SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission file number 0-10909
NEOSTEM, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-2343568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 LEXINGTON AVE, SUITE 450 NEW YORK, NEW YORK 10170
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: 212-584-4180
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes __ No _X_
4,719,522 SHARES OF COMMON STOCK, $.001 PAR VALUE, AS OF November 13, 2007
(State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date)
Transitional Small Business Disclosure Format (check one): Yes __ No _X_
I N D E X
Page No.
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Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets At September 30, 2007 and
December 31, 2006 3
Consolidated Statements of Operations For the three and
nine months ended September 30, 2007 and 2006 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2007 and 2006 5
Notes to Unaudited Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis or Plan of
Operations 13-16
Item 3. Controls and Procedures 17
Part II - Other Information:
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Securityholders 18
Item 5. Other Information 18
Item 6. Exhibits 18
Signatures 19
-2-
NEOSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
2007 2006
-------------- --------------
Current assets:
Cash and cash equivalents $ 3,648,836 $ 436,659
Accounts receivable 45,469 9,050
Prepaid expenses and other current assets 53,485 82,451
-------------- --------------
Total current assets 3,747,790 528,160
Property and equipment, net 131,854 96,145
Goodwill 558,169 558,169
Other assets 6,875 12,500
-------------- --------------
$ 4,444,688 $ 1,194,974
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 150,756 $ 372,348
Accrued liabilities 106,136 241,388
Note payable, due related party - current
portion 55,690 125,000
Notes payable 19,550 1,313
Unearned revenues 1,131 2,420
Convertible debentures - 75,000
Capitalized lease obligations - current portion 24,175 20,829
-------------- --------------
Total current liabilities 357,438 838,298
Note payable, due related party - long-term
portion - 24,439
Capitalized lease obligations 21,558 40,132
-------------- --------------
Total Liabilities 378,996 902,869
-------------- --------------
Stockholders' Equity:
Preferred stock; authorized, 5,000,000 shares
Series B convertible redeemable preferred
stock, liquidation value 10 shares of common
stock per share; $0.01 par value; authorized,
825,000 shares; issued and outstanding, 10,000
shares 100 100
Common stock, $.001 par value; authorized,
500,000,000 shares; issued and outstanding,
4,302,022 shares at September 30, 2007 and
2,078,121 shares at December 31, 2006 4,302 2,078
Additional paid-in capital 33,505,968 20,968,358
Unearned compensation (1,035,672) (371,666)
Accumulated deficit (28,409,006) (20,306,765)
-------------- --------------
Total stockholders' equity 4,065,692 292,105
-------------- --------------
$ 4,444,688 $ 1,194,974
============== ==============
See accompanying notes to consolidated financial statements
-3-
NEOSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2007 2006 2007 2006
------------- ------------- ------------- -------------
Earned revenues $ 12,559 $ 6,262 $ 74,471 $ 18,786
Direct costs (6,775) (4,467) (10,378) (13,401)
------------- ------------- ------------- -------------
Gross profit 5,784 1,795 64,093 5,385
Selling, general and administrative 4,327,512 999,825 8,163,257 2,978,725
------------- ------------- ------------- -------------
Operating loss (4,321,728) (998,030) (8,099,164) (2,973,340)
Other income (expense):
Interest income - 4,896 15,224 7,440
Interest expense (5,917) (814,173) (18,301) (1,218,122)
Interest expense - Series A
mandatorily redeemable convertible
preferred stock - - - (9,934)
------------- ------------- ------------- -------------
Net loss $ (4,327,645) $ (1,807,307) $ (8,102,241) $ (4,193,956)
============= ============= ============= =============
Net loss per common share ($1.26) ($1.09) ($2.84) ($3.63)
============= ============= ============= =============
Weighted average common shares
outstanding 3,440,282 1,655,413 2,857,066 1,156,521
============= ============= ============= =============
See accompanying notes to consolidated financial statements
-4-
NEOSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
------------------------------
2007 2006
------------- -------------
Cash flows from operating activities:
Net loss $ (8,102,241) $ (4,193,956)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common shares issued and stock options granted
for services rendered and
interest expense 3,976,450 1,583,923
Depreciation 31,013 18,959
Amortization of debt discount - 211,265
Series A mandatorily redeemable convertible
preferred stock dividends - 9,934
Deferred acquisition costs 1,253 13,401
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 33,338 (62,731)
Accounts receivable (36,419) -
Unearned revenues (1,289) (18,786)
Accounts payable, accrued expenses, and other
current liabilities (450,592) (429,694)
------------- -------------
Net cash used in operating
activities (4,548,487) (2,867,685)
------------- -------------
Cash flows from investing activities:
Acquisition property and equipment (66,723) (13,073)
------------- -------------
Net cash used in investing activities (66,723) (13,073)
------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 7,899,377 3,573,068
Proceeds from advances on notes payable 338,432 180,396
Payments of capitalized lease obligations (15,228) (12,221)
Proceeds from sale of convertible debentures - 87,500
Repayments of notes payable (395,194) (116,373)
------------- -------------
Net cash provided by financing activities 7,827,387 3,712,370
------------- -------------
Net increase in cash and cash equivalents 3,212,177 831,612
Cash and cash equivalents at beginning of
period 436,659 488,872
------------- -------------
Cash and cash equivalents at end of period $ 3,648,836 $ 1,320,484
============= =============
Nine Months Ended
September 30,
-----------------------
2007 2006
----------- ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 18,301 $ 261,354
Supplemental Schedule of Non-cash Financing
Activities:
Issuance of common stock for purchase of NS
California - 200,000
Net accrual of dividends on Series A preferred stock - 9,934
Issuance of common stock for capital commitment 165,000 -
Issuance of restricted common stock for services 464,400 -
Issuance of restricted common stock for compensation 1,485,525
Issuance of common stock for services rendered 115,704 128,398
Issuance of common stock for compensation 55,410 -
Issuance of warrants for services 309,017 -
Compensatory element of stock options 2,045,400 412,153
See accompanying notes to consolidated financial statements.
-5-
NEOSTEM, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - The Company
- --------------------
NeoStem, Inc. ("NeoStem") was incorporated under the laws of the State of
Delaware in September 1980 under the name Fidelity Medical Services, Inc.
NeoStem is in the business of operating a commercial autologous (donor and
recipient are the same) adult stem cell bank and is pioneering the pre-disease
collection, processing and long-term storage of adult stem cells that donors can
access for their own present and future medical treatment. On January 19, 2006
we consummated the acquisition of the assets of NS California, Inc., a
California corporation ("NS California") relating to NS California's business of
collecting and storing adult stem cells. Effective with the acquisition, the
business of NS California became our principal business, rather than our
historic business of providing capital and business guidance to companies in the
healthcare and life science industries. The Company provides adult stem cell
collection, processing and banking services with the goal of making stem cell
collection and storage widely available, so that the general population will
have the opportunity to store their own stem cells for future healthcare needs.
Prior to the NS California acquisition, the business of the Company was to
provide capital and business guidance to companies in the healthcare and life
science industries, in return for a percentage of revenues, royalty fees,
licensing fees and other product sales of the target companies. Additionally,
through June 30, 2002, the Company was a provider of extended warranties and
service contracts via the Internet at warrantysuperstore.com. From June, 2002 to
March, 2007 the Company was engaged in the "run off" of such extended warranties
and service contracts. As of March 31, 2007 the recognition of revenue from the
sale of extended warranties and service contracts was completed.
On August 29, 2006, our stockholders approved an amendment to our Certificate of
Incorporation to effect a reverse stock split of our Common Stock at a ratio of
one-for-ten shares and to change our name from Phase III Medical, Inc. to
NeoStem, Inc. On June 14, 2007, our stockholders approved an amendment to our
certificate of incorporation to effect a reverse split of our Common Stock at a
ratio of up to one-for-ten shares in the event it was deemed necessary by our
Board of Directors to list our Common Stock on a stock exchange. On July 9,
2007, our Board of Directors approved the reverse stock split at a ratio of
one-for -ten shares and on August 9, 2007 the Company's Common Stock commenced
trading on The American Stock Exchange under the symbol "NBS". All numbers in
this report have been adjusted to reflect the reverse stock splits which were
effective as of August 31, 2006 and August 9, 2007.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions for Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, the statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the financial
position as of September 30, 2007 and December 31, 2006, the results of
operations for the three and nine months ended September 30, 2007 and 2006 and
the cash flows for the nine months ended September 30, 2007 and 2006. The
results of operations for the three and nine months ended September 30, 2007 are
not necessarily indicative of the results to be expected for the full year.
The December 31, 2006 consolidated balance sheet has been derived from the
audited consolidated financial statements at that date included in the Company's
Annual Report on Form 10-K, as retroactively adjusted to give effect to the
one-for-ten reverse stock split effective August 9, 2007 and filed with the
Company's Current Report on Form 8-K dated September 11, 2007. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K and in such Form 8-K.
Revenue Recognition: The Company initiated the collection and banking of
autologous adult stem cells in the fourth quarter of 2006. The Company
recognizes revenue related to the collection and cryopreservation of autologous
adult stem cells when the cryopreservation process is completed which is
generally twenty four hours after cells have been collected. Revenue related to
advance payments of storage fees are recognized ratably over the period covered
by the advance payments. The Company also earns revenue, in the form of start up
fees, from physicians seeking to establish autologous adult stem cell collection
centers. These fees are in consideration of the Company establishing a service
territory for the physician. Start up fees are recognized once the agreement has
been signed, the physician practice has been qualified by the Company's
accreditation committee and appropriate licensure has been received.
-6-
The Company had sold, via the Internet, through partnerships and directly to
consumers, extended warranty service contracts for seven major consumer
products. The Company recognizes revenue ratably over the length of the
contract. The Company purchased insurance to fully cover any losses under the
service contracts from a domestic carrier. The insurance premium and other costs
related to the sale are amortized over the life of the contract.
Recently Issued Accounting Pronouncements:
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS No. 159 expands the scope of
specific types of assets and liabilities that an entity may carry at fair value
on its statement of financial position, and offers an irrevocable option to
record the vast majority of financial assets and liabilities at fair value, with
changes in fair value recorded in earnings. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company is currently evaluating the
impact, if any, that SFAS No. 159 will have on its financial statements.
Note 3 - Acquisition of NS California
- -------------------------------------
On January 19, 2006, the Company consummated the acquisition of the assets of NS
California, Inc. ("NS California") relating to NS California 's business of
collecting and storing adult stem cells, issuing 40,000 shares of the Company's
common stock with a value of $200,000. In addition, the Company assumed certain
liabilities of NS California's which totaled $476,972. The underlying physical
assets acquired from NS California were valued at $109,123 resulting in the
recognition of goodwill in the amount of $558,169. Upon completion of the
acquisition the operations of NS California were assumed by the Company and have
been reflected in the Consolidated Statement of Operations since January 19,
2006. Effective with the acquisition, the business of NS California became the
principal business of the Company.
Note 4 - Notes Payable
- ----------------------
On December 30, 2005, the Company sold $250,000 of convertible nine month
Promissory Notes which bear 9% simple interest with net proceeds to the Company
of $220,000. These convertible notes were sold in connection with a subscription
agreement between the Company and certain investors and the placement agent was
WestPark Capital, Inc. ("WestPark"). (The convertible notes and warrants sold in
December, 2005 and January, 2006 in the transaction in which WestPark Capital,
Inc. acted as the placement agent is sometimes referred to herein as the
"WestPark Private Placement.") The Company recorded a debt discount associated
with the conversion feature in the amount of $83,333, which was charged to
interest expense during the year ended December 31, 2006. The debt discount
recorded of $83,333 did not change the amount of cash required to payoff the
principal value of these Promissory Notes, at any time during the term, which
was $250,000. As part of the WestPark Private Placement, these Promissory Notes
had 4,167 detachable warrants for each $25,000 of debt, which entitle the holder
to purchase one share of the Company's Common Stock at a price of $12.00 per
share. The warrants are exercisable for a period of three years from the date of
the Promissory Note. The Promissory Notes convert to the Company's Common Stock
at $6.00 per share. The Promissory Notes are convertible at anytime into shares
of Common Stock at the option of the Company subsequent to the shares underlying
the Promissory Notes and the shares underlying the warrants registration if the
closing price of the Common Stock has been at least $18.00 for a period of at
least 10 consecutive days prior to the date on which notice of conversion is
sent by the Company to the holders of the Promissory Notes. Pursuant to the
terms of the WestPark Private Placement, the Company agreed to file with the SEC
and have effective by July 31, 2006, a registration statement registering the
resale by the investors in the WestPark Private Placement of the shares of
Common Stock underlying the convertible notes and the warrants sold in the
WestPark Private Placement. This registration statement was not made effective
by July 31, 2006 and certain additional rights have accrued to the Convertible
Promissory Noteholders (see below for a detailed description of these additional
rights). In 2005, the Company recorded an expense of $2,573 associated with the
warrants as their fair value using the Black Scholes method.
