UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q_______________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008MARCH 31, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from __________________   to ____________  _____________________________________

Commission file numberFile Number 0-10909

NEOSTEM, INC.
(Exact name of registrant as specified in its charter)

DELAWARE22-2343568
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
  
420 LEXINGTON AVE, SUITE 450     NEW YORK, NEW YORK10170
(Address of principal executive offices)(zip code)

Issuer'sRegistrant’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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  oNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
  
Non-accelerated filer   o(Do     (Do not check if a smaller reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  oNo  x
6,052,0157,949,476  SHARES, $.001 PAR VALUE, AS OF AugustMAY 13, 20082009

(Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date)

 
I N D E X

  
Page No.
Part I  - Financial Information:
 
   
Item 1.Consolidated Financial Statements (Unaudited): 
   
 Consolidated Balance Sheets
At June 30, 2008March 31, 2009 and December 31, 200720083
   
 Consolidated Statements of Operations
for the three months
ended March 31, 2009 and six months ended June 30, 2008 and 20074
   
 Consolidated Statements of Cash Flows
for the three months ended March 31, 2009 and six months ended June 30, 2008 and 20075
   
 Notes to Unaudited Consolidated Financial Statements6-14
   
Item 2.Management’s Discussion and Analysis or Planof Financial Condition and Results of Operations15-1815-19
   
Item 3.Quantitative and Qualitative Disclosures About19
Market Risk19
   
Item 4T.Controls and Procedures19
   
Part II - Other Information: 
   
Item 1.Legal Proceedings20
   
Item 1A.Risk Factors20
   
Item 2.Unregistered Sales of Equity Securities and Use of
Proceeds20
   
Item 3.Defaults Upon Senior Securities2021
   
Item 4.Submission of Matters to a Vote of Securityholders2021
   
Item 5.Other Information2021
   
Item 6.Exhibits2021
   
 Signatures2122

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

NEOSTEM, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
 
 
June 30,
2008
 
December 31,
2007
 
ASSETS
       
Current assets:      
Cash and cash equivalents $529,095 $2,304,227 
Accounts receivable, net of allowance for doubtful accounts of $19,500  
31,130
  24,605 
Prepaid expenses and other current assets  106,121  46,248 
        
Total current assets  666,346  2,375,080 
        
Property and equipment, net  129,456  164,122 
Goodwill  558,169  558,169 
Intangible Asset  669,000  669,000 
Other assets  4,361  8,778 
        
  $2,027,332 $3,775,149 
LIABILITIES AND STOCKHOLDERS' EQUITY
       
Current liabilities:       
Accounts payable $138,337 $158,453 
Accrued liabilities  80,897  228,726 
Note payable, due related party - current portion  -  24,022 
Notes payable  45,415  4,720 
Unearned revenues  2,669  2,902 
Capitalized lease obligations - current portion  28,060  25,406 
Total current liabilities  295,378  444,229 
        
Capitalized lease obligations  -  14,726 
        
Total Liabilities  295,378  458,955 
        
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, 6,023,212 June 30, 2008 and 4,826,055 December 31, 2007  6,023  4,826 
Additional paid-in capital  37,625,669  34,802,309 
Unearned compensation  (258,638) (738,803)
Accumulated deficit  (35,641,200) (30,752,238)
        
Total stockholders’ equity  1,731,954  3,316,194 
        
  $2,027,332 $3,775,149 
ASSETS

  
March 31,
2009
  
December 31,
2008
 
Current assets:      
  Cash and cash equivalents $392,791  $430,786 
  Accounts receivable  12,109   7,193 
  Prepaid expenses and other current assets  136,274   92,444 
         
        Total current assets  541,174   530,423 
         
Property and equipment, net  84,428   99,490 
Goodwill  558,169   558,169 
Intangible Asset  624,986   633,789 
Other assets  2,112   2,445 
         
  $1,810,869  $1,824,316 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)/EQUITY

Current liabilities:      
  Accounts payable $742,580  $508,798 
  Accrued liabilities  612,759   427,767 
  Note payable, due related party  1,150,000   - 
  Notes payable  77,880   - 
  Unearned revenues  24,527   9,849 
  Capitalized lease obligations – current portion  7,546   14,726 
        Total current liabilities  2,615,292   961,140 
         
Total Liabilities  2,615,292   961,140 
         
Stockholders’ (Deficit)/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,        
      7,917,406 March 31, 2009 and        
      7,715,006 December 31, 2008  7,917   7,715 
Additional paid-in capital  41,049,112   40,849,670 
Accumulated deficit  (41,861,552)  (39,994,309)
         
         Total stockholders’ (deficit) equity  (804,423)  863,176 
         
  $1,810,869  $1,824,316 
 
See accompanying notes to consolidated financial statements

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NEOSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 Three Months Ended June 30, Six Months Ended June 30,  Three Months Ended March 31, 
 2008 2007 2008 2007  2009  2008 
Earned revenues $23,528 $6,017 $24,221 $61,912  $45,138  $693 
Direct costs  (3,908) (2,350) (3,908) (3,603)  23,550   - 
Gross profit  19,620  3,667  20,313  58,309   21,588   693 
Selling, general and administrative  2,379,387  1,960,393  4,903,718  3,835,746   1,878,536   2,524,331 
Operating loss  (2,359,767) (1,956,726) (4,883,405) (3,777,437)  (1,856,948)  (2,523,638)
Other income (expense):                     
Interest income  1,712  2,874  1,712  15,224   304   - 
Interest expense  (3,718) (4,409) (7,269) (12,383)  (10,599)  (3,551)
                 
Net loss $(2,361,773)$(1,958,261)$(4,888,962)$(3,774,596) $(1,867,243) $(2,527,199)
                     
Net loss per common share  ($0.43) ($0.74) ($0.94) ($1.47)
Weighted average common shares outstanding  5,490,257  2,657,053  5,196,717  2,564,806 
Basic and diluted        
Net loss per share $(.24) $(.52)
Weighted average        
shares outstanding  7,802,894   4,904,542 

See accompanying notes to consolidated financial statements

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NEOSTEM, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  
For the Six Months Ended June 30,
 
      
  
2008
 
2007
 
Cash flows from operating activities:
       
Net loss $(4,888,962)$(3,774,596)
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  2,407,961  1,326,253 
Depreciation  41,462  19,943 
Deferred acquisition costs  —  1,253 
        
Changes in operating assets and liabilities:
       
Prepaid expenses and other current assets  (59,872) (97,125)
Accounts receivable  (6,525) (37,202)
Unearned revenues  (233) 4,482 
Accounts payable, accrued expenses, and other current liabilities  (191,967) (66,873)
        
Net cash used in operating activities  (2,698,136) (2,653,865)
        
Cash flows from investing activities:
       
Acquisition property and equipment  (2,379) (19,194)
Net cash used in investing activities
  (2,379) (19,194)
        
Cash flows from financing activities:
       
Net proceeds from issuance of common stock  896,760  2,320,055 
Proceeds from advances on notes payable  131,618  138,232 
Payments of capitalized lease obligations  (12,072) (11,645)
Repayments of notes payable  (90,923) (154,860)
Net cash provided by financing activities  925,383  2,291,782 
        
Net decrease in cash and cash equivalents
  (1,775,132) (351,277)
        
Cash and cash equivalents at beginning of period  2,304,227  436,659 
        
Cash and cash equivalents at end of period $529,095 $85,382 
 
  Six Months Ended June 30, 
  2008 2007 
Supplemental Disclosure of Cash Flow Information:       
Cash paid during the period for:       
Interest $7,269 $12,383 
        
Supplemental Schedule of Non-cash Financing Activities:       
Issuance of common stock for capital commitment  -  165,000 
Issuance of restricted common stock for services  -  233,952 
Issuance of common stock for services rendered  476,842  95,704 
Issuance of common stock for compensation  66,515  55,410 
Issuance of warrants for services  109,958  202,292 
Issuance of common stock for payment of debt  5,647  - 
Compensatory element of stock options  1,202,223  573,895 
Vesting of restricted common stock during period  546,776  233,952 

  For the Three  Months Ended March 31,  
  2009  2008 
Cash flows from operating activities:      
Net loss $(1,867,243) $(2,527,189)
         
Adjustments to reconcile net loss to net cash used in operating activities:
        
         
Common shares issued and stock  options granted for services rendered  199,643   1,325,289 
Depreciation and amortization  29,893   16,225 
         
Changes in operating assets and liabilities:        
Accounts receivable  (4,916)  (2,262)
Prepaid expenses and other current assets  (43,830)  (86,582)
Unearned revenues  14,678   (693)
Accounts payable, accrued expenses, and other current liabilities  418,777   (126,527)
         
           Net cash used in operating activities  (1,252,999)  (1,401,739)
         
