company issued units eachcomprised of two shares of its Common Stock, one redeemable seven-year warrantto purchase one share of Common Stock at a purchase price of $.80 per share andone non-redeemable seven-year warrant to purchase one share of Common Stock at apurchase price of $.80 per share (the "January 2007 private placement"). TheCompany issued an aggregate of 2,500,000 units at a per unit price of $1.00 perunit, for an aggregate purchase price of $2,500,000. The Company thus issued anaggregate of 5,000,000 shares of Common Stock, and Warrants to purchase up to anaggregate of 5,000,000 shares of Common Stock at an exercise price of $0.80 pershare. The Company also issued to Emerging Growth Equities, Ltd ("EGE"), theplacement agent for the January 2007 private placement, redeemable seven-yearwarrants to purchase 343,550 shares of Common Stock at a purchase price of $.50per share, redeemable seven-year warrants to purchase 171,275 shares of CommonStock at a purchase price of $.80 per share and non-redeemable seven-yearwarrants to purchase 171,275 shares of Common Stock at a purchase price of $.80per share. 24 In February 2007, the Company issued 300,000 shares of its Common Stock toa financial advisor in connection with a commitment for the placement of up to$3,000,000 of the Company's preferred stock. In March 2007, in connection with the engagement by the Company of TrilogyCapital Partners, Inc. as a marketing and investor relations consultant, theCompany issued to Trilogy warrants to purchase 1,500,000 shares of its CommonStock at a purchase price of $.47 per share. Such warrants vest over a 12 monthperiod at a rate of 125,000 per month, subject to acceleration in certaincircumstances, and are exercisable until April 30, 2010. Unless otherwise noted, the offer and sale by the Company of the securitiesdescribed in this section 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 to "accredited investors,"as such term is defined in Rule 501(a) of Regulation D promulgated under theSecurities Act.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, 2006as to which information is required to be furnished. 25ITEM 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 ConditionSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.and Results of Operations." The requirement to provide geographical informationfor the operations of the Company is not practical. Statement of Operations:($'000 except net lossper share which is stated in Year Ended Year Ended Year Ended Year Ended Year Ended$ and weighted average December 31, December 31, December 31, December 31, December 31,number of shares) 2006 2005 2004 2003 2002------------------------------------------------------------------------------------------------------------------------Earned revenues $ 45 $ 35 $ 49 $ 65 $ 80Direct costs 22 25 34 44 60Gross profit 23 10 15 21 21Operating (loss) (4,691) (1,601) (1,474) (894) (1,149)Net loss attributable to common stockholders (6,051) (1,745) (1,748) (1,068) (1,208)Basic and diluted earnings per share:Net loss attributable to common stockholders (.44) (0.35) (0.54) (0.45) (0.50)Weighted average number of shares outstanding 13,650,270 4,977,575 3,254,185 2,350,934 2,234,477 As of As of As of As of As of December 31, December 31, December 31, December 31, December 31,Balance Sheet Data: $'000 2006 2005 2004 2003 2002------------------------------------------------------------------------------------------------------------------------Working Capital (Deficiency) $ (310) $ (1,245) $ (794) $ (794) $ (82)Total Assets 1,195 643 312 312 1,183Current Liabilities 838 1,752 1,023 1,023 1,141Long Term Debt 65 -- -- -- 9(Accumulated Deficit) (20,307) (14,255) (10,762) (10,762) (9,694)Total Stockholders' (Deficit)/ Equity 292 (1,818) (1,503) (1,503) (824) 26ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion and analysis of our financial condition andresults of operations should be read together with the audited financialstatements and related notes included in Item 8 of this report, and is qualifiedin its entirety by reference thereto. This discussion contains forward-lookingstatements. Please see "Special Note Regarding Forward-Looking Statements" for adiscussion of the risks, uncertainties and assumptions relating to thesestatements.GENERAL The Company engages in the business of operating a commercial autologous(donor and recipient are the same) adult stem cell bank and the pre-diseasecollection, processing and long-term storage of adult stem cells that donors canaccess for their own present and future medical treatment. On January 19, 2006the Company consummated the acquisition of the assets of NS California relatingto its business of processing, collecting and storing adult stem cells.Effective with the acquisition, the business of NS California became theprincipal business of the Company, rather than its historic business ofproviding capital and business guidance to companies in the healthcare and lifescience industries. The Company now provides adult stem cell processing,collection and banking services with the goal of making stem cell collection andlong-term storage widely available, so that the general population will have theopportunity to store their own stem cells for current and future healthcareneeds. Effective as of August 29, 2006, the Company changed its name from "PhaseIII Medical, Inc." to "NeoStem, Inc." in order to better describe its newbusiness. The Company is developing NS California's business in the adult stem cellfield and seeking to capitalize on the increasing importance the Companybelieves adult stem cells will play in the future of regenerative medicine.Using its proprietary process, the Company provides the infrastructure, methodsand systems that allow adults to have their stem cells safely collected andconveniently banked for future therapeutic use as needed in the treatment ofcertain life-threatening diseases. The adult stem cell industry is a fieldindependent of embryonic stem cell research which the Company believes is morelikely to be burdened by governmental, legal, ethical and technical issues thanadult stem cell research. Medical researchers, scientists, medical institutions,Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.physicians, pharmaceutical companies and biotechnology companies are currentlydeveloping therapies for the treatment of disease using adult stem cells. Asthese adult stem cell therapies obtain necessary regulatory approvals and becomestandard of care, patients will need a service to collect, process and banktheir stem cells. The Company intends to provide this service. Until the NS California acquisition, the business of the Company wasproviding capital and business guidance to companies in the healthcare and lifescience industries, in return for a percentage of revenues, royalty fees,licensing fees and other product sales of the target companies. Additionally,through June 30, 2002, the Company was a provider of extended warranties andservice contracts via the Internet at warrantysuperstore.com. The Company isstill engaged in the "run-off" of such extended warranties and service contractsand expects this "run-off" will end in 2007. In June 2002, managementdetermined, in light of continuing operating losses, to discontinue its warrantyand service contract business and to seek new business opportunities for theCompany. 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. No payments have been made to PSI since 2004 and the Company does notanticipate any further activity pursuant to the PSI agreement. 27 The Company engaged in various capital raising activities to pursue its newbusiness opportunities, raising approximately $1,289,000 in 2004, $1,325,000 in2005, $3,573,000 in 2006 and $2,301,000 in 2007 (through March 26, 2007) throughthe sale of its Common Stock, warrants and convertible promissory notes. Theseamounts include an aggregate of $2,079,000 raised from the June 2006 privateplacement of shares of Common Stock and warrants to purchase shares of CommonStock (the "June 2006 private placement") and an aggregate of $1,750,000 raisedfrom the additional private placement of shares of Common Stock and warrants topurchase shares of Common Stock in rolling closings in the summer of 2006 (the"Summer 2006 private placement"). These amounts also include an aggregate of$2,500,000 (net proceeds of $2,301,000) raised in January and February 2007 fromthe private placement of units consisting of shares of Common Stock and warrantsto purchase shares of Common Stock (the "January 2007 private placement"). Inconnection with the June 2006 private placement, the Company appointed Dr. RobinL. Smith as our new Chief Executive Officer and Chairman of our Board ofDirectors. These capital raising activities enabled us previously to pursue theCompany's prior business, and subsequently to acquire the business of NSCalifornia, pursue our business plan and grow our adult stem cell collection andstorage business, including expanding marketing and sales activities.CRITICAL ACCOUNTING POLICIESThe Company's "Critical Accounting Policies" are as follows, and are alsodescribed in Note 2 to the audited financial statements and notes thereto,included in Item 8 of this report.Revenue Recognition: In the fourth quarter of 2006, the Company initiated thecollection and banking of autologous adult stem cells and the first collectioncenter in its physician's network opened. The Company recognizes revenue relatedto the collection and cryopreservation of autologous adult stem cells when thecryopreservation process is completed (generally twenty four hours after cellshave been collected). Revenue related to advance payments of storage fees isrecognized ratably over the period covered by the advance payments. Start upSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.fees that are received from physicians that seek to open collection centers (inconsideration of the Company establishing a service territory for the physician)are recognized after agreements are signed and the physician has been qualifiedby the Company's credentialling committee.The Company recognizes warranty and service contract reinsurance premiumsratably over the length of the contracts executed. The insurance premium expenseand other costs related to the sale are amortized ratably over the life of thecontracts. The deferred policy acquisition costs are the net cost of acquiringnew and renewal insurance contracts. These costs are charged to expense inproportion to net premium revenue recognized. The provisions for losses andloss-adjustment expenses include an amount determined from loss reports onindividual cases and an amount based on past experience for losses incurred butnot reported. Such liabilities are necessarily based on estimates, and whilemanagement believes that the amount is adequate, the ultimate liability may bein excess of or less than the amounts provided. The methods for making suchestimates and for establishing the resulting liability are continually reviewed,and any adjustments are reflected in earnings currently. The Company purchasedinsurance to fully cover any losses under the service contracts from a domesticcarrier.Income Taxes and Valuation Reserves: We are required to estimate our incometaxes in each of the jurisdictions in which we operate as part of preparing ourfinancial statements. This involves estimating the actual current tax inaddition to assessing temporary differences resulting from differing treatmentsfor tax and financial accounting purposes. These differences, together with netoperating loss carryforwards and tax credits, are recorded as deferred taxassets or liabilities on our balance sheet. A judgment must then be made of 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. 28RESULTS OF OPERATIONSYear Ended December 31, 2006 and December 31, 2005 For the year ended December 31, 2006, total revenues were $45,724 comparedto $35,262 for the year ended December 31, 2005. The revenues generated in theyear ended December 31, 2006 were derived from a combination of fees received inprior years from the sale of extended warranties and service contracts via theInternet, which were deferred and recognized over the life of such contracts,and revenues from the collection of autologous adult stem cells and feescollected from physicians in the Company's physician's network to set up stemcell collection facilities. The revenues generated in the year ended December31, 2005 were derived entirely from fees received in prior years from the saleof extended warranties and service contracts. The Company recognized revenuesfrom the sale of extended warranties and service contracts via the Internet of$25,048 for the year ended December 31, 2006, as compared to $35,262 for theyear ended December 31, 2005. Warranty revenue for the year ended December 31,2006 is not keeping pace with warranty revenue recognized in the year endedDecember 31, 2005 and is in fact declining. Warranty revenue will continue todecline as policy periods expire since the Company is no longer selling extendedwarranty contracts. It is expected that the recognition of warranty revenue willend in 2007. Similarly, direct costs incurred in connection with the extendedwarranty contracts were $17,868 for the year ended December 31, 2006, ascompared to $24,776 for the year ended December 31, 2005. For the year endedDecember 31, 2006, the Company earned $20,676 in fees for the collection ofautologous adult stem cells and start-up fees in connection with a physician inthe Company's physician's network that opened a stem cell collection center. Selling, general and administration expenses for the year ended DecemberSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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, 2006 has increased by $3,103,170 or 193% over the year ended December 31,2005. In 2006, the Company changed its primary business model and is now engagedin the collection and banking of adult stem cells. In addition, in 2006, theCompany began recognizing the compensatory value of employee stock options whichhas had a dramatic increase in our operating expenses. As the result of enteringinto the business of adult stem cell collection, processing and storage, theCompany has increased its staffing levels and payroll expense which increased by$406,373 over the year ended December 31, 2005. In addition, the compensatoryelement of stock options and restricted stock grants issued to staff members andcommon stock issued to Robin L. Smith, MD, upon being appointed Chairman of theBoard and Chief Executive Officer, increased operating expenses by $833,466. Thenew business of the Company has resulted in new expenses such as marketing andtrade show expenses of $114,908, product liability insurance of $95,926,laboratory expense of $56,048 and website development of $49,901. As the resultof the new business, legal fees, including those related to expanding theCompany's patent portfolio, increased $496,529, consulting fees increased$112,699, travel and entertainment expense increased $137,642 and rent increased$95,548, over the year ended December 31, 2005. In addition, the settlement withRobert Aholt increased expenses for 2006 by $250,000. The Company expanded itsBoard of Directors with two independent directors and implemented a compensationarrangement for non-employee directors. In connection with this arrangementrestricted stock was granted to two directors that resulted in $163,334 ofexpense for the fair value of common stock that vested. The various stockregistration filings and increased trading levels of the Company's common stockincreased costs in auditing fees, stock transfer fees and investment bankingfees, which resulted in an overall increase of $148,100 over the year endedDecember 31, 2005. Interest expense for the year ended December 31, 2006 was $1,370,656 ascompared to $96,580 for the year ended December 31, 2005, an increase of$1,274,076. This increase was primarily as a result of the issuance and earlyconversion of convertible promissory notes issued in the WestPark privateplacement (through which the Company raised $500,000 through the sale ofconvertible promissory notes and warrants in December 2005 and January 2006 and 29in which WestPark Capital, Inc. acted as placement agent). Substantially all ofthis debt was converted to common stock. The increase in interest expenseincludes increases resulting from amortization of debt discount associated withthe convertible notes of $212,500, interest payments of $30,625 and the fairvalue of common stock purchase warrants issued to these debtholders of $227,100.In an effort to improve the Company's financial position, the Company hadapproached these convertible debtholders with proposals to either extend theterm of their promissory notes or convert their promissory notes to common stockof the Company earlier than the original terms called for. Incentives included,among other things, the issuance of shares of common stock and additionalwarrants to purchase shares of common stock, reduced conversion prices for thenotes and reduced exercise prices for the warrants. As a result, holders of$162,500 in principal amount of promissory notes agreed to extend the due datesof their respective notes for four months, and the Company converted $425,000 inprincipal amount of promissory notes to common stock (including $137,500 of the$162,500 in principal amount for which the due date was originally extended forfour months prior to conversion). The impact of these conversions and extensionof due dates was to increase interest expense by $871,813 due to the cost ofadditional common shares and warrants to purchase common stock granted toaccomplish such conversions and extended due dates. However, these increasedcosts are non-cash related and the company will realize a reduction in its cashinterest payments and cash required to pay back such promissory notes.Year Ended December 31, 2005 and December 31, 2004The Company recognized revenues from the sale of extended warranties and servicecontracts via the Internet of $35,000 in the year ended December 31, 2005compared to $49,000 in the year ended December 31, 2004. The revenues generatedin the year were derived entirely from revenues deferred over the life of thecontracts sold in prior years. Similarly, direct costs incurred were $25,000 andSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.$34,000 for the years ended December 31, 2005 and 2004, respectively, whichrelate to costs previously deferred over the life of such contracts.General and administrative expenses totaled $1,611,000 during the year endedDecember 31, 2005 as compared to $764,000 for the year ended December 31, 2004,an increase of $847,000 or 111%. The increase was primarily attributable toincreases in salaries and related expenses ($495,000), consultants ($50,000),legal and accounting ($196,000), investment banking fees ($61,000) and investorrelations ($19,000).In accordance with the PSI agreement, the Company paid PSI $0 in the year endedDecember 31, 2005 as compared to $725,000 in the year ended December 31, 2004.Interest expense decreased in fiscal 2005 to $144,000 from $274,000 in the yearended December 31, 2004 due to the lower level of debt and certain loans fromofficers and directors at an interest rate of 8% compared with much higher ratesfrom non-affiliated noteholders in the previous year.For the reasons cited above, the net loss decreased to $1,745,000 in the yearended December 31, 2005 from the comparable loss of $1,748,000 for the yearended December 31, 2004. 30LIQUIDITY AND CAPITAL RESOURCES Recent Developments In January and February 2007, the Company raised an aggregate of $2,500,000through the private placement of 2,500,000 units at a price of $1.00 per unit(the "January 2007 private placement"). Each unit was comprised of two shares ofthe Company's Common Stock, one redeemable seven-year warrant to purchase oneshare of Common Stock at a purchase price of $.80 per share and onenon-redeemable seven-year warrant to purchase one share of Common Stock at apurchase price of $.80 per share. The Company issued an aggregate of 5,000,000shares of Common Stock, and warrants to purchase up to an aggregate of 5,000,000shares of Common Stock at an exercise price of $0.80 per share. Emerging GrowthEquities, Ltd ("EGE"), the placement agent for the January 2007 privateplacement, received a cash fee equal to $171,275 and is entitled to expensereimbursement not to exceed $50,000. The Company also issued to EGE redeemableseven-year warrants to purchase 343,550 shares of Common Stock at a purchaseprice of $.50 per share, redeemable seven-year warrants to purchase 171,275shares of Common Stock at a purchase price of $.80 per share and non-redeemableseven-year warrants to purchase 171,275 shares of Common Stock at a purchaseprice of $.80 per share. The net proceeds of this offering were approximately$2,301,000. In March 2007, the Company engaged Trilogy Capital Partners, Inc.("Trilogy") as a marketing and investor relations consultant. The agreement isfor a 12 month period, terminable by either party after six months upon 30 days'notice, at a monthly fee of $10,000 plus reimbursement of certain budgeted orapproved marketing expenses. Pursuant to this agreement, the Company issued toTrilogy warrants to purchase 1,500,000 shares of its Common Stock at a purchaseprice of $.47 per share. Such warrants vest over a 12 month period at a rate of125,000 per month, subject to acceleration in certain circumstances, and areexercisable until April 30, 2010.Year Ended December 31, 2006 and December 31, 2005 The following chart represents the net funds provided by or used in operating, financing and investment activities for each period indicated: Year Ended -------------------------------------- December 31, 2006 December 31, 2005 ------------------ ------------------Cash used in Operating activities $ (3,638,831) $ (833,996)Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cash used in investing activities $ (43,136) 0Cash provided by financing activities $ 3,629,753 1,295,000 The Company incurred a net loss of $6,051,400 for the year ended December31, 2006. Such loss adjusted for non-cash items, including common stock, optionand warrant issuances and warrant repricing which were related to servicesrendered and interest of $2,280,779, amortization and depreciation of $240,123and interest related to the Series A Preferred of $9,935 which was offset bycash settlements of various accounts payable, notes payable and accruedliabilities of $30,509, resulted in cash used in operations totaling $3,638,831for the year ended December 31, 2006. This use of cash for operations alsoincluded additions to prepaid expenses, accounts receivable and other currentassets of $81,300. Accordingly, the large difference between operating loss andcash used in operations was the result of a number of non-cash expenses chargedto results of operations. 