In January 2006, the Company sold an additional $250,000 of convertible nine
month Promissory Notes which bear 9% simple interest with net proceeds to the
Company of $223,880 as part of the WestPark Private Placement. The Company
recorded a debt discount associated with the conversion feature in the amount of
$129,167. For the year ended December 31, 2006, the Company charged $127,932 of
the debt discount to interest expense. The debt discount recorded of $129,167
does not change the amount of cash required to payoff the principal value of
these Promissory Notes, at any time during the term, which was $250,000. These
Promissory Notes also had 4,167 detachable warrants for each $25,000 of debt,
which entitle the holder to purchase one share of the Company's Common Stock at
a price of $12.00 per share. The warrants are exercisable for a period of three
years from the date of the Promissory Note. The Promissory Notes convert to the
Company's Common Stock at $6.00 per share. The Promissory Notes are convertible
at anytime into shares of Common Stock at the option of the Company subsequent
to the shares underlying the Promissory Notes and the shares underlying the
warrants registration if the closing price of the Common Stock has been at least
$18.00 for a period of at least 10 consecutive days prior to the date on which
notice of conversion is sent by the Company to the holders of the Promissory
Notes. Pursuant to the terms of the WestPark Private Placement, the Company
agreed to file with the SEC and have effective by July 31, 2006, a registration
statement registering the resale by the investors in the WestPark Private
Placement of the shares of Common Stock underlying the convertible notes and the
warrants sold in the WestPark Private Placement. This registration statement was
not made effective by July 31, 2006 and as a result certain additional rights
accrued to the Convertible Promissory Noteholders (see below for a detailed
description of these additional rights). For the year ended December 31, 2006,
the Company recorded as interest expense $263,612 associated with the warrants
as their fair value using the Black Scholes method.
-7-
As mentioned previously, pursuant to the terms of the WestPark Private
Placement, the Company agreed to file with the SEC and have effective by July
31, 2006, a registration statement registering the resale by the investors in
the WestPark Private Placement of the shares of Common Stock underlying the
convertible promissory notes and the warrants sold in the WestPark Private
Placement. In the event the Company did not do so, (i) the conversion price of
the convertible promissory notes was reduced by 5% each month, subject to a
floor of $4.00; (ii) the exercise price of the warrants was reduced by 5% each
month, subject to a floor of $10.00 and (iii) the warrants could be exercised
pursuant to a cashless exercise provision. The Company did not have the
registration statement effective by July 31, 2006 and requested that the
investors in the WestPark Private Placement extend the date by which the
registration statement is required to be effective until February 28, 2007. In
August, 2006 the Company filed with the SEC a registration statement registering
the resale by the investors of the WestPark Private Placement of the shares of
Common Stock underlying the convertible promissory notes and the warrants sold
in the WestPark Private Placement which was made effective in November, 2006.
In an effort to improve the financial position of the Company, in July 2006,
noteholders were offered the option of (A) extending the term of the convertible
note for an additional four months from the maturity date in consideration for
which (i) the Company shall issue to the investor for each $25,000 in principal
amount of the convertible note 568 shares of unregistered Common Stock; and (ii)
the exercise price per warrant shall be reduced from $12.00 to $8.00, or (B)
converting the convertible note into shares of the Company's Common Stock in
consideration for which (i) the conversion price per conversion share shall be
reduced to $4.40; (ii) the Company shall issue to the investor for each $25,000
in principal amount of the Note, 1,136 shares of Common Stock; (iii) the
exercise price per warrant shall be reduced from $12.00 to $8.00; and (iv) a new
warrant shall be issued substantially on the same terms as the original Warrant
to purchase an additional 4,167 shares of Common Stock for each $25,000 in
principal amount of the convertible note at an exercise price of $8.00 per
share. Pursuant to this, the investor was also asked to waive any and all
penalties and liquidated damages accumulated as of the date of the agreement.
This offer was terminated on August 31, 2006. By August 31, 2006 investors
owning $237,500 of the $500,000 of convertible promissory notes had agreed to
convert the convertible note into shares of the Company's Common Stock for
consideration described above and investors holding $162,500 of the $500,000 of
convertible promissory notes had agreed to extend the term of the convertible
note for an additional four months from the maturity date for consideration
described above.
In September 2006, a new offer was extended to the remaining noteholders to
convert the convertible note into shares of the Company's Common Stock in
consideration for which (i) the conversion price per conversion share shall be
reduced to $4.40; (ii) the exercise price per warrant shall be reduced from
$12.00 to $8.00 and (iii) a new warrant shall be issued substantially on the
same terms as the original Warrant to purchase an additional 4,167 shares of
Common Stock for each $25,000 in principal amount of the convertible note at an
exercise price of $8.00 per share. Pursuant to this, the investor was also asked
to waive any and all penalties and liquidated damages accumulated as of the date
of the agreement.
By December 31, 2006, investors owning $425,000 convertible promissory notes
agreed to convert the convertible note into shares of the Company's Common Stock
for consideration described above. The Company issued 107,386 shares of Common
Stock with a fair value of $692,896. In addition, the Company issued 70,834
warrants with a fair value of $451,968 for noteholders that agreed to an early
conversion of their convertible promissory notes. The Company also issued 3,693
shares of Common Stock as consideration for extending the term of the
convertible notes, totaling $162,500, for an additional four months with a fair
value of $21,023. The fair value of this Common Stock has been accounted for as
interest expense. Amounts in excess of the face value of the convertible
promissory notes and the fair value of the warrants issued as the result of
early conversion have been accounted for as interest expense. The balance,
$75,000, of convertible promissory notes was paid off in January, 2007.
In connection with the NS California acquisition, the Company assumed a 6% note
due to Tom Hirose, a former officer of NS California in the amount of $15,812.
As of September 30, 2007, $1,313 remains unpaid. Final payment will be made in
2007.
-8-
In July and August, 2007 the Company borrowed an aggregate of $200,200 through
the issuance of short term bridge notes to support operations pending the
closing of the Company's August 2007 public offering described in Note 6. These
bridge notes provided that they matured in six months from the date of issuance,
subject to the Company's right to prepay, and bore interest at a rate of 15% per
annum. Robin L. Smith MD, Chief Executive Officer and Chairman of the Board of
the Company was issued a bridge note for $125,000 and Richard Berman, a member
of the Board of Directors, was issued a bridge note for $50,000. On August 10,
2007, the Board authorized the repayment in full of the bridge notes and all
outstanding bridge notes were repaid in full plus accrued interest.
The Company has financed certain insurance polices and has notes payable at
September 30, 2007 in the amount of $19,550 related to these policies. These
notes require monthly payments and mature in less than one year.
Note 5 - Series A Mandatorily Redeemable Convertible Preferred Stock
- --------------------------------------------------------------------
In connection with the settlement of securities class action litigation in 1994,
the Company issued 1,000,000 shares of Series A $0.07 Convertible Preferred
Stock (the "Series A Preferred Stock") with an aggregate value of $1,000,000.
The following summarizes the terms of Series A Preferred Stock. The Series A
Preferred Stock had a liquidation value of $1 per share, was non-voting and
convertible into common stock of the Company at a price of $5.20 per share.
Holders of Series A Preferred Stock were entitled to receive cumulative cash
dividends of $0.07 per share, per year, payable semi-annually. At December 31,
2005 there were 681,171 shares of Series A Preferred Stock outstanding.
On March 17, 2006, the stockholders of the Company voted to approve an amendment
to the Certificate of Incorporation which permitted the Company to issue in
exchange for all 681,171 shares of Series A Preferred Stock outstanding and its
obligation to pay $538,498 (or $.79 per share) in accrued dividends thereon, a
total of 544,937 shares of Common Stock (eight tenths (.8) shares of Common
Stock per share of Series A Preferred Stock). Pursuant thereto, all outstanding
shares of Series A Preferred Stock were cancelled and converted into Common
Stock. Therefore at September 30, 2007 and December 31, 2006 and there were no
shares of Series A Preferred Stock outstanding.
Note 6 - Stockholders' Equity
- -----------------------------
Common Stock:
In January 2007, the Company issued 12,000 shares of Common Stock to its
intellectual property acquisition consultant, vesting as to 1,000 shares per
month commencing January 2007.
In January 2007, the Company issued an aggregate of 9,000 shares of Common Stock
to a former director and employee pursuant to his agreement to serve as Chairman
of the Company's Scientific Advisory Board and consultant to the Company.
In February 2007, the term of the Company's financial advisory agreement with
Duncan Capital Group LLC was extended through December 2007, and the Company
issued to Duncan 15,000 shares of Common Stock as an advisory fee payment
vesting monthly through December 2007. The vesting of these shares was
accelerated in July 2007 such that they were fully vested and the advisory
agreement was canceled in August 2007.
In January and February 2007, the Company raised an aggregate of $2,500,000
through the private placement of 250,000 units at a price of $10.00 per unit
(the "January 2007 private placement"). Each unit was comprised of two shares of
the Company's Common Stock, one redeemable seven-year warrant to purchase one
share of Common Stock at a purchase price of $8.00 per share and one
non-redeemable seven-year warrant to purchase one share of Common Stock at a
purchase price of $8.00 per share. The Company issued an aggregate of 500,000
shares of Common Stock, and warrants to purchase up to an aggregate of 500,000
shares of Common Stock at an exercise price of $8.00 per share. Emerging Growth
Equities, Ltd ("EGE"), the placement agent for the January 2007 private
placement, received a cash fee equal to $171,275 and was entitled to expense
reimbursement not to exceed $50,000. The Company also issued to EGE redeemable
seven year warrants to purchase 34,255 shares of Common Stock at a purchase
price of $5.00 per share, redeemable seven-year warrants to purchase 17,127
shares of Common Stock at a purchase price of $8.00 per share and non-redeemable
seven-year warrants to purchase 17,127 shares of Common Stock at a purchase
price of $8.00 per share. The net proceeds of this offering were approximately
$2,317,500.
In February 2007, the Company issued 30,000 shares of its Common Stock to a
financial advisor in connection with a commitment for the placement of up to
$3,000,000 of the Company's preferred stock, resulting in a charge to operations
of $165,000.
In April 2007, the Company issued 3,688 shares of its Common Stock to a public
relations advisor in connection with public relations services rendered to the
Company, resulting in a charge to operations of $22,500
In May 2007, the Company issued 1,000 shares of its Common Stock to an
investment relations advisor in connection with investor relations services
rendered to the Company, resulting in a charge to operations of $4,500.
-9-
In May 2007, the Company issued 15,000 shares of its Common Stock to an investor
relations advisor in connection with investor relations services rendered to the
Company, resulting in a charge to operations of $67,500.
In May and June 2007, the Company issued an aggregate of 2,151 shares of its
Common Stock to its sublessor as partial payment for rent expense, resulting in
charges to operations totaling $9,891
In June 2007, the Company issued 12,000 shares of its Common Stock to a law firm
in connection with services rendered to the Company, of which 6,000 shares
vested in June, 2007 and 1,000 shares vest monthly through December, 2007. Such
shares had a value of $50,400.
In June 2007, the Company issued 3,000 shares of its Common Stock to a
consultant for certain management services rendered to the Company, resulting in
a charge to operations of $1,410.
In July 2007, the Company issued 3,000 shares of its Common Stock to a
consultant for certain management services rendered to the Company, resulting in
a charge to operations of $15,000.
In July 2007, the Company issued an aggregate of 909 shares of its Common Stock
to its sublessor as partial payment for rent expense, resulting in charges to
operations totaling $5,000.
In August 2007, the Company issued 24,000 shares of its Common Stock to a
consultant for certain management services rendered to the Company, 18,000
shares vest monthly over the next twelve months and the remainder vest ratably
for three years on the anniversary date of the agreement and resulted in a
charge to operations of $16,667.
In August 2007, the Company issued 10,000 shares of its Common Stock to an
executive officer as a hiring incentive. One half of these shares vested
immediately and the remainder vest in one year on the anniversary date of the
hiring date. The issuance of these shares resulted in a charge to operations of
$27,708.
In September 2007 the Company issued an aggregate of 154,500 shares of its
Common Stock to certain employees, including an aggregate of 125,000 shares to
certain of its executive officers. In general, one half of these shares issued
vested immediately and the remainder vest in one year on the anniversary date of
the stock issuance. The issuance of these shares resulted in a charge to
operations of $414,257.
In September 2007 the Company issued an aggregate of 135,000 shares of its
Common Stock to the independent members of its Board of Directors. One half of
these shares issued vested immediately and the remainder vest in one year on the
anniversary date of the stock issuance. The issuance of these shares resulted in
a charge to operations of $361,970.