Cash flows from investing activities:        
Acquisition of equipment  (5,695)  (2,379)
         
           Net cash used in investing activities  (5,695)  (2,379)
         
Cash flows from financing activities:        
Proceeds from advances on notes payable  1,283,720   126,993 
Payments of capitalized lease obligations  (7,180)  (5,886)
Repayments of notes payable  (55,841)  (51,440)
         
Net cash provided by financing activities  1,220,699   69,667 
         
Net decrease in cash and cash equivalents  (37,995)  (1,334,451)
         
Cash and cash equivalents at beginning of period  430,786   2,304,227 
         
Cash and cash equivalents at end of period $392,791  $969,776 
  Three Months Ended March 31, 
  2009  2008 
Supplemental  Disclosure of Cash Flow Information:      
       
Cash paid during the period for:      
Interest $10,599  $3,167 
Supplemental Schedule of Non-cash Financing Activities:        
Issuance of restricted common stock for services $104,850  $72,800 
Issuance of common stock for services rendered $51,079  $264,352 
Issuance of common stock for compensation $-  $66,515 
Issuance of warrants for services $42,918  $23,808 
Issuance of common stock for payment of debt $-  $5,646 
Compensatory element of stock options $59,770  $645,421 
Vesting of restricted common stock during period $45,876  $319,547 
See accompanying notes to consolidated financial statements.
 
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NEOSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - The Company
Note 1 - The Company

NeoStem, Inc. (“NeoStem” or  the “Company”) was incorporated under the laws of the State of Delaware in September 1980 under the name Fidelity Medical Services, Inc.  Our corporate headquarters is located at 420 Lexington Avenue, Suite 450, New York, NY 10170, our telephone number is (212) 584-4180 and our website address is www.neostem.comwww.neostem.com. 
 
NeoStem is engaged in a platform 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 stem cells from adult donors that theywhich can accessthen be accessed for their own future medical treatment.  We are managing a network of adult stem cell collection centers in major metropolitan areas of the United States.  We have also entered the research and development arenas, through the acquisition of a worldwide exclusive license to an early-stage technology to identify and isolate rare stem cells from adult human bone marrow, called VSEL (very small embryonic-like) stem cells. VSELs have many physical characteristics typically found in embryonic stem cells, including the ability to differentiate into specialized cells found in substantially all the different types of cells and tissue that make up the body.  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 processing, collection 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. 
PriorThe Company is also pursuing other technologies to the NS California acquisition, the business of the Company was to provide capital and business guidance to companiesadvance its position in the healthcare and life science industries, in return for a percentagefield 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.stem cell tissue regeneration.

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.  This reverse stock split was effective as of August 31, 2006. On June 14, 2007, our stockholders approved an amendment to our Certificate of Incorporation to effect a reverse stock split of our common stock at a ratio between one-for-three and one-for-ten shares in the event it was deemed necessary by the Company’s Board of Directors to be accepted onto a securities exchange. On July 9, 2007, the Board authorized the reverse stock split at a ratio of one-for-ten shares to be effective upon the initial closing of the Company’s public offering in order to satisfy the listing requirements of The American Stock Exchange. On August 9, 2007, the reverse stock split was effective and the Company'sCompany’s Common Stock commenced trading on Thethe American Stock Exchange (now NYSE Amex) under the symbol "NBS." All shares and per share amounts in the accompanying consolidated financial statements have been retroactively adjusted for all periods presented to reflect the reverse stock splits effective as of August 9, 2007.“NBS.”

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-Q and Article 8 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 June 30, 2008March 31, 2009 and December 31, 2007,2008, the results of operations for the three and six months ended June 30,March 31, 2009 and 2008 and 2007 and the cash flows for the sixthree months ended June 30, 2008March 31, 2009 and 2007.2008.  The results of operations for the three and six months ended June 30, 2008March 31, 2009 are not necessarily indicative of the results to be expected for the full year.

The December 31, 20072008 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. 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.

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Principles of consolidationConsolidation: The consolidated financial statements include the accounts of NeoStem, Inc. (a Delaware corporation) and its wholly-owned subsidiaries, NeoStem Therapies, Inc. and Stem Cell Technologies, Inc. All intercompany transactions and balances have been eliminated.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash Equivalents: Short-term cash investments, which have a maturity of ninety days or less when purchased, are considered cash equivalents in the consolidated statement of cash flows.

Concentrations of Credit-Risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash. The Company places its cash accounts with high credit quality financial institutions, which at times may be in excess of the FDIC insurance limit.
-6-

Allowance for Doubtful Accounts: The Company establishes an allowance for doubtful accounts to provide for accounts receivable that may not be collectible. In establishing the allowance for doubtful accounts, the Company analyzes the collectability of individual large or past due accounts customer-by-customer and establishes reserves for accounts that it determines to be doubtful of collection. There was no allowance for doubtful accounts necessary at March 31, 2009 and December 31, 2008.
Property and Equipment: The cost of property and equipment is depreciated over the estimated useful lives of the related assets of 3 to 5 years. The cost of computer software programs are amortized over their estimated useful lives of five years. Depreciation is computed on the straight-line method. Repairs and maintenance expenditures that do not extend original asset lives are charged to expense as incurred.

Income Taxes: The Company, in accordance with SFAS 109, “Accounting for Income Taxes,” recognizes (a) the amount of taxes payable or refundable for the current year and (b) deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise’s financial statement or tax returns.

Comprehensive Income (Loss): Refers to revenue, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity.  At March 31, 2009 and December 31, 2008 there were no such adjustments required.

Goodwill: Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. The Company reviews recorded goodwill for potential impairment annually or upon the occurrence of an impairment indicator. The Company performed its annual impairment tests as of December 31, 2008 and determined no impairment exists. The Company will perform its future annual impairment as of the end of each fiscal year.

Intangible Asset: SFAS No. 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless those lives are determined to be indefinite. Purchased intangible assets are carried at cost less accumulated amortization. Definite-lived intangible assets, which consists of patents and rights associated with the Very Small Embryonic Like (“VSEL”) Stem Cells which constitutes the principal assets acquired in the acquisition of Stem Cell Technologies, Inc., have been assigned a useful life and are amortized on a straight-line basis over a period of twenty years.

Impairment of Long-lived Assets: We review long-lived assets and certain identifiable intangibles to be held and used for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds the fair value of the asset. If other events or changes in circumstances indicate that the carrying amount of an asset that we expect to hold and use may not be recoverable, we will estimate the undiscounted future cash flows expected to result from the use of the asset or its eventual disposition, and recognize an impairment loss. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Accounting for Stock OptionBased Compensation: In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required. The Company has adopted SFAS No. l23(R) effective January 1, 2006. The Company determines value of stock options by the Black-Scholes option pricing model. The value of options issued during 2008, 2007 and 20072006 or that were unvested at January 1, 20072006 are being recognized as an operating expense ratably on a monthly basis over the vesting period of each option.option. There were no options issued during the three months ended March 31, 2009. With regard to stock options and warrants issued to non-employees the Company has adopted EITF 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods and Services.”

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Earnings Per Share: Basic (loss)/earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net (loss)/income available to common stockholders by the weighted average shares outstanding during the period. Diluted (loss)/earnings per share, which is calculated by dividing net (loss)/income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented as it is anti-dilutive in all periods presented. For the three months ended March 31 2009 and 2008 the Company incurred net losses and therefore no common stock equivalents were utilized in the calculation of earnings per share. At March 31, 2009 and 2008 the company had common stock equivalents outstanding as follows:

  March 31, 2009  March 31, 2008 
Stock Options  1,718,300   1,826,800 
Warrants  5,305,692   2,107,688 
Advertising Policy: All expenditures for advertising are charged against operations as incurred.

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 is recognized ratably over the period covered by the advanced 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 generally in consideration of the Company providing access to the Company’s know how, procedures and trademarks and in certain cases establishing a service territory for the physician. Start up fees are recognized once the agreement has been signed and the physician has been qualified by the Company’s credentialing committee. If there are any deliverables associated with the startup of a physician practice that portion of the start up fee will be deferred until such deliverable is completed.

WarrantyNote 3 – Recent Accounting Pronouncements
In April 2009, the FASB issued FSP FAS 141(R)- 1 “Accounting for Assets Acquired and service contract reinsurance premiumsLiabilities Assumed in a Business Combination That Arise from Contingencies”.  This FSP amends the guidance in FASB Statement No. 141(R) and is effective for the first annual reporting period beginning on or after December 15, 2008.  We are recognizedcurrently evaluating the requirements of this pronouncement on our proposed merger with China Biopharmaceuticals Holdings, Inc. but do not anticipate this will have an impact on the merger or our financial position if the merger is approved by shareholders.