31 To meet its cash requirement for the year ended December 31, 2006, theCompany relied on proceeds from the sale of $250,000 of convertible notes, andproceeds from the sale of shares of Common Stock resulting in net proceeds of$3,573,068 from the June 2006 private placement and the Summer 2006 privateplacement (as described below). In an effort to improve the financial position of the Company, in July 2006the WestPark convertible debtholders were offered the option of (A) extendingthe term of the convertible note for an additional four months from the maturitydate in consideration for which (i) the Company would issue to the investor foreach $25,000 in principal amount of the convertible note 5,682 shares ofunregistered Common Stock; and (ii) the exercise price per warrant would bereduced from $1.20 to $.80, or (B) converting the convertible note into sharesof the Company's Common Stock in consideration for which (i) the conversionprice per conversion share would be reduced to $.44; (ii) the Company wouldissue to the investor for each $25,000 in principal amount of the note, 11,364shares of Common Stock; (iii) the exercise price per warrant would be reducedfrom $1.20 to $.80; and (iv) a new warrant would be issued substantially on thesame terms as the original warrant to purchase an additional 41,667 shares ofCommon Stock for each $25,000 in principal amount of the convertible note at anexercise price of $.80 per share. Pursuant to this, the investor was also askedto waive any and all penalties and liquidated damages accumulated as of the dateof the agreement. This offer was terminated on August 31, 2006. As of that date,investors holding $237,500 in principal amount of the total $500,000 ofconvertible promissory notes had agreed to convert their respective convertiblenotes into shares of the Company's common stock for the consideration describedabove and investors holding $162,500 in principal amount of the total $500,000of convertible promissory notes had agreed to extend the term of the convertiblenote for an additional four months from the maturity date for the considerationdescribed above. In September 2006, a new offer was extended to the remaining WestParkconvertible debtholders to convert the convertible note into shares of theCompany's Common Stock, in consideration for which (i) the conversion price perconversion share would be reduced to $.44; (ii) the exercise price per warrantwould be reduced from $1.20 to $.80; and (iii) a new warrant would be issuedsubstantially on the same terms as the original warrant to purchase anadditional 41,667 shares of Common Stock for each $25,000 in principal amount ofthe convertible note at an exercise price of $.80 per share. This offer resultedin the conversion of $125,000 in principal amount of the total $500,000 ofconvertible promissory notes to common stock. In October 2006, WestParkconvertible debtholders owning an additional $62,500 in convertible promissorynotes also agreed to early conversion on the terms of the September 2006 offer.As of December 31, 2006 there were only $75,000 in principal amount of theWestPark convertible promissory notes outstanding, which were due and paid inJanuary 2007. In May 2006, the Company entered into an advisory agreement with DuncanCapital Group LLC ("Duncan"). Pursuant to the advisory agreement, Duncan isSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.providing to the Company on a non-exclusive "best efforts" basis, services as afinancial consultant in connection with any equity or debt financing, merger,acquisition as well as with other financial matters. In return for theseservices, the Company was paying to Duncan a monthly retainer fee of $7,500, 50%of which could be paid by the Company in shares of its Common Stock valued atfair market value and reimbursing it for its reasonable out-of-pocket expensesin an amount not to exceed $12,000. (Effective February 1, 2007, the advisoryagreement was extended through December 31, 2007, providing that the monthly feebe paid entirely in shares of common stock to vest at the rate of 13,636 sharesper month). Pursuant to the advisory agreement, Duncan also agreed, subject tocertain conditions, that it or an affiliate would act as lead investor in aproposed private placement of shares of Common Stock and warrants to purchaseshares of Common Stock in an amount that was not less than $2,000,000 or greaterthan $3,000,000. If the financing closed, Duncan was to receive a fee of$200,000 in cash and 240,000 shares of restricted Common Stock. On June 2, 2006, the Company entered into a securities purchase agreementpursuant to which the Company issued to each of 17 investors shares of itsCommon Stock, at a per-share price of $0.44, along with a five-year warrant topurchase a number of shares of Common Stock at a per share purchase price of$.80 equal to 50% of the number of shares of Common Stock purchased by eachinvestor (together with the Common Stock issued, the "June 2006 securities").The gross proceeds from the sale were $2,079,000. Duncan received its fee as 32described above. The officers of the Company, as a condition of the initialclosing under the securities purchase agreement, entered into letter agreementswith the Company pursuant to which they converted an aggregate of $278,653 ofaccrued and unpaid salary that dated back to 2005 into shares of Common Stock ata per share price of $0.44. After adjustments for applicable payroll andwithholding taxes which were paid by the Company, the Company issued to suchofficers an aggregate of 379,982 shares of Common Stock. The Company alsoadopted an Executive Officer Compensation Plan, effective as of the date ofclosing of the securities purchase agreement and pursuant to the letteragreements each officer agreed to be bound by the Executive Officer CompensationPlan. In addition to the conversion of accrued salary, the letter agreementsprovided for a reduction by 25% in base salary for each officer, the granting ofoptions to purchase shares of Common Stock under the Company's 2003 EquityParticipation Plan which become exercisable upon the Company achieving certainrevenue milestones and the acceleration of the vesting of certain options andrestricted shares held by the officers. In connection with the securities purchase agreement, on June 2, 2006 theCompany entered into a registration rights agreement with each of the investors,pursuant to which the Company agreed to prepare and file no later than June 30,2006 a registration statement with the SEC to register the shares of CommonStock issued to investors and the shares of Common Stock underlying thewarrants. The Company and the investors agreed to amend the registration rightsagreement and extend the due date of the registration statement to August 31,2006. In the event that the Registration Statement was not declared effective bythe SEC within 180 days of the closing date of the securities purchaseagreement, the Company was obligated to pay to each investor an amount equal to1% of the purchase price of the June 2006 securities purchased by the investor,and to pay such amount for each month or partial month that the registrationstatement was not declared effective by the SEC. The registration statement wasfiled and subsequently declared effective on November 6, 2006. In July and August 2006, the Company sold 3,977,273 shares of its CommonStock at $.44 per share along with warrants to purchase 1,988,637 shares of itsCommon Stock at $.80 per share (the "Summer 2006 Private Placement"), resultingin proceeds to the Company of $1,750,000. Additionally, in July and August, itissued 83,405 shares of its Common Stock as partial or complete payment ofcertain accounts payable and 75,667 shares of its Common Stock as partialpayment of certain services rendered. In October 2006, the Company issued 34,000shares of Common Stock in consideration of certain services rendered. InDecember 2006, the Company issued 10,416 shares of its Common Stock inSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.consideration of certain services rendered. The following table reflects a summary of the Company's contractual cashobligations, including applicable interest, as of December 31, 2006: Payments due by period ---------------------------------------------------------------------Contractual Total Less than 1 year 1-3 years 3-5 years More thanObligations 5 years-------------------- ------------- ---------------- ------------- ---------- -----------Notes payable $ 225,752 $ 201,313 $ 24,439 $ - $ -Capitalized leases 77,970 31,188 46,782 - -Employment agreements 2,133,642 1,131,234 1,002,408 - - ------------- ---------------- ------------- ---------- -----------Total $ 2,437,364 $ 1,363,735 $ 1,073,629 $ - $ - ============= ============= ============= ========== ===========Material changes to the contractual obligations above include (i) the payment inJanuary 2007 of all the remaining outstanding convertible notes issued in theWestPark Private Placement (as described above in Liquidity and CapitalResources) and (ii) amendments to or replacements of employment agreements orarrangements with officers of the Company on January 26, 2007 providing for a20% reduction in base salary and/or an agreement by the officer to extend theiremployment term, as well as certain additional or amended terms. 33Year Ended December 31, 2005 and December 31, 2004 The following chart represents the net funds provided by or used inoperating, financing and investment activities for each period as indicated: Year Ended ------------------------------------- December 31, 2005 December 31, 2004 ----------------- ------------------Cash used in Operating activities $ (833,996) $ (1,459,653)Cash used in investing activities $ 0 (3,288)Cash provided by financing activities $ 1,295,000 1,279,862 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 $1,044,145for the three fiscal years ended December 31, 2005, 2004 and 2003, respectively. On December 30, 2005 the Company commenced the Westpark Private Placementto sell 9% six month convertible notes in $25,000 units. Each unit consisted ofthe 9% note convertible into shares of the Company's Common Stock at $0.60 pershare and 41,667 warrants to purchase the Company's Common Stock at an exerciseprice of $1.20 per share. On December 30, 2005, the Company sold $250,000 ofthese notes and through January 31, 2006 an additional $250,000 of these notesfor a total of $500,000. The net proceeds from the sales of these notes to theCompany 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 Total Less than 1 yea 1-3 years 3-5 years More thanObligations 5 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 0Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Series A mandatorily redeemable convertible preferred 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 thepurchase of substantially all the assets of NS California on January 19, 2006.Material changes to the contractual obligations above include (i) theconversion, extension or payment of all the convertible notes issued in theWestpark Private Placement (as described above in Liquidity and CapitalResources), (ii) amendments to the employment agreements of certain officers andemployees, pursuant to which such persons agreed to a 25% reduction in basesalary, and the entry into an employment agreement with the Company's new chiefexecutive officer; (iii) the subsequent amendments or replacements of theemployment agreements on January 26, 2007 providing instead for a 20% reductionin base salary and/or an agreement by the officer to extend their employmentterm, as well as certain additional or amended terms; and (iv) the exchange ofthe outstanding Series A convertible preferred stock into common stock.INFLATION The Company does not believe that its operations have been materiallyinfluenced by inflation in the fiscal year ended December 31, 2006, a situationwhich is expected to continue for the foreseeable future. 34SEASONALITY The Company does not believe that its operations are seasonal in nature.OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any off-balance sheet arrangements.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot Applicable. 35ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and notes thereto required to be filed under this Itemare presented commencing on page F-1 of this Annual Report on Form 10-K.Following is supplementary financial information: Selected Quarterly Financial Data $'000 Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter(except net loss per share which is Ended Ended Ended Ended Ended Ended Ended Ended stated in $) 12/31/06 9/30/06 6/30/06 3/31/06 12/31/05 9/30/05 6/30/05 3/31/05Earned Revenues $27 $6 $6 $6 $8 $8 $9 $10Direct Costs 10 4 4 4 6 6 6 7Gross profit 17 2 2 2 2 2 3 3Operating Loss (1,718) (998) (1,038) (937) (491) (542) (356) (212)Net Loss Attributable toCommon Stockholders (1,860) (1,807) (1,245) (1,139) (527) (575) (393) (250)Net loss per share (.10) (.11) (.12) (.15) (.01) (.01) (.01) (.01)ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDISCLOSURE CONTROLS AND PROCEDURESAs of the end of the Company's fourth fiscal quarter ended December 31, 2006covered by this report, the Company carried out an evaluation, with theparticipation of the Company's management, including the Company's ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of theCompany's disclosure controls and procedures pursuant to Securities Exchange ActRule 13a-15. Based upon that evaluation, the Company's Chief Executive Officerand Chief Financial Officer concluded that the Company's disclosure controls andprocedures are effective in ensuring that information required to be disclosedby the Company in the reports that it files or submits under the SecuritiesExchange Act is recorded, processed, summarized and reported, within the timeperiods specified in the SEC's rules and forms. 36CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTINGThere have been no changes in the Company's internal controls over financialreporting, as such term is defined in Securities Exchange Act Rule 13a-15, thatoccurred during the Company's last fiscal quarter to which this report relatesthat have materially affected, or are reasonably likely to materially affect,the Company's internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone. PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item is incorporated into this AnnualReport on Form 10-K by reference to the Proxy Statement for our 2007 AnnualMeeting of Stockholders scheduled to be held on June 14, 2007, to be filed notlater than April 30, 2007 (120 days after the close of our fiscal year endedDecember 31, 2006).ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated into this AnnualReport on Form 10-K by reference to the Proxy Statement for our 2007 AnnualMeeting of Stockholders scheduled to be held on June 14, 2007, to be filed notlater than April 30, 2007.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this Item is incorporated into this AnnualReport on Form 10-K by reference to the Proxy Statement for our 2007 AnnualMeeting of Stockholders scheduled to be held on June 14, 2007, to be filed notlater than April 30, 2007.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated into this AnnualReport on Form 10-K by reference to the Proxy Statement for our 2007 AnnualMeeting of Stockholders scheduled to be held on June 14, 2007, to be filed notlater than April 30, 2007.Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICESSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 information required by this Item is incorporated into this AnnualReport on Form 10-K by reference to the Proxy Statement for our 2007 AnnualMeeting of Stockholders scheduled to be held on June 14, 2007, to be filed notlater than April 30, 2007. 37 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 theschedule, or because the information required is included in the FinancialStatements or Notes thereto.(a)(3) EXHIBITS: Exhibit Description Reference--------------- ---------------------------------------------------------------------------------------------------- 3(a) Amended and Restated Certificate of Incorporation dated August 29, 2006 (1) 3.1 (b) Amended and Restated By-laws (2) 3.1 (c) First Amendment to Amended and Restated By-laws (3) 3.2 4(a) Form of Underwriter's Warrant (4) 4.9.1 (b) Form of Promissory Note--September 2002 Offering (5) 4.1 (c) Form of Promissory Note--February 2003 Offering (5) 4.2 (d) Form of Promissory Note--March 2003 Offering (5) 4.3 10(a) Employment Agreement dated as of February 6, 2003 by and between Corniche Group 99.2 Incorporated and Mark Weinreb* (6) (b) Stock Option Agreement dated as of February 6, 2003 between Corniche Group 99.3 Incorporated and Mark Weinreb* (6) (c) Form of Stock Option Agreement* (5) 10.2 (d) Royalty Agreement, dated as of December 5, 2003, by and between Parallel Solutions, 10.1 Inc. and Phase III Medical, Inc.(5)(6) (e) Employment Agreement dated as of September 13, 2004 between Phase III Medical, Inc. 10.3 and Robert Aholt, Jr. (7) (f) Letter Agreement dated as of August 12, 2004 by and between Phase III Medical, Inc. 10.6 and Dr. Wayne A. Marasco (7) (g) Board of Directors Agreement by and between Phase III Medical, Inc. and Joseph 10.8 Zuckerman* (7) (h) Stock Purchase Agreement, dated April 20, 2005, between Phase III Medical, Inc. and 10.1 Catherine M. Vaczy (1) (i) Promissory Note made by the Company in favor of Catherine M. Vaczy (1) 10.2 (j) Letter Agreement, dated April 20, 2005, between Phase III Medical, Inc. and Catherine 10.3 M. Vaczy* (1) (k) Stock Option Agreement dated April 20, 2005, between Phase III Medical, Inc. and 10.4 Catherine M. Vaczy* (1) (l) Amendment dated July 18, 2005 to Stock Purchase Agreement with Catherine M. Vaczy 10.1 dated April 20, 2005* (2) (m) Amendment dated July 20, 2005 to Employment Agreement with Mark Weinreb dated 10.2 February 6, 2003* (2) 38 (n) Amendment dated July 20, 2005 to Employment Agreement with Wayne A. Marasco dated 10.3 August 12, 2004 (2) (o) Amendment dated July 20, 2005 to Employment Agreement with Robert Aholt dated 10.4 September 13, 2004 (2) (p) Form of Option Agreement dated July 20, 2005* (2) 10.5 (q) Form of Promissory Note Extension (2) 10.6 (r) Letter Agreement dated August 12, 2005 with Catherine M. Vaczy* (2) 10.7 (s) Restricted Stock Agreement with Mark Weinreb* (8) 10.8 (t) Asset Purchase Agreement dated December 6, 2005 by and among Phase III Medical, Inc., 99.1 Phase III Medical Holding Company, and NeoStem, Inc. (9) (u) Letter Agreement dated December 22, 2005 between Phase III Medical, Inc. and 10(y)Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. Catherine M. Vaczy* (10) (v) Form of Convertible Promissory Note (11) 10.1 (w) Form of Warrant (11) 99.1 (x) Employment Agreement between the Company and Larry A. May dated January 19, 2006* 10.1 (12) (y) Employment Agreement between the Company and Denis O. Rodgerson dated January 19, 10.2 2006 (12) (z) Letter Agreement dated January 30, 2006 between Phase III Medical, Inc. and Catherine 10(cc) M. Vaczy* (10) (aa) Settlement Agreement and General Release dated March 31, 2006 between Phase III 10(dd) Medical, Inc. and Robert Aholt, Jr.(10) (bb) Advisory Agreement dated May 2006 between Phase III Medical, Inc. and Duncan Capital 10(ee) Group LLC (13) (cc) Securities Purchase Agreement, dated June 2, 2006, between Phase III Medical, Inc. 10.1 and certain investors listed therein (14) (dd) Registration Rights Agreement, dated June 2, 2006, between Phase III Medical, Inc. 10.2 and certain investors listed therein (14) (ee) Form of Warrant to Purchase Shares of Common Stock of Phase III Medical, Inc (14) 10.3 (ff) Employment Agreement between Phase III Medical, Inc. and Dr. Robin L. Smith, dated 10.4 May 26, 2006* (14) (gg) Letter Agreement between Phase III Medical, Inc. and Mark Weinreb effective as of 10.5 June 2, 2006* (14) (hh) Letter Agreement between Phase III Medical, Inc. and Catherine M. Vaczy effective as 10.6 of June 2, 2006* (14) (ii) Letter Agreement between Phase III Medical, Inc. and Larry A. May effective as of 10.7 June 2, 2006* (14) (jj) Letter Agreement between Phase III Medical, Inc. and Wayne A. Marasco effective as of 10.8 June 2, 2006 (14) (kk) NeoStem, Inc. 2003 Equity Participation Plan* (15) B-1 (ll) Form of Phase III Medical, Inc. Securities Purchase Agreement from July/August 10.1 2006 (16) (mm) Form of Phase III Medical, Inc. Registration Rights Agreement from July/August 10.2 2006 (16) (nn) Form of Phase III Medical, Inc. Warrant to Purchase Shares of Common Stock from 10.3 July/August 2006 (16) (oo) Form of Amendment Relating to Purchase by Investors in Private Placement of 10.4 Convertible Notes and Warrants December 2005 and January 2006 (16) (pp) Second Form of Amendment Relating to Purchase by Investors in Private Placement of 10.1 Convertible Notes and Warrants December 2005 and January 2006 (17) (qq) NeoStem, Inc. 2003 Equity Participation Plan, as amended* (17) 10.2 (rr) Sublease Agreement dated October 27, 2006 between NeoStem, Inc. and DC Associates 10.3 LLC (17) (ss) Form of Subscription Agreement among NeoStem, Inc, Emerging Growth Equities, Ltd. and 10.1 certain investors listed therein (18) 39 (tt) Form of Redeemable Warrant to Purchase Shares of Common Stock of NeoStem, Inc.(18) 10.2 (uu) Form of Non-Redeemable Warrant to Purchase Shares of Common Stock of NeoStem, 10.3 Inc.