In September 2007 the Company issued 10,000 shares of its Common Stock to a
consultant to the Company, One half of these shares issued vested immediately
and the remainder vest in one year on the anniversary date of the stock
issuance. The issuance of these shares resulted in a charge to operations of
$26,813.
In September 2007 the Company issued 10,000 shares of its Common Stock to a
consultant to the Company. The issuance of these shares resulted in a charge to
operations of $49,500.
On August 8, 2007, the Company completed a sale of 1,055,900 units at a price of
$5.00 per unit pursuant to a best efforts public offering. A registration
statement on Form SB-2A (File No. 333-142923) relating to these units was filed
with the Securities and Exchange Commission and declared effective on July 16,
2007. Each unit consisted of one share of common stock and one-half of a five
year Class A warrant to purchase one-half a share of common stock at a price of
$6.00 per share. Thus, 1,000 units consisted of 1,000 shares of common stock and
Class A warrants to purchase 500 shares of common stock. On August 14, 2007 the
Company completed a sale of 214,100 units at a price of $5.00 per unit pursuant
to the same best efforts public offering. The units sold were identical to the
units sold on August 8, 2007. The aggregate number of units thus sold was
1,270,000, the aggregate number of shares of common stock included within the
units was 1,270,000 and the aggregate number of Class A Warrants included within
the units was 535,000. In connection with the public offering, the Company
issued five year warrants to purchase an aggregate of 95,250 shares of common
stock at $6.50 per share to the underwriters for the offering. After payment of
underwriting commissions and expenses and other costs of the offering, the
aggregate net proceeds to the Company were $5,579,300.
On August 8, 2007, subject to the closing of the above-described public offering
and consummation of the reverse split, the American Stock Exchange accepted for
listing the Company's common stock, units as described above, and Class A
warrants under the symbols "NBS", "NBS.U", and "NBS.WS" respectively. Trading on
the American Stock Exchange commenced on August 9, 2007.
-10-
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 2,084,938 shares of common stock are
reserved for issuance upon exercise of outstanding warrants as of September 30,
2007 at prices ranging from $4.70 to $12.00 and expiring through June 2014.
In connection with the January 2007 private placement the Company issued
warrants to purchase up to an aggregate of 500,000 shares of Common Stock at an
exercise price of $8.00 per share. The Company also issued to the placement
agent redeemable seven year warrants to purchase 34,255 shares of Common Stock
at a purchase price of $5.00 per share, redeemable seven-year warrants to
purchase 17,127 shares of Common Stock at a purchase price of $8.00 per share
and non-redeemable seven-year warrants to purchase 17,127 shares of Common Stock
at a purchase price of $8.00 per share.
In March 2007, the Company engaged a marketing and investor relations
consultant. Pursuant to this agreement, the Company issued to the consultant
warrants to purchase 150,000 shares of its Common Stock at a purchase price of
$4.70 per share. Such warrants vest over a 12 month period at a rate of 12,500
per month, subject to acceleration in certain circumstances, and are exercisable
until April 30, 2010. During the three and nine months ended September 30, 2007
the Company recognized $106,725 and $249,025, respectively, as consulting
expense related to the vesting of these warrants.
In May 2007, the Company engaged an investor relations consultant. Pursuant to
this agreement, the Company issued to the consultant warrants to purchase 10,000
shares of its Common Stock at a purchase price of $4.90 per share. Such warrants
vested on issuance and during the nine months ended September 30, 2007 the
Company recognized $37,480 as consulting expense related to these warrants.
In June 2007, the Company engaged a consultant to create marketing materials for
our sales and marketing staff. Pursuant to this agreement, the Company issued to
the consultant warrants to purchase 4,000 shares of its Common Stock at a
purchase price of $6.50 per share. Such warrants vested on issuance and during
the nine months ended September 30, 2007 the Company recognized $22,512 as
marketing expense related to these warrants.
Pursuant to the public offering described under Common Stock, above, the Company
issued five year Class A warrants to purchase 535,000 shares of common stock at
$6.00 per share. Such Class A warrants became exercisable and separately
tradable from the units on October 12, 2007 and are exercisable through July 16,
2012. Also in connection with the public offering, the Company issued five year
warrants to purchase an aggregate of 95,250 shares of common stock at $6.50 per
share to the underwriters for the offering. Such warrants are exercisable
commencing one year from the date of issuance through August 14, 2012.
At September 30, 2007 the outstanding warrants by range of exercise prices are
as follows:
Weighted Average
Remaining Number
Number Outstanding Contractual Exercisable
Exercise Price September 30, 2007 Life (years) September 30, 2007
---------------- ------------------ ---------------- ------------------
$4.70 to $6.16 869,011 4.52 794,011
$6.16 to $7.62 95,250 4.80 -
$7.62 to $10.54 1,088,678 4.67 1,088,678
$10.54 to $12.00 31,999 1.27 31,999
----------- -----------
2,084,938 1,914,688
=========== ===========
Options:
The Company's 2003 Equity Participation Plan (the "Plan") permits the grant of
share options and shares to its employees, Directors, consultants and advisors
for up to 2,500,000 shares of common stock as stock compensation. Stock options
under the Equity Participation Plan are generally granted at the fair market
value of the common stock at the grant date, vest ratably over a period
determined at the time of grant (unless milestone based) and generally expire 10
years from the grant date.
-11-
The Company's results for the nine month periods ended September 30, 2007 and
2006 include share-based compensation expense totaling $1,471,505 and
$1,957,017, respectively. Such amounts have been included in the consolidated
statements of operations within general and administrative expenses.
Stock option compensation expense is the estimated fair value of options granted
amortized on a straight-line basis over the requisite service period for the
entire portion of the award.
The range of assumptions made in calculating the fair values of options are as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------------
2007 2006 2007 2006
-------------- ------ -------------- -------------
Expected term (in years) 10 10 10 10
Expected volatility 343% to 346% 179% 133% to 346% 179% to 199%
Expected dividend yield 0% 0% 0% 0%
Risk-free interest rate 4.58% to 4.95% 4.50% 4.51% to 4.95% 4.50%
Stock option activity under the 2003 Equity Participation Plan is as
follows:
Weighted
Weighted Average
Number of Range of Average Remaining Aggregate
Shares Exercise Exercise Contractual Intrinsic
(1) Price Price Term Value
--------- -------------- ---------- ----------- ----------
Balance at December 31, 2006 444,600 $3.00 - $25.00 $ 7.29
Granted 616,200 $ 2.70 - $8.00 $ 4.99
Exercised - - -
Expired - - -
Cancelled - - -
--------- --------------
Balance at September 30, 2007 1,060,800 $2.70 - $25.00 $ 5.95 8.22 $73,190
========= ==============
Vested and Exercisable at
September 30, 2007 559,132 $ 6.09 7.19 $58,180
(1) -- All options are exercisable for a period of ten years.
Weighted Average
Remaining Number
Number Outstanding Contractual Exercisable
Exercise Price September 30, 2007 Life (years) September 30, 2007
---------------- ------------------ ---------------- ------------------
$2.70 to $ 5.76 743,300 9.46 368,966
$5.76 to $ 8.82 220,650 8.79 119,316
$8.82 to $11.88 55,750 8.28 41,750
$11.88 to $14.94 3,000 6.42 3,000
$14.94 to $25.00 38,100 7.77 26,100
----------- -----------
1,060,800 8.22 559,132
=========== ===========
Options are usually granted at an exercise price at least equal to the fair
value of the common stock at the grant date and may be granted to employees,
directors, consultants and advisors of the Company.
-12-
As of September 30, 2007, there was approximately $2,449,253 of total
unrecognized compensation costs related to unvested stock option awards which
are expected to vest over a weighted average life of .91 years.
Weighted
Average Grant
Options Date Fair Value
----------- -----------------
Non-Vested at December 31, 2006 211,583 $ 6.22
Issued 616,200 $ 5.14
Canceled - -
Vested (326,115) $ 6.42
----------- -----------------
Non-Vested at September 30, 2007 501,668 $ 5.45
=========== =================
The total value of shares vested during the nine months ended September 30, 2007
was $2,045,400.
Note 7 - Segment Information
- ----------------------------
Until April 30, 2001, the Company operated in two segments; as a reinsuror and
as a seller of extended warranty service contracts through the Internet. The
reinsurance segment has been discontinued and the Company's remaining revenues
are derived from the run-off of its sale of extended warranties and service
contracts via the Internet. Additionally, the Company established a new business
in the banking of adult autologous stem cells sector. The Company's operations
are conducted entirely in the U.S. Although the Company has realized minimal
revenue from the banking of adult autologous stem cells, the Company operated in
two segments until the "run-off" was completed. As of March 31, 2007 the run off
of the sale of extended warranties and service contracts was completed.
Note 8 - Related Party Transactions
- -----------------------------------
On January 20, 2006, Mr. Robert Aholt, Jr. tendered his resignation as Chief
Operating Officer of the Company. In connection therewith, on March 31, 2006,
the Company and Mr. Aholt entered into a Settlement Agreement and General
Release (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the
Company agreed to pay to Mr. Aholt the aggregate sum of $250,000 (less
applicable Federal and California state and local withholdings and payroll
deductions), payable, initially over a period of two years in biweekly
installments of $4,807.69 commencing on April 7, 2006, except that the first
payment was in the amount of $9,615. In July, 2006 this agreement was amended to
call for semi-monthly payments of $10,417 for the remaining 21 months. In the
event the Company breaches its payment obligations under the Settlement
Agreement and such breach remains uncured, the full balance owed shall become
due. The Company and Mr. Aholt each provided certain general releases. Mr. Aholt
also agreed to continue to be bound by his obligations not to compete with the
Company and to maintain the confidentiality of Company proprietary information.
At September 30, 2007, $55,690 was due Mr. Aholt pursuant to the terms of the
Settlement Agreement.
In July and August 2007 the Company borrowed an aggregate of $200,200 through
the issuance of short term bridge notes to support operations pending the
closing of the Company's August 2007 public offering described in Note 6. These
bridge notes provided that they matured in six months from the date of issuance
of the bridge note, subject to the Company's right to prepay, and bore interest
at a rate of 15% per annum. Robin L. Smith MD, Chief Executive Officer and
Chairman of the Board of the Company was issued a bridge note for $125,000 and
Richard Berman, a member of the Board of Directors, was issued a bridge note for
$50,000. On August 10, 2007, the Board authorized the repayment in full of the
bridge notes and all outstanding bridge notes were repaid in full plus accrued
interest.
Note 9 - Subsequent Events
- --------------------------
On November 13, 2007, the Company entered into an acquisition agreement with
UTEK Corporation ("UTEK") and Stem Cell Technologies, Inc., a wholly-owned
subsidiary of UTEK ("SCTI"), pursuant to which the Company acquired all the
issued and outstanding common stock of SCTI in a stock-for-stock exchange. SCTI
contains an exclusive, worldwide license to a technology developed by
researchers at the University of Louisville to identify and isolate rare stem
cells from adult human bone marrow, called VSELs (very small embryonic like)
stem cells. Concurrent with the SCTI acquisition, NeoStem entered into a
sponsored research agreement with the University of Louisville under which
NeoStem will support further research in the laboratory of Dr. Ratajczak. This
agreement calls for total payments of $375,000 over a period of two and one-half
years. SCTI was funded by UTEK in amounts sufficient to pay certain near term
costs under the license agreement and the sponsored research agreement. In
consideration for the Acquisition, the Company issued to UTEK 400,000
unregistered shares of its common stock, par value $0.001 per share (the
"NeoStem Shares") for all the issued and outstanding common stock of SCTI. The
value of the transaction is estimated to be $940,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Quarterly Report on Form 10-QSB and the documents incorporated herein
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. When used
in this Quarterly Report, statements that are not statements of current or
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "plan", "intend," "may," "will," "expect," "believe",
"could," "anticipate," "estimate," or "continue" or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Except
as required by law, the Company undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
-13-
GENERAL
The Company is a leading-edge biotechnology company capitalizing on
breakthroughs in the burgeoning field of adult stem cell therapeutics. The
Company's platform business is operating a commercial autologous (donor and
recipient are the same) adult stem cell bank, and we are pioneering the
pre-disease collection, processing and long-term storage of stem cells from
healthy adult donors. The proprietary Company technologies empower
health-conscious consumers to help protect their future health by undergoing
treatment with their own stem cells, providing an accessible supply of healthy,
genetically matched stem cells. Otherwise finding a compatible allogeneic match
is often a lengthy process wasting precious treatment time. The Company has
begun opening a nationwide network of adult stem cell collection centers in
major metropolitan areas enabling people to donate and store their own stem
cells with NeoStem for personal use years or decades later in times of critical
medical need. The Company also hopes to become the leading provider of adult
stem cells for diagnostic and therapeutic use in the burgeoning field of
regenerative medicine. According to the National Institutes of Health, there are
over 750 clinical trials underway relating to the use of adult stem cells, with
over 240 relating to autologous use. Leading medical researchers believe that
certain stem cell therapies will come to market over the next 5-10 years.