In June 2008, FASB ratified EITF No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock" ("EITF 07-5"). EITF 07-5 provides that an entity should use a pro rata basis overtwo-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the policy term. The deferred policy acquisition costsinstrument's contingent exercise and settlement provisions. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early application is not permitted. At the present time we do not have any such equity instruments but we are assessing the net costpotential impact of acquiring newthis EITF on our future financial condition and renewal insurance contracts. These costs are chargedresults of operations.

Note 4 - Notes Payable
In order to expensemove forward certain research and development activities, strategic relationships in proportionvarious clinical and therapeutic areas as well as to net premium revenue recognized. The provisions for losses and loss-adjustment expenses include an amount determined from loss reports on individual cases and an amount based on past experience for losses incurred but not reported. Such liabilities are necessarily based on estimates, and while management believes that the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates and for establishing the resulting liability are continually reviewed, and any adjustments are reflected in earnings currently. The Company had sold, via the Internet, through partnerships and directly to consumers, extended warranty service contracts for seven major consumer products. The Company recognized 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 costssupport activities related to the sale are amortized over the lifeCompany’s proposed Merger and Share Exchange transactions, other initiatives in China as well as other ongoing obligations of the contract. Recognition of Revenue related to this line of business endedCompany, on February 25, 2009 and March 31, 2007.

Note 3 - Notes Payable
In connection with the NS California acquisition,6, 2009, respectively, the Company assumedissued promissory notes to RimAsia Capital Partners,L.P. (“RimAsia”), a 6% note payable due a former officerprincipal stockholder of NS Californiathe Company, in the amountprincipal amounts of $15,812. As$400,000 and $750,000, respectively.  The notes bear interest at the rate of December10% per annum and are due and payable on October 31, 2007, $1,313 remained unpaid. Final payment was made2009, except that all principal and accrued interest on the Notes shall be immediately due and payable in January, 2008.the event the Company raises over $10 million in equity financing prior to October 31, 2009.  The notes contain standard events of default and in the event of a default that is not subsequently cured or waived, the interest rate will increase to a rate of 15% per annum and, at the option of RimAsia and upon notice, the entire unpaid principal balance together with all accrued interest thereon will be immediately due and payable.  The notes or any portion thereof may be prepaid at any time and from time to time at the discretion of the Company without premium or penalty. On April 9, 2009 these notes and the related accrued interest were repaid from the proceeds of an $11 million offering of units consisting of shares of the Company’s Series D Convertible Redeemable Preferred Stock and warrants to purchase shares of Common Stock (See Note 8 - Subsequent Events).

The Company has financed certain insurance polices and has notes payable at June 30, 2008March 31, 2009 in the amount of $45,415$77,880 related to these policies. These notes require monthly payments and mature in less than one year.

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Note 4 - Other Obligations
In November 2007, the Company acquired the exclusive, worldwide rights to very small embryonic like (VSEL) technology developed by researchers at the University of Louisville. These rights were acquired through the Company’s acquisition of Stem Cell Technologies, Inc., the licensee to a license agreement (the “License Agreement”) with the University of Louisville. Concurrent with acquiring these rights, the Company entered into a sponsored research agreement (the "Sponsored Research Agreement" or "SRA") with the University of Louisville Research Foundation (“ULRF”) under which the Company will support further research in the laboratory of Mariusz Ratajczak, M.D., Ph.D., a co-inventor of the VSEL technology and head of the Stem Cell Biology Program at the James Graham Brown Cancer Center at the University of Louisville. The term of the research is two and one-half years and shall commence after all applicable institution (e.g., institutional review board ("IRB")) and Federal approvals are obtained and upon the adult stem cell specimens required for the research being provided to the laboratory. The License Agreement requires the payment of certain license fees, royalties and milestone payments, payments for patent filings and applications and the use of due diligence in developing and commercializing the VSEL technology. The SRA requires periodic and milestone payments. All payments required to be made to date have been made. Under the License Agreement, upon the commencement of the research (which has not yet occurred pending receipt of IRB approvals and collection of the appropriate samples), the Company will be required to make payments of $66,000 in license issue fees and prepayment of patent costs and will be responsible for additional patent-related costs. Thereafter, an annual license maintenance fee of $10,000 will be required upon the issuance of a licensed patent and royalties will be payable based upon the sale of certain licensed products. Under the Sponsored Research Agreement, the Company agreed to support the research as set forth in a research plan in an amount of $375,000. Such costs are to be paid by the Company in accordance with a payment schedule which sets forth the timing and condition of each such payment over the term of the SRA, the first payment of $100,000 (for which there is a $50,000 credit) being due upon the commencement of the research. We will require additional research and development capacity and access to funds to meet our development obligations under the License Agreement and develop the VSEL technology. The Company has applied for Small Business Innovation Research (SBIR) grants and may also seek to obtain funds through applications for other State and Federal grants, direct investments, sublicensing arrangements as well as other funding sources to help offset all or a portion of these costs We are seeking to develop increased internal research capability and sufficient laboratory facilities or establish relationships with third parties to provide such research capability and facilities. In this regard, in July 2008 the Company hired a Director of Stem Cell Research and Laboratory Operations.

Note 5 - Stockholders’ Equity

Common Stock:
Effective January 1, 2008, the Company entered into a one year consulting agreement with a financial services firm, pursuant to which this firm is providing consulting services during the term to the Company consisting of (i) reviewing the Company's financial requirements; (ii) analyzing and assessing alternatives for the Company's financial requirements; (iii) providing introductions to professional analysts and money managers; (iv) assisting the Company in financing arrangements to be determined and governed by separate and distinct financing agreements; (v) providing analysis of the Company's industry and competitors in the form of general industry reports provided directly to the Company; and (vi) assisting the Company in developing corporate partnering relationships. As consideration for these services, in February 2008, the Company issued to the consultant, (i) 50,000 shares of Common Stock; and (ii) two warrants to purchase an aggregate of 120,000 shares of Common Stock. This issuance of this stock resulted in a charge to operations for the six months ended June 30, 2008 of $80,000 and $59,000 for the vested portion of the two warrants for the six months ended June 30, 2008 . The issuance of such securities was subject to the approval of the American Stock Exchange, which approval was obtained in February 2008. This issuance of securities was approved by the Board of Directors.

In January 2008, the Company entered into a letter agreement with Dr. Robin L. Smith, its Chairman of the Board and Chief Executive Officer, pursuant to which Dr. Smith's employment agreement dated as of May 26, 2006 and amended as of January 26, 2007 and September 27, 2007 was further amended to provide that, in response to the Company’s efforts to conserve cash, $50,000 of her 2008 salary would be paid in shares of the Company’s Common Stock, the number of shares to be issued was reduced by the amount of cash required to pay the withholding taxes associated with this amount of salary. Accordingly, Dr. Smith was issued 16,574 shares of the Company’s Common Stock pursuant to the Company’s 2003 Equity Participation Plan (the “2003 EPP”) resulting in a charge to operations of $28,176. This issuance of shares was approved by the Compensation Committee of the Board of Directors.

In January 2008, the Company entered into a letter agreement with Catherine M. Vaczy, its Vice President and General Counsel, pursuant to which Ms. Vaczy’s employment agreement dated as of January 26, 2007 was amended to provide that, in response to the Company’s efforts to conserve cash, Ms. Vaczy would be paid $11,250 of her 2008 salary in shares of the Company’s Common Stock, the number of shares to be issued was reduced by the amount of cash required to pay the withholding taxes associated with this amount of salary. Accordingly, Ms. Vaczy was issued 3,729 shares of the Company’s Common Stock pursuant to the 2003 EPP resulting in a charge to operations of $6,339. This issuance of shares was approved by the Compensation Committee of the Board of Directors.

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Note 5 - Stockholders’ Equity

Common Stock:
In January 2008,2009, the Company terminatedentered into an agreement with a consultant to the Company. In connection with the cancellationphysician who was retained as a consultant.  The term of this agreement 5,000 shares of Common Stockis January 2009 through December 31, 2011.  As part of the Company, previously issued, were surrenderedconsideration for providing services, the physician is to receive $24,000 annually, by the consultant.

In January 2008, the Company issued 7,500issuance of shares of the Company’s Common Stock to a consultant to the Company pursuant tounder the 2003 EPP resulting in a charge to operationsequal monthly installments of $13,475. This issuance of shares was approved by the Compensation Committee of the Board of Directors.

In February 2008, the Company entered into a one year consulting agreement with a law firm to assist in funding efforts from the State and Federal Governments as well as other assignments from time to time, in consideration for which it issued to the firm 40,000 shares that vest ratably on a monthly basis during 2008. The issuance of the shares was subject to the approval of the American Stock Exchange, such approval was obtained in March 2008, and following this approval the shares were issued. The shares issued in connection with this agreement had a value of $72,800 which is being recognized as an operating expense over the term of the agreement, and has resulted in a charge to operations for the six months ended June 30, 2008 of $30,000. This issuance of shares was approved by the Board of Directors.