(18) (vv) January 26, 2007 Amendment to Employment Agreement of Robin Smith* (19) 10.1 (ww) January 26, 2007 Amendment to Employment Agreement of Mark Weinreb* (19) 10.2 (xx) January 26, 2007 Amendment to Employment Agreement of Larry A. May* (19) 10.3 (yy) January 26, 2007 Employment Agreement with Catherine M. Vaczy* (19) 10.4 (zz) Stem Cell Collection Services Agreement dated December 15, 2006 between the Company 10.1 and HemaCare Corporation (20) (aaa) Amendment dated February 1, 2007 to Advisory Agreement dated May 2006 between Phase 10.2 III Medical, Inc. and Duncan Capital Group LLC (20) 14(a) Code of Ethics for Senior Financial Officers (5) 14.1 21(a) Subsidiaries of the Registrant(20) 21.1 23(a) Consent of Holtz Rubenstein Reminick LLP(20) 23.1 31(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- 31.1 Oxley Act of 2002 (20) 31(b) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes- 31.2 Oxley Act of 2002 (20) 32(a) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as 32.1 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (20) 32(b) Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as 32.2 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (20)----------------------------Notes:* 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 current report of the Company on Form 8-K, dated April 20, 2005, which exhibit is incorporated here by reference.(2) 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.(3) 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 August 1, 2006, which exhibit is incorporated here by reference.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(4) 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.(5) 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 for the year ended December 31, 2003, which exhibit is incorporated here by reference. Certain portions of Exhibit 10(d) (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.(6) 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.(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 December 31, 2004, which exhibit is incorporated here by reference.(8) 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. 40(9) 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.(10) 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, 2005, which exhibit is incorporated here by reference.(11) 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.(12) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the current report of the Company on Form 8-K, dated January 19, 2006, which exhibit is incorporated here by reference.(13) 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 March 31, 2006, which exhibit is incorporated herein by reference.(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 June 2, 2006, which exhibit is incorporated here by reference.(15) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Preliminary Proxy Statement on Schedule 14A, dated July 18, 2006, which exhibit is incorporated here by reference.(16) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the Company's Registration Statement on Form S-1, File No. 333-137045, which exhibit is incorporated here by reference.(17) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-1, File No. 333-137045, which exhibit is incorporated here by reference.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.(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 January 26, 2007, which exhibit is incorporated here by reference.(19) Filed with the Securities and Exchange Commission as an exhibit, numbered as indicated above, to the second current report of the Company on Form 8-K, dated January 26, 2007, which exhibit is incorporated here by reference.(20) Filed herewith. 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized in the City of NewYork, State of New York, on March 28, 2007. NEOSTEM, INC. By: /s/Robin L. Smith -------------------------------- Name: Robin L. Smith Title: Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date ---------- ------ ------ /s/ Robin L. Smith Director, Chief Executive ------------------------ Officer and Chairman of the March 28, 2007 Robin L. Smith Board (Principal Executive Officer) /s/ Larry A. May Chief Financial Officer ------------------------- (Principal Financial Officer and March 28, 2007 Larry A. May Principal Accounting Officer) /s/ Mark Weinreb Director and President March 28, 2007 ------------------------- Mark Weinreb /s/ Joseph Zuckerman Director March 28, 2007 ------------------------- Joseph Zuckerman /s/ Richard Berman Director March 28, 2007 ------------------------- Richard Berman /s/ Steven S. Myers Director March 28, 2007 ------------------------- Steven S. Myers 42 NeoStem, Inc. and Subsidiary Table of ContentsSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. Page --------------Report of Independent Registered Public Accounting Firm - Holtz Rubenstein Reminick LLP F - 1Financial Statements: Consolidated Balance Sheets at December 31, 2006 and 2005 F - 2 Consolidated Statements of Operations Years Ended December 31, 2006, 2005 and 2004 F - 3 Consolidated Statements of Stockholder's Equity/ (Deficit) Years Ended December 31, 2006, 2005 and 2004 F - 4 Consolidated Statements of Cash Flows Years Ended December 31, 2006, 2005 and 2004 F - 6 Notes to Consolidated Financial Statements F - 8 - F - 27 Report of Independent Registered Public Accounting Firm -------------------------------------------------------To the Board of Directors and StockholdersNeoStem, Inc. and Subsidiary (Formerly Phase III Medical, Inc.)We have audited the accompanying consolidated balance sheets of NeoStem, Inc.and Subsidiary as of December 31, 2006 and 2005 and the related consolidatedstatements of operations, stockholders' equity/ (deficit) and cash flows foreach of the years in the three-year period ended December 31, 2006. Theseconsolidated financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these financialstatements 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 consolidated financial statements referred to above presentfairly, in all material respects, the financial position of NeoStem, Inc. andSubsidiary as of December 31, 2006 and 2005 and the results of their operations and cash flows for each of the years in the three year period ended December 31,2006 in conformity with accounting principles generally accepted in the United States of America.As discussed in Note 2 to the consolidated financial statements, the Companyadopted Statement of Financial Accounting Standard No. 123 (R), "Share-BasedPayment" effective January 1, 2006./s/ HOLTZ RUBENSTEIN REMINICK LLP---------------------------------Melville, New YorkMarch 27, 2007Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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-1 NEOSTEM, INC. AND SUBSIDIARY Consolidated Balance Sheets December 31, 2006 2005 ------------- ------------ ASSETSCurrent assets: Cash and cash equivalents $ 436,659 $ 488,872 Accounts receivable 9,050 - Prepaid expenses and other current assets 82,451 18,447 ------------- ------------ Total current assets 528,160 507,319Property and equipment, net 96,145 1,488Deferred acquisition costs - 19,121Goodwill 558,169Other assets 12,500 114,753 ------------- ------------ $ 1,194,974 $ 642,681 ============= ============LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)Current liabilities: Interest and dividends payable - preferred stock $ - $ 528,564 Accounts payable 372,348 256,976 Accrued liabilities 241,388 617,196 Unearned revenues 2,420 - Notes payable, - related party, current 125,000 135,000 Note payable - current 1,313 48,000 Current portion of capitalized lease obligation 20,829 - Convertible debentures - net of debt discount of $0 and $83,333, respectively 75,000 166,667 ------------- ------------ Total current liabilities 838,298 1,752,403Unearned revenues - long term - 26,745Series A mandatorily redeemable convertible preferred stock - 681,171Note payable - related party, long term 24,439 -Capitalized lease obligation, net of current portion 40,132 -COMMITMENTS AND CONTINGENCIESStockholders' equity/(deficit): Preferred stock; authorized, 5,000,000 shares Series B convertible redeemable preferred stock, liquidation value, 10 shares of common stock per share, $.01 par value; authorized, 825,000 shares; issued and outstanding, 10,000 shares atSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. December 31, 2006 and December 31, 2005 100 100 Common stock, $.001par value; authorized, 500,000,000 shares; issued and outstanding, 20,781,214 at December 31, 2006 and 7,054,386 shares at December 31, 2005 20,782 7,056 Additional paid-in capital 20,949,654 12,430,571 Unearned compensation (371,666) - Accumulated deficit (20,306,765) (14,255,365) ------------- ------------ Total stockholders' equity/(deficit) 292,105 (1,817,638) ------------- ------------ $ 1,194,974 $ 642,681 ============= ============ The accompanying notes are an integral part of these consolidated financial statements F-2 NEOSTEM, INC. AND SUBSIDIARY Consolidated Statements of Operations Years ended December 31, ----------------------------------------------------------- 2006 2005 2004 ----------------- ------------------ ------------------Revenues $ 45,724 $ 35,262 $ 48,561Direct Costs 22,398 24,776 33,885 ----------------- ------------------ ------------------ Gross Profit 23,326 10,486 14,676Selling, general and administrative 4,714,568 1,611,398 763,640Purchase of medical royalty stream - - 725,324 ----------------- ------------------ ------------------ Operating loss (4,691,242) (1,600,912) (1,474,288)Other income (expense): Interest income 20,432 137 199 Interest expense - Series A mandatorily redeemable convertible preferred stock (9,934) (47,684) (47,684) Interest expense (1,370,656) (96,580) (226,599) ----------------- ------------------ ------------------ (1,360,158) (144,127) (274,084) ----------------- ------------------ ------------------Net Loss $ (6,051,400) $ (1,745,039) $ (1,748,372) ================= ================== ==================Basic earnings per shareNet loss $ (.44) $ (.35) $ (0.54) ================= ================== ==================Weighted average common shares outstanding 13,650,270 4,977,575 3,254,185 ================= ================== ==================The accompanying notes are an integral part of these consolidated financial statements F-3 NEOSTEM, INC. AND SUBSIDIARY Consolidated Statements of Stockholder Equity/(Deficit)Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Series B Preferred Stock Common Stock ------------------------------------ Additional Unearned Paid in Accumulated Shares Amount Shares Amount Compensation Capital Deficit Total ------- ------ ------------ -------- ----------------------------------------------------Balance at December 31, 2003 10,000 $100 26,326,460 $26,327 - $9,232,756 $(10,761,954) $(1,502,771)Reverse Common Stock Split (23,693,814) (23,694) 23,694Issuance of common stock for cash, net ofoffering costs 1,213,291 1,213 1,103,787 1,105,000Issuance of common stock upon exercise ofcommon stock options 187,500 188 9,187 9,375Issuance of common stock options for services 15,000 15,000Issuance of common stock for services 18,750 19 14,231 14,250Interest expense on loans in default 127,137 127,137Debt discount on loan from officer 17,647 17,647Issuance of common stock for interest 3,000 3 4,197 4,200Issuance of common stock to officer for services 47,768 48 26,702 26,750Net loss (1,748,372) (1,748,372) ------- ------ ------------ -------- ------------- ----------- ------------- ------------Balance at December 31, 2004 10,000 100 4,102,955 4,104 - 10,574,338 (12,510,326) (1,931,784)Issuance of common stock for cash, net ofoffering costs 1,259,285 1,259 870,741 872,000Issuance of common stock for conversion ofdebt 986,578 987 564,013 565,000Issuance of common stock to officers anddirectors 602,068 602 236,684 237,286Issuance of common stock for services 103,500 104 76,004 76,108Equity component of issuance of convertible debt 83,333 83,333Issuance of common stock purchase warrants forservices 25,458 25,458Net loss (1,745,039) (1,745,039) ------- ------ ------------ -------- ------------- ----------- ------------- ------------Balance at December 31, 2005 10,000 100 7,054,386 7,056 - 12,430,571 (14,255,365) (1,817,638) F-4 NEOSTEM, INC. AND SUBSIDIARY Consolidated Statements of Stockholder Equity/(Deficit)- Cont. Series B Preferred Stock Common Stock ------- ------ ------------ -------- Additional Unearned Paid in Accumulated Shares Amount Shares Amount Compensation Capital Deficit Total ------- ------ ------------ -------- ------------- ----------- ------------- ------------Issuance of common stock for cash, net of offering costs 9,453,815 9,454 3,563,614 3,573,068Issuance of common stock for conversion of preferred stock 544,937 545 1,219,124 1,219,669Issuance of common stock to officers and directors 400,000 400 207,600 208,000Issuance of restricted common stock to officers and directors 900,000 900 (600,000) 599,100 -Vesting of uneamed compensation related to restricted common stock issued to officers and directors 228,334 228,334Issuance of common stock for services 176,175 176 112,812 112,988Equity component of issuance of convertible debt 263,612 263,612Issuance of common stock purchase warrants for services 75,496 75,496Issuance of common stock forSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. purchase of assets of NS California 400,000 400 199,600 200,000Issuance of common stock to payoff current liabilities 664,610 664 307,798 308,462Issuance of common stock for conversion of convertible debt 1,073,859 1,074 691,822 692,896Issuance of common stock for extension of due dates of convertible debt 36,932 37 20,986 21,023Issuance of common stock purchase warrants for the early conversion of convertible debt 652,130 652,130Issuance of common stock for conversion of debt 76,500 76 44,924 45,000Compensatory element of stock options issued to staff 560,465 560,465Net Loss (6,051,400) (6,051,400) ------- ------ ------------ -------- ------------- ----------- ------------- ------------Balance at December 31, 2006 10,000 $ 100 20,781,214 $ 20,782 $ (371,666) $20,949,654 $ (20,306,765) $ 292,105 ------- ------ ------------ -------- ------------- ----------- ------------- ------------ The accompanying notes are an integral part of these consolidated financial statements F-5 NEOSTEM, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended December 31, ---------------------------------------------- 2006 2005 2004 ----------------------------------------------Cash flows from operating activities: $ (6,051,400) $ (1,745,039) $ (1,748,372) Net loss Adjustments to reconcile net loss to net cash used in operating activities: Common shares issued and stock options granted as payment for interest expense and for services rendered 2,280,779 338,852 187,337 Depreciation 27,623 1,958 1,777 Amortization of debt discount 212,500 5,882 11,765 Series A mandatorily redeemable convertible preferred stock dividends 9,935 47,684 47,684 Unearned revenues (24,325) (35,262) (48,561) Deferred acquisition costs 17,868 24,776 33,885 Changes in operating assets and liabilities: Prepaid expenses and other current assets (72,251) 2,786 (3,209) Accounts receivable (9,050) - - Other assets - (111,753) - Accounts payable, accrued expenses and other current liabilities (30,510) 636,120 58,041 ----------------- ------------ ------------- Net cash used in operating activities (3,638,831) (833,996) (1,459,653) ----------------- ------------ -------------Cash flows from investing activities: Acquisition of property and equipment (43,136) - (3,288) ----------------- ------------ ------------- Net cash used in investing activities (43,136) - (3,288) ----------------- ------------ -------------Cash flows from financing activities: Net proceeds from issuance of capital stock 3,573,068 872,000 1,114,375 Proceeds from notes payable 180,396 203,000 75,000 Repayment of notes payable (352,898) (30,000) Repayment of capitalized lease obligations (20,813) 100,000 Proceeds from sale of convertible debentures 250,000 250,000 Repayment of long-term debt (9,513) ----------------- ------------ ------------- Net cash provided by financing activities 3,629,753 1,295,000 1,279,862 ----------------- ------------ -------------Net (decrease) increase in cash and cash equivalents (52,213) 461,004 (183,079)Cash and cash equivalents at beginning of year 488,872 27,868 210,947 ----------------- ------------ -------------Cash and cash equivalents at end of year $ 436,659 $ 488,872 $ 27,868 ================= ============ ============= The accompanying notes are an integral part of these consolidated financial statements F-6 NEOSTEM, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows - continued Years ended December 31, ---------------------------------------------------Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. 2006 2005 2004 ---------------- ---------------- ---------------Supplemental disclosures of cash flow information:Cash paid during the year for:Interest $ 285,096 $ 92,010 $ 106,574 ================ ================ ===============Supplemental schedule of non-cash investing and financing activitiesIssuance of common stock for services rendered $ 188,485 $ 313,394 $ 32,027 ================ ================ ===============Compensatory element of stock options $ 576,281 $ 25,458 $ 127,137 ================ ================ ===============Net accrual of dividends on Series A preferred stock $ 9,935 $ - $ - ================ ================ ===============Issuance of common stock for assets of NS California $ 200,000 $ - $ - ================ ================ ===============Common stock for conversion of convertible debt $ 425,000 $ - $ - ================ ================ ===============Common stock issued for debt $ 45,000 $ 565,000 $ - ================ ================ =============== The accompanying notes are an integral part of these consolidated financial statements F-7Note 1 - The Company--------------------NeoStem, Inc. ("NeoStem") was incorporated under the laws of the State ofDelaware in September 1980 under the name Fidelity Medical Services, Inc. Ourcorporate headquarters is located at 420 Lexington Avenue, Suite 450, New York,NY 10170, our telephone number is (212) 584-4184 and our website address iswww.neostem.com.NeoStem is in the business of operating a commercial autologous (donor andrecipient are the same) adult stem cell bank and are pioneering the pre-diseasecollection, processing and long-term storage of adult stem cells that donors canaccess for their own present and future medical treatment. On January 19, 2006,we consummated the acquisition of the assets of NS California, Inc., aCalifornia corporation ("NS California") relating to NS California's business ofcollecting and storing adult stem cells. Effective with the acquisition, thebusiness of NS California became our principal business, rather than ourhistoric business of providing capital and business guidance to companies in thehealthcare and life science industries. The Company provides adult stem cellprocessing, collection and banking services with the goal of making stem cellcollection and storage widely available, so that the general population willhave the opportunity to store their own stem cells for future healthcare needs.Prior to the NS California acquisition, the business of the Company was toprovide capital and business guidance to companies in the healthcare and lifescience industries, in return for a percentage of revenues, royalty fees,licensing fees and other product sales of the target companies. Additionally,through June 30, 2002, the Company was a provider of extended warranties andservice contracts via the Internet at warrantysuperstore.com. The Company isstill engaged in the "run off" of such extended warranties and servicecontracts.On August 29, 2006, our stockholders approved an amendment to our Certificate ofIncorporation to effect a reverse stock split of our Common Stock at a ratio ofone-for-ten shares and to change our name from Phase III Medical, Inc. toNeoStem, Inc. All numbers in this report have been adjusted to reflect thereverse stock split which was effective as of August 31, 2006.Note 2 - Summary of Significant Accounting PoliciesSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.---------------------------------------------------Principles of consolidation: The consolidated financial statements include theaccounts of NeoStem, Inc. (a Delaware corporation) and its wholly-ownedsubsidiary, NeoStem Therapies, Inc. All intercompany transactions and balanceshave been eliminated.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): 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, 2006, 2005 and 2004there were no such adjustments required. F-8Goodwill: Goodwill represents the excess of the purchase price over the fairvalue of the net assets acquired in a business combination. The Company reviewsrecorded goodwill for potential impairment annually or upon the occurrence of animpairment indicator. The Company performed its annual impairment tests as ofDecember 31, 2006 and determined no impairment exists. The Company will performits future annual impairment as of the end of each fiscal year.Accounting for Stock Option Compensation: In December 2004, the FASB issued SFASNo. 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. The Company has adopted SFASNo. l23(R) effective January 1, 2006. The Company determines value of stockoptions by the Black-Scholes option pricing model. The value of options issuedduring 2006 or that were unvested at January 1, 2006 are being recognized as anoperating expense ratably on a monthly basis over the vesting period of eachoption.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.Pro Forma Effect of Stock Options: For the years ended December 31, 2005 and2004, the Company followed Financial Accounting Standards Board InterpretationNo. 