According to industry sources, worldwide therapeutic applications of stem cells
could reach $20 billion by 2010.
On January 19, 2006 the Company consummated the acquisition of the assets of NS
California, Inc., a California corporation ("NS California") relating to NS
California's business of collecting, processing and storing adult stem cells. NS
California had been a company to which NeoStem had been providing business
guidance. Effective with the acquisition, the business of NS California became
the principal business of the Company. Until the NS California acquisition, the
business of the Company was providing capital and business guidance to companies
in the healthcare and life science industries, in return for a percentage of
revenues, royalty fees, licensing fees and other product sales of the target
companies. Additionally, through June 30, 2002, the Company was a provider of
extended warranties and service contracts via the Internet at
warrantysuperstore.com. From June 2002 to March 2007 the Company was engaged in
the "run off" of such extended warranties and service contracts. As of March 31,
2007 the recognition of revenue from the sale of extended warranties and service
contracts was completed.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2007 Compared To Three and Nine Months
Ended September 30, 2006
The Company's platform business is to develop a nationwide network of adult stem
cell collection centers and medical providers, enabling health conscious
consumers to donate and store their own stem cells with NeoStem for personal use
years or decades later in times of critical medical need. Medical providers that
are interested in participating in providing this service to patients in their
local area are required to pay a start up fee in consideration for exclusivity
in that service area. Sales and marketing efforts to create this network started
in the fourth quarter of 2006 and continued in the quarter ending September 30,
2007. To that end the Company has opened three collection centers through
September 30, 2007, signed agreements for two additional collection centers
since September 30, 2007 and continues to pursue more centers in important
strategic regional areas, and has recognized revenues of $0 and $54,000 from the
receipt of start up fees in the three and nine months ended September 30, 2007,
respectively. During the 3 months ended September 30, 2007 the Company banked
adult stem cells from 2 clients and recognized collection revenues of
approximately $12,000. During the 9 months ended September 30, 2007 the Company
recognized collection revenues of approximately $18,000.
The Company has also recognized revenues from the sale of extended warranties
and service contracts of $0 and $1,697 for the three and nine months ended
September 30, 2007 as compared to $6,262 and $18,786 for the three and nine
months ended September 30, 2006. These revenues were derived entirely from
revenues deferred over the life of extended warranties and service contracts
sold in prior periods. As of March 31, 2007 the recognition of revenue from the
sale of extended warranties and service contracts was completed.
Selling, general and administration expenses for the three months ended
September 30, 2007 increased approximately $3,327,700 to $4,327,512 as compared
to $999,825 for the three months ended September 30, 2006. Since the acquisition
of NS California in January, 2006 the Company's expenses have been increasing as
the Company initiated sales and marketing efforts to promote the collection,
processing and banking of adult stem cells. The increase in selling, general and
administrative expenses is primarily due to increases in marketing efforts
through the hiring of staff, preparation of marketing materials, attending key
marketing events and retaining the services of specialized marketing consulting
firms. A substantial portion of the increase is also due to the compensatory
element of stock option and stock awards granted under the Company's 2003 Equity
Participation Plan to certain officers, employees and consultants to the
Company. To that end payroll and related expenses increased $231,817, travel and
entertainment expenses increased $86,071, marketing expenses increased $101,727,
investor relations and public relations activities increased $281,874, and
consulting fees increased $221,236 (approximately $118,000 of this increase was
paid in common stock). During the quarter a number of business milestones were
achieved, including but not limited to the Company's securities being listed on
the American Stock Exchange and completing the Company's public offering in
August 2007 which raised $5,579,300 in aggregate net proceeds. These events
triggered the vesting of certain stock options and a related compensation
charge. In September 2007 the Board of Directors approved the issuance of
incentive stock options which called for approximately one-half of these options
to vest immediately. This has resulted in an increase in compensatory value of
common stock options granted by $1,395,113. Compensation associated with the
issuance of common stock to officers, employees and consultants increased
$508,333 which was primarily the result of a Board of Directors action in
September 2007 which approved the issuance of common stock to such officers,
employees and consultants; one-half of these grants vested immediately and the
balance vest on the anniversary date of the stock grant which has resulted in a
charge to operations of $414,257. Director fees increased $396,971. This
increase was primarily the result of a Board of Directors action in September
2007 which approved the issuance of common stock to the independent board
members; one-half of these grants vested immediately and the balance vest on the
anniversary date of the stock grant which has resulted in a charge to operations
of $361,970. Legal expenses primarily relating to the Company's regulatory
activities in connection with the build-out of its collection center network and
the pursuit of intellectual property rights, increased $109,995.
-14-
Selling, general and administration expenses increased for the nine months ended
September 30, 2007 approximately $5,184,000 to $8,163,258 as compared to
$2,978,725 for the nine months ended September 30, 2006. Since the acquisition
of NS California in January, 2006 the Company's expenses have been increasing as
the Company initiated sales and marketing efforts to promote the collection and
banking of adult stems cells. The increase in selling, general and
administrative expenses is primarily due to increases in marketing efforts
through the hiring of staff, preparation of marketing materials, attending key
marketing events and retaining the services of specialized marketing consulting
firms. To that end payroll and related expenses increased $443,311, marketing
expenses increased $110,186, travel and entertainment expenses increased
$257,578, consulting fees increased $482,006 ($237,351 of this increase was paid
in the form of warrants and common stock), investor relations and public
relations activities increased $889,512 ($379,205 of this increase was paid in
the form of warrants and common stock). As noted above, certain business
milestones were achieved which triggered the vesting of certain stock options.
As also noted above, in September 2007 the Board of Directors approved the
issuance of incentive stock options which called for approximately one-half of
these options to vest immediately which is the primary reason for an increase in
the compensatory value of common stock options of $1,685,492. Compensation
associated with the issuance of common stock to officers, employees and
consultants increased $489,633 which was primarily the result of a Board of
Directors action in September 2007 which approved the issuance of common stock
to such officers, employees and consultants; one-half of these grants vested
immediately and the balance vest on the anniversary date of the stock grant
which has resulted in a charge to operations of $414,257. Director fees
increased $466,973. This was primarily the result of a Board of Directors action
in September 2007 which approved the issuance of common stock to the independent
board members; one-half of these grants vested immediately and the balance vest
on the anniversary date of the stock grant, which has resulted in a charge to
operations of $361,970. The Company also issued 30,000 shares of its Common
Stock, resulting in a charge to operating expenses of $165,000, to a financial
advisor in connection with a commitment for the placement of up to $3,000,000 of
the Company's preferred stock. The Company applied for licensure for stem cell
processing in New York which resulted in additional expenses of $54,200. Legal
expenses have increased by $291,876 and increases in expenses such as accounting
fees, rent, stock transfer fees and other operating expenses were offset by
decreases in settlement expenses with the Company's former Chief Operating
Officer, investment banking fees, and insurance resulting in an overall
reduction in expenses of $151,234.
Interest expense for the three months and nine months ended September 30, 2007
decreased $808,300 and $1,199,800 in comparison to the three and nine months
ended September 30, 2006, respectively. This decrease is due, primarily, to the
conversion or payoff of the WestPark convertible debt issued in December 2005
and January 2006 which resulted in a $198,093 reduction in interest expense.
For the reasons cited above the net loss for the three months ended September
30, 2007 increased to $4,327,645 from $1,807,307 for the three months ended
September 30, 2006 and the net loss for the nine months ended September 30, 2007
increased to $8,102,241 from $4,193,956 for the nine months ended September 30,
2006.
-15-
LIQUIDITY AND CAPITAL RESOURCES
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period indicated:
Nine Months Ended
-----------------
September 30, September 30,
2007 2006
------------- -------------
Cash used in
Operating Activities $ (4,548,486) $ (2,867,685)
Cash used in
Investing Activities $ (66,723) $ (13,073)
Cash provided by
Financing Activities $ 7,827,387 $ 3,712,370
The Company incurred a net loss of $8,102,241 for the nine months ended
September 30, 2007. Such loss adjusted for non-cash charges consisting of common
stock, options and warrants issued for services totaling $3,976,450 and
amortization and depreciation of $31,013 resulted in cash used in operations
totaling $4,548,486 for the nine months ended September 30, 2007. This use of
cash included additions to prepaid expenses and other current assets of $33,338,
accounts receivable of $36,419 and reductions in accounts payable, accrued
expenses and other current liabilities of $450,592.
To meet its cash requirements for the nine months ended September 30, 2007, the
Company relied primarily on the sale of its securities resulting in net proceeds
of $7,899,377, including, as discussed below, approximately $5,579,300 from the
public offering in August, 2007. In addition, the Company incurred new debt
totaling $338,432 to finance certain insurance policies for the company and
short term bridge notes to fund operations in July and August 2007, as discussed
below, offset by debt repayments totaling $395,194 to pay off WestPark
Convertible debt of $75,000, payments of $79,860 for new debt incurred to
finance insurance policies and $200,200 to pay off the short term bridge notes
issued in July and August 2007.
In July and August 2007 the Company borrowed an aggregate of $200,200 through
the issuance of short term bridge notes to support operations pending the
closing of the public offering described below. These bridge notes provided that
they matured in six months from the date of issuance, subject to the Company's
right to prepay, and bore interest at a rate of 15% per annum. Robin L. Smith
MD, Chief Executive Officer and Chairman of the Board of the Company was issued
a bridge note for $125,000 and Richard Berman, a member of the Board of
Directors, was issued a bridge note for $50,000. On August 10, 2007, the Board
authorized the repayment in full of the bridge notes and all outstanding bridge
notes were repaid in full plus accrued interest
On August 8, 2007, the Company completed a sale of 1,055,900 units at a price of
$5.00 per unit pursuant to a best efforts public offering. Each unit consisted
of one share of common stock and one-half a five year Class A warrant to
purchase one-half a share of common stock. Each whole Class A warrant is
exercisable at $6.00 per share. On August 14, 2007 the Company completed a sale
of 214,100 units at a price of $5.00 per unit pursuant to the same best efforts
public offering. The aggregate number of units thus sold was 1,270,000 with
gross proceeds of $6,350,000, the aggregate number of shares of common stock
included within the units was 1,270,000 and the aggregate number of Class A
Warrants included within the units was 535,000. In connection with the public
offering, the Company issued five year warrants to purchase an aggregate of
95,250 shares of common stock at $6.50 per share to the underwriters for the
offering. After payment of underwriting commissions and expenses and other costs
of the offering, the aggregate net proceeds to the Company were $5,579,300.
The Company may from time to time pursue strategic relationships, including
acquisitions, with the goal of improving operating efficiencies and taking
advantage of opportunities synergistic to its platform business.
INFLATION
The Company does not believe that its operations have been materially influenced
by inflation for the nine months ended September 30, 2007, a situation which is
expected to continue for the foreseeable future.
-16-
ITEM 3 CONTROLS AND PROCEDURES
(a) Our chief executive officer and chief financial officer have
concluded, based on their evaluation of the effectiveness of our
"disclosure controls and procedures" as of the end of the period
covered by this quarterly report on Form 10-QSB (as defined under Rule
13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934)
were effective as of such date to ensure that information we are
required to disclose in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms, and include
controls and procedures designed to ensure that information we are
required to disclose in such reports is accumulated and communicated
to management, including our principal executive, as appropriate, to
allow timely decisions regarding required disclosure. Due to the
inherent limitations of control systems, not all misstatements may be
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and the breakdowns can
occur because of a simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion
of two or more people, or by management override of the control. Our
controls and procedures can only provide reasonable, not absolute,
assurance that the above objectives have been met.
(b) During our last fiscal quarter and subsequent to our evaluation, there
were no changes in internal controls that have materially affected, or
are reasonably likely to materially affect, our internal controls over
financial reporting.
-17-
NEOSTEM, INC.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In July, 2007 the Company issued 909 shares of its Common Stock to DC Associates
LLC, in partial payment of rent expense on its executive office space which the
Company currently subleases from DC Associates LLC. Such shares had a per share
price of $5.50 for a total value of $5,000.
In August 2007, the Company issued five year warrants to purchase an aggregate
of 95,250 shares of Common Stock at $6.50 per share, to the participating
underwriters in its August 2007 public offering of 1,270,000 units consisting of
shares of Common Stock and Class A Warrants to purchase Common Stock. The shares
underlying the underwriter warrants were registered under the Securities Act of
1933, as amended (the "Securities Act").