On February 15, 2008, the Company entered into a six month engagement agreement with a financial advisor pursuant to which they are acting as the Company’s exclusive financial advisor for the term in connection with a potential acquisition of a revenue generating business, in the United States or abroad, or similar transaction. As partial consideration, the Company will issue shares of Common Stock with a $45,000 value based on the five day average of the closing prices of the Common Stock preceding the date of issuance which shall be paid on a pro rata basis during the term of the agreement. The issuance of such securities was subject to the approval of the American Stock Exchange. Such approval was obtained in March 2008, and following that approval the Company has issued to the financial advisor, through June 30, 2008, payments in stock under the agreement totaling 30,058 shares resulting in a charge to operations of $38,608. This issuance of shares was approved by the Board of Directors.

In February 2008, the Company issued 20,000 shares of the Company’s Common Stock to the Company’s Director of Government Affairs pursuant to the 2003 EPP resulting in a charge to operations of $32,000. The issuance of the shares was in lieu of salary payable in connection with such individual serving as the vice president of the Stem for Life Foundation (“SFLF”), a not for profit corporation which the Company participated in founding.  In April 2008, this individual resigned from her position as Director, Government Affairs with the Company and VP of SFLF. This issuance of shares was approved by the Compensation Committee of the Board of Directors.

In February 2008, the Company issued 5,325 shares of the Company’s Common Stock to a consultant to the Company pursuant to the 2003 EPP. This issuance of shares was approved by the Compensation Committee of the Board of Directors resulting in a charge to operations of $8,646.

In February 2008, the Company entered into a six month advisory services agreement with a financial securities firm whereby this firm is providing financial consulting services and advice to the Company pertaining to its business affairs. In consideration for such services, the Company has agreed to issue 150,000 shares of common stock that shall be issued over the term of the advisory services agreement, provided that the advisory services agreement continues to be in effect. The issuance of such securities was subject to the approval of the American Stock Exchange, which approval was obtained on March 20, 2008, and on that date the Company issued under the advisory services agreement the initial payments in stock totaling 50,000 shares. Through June 30, 2008 a total of 90,000 shares have been issued, resulting in a charge to operations of $141,200. This issuance of shares was approved by the Board of Directors. The Company has terminated this Agreement and the remaining 60,000 shares will not be issued.

In February 2008, the Company entered into a six month consulting agreement with an investor relations advisor who has provided investor relations and media services to the Company since 2005. In consideration for providing services under the consulting agreement, the Company agreed to issue to the advisor an aggregate of 50,000 shares of common stock. The issuance of such securities was subject to the approval of the American Stock Exchange. Such approval was obtained on March 20, 2008 and on that date these shares were issued, resulting in a charge to operations of $85,000. This issuance of shares was approved by the Board of Directors.

In April 2008, the Company entered into a one month non-exclusive investment banking agreement in connection with the possible issuances by the Company of equity, debt and/or convertible securities. In partial consideration for such services, the Company agreed to issue 9,146 shares of common stock as a retainer. The term of this agreement was extended. The issuance of the securities under this agreement was subject to the approval of the American Stock Exchange, which approval was obtained and on May 21, 2008 the 9,146 retainer shares were issued. This bank participated in the May 2008 private placement (as described below). The value of this stock is $7,400. This issuance of shares was approved by the Board of Directors.

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In May 2008, the Company completed a private placement of securities pursuant to which $900,000 in gross proceeds were raised (the “May 2008 private placement”). On May 20 and May 21, 2008, the Company entered into Subscription Agreements (the "Subscription Agreements") with 16 accredited investors (the "Investors"). Pursuant to the Subscription Agreements, the Company issued to each Investor units (the "Units") comprised of one share of its common stock, par value $.001 per share (the "Common Stock") and one redeemable five-year warrant to purchase one share of Common Stock at a purchase price of $1.75 per share (the "Warrants"), at a per-Unit price of $1.20. The Warrants are not exercisable for a period of six months and are redeemable by the Company if the Common Stock trades at a price equal to or in excess of $2.40 for a specified period of time. In the May 2008 private placement, the Company issued an aggregate of 750,006 Units to Investors consisting of 750,006 shares of Common Stock and 750,006 redeemable Warrants, for an aggregate purchase price of $900,000. Dr. Robin L. Smith, the Company’s Chairman and Chief Executive Officer, purchased 16,667 Units for a purchase price of $20,000 and Catherine M. Vaczy, the Company’s Vice President and General Counsel, purchased 7,500 Units for a purchase price of $9,000. New England Cryogenic Center, Inc. (“NECC”), one of the largest full-service cryogenic laboratories in the world and a strategic partner of the Company since October 2007, also participated in the offering. Pursuant to the terms of the Subscription Agreements, the Company was required to prepare and file (and did so on a timely basis) no later than forty-five days (with certain exceptions) after the closing of the May 2008 private placement, a Registration Statement with the SEC to register the resale of the shares of Common Stock issued to Investors and the shares of Common Stock underlying the Warrants, which was filed on July 1, 2008. In connection with the May 2008 private placement, the Company paid as finders’ fees to accredited investors, cash in the amount of $3,240 and issued five year warrants to purchase an aggregate of 35,703 shares of Common Stock (see “Warrants,” below). Cash in the amount of 4% of the proceeds received by the Company from the future exercise of 30,000 of the Investor Warrants is also payable to one of the finders.

In May 2008, the Company entered into a two month agreement with a sales and marketing consultant pursuant to which the consultant will provide consultation services to the Company relating to business development, operations and staffing matters. In consideration for such services, the Company agreed to issue to the Consultant pursuant to the 2003 EPP: (i) 20,000 shares of Common Stock which shall vest as to 10,000 shares$2,000 on the last day of each 30 day periodmonth during the term of the consulting agreement; and (ii) an option to purchase 20,000 shares of Common Stockagreement at a per share purchase price equal to the closing price of the Common Stock on the datelast day of grant thateach month, which payment shall vest and become exercisable as to 10,000be made in cash in the event shares under the 2003 EPP are unavailable.  During the three months ended March 31, 2009, 7,984 shares of Common Stock, on the last daywith a value of each 30 day period during the term of the consulting agreement, subject in each case$6,000, were issued to the continued effectiveness of thephysician pursuant to this agreement. All of such shares are subject to a six month period during which Consultant has agreed none of these shares will be sold. The issuance of the equities resulted in a charge to operations of $27,600 for the Common Stock that was issued and $17,153 for the vested portion of the stock options. This issuance of securities was approved by the Compensation Committee of the Board of Directors.

In May 2008,January 2009, the Company entered into a two monthan agreement with a consultant pursuant to which the consultant will providehas been providing investor relation services to the Company relatingsince 2005, pursuant to government affairs and related areas.which this consultant was retained to provide additional investor relations/media relations services from January 1, 2009 to May 31, 2009.  In consideration for suchproviding services under this agreement, the Company agreed to issue to the Consultant pursuant to the 2003 EPP: (i) 20,000consultant an aggregate of 40,000 shares of restricted Common Stock, which shallto vest as to 10,0008,000 shares on the last day of each 30 day period duringmonth of January through May 2009. The stock issued to this consultant had a value of $27,600 of which $16,560 was recognized as an operating expense in the term ofthree months ended March 31, 2009 based on the consulting agreement; and (ii) an option to purchase 20,000 shares of Common Stock at a per share purchase price equal to the closing pricevesting of the Common Stock on the date of grant that shall vest and become exercisable as to 10,000 shares of Common Stock on the last day of each 30 day period during the term of the consulting agreement, subject in each case to the continued effectiveness of the agreement. All of such shares are subject to a six month period during which Consultant has agreed none of the shares will be sold.Stock.  The issuance of these equities resulted in a charge to operations of $26,000 for the Common Stock that was issued and $17,715 for the vested portion of the stock options. This issuance ofsuch securities was approved by the Compensation Committee of the Board of Directors.

In May 2008, the Company issued to a business development consultant for services previously rendered, 1,000 shares of Common Stock under the 2003 EPP which vested immediately. The issuance of these shares resulted in a charge to operations of $960. This issuance of shares was approved by the Compensation Committee of the Board of Directors.