44, an interpretation of APB Opinion No. 25 and SFAS No. 123 which requiresthat effective July 1, 2000, all options issued to non-employees after January12, 2000 be accounted for under the rules of SFAS No. 123.Assuming the fair market value of the option at the date of grant $1.50 inJanuary 2004, $1.40 in March 2004, $1.11 in May 2004, $1.10 in September andNovember 2004, $.60 in February 2005, $.50 in April and July 2005, $.80 inSeptember 2005 and $.60 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 and $218,597,respectively, for the years ended December 31, 2005 and 2004 as calculated bythe Black-Scholes option pricing model. The weighted average fair value peroption of options granted during 2005 and 2004 was $0.60 and $1.10,respectively.The Black-Scholes option valuation model was developed for use in estimating thefair value of traded options, which have no vesting restrictions and are fullytransferable. In addition, option valuation models require the input of highlysubjective assumptions including the expected stock price volatility.Proforma net loss and net loss per share would be as follows: 2005 2004 --------------- ----------------Net loss as reported $ (1,745,039) $ (1,748,372)Additional compensation (116,146) (218,597) --------------- ----------------Adjusted net loss $ (1,861,185) $ (1,966,969) =============== ================Net loss per share as reported $ (.40) $ (.50) =============== ================Adjusted net loss per share $ (.40) $ (.60) =============== ================Recently Issued Accounting Pronouncements: In February 2006, the FinancialAccounting Standards Board ("FASB") issued SFAS No.155, Accounting for CertainHybrid Financial Instruments - An Amendment of FASB No. 133 and 140. The purposeof SFAS statement No. 155 is to simplify the accounting for certain hybridfinancial instruments by permitting fair value re-measurement for any hybridfinancial instrument that contains an embedded derivative that otherwise wouldrequire bifurcation. SFAS No.155 also eliminates the restriction on passivederivative instruments that a qualifying special-purpose entity may hold. SFASNo.155 is effective for all financial instruments acquired or issued after thebeginning of any entity's first fiscal year beginning after September 15, 2006.We believe that the adoption of this standard on January 1, 2007 will not have amaterial effect on our consolidated financial statements.In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing ofFinancial Assets, an Amendment of SFAS No. 140. SFAS No. 156 requires separaterecognition of a servicing asset and a servicing liability each time an entityundertakes and obligation to service a financial asset by entering into aservicing contract. This statement also requires that servicing assets andliabilities be initially recorded at fair value and subsequently adjusted to thefair value at the end of each reporting period. This statement is effective infiscal years beginning after September 15, 2006. We believe that the adoption ofthis standard on January 1, 2007 will not have a material effect on ourconsolidated financial statements. F-9In July 2006, the FASB interpretation ("FIN") No. 48, Accounting for UncertaintySource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 Income Taxes - An Interpretation of FASB Statement No. 109, was issuedregarding accounting for, and disclosure of, uncertain tax positions. ThisInterpretation clarifies the accounting for uncertainty in income taxesrecognized in an enterprise's financial statements in accordance with FASBStatement No. 109, "Accounting for Income Taxes," and prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return. Theinterpretation also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure, and transition. Thisinterpretation is effective for fiscal years beginning after December 15, 2006.The Company is currently evaluating the impact this interpretation will have onits results of operations and financial position.In September 2006, the FASB issued Statement of Financial Accounting Standard("SFAS") No. 157 Fair Value Measurements. This statement defines fair value,establishes a fair value hierarchy to be used in generally accepted accountingprinciples and expands disclosures about fair value measurements. Although thisstatement does not require any new fair value measurements, the applicationcould change current practice. The statement is effective for fiscal yearsbeginning after November 15, 2007. The Company is currently evaluating theimpact of this statement to its financial position and results of operations.In September 2006, the FASB issued SFAS No. 158 Employers' Accounting forDefined Benefit Pension and Other Postretirement Plans - an Amendment of FASBStatements No. 87, 88, 106, and 132(R). This statement requires a company torecognize the funded status of a benefit plan as an asset or a liability in itsstatement of financial position. In addition, a company is required to measureplan assets and benefit obligations as of the date of its fiscal year-endstatement of financial position. The recognition provision of this statement,along with additional disclosure requirements, is effective for fiscal yearsending after December 15, 2006, while the measurement date provision iseffective for fiscal years ending after December 15, 2008. The Company does notcurrently have a deferred benefit pension or other post retirement plan.In September 2006, the Securities and Exchange Commission ("SEC") issued StaffAccounting Bulletin No. 108, Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements ("SAB 108").SAB 108 provides interpretive guidance on how the effects of the carryover orreversal of prior year misstatements should be considered in quantifying acurrent year misstatement. The SEC staff believes that registrants shouldquantify errors using both a balance sheet and an income statement approach andevaluate whether either approach results in quantifying a misstatement that,when all relevant quantitative and qualitative factors are considered, ismaterial. SAB 108 is effective for the Company's fiscal year ending December 31,2006. The Company has evaluated the effect of SAB 108 and determined that it didnot have a material impact on our consolidated financial statements.Earnings Per Share: Basic (loss)/earnings per share is based on the weightedeffect of all common shares issued and outstanding, and is calculated bydividing net (loss)/income available to common stockholders by the weightedaverage shares outstanding during the period. Diluted (loss)/earnings per share,which is calculated by dividing net (loss)/income available to commonstockholders by the weighted average number of common shares used in the basicearnings per share calculation plus the number of common shares that would beissued assuming conversion of all potentially dilutive securities outstanding,is not presented as it is anti-dilutive in all periods presented.Advertising Policy: All expenditures for advertising is charged againstoperations as incurred.Revenue Recognition: The Company has initiated the collection and banking ofautologous adult stem cells in the fourth quarter of 2006. The companyrecognizes revenue related to the collection and cryopreservation autologousadult stem cells when the cryopreservation process is completed which isgenerally twenty four hours after cells have been collected. Revenue related toadvance payments of storage fees is recognized rateably over the period coveredby the advanced payments. The Company also earns revenue, in the form of startup fees, from physicians seeking to establish autologous adult stem cellSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.collection centers. These fees are in consideration of the Company establishinga service territory for the physician. Starts up fees are recognized once theagreement has been signed and the physician has been qualified by the Company'scredentialling committee. F-10Warranty and service contract reinsurance premiums are recognized on a pro ratabasis over the policy term. The deferred policy acquisition costs are the netcost of acquiring new and renewal insurance contracts. These costs are chargedto expense in proportion to net premium revenue recognized. The provisions forlosses and loss-adjustment expenses include an amount determined from lossreports on individual cases and an amount based on past experience for lossesincurred but not reported. Such liabilities are necessarily based on estimates,and while management believes that the amount is adequate, the ultimateliability may be in excess of or less than the amounts provided. The methods formaking such estimates and for establishing the resulting liability arecontinually reviewed, and any adjustments are reflected in earnings currently.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 - Acquisition of NS California-------------------------------------On January 19, 2006, the Company consummated the acquisition of the assets ofNS California, Inc. ("NS California") relating to NS California 's business ofcollecting and storing adult stem cells, issuing 400,000 shares of the Company'scommon stock with a value of $200,000. In addition, the Company assumed certainliabilities of NS California's which totaled $476,972. The underlying physicalassets acquired from NS California were valued at $109,123 resulting in therecognition of goodwill in the amount of $558,169. Upon completion of theacquisition the operations of NS California were assumed by the Company and havebeen reflected in the Statement of Operations since January 19, 2006. Effectivewith the acquisition, the business of NS California became the principalbusiness of the Company. The Company now intends to provide adult stem cellprocessing, collection and banking services with the goal of making stem cellcollection and storage widely available, so that the general population willhave the opportunity to store their own stem cells for future healthcare needs.Presented below is the proforma information as if the acquisition had occurredat the beginning of the years ended December 31, 2006 and 2005, respectively. Year Ended December 31, 2006 2005 --------------------- --------------------Revenue $ 45,724 $ 35,712Net Income $ (6,078,976) $ (3,113,828)Net Income per share $ (0.45) $ (0.63)Note 4 - Accrued Liabilities----------------------------Accrued liabilities are as follows: December 31, -------------------------------------Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. 2006 2005 ---------------- ---------------- Professional fees $ 148,255 $ 173,649 Interest on notes payable 1,919 4,268 Salaries and related taxes 31,003 424,950 Other 60,211 14,329 ---------------- ---------------- $ 241,388 $ 617,196 ================ ================Note 5 - Notes Payable----------------------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. During 2006, $90,000had been converted into 153,000 shares of the Company's Common Stock and$160,000 has been repaid. F-11In August 2004, the Company sold 30 day 20% notes in the amount of $55,000 totwo accredited investors to fund current operations. As of December 31, 2006$30,000 of these notes has been paid and $25,000 converted into 42,500 shares ofthe Company's Common Stock. All interest payments have been paid timely.In December 2004, the Company sold four notes to four accredited investorstotaling $100,000 with interest rates that range from 8% to 20%. As of December31, 2006, $15,000 has been repaid and $85,000 converted into 144,500 shares ofthe Company's Common Stock.In March 2005, the Company sold a 30 day 8% note in the amount of $17,000, inAugust 2005, an 8% note in the amount of $10,000 and in September 2005, two 8%notes in the amounts of $6,000 and $15,000 to its President and then CEO,totaling $48,000 and were all due on demand. In January 2006, all notes wererepaid. The interest on these notes was made timely.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. These convertible notes were sold in connection with a subscriptionagreement between the Company and Westpark Capital, Inc. ("Westpark"). (Theconvertible notes and warrants sold in December, 2005 and January, 2006 in thetransaction in which Westpark Capital, Inc. acted as the placement agent issometimes referred to here in as the "Westpark Private Placement") The Companyrecorded a debt discount associated with the conversion feature in the amount of$83,333, which was charged to interest expense during the year ended December31, 2006. The debt discount recorded of $83,333 does not change the amount ofcash required to payoff the principal value of these Promissory Notes, at anytime during the term, which is $250,000. As part of the Westpark PrivatePlacement, these Promissory Notes have 41,667 detachable warrants for each$25,000 of debt, which entitle the holder to purchase one share of the Company'sCommon Stock at a price of $1.20 per share. The warrants are exercisable for aperiod of three years from the date of the Promissory Note. The Promissory Notesconvert to the Company's Common Stock at $.60 per share. The Promissory Notesare convertible at anytime into shares of Common Stock at the option of theCompany subsequent to the shares underlying the Promissory Notes and the sharesunderlying the warrants registration if the closing price of the Common Stockhas been at least $1.80 for a period of at least 10 consecutive days prior tothe date on which notice of conversion is sent by the Company to the holders ofthe Promissory Notes. Pursuant to the terms of the WestPark Private Placement,Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 agreed to file with the SEC and have effective by July 31, 2006, aregistration statement registering the resale by the investors in the WestParkPrivate Placement of the shares of Common Stock underlying the convertible notesand the warrants sold in the WestPark Private Placement. This registrationstatement was not made effective by July 31, 2006 and certain additional rightshave accrued to the Convertible Promissory Noteholders (see below for a detaileddescription of these additional rights). In 2005, the Company recorded anexpense of $2,573 associated with the warrants as their fair value using theBlack Scholes method.In January 2006, the Company sold an additional $250,000 of convertible ninemonth Promissory Notes which bear 9% simple interest with net proceeds to theCompany of $223,880 as part of the Westpark Private Placement. The Companyrecorded a debt discount associated with the conversion feature in the amount of$129,167. For the year ended December 31, 2006, the Company charged $127,932 ofthe debt discount to interest expense. The debt discount recorded of $129,167does not change the amount of cash required to payoff the principal value ofthese Promissory Notes, at any time during the term, which is $250,000. ThesePromissory Notes also have 41,667 detachable warrants for each $25,000 of debt,which entitle the holder to purchase one share of the Company's Common Stock ata price of $1.20 per share. The warrants are exercisable for a period of threeyears from the date of the Promissory Note. The Promissory Notes convert to theCompany's Common Stock at $.60 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$1.80 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. Pursuant to the terms of the WestPark Private Placement, the Companyagreed to file with the SEC and have effective by July 31, 2006, a registrationstatement registering the resale by the investors in the WestPark PrivatePlacement of the shares of Common Stock underlying the convertible notes and thewarrants sold in the WestPark Private Placement. This registration statement wasnot made effective by July 31, 2006 and as a result certain additional rightsaccrued to the Convertible Promissory Noteholders (see below for a detaileddescription of these additional rights). For the year ended December 31, 2006,the Company recorded as interest expense $263,612 associated with the warrantsas their fair value using the Black Scholes method.As mentioned previously, pursuant to the terms of the WestPark PrivatePlacement, the Company agreed to file with the SEC and have effective by July31, 2006, a registration statement registering the resale by the investors inthe WestPark Private Placement of the shares of Common Stock underlying the F-12convertible promissory notes and the warrants sold in the WestPark PrivatePlacement. In the event the Company did not do so, (i) the conversion price ofthe convertible promissory notes was reduced by 5% each month, subject to afloor of $.40; (ii) the exercise price of the warrants was reduced by 5% eachmonth, subject to a floor of $1.00 and (iii) the warrants could be exercisedpursuant to a cashless exercise provision. The Company did not have theregistration statement effective by July 31, 2006 and requested that theinvestors in the WestPark Private Placement extend the date by which theregistration statement is required to be effective until February 28, 2007. InAugust, 2006 the Company filed with the SEC a registration statement registeringthe resale by the investors of the WestPark Private Placement of the shares ofCommon Stock underlying the convertible promissory notes and the warrants soldin the WestPark Private Placement which was made effective in November, 2006.In an effort to improve the financial position of the Company, in July 2006,noteholders were offered the option of (A) extending the term of the convertiblenote for an additional four months from the maturity date in consideration forwhich (i) the Company shall issue to the investor for each $25,000 in principalamount of the convertible note 5,682 shares of unregistered Common Stock; and(ii) the exercise price per warrant shall be reduced from $1.20 to $.80, or (B)converting the convertible note into shares of the Company's Common Stock inSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.consideration for which (i) the conversion price per conversion share shall bereduced to $.44; (ii) the Company shall issue to the investor for each $25,000in principal amount of the Note, 11,364 shares of Common Stock; (iii) theexercise price per warrant shall be reduced from $1.20 to $.80; and (iv) a newwarrant shall be issued substantially on the same terms as the original Warrantto purchase an additional 41,667 shares of Common Stock for each $25,000 inprincipal amount of the convertible note at an exercise price of $.80 per share.Pursuant to this, the investor was also asked to waive any and all penalties andliquidated damages accumulated as of the date of the agreement. This offer wasterminated on August 31, 2006. By August 31, 2006 investors owning $237,500 ofthe $500,000 of convertible promissory notes had agreed to convert theconvertible note into shares of the Company's Common Stock for considerationdescribed above and investors holding $162,500 of the $500,000 of convertiblepromissory notes had agreed to extend the term of the convertible note for anadditional four months from the maturity date for consideration described above.In September 2006, a new offer was extended to the remaining noteholders toconvert the convertible note into shares of the Company's Common Stock inconsideration for which (i) the conversion price per conversion share shall bereduced to $.44; (ii) the exercise price per warrant shall be reduced from $1.20to $.80 and (iii) a new warrant shall be issued substantially on the same termsas the original Warrant to purchase an additional 41,667 shares of Common Stockfor each $25,000 in principal amount of the convertible note at an exerciseprice of $.80 per share. Pursuant to this, the investor is also being asked towaive any and all penalties and liquidated damages accumulated as of the date ofthe agreement.By December 31, 2006, investors owning $425,000 convertible promissory notesagreed to convert the convertible note into shares of the Company's Common Stockfor consideration described above. The Company issued 1,073,859 shares of CommonStock with a fair value of $692,896. In addition, the Company issued 604,166warrants with a fair value of $472,741 for Security holders that agreed to anearly conversion of their convertible promissory notes. The Company also issued36,932 shares of Common Stock as consideration for extending the term of theconvertible notes, totaling $162,500, for an additional four months with a fairvalue of $21,023. The fair value of this Common Stock has been accounted for asinterest expense. Amounts in excess of the face value of the convertiblepromissory notes and the fair value of the warrants issued as the result ofearly conversion have been accounted for as interest expense.In connection with the NS California acquisition, the Company assumed a 6% notedue to Tom Hirose, a former officer of NS California in the amount of $15,812.As of December 31, 2006, $1,313 remains unpaid. Final payment will be made in2007.On May 17, 2006, the Company sold an 8% promissory note in the amount of $20,000due on demand to Robin Smith, the Company's then Chairman of the Advisory Board.This promissory note was paid off on June 2, 2006. F-13A summary of notes payable and convertible debentures is as follows: January 1, 2006 Proceeds Repayments Less: Debt December 31, /Conversions Discounts 2006 -----------------------------------------------------------------March 2003 Notes $ 80,000 $ - $ (80,000)$ - $ -2004 Notes 55,000 (55,000) -2005 Notes 48,000 - (48,000) -Note with Related Party 20,000 (20,000)Convertible Debentures 166,667 250,000 (212,500) (129,167) 75,000 -----------------------------------------------------------------Total $ 349,667 $ 270,000 $ (415,500)$ (129,167)$ 75,000 =================================================================Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. =================================================================Note 6 - Series A Mandatorily Redeemable Convertible Preferred Stock--------------------------------------------------------------------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 and 2004, 681,174 shares of Series A Preferred Stock wereoutstanding, and accrued dividends on these outstanding shares were $528,564 and$480,880, respectively.The holders of Series A Preferred Stock could convert their Series A PreferredStock into shares of Common Stock of the Company at a price of $5.20 per share.On March 17, 2006, the stockholders of the Company voted to approve anamendment to the Certificate of Incorporation which permits the Company to issuein exchange for all 681,171 shares of Series A Preferred Stock outstanding andits obligation to pay $538,498 (or $.79 per share) in accrued dividends thereon,a total of 544,937 shares of Common Stock (eight tenths (.8) shares of CommonStock per share of Series A Preferred Stock). Pursuant thereto, at December 31,2006, all outstanding shares of Series A Preferred Stock were cancelled andconverted into Common Stock. Therefore at December 31, 2006 and 2005, there were0 and 681,171 shares of Series A Preferred Stock outstanding, respectively.Note 7 - Stockholders' Equity-----------------------------(a) Series B Convertible Redeemable Preferred Stock: The total authorized shares of Series B Convertible Redeemable Preferred Stock is 825,000. The following summarizes the terms of the Series B Stock whose terms are more fully set forth in the Certificate of Designation. The Series B Stock carries a zero coupon and each share of the Series B Stock is convertible into ten shares of the Company's common stock. The holder of a share of the Series B Stock is entitled to ten times any dividends paid on the common stock and such stock has ten votes per share and votes as one class with the common stock. The holder of any share of Series B Convertible Redeemable Preferred Stock has the right, at such holder's option (but not if such share is called for redemption), exercisable after December 31, 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. F-14Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. During the 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. At December 31, 2006 and 2005, 10,000 Series B Preferred Shares were issued and outstanding.