The offer and sale of the securities described above were made in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act,
for transactions by an issuer not involving a public offering. The offer and
sale of such securities were made without general solicitation or advertising to
an "accredited investor," as such term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
10.1 Restated Warrant Agreement dated August 14, 2007 between NeoStem, Inc.
and Continental Stock Transfer & Trust Company.
10.2 Form of Underwriter Warrant dated August 14, 2007.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
-18-
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEOSTEM, INC. (Registrant)
By: /s/ Robin Smith, MD
-------------------
Robin Smith MD,
Chief Executive Officer
Date: November 14, 2007
By: /s/ Larry A. May
-------------------
Larry A. May,
Chief Financial Officer
Date: November 14, 2007
-19-
Exhibit 10.1
RESTATED WARRANT AGREEMENT
THIS AGREEMENT, made as of August 14, 2007 between NeoStem, Inc., a
Delaware corporation, with offices at 420 Lexington Avenue, Suite 450, New York,
New York 10170 ("Company"), and Continental Stock Transfer & Trust Company, a
New York corporation, with offices at 17 Battery Place, New York, New York 10004
("Warrant Agent").
WHEREAS, the Company is engaged in a public offering ("Public Offering") of
Units ("Units"), and in connection therewith, has determined to issue and
deliver up to 1,270,000 Units at a price of $5.00 per unit, through Mercer
Capital Ltd. (the "Underwriter") and other broker/dealers (arranged by the
Underwriter) who are members of the National Association of Securities Dealers
(NASD). Each Unit consists of one share of the Company's common stock and
one-half a Class A warrant to purchase one-half share of the Company's common
stock, par value $0.001 per share.
WHEREAS, in connection with the Public Offering, the Company has determined
to issue and deliver up to 635.000 Class A Warrants ("Warrants"); and
WHEREAS, the Warrants will trade only as a part of a Unit for 60 days
following the final closing of the offering unless separate trading is
authorized earlier by the Underwriter. Each Warrant will entitle its owner to
purchase one share of the Company's common stock for $6.00; and
WHEREAS, the Company has filed on July 16, 2007 with the Securities and
Exchange Commission a Registration Statement on Form SB-2/A, No. 333-142923 as
Pre-Effective Amendment No.3 ("Registration Statement"), for the registration,
under the Securities Act of 1933, as amended ("Act") of, among other securities,
the Warrants and the common stock issuable upon exercise of the Warrants; and
WHEREAS, the final closing occurred on August 14, 2007 and all 1,270,000
Units have been sold; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange, redemption and exercise of the
Warrants; and
WHEREAS, the Company desires to provide for the form and provisions of the
Warrants, the terms upon which they shall be issued and exercised, and the
respective rights, limitation of rights, and immunities of the Company, the
Warrant Agent, and the holders of the Warrants; and
WHEREAS, all acts and things have been done and performed which are
necessary to make the Warrants, when executed on behalf of the Company and
countersigned by or on behalf of the Warrant Agent, as provided herein, the
valid, binding and legal obligations of the Company, and to authorize the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
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SECTION 1: APPOINTMENT OF WARRANT AGENT
1.1 Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent
to act as agent for the Company for the Warrants, and the Warrant Agent hereby
accepts such appointment and agrees to perform the same in accordance with the
terms and conditions set forth in this Agreement.
SECTION 2: WARRANTS
2.1. Form of Warrant. Each Warrant shall be issued in registered form only,
shall be in substantially the form of the Warrant Certificate annexed as Exhibit
A hereto, the provisions of which are incorporated herein and shall be signed
by, or bear the facsimile signature of, the Chairman of the Board or President
and Treasurer or Secretary of the Company and shall bear a facsimile of the
Company's seal. In the event the person whose facsimile signature has been
placed upon any Warrant shall have ceased to serve in the capacity in which such
person signed the Warrant before such Warrant is issued, it may be issued with
the same effect as if he or she had not ceased to be such at the date of
issuance.
2.2. Effect of Countersignature. Unless and until countersigned by the Warrant
Agent pursuant to this Agreement, a Warrant shall be invalid and of no effect
and may not be exercised by the holder thereof.
2.3. Registration.
2.3.1. Warrant Register. The Warrant Agent shall maintain books ("Warrant
Register"), for the registration of original issuance and the registration of
transfer of the Warrants. Upon the initial issuance of the Warrants, the Warrant
Agent shall issue and register the Warrants in the names of the respective
holders thereof in such denominations and otherwise in accordance with
instructions delivered to the Warrant Agent by the Company.
2.3.2. Registered Holder. Prior to due presentment for registration of
transfer of any Warrant, the Company and the Warrant Agent may deem and treat
the person in whose name such Warrant shall be registered upon the Warrant
Register ("registered holder"), as the absolute owner of such Warrant and of
each Warrant represented thereby (notwithstanding any notation of ownership or
other writing on the Warrant Certificate made by anyone other than the Company
or the Warrant Agent), for the purpose of any exercise thereof, and for all
other purposes, and neither the Company nor the Warrant Agent shall be affected
by any notice to the contrary.
2.4. Detachability of Warrants. The securities comprising the Units will not be
separately transferable until October 13, 2007 (60 days after the final closing)
unless the Underwriter informs the Company of its decision to allow earlier
separate trading.
SECTION 3: TERMS AND EXERCISE OF WARRANTS
3.1. Warrant Price. Each Warrant shall, when countersigned by the Warrant Agent,
entitle the registered holder thereof, subject to the provisions of such Warrant
and of this Warrant Agreement, to purchase from the Company the number of shares
of Common Stock stated therein, at the price of $6.00 (the "Warrant Price"),
subject to (i) the adjustments provided in Section 4 hereof, and (ii) subject to
redemption as provided in Section 6 hereof. The term "Warrant Price" refers to
the price per share at which common stock may be purchased at the time a Warrant
is exercised.
3.2 Duration of Warrants. A Warrant may be exercised only during the period
("Exercise Period") commencing on the date the Warrants become separately
tradable pursuant to Section 2.4 of this Warrant Agreement and thereafter until
5:00 PM New York time on July 16, 2012, unless earlier redeemed ("Expiration
Date"). Except with respect to the right to receive the Redemption Price (as set
forth in Section 6 hereunder), each Warrant not exercised on or before the
Expiration Date shall become void, and all rights thereunder and all rights in
respect thereof under this Agreement shall cease at the close of business on the
Expiration Date. The Company in its sole discretion may extend the duration of
the Warrants by delaying the Expiration Date.
3.3. Exercise of Warrants.
3.3.1. Payment. Subject to the provisions of the Warrant and this Warrant
Agreement, a Warrant, when countersigned by the Warrant Agent, may be exercised
by the registered holder thereof by surrendering it, at the office of the
Warrant Agent, or at the office of its successor as Warrant Agent, in the
Borough of Manhattan, City and State of New York, with the subscription form, as
set forth in the Warrant, duly executed, and by paying in full, in lawful money
of the United States, in cash, good certified check or good bank draft payable
to the order of the Company, the Warrant Price for each full share of Common
Stock as to which the Warrant is exercised and any and all applicable taxes due
in connection with the exercise of the Warrant, the exchange of the Warrant for
the Common Stock, and the issuance of the Common Stock.
3.3.2. Issuance of Certificates. As soon as practicable after the exercise
of any Warrant and the clearance of the funds in payment of the Warrant Price,
the Company shall issue to the registered holder of such Warrant a certificate
or certificates for the number of full shares of Common Stock to which he is
entitled, registered in such name or names as may be directed by him, and if
such Warrant shall not have been exercised in full, a new countersigned Warrant
for the number of shares as to which such Warrant shall not have been exercised.
Notwithstanding the foregoing, the Company shall not be obligated to deliver any
securities pursuant to the exercise of a Warrant unless a registration statement
under the Act with respect to the Common Stock is effective. Warrants may not be
exercised by, or securities issued to, any registered holder in any state in
which such exercise would be unlawful.
3.3.3. Valid Issuance. All shares of Common Stock issued upon the proper
exercise of a Warrant in conformity with this Agreement shall be validly issued,
fully paid and nonassessable.
3.3.4. Date of Issuance. Each person in whose name any such certificate for
shares of Common Stock is issued shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price was made, irrespective of the date
of delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
SECTION 4: ADJUSTMENTS
4.1. Stock Dividends--Split-Ups. If after the date hereof, and subject to the
provisions of Section 4.6 below, the number of outstanding shares of Common
Stock is increased by a stock dividend payable in shares of Common Stock, or by
a split-up of shares of Common Stock, or other similar event, then, on the
effective date of such stock dividend, split-up or similar event, the number of
shares issuable on exercise of each Warrant shall be increased in proportion to
such increase in outstanding shares.
4.2 Aggregation of Shares. If after the date hereof, and subject to the
provisions of Section 4.6, the number of outstanding shares of Common Stock is
decreased by a consolidation, combination, reverse stock split or
reclassification of shares of Common Stock or other similar event, then, on the
effective date of such consolidation, combination, reverse stock split,
reclassification or similar event, the number of shares issuable on exercise of
each Warrant shall be decreased in proportion to such decrease in outstanding
shares.
4.3 Adjustments in Exercise Price. Whenever the number of shares of Common Stock
purchasable upon the exercise of the Warrants is adjusted, as provided in
Section 4.1 and 4.2 above, the Warrant Price shall be adjusted (to the nearest
cent) by multiplying such Warrant Price immediately prior to such adjustment by
a fraction (x) the numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise of the Warrants immediately prior to such
adjustment, and (y) the denominator of which shall be the number of shares of
Common Stock so purchasable immediately thereafter.
4.4 Replacement of Securities upon Reorganization, etc. In case of any
reclassification or reorganization of the outstanding shares of Common Stock
(other than a change covered by Section 4.1 or 4.2 hereof or that solely affects
the par value of such shares of Common Stock), or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is dissolved,
the Warrant holders shall thereafter have the right to purchase and receive,
upon the basis and upon the terms and conditions specified in the Warrants and
in lieu of the shares of Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented thereby,
the kind and amount of shares of stock or other securities or property
(including cash) receivable upon such reclassification, reorganization, merger
or consolidation, or upon a dissolution following any such sale or transfer, by
a Warrant holder of the number of shares of Common Stock of the Company
obtainable upon exercise of the Warrants immediately prior to such event; and if
any reclassification also results in a change in shares of Common Stock covered
by Section 4.1 or 4.2, then such adjustment shall be made pursuant to Sections
4.1, 4.2, 4.3 and this Section 4.4. The provisions of this Section 4.4 shall
similarly apply to successive reclassifications, reorganizations, mergers or
consolidations, sales or other transfers.
4.5. Notices of Changes in Warrant. Upon every adjustment of the Warrant Price
or the number of shares issuable on exercise of a Warrant, the Company shall
give written notice thereof to the Warrant Agent, which notice shall state the
Warrant Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of a
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Upon the occurrence of any event
specified in Sections 4.1, 4.2, or 4.4, then, in any such event, the Company
shall give written notice to the Warrant holder, at the last address set forth
for such holder in the warrant register, of the record date or the effective
date of the event. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of such event.
4.6. Fractional Shares. Notwithstanding any provision contained in this Warrant
Agreement to the contrary, the Company shall retain the option not to issue
fractional shares upon exercise of Warrants. If, by reason of any adjustment
made pursuant to this Section 4, the holder of any Warrant would be entitled,
upon the exercise of such Warrant, to receive a fractional interest in a share,
the Company may, upon such exercise, either deliver fractional shares of Common
Stock to be issued to the Warrant holder, or round to the nearest whole share,
or pay the fractional share in cash at the market price at the close of business
on the date the Warrant is exercised.
4.7. Form of Warrant. The form of Warrant need not be changed because of any
adjustment pursuant to this Section 4, and Warrants issued after such adjustment
may state the same Warrant Price and the same number of shares as is stated in
the Warrants initially issued pursuant to this Agreement. However, the Company
may at any time in its sole discretion make any change in the form of Warrant
that the Company may deem appropriate and that does not affect the substance
thereof, and any Warrant thereafter issued or countersigned, whether in exchange
or substitution for an outstanding Warrant or otherwise, may be in the form as
so changed.
SECTION 5: TRANSFER AND EXCHANGE OF WARRANTS
5.1 Registration of Transfer. The Warrant Agent shall register the transfer,
from time to time, of any outstanding Warrant upon the Warrant Register, upon
surrender of such Warrant for transfer, properly endorsed with signatures
properly guaranteed and accompanied by appropriate instructions for transfer.
Upon any such transfer, a new Warrant representing an equal aggregate number of
Warrants shall be issued and the old Warrant shall be cancelled by the Warrant
Agent. The Warrants so cancelled shall be delivered by the Warrant Agent to the
Company from time to time upon request.