In May 2008, the Company entered into a three month consulting agreement with a public relations and communications consultant focusing on specific consumer demographics. As partial consideration for these services, the Company agreed to issue: (i) 20,000 shares of Common Stock on each of (a) the date of execution of the agreement (the ��Execution Date”), (b) thirty days after the Execution Date, and (c) sixty days after the Execution Date; and (ii) a five year warrant to purchase up to 30,000 shares of Common Stock (as described under “Warrants,” below), exercisable as to 10,000 shares each at $3.00, $4.00 and $5.00, respectively. The issuance of the securities under this agreement wasis subject to the approval of the American Stock Exchange, which approval was obtained on June 20, 2008 and the initial payments in Common Stock and the Warrant were issued. Through June 30, 2008,NYSE Amex.

In January 2009, the Company issued 40,000to its grant consultant, 20,000 shares of restricted Common Stock, with a value of $13,800 as a bonus under the consultant’s Consulting Agreement with the Company dated February 8, 2008, in consideration for such consultant being instrumental in securing the Company’s common stock resultinginclusion in a charge to operationsthe Department of $36,800. This issuanceDefense Fiscal Year 2009 Appropriations Bill in the net amount of securities was approved by the Board of Directors. On July 26, 2008, the Company terminated this Agreement and the final 20,000 shares will not be issued.

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In June 2008, the Company entered into a six month consulting agreement with an investor relations advisor. As consideration for these services, the Company issued (i) 50,000 shares of the Company’s common stock, vesting as to 25,000 shares on the date of execution of the consulting agreement and 25,000 shares 91 days thereafter, which resulted in a charge to operations of $42,500 and (ii) a five year warrant to purchase an aggregate of 250,000 shares of Common Stock (as described under “Warrants” below).approximately $680,000.  The issuance of such securities was subject to the approval of the American Stock Exchange,NYSE Amex, which approval was obtained in January 2009.  The Company has entered into a new consulting agreement with such grant consultant for a one-year term commencing as of January 1, 2009.  In consideration for services, the consultant will be issued shares of the Company’s restricted Common Stock equal to a value of $60,000 based on the closing price of the Company’s Common Stock on the date of execution of the agreement, which has been determined to be 67,416 shares, to vest as to one-half of such shares on June 20, 200830, 2009 and the initial payment inremaining one-half of such shares on December 31, 2009.  The issuance of such securities are subject to the approval of the NYSE Amex. For the three months ended March 31, 2009 the Company has recognized $15,000 as an operating expense relating to these shares.

In January 2009, the Company issued to a marketing consultant 12,000 shares of restricted Common Stock, and the Warrant were issued. This issuancewith a value of securities was approved by the Board of Directors. Pursuant$8,280, pursuant to the terms of a three month consulting agreement entered into in October 2008, scheduled to vest pursuant to the agreement as to 4,000 shares at the end of each 30 day period during the term.  The issuance of such securities was subject to the approval of the NYSE Amex, which approval was obtained in January 2009.

In January 2009, the Company was requiredissued to prepare and file (and did so on a timely basis) no later than July 3, 2008, a Registration Statement with the SEC to register the resalemember of theits Scientific Advisory Board 20,000 shares of Common Stock issuedunder the 2003 EPP, with a value of $15,000, in consideration of this individual’s contribution to a special project related to the consultantdesign of a cardiac stem cell clinical trial for end stage cardiomiopathy anticipated to be conducted in the People’s Republic of China.

In February 2009, the Company entered into a consulting agreement with a one year term commencing March 1, 2009, with a physician to provide services to the Company including providing medical expertise in the areas of apheresis and laboratory medicine and to serve (as needed) as medical director for centers in the Company’s stem cell collection center network as well as other related activities, in partial consideration for which the physician is to receive a one-time payment of 10,000 shares of Common Stock underlyingunder the warrant.2003 EPP, which shares were issued as of February 2009.  Such shares had a value of $8,000.

In March 2009, the Company entered into an agreement with a consultant which has been providing financial market related services to the Company since 2008, pursuant to which this consultant was retained to provide additional financial market related services for a three month period.  In partial consideration for providing services under this agreement, the Company agreed to issue to the consultant an aggregate of 25,000 shares of restricted Common Stock, with a value of $17,250, to vest as to one-third of the shares at the end of each monthly period during the term. Based on these vesting terms, the Company has recognized $5,750 as an operating expense in the three months ended March 31, 2009.  This consultant was also issued a five year warrant to purchase 25,000 shares of restricted Common Stock at a per share exercise price of $1.00, with a value of $16,867. (See Warrants below).  The issuance of such securities is subject to the approval of the NYSE Amex.

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 3,173,3975,305,692 shares of common stock are reserved for issuance upon exercise of outstanding warrants as of June 30, 2008March 31, 2009 at prices ranging from $1.00$.78 to $12.00$8.00 and expiring through JuneMarch 2014.
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In January 2008, the Company entered into a one year consulting agreement with a financial services firm (as described under “Common Stock” above). As consideration for these services, in February 2008,2009, the Company issued to thea consultant (i) 50,000 shares of Common Stock; and (ii) two warrants to purchase an aggregate of 120,000 shares of Common Stock. The first warrant grants the consultant the right to purchase up to 20,000 shares of Common Stock at a per share purchase price equal to $2.00; and the second Warrant grants the consultant the right to purchase up to 100,000 shares of Common Stock at a per share purchase price equal to $5.00, all as set forth in the Warrants. The Warrants shall vest on a pro rata basis so long as services continue to be provided under the agreement and are exercisable until January 1, 2013, resulting in a charge to operations of $59,500 for the six months ended June 30, 2008. The issuance of such securities was subject to the approval of the American Stock Exchange, which approval was obtained in February 2008.

In May 2008, the Company completed a private placement of securities pursuant to which $900,000 in gross proceeds were raised (as described under “Common Stock,” above). Pursuant to the May 2008 private placement, the Company issued to each Investor units comprised of one share of Common Stock and one redeemable five-yearfive year warrant to purchase one share5,000 shares of Common Stock at a purchase price of $1.75$1.40 per share, (the "Warrants"), atwith a per-Unit pricevalue of $1.20. The Warrants are not exercisable for a period of six months and thereafter are exercisable through May 19, 2013, and are redeemable by the Company if the Common Stock trades at a price equal to or in excess of $2.40 for a specified period of time. The Investors received certain registration rights for the shares of Common Stock underlying the Warrants, as described under “Common Stock,” above, and in July 2008 the Company timely filed a registration statement relating thereto. The warrants$3,338. This warrant was issued in connection with offering have a fair valueconsideration of $518,000. As also described,services rendered after the Company issued warrants to purchaseexpiration of an aggregate of 35,705 shares of Common Stock in partial payment of finder’s fees (the “Finder’s Warrants”), which Finder’s Warrants contain generally the same terms as the Warrants except they contain a cashless exercise feature and have piggyback registration rights for the resale of the shares underlying the Finder’s Warrants. The Finder Warrants have a fair value of $23,500.

In May 2008, the Company entered into a three monthOctober 2007 consulting agreement with a public relations and communications consultant focusing on specific consumer demographics (as described under “Common Stock,” above). As partial consideration for these services, the Company issued a five year warrantpursuant to purchase upwhich this consultant was engaged to 30,000 shares of Common Stock, exercisable as to 10,000 shares each at $3.00, $4.00create marketing materials for our sales and $5.00, respectively, all as set forth in the Warrant.marketing staff. The issuance of the securities under this agreementwarrant was subject to the approval of the American Stock Exchange, which approval was obtainedNYSE Amex and vested on June 20, 2008 and the initial payments in Common Stock and the Warrant were issued. The Warrant is exercisable through June 19, 2013. This issuance of securities was approved by the Board of Directors. The issuance of the Warrant resulted in a charge to operations of $19,828.issuance.

In June 2008,March 2009, the Company entered into a six month consultingan agreement with an investor relations advisor (as described under “Common Stock,” above).a consultant to provide financial market related services for a three month period beginning March 2009.  As partial consideration for theseproviding services under this agreement, the Company issuedagreed to issue to the advisor,consultant a five year warrant (the “Warrant”) to purchase up to 250,00025,000 shares of restricted Common Stock vesting as to 41,667 shares on the date of execution of the consulting agreement (the “Execution Date”) and each of the first, second, third, fourth and fifth monthly anniversaries of the Execution Date (each,at a “Vesting Date”) (except it shall vest as to 41,666 shares on the fourth and fifth anniversaries); provided, that on each Vesting Date the consulting agreement shall continue to be in effect, at an exercise price per share as follows: (a) as to 50,000 shares at an exercise price of $1.00, per share, (b)with a value of $16,867, vesting in its entirety at the end of the term; for the three months ended March 31, 2009 the Company recognized $5,622 as to an additional 50,000 shares at an exercise price of $1.30 per share, (c) as to an additional 50,000 shares at an exercise price of $1.75 per share; (d) as to an additional 50,000 shares at an exercise price of $2.00 per share, and (e) as to an additional 50,000 shares at an exercise price of $3.00 per share, all as set forth in the Warrant.operating expense.  The issuance of the securities under this agreement waswarrant is subject to the approval of the American Stock Exchange, which approval was obtained in June 2008 andNYSE Amex.