(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 February 2005, the $100,000 convertible note sold to the Company's former COO was converted into 196,078 shares of the Company's common stock. For the twelve months ended December 31, 2005, the Company issued 17,500 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 308,068 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. In 2005, the Company issued 1,259,285 shares of its common stock to accredited investors resulting in net proceeds to the Company of $872,000. In July 2005, the Company granted 300,000 shares of its common stock to its President and CEO. These shares vest 100,000 immediately and 100,000 on each of the next two anniversary dates. On June 2, 2006 the Company accelerated the vesting dates of this stock grant pursuant to a letter agreement outlined in Note 11 of these financial statements. The fair value of these shares was $120,000, which was charged to expense. In September 2005, the Company granted 50,000 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 5,000 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 1.7 shares for each one dollar of debt resulting in 756,500 shares being issued. On December 30, 2005, an additional $20,000 of debt was converted into 34,000 shares of the Company's common stock. On December 30, 2005, the Company issued 25,000 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. In January 2006, the Company issued 76,500 shares of its common stock in exchange for $45,000 of notes payable. In addition, the Company issued 25,000 shares of its Common Stock to Westpark as additional compensation for its role as placement agent in the Westpark Private Placement. The fair value of these shares was $22,750 which was charged to expense. In January 2006, in connection with the acquisition of certain assets of NS California, the Company issued 200,000 shares of its common stock to NS California. An additional 200,000 shares of the Company's Common stock are being held in escrow pending any potential claims that may beSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. made in connection with the NS California transaction to be released one year from the closing less any shares reclaimed due to amounts paid in cash in lieu of stock. The Company issued 100,000 additional shares of its common stock in escrow pending the approval of the license for the laboratory used for the collection of stem cells. The agreement calls for 1,667 shares to be forfeited each day the license is not obtained past February 15, 2006, with a maximum of 100,000 shares of common stock subject to forfeiture. The license was obtained in May, 2006 and therefore the Company has notified NS California of the requirement that the 100,000 shares be forfeited to the Company. Subsequent to the closing of the NS California transaction, the Company issued 201,223 shares of its Common stock in payment of certain obligations assumed by the Company. F-15 In certain cases, the Company issued shares with a fair market value on the date of issuance of $98,600 which was greater than the debt being paid and therefore recorded additional expense of $28,344. In March 2006, the Company sold 60,227 shares of its common stock to five accredited investors at a per share price of $.44 resulting in net proceeds to the Company of $26,500. In April and May 2006 the Company sold 351,319 of its common stock to eleven accredited investors at a per share price of $.44 resulting in net proceeds to the Company of $154,600. In May 2006, the Company entered into an advisory agreement with Duncan Capital Group LLC ("Duncan"). Pursuant to the advisory agreement, Duncan is providing to the Company on a non-exclusive "best efforts" basis, services as a financial consultant in connection with any equity or debt financing, merger, acquisition as well as with other financial matters. In return for these services, the Company is paying to Duncan a monthly retainer fee of $7,500, 50% of which may be paid by the Company in shares of its Common stock valued at fair market value and reimbursing it for its reasonable out-of-pocket expenses in an amount not to exceed $12,000. Pursuant to the advisory agreement, Duncan also agreed, subject to certain conditions, that it or one of its affiliated entities would act as lead investor in a proposed private placement (the "Duncan Private Placement") of shares of common stock and warrants to purchase shares of common stock in an amount that is not less than $2,000,000 or greater than $3,000,000. In consideration for such role, Duncan received a fee of $200,000 in cash and 240,000 shares of restricted common stock. On June 2, 2006 , pursuant to the Duncan Private Placement, the Company sold 4,724,999 shares of its common stock to seventeen accredited investors at a per share price of $.44 resulting in gross proceeds of $ 2,079,000. In connection with this transaction, the Company issued 2,362,499 common stock purchase warrants to these seventeen investors. These common stock purchase warrants have a term of 5 years and exercise price of $.80 per share. From the proceeds of sale of Common stock a fee of $200,000 was paid to Duncan and 240,000 Common stock shares were issued to Duncan. In addition, Dr. Robin Smith was paid $100,000 and 100,000 common stock shares were issued to her in connection with an Advisory Agreement dated September 14, 2005 as amended by the Supplement to Advisory Agreement dated January 18, 2006 and Dr. Smith's employment agreement with the Company dated June 2, 2006. On June 2, 2006 certain employees and members of senior management agreed to take common stock as the net pay on $278,653 of unpaid salary that dated back to 2005. This resulted in the issuances of 379,982 shares of common stock, valued at $167,192, or $.44 per share, the balance of the unpaid salary was used to pay the withholding taxes which are associated with those earnings. On June 2, 2006 Dr. Robin Smith was appointed Chairman and CEO of theSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. In connection with Dr. Smith's appointment 200,000 shares of common stock were issued to Dr. Smith valued at $88,000 which was reflected as compensation expense in the year ended December 31, 2006. In addition, Dr. Smith was granted common stock options to purchase 540,000 shares of the Company's common stock, which 300,000 option shares vested immediately, 120,000 option shares vest on the first anniversary of the effective date and 120,000 option shares vest on the second anniversary of the effective date. The exercise price of the options are (i) $.53 as to the first 100,000 option shares, (ii) $.80 as to the second 100,000 option shares, (iii) $1.00 as to the third 100,000 option shares, (iv) $1.60 as to the next 120,000 option shares, and (v) $2.50 as to the balance. In July and August 2006, the Company sold an aggregate of 3,977,273 shares of common stock to 34 accredited investors at a per share price of $.44 resulting in gross proceeds to the company of $1,750,000. In connection with this transaction, the Company issued 1,988,637 common stock purchase warrants with a term of five years and per share exercise price of $.80. In July and August 2006, the Company issued an aggregate of 83,405 shares of common stock in conversion of an aggregate of $40,657 in accounts payable owed to certain vendors. The per share conversion price ranged from $.44 to $.56. In August 2006, the Company issued 41,667 shares of common stock to a service provider in payment for services rendered equal to $25,000, at a per share price of $.60. In August 2006, the Company issued 58,713 shares of common stock to service providers in payment for services rendered equal to $33,949. The per share price ranged from $.53 to $.60. F-16 In July and August 2006, in connection with the offer to noteholders for early conversion of the Convertible Promissory Notes of the WestPark Private Placement, the Company issued 539,772 shares of common stock at a per share price of $.51 and 107,954 shares of common stock as consideration for early conversion of such notes with a per share price of $.51. In July 2006, in connection with the offer to noteholders for the extension of due dates of the Convertible Promissory Notes of the WestPark Private Placement, the Company issued 36,932 shares of common stock with a per share price of $.57. In September 2006, in connection with the offer to noteholders for early conversion of the Convertible Promissory Notes of the WestPark Private Placement, the Company issued 284,090 shares of common stock with a per share price of $.82. In October 2006, in connection with the offer to noteholders for early conversion of the Convertible Promissory Notes of the WestPark Private Placement, the Company issued 142,043 shares of common stock with a per share price of $.91. On October 1, 2006, the Company issued to its investor relations consultant 34,000 shares of common stock pursuant to the terms of a Consulting Agreement entered into as of October 1, 2006. In November 2006, the Company issued restricted stock grants, under the 2003 Equity Participation Plan, to two members of the Board of Directors, totaling 600,000 shares of restricted common stock with a per share price of $.70. These shares vest as follows: one-third vesting upon grant and one-third on the first and second anniversaries of the grant dates. At December 31, 2006 the Company has recognizedSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. $163,334 as director fees and the remaining $256,666 of unearned value will be recognized ratably over the remaining vesting periods. In December 2006, the Company issued 10,416 shares to a service provider in payment for services rendered equal to $6,250, at a per share price of $.60. In December 2006, the Company issued a restricted stock grant, under the 2003 Equity Participation Plan, to an officer, totaling 300,000 shares of restricted common stock with a per share price of $.60. These shares vest as follows: 100,000 shares vesting upon grant and the remainder upon the company achieving certain milestones. At December 31, 2006 the Company has recognized $65,000 as compensation expense and the remaining $115,000 of unearned value will be recognized ratably over the remaining vesting periods. In December 2006, the Company issued stock grants, under the 2003 Equity Participation Plan, to three members of management, totaling 200,000 shares of Common stock with a per share price of $.60. At December 31, 2006 the Company recognized $120,000 as compensation 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. A total of 6,221,386 shares of common stock are reserved for issuance upon exercise of outstanding warrants as of December 31, 2006 at prices ranging from $0.50 to $1.20 and expiring through June 2011. In connection with the September 2003 equity private placement, the Company issued a 5 year warrant to purchase 28,251 shares of its common stock at an exercise price of $1.20 per share to its retained placement agent, Robert M. Cohen & Company. The warrant contains piggyback registration rights. From August 2004 through January 20, 2005, the Company issued three year warrants to purchase a total of 15,000 shares of its Common stock at $.50 per share to Consulting For Strategic Growth, Ltd., the Company's investor relations firm. On September 14, 2005, the Company issued 24,000 Common stock purchase warrants to its then Chairman of its Advisory Board, Dr. Robin Smith. These warrants were scheduled to vest at the rate of 2,000 per month beginning with September 14, 2005. The vesting of these warrants was accelerated so that they became immediately vested on June 2, 2006 pursuant to Dr. Smith's employment agreement. Each warrant entitles the holder to purchase one share of the Company's common stock at a price of $.80 per share. The warrant expires three years from issuance. F-17 In December 2005 and January 2006, the Company issued an aggregate of 916,678 Common stock purchase warrants to the investors and placement agent. Each warrant entitles the holder to purchase one share of common stock at a price of $1.20 per share for a period of three years. In March 2006, the Company issued 12,000 Common stock purchase warrants to Healthways Communications, Inc., the Company's marketing consultants. These warrants vest 2,000 per month beginning March 2006 and entitle the holder to purchase one share of common stock at a price of $1.00 per share for a period of three years. In 2006, the Healthways Communications, Inc. agreement was terminated and 4,000 common stock purchase warrants issued to Healthways Communications,Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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. Inc. were cancelled. On June 2, 2006, pursuant to the Duncan Private Placement, the Company sold 4,724,999 shares of its common stock to seventeen accredited investors at a per share price of $.44 resulting in gross proceeds of $2,079,000, In connection with this transaction the company issued 2,362,504 common stock purchase warrants to these seventeen investors. These common stock purchase warrants have a term of 5 years and exercise price of $.80 per share. The Company's warrants provide for certain registration rights and certain penalties if such registration is not achieved within 150 days of the initial closing of the Duncan Private Placement. In August 2006, the Company filed with the SEC a registration statement registering the resale by the investors of the Duncan Private Placement of the shares of common stock underlying the warrants sold in the Duncan Private Placement. In July and August 2006, the Company sold an aggregate of 3,977,273 shares of common stock to 34 accredited investors at a per share price of $.44 resulting in gross proceeds to the Company of $1,750,000. In connection with this transaction, the Company issued 1,988,638 common stock purchase warrants with a term of five years and per share exercise price of $.80. In July and August 2006, in connection with the offer to noteholders for early conversion of the Convertible Promissory Notes of the WestPark Private Placement, the Company issued 395,833 warrants. These common stock purchase warrants have a term of 5 years and exercise price of $.80 per share. In August 2006, the Company issued warrants to purchase an aggregate of 170,000 shares of common stock at $0.80 per share to four persons under advisory agreements. Such warrants are each exercisable for five years from the date of issue. In September, 2006, in connection with the offer to noteholders for early conversion of the Convertible Promissory Notes of the WestPark Private Placement, the Company issued 208,334 warrants. These common stock purchase warrants have a term of 5 years and exercise price of $.80 per share. In October 2006, in connection with the offer to noteholders for early conversion of the Convertible Promissory Notes of the WestPark Private Placement, the Company issued 104,167 warrants. These common stock purchase warrants have a term of 5 years and exercise price of $.80 per share.(d) Options: The Company's Equity Participation Plan (the "Plan") permits the grant of share options and shares to its employees, Directors, consultants and advisors for up to 50,000,000 shares of common stock as stock compensation. All stock options under the Equity Participation Plan are generally granted at the fair market value of the common stock at the grant date. Employee stock options vest ratably over a period determined at time of grant and generally expire 10 years from the grant date. Effective January 1, 2006, the Company's Plan is accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission ("SEC") Staff AccountingSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Bulletin ("SAB") No. 107, which provides the Staff's views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies. F-18 Prior to January 1, 2006, the Company accounted for similar transactions in accordance with APB No. 25 which employed the intrinsic value method of measuring compensation cost. Accordingly, compensation expense was not recognized for fixed stock options if the exercise price of the option equaled or exceeded the fair value of the underlying stock at the grant date. While FAS No. 123 encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period, companies were permitted to continue to apply the intrinsic value-based method of accounting prescribed by APB No. 25 and disclose certain pro-forma amounts as if the fair value approach of SFAS No. 123 had been applied. In December 2002, FAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of SFAS No. 123, was issued, which, in addition to providing alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation, required more prominent pro-forma disclosures in both the annual and interim financial statements. The Company complied with these disclosure requirements for all applicable periods prior to January 1, 2006. In adopting FAS 123(R), the Company applied the modified prospective approach to transition. Under the modified prospective approach, the provisions of FAS 123 (R) are to be applied to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123. As a result of the adoption of FAS 123 (R), the Company's results for the twelve month period ended December 31, 2006 include share-based compensation expense totaling $560,465. Such amounts have been included in the consolidated statements of operations within general and administrative expenses. Stock compensation expense recorded under APB No. 25 in the consolidated statements of operations for the year ended December 31, 2005 and 2004 totaled $0. Stock option compensation expense in 2006 is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for entire portion of the award. The weighted average estimated fair value of stock options granted in the year ended December 31, 2006 was $.63. The weighted average estimated fair value of stock options granted in year ended December 31, 2005 was $.50. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. During 2006, the Company took into consideration the guidance under SFAS 123(R) and SAB No. 107 when reviewing and updating assumptions. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. Previously such assumptions were determined based on historical data. The range of assumptions made in calculating the fair values of options are as follows:Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended Year Ended December 31, 2006 December 31, 2005 ----------------- ----------------- Expected term (in years) 10 10 Expected volatility 168% - 205% 200% Expected dividend yield 0% 0% Risk-free interest rate 5.00% 4.50% Stock option activity under the 2003 Equity Participation Plan is as follows: F-19 Weighted Weighted Average Average Remaining Average Range of Exercise Exercise Contractual Intrinsic Number of Shares (1) Price Price Term Value ------------------------------------------ ----------------------Balance at December 31, 2003 370,000 $.30 - $1.80 $0.50 Granted 298,500 1.00 - 1.50 $1.30 Exercised - - - Expired - - - Cancelled - - - -------------------- --------------------Balance at December 31, 2004 668,500 .30 - 1.80 $0.80 Granted 1,120,000 .05 -.10 $0.60 Exercised - - - Expired - - - Cancelled - - - -------------------- --------------------Balance at December 31, 2005 1,788,500 .30 - 1.80 $0.70 Granted 2,707,500 .44 - 2.50 $0.76 Exercised - - - Expired - - - Cancelled (50,000) - $0.60 -------------------- --------------------Balance at December 31, 2006 4,446,000 $.30 - $2.50 $0.73 8.99 $643,410 ==================== ====================Vested and Exercisable at December 31, 2006 2,330,167 $0.69 8.32 $354,452(1) -- All options are exercisable for a period of ten years.Options exercisable at December 31, 2004 - 618,500 at a weighted average exercise price of $.70Options exercisable at December 31, 2005 - 1,208,500 at a weighted average exercise price of $.70Options exercisable at December 31, 2006 - 2,330,167 at a weighted average exercise price of $.69 Number Outstanding Weighted Average Remaining Number Exercisable Exercise Price December 31, 2006 Contractual Life (years) December 31, 2006 -------------- ------------------ ------------------------ ------------------ $0.30 to $0.74 3,475,000 9.05 1,739,167 $0.74 to $1.18 560,000 9.03 420,000 $1.18 to $1.62 261,000 8.16 141,000 $1.62 to $2.06 30,000 6.70 30,000 $2.06 to $2.50 120,000 9.43 - ------------------- ------------------ 4,446,000 2,330,167 ==================== ==================Options are usually granted at an exercise price at least equal to the fairvalue of the common stock at the grant date and may be granted to employees,Directors, consultants and advisors of the Company.As of December 31, 2006, there was approximately $1,322,000 of totalunrecognized compensation costs related to unvested stock option awards whichare expected to vest over a weighted average life of 1.9 years. Weighted Average Grant Date FairSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Options Value --------------- -------------------- Non-Vested at December 31, 2005 580,000 $ 0.50 Issued 2,707,500 $ 0.63 Canceled (50,000) $ 0.50 Vested 1,121,667 $ 0.51 --------------- -------------------- Non-Vested at December 31, 2006 2,115,833 $ 0.62 =============== ====================The total value of shares vested during the year ended December 31, 2006 was$576,000.On June 2, 2006 the Company accelerated the vesting dates of 525,000 stockoptions granted to certain officers and senior staff of the Company. The Companyalso adopted an Executive Officer Compensation Plan, effective as of June 2,2006, in connection with a purchase agreement for the sale of 4,724,999 sharesof the Company's Common Stock to seventeen accredited investors, with andpursuant to the letter agreements each officer agreed to be bound by theExecutive Officer Compensation Plan. In addition to the conversion of accruedsalary, the letter agreements provide for a reduction by 25% in base salary foreach officer and the granting of options to purchase shares of Common Stockunder the Company's 2003 Equity Participation Plan which become exercisable uponthe Company achieving certain revenue milestones. F-20In 2006, the company recorded $576,000, as the prorated compensation expenserelating to 580,000 unvested stock options outstanding at 12/31/2005 and1,132,500 stock options issued in 2006 (in 2006 the Company issued 2,707,500stock options however 1,575,000 vest based on accomplishment of various businessmilestones, which were not accomplished by 12/31/2006, and will not be valuedfor compensation purposes until such milestones are accomplished).Note 8 - Income Taxes---------------------Net deferred tax assets consisted of the following as of December 31: 2006 2005 ---------------- -----------------Deferred tax assets:Net operating loss carryforwards $ 5,427,000 $ 3,807,000Depreciation and amortization 5,000 -Stock option compensation 191,000 87,000Non-employee equity compensation 318,000 -Deferred revenue 1,000 9,000Deferred legal and other fees 30,000 - ---------------- -----------------Deferred tax assets 5,972,000 3,903,000Deferred tax liabilities:Stock option compensation (63,000) - ---------------- -----------------Deferred tax liability (63,000) - ---------------- -----------------Net deferred tax assets 5,909,000 3,903,000 ---------------- -----------------Net deferred tax asset valuation allowance (5,909,000) (3,903,000) ---------------- ----------------- $ - $ - ================ =================The provision for income taxes is different than the amount computed using theapplicable statutory federal income tax rate with the difference for each yearSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.summarized below: 2006 2005 2004 ------------------ ------------------ -----------------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% ================== ================== =================The Tax Reform Act of 1986 enacted a complex set of rules limiting theutilization of net operating loss carryforwards to offset future taxable incomefollowing a corporate ownership change. The Company's ability to utilize its NOLcarryforwards is limited following a change in ownership in excess of fiftypercentage points during any three-year period.Upon receipt of the proceeds from the last foreign purchasers of the Company'scommon stock in January 2000, common stock ownership changed in excess of 50%during the three-year period then ended. At December 31, 2006, the Company hadnet operating loss carryforwards of approximately $15,963,000. 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 2026. 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. F-21Note 9 - Segment Information----------------------------Until 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 and the Company's remaining revenuesare derived from the run-off of its sale of extended warranties and servicecontracts via the Internet. Additionally, the Company established a new businessin the banking of adult autologous stem cells sector. The Company's operationsare conducted entirely in the U.S. Although the Company has realized minimalrevenue from the banking of adult autologous stem cells, the Company will beoperating in two segments until the "run-off" is completed.Note 10 - Related Party Transactions------------------------------------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 agreed to pay to Mr. Aholt the aggregate sum of $250,000 (lessapplicable Federal and California state and local withholdings and payrolldeductions), payable, initially over a period of two years in biweeklyinstallments of $4,807.69 commencing on April 7, 2006, except that the firstpayment was in the amount of $9,615.38. In July, 2006 this agreement was amendedto call for semi-monthly payments of $10,417 for the remaining 21 months. In theevent the Company breaches its payment obligations under the SettlementAgreement and such breach remains uncured, the full balance owed shall becomedue. The Company and Mr. Aholt each provided certain general releases. Mr. Aholtalso agreed to continue to be bound by his obligations not to compete with theCompany and to maintain the confidentiality of Company proprietary information.At December 31, 2006, $149,439 was due Mr. Aholt pursuant to the terms of theSettlement Agreement.Note 11 - Commitments and Contingencies---------------------------------------On May 26, 2006, the Company entered into an employment agreement with Dr. RobinSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 May 26, 2006, the Company entered into an employment agreement with Dr. RobinL. Smith, pursuant to which Dr. Smith serves as the Chief Executive Officer ofthe Company. This agreement was for a period of two years, which term could berenewed for successive one-year terms unless otherwise terminated by Dr. Smithor the Company. The effective date of Dr. Smith's employment agreement was June2, 2006, the date of the initial closing under the securities purchase agreementfor the June 2006 private placement. Under this agreement, Dr. Smith wasentitled to receive a base salary of $180,000 per year, to be increased to$236,000 after the first year anniversary of the effective date of heremployment agreement. If the Company raised an aggregate of $5,000,000 throughequity or debt financing (with the exception of the financing under thesecurities purchase agreement), Dr. Smith's base salary was to be raised to$275,000. Dr. Smith was also eligible for an annual bonus determined by theBoard and monthly perquisites that total approximately $2,200 per month.Pursuant to the employment agreement, Dr. Smith's advisory agreement with theCompany, as supplemented, was terminated, except that (i) the vesting of thewarrant to purchase 24,000 shares of Common Stock granted thereunder wasaccelerated so that the warrant became fully vested as of the effective date ofthe employment agreement, (ii) Dr. Smith received $100,000 in cash and 100,000shares upon the initial closing under the June 2006 private placement, (iii) ifan aggregate of at least $3,000,000 was raised and/or other debt or equityfinancings prior to August 15, 2006 (as amended, August 31, 2006), Dr. Smith wasto receive an additional payment of $50,000, (iv) a final payment of $3,000relating to services rendered in connection with Dr. Smith's advisory agreement,paid at the closing of the June 2006 private placement, and (v) all registrationrights provided in the advisory agreement were to continue in effect.As of August 30, 2006, in excess of $3,000,000 had been raised and accordingly,Dr. Smith was entitled to a payment of $50,000. Dr. Smith elected to have$30,000 of this amount distributed to certain employees of the Company,including its Chief Financial Officer and General Counsel, in recognition oftheir efforts on behalf of the Company and retained $20,000. Upon the effectivedate of the Employment Agreement, Dr. Smith was awarded 200,000 shares of CommonStock of the Company, under the Company's 2003 Equity Participation Plan, andoptions to purchase 540,000 shares of Common Stock, which options expire tenyears from the date of grant.On January 26, 2007, in connection with the January 2007 private placement, theCompany entered into a letter agreement with Dr. Smith, pursuant to which Dr.Smith's employment agreement dated as of May 26, 2006 was amended to providethat: (a) the term of her employment would be extended to December 31, 2010; (b)upon the first closings in the January 2007 private placement, Dr. Smith's basesalary would be increased to $250,000; (c) her base salary would be increased by10% on each one year anniversary of the agreement; (d) no cash bonus would bepaid to Dr. Smith for 2007; and (e) cash bonuses and stock awards under theCompany's 2003 Equity Participation Plan would be fixed at the end of 2007 for2008, in an amount to be determined. Other than as set forth therein, Dr.Smith's original employment agreement and all amendments thereto remain in fullforce and effect. As consideration for her agreement to substantially extend heremployment term, among other agreements contained in this amendment, on January18, 2007 Dr. Smith was also granted an option under the Company's 2003 EquityParticipation Plan to purchase 550,000 shares of the Common Stock at a per shareexercise price equal to $.50 vesting as to (i) 250,000 shares upon the firstclosings in the January 2007 private placement; (ii) 150,000 shares on June 30,2007; and (iii) 150,000 shares on December 31, 2007. F-22Per Dr. Smith's January 26, 2007 letter agreement with the Company, upontermination of Dr. Smith's employment by the Company without cause or by Dr.Smith with good reason, the Company shall pay to Dr. Smith her base salary atthe time of termination for the two year period following such termination. Inaddition, per Dr. Smith's May 26, 2006 employment agreement, upon termination ofDr. Smith's employment by the Company without cause or by Dr. Smith for goodreason, Dr. Smith is entitled to: (i) a pro-rata bonus based on the annual bonusreceived for the prior year; (ii) medical insurance for a one year period; and(iii) have certain options vest. Upon termination of Dr. Smith's employment bythe Company for cause or by Dr. Smith without good reason, Dr. Smith is entitledSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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: (i) the payment of all amounts due for services rendered under the agreementup until the termination date; and (ii) have certain options vest. Upontermination for death or disability, Dr. Smith (or her estate) is entitled to:(i) the payment of all amounts due for services rendered under the agreementuntil the termination date; (ii) family medical insurance for the applicableterm; and (ii) have certain options vest.Upon a change in control of the Company, per Dr. Smith's May 26, 2006 employmentagreement, Dr. Smith is entitled to: (i) the payment of base salary for oneyear; (ii) a pro-rata bonus based on the annual bonus received for the prioryear; (iii) medical insurance for a one year period; and (iv) have certainoptions vest.On February 6, 2003, Mr. Weinreb was appointed President and Chief ExecutiveOfficer of the Company and the Company entered into an employment agreement withMr. Weinreb. On June 2, 2006, Mr. Weinreb resigned as Chief Executive Officerand Chairman of the Board, but will continue as President and a director of theCompany. Mr. Weinreb's original employment agreement had an initial term ofthree years, with automatic annual extensions unless earlier terminated by theCompany or Mr. Weinreb. Under this agreement, in addition to base salary he wasentitled to an annual bonus in the amount of $20,000 for the initial year in theevent, and concurrently on the date, that the Company received debt and/orequity financing in the aggregate amount of at least $1,000,000 since thebeginning of his service, and $20,000 for each subsequent year of the term,without condition.On May 4, 2005, the Board voted to approve an amendment to Mr. Weinreb'semployment agreement, subject to approval of the stockholders which was obtainedon July 20, 2005, pursuant to which among other things Mr. Weinreb's employmentagreement was amended to (a) extend the expiration date thereof from February2006 to December 2008; (b) change Mr. Weinreb's annual base salary of $217,800(with an increase of 10% per annum) to an annual base salary of $250,000 (withno increase per annum); (c) grant Mr. Weinreb 300,000 shares of common stock,100,000 shares of which shall vest on each of the date of grant and the firstand second anniversaries of the date of grant; (d) commencing in August 2006,increase Mr. Weinreb's annual bonus from $20,000 to $25,000; and (e) in 2006,provide for the reimbursement of all premiums in an annual aggregate amount ofup to $18,000 payable by Mr. Weinreb for life and long term care insurancecovering each year during the remainder of the term of his employment. Pursuant to and as a condition of the closing of the June 2006 privateplacement, Mr. Weinreb entered into a letter agreement with the Company in whichhe agreed to convert $121,532 of accrued salary (after giving effect toemployment taxes which were paid by the Company) into 165,726 shares of CommonStock at a per share price equal to $.44 (the price of the shares being sold inthe June 2006 private placement). Mr. Weinreb further agreed to a reduction inhis base salary by 25% until the achievement by the Company of certainmilestones. In consideration for such compensation concessions,: (i) theremaining vesting of the option shares which was scheduled to vest as to 100,000shares each on July 20, 2006 and July 20, 2007, was accelerated such that itbecame fully vested as of June 2, 2006, the date of the closing of the June 2006private placement. ; and (ii) a restricted stock grant of 200,000 shares ofCommon Stock which were also scheduled to vest as to 100,000 shares on each ofJuly 20, 2006 and July 20, 2007, was similarly accelerated.On January 26, 2007, the Company entered into a letter agreement with Mr.Weinreb pursuant to which Mr. Weinreb's employment agreement dated as of August12, 2005 was supplemented with new terms which provide that: (a) upon the firstclosings in the January 2007 private placement, Mr. Weinreb's base salary wouldbe paid at the annual rate of $200,000 (an annual rate which is 20% lower thanthe amount to which he was otherwise entitled under his employment agreement);(b) he would be entitled to quarterly bonuses of $5,000 commencing March 31,2007; (c) he would be entitled to bonuses ranging from $3,000 to $5,000 upon theCompany achieving certain business milestones; and (d) any other bonuses wouldonly be paid upon approval by the Compensation Committee of the Board ofDirectors. In consideration of his agreement to a reduction in base salary, andin connection with his entering into this agreement, an option to purchase100,000 shares of Common Stock at $.60 per share, previously granted to Mr.Weinreb on December 5, 2006 and tied to the opening of certain collectionSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.centers, vested upon the execution of the agreement. This supplemental agreementwill terminate upon the Company achieving certain revenue, financing or adultstem cell collection milestones, or at the discretion of the CompensationCommittee of the Board of Directors. Other than as set forth therein, Mr.Weinreb's original employment agreement and all amendments thereto remain infull force and effect. F-23Pursuant to the amendments to Mr. Weinreb's employment agreement in August 2005,in the event of termination of Mr. Weinreb's employment by the Company withoutcause (except for certain instances of disability), Mr. Weinreb was entitled toreceive a lump sum payment equal to his then base salary and automobileallowance for a period of one year, and to be reimbursed for disabilityinsurance for Mr. Weinreb and for medical and dental insurance for Mr. Weinreband his family for the remainder of the term (through December 31, 2008). PerMr. Weinreb's January 26, 2007 letter agreement with the Company, in the eventof termination of his employment, severance will instead be paid in equalinstallments over a 12 month period in accordance with the payroll policies andpractices of the Company. The January 2007 agreement is in effect until theCompany achieves certain adult stem cell collection, revenue or financingmilestones, or until the Compensation Committee of the Board of Directorsdetermines to terminate the agreement. Mr. Weinreb's original employmentagreement provides that in the event of certain instances of disability, Mr.Weinreb is entitled to receive his base salary for three months followed by halfhis base salary for another three months.On April 20, 2005, the Company entered into a letter agreement with Catherine M.Vaczy pursuant to which Ms. Vaczy served as the Company's Vice President andGeneral Counsel. The term of this original agreement was three years. Inconsideration for Ms. Vaczy's services under the letter agreement, Ms. Vaczy wasentitled to receive an annual salary of $155,000 during the first year of theterm, 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. Onthe date of the letter agreement, Ms. Vaczy was granted an option to purchase15,000 shares of Common Stock pursuant to the Company's 2003 EquityParticipation Plan, with an exercise price equal to $1.00 per share. The optionwas to vest and become exercisable as to 5,000 shares on each of the first,second and third year anniversaries of the date of the agreement and remainexercisable as to any vested portion thereof in accordance with the terms of theCompany's 2003 Equity Participation Plan and the Company's Incentive StockOption Agreement. Pursuant to and as a condition of the closing of the June 2006private placement, Ms. Vaczy entered into a letter agreement with the Company inwhich she agreed to convert $44,711 in accrued salary (after giving effect toemployment taxes which were paid by the Company) into 60,971 shares of CommonStock at a per share price equal to $.44 (the price of the shares being sold inthe June 2006 private placement). Ms. Vaczy further agreed to a reduction in herbase salary by 25% until the achievement by the Company of certain milestones.In consideration for such compensation concessions, the vesting of the option topurchase 85,000 shares of Common Stock was accelerated such that it became fullyvested as of June 2, 2006, the date of the closing of the June 2006 privateplacement.On January 26, 2007, the Company entered into another letter agreement with Ms.Vaczy pursuant to which Ms. Vaczy continues to serve as the Company's VicePresident and General Counsel. This agreement supersedes Ms. Vaczy's employmentagreement dated as of April 20, 2005 and all amendments thereto. Subject to theterms and conditions of the letter agreement, the term of Ms. Vaczy's employmentin such capacity will continue through December 31, 2008. In consideration forher services under the letter agreement, Ms. Vaczy will be entitled to receive aminimum annual salary of $150,000 during 2007 (such amount being 20% less thanthe annual salary to which Ms. Vaczy would have been entitled commencing April20, 2007 pursuant to the terms of her original employment agreement) and aminimum annual salary of $172,500 during 2008. In consideration for such salaryconcessions and agreement to extension of her employment term, Ms. Vaczy is alsoentitled to receive a cash bonus upon the occurrence of certain milestones andshall also be eligible for additional cash bonuses in certain circumstances, inSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.each case as may be approved by the Compensation Committee of the Board ofDirectors.Ms. Vaczy is also entitled to payment of certain perquisites and/orreimbursement of certain expenses incurred by her in connection with theperformance of her duties and obligations under the letter agreement, and toparticipate in any incentive and employee benefit plans or programs which may beoffered by the Company and in all other plans in which the Company executivesparticipate.Pursuant to Ms. Vaczy's amended employment agreement dated January 26, 2007, inthe event Ms. Vaczy's employment is terminated prior to the end of the term(December 31, 2008), for any reason, earned but unpaid cash compensation andunreimbursed expenses due as of the date of such termination will be payable infull. In addition, in the event Ms. Vaczy's employment is terminated prior tothe end of the term for any reason other than by the Company with cause or Ms.Vaczy without good reason, Ms. Vaczy or her executor of her last will or theduly authorized administrator of her estate, as applicable, will be entitled toreceive severance payments equal to $187,500 in the event the employmenttermination date is during 2007 and $215,700 in the event the employmenttermination date is during 2008, paid in accordance with the Company's standardpayroll practices for executives. In no event will such payments exceed theremaining salary payments in the term. In the event her employment is terminatedprior to the end of the term by the Company without cause or by Ms. Vaczy forgood reason, all options granted by the Company will immediately vest and becomeexercisable in accordance with their terms.In connection with the Company's acquisition of the assets of NS California onJanuary 