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Neostem Inc. Reports Operating Results (10-Q)

August 13, 2009 | About:
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Neostem Inc. (NBS) filed Quarterly Report for the period ended 2009-06-30.

NeoStem Inc. is an innovative publicly traded company positioned to become a leader in the adult stem cell field and to capitalize on the increasing importance adult stem cells are expected to play in the future of regenerative medicine. Neostem Inc. has a market cap of $13.8 million; its shares were traded at around $1.7199 with and P/S ratio of 170.9.

Highlight of Business Operations:

In February and March 2009, in order to move forward certain research and development activities, strategic relationships in various clinical and therapeutic areas as well as to support activities related to the Merger Agreement and Share Exchange Agreement, and other ongoing obligations of the Company, the Company issued promissory notes (the “RimAsia Notes”) totaling $1,150,000 to RimAsia, which notes bore interest at a rate equal to 10% per annum and mature on October 31, 2009 except that they matured earlier in the case of an equity financing by the Company that raised in excess of $10,000,000. The RimAsia Notes plus accrued interest were paid in April 2009 (as described below). Additionally, as of July 1, 2009, NeoStem, CBH, CBC and RimAsia, which is a significant investor in the Company and CBH, entered into a Funding Agreement pursuant to which it was agreed that RimAsia shall supply additional funding to both NeoStem and CBH in an amount up to $1.6 million (including approximately $1 million advanced to date), which amount shall be deemed settled upon its receipt of the increased amount of NeoStem securities to be received by RimAsia as part of the Merger consideration as agreed in the July amendment to the Merger Agreement. If less than $1.6 million has been advanced at that time, the difference shall be paid to NeoStem at the closing of the Merger. In the event the Merger has not received shareholder approval by October 31, 2009, NeoStem is required to repay RimAsia all payments incurred or made by RimAsia on behalf of NeoStem.

For the three months ended March 31, 2009, total revenues were $31,600 compared to approximately $23,500 for the three months ended March 31, 2008. The revenues generated in the three months ended June 30, 2009 were a combination of milestone income of $6,300 earned on signing a licensing agreement with Enhance BioMedical to develop a stem cell collection and treatment network, which is being recognized over the contractual period of technology transfer; $14,000 from stem cell collection fees and monthly stem cell storage fees, $8,700 from fees derived from adding a new physician to our collection center network and a prorata portion of fees billed our existing network physicians for annual fees associated with their collection center agreements and $2,600 in other revenue. The revenues generated in the three months ended June 30, 2008 were from stem cell collection fees and monthly stem cell storage fees in the period in the amount of $8,500 and the balance of $15,000 were fees derived from adding a new physician to our collection center network.

For the six months ended June 30, 2009, total revenues were approximately $76,700 compared to $24,200 for the six months ended June 30, 2008. The revenues generated in the six months ended June 30, 2009 were a combination of milestone income of $6,300 earned on signing a licensing agreement with Enhance BioMedical to develop a stem cell collection and treatment network, which is being recognized over the contractual period of technology transfer; $58,600 from stem cell collection fees and monthly stem cell storage fees; $9,200 of fees derived from adding a new physician to our collection center network and a prorata portion of fees billed our existing network physicians for annual fees associated with their collection center agreements and $2,600 in other revenue. The revenues generated in the six months ended June 30, 2008 were from stem cell collection fees and monthly stem cell storage fees in the period in the amount of $13,200 and the balance of $15,000 were fees derived from adding a new physician to our collection center network.

For the six months ended June 30, 2009, interest income increased by $11,000 as the result of investing the net proceeds of the April and June 2009 Private Placements in money market funds. Interest expense increased by $7,800 primarily due to interest paid on promissory notes issued to RimAsia in February and March 2009 totaling $1,150,000. These notes were repaid in April 2009 upon the closing of the April 2009 Private Placement of Series D Preferred Stock. The Series D Preferred Stock requires an annual dividend of 10%. This dividend is being recorded ratably each month and resulted in a charge to operating result of $251,700 for the six months ended June 30, 2009.

For the reasons cited above, the net loss for the three months ended June 30, 2009 increased to $4,943,000 from $2,361,800 for the three months ended June 30, 2008 and the net loss for the six months ended June 30, 2009 increased to $6,810,300 from $4,889,000 for the six months ended June 30, 2008.

During the first quarter of 2009, the Company issued promissory notes to RimAsia (the “RimAsia Notes”), a principal stockholder of the Company, which aggregated $1,150,000 (see Note 4 - Notes Payable). In April 2009, the Company completed a private placement financing totaling $11 million (the “April 2009 Private Placement”). The financing consisted of the issuance of 880,000 units priced at $12.50 per unit (“Series D Units”), with each Series D Unit consisting of one share of the Company s Series D Convertible Redeemable Preferred Stock (“Series D Stock”) and ten warrants (“Series D Warrants”) with each Series D Warrant to purchase one share of Common Stock. A total of 880,000 Series D Preferred shares and 8,800,000 warrants were issued. In June 2009 with a final closing on July 6, 2009, the Company completed an additional private placement financing with net proceeds of $4,679,220 (the “June 2009 Private Placement”). This financing consisted of the issuance of 400,280 Series D Units priced at $12.50 per unit. A total of 400,280 Series D Preferred Stock and 4,002,800 Series D Warrants were issued. The Company paid $324, 280 in fees and issued 12,971 Series D Units to agents that facilitated the June 2009 Private Placement. The Series D Units issued to the selling agents were comprised of 12,971 shares of Series D Stock and 129,712 Series D Warrants. Upon the affirmative vote of holders of a majority of the voting power of the Company s Common Stock required pursuant to the Company s Amended and Restated By-Laws and the NYSE Amex, each share of Series D Stock will automatically be converted into ten (10) shares of Common Stock at an initial conversion price of $1.25 per share based on an original issue price of $12.50 per share; provided that if by October 31, 2009 such affirmative vote is not achieved, the Company must redeem all shares of Series D Stock at a redemption price per share of $12.50 plus the accrued dividends as of such date. The total cash required to redeem the Series D Stock is $16,165,638 plus accrued dividends. The Series D Stock has an accruing dividend of ten percent (10%) per annum, payable (i) annually in cash on April 9th. The Series D Warrants have a per share exercise price equal to $2.50 and are callable by the Company if the Common Stock trades at a price equal to a minimum of $3.50 for a specified period of time. Subject to the affirmative vote of the Company s stockholders and the rules of the NYSE Amex, the Series D Warrants will become exercisable for five years.

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Rating: 4.0/5 (1 vote)

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