5.2. Procedure for Surrender of Warrants. Warrants may be surrendered to the
Warrant Agent, together with a written request for exchange or transfer, and
thereupon the Warrant Agent shall issue in exchange therefor one or more new
Warrants as requested by the registered holder of the Warrants so surrendered,
representing an equal aggregate number of Warrants; provided, however, that in
the event that a Warrant surrendered for transfer bears a restrictive legend,
the Warrant Agent shall not cancel such Warrant and issue new Warrants in
exchange therefor until the Warrant Agent has received an opinion of counsel for
the Company stating that such transfer may be made and indicating whether the
new Warrants must also bear a restrictive legend.
5.3. Fractional Warrants. The Warrant Agent shall not be required to effect any
registration of transfer or exchange which will result in the issuance of a
warrant certificate for a fraction of a warrant.
5.4. Service Charges. No service charge shall be made for any exchange or
registration of transfer of Warrants.
5.5. Warrant Execution and Countersignature. The Warrant Agent is hereby
authorized to countersign and to deliver, in accordance with the terms of this
Agreement, the Warrants required to be issued pursuant to the provisions of this
Section 5, and the Company, whenever required by the Warrant Agent, will supply
the Warrant Agent with Warrants duly executed on behalf of the Company for such
purpose.
SECTION 6: REDEMPTION
6.1. Redemption. All or any part of the outstanding Warrants may be redeemed ,
at the option of the Company, at any time after they become exercisable and
prior to their expiration, at the office of the Warrant Agent, upon the notice
referred to in Section 6.2, at the price of $.001 per Warrant ("Redemption
Price"), provided that the Company's stock closes at a price equal to or
exceeding $8.00 (subject to the adjustments proportional to the adjustments to
the Warrant Price provided in Section 4 hereof) for 20 consecutive trading days
on its principal trading market.
6.2. Date Fixed for, and Notice of, Redemption. In the event the Company shall
elect to redeem all of the Warrants, the Company shall fix a date for the
redemption. Notice of redemption shall be mailed by first class mail, postage
prepaid, by the Company not less than 30 days prior to the date fixed for
redemption to the registered holders of the Warrants to be redeemed at their
last addresses as they shall appear on the registration books. Any notice mailed
in the manner herein provided shall be conclusively presumed to have been duly
given whether or not the registered holder received such notice.
6.3. Exercise After Notice of Redemption. The Warrants may be exercised in
accordance with Section 3 of this Agreement at any time after notice of
redemption shall have been given by the Company pursuant to Section 6.2. hereof
and prior to the time and date fixed for redemption, which time shall be 5:00 PM
New York time. On and after the redemption date, the record holder of the
Warrants shall have no further rights except to receive, upon surrender of the
Warrants, the Redemption Price.
SECTION 7. OTHER PROVISIONS RELATING TO RIGHTS OF WARRANT HOLDERS
7.1. No Rights as Stockholder. A Warrant does not entitle the registered holder
thereof to any of the rights of a stockholder of the Company, including, without
limitation, the right to receive dividends, or other distributions, exercise any
preemptive rights to vote or to consent or to receive notice as stockholders in
respect of the meetings of stockholders or the election of directors of the
Company or any other matter.
7.2. Lost, Stolen, Mutilated, or Destroyed Warrants. If any Warrant is lost,
stolen, mutilated, or destroyed, the Company and the Warrant Agent may on such
terms as to indemnity or otherwise as they may in their discretion impose (which
may include a surety bond and shall, in the case of a mutilated Warrant, include
the surrender thereof), issue a new Warrant of like denomination, tenor, and
date as the Warrant so lost, stolen, mutilated, or destroyed. Any such new
Warrant shall constitute a substitute contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated, or destroyed Warrant shall
be at any time enforceable by anyone.
7.3. Reservation of Common Stock. The Company shall at all times reserve and
keep available a number of its authorized but unissued shares of Common Stock
that will be sufficient to permit the exercise in full of all outstanding
Warrants issued pursuant to this Agreement.
SECTION 8. CONCERNING THE WARRANT AGENT AND OTHER MATTERS
8.1. Payment of Taxes. The Company will from time to time promptly pay all taxes
and charges that may be imposed upon the Company or the Warrant Agent in respect
of the issuance or delivery of shares of Common Stock upon the exercise of
Warrants, but the Company shall not be obligated to pay any transfer taxes in
respect of the Warrants or such shares.
8.2. Resignation, Consolidation, or Merger of Warrant Agent.
8.2.1. Appointment of Successor Warrant Agent. The Warrant Agent, or any
successor to it hereafter appointed, may resign its duties and be discharged
from all further duties and liabilities hereunder after giving sixty (60) days'
notice in writing to the Company. If the office of the Warrant Agent becomes
vacant by resignation or incapacity to act or otherwise, the Company shall
appoint in writing a successor Warrant Agent in place of the Warrant Agent. If
the Company shall fail to make such appointment within a period of 30 days after
it has been notified in writing of such resignation or incapacity by the Warrant
Agent or by the holder of the Warrant (who shall, with such notice, submit his
Warrant for inspection by the Company), then the holder of any Warrant may apply
to the Supreme Court of the State of New York for the County of New York for the
appointment of a successor Warrant Agent. Any successor Warrant Agent, whether
appointed by the Company or by such court, shall be a corporation organized and
existing under the laws of the State of New York, in good standing and having
its principal office in the Borough of Manhattan, City and State of New York,
and authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by federal or state authority. After appointment, any
successor Warrant Agent shall be vested with all the authority, powers, rights,
immunities, duties, and obligations of its predecessor Warrant Agent with like
effect as if originally named as Warrant Agent hereunder, without any further
act or deed; but if for any reason it becomes necessary or appropriate, the
predecessor Warrant Agent shall execute and deliver, at the expense of the
Company, an instrument transferring to such successor Warrant Agent all the
authority, powers, and rights of such predecessor Warrant Agent hereunder; and
upon request of any successor Warrant Agent the Company shall make, execute,
acknowledge, and deliver any and all instruments in writing for more fully and
effectually vesting in and confirming to such successor Warrant Agent all such
authority, powers, rights, immunities, duties, and obligations.
8.2.2. Notice of Successor Warrant Agent. In the event a successor Warrant
Agent shall be appointed, the Company shall give notice thereof to the
predecessor Warrant Agent and the transfer agent for the Common Stock not later
than the effective date of any such appointment.
8.2.3. Merger or Consolidation of Warrant Agent. Any corporation into which
the Warrant Agent may be merged or with which it may be consolidated or any
corporation resulting from any merger or consolidation to which the Warrant
Agent shall be a party shall be the successor Warrant Agent under this Agreement
without any further act.
8.3. Fees and Expenses of Warrant Agent.
8.3.1. Remuneration. The Company agrees to pay the Warrant Agent reasonable
remuneration for its services as such Warrant Agent hereunder and will reimburse
the Warrant Agent upon demand for all expenditures that the Warrant Agent may
reasonably incur in the execution of its duties hereunder.
8.3.2. Further Assurances. The Company agrees to perform, execute,
acknowledge, and deliver or cause to be performed, executed, acknowledged, and
delivered all such further and other acts, instruments, and assurances as may
reasonably be required by the Warrant Agent for the carrying out or performing
of the provisions of this Agreement.
8.4. Liability of Warrant Agent.
8.4.1. Reliance on Company Statement. Whenever in the performance of its
duties under this Warrant Agreement, the Warrant Agent shall deem it necessary
or desirable that any fact or matter be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a statement signed by the
President or Chairman of the Board of the Company and delivered to the Warrant
Agent. The Warrant Agent may rely upon such statement for any action taken or
suffered in good faith by it pursuant to the provisions of this Agreement.
8.4.2. Indemnity. The Warrant Agent shall be liable hereunder only for its
own negligence, willful misconduct or bad faith. The Company agrees to indemnify
the Warrant Agent and save it harmless against any and all liabilities,
including judgments, costs and reasonable counsel fees, for anything done or
omitted by the Warrant Agent in the execution of this Agreement except as a
result of the Warrant Agent's negligence, willful misconduct, or bad faith.
8.4.3. Exclusions. The Warrant Agent shall have no responsibility with
respect to the validity of this Agreement or with respect to the validity or
execution of any Warrant (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Warrant; nor shall it be responsible to make any
adjustments required under the provisions of Section 4 hereof or responsible for
the manner, method, or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment; nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock to be issued pursuant
to this Agreement or any Warrant or as to whether any shares of Common Stock
will when issued be valid and fully paid and nonassessable.
8.5. Acceptance of Agency. The Warrant Agent hereby accepts the agency
established by this Agreement and agrees to perform the same upon the terms and
conditions herein set forth and among other things, shall account promptly to
the Company with respect to Warrants exercised and concurrently account for, and
pay to the Company, all moneys received by the Warrant Agent for the purchase of
shares of the Company's Common Stock through the exercise of Warrants.
SECTION 9. MISCELLANEOUS PROVISIONS
9.1. Successors. All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns.
9.2. Notices. Any notice, statement or demand authorized by this Warrant
Agreement to be given or made by the Warrant Agent or by the holder of any
Warrant to or on the Company shall be sufficiently given or made if sent by
certified mail, or private courier service, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent), as
follows:
NeoStem, Inc.
420 Lexington Avenue
Suite 450
New York, New York 10170
Attn: Catherine Vaczy, Vice President and General Counsel
Any notice, statement or demand authorized by this Agreement to be given or made
by the holder of any Warrant or by the Company to or on the Warrant Agent shall
be sufficiently given or made if sent by certified mail or private courier
service, postage prepaid, addressed (until another address is filed in writing
by the Warrant Agent with the Company), as follows:
Continental Stock Transfer & Trust Company
17 Battery Place
New York, New York 10004
Attn: Compliance Department
with a copy in each case to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Attn: Alan Wovsaniker, Esq.
9.3. Applicable law. The validity, interpretation, and performance of this
Agreement and of the Warrants shall be governed in all respects by the laws of
the State of New York, without giving effect to conflict of laws. The Company
hereby agrees that any action, proceeding or claim against it arising out of or
relating in any way to this Agreement shall be brought and enforced in the
courts of the State of New York or the United States District Court for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenience
forum. Any such process or summons to be served upon the Company may be served
by transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
9.2 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim.
9.4. Persons Having Rights under this Agreement. Nothing in this Agreement
expressed and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the parties hereto and the registered holders of the
Warrants any right, remedy, or claim under or by reason of this Warrant
Agreement or of any covenant, condition, stipulation, promise, or agreement
hereof. All covenants, conditions, stipulations, promises, and agreements
contained in this Warrant Agreement shall be for the sole and exclusive benefit
of the parties hereto and their successors and assigns and of the registered
holders of the Warrants.
9.5. Examination of the Warrant Agreement. A copy of this Agreement shall be
available at all reasonable times at the office of the Warrant Agent in the
Borough of Manhattan, City and State of New York, for inspection by the
registered holder of any Warrant. The Warrant Agent may require any such holder
to submit his Warrant for inspection by it.
9.6 Counterparts. This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
9.7. Effect of Headings. The Section headings herein are for convenience only
and are not part of this Warrant Agreement and shall not affect the
interpretation thereof.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
Attest: NEOSTEM, INC.
By:
- ------------------------------------ /s/ Robin L. Smith
--------------------------------------
Attest: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
- ------------------------------------ /s/ John Comer
--------------------------------------
John Comer
Vice President
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
_________ Warrants
VOID AFTER JULY 16, 2012
CLASS A
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
NEOSTEM, INC.
THIS CERTIFIES THAT, for value received.
__________________________________________ is the registered holder of a Class A
Warrant or Warrants expiring July 16, 2012 (the "Warrant") to purchase one fully
paid and non-assessable share of Common Stock, par value $.001 per share
("Common Stock"), of NeoStem, Inc., a Delaware corporation (the "Company") for
each Warrant evidenced by this Warrant Certificate (the "Shares"). The Warrant
entitles the holder thereof to purchase from the Company commencing on the date
(not later than October 13, 2007) the Warrants become separately tradable
pursuant to Section 2.4 of the Warrant Agreement (as defined below) and
thereafter until July 16, 2012, such number of Shares of the Company at the
price of $6.00 per share (the "Warrant Price"), upon surrender of this Warrant
Certificate and payment of the Warrant Price at the office or agency of the
Warrant Agent, Continental Stock Transfer & Trust Company, subject to the
conditions set forth herein and in the Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company dated July 8, 2007 (the "Warrant
Agreement"). The Warrant Agreement provides that upon the occurrence of certain
events the Warrant Price and the number of Shares purchasable hereunder, set
forth on the face hereof, may, subject to certain conditions, be adjusted. The
term Warrant Price as used in this Warrant Certificate refers to the price per
Share at which Shares may be purchased at the time the Warrant is exercised.