In the initial payments inCompany’s August 2007 public offering, units were issued comprised of shares of the Company’s Common Stock, and the WarrantClass A warrants to purchase an aggregate of 635,000 shares of Common Stock.  The Company also issued to its underwriter group warrants (the “Underwriter Warrants”) to purchase an aggregate of 95,250 shares of Common Stock.  The Class A Warrants were issued. The Warrant is exercisable until June 19, 2013. Pursuantissued pursuant to the terms of the agreement, anda Restated Warrant Agreement made as described under “Common Stock,” above,of August 14, 2007 between the Company was requiredand the Class A Warrant agent.  The Underwriter Warrants were issued individually to prepareeach member of the underwriting group.  The Underwriter Warrants had a higher exercise price ($6.50) than that of the Class A Warrants, and file (and did so onunlike the Class A Warrants, could not be exercised for a timely basis) no later than July 3,period of one year from the date of issuance and contained provisions for cashless exercise. In September, 2008 a Registration Statement with the SEC to registerCompany made the resaledetermination that certain of the Underwriter Warrants totaling 86,865 shares of Common Stock, issued toshould be accounted for as a derivative liability and reported on our balance sheet as such. Upon the consultantclosing of our August 2007 public offering the fair value and thus the sharesderivative liability value of Common Stock underlyingthese certain Underwriter Warrants was $195,551. At December 31, 2008 the Warrant. The issuancederivative liability value associated with these certain Underwriter Warrants was $0 and at March 31, 2009 the derivative liability value of the Warrant resulted in a charge to operationsthese Underwriter Warrants was $32,514 and has been reflected as an accrued liability as of $37,420 for the six months ended June 30, 2008.

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March 31, 2009.
 
At June 30, 2008March 31, 2009, the outstanding warrants by range of exercise prices are as follows:
 
  
Number
Outstanding
 
Weighted
Average
Remaining
 
Number
Exercisable
 
Exercise Price June 30, 2008 Contractual Life (years) June 30, 2008 
$1.00 to $ 3.20  1,165,709  4.87  1,105,709 
$3.20 to $ 5.40  84,250  2.66  84,250 
$5.40 to $ 7.60  802,761  4.19  707,511 
$7.60 to $ 9.80  1,088,678  3.92  1,088,678 
$9.80 to $12.00  31,999  .52  31,999 
   3,173,397     3,018,147 
     Number Outstanding  
Weighted Average
Remaining
  
Number
 Exercisable
 
Exercise Price  March 31, 2009  Contractual Life (years)  March 31, 2009  
$0.78 to $3.02   3,295,709   4.36   2,504,045 
$3.02 to $5.27   184,250   2.91   184,250 
$5.27 to $7.51   802,761   3.43   802,761 
$7.51 to $8.00   1,022,972   3.36   1,022,972 
        5,305,692       4,514,028 

Options:

The Company’s 2003 Equity Participation Plan (the “2003 EPP”) permits the grant of share options and shares to its employees, Directors,directors, consultants and advisors for up to 2,500,000 shares of common stockCommon Stock as stock compensation.  All stock options under the 2003 EPP are generally granted at the fair market value of the common stockCommon Stock at the grant date. Employee stock options vest ratably over a period determined at time of grant, or upon the accomplishment of specified business milestones, and generally expire 10 years from the grant date.

Effective January 1, 2006, the Company’s 2003 EPP is accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.

The Company's results included share-based compensation expense of $556,802$59,770 and $368,078$645,421 for the three months ended June 30,March 31, 2009 and 2008, and 2007, respectively and $1,202,223 and $573,895 for the six months ended June 30, 2008 and 2007, respectively. Such amounts have been included in the consolidated statements of operations within general and administrative expenses.
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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.award and those options that vested upon the accomplishment of business milestones. Options vesting on the accomplishment of business milestones will not be recognized for compensation purposes until such milestones are accomplished. At March 31, 2009 there were options to purchase 265,000 shares outstanding that will vest on the accomplishment of certain business milestones.

The weighted average estimated fair value of stock options granted in the three months ended March 31, 2009 and 2008 were $0 and $1.48, respectively. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. During the three months ended March 31, 2009 and the years ended 2008, 2007 and 2006, the Company took into consideration the guidance under SFAS 123(R) and SAB No. 107 when reviewing and updating assumptions. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees.  Previously such assumptions were determined based on historical data.

The range of assumptions made in calculating the fair values of options are as follows:

  Three Months Ended June 30, Six Months Ended June 30, 
  2008 2007 2008 2007 
Expected term (in years)  10  10  10  10 
Expected volatility  100% to 140% 133% 100% to 140% 133% to 152%
              
Expected dividend yield  0% 0% 0% 0%
              
Risk-free interest rate  3.83% to 4.19% 4.95% 3.64% to 4.19% 4.51% to 4.95%

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 Three Months Ended March 31, 
 2009 2008 
Expected term (in years)None Issued 10 
     
Expected volatilityNone Issued 119% to 121% 
     
Expected dividend yieldNone Issued         0% 
     
Risk-free interest rateNone Issued 3.64% to 3.85% 
 
Stock option activity under the 2003 Equity Participation Plan is as follows:

      Weighted Weighted Average Aggregate 
  Number of  Range of Average Remaining Intrinsic 
  Shares (1)  Exercise Price Exercise Price Contractual Term Value 
Balance at December 31, 2007  1,113,800 $1.70 - $25.00 $5.66       
Granted  795,500 $0.95 - $1.67 $1.59       
Exercised  -  -  -       
Expired  -  -  -       
Cancelled  (129,500) - $3.59       
Balance at June 30, 2008  1,779,800 $0.95 - $25.00 $4.00  8.45 $- 
                 
Vested and Exercisable at June 30, 2008  1,013,216    $ 4.75  7.78 $- 
  Number of Shares (1)  Range of Exercise Price  Weighted Average Exercise Price  Weighted Average Remaining Contractual Term  Aggregate Intrinsic Value 
Balance December 31, 2008  1,725,300  $0.71 - $25.00  $3.96       
Granted  -               
Exercised  -               
Expired  (2,000)              
Cancelled  (5,000)              
Balance March 31, 2009  1,718,300  $0.71 - $25.00  $3.96   7.78  $- 
                     
Vested and Exercisable at March 31, 2009  1,389,300      $4.10   7.56  $- 

(1)  -- All options are exercisable for a period of ten years.
 
(1) — All options are exercisable for a period of ten years.
     Number Outstanding   
Weighted Average
Remaining
  
Number
 Exercisable 
 
Exercise Price  March 31, 2009   Contractual Life (years)  March 31, 2009  
$0.71 to $4.17   827,000   8.82   663,000 
$4.17 to $7.63   800,200   7.86   639,200 
$7.63 to $11.08   50,000   6.70   46,000 
$11.08 to $14.54   3,000   4.92   3,000 
$14.54 to $25.00   38,100   6.27   38,100 
        1,718,300       1,389,300 
 
  
Number
Outstanding
 
Weighted Average
Remaining
 
Number
Exercisable
 
Exercise Price June 30, 2008 Contractual Life (years) June 30, 2008 
$0.95 to $ 4.36  821,500  9.64  337,500 
$4.36 to $ 7.77  867,200  8.52  592,616 
$ 7.77 to $ 11.18  50,000  7.58  42,000 
$11.18 to $14.59  3,000  5.67  3,000 
$14.59 to $25.00  38,100  6.97  38,100 
   1,779,800     1,013,216 
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Options are usually granted at an exercise price at least equal to the fair value of the common stockCommon Stock at the grant date and may be granted to employees, Directors, consultants and advisors of the Company.


As of June 30, 2008,March 31, 2009, there was approximately $2,021,000$1,086,300 of total unrecognized compensation costs related to unvested stock option awards of which $307,000$92,500 of unrecognized compensation expense is related to stock options that vest over a weighted average life of .8.25 years. The balance of $1,714,000$993,800 of unrecognized compensation costs is related to stock options that vest based on the accomplishment of business milestones.
 
 Options 
Weighted
Average Grant
Date Fair
Value
  Options  Weighted Average Grant Date Fair Value 
Non-Vested at December 31, 2007  432,668 $4.94 
Non-Vested at December 31, 2008  435,250  $2.93 
Issued  795,500  1.50   -     
Expired  (2,000)    
Canceled  (129,500) 3.54   (5,000)  2.81 
Vested  (332,084) 2.12   (99,250)  1.68 
Non-Vested at March 31, 2008  766,584 $2.99 
Exercised  -     
Non-Vested at March 31, 2009  329,000  $3.35 
 
The total value of shares vested during the sixthree months ended March 31, 2009 was $59,770.
Note 6 - Segment Information
To date, the Company’s operations have been conducted in only one geographical segment and since March 31, 2007 the Company has realized revenue only from the banking of adult autologous stem cells.