19, 2006, the Company entered into an employment agreement with Larry A.May. Mr. May is the former Chief Executive Officer of NS California. Pursuant toMr. May's employment agreement, he is to serve as an officer of the Company F-24reporting to the CEO for a term of three years, subject to earlier terminationas provided in the agreement. In return, Mr. May was to be paid an annual salaryof $165,000, payable in accordance with the Company's standard payrollpractices, and was entitled to participate in the Company's benefit plans andperquisites generally available to other executives. Mr. May was granted, on hiscommencement date, an employee stock option under the Company's 2003 EquityParticipation Plan to purchase 15,000 shares of the Company's Common Stock at aper share purchase price equal to $.50, the closing price of the Common Stock onthe commencement date, which was scheduled to vest as to 5,000 shares of CommonStock on the first, second and third anniversaries of the commencement date.Pursuant to and as a condition of the closing of the June 2006 privateplacement, Mr. May entered into a letter agreement with the Company in which heagreed to convert $12,692 in accrued salary (after giving effect to employmenttaxes which were paid by the Company) into 17,308 shares of Common Stock at aper share price equal to $.44 (the price of the shares being sold in the June2006 private placement). Mr. May further agreed to a reduction in his basesalary by 25% until the achievement by the Company of certain milestones. Inconsideration for such compensation concessions, the vesting of the option topurchase 15,000 shares of Common Stock was accelerated such that it became fullyvested as of June 2, 2006, the date of the closing of the June 2006 privateplacement.On January 26, 2007, in connection with the January 2007 private placement, theCompany entered into a letter agreement with Mr. May, pursuant to which Mr.May's employment agreement dated as of January 19, 2006 was supplemented withnew terms to provide that: (a) upon the first closings in the January 2007private placement, Mr. May's base salary would be paid at the annual rate of$132,000 (an annual rate which is 20% lower than the amount to which he wasotherwise entitled under his original employment agreement); and (b) any bonuswould only be paid upon approval by the Compensation Committee of the Board ofDirectors. This supplemental agreement will terminate upon the Company achievingcertain revenue, financing or adult stem cell collection milestones, at thediscretion of the Compensation Committee of the Board of Directors or at suchSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.time as Mr. May is no longer the Company's Chief Financial Officer. Other thanas set forth therein, Mr. May's original employment agreement and all amendmentsthereto remain in full force and effect.Under Mr. May's original employment agreement, upon termination of Mr. May'semployment by the Company for any reason except a termination for cause, Mr. Mayis entitled to receive severance payments equal to one year's salary, paidaccording to the same timing of salary as he is then receiving. No severancepayments shall be made unless and until Mr. May executes and delivers to theCompany a release of all claims against the Company. No other payments are to bemade, or benefits provided, except as otherwise required by law.On August 12, 2004 ("Commencement Date") the Company and Dr. Wayne A. Marasco,then a Company Director, entered into a Letter Agreement appointing Dr. Marascoas the Company's Senior Scientific Advisor. Dr. Marasco will be responsible forassisting the Company in reviewing and evaluating business, scientific andmedical opportunities, and for other discussions and meetings that may ariseduring the normal course of the Company conducting business. For his services,during a three year period ("Term"), Dr. Marasco shall be entitled to annualcash compensation of $84,000 with increases each year of the Term and anadditional cash compensation based on a percentage of collected revenues derivedfrom the Company's royalty or revenue sharing agreements. Although the annualcash compensation and additional cash compensation stated above shall begin toaccrue as of the Commencement Date, Dr. Marasco will not be entitled to 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 67,500 shares of the Company's common stock atan exercise price of $1.00 cents per share. The shares will be subject to a oneyear lockup as of the date of grant. The exercise period will be ten years, andthe grant will otherwise be in accordance with the Company's 2003 EquityParticipation Plan and Non-Qualified Stock Option Grant Agreement.In July 2005, Dr. Marasco's letter agreement with the Company dated August 12,2004 was amended to (a) extend the term of the letter agreement from August 2007to August 2008; (b) provide for an annual salary of $110,000, $125,000 and$150,000 for the years ended August 2006, 2007 and 2008, payable in each suchyear during the term; (c) provide for a minimum annual bonus of $12,000, payablein January of each year during the term, commencing in January 2006; (d)eliminate Dr. Marasco's right under his existing letter agreement to receive 5%of all collected revenues derived from the Company's royalty or other revenuesharing agreements (which right is subject to the limitation that the amount ofsuch additional cash compensation and Dr. Marasco's annual salary do not exceed,in the aggregate, $200,000 per year); and (e) permit Dr. Marasco to beginreceiving all accrued but unpaid cash compensation under his letter agreementupon the Company's consummation of any financing, whether equity or otherwise,pursuant to which the Company raises $1,500,000.On January 29, 2007 the Company entered into two new agreements with Dr. Marascopursuant to which he serves as the Chairman of the Company's Scientific AdvisoryBoard and as a Consultant. As compensation for serving as the Chairman of theCompany's Scientific Advisory Board pursuant to his January 2007 ScientificAdvisory Board Agreement, upon the execution of the agreement Dr. Marascoreceived a grant of 50,000 shares (the "Shares") of the Company's common stock, F-25$.001 par value (the "Common Stock") which were fully vested upon grant. Inaddition, upon the execution of the agreement an option was issued to Dr.Marasco under the EPP to purchase 100,000 additional shares (the "OptionShares"), which option is exercisable at a per share exercise price of $.60 pershare (the fair market value of a share of Common Stock on the date of grant),and which shall vest and become exercisable as to one-half of the Option Shareson 12/31/07 and the other one-half on 12/31/08 (each, a "Vesting Date");provided that on each Vesting Date the Dr. Marasco continues to be providingservices as an Advisor on the Company's Scientific Advisory Board and shallotherwise be subject to all of the terms of the EPP. However, if Dr. Marasco isterminated without "cause" (as defined in the EPP) prior to the end of thisSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.Agreement, all options to purchase shares shall vest immediately. This Agreementprovides for a three year term commencing January 29, 2007, which may beterminated earlier by either party on 60 days' prior written notice orimmediately for cause.As compensation for serving as a Consultant to the Company pursuant to hisJanuary 2007 Consulting Agreement, Dr. Marasco shall be paid an annual fee of$125,000 payable in equal monthly installments on the last day of each monthduring the term of the Agreement. Effective as of January 29, 2008, Dr.Marasco's annual fee shall be increased to $145,000. Dr. Marasco shall beeligible to receive a bonus of $15,000 during the year ending 12/31/07 and up toa maximum of $30,000 during the year ending 12/31/08 based upon mutually agreedupon goals such as submission of grants, academic affiliations and alliances,patents, etc. The Consulting Agreement provides for a term commencing January29, 2007 and ending December 31, 2008, which may be terminated earlier by eitherparty on 30 days' prior written notice; provided, that in the event suchtermination is by the Company without "cause" (as such term is defined in theEPP), Dr. Marasco is entitled to receive a severance payment equal to one year'sfees, paid at the same level as he is then receiving and in accordance with theCompany's then standard payroll practices; provided that in no event shall suchpayment exceed the aggregate amount of payments remaining for the term of theAgreement.As additional compensation for his services as a Consultant, Dr. Marasco wasissued a grant of 40,000 shares (the "Shares") of the common stock which werefully vested upon grant. In addition, Dr. Marasco was issued upon the executionof the agreement an option under the EPP to purchase 80,000 additional shares(the "Option Shares"), which option is exercisable at a per share exercise priceof $.60 (the fair market value of a share of Common Stock on the date of grant),and which shall vest and become exercisable as to one-half of the Option Shareson 12/31/07 and the other one-half on 12/31/08 (each, a "Vesting Date");provided that on each Vesting Date Dr. Marasco continues to be providingservices as a Consultant and shall otherwise be subject to all of the terms ofthe EPP, except if Dr. Marasco is terminated without "cause" (as such term isdefined in the EPP), all such options shall vest immediately.On February 21, 2003 the Company began leasing office space in Melville, NewYork at an original annual rental of $18,000. The lease was renewed throughMarch 2007 with an annual rental of approximately $22,800. This lease wasterminated effective October 1, 2006 which resulted in the loss of the securitydeposit of $3,000 tendered when the lease was originally signed. Rent expensefor this office approximated $20,400, $28,900 and $24,900 for the years endedDecember 31, 2006, 2005 and 2004, respectively.Effective as of July 1, 2006, the Company entered into an agreement for the useof space at 420 Lexington Avenue, New York, New York. This space is subleasedfrom an affiliate of Duncan Capital Group LLC (a financial advisor to andinvestor in the Company) and DCI Master LDC (the lead investor in the Company'sJune 2006 private placement). Pursuant to the terms of the Agreement, theCompany will pay $7,500 monthly for the space, including the use of variousoffice services and utilities. The agreement is on a month to month basis,subject to a thirty day prior written notice requirement to terminate. The spaceserves as the Company's principal executive offices. On October 27, 2006, theCompany amended this agreement to increase the utilized space for an additionalpayment of $2,000 per month. The Company believes this space should besufficient for its needs in the short term but anticipates that we will requireadditional facilities as we expand. In January 2005, NS California began leasingspace at Good Samaritan Hospital in Los Angeles, California at an annual rentalof approximately $26,000 for use as its stem cell processing and storagefacility. The lease expired on December 31, 2005, but the Company continues tooccupy the space on a month-to-month basis. This space will be sufficient forthe Company's needs in the short term but we anticipate that we will requireadditional facilities as we expand. NS California also leased office space inAgoura Hills, California on a month-to-month basis from Symbion ResearchInternational at a monthly rental of $1,687, and we plan to continue thisarrangement to fill our need for office space in California. Rent for thesefacilities, for the twelve months ended December 31, 2006, was approximately$79,000.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 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, 2006, 2005 and 2004, the Company paid a total of $0, $0and $21,000, respectively, under this agreement. F-26On 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, 2006, 2005 and 2004, the Company paid $0, $0 and $85,324, respectively, ofsuch expenses and does not anticipate any further activity pursuant to the PSIagreement.Note 12 - Subsequent Events---------------------------In January 2007, the Company issued 120,000 shares of Common Stock to itsintellectual property acquisition consultant, vesting as to 10,000 shares permonth commencing January 2007. In February 2007, the term of the Company'sfinancial advisory agreement with Duncan Capital Group LLC was extended throughDecember 2007, and the Company issued to Duncan 150,000 shares of Common Stockas an advisory fee payment pursuant to the terms of the agreement. In Januaryand February 2007, the Company raised an aggregate of $2,500,000 through theprivate placement of 2,500,000 units at a price of $1.00 per unit (the "January2007 private placement"). Each unit was comprised of two shares of the Company'sCommon Stock, one redeemable seven-year warrant to purchase one share of CommonStock at a purchase price of $.80 per share and one non-redeemable seven-yearwarrant to purchase one share of Common Stock at a purchase price of $.80 pershare. The Company issued an aggregate of 5,000,000 shares of Common Stock, andwarrants to purchase up to an aggregate of 5,000,000 shares of Common Stock atan exercise price of $0.80 per share. Emerging Growth Equities, Ltd ("EGE"), theplacement agent for the January 2007 private placement, received a cash feeequal to $171,275 and is entitled to expense reimbursement not to exceed$50,000. The Company also issued to EGE redeemable seven year warrants topurchase 343,550 shares of Common Stock at a purchase price of $.50 per share,redeemable seven-year warrants to purchase 171,275 shares of Common Stock at apurchase price of $.80 per share and non-redeemable seven-year warrants topurchase 171,275 shares of Common Stock at a purchase price of $.80 per share.The net proceeds of this offering was approximately $2,301,000.In February 2007, the Company issued 300,000 shares of its Common Stock to afinancial advisor in connection with a commitment for the placement of up to$3,000,000 of the Company's preferred stock.In March 2007, the Company engaged Trilogy Capital Partners, Inc. ("Trilogy") asa marketing and investor relations consultant. The agreement is for a 12 monthperiod, terminable by either party after six months upon 30 days' notice, at amonthly fee of $10,000 plus reimbursement of certain budgeted or approvedmarketing expenses. Pursuant to this agreement, the Company issued to Trilogywarrants to purchase 1,500,000 shares of its Common Stock at a purchase price ofSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.$.47 per share. Such warrants vest over a 12 month period at a rate of 125,000per month, subject to acceleration in certain circumstances, and are exercisableuntil April 30, 2010. F-27Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 10.1 STEM CELL COLLECTION SERVICES AGREEMENTThis Agreement is made as of December 15, 2006 by and among NeoStem, Inc., aDelaware corporation ("NeoStem"), with its principal executive offices at 420Lexington Avenue, Suite 450, New York, New York, 10170 and HemaCare Corporation,a California corporation ("HemaCare"), with its principal executive officeslocated at 15350 Sherman Way, Suite 350, Van Nuys, CA 91406. WH1rREAS, pursuantto the original agreement (the "Original Agreement") dated as of September 26,2005, NS California, Inc., a California corporation ("NS California"), which wasformerly named NeoStem, Inc., entered into a stem cell collection servicesagreement pursuant to which HemaCare agreed to provide services to NS Californiain the form of stem cell collections and other services mutually agreed to inwriting in accordance with the terms of the Original Agreement; andWHEREAS, effective January 2006, the assets of NS California relating to itsadult stem cell collection, processing and storage services were purchased by asubsidiary of NeoStem, which was formerly named Phase HI Medical, Inc.;WHEREAS, pursuant to an Amendment and Consent to Assignment dated as ofSeptember 26, 2005 HemaCare consented to the assignment, and the OriginalAgreement was thereafter assigned, to NeoStem; andWHEREAS, NeoStern and HemaCare wish to enter into a new agreement that willsupersede the Original Agreement in order to revise and expand its relationship.NOW, THEREFORE, the parties hereto agree as follows.1. Original Agreement.The Original Agreement is hereby terminated and superseded in its entirety bythe terms of this Agreement.2. Performance of Services.2.1. HemaCare shall provide services pursuant to this Agreement consisting ofapheresis services for the collection of adult stem cells from peripheral bloodfor the purpose of long term storage (the "Services") and as set forth onAttachment A.2.2 HemaCare shall also provide services, pursuant to this Agreement, and ifrequested, consisting of apheresis services for the collection of adult stemcells from peripheral blood for other purposes, such as research.2.3. HemaCare shall perform the Services in strict accordance with the terms ofthis Agreement, the applicable FDA regulations and guidelines, all licensingrequirements of any jurisdiction in which they operate, cGMP standards, and incompliance with all other applicable federal, state, or local laws. The Servicesshall be performed using commercially reasonable standards by qualifiedindividuals with appropriate training.2.4 HemaCare acknowledges the importance of timely performance of itsobligations hereunder and that any delay can have significant financialconsequences to NeoStem. Accordingly, HemaCare will use its reasonable bestefforts to complete the Services in a timely manner. In the event HemaCare isunable to perform the Services, NeoStem shall be free to engage an alternateapheresis collection provider to provide such Services. 12.5 The Services will be performed by HemaCare either at (i) its own facilities;(ii) a NeoStem facility (a "NeoStem Facility"); or (iii) a facility pursuant toone of NeoStem's collaborative arrangements (a "Third Party Center").Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2.6 HemaCare shall develop a NeoStem Standard Operating Procedures Manual("SOP's") for the collection of Peripheral Blood Progenitor Cells (PBPC) to beused by NeoStem as its own SOP and kept by NeoStem at their laboratory andcorporate offices for the term of this agreement. SOP's may not be copied ordistributed other than for internal use to others and shall not be changed oraltered by NeoStem without prior written approval by HemaCare. HemaCare willmaintain those procedures in accordance with FDAJAABB requirements and/orchanges that might occur as the result of apheresis manufacturer directives orchanges in the standards of practice. NeoStem will have the right to continuepaying the Annual Maintenance fee, as described in Attachment B, to continueusing the SOP's after the agreement is terminated for up to 10 years. Theindemnification provisions contained in Section 10.1 of this agreement shallapply to HemaCare's obligations contained in this Section 2.5 regardingmaintenance of SOP's during and after termination of this Agreement.3. Exclusivity of Services.During the term of this Agreement, HemaCare shall provide the Services,exclusively, (as defined in Section 2.1) to NeoStem and its Third Party Centersand HemaCare will not directly or indirectly provide the Services to any othercustomer of HemaCare or otherwise. Furthermore, HemaCare agrees that it will notengage in any business that processes or provides autologous or directed donorlong-term storage for adult stem cells. This exclusivity is not intended toprevent HemaCare or its subsidiaries from engaging in its business activities ofproviding therapeutic apheresis services to patients for clinical or researchpurposes as long as it is not for the purpose of storage for future use. NeoStemrecognizes that Hemacare's new subsidiary stores and sells delinked humanbiological specimens and notes that this activity will not be considered toplace HemaCare and its subsidiaries in breech of this agreement.In the event NeoStem elects to expand its business model, to include providingapheresis services for the collection of cells other than stem cells fromperipheral blood("Other Services"), it shall so notify HemaCare in writing andfor a period of thirty (30) days after delivery of such notice (the "NegotiationPeriod"), HemaCare shall have the first right to negotiate an arrangement withNeoStem for the provision of such Other Services. During the Negotiation Period,the parties shall negotiate in good faith and shall cooperate with each other toprovide all information reasonably necessary for HemaCare to make a proposalwith respect to such her Services. In the event that during the NegotiationPeriod, the parties reach agreement on the terms of such arrangement, theparties shall use commercially reasonable efforts to enter into a bindingagreement reflecting such arrangement on or before the 30th day following theend of the Negotiation Period (the "Documentation Period"). In the event thatthe parties are unable to reach agreement as to such arrangement during theNegotiation Period or enter into a binding agreement during the DocumentationPeriod, NeoStem shall be free to engage any third party or parties to providesuch Other Services, without liability or obligation to HemaCare. For theavoidance of doubt, this first right to negotiate does not extend to hospitalsand academic institutions outside of a 50-mile radius of HemaCare's serviceareas, or for those facilities, within HemaCare's service area, that havepre-existing agreements or in-house personnel providing the services.5. Term.Ms Agreement shalt become effective on the date hereof and will remain in effectfor a period of five years, unless terminated earlier in accordance with theprovisions of Section 14 hereof. This Agreement may be extended if mutuallyagreed to in writing in accordance with the terms and conditions contained inthis Agreement. This Agreement supersedes the terms of the Original Agreement. 