No fraction of a Share will be issued upon any exercise of a Warrant. If
the holder of a Warrant would be entitled to receive a fraction of a Share upon
any exercise of a Warrant, the Company shall, upon such exercise, round up to
the nearest whole number the number of Shares to be issued to such holder.
Upon any exercise of the Warrant for less than the total number of full
Shares provided for herein, there shall be issued to the registered holder
hereof or his assignee a new Warrant Certificate covering the number of Shares
for which the Warrant has not been exercised.
Warrant Certificates, when surrendered at the office or agency of the
Warrant Agent by the registered holder hereof in person or by attorney duly
authorized in writing, may be exchanged in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor and evidencing in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of the Warrant
Certificate at the office or agency of the Warrant Agent, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee in
exchange for this Warrant Certificate, subject to the limitations provided in
the Warrant Agreement, without charge except for any applicable tax or other
governmental charge.
The Company and the Warrant Agent may deem and treat the registered holder
as the absolute owner of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the registered holder, and for all other
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary.
This Warrant does not entitle the registered holder to any of the rights of
a stockholder of the Company.
The Company reserves the right to redeem the Warrant, at any time prior to
its exercise, with a notice of redemption in writing to the Warrantholders of
Record, giving 30 days' notice of such redemption at any time after the Warrant
becomes exercisable if the Company's Common Stock closes at a price equal to or
exceeding $8.00 per share (subject to adjustment as provided in the Warrant
Agreement) for each of the 20 consecutive trading days on its principal trading
market. The redemption price of the Warrants is to be $.001 per Warrant. Any
Warrant either not exercised, or tendered back to the Company by the end of the
date specified in the notice of redemption, shall be canceled on the books of
the Company and have no further value except for the $.001 redemption price.
This Warrant Certificate shall be governed by and construed in accordance with
the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant Agent.
The terms and provisions of the Warrant Agreement are hereby incorporated by
reference into this Warrant Certificate.
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed, manually or in facsimile, by officers of the Company thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______- NEOSTEM, INC.
By:______________________
Name:
Title:
[seal]
Countersigned:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
By:_____________________________
Authorized Officer
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder irrevocably elects to exercise
_____________ Warrants represented by this Warrant Certificate, and to purchase
the shares of Common Stock issuable upon the exercise of such Warrants, and
requests that Certificates for such shares shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
and be delivered to:
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: ______________
X
------------------------------
------------------------------
------------------------------
------------------------------
Address
------------------------------
Taxpayer Identification Number
------------------------------
Signature Guaranteed
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
For Value Received,_________________________________hereby sell, assign,
and transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
____________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitute and appoint ______________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:___________________________ X_____________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OF THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
CHICAGO STOCK EXCHANGE.
Exhibit 10.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAS
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED,
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ID No: UW-
Holder:
Number of Underwriter Warrants:
Date of Issuance: August 14, 2007
UNDERWRITER'S WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
NEOSTEM, INC.
THIS CERTIFIES that, for value received, _______________________, having an
address at _________________________________________ ("Holder") is entitled to
purchase from NEOSTEM, INC., a Delaware corporation, with offices at 420
Lexington Avenue, Suite 450, New York, New York 10170 ("Company"), subject to
the terms and conditions hereof, _______________________________ shares of
Common Stock, par value $.001 per share, of the Company, pursuant to the
following:
WHEREAS, the Company is engaged in a public offering ("Public Offering") of
Units ("Units"), and in connection therewith, has determined to issue and
deliver 1,270,000 Units at a price of $5.00 per unit, through Mercer Capital
Ltd. (the "Underwriter") and other broker/dealers (arranged by the Underwriter)
who are members of the National Association of Securities Dealers (NASD). Each
Unit consists of one share of the Company's common stock and one-half Class A
warrant to purchase one-half a share of the Company's common stock, par value
$0.001 per share.
WHEREAS, in connection with the Public Offering, the Company has determined
to issue and deliver to the Underwriter or its designees an aggregate of 95,250
Underwriter Warrants ("Underwriter Warrants"); and
WHEREAS, each Underwriter Warrant will entitle the holder to purchase one
share of the Company's common stock for $6.50; and
WHEREAS, the Company has filed on July 10, 2007 with the Securities and
Exchange Commission a Registration Statement on Form SB-2/A, No. 333-142923 as
Pre-Effective Amendment No. 3 ("Registration Statement"), for the registration,
under the Securities Act of 1933, as amended ("Act") of, among other securities,
the common stock issuable upon exercise of the Underwriter Warrants; and
WHEREAS, the Registration Statement was declared effective on July 16,
2007, the final closing occurred on August 14, 2007 and all 1,270,000 Units have
been sold: and
WHEREAS, the Company desires to provide for the form and provisions of the
Underwriter Warrants, the terms upon which they shall be issued and exercised,
and the respective rights, limitation of rights, and immunities of the Company
and the Underwriter and its designees; and
WHEREAS, all acts and things have been done and performed which are
necessary to make the Underwriter Warrants, when executed on behalf of the
Company, as provided herein, the valid, binding and legal obligations of the
Company, and to authorize the execution and delivery of this Underwriter
Warrant.
NOW, THEREFORE, the following terms and conditions will govern this
Underwriter Warrant:
SECTION 1: WARRANTS
1.1. Registration.
1.1.1. Underwriter Warrant Register. The Company shall maintain books
("Warrant Register"), for the registration of original issuance and the
registration of transfer of the Underwriter Warrants. Upon the initial issuance
of the Underwriter Warrants, the Company shall issue and register the
Underwriter Warrants in the names of the respective holders thereof in such
denominations as determined by the Company.
1.1.2. Registered Holder. Prior to due presentment for registration of
transfer of any Underwriter Warrant, the Company may deem and treat the person
in whose name such Underwriter Warrant shall be registered upon the Warrant
Register ("registered holder"), as the absolute owner of such Underwriter
Warrant and of each Underwriter Warrant represented thereby (notwithstanding any
notation of ownership or other writing on this Underwriter Warrant Certificate
made by anyone other than the Company), for the purpose of any exercise thereof,
and for all other purposes, and the Company shall not be affected by any notice
to the contrary.
SECTION 2: TERMS AND EXERCISE OF WARRANTS
2.1. Warrant Price. This Underwriter Warrant shall, when signed by the Company,
entitle the registered holder thereof, subject to the provisions hereof, to
purchase from the Company ___________ shares of Common Stock, at the price of
$6.50 per share (the "Warrant Price"), subject to (i) the adjustments provided
in Section 3 hereof, and (ii) subject to redemption as provided in Section 5
hereof. The term "Warrant Price" refers to the price per share at which common
stock may be purchased at the time an Underwriter Warrant is exercised.
2.2 Duration of Underwriter Warrants. The Underwriter Warrant may be exercised
only during the period ("Exercise Period") commencing on August 14, 2008 and
thereafter until 5:00 PM New York time on August 14, 2012, unless earlier
redeemed ("Expiration Date"). Except with respect to the right to receive the
Redemption Price (as set forth in Section 6 hereunder), each Underwriter Warrant
not exercised on or before the Expiration Date shall become void, and all rights
thereunder and all rights in respect thereof under this Underwriter Warrant
shall cease at the close of business on the Expiration Date. The Company in its
sole discretion may extend the duration of the Underwriter Warrants by delaying
the Expiration Date.
2.3. Exercise of Underwriter Warrants.
2.3.1. Payment. Subject to the provisions of this Underwriter Warrant, an
Underwriter Warrant may be exercised by the registered holder thereof by
surrendering it, at the office of the Company, in the Borough of Manhattan, City
and State of New York, with the subscription form, as attached hereto, duly
executed, and by paying in full, in lawful money of the United States, in cash,
good certified check or good bank draft payable to the order of the Company, the
Warrant Price for each full share of Common Stock as to which the Underwriter
Warrant is exercised and any and all applicable taxes due in connection with the
exercise of the Underwriter Warrant, the exchange of the Underwriter Warrant for
the Common Stock, and the issuance of the Common Stock.
2.3.2. Cashless Exercise. Notwithstanding any provision herein to the
contrary, if as of the date of exercise of all or a part of this Underwriter
Warrant, the closing sales price of the Common Stock is greater than the Warrant
Price, as adjusted, then in lieu of exercising this Underwriter Warrant for
cash, the holder may elect to receive, without the cash payment by the holder of
the Warrant Price, shares of Common Stock equal to the value of this Underwriter
Warrant or any portion hereof by the surrender of this Underwriter Warrant (or
such portion of this Underwriter Warrant being so exercised) together with the
Net Issue Election Notice annexed hereto duly executed and completed, at the
office of the Company. Thereupon, the Company shall issue to the holder such
number of shares of Common Stock, equal to the quotient obtained by dividing
[(A-B)(X)] by (A), where:
(A) = the closing sales price on the trading day immediately preceding the
date that the holder delivers the Net Issue Election Notice to the
Company as provided herein;
(B) = the Warrant Price of this Underwriter Warrant, as adjusted, in
effect on the date that the holder delivers the Net Issue Election
Notice to the Company as provided herein; and
(X) = the total number of shares of Common Stock covered by this
Underwriter Warrant which the holder has surrendered for cashless
exercise.
2.3.3. Issuance of Certificates. As soon as practicable after the exercise
of any Underwriter Warrant and the clearance of the funds in payment of the
Warrant Price (if applicable), the Company shall issue to the registered holder
of such Underwriter Warrant a certificate or certificates for the number of full
shares of Common Stock to which he is entitled, registered in such name or names
as may be directed by him, and if such Underwriter Warrant shall not have been
exercised in full, a new Underwriter Warrant for the number of shares as to
which such Underwriter Warrant shall not have been exercised. Notwithstanding
the foregoing, the Company shall not be obligated to deliver any securities
pursuant to the exercise of an Underwriter Warrant unless a registration
statement under the Act with respect to the Common Stock is effective.
Underwriter Warrants may not be exercised by, or securities issued to, any
registered holder in any state in which such exercise would be unlawful.
2.3.4. Valid Issuance. All shares of Common Stock issued upon the proper
exercise of an Underwriter Warrant in conformity with the terms hereof shall be
validly issued, fully paid and nonassessable.
2.3.5. Date of Issuance. Each person in whose name any such certificate for
shares of Common Stock is issued shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Underwriter Warrant
was surrendered and payment of the Warrant Price was made, irrespective of the
date of delivery of such certificate, except that, if the date of such surrender
and payment is a date when the stock transfer books of the Company are closed,
such person shall be deemed to have become the holder of such shares at the
close of business on the next succeeding date on which the stock transfer books
are open.
SECTION 3: ADJUSTMENTS
3.1. Stock Dividends--Split-Ups. If after the date hereof, and subject to the
provisions of Section 3.6 below, the number of outstanding shares of Common
Stock is increased by a stock dividend payable in shares of Common Stock, or by
a split-up of shares of Common Stock, or other similar event, then, on the
effective date of such stock dividend, split-up or similar event, the number of
shares issuable on exercise of each Underwriter Warrant shall be increased in
proportion to such increase in outstanding shares.
3.2 Aggregation of Shares. If after the date hereof, and subject to the
provisions of Section 3.6, the number of outstanding shares of Common Stock is
decreased by a consolidation, combination, reverse stock split or
reclassification of shares of Common Stock or other similar event, then, on the
effective date of such consolidation, combination, reverse stock split,
reclassification or similar event, the number of shares issuable on exercise of
each Underwriter Warrant shall be decreased in proportion to such decrease in
outstanding shares.
3.3 Adjustments in Exercise Price. Whenever the number of shares of Common Stock
purchasable upon the exercise of the Underwriter Warrants is adjusted, as
provided in Section 3.1 and 3.2 above, the Warrant Price shall be adjusted (to
the nearest cent) by multiplying such Warrant Price immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of the Underwriter Warrants
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
3.4 Replacement of Securities upon Reorganization, etc. In case of any
reclassification or reorganization of the outstanding shares of Common Stock
(other than a change covered by Section 3.1 or 3.2 hereof or that solely affects
the par value of such shares of Common Stock), or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
that does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is dissolved,
the Underwriter Warrant holders shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in the
Underwriter Warrants and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented thereby, the kind and amount of shares of stock or other
securities or property (including cash) receivable upon such reclassification,
reorganization, merger or consolidation, or upon a dissolution following any
such sale or transfer, by an Underwriter Warrant holder of the number of shares
of Common Stock of the Company obtainable upon exercise of the Underwriter
Warrants immediately prior to such event; and if any reclassification also
results in a change in shares of Common Stock covered by Section 3.1 or 3.2,
then such adjustment shall be made pursuant to Sections 3.1, 3.2, 3.3 and this
Section 3.4. The provisions of this Section 3.4 shall similarly apply to
successive reclassifications, reorganizations, mergers or consolidations, sales
or other transfers.