Note 7 - Related Party Transactions
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 Company’s proposed Merger and Share Exchange transactions and other ongoing obligations of the Company, on February 25, 2009 and March 6, 2009, respectively, the Company issued promissory notes to RimAsia, a principal stockholder of the Company in the principal amounts of $400,000 and $750,000, respectively.  The notes bear interest at the rate of 10% per annum and are due and payable on October 31, 2009, except that all principal and accrued interest on the notes shall be immediately due and payable in the event the Company raises over $10 million in equity financing prior to October 31, 2009.  The notes contain standard events of default and in the event of a default that is not subsequently cured or waived, the interest rate will increase to a rate of 15% per annum and, at the option of RimAsia and upon notice, the entire unpaid principal balance together with all accrued interest thereon will be immediately due and payable.  The notes or any portion thereof may be prepaid at any time and from time to time at the discretion of the Company without premium or penalty. On April 9, 2009 these notes and the related accrued interest were repaid from the proceeds of an $11 million offering of preferred stock in which RimAsia purchased $5 million of Company securities. (See Note 8 - Subsequent Events).

Note 8 - Subsequent Events
On April 9, 2009, the Company completed a private placement financing totaling $11 million from three Asia-based investors.  The financing consisted of the issuance of 880,000 units priced at $12.50 per unit, with each unit consisting of one share of the Company’s Series D Convertible Redeemable Preferred Stock (“Series D Stock”) (convertible, subject to shareholder approval as described below, into ten shares of Common Stock) and ten warrants with each warrant to purchase one share of Common Stock.

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 Series D Stock has an accruing dividend of ten percent (10%) per annum, payable (i) annually in cash on each anniversary of the issue date, provided that the shares of Series D Stock remain outstanding on such date or (ii) upon a liquidation, dissolution or winding up of the Company.  The Series D Stock (i) ranks senior to all of the Company’s capital stock with respect to the payment of dividends and to the distribution of assets upon liquidation, dissolution or winding up, (ii) does not have any voting rights, (iii) does not have any anti-dilution protection, and (iv) does not have any preemptive rights. The  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 shareholders and the rules of the NYSE Amex, the warrants will become exercisable for a period of five years. The securities sold were sold without registration under the Securities Act of 1933, as amended (the " Securities Act") pursuant to Regulation S and Regulation D, each promulgated under the Securities Act and may not be resold in the United States or to U.S. persons unless registered under the Securities Act or pursuant to an exemption from registration under the Securities Act.
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The investing firms were RimAsia Capital Partners, L,P, (“RimAsia”), a pan-Asia private equity firm operating in partnership with a regional network of strategic investors drawn from leading Asian families and companies, investing $5 million for 400,000 units; Enhance Biomedical Holding Corporation based in Shanghai, also investing $5 million for 400,000 units and Elancrest Investments Ltd., a Singapore-based firm, investing $1 million for 80,000 units.  RimAsia previously invested $1.25 million in NeoStem, as was announced on September 3, 2008. The funds will be used to support the development of NeoStem’s VSEL (very small embryonic-like stem cells) technology licensed from the University of Louisville and help advance NeoStem’s expansion activities in China, including those relating to recent licenses acquired, its pending acquisitions and medical tourism – defined as travel to a foreign country by people whose primary and explicit purpose is to receive advanced medical therapies -  relating to wounds, orthopedics and regenerative medicine.  NeoStem hopes to be a part of the growing medical tourism industry through its connections with leading physicians in China and the U.S. NeoStem plans to connect U.S. citizens with advanced therapies not yet available in the U.S., and to attract people from other countries to seek safe and effective regenerative therapies as they become available here. A portion of the funds also will be used to expand U.S.-based operations including for general corporate purposes. In addition, a portion of the proceeds were used to repay $1,150,000 in bridge financing (see Note 4 - Notes Payable) received from RimAsia in February and March 2009,  plus $12,014 in interest on the bridge financing and other costs recently advanced by RimAsia in connection with the Company’s expansion activities in China totaling $472,559.09.   The notes issued in the bridge financing provided that all principal and accrued interest on the notes would be immediately due and payable in the event the Company raised over $10 million in equity financing prior to October 31, 2009.  As a result of the private placement financing, such amounts became due and have been paid as described above.

The Company has entered into an agreement for the lease of executive office space from SLG Graybar Sublease LLC (the “Landlord”) at Suite 450, 420 Lexington Avenue, New York, with a lease term effective April 1, 2009 through June 30, 20082013 (the “Lease”).  Rental and utility payments are currently in the aggregate approximate monthly amount of $20,100.  To help defray the cost of the Lease, the Company has licensed to third parties the right to occupy certain of the offices in Suite 450 and use certain business services.  Such license payments currently total approximately $13,860 per month and the license agreements are for periods of one year or less.  The CEO of one such licensee, Promethean Corporation, is in an exclusive relationship with the Company’s CEO. The Lease was $1,202,223.entered into pursuant to an assignment and assumption of the original lease from the original lessor thereof, DCI Master LDC (the lead investor in a private placement by the Company in June 2006) and affiliates of DCI Master LDC and Duncan Capital Group LLC (a former financial advisor to and an investor in the Company), for which original lease a principal of such entities acted as guarantor (the “Guarantor”), a consent to such assignment from the Landlord and a lease modification agreement between the Company and the Landlord, such documents being dated April 13, 2009 with effective delivery April 17, 2009.  The Company was credited with an amount remaining as a security deposit with the Landlord from such original lessor (the “Security Deposit Credit”), was required to deposit an additional amount with the Landlord to replenish the original amount of security for the Lease and pay an amount equal to the Security Deposit Credit to the Guarantor of the original lease.  The total payments made by the Company for such security deposit and payment of the Security Deposit Credit to the Guarantor were in the approximate aggregate amount of $157,100. Richard Berman, a director of the Company, utilizes an office in Suite 450 in his capacity as Chairman of the Company’s Audit, Compensation and Nominating Committees and for other business purposes.

In order to advance our regenerative medicine business abroad and expand our expertise into a new area, on April 13, 2009,  the Company entered into a License Agreement (the “License Agreement”) with Regenerative Sciences, LLC (“RSI”)  with an effective date of March 3, 2009 pursuant to which the Company acquired an exclusive, royalty bearing, perpetual and irrevocable license, with the right to sublicense, for the Asia territory, to use an innovative process that rapidly grows a patient’s own adult stem cells to treat a variety of musculoskeletal diseases.   The licensed procedure has been developed by RSI, a Colorado-based company focused on developing a medical procedure for the treatment of chronic orthopedic conditions. The licensed intellectual property consists of two issued patents, seven pending patent applications and know-how and improvements relating thereto all as set forth in the License Agreement.  The License Agreement provides for a specified percentage of royalties to be paid to RSI by the Company and certain diligence obligations of the Company.

On May 1, 2009, the Company and RSI entered into a three year consulting agreement effective March 3, 2009 whereby RSI will provide to the Company consulting services in the area of stem cell therapy in orthopedics for the development of business in Asia in return for which the Company has agreed to pay to the consultant an annual cash fee, payable monthly, and certain stated equity over the term of the agreement.
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Note 6 - 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 will be operating in two segments until the “run-off” is completed. As of March 31, 2007 the run off of the sale of extended warranties and service contracts was completed.

Note 7 - 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 December 31, 2007, $24,022 was due Mr. Aholt pursuant to the terms of the Settlement Agreement which was paid, in full, in the quarter ending March 31, 2008.

In October 2007,23, 2009, the Company entered into a three month consulting agreementLicense Agreement with Matthew HenningerVincent Falanga, M.D., pursuant to which he agreedthe Company acquired a world-wide, exclusive, royalty bearing license, with the right to provide services assublicense, to certain innovative stem cell technology and applications for wound healing.  The term of the License Agreement continues until the later of ten years from the first commercial sale or the last to expire patent claim.  The licensed intellectual property consists of a business consultantpending patent application and know-how, copyrights and trademarks, and improvements relating thereto. Dr. Falanga retained a royalty-free license to use the licensed intellectual property for professional use in areas requestedhis established medical practice and for doing medical research. The License Agreement provides for a specified percentage of royalties to be paid to Dr. Falanga by the Company including financial analysis projects and acquisition target analysis. As compensationcertain diligence obligations of the Company. The license agreement also calls for these services, pursuantcertain annual payments commencing with the execution of the agreement, creditable against royalties otherwise due and payable under the agreement.