26. Payment for Services Rendered.6.1 Compensation for the services rendered pursuant to the terms of thisAgreement shall be in accordance with Attachment B. After the initial 12, monthsof the Agreement, fees may change based on the mutual agreement of the parties.Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.All newly recommended infectious disease tests (recommended by the FDA, or theAABB, or the State of California or industry standard) or additional qualitycontrol requirements in addition to current tests will be charged to NeoStem.6.2 HemaCare will provide to Neostem a monthly invoice that itemizes theprevious month's Services and specifies the payment due for such month. Suchinvoice shall be accompanied by a report providing sufficient detail so as tosupport the payments specified in the invoice. Payment is due in full within 30days of Neostem's receipt of invoice. Any amounts not paid when due shallthereafter bear interest until paid at the lesser of the maximum lawful rate or1.0% per month.7. Retention of Records; Audit Request.HemaCare shall keep complete and accurate records pertaining to the performanceof Services hereunder. During the term of this Agreement and for a period ofthree years thereafter, at the request of NeoStem, HemaCare shall permit arepresentative of NeoStem at times and upon reasonable notice to examine suchrecords and make copies thereof as may be necessary to determine the correctnessof any report or payment made under this Agreement.8. Independent Contractor.HemaCare is an independent contractor and will not act as an employee, agent,partner or co-venturer of Neostem. HemaCare shall not enter into anyagreement(s) or incur any obligations on Neostem's behalf, or commit Neostemin any manner without Neostem's prior written consent.9. Use of Name. Each party agrees not to use the name of any other party to this Agreement inany advertising or news release or other publication that implies a promotion oran endorsement of any other party, without the prior written consent of theother party.10. Indemnification and Insurance.10.1 Indemnification by HemaCare. HemaCare shall defend, hold harmless andindemnify Neostem, its directors, officers, employees and agents from andagainst all claims, demands, actions, liability, loss, damage and expenses(including reasonable attorneys' fees) actually incurred by Neostem arising outof HemaCare's performance of Services under this Agreement; provided; however,that HemaCare shall have no obligation to defend, hold hanmless or indemnifywith respect to any liability, loss, damage or expense resulting from NeoStem's(1) failure to adhere to the terms of this Agreement, (2) failure to comply withany applicable FDA or other governmental requirements, (3) negligence ormalfeasance, or (4) failure to follow good medical practice or good laboratorypractice.10.2 Indemnification by Neostem. Neostem shall defend, hold harmless andindemnify HemaCare, its directors, officers, employees and agents from any andall claims, demands, actions, liability, loss, damage and expenses (includingreasonable attorneys' fees) actually incurred by HemaCare as the result ofclaims, demands, or judgments that may be made or instituted against them or anyof them by reason of personal injury (including death) to any person or damageto property arising. out of performance of the Services at a NeoStem Facility;provided, however, that Neostem shall have no obligation to defend, holdharmless or indemnify with respect to any liability, loss, damage or expenseresulting from HemaCare's (1) failure to adhere to the terms of this Agreementor Neostem's written instructions relative to the Agreement, (2) failure tocomply with any applicable FDA or other governmental requirements, (3)negligence or malfeasance, or (4) failure to follow good medical practice orgood laboratory practice. 310.3 Insurance. Each party, at its expense, will maintain and keep in full forceSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.and effect, with insurance carriers that maintain a Best's rating of at least"A" and are permitted to do business in the United States, such insurance as isconsistent with industry standard, including but not limited to: professionaland product general liability insurance, including broad form contractualliability coverage, with at least a One Million Dollars ($1,000,000.00)combined, single policy limit for each occurrence and Three Million Dollars($3,000,0000) in the aggregate; all of which insurance will specifically applyto the obligations assumed by the parties hereunder. All insurance coveragerequired herein will provide primary coverage for all losses and damages causedby the perils or causes of loss covered thereby. Each party will provide to theother a Certificate of Insurance naming the other as an additional insured uponrequest.10.4 Requirements for Indemnification. A party seeking indemnification shallprovide prompt written notice of circumstances which might reasonably beexpected to give rise to a claim for indemnification and of the initiation ofany action or proceeding that may reasonably lead to a claim forindemnification. Upon such notice, the indemnifying party shall have the rightto assume the defense and settlement of any such action or proceeding, providedthat the indemnifying party shall not settle any action or proceeding with anyadmission of liability or wrongdoing by the indemnified party without suchindemnified party's prior written consent.11. Limitation of Liability.No party shall be liable to any other party for any special, incidental orconsequential damages.12. Ownership; Inventions12.1 All information received from NeoStem or obtained or delivered to NeoStemas a result of HemaCare's performance of Services hereunder ("NeoStemInformation") shall be the sole property of NeoStem and NeoStem shall be free todisclose and use the NeoStem Information, regardless of origin, for any purpose.12.2 Any new knowledge or inventions that are developed from the collection of aNeoStem client shall be the sole property of NeoStem and NeoStem shall be freeto file the appropriate applications for patent protection, orphan drug statusor other regulatory exemptions.13. Confidentiality; Public Announcement13.1 During the term of this Agreement and for a period of three yearsthereafter (and notwithstanding any termination or expiration of thisAgreement), NeoStem and HemaCare shall not use or reveal or disclose to thirdparties any confidential information received from the other party without firstobtaining the written consent of the other party. Notwithstanding the above, theparty to whom confidential information was disclosed (the "Recipient") shall notbe in violation of this Agreement with regard to disclosure of information thatRecipient can evidence by competent written proof (a) is or becomes part of thepublic domain subsequent to the time it was communicated to the Recipient by theother party through no fault of the Recipient, (b) is already in Recipient'spossession free of any obligation of confidence at the time it was communicatedto the Recipient, (c) is disclosed to the Recipient by a third party having theright to do so, which third party did not obtain the same, directly orindirectly, from the other party, or (d) is in response to a valid order by acourt or other governmental body (but solely to the extent of and pursuant tosuch order), provided that the Recipient provides the other party with priorwritten notice of any disclosure in response to a court or other governmentalorder so as to permit the. other party to seek confidential treatment of suchinformation. The parties shall take reasonable measures to assure that nounauthorized use or disclosure is made by others to whom access to suchinformation is granted. 4Nothing herein shall be construed as preventing either party from disclosing anySource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.information received from the other party to its employees, consultants, agentsand affiliates, provided that such employees, consultants, agents and affiliateshave undertaken a similar obligation of confidentiality with respect to theconfidential information.No public announcement or other disclosure to any third party concerning theexistence of or terms of this Agreement shall be made, either directly orindirectly, by any party to this Agreement, except as required by applicablelaw, rule or regulation, without first obtaining approval of the other party andagreement upon the nature and text of such announcement or disclosure. The partydesiring to make any public announcement or other disclosure shall inform theother party of the proposed announcement or disclosure (pursuant to legalrequirement, for recording purposes or otherwise) a reasonable time prior topublic release, and shall provide the other party with a written copy of theproposed public statement, in order to solicit such party's written approval.Either party may disclose the existence and terms of this Agreement to potentialthird party financial investors in such party or a potential third partyacquirer (provided that any such third party agrees to maintain theconfidentiality of any such information provided to such third party).14. Termination.Without limiting any rights which parties may have by reason of default byeither party, each party reserves the right to terminate this Agreement in wholeor in part, at its convenience by giving written notice as provided in thisSection 14. The termination will become effective (i) in the case of terminationby HemaCare, 180 days from the date of notice and (ii) in the case oftermination by NeoStem, 180 days from the date of notice; provided, that in thecase of termination by HemaCare, from the date of notice until the effectivedate of termination NeoStem will take steps to find a replacement provider ofthe Services being provided by HemaCare under this Agreement. Such terminationshall be without prejudice to any claims that either party may have against theother. Neostem's sole responsibility in the event of such termination shall beto reimburse HemaCare for Services actually performed by HemaCare up to theeffective date of termination. Termination shall not relieve HemaCare or Neostemof their continuing obligations under this Agreement, particularly therequirements of Sections 3, 6, 7, 9, 10, 11, 12, 13 and 16. Any termination forcause may be made effective immediately upon written notice. NeoStem will havethe right to continue paying the Annual Maintenance fee, as described inAttachment B, to continue using the SOP's after the agreement is ter inated forup to 10 years.15. Waiver.No failure on the part of either party to exercise, and no delay in exercising,any right or remedy hereunder shall operate as a waiver thereof, nor shall anysingle or partial exercise of any right or remedy hereunder preclude any otheror further exercise thereof or the exercise of any other right or remedy grantedhereby or by any related document or law.16. Governing Law.Should any dispute between any of the parties or among the parties anise underthis Agreement, Neostem and HemaCare, through appropriately senior persons,shall first meet and attempt to resolve the dispute in face-to-facenegotiations. This meeting shall occur within thirty (30) days of the time thedispute arises.If no resolution is reached, Neostem and HemaCare shall, within forty-five (45)days of the first meeting, attempt to settle the dispute by formal mediation. Ifthe parties cannot agree upon a mediator and the place of the mediation, themediation shall be administered by the American Arbitration Association in NewYork, New York. 5If no resolution is reached in mediation, the dispute shall be resolved bySource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.binding arbitration before a panel of three arbitrators, administered by theAmerican Arbitration Association, with limited discovery.The venue and governing law shall be in New York, New York. In no event shallpunitive or exemplary damages be awardable. Each party shall be responsible fortheir own attorneys' fees and costs. The cost for mediators and arbitratorsshall be borne equally.Notwithstanding the foregoing dispute resolution and governing law provisions,Neostem and HemaCare shall each retain the right to seek judicial injunctive andother equitable relief where appropriate.17. Ouality Assurance Audits. Neo Stem may perform quality assurance auditsrelating to HemaCare's performance of Services hereunder upon reasonable noticeto HemaCare.18. Amendment.This Agreement may not be and shall not be deemed or construed to have beenmodified, amended, rescinded, cancelled or waived in whole or in part, except bywritten instruments signed by the parties hereto.19. Assignment.Neither this Agreement nor any right or interest hereof may be assigned ortransferred by either party without the express written permission of the otherparty. Such permission shall not be unreasonably withheld.20. Entire Agreement.This Agreement constitutes and expresses the entire agreement and understandingbetween the parties. All previous discussions, promises, representations andunderstandings between the parties relative to this Agreement, if any, have beenmerged into this document21. Notice.Any notice required or permitted hereunder shall be in writing and shall bedeemed given as of: (a) the date if it is delivered by hand or (b) three daysafter it is sent by certified mail, postage prepaid, return receipt requested,and addressed to the party to receive such notice at the address set forthbelow, or such other address as is subsequently specified pursuant to thisnotice provision: If to Neostem: Neostem, Inc. 420 Lexington Avenue, Suite 450 New York, NY 10170 Attention: General Counsel If to HemaCare: HemaCare Corporation Attn: Judi Irving 15350 Sherman Way, Suite 350 Van Nuys, California 91406A party may give notice of change of address to every other party by followingprovisions of this section, 622. Counterparts.This Agreement may be executed in two or more counterparts, each of which shallbe deemed an original, but all of which together shall constitute one and thesame instrument. Delivery of an executed counterpart of this Agreement byfacsimile transmission shall have the same effect as personal delivery of anSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.executed counterpart of this Agreement.23. Miscellaneous.23.1 This Agreement (and the Exhibits and Attachments hereto) constitutes theentire agreement between the parties with respect to its subject matter, andsupersedes all other agreements (including the Original Agreement),understandings and contracts whether oral or written with respect thereto. Nomodification, change, amendment to this Agreement shall be of any force oreffect unless in writing and signed by authorized representatives of bothParties.23.2 The waiver or failure of any Party hereto to exercise any right providedfor in this Agreement shall not be deemed a waiver of any f irther righthereunder under such provision or any other provisions. If any provision of thisAgreement shall be held to be invalid or unenforceable, the other provisionsshall remain in full force and effect.23.3 Nothing in this Agreement shall, expressly or implied, give to any personother than the parties hereto any benefit or legal or equitable right, remedy orclaim except as expressly provided herein. All remedies provided in accordancewith this Agreement are cumulative and are in addition to any and all legalrights of the parties except as are expressly limited by the terms hereof.23.4 To the extent any terms and conditions of this Agreement conflict with theterms and conditions of the Exhibit(s) or Attachments, an order or orderacknowledgement, the terns and conditions of this Agreement all control.23.5 The captions contained in this Agreement are for convenience only, arewithout substantive meaning, and shall not be construed to modify, enlarge, orrestrict any provision.IN WITNESS WHEREOF, the parties have executed this Agreement as of the EffectiveDate.NeoStem, Inc. HemaCare CorporationBy: /s/ Robin Smith By: /s/Judi IrvingName: Robin Smith Name: Judi IrvingTitle: CEO Title: CEODate: 12/15/06 Date: 12/7/06 Federal ID#: 95-3280412 7Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 10.2February 1, 2007Duncan Capital Group LLC 420 Lexington AvenueSuite 450New York, NY 10170Dear Michael:As you know, pursuant to that certain letter agreement dated as of May 2006 (the"Agreement"), Duncan Capital Group LLC ("Duncan") agreed to act as a financialconsultant to NeoStem, Inc. (the "Company") on the terms set forth therein.The Agreement is for an initial term of twelve months and is scheduled to expirein May 2007. This letter agreement is being provided to extend the term of theAgreement through December 31, 2007.The parties further acknowledge that the monthly retainer fee of $7,500 forFebruary 2007 through December 31, 2007 shall be paid in shares of the Company'sCommon Stock based upon the closing price of the Common Stock as of the date ofthis letter. The shares of Common Stock shall vest on a monthly basis throughDecember 31, 2007 and shall be included on the next registration statement filedby the Company with the Securities and Exchange Commission. Except as set forthherein, the terms of the Agreement will remain unchanged.Please execute below to acknowledge your agreement with the foregoing. Sincerely,NeoStem, Inc. By:/s/ Robin Smith --------------- Robin Smith, Chairman and CEOAgreed and accepted:Duncan Capital Group LLCBy:/s/ Michael Crow ---------------- Michael Crow, PresidentSource: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 NEOSTEM, INC. -----------------------------NeoStem Therapies, Inc., a Delaware corporation. 43Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 NeoStem, Inc. (formerlyPhase III Medical, Inc.) of our report dated March 27, 2007 with respect to theconsolidated financial statements of NeoStem, Inc. and Subsidiary appearing inthis Annual Report on Form 10-K of NeoStem, Inc. and Subsidiary for the yearended December 31, 2006./s/Holtz Rubenstein Reminick LLPHoltz Rubenstein Reminick LLPMelville, New YorkMarch 28, 2007 44Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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------------ CERTIFICATIONS --------------I, Robin L. Smith, certify that:1. I have reviewed this Annual Report on Form 10-K of NeoStem, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financialinformation included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this report;4. The registrant's 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 such disclosurecontrols and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b) Evaluated the effectiveness of the registrant's disclosure controls andprocedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and(c) Disclosed in this report any change in the registrant's internal controlover financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer and I have disclosed, based on ourmost 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 the design oroperation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process,summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant's internal control overfinancial reporting.Date: March 28, 2007 /s/ Robin L. Smith ------------------ Name: Robin L. Smith M.D. Title: Chief Executive Officer (Principal Executive Officer)A signed original of this written statement required by Section 302 has beenprovided to the Corporation and will be retained by the Corporation andfurnished to the Securities and Exchange Commission or its staff upon request. 45Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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------------ CERTIFICATIONS --------------I, Larry A. May, certify that:1. I have reviewed this Annual Report on Form 10-K of NeoStem, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financialinformation included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this report;4. The registrant's 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 such disclosurecontrols and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b) Evaluated the effectiveness of the registrant's disclosure controls andprocedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and(c) Disclosed in this report any change in the registrant's internal controlover financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer and I have disclosed, based on ourmost 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 the design oroperation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process,summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant's internal control overfinancial reporting.Date: March 28, 2007 /s/ Larry A. May ---------------- Name: Larry A. May Title: Chief Financial Officer (Principal Financial Officer)A signed original of this written statement required by Section 302 has beenprovided to the Corporation and will be retained by the Corporation andfurnished to the Securities and Exchange Commission or its staff upon request. 46Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 NeoStem,Inc. (the "Corporation") for the year ended December 31, 2006, as filed with theSecurities and Exchange Commission on the date hereof, I, Robin L. Smith, ChiefExecutive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, tomy knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.Dated: March 28, 2007 /s/ Robin L. Smith ------------------ Robin L. Smith M.D. 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. 47Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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 NeoStem,Inc. (the "Corporation") for the year ended December 31, 2006, as filed with theSecurities and Exchange Commission on the date hereof, I, Larry A. May, ChiefFinancial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, tomy knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.Dated: March 28, 2007 /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. 48Source: Caladrius Biosciences, Inc., 10-K, March 29, 2007Powered 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.

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