3.5. Notices of Changes in Warrant. Upon every adjustment of the Warrant Price
or the number of shares issuable on exercise of an Underwriter Warrant, the
Company shall give written notice thereof to the registered Holder, which notice
shall state the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of an Underwriter Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. Upon
the occurrence of any event specified in Sections 3.1, 3.2, or 3.4, then, in any
such event, the Company shall give written notice to the Underwriter Warrant
holder, at the last address set forth for such holder in the warrant register,
of the record date or the effective date of the event. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of such
event.
3.6. Fractional Shares. Notwithstanding any provision contained in this
Underwriter Warrant to the contrary, the Company shall retain the option not to
issue fractional shares upon exercise of Underwriter Warrants. If, by reason of
any adjustment made pursuant to this Section 4, the holder of any Underwriter
Warrant would be entitled, upon the exercise of such Underwriter Warrant, to
receive a fractional interest in a share, the Company may, upon such exercise,
either deliver fractional shares of Common Stock to be issued to the Underwriter
Warrant holder, or round to the nearest whole share, or pay the fractional share
in cash at the market price at the close of business on the date the Underwriter
Warrant is exercised.
3.7. Form of Warrant. The form of Underwriter Warrant need not be changed
because of any adjustment pursuant to this Section 3, and Underwriter Warrants
issued after such adjustment may state the same Warrant Price and the same
number of shares as is stated in the Underwriter Warrants initially issued.
However, the Company may at any time in its sole discretion make any change in
the form of Underwriter Warrant that the Company may deem appropriate and that
does not affect the substance thereof, and any Underwriter Warrant thereafter
issued, whether in exchange or substitution for an outstanding Underwriter
Warrant or otherwise, may be in the form as so changed.
SECTION 4: TRANSFER AND EXCHANGE OF WARRANTS
4.1. Procedure for Surrender of Underwriter Warrants. Underwriter Warrants may
be surrendered to the Company, together with a written request for exchange or
transfer, and thereupon the Company shall issue in exchange therefor one or more
new Underwriter Warrants as requested by the registered holder of the
Underwriter Warrants so surrendered, representing an equal aggregate number of
Underwriter Warrants; provided, however, that in the event that an Underwriter
Warrant surrendered for transfer bears a restrictive legend, the Company shall
not cancel such Underwriter Warrant and issue new Underwriter Warrants in
exchange therefor until the Company has received an opinion of counsel stating
that such transfer may be made and indicating whether the new Underwriter
Warrants must also bear a restrictive legend.
4.2. Service Charges. No service charge shall be made for any exchange or
registration of transfer of Underwriter Warrants.
4.3 Limits on Transfer. This Underwriter Warrant shall not be sold during the
offering or sold, transferred, assigned, pledged or hypothecated, or be the
subject of any hedging, short sale, derivative, put, or call transaction that
would result in the effective economic disposition of the securities by any
person for a period of 180 days immediately following the date of effectiveness
or commencement of sales of the Public Offering, except to any member
participating in the offering and the officers or partners thereof, or as
otherwise permitted under 2710(g)(2) of the NASD's Corporate Financing Rule and
only if the Underwriter Warrants so transferred remain subject to this lock-up
restriction for the remainder of the lock-up period.
4.4 Compliance with Securities Act and Legends. The Holder, by acceptance
hereof, agrees that it will not offer, sell or otherwise dispose of this
Underwriter Warrant, or any shares of Common Stock to be issued upon exercise
hereof except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder, or any state's securities laws.
SECTION 5: REDEMPTION
5.1. Redemption. All or any part of the outstanding Underwriter Warrants may be
redeemed, at the option of the Company, at any time after they become
exercisable and prior to their expiration, at the office of the Company, upon
the notice referred to in Section 5.2, at the price of $.001 per Underwriter
Warrant ("Redemption Price"), provided that the Company's stock closes at a
price equal to or exceeding $8.00 (subject to the adjustments proportional to
the adjustments to the Warrant Price provided in Section 3 hereof) for 20
consecutive trading days on its principal trading market.
5.2. Date Fixed for, and Notice of, Redemption. In the event the Company shall
elect to redeem all of the Underwriter Warrants, the Company shall fix a date
for the redemption. Notice of redemption shall be mailed by first class mail,
postage prepaid, by the Company not less than 30 days prior to the date fixed
for redemption to the registered holders of the Underwriter Warrants to be
redeemed at their last addresses as they shall appear on the registration books.
Any notice mailed in the manner herein provided shall be conclusively presumed
to have been duly given whether or not the registered holder received such
notice.
5.3. Exercise After Notice of Redemption. The Underwriter Warrants may be
exercised in accordance with Section 2 of this Agreement at any time after
notice of redemption shall have been given by the Company pursuant to Section
5.2 hereof and prior to the time and date fixed for redemption, which time shall
be 5:00 PM New York time. On and after the redemption date, the record holder of
the Underwriter Warrants shall have no further rights except to receive, upon
surrender of the Underwriter Warrants, the Redemption Price.
SECTION 6. OTHER PROVISIONS RELATING TO RIGHTS OF UNDERWRITER WARRANT HOLDERS
6.1. No Rights as Stockholder. The Underwriter Warrant does not entitle the
registered holder thereof to any of the rights of a stockholder of the Company,
including, without limitation, the right to receive dividends, or other
distributions, exercise any preemptive rights to vote or to consent or to
receive notice as stockholders in respect of the meetings of stockholders or the
election of directors of the Company or any other matter.
6.2. Lost, Stolen, Mutilated, or Destroyed Underwriter Warrants. If any
Underwriter Warrant is lost, stolen, mutilated, or destroyed, the Company may on
such terms as to indemnity or otherwise as they may in their discretion impose
(which may include a surety bond and shall, in the case of a mutilated
Underwriter Warrant, include the surrender thereof), issue a new Underwriter
Warrant of like denomination, tenor, and date as the Underwriter Warrant so
lost, stolen, mutilated, or destroyed. Any such new Underwriter Warrant shall
constitute a substitute contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated, or destroyed Underwriter Warrant shall be
at any time enforceable by anyone.
6.3. Reservation of Common Stock. The Company shall at all times reserve and
keep available a number of its authorized but unissued shares of Common Stock
that will be sufficient to permit the exercise in full of all outstanding
Underwriter Warrants issued
SECTION 7. MISCELLANEOUS PROVISIONS
7.1. Payment of Taxes. The Company will from time to time promptly pay all taxes
and charges that may be imposed upon the Company in respect of the issuance or
delivery of shares of Common Stock upon the exercise of Underwriter Warrants,
but the Company shall not be obligated to pay any transfer taxes in respect of
the Underwriter Warrants or such shares.
7.2. Successors. All the covenants and provisions of this Underwriter Warrant by
or for the benefit of the Company or the registered Holder shall bind and inure
to the benefit of their respective successors and assigns.
7.3. Notices. Any notice, statement or demand authorized by this Underwriter
Warrant to be given or made by the holder hereof to or on the Company shall be
sufficiently given or made if sent by certified mail, or private courier
service, postage prepaid, addressed (until another address is provided in
writing by the Company), as follows:
NeoStem, Inc.
420 Lexington Avenue
Suite 450
New York, New York 10170
Attn: Catherine Vaczy, Vice President and General Counsel
With a copy to:
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Attn: Alan Wovsaniker, Esq.
7.4 Applicable law. The validity, interpretation, and performance of this
Underwriter Warrant shall be governed in all respects by the laws of the State
of New York, without giving effect to conflict of laws. The Company hereby
agrees that any action, proceeding or claim against it arising out of or
relating in any way to this Underwriter Warrant shall be brought and enforced in
the courts of the State of New York or the United States District Court for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any such process or summons to be served upon the Company may be served
by transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
7.3 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim.
7.5. Persons Having Rights under this Underwriter Warrant. Nothing in this
Underwriter Warrant expressed and nothing that may be implied from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company and the registered holder
of this Underwriter Warrant any right, remedy, or claim under or by reason of
this Underwriter Warrant or of any covenant, condition, stipulation, promise, or
agreement hereof. All covenants, conditions, stipulations, promises, and
agreements contained in this Underwriter Warrant shall be for the sole and
exclusive benefit of the registered holder hereof and the Company and their
respective successors and assigns.
7.6. Effect of Headings. The Section headings herein are for convenience only
and are not part of this Underwriter Warrant and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, this Underwriter Warrant has been duly executed by the
Company as of the day and year first above written.
NEOSTEM, INC.
By:
------------------------------------
Robin L. Smith
Chairman and Chief Executive Officer
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Underwriter
Warrants
TO: NeoStem, Inc.
420 Lexington Avenue
Suite 450
New York, NY 10170
Attention: Chairman and CEO
The undersigned Registered Holder irrevocably elects to exercise
_____________ Underwriter Warrants represented by the attached Underwriter
Warrant Certificate No. ______ , and to purchase the shares of Common Stock
issuable upon the exercise of such Underwriter Warrants.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in the Underwriter Warrant. Such
payment takes the form of $_________ in lawful money of the United States.
The undersigned hereby requests that Certificates for such shares shall be
issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
and be delivered to:
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
and if such number of Underwriter Warrants shall not be all the Underwriter
Warrants evidenced by this Underwriter Warrant Certificate, that a new
Underwriter Warrant Certificate for the balance of such Underwriter Warrants be
registered in the name of, and delivered to, the Registered Holder at the
address stated below.
Dated: ______________
X
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Address
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Taxpayer Identification Number
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Signature Guaranteed
NET ISSUE ELECTION NOTICE
To Be Executed by the Registered Holder in Order to Make a Cashless
Exercise of Underwriter Warrants
TO: NeoStem, Inc.
420 Lexington Avenue
Suite 450
New York, NY 10170
Attention: Chairman and CEO
The undersigned hereby elects under Section 2.3.2 of the attached
Underwriter Warrant No. ____, to surrender the right to purchase __________
shares of Common Stock pursuant to the Underwriter Warrant and hereby requests
the issuance of the number of shares of Common Stock determined in accordance
with Section 2.3.2.
The undersigned hereby requests that Certificates for the shares issuable upon
such net issue election shall be issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
and be delivered to:
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
and if there shall be remaining Underwriter Warrants after such net issue
election, that a new Underwriter Warrant Certificate for the balance of such
Underwriter Warrants be registered in the name of, and delivered to, the
Registered Holder at the address stated below.
Dated: ______________
X
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Address
------------------------------
Taxpayer Identification Number
------------------------------
Signature Guaranteed
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Underwriter
Warrants
For Value Received,_________________________________hereby sell, assign,
and transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
----------------------------------------
----------------------------------------
----------------------------------------
[please print or type name and address]
____________________ of the Underwriter Warrants represented by the attached
Underwriter Warrant Certificate No. _____ , and hereby irrevocably constitute
and appoint ______________________ Attorney to transfer this Underwriter Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:___________________________ X_____________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OF THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME WRITTEN UPON THE FACE OF THIS UNDERWRITER WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST
BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
CHICAGO STOCK EXCHANGE.
Exhibit 31.1
CERTIFICATION
I, Robin Smith, MD, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of NeoStem, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this quarterly
report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly report
based on such evaluation; and
c) disclosed in this quarterly report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
small business issuer's internal control over financial reporting;
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: November 14, 2007
/s/ Robin Smith, MD
- -------------------
Name: Robin Smith, MD
Title: Chief Executive Officer of NeoStem, Inc.
A signed original of this written statement required by Section 302 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 31.2
CERTIFICATION
I, Larry A. May, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of NeoStem, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this quarterly
report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this quarterly report
based on such evaluation; and
c) disclosed in this quarterly report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
small business issuer's internal control over financial reporting;
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: November 14, 2007
/s/ Larry A. May
- ----------------
Name: Larry A. May
Title: Chief Financial Officer of NeoStem, Inc.
A signed original of this written statement required by Section 302 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NeoStem, Inc. (the "Company") on
Form 10-QSB for the period ended September 30, 2007 filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Robin Smith MD,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition of the Company as of the
dates presented and the result of operations of the Company for the
periods presented.
Dated: November 14, 2007
/s/ Robin Smith, MD
-----------------------
Robin Smith, MD
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and is not being filed as part of the Form
10-QSB or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NeoStem, Inc. (the "Company") on
Form 10-QSB for the period ended September 30, 2007 filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Larry A. May,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended ; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition of the Company as of the
dates presented and the result of operations of the Company for the
periods presented.
Dated: November 14, 2007
/s/ Larry A. May
-----------------------
Larry A. May
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter
63 of Title 18, United States Code) and is not being filed as part of the Form
10-QSB or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been
provided to NeoStem, Inc. and will be retained by NeoStem, Inc. and furnished to
the Securities and Exchange Commission or its staff upon request.