On April 30, 2009 the Company entered into a License and Referral Agreement with Promethean Corporation (“Promethean”) through its subsidiary Ceres Living, Inc. (“Ceres”) to use certain Company marks and publications in connection with certain sales and marketing activities relating to its nutritional supplement known as AIO Premium Cellular (the “Product”); and in connection with the license, Ceres will pay to the agreement he was entitledCompany or the Stem for Life Foundation specified fees  for  each unit of the Product sold; and Ceres shall engage in a referral service with respect to the Company’s adult stem cell collection and storage activities. Ceres will receive a cashspecified fee of $8,333 payablefrom the Company for each month during theclient referred who completes and pays for a stem cell collection. The term of the agreement is three years with each party having the right to renew annually, thereafter. The CEO of Promethean is in an exclusive relationship with the CEO of the Company.

On April 9, 2009, the Company’s Board of Directors adopted and on May 8, 2009 the Company’s stockholders approved, the 2009 Equity Compensation Plan (the “2009 Plan”). The general purpose of the 2009 Plan is to provide an incentive to our employees, directors, consultants and advisors by enabling them to share in the future growth of our business.  The 2009 Plan will be administered by the Compensation Committee of our Board of Directors.  Pursuant to the 2009 Plan, the Compensation Committee may grant options to purchase shares of our Common Stock, stock appreciation rights and restricted stock units payable in shares of our Common Stock, as well as restricted or unrestricted shares of our Common Stock.  The aggregate number of shares of Common Stock available for issuance in connection with options and awards granted under the 2009 Plan will be 3,800,000, subject to customary adjustments for stock splits, stock dividends or similar transactions.  The Company intends to file with the Securities and Exchange Commission a fee inRegistration Statement on Form S-8 to register the event a transaction was effected duringshares of Common Stock underlying awards to be granted under the term as a result2009 Plan.  The 2009 Plan is subject to the approval of the performanceNYSE Amex.

As of May 8, 2009, the Compensation Committee of the consultant’s services. In January 2008,Board of Directors approved, subject to the Companyfiling of a Registration Statement on Form S-8 with the SEC to register the issuance of the shares issuable under the Company’s 2009 Plan and the consultant entered into an agreement wherebyapproval of the consultant agreed to accept in satisfactionNYSE Amex of his final paymentthe listing of the shares issuable under the agreement, 4,902Company’s 2009 Plan, the making of certain awards under a Board of Directors Compensation Plan.  Accordingly, the Compensation Committee approved the issuance to members of the Board acting in their capacity as Board members and to the Board Secretary, options to be issued under the 2009 Plan to purchase an aggregate of 575,000 shares of the Company’s common stock issued under and pursuantCommon Stock.   The options will be exercisable at an exercise price equal to the terms of the Company’s 2003 Equity Participation Plan based on the fair market value of the common stock on the date of approval bygrant and will be fully exercisable upon grant.  Additionally, Chairs of the Company’s Compensation Committee. No other feeBoard and Board Committees were authorized to be issued for each Chair they hold, either $25,000 or 25,000 shares of fully vested Common Stock.  Accordingly, an aggregate of $50,000 was paid. The consultant is currently in an exclusive relationship with the Company’s CEO.

Note 8 - Subsequent Events

As described under “Common Stock” under Note 5, above, on February 15, 2008, the Company entered into a six month engagement agreement with a financial advisor pursuant to which they are acting as the Company’s exclusive financial advisor for the term in connection with a potential acquisition of a revenue generating business, in the United States or abroad, or similar transaction. As partial consideration, the Company agreed to issuepaid and 50,000 shares of Common Stock with a $45,000 value based onwill be awarded upon the five day averagesatisfaction of the closing pricesforegoing described conditions.  Additionally, options to purchase an aggregate of the Common Stock preceding the date of issuance which shall be paid on a pro rata basis during the term of the agreement. On July 15, 2008, the Company issued 8,803175,000 shares of Common Stock to the financial advisor pursuant to this agreement; the value of these shares is approximately $7,000.

In July 2008, the Company entered into a two month extension of its agreement with the sales and marketing consultant described in “Common Stock” under Note 5, above, pursuant to which the consultant will continue to provide consultation services to the Company relating to business development, operations and staffing matters. In consideration for such services, the Company has agreed to issue to the Consultant pursuant to the 2003 EPP (i) 20,000 shares of Common Stock which shall vest as to 10,000 shares on the last day of each 30 day period during the term of the extended consulting agreement; and (ii)exercisable at an option to purchase 20,000 shares of Common Stock at a per share purchaseexercise price equal to the closing pricefair market value of the Common Stock on the date of executiongrant, vesting as to 100,000 ratably over a two year period and as to 75,000 immediately upon grant were authorized to be issued to members of the extendedCompany’s Scientific Advisory Board upon the satisfaction of the foregoing described conditions.

On April 23, 2009, the Company entered into a three year consulting agreement that shall vestpursuant to which a consultant is providing consulting services to the Company in the area of business development, strategic planning and become exercisablegovernment affairs in the healthcare industry in the People’s Republic of China (“PRC”), engaging in such activities as requested by the Company from time to 10,000 sharestime including, but not limited to the introduction to hospitals and medical practices for the advancement of Common Stock onstrategic relationships of the last day of each 30 day period duringCompany in return for which the extendedCompany has agreed to pay to the consultant an annual cash fee, payable monthly, and certain stated equity over the term of the consulting agreement, subject in each case to the continued effectiveness of the extended agreement. In the event of full time employment of the consultant this vesting will be accelerated. All of such shares are subject to a six month period during which Consultant has agreed none of these shares will be sold. This issuance of shares was approved by the Compensation Committee of the Board of Directors. The value of these shares is $19,000 and the value of these options is approximately $18,000.
 
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On July 28, 2008, in furtherance of the Company’s desire to increase its presence in the health and wellness industry, the Company entered into a two year consulting agreement with Margula Company LLC (“Margula”), pursuant to which Margula will provide various promotional services to the Company, including various speaking engagements (the “Margula Consulting Agreement”). These services will be primarily provided through Suzanne Somers. In consideration therefor, the Company will issue to Margula a five year warrant (the “Warrant”) to purchase up to an aggregate of 600,000 shares of Common Stock at $0.78 per share (the closing price of the Common Stock on the American Stock Exchange on the commencement date of the agreement) (the “Commencement Date”), which shall vest and become exercisable as to: (i) 200,000 shares upon the completion of a stated milestone; (ii) 100,000 shares upon the earlier of the completion of a stated milestone and December 31, 2008; (iii) 100,000 shares upon the earlier of the completion of an additional stated milestone and December 31, 2008; (iv) 100,000 shares upon the earlier of the completion of a stated milestone and September 30, 2009; and (v) 4,167 shares on each monthly anniversary of the Commencement Date through July 28, 2010 (with the final monthly vesting being 4,159), so long as on the respective vesting date the Margula Consulting Agreement shall not have been terminated. The effectiveness of the Warrant is subject to the prior approval of the American Stock Exchange. Pursuant to the terms of the Warrant, the Company is required to prepare and file no later than February 1, 2009, a Registration Statement with the SEC to register the resale of the shares of Common Stock underlying the Warrant. This issuance of securities was approved by the Board of Directors. The value of these warrants is approximately $394,000.
The Company currently intends to meet its cash requirements in the near term through financing activities and is also actively in the process of identifying an acquisition transaction or collaborative arrangement, both domestically and abroad, that will generate revenue. In the event these activities are not successful, the Company would need to curtail its operations. In August 2008, several members of senior management and senior staff voluntarily deferred the receipt of some or all of their salary until additional capital is raised.
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLANOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

General

This Quarterly Report on Form 10-Q 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","plan," "intend," "may," "will," "expect," "believe","believe," "could," "anticipate," "estimate," or "continue" or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Additionally, statements concerning our ability to successfully develop the adult stem cell business at home and abroad, the future of regenerative medicine and the role of adult stem cells in that future, the future use of adult stem cells as a treatment option and the role of VSELs in that future, and the potential revenue growth of such business are forward-looking statements.  Our future operating results are dependent upon many factors, and the Company's further development is highly dependent on future medical and research developments and market acceptance, which is outside its control.  Forward-looking statements may not be realized due to a variety of factors, including, without limitation, (i) the Company’s ability to manage the business despite continuing operating losses and cash outflows; (ii) the Company’s ability to obtain sufficient capital or a strategic business arrangement to fund its operations;operations and expansion plans, including meeting its financial obligations under various licensing and other strategic arrangements and the successful commercialization of the relevant technology; (iii) the Company’s ability to build the management and human resources and infrastructure necessary to support the growth of the business; (iv) competitive factors and developments beyond the Company’s control; (v) scientific and medical developments beyond the Company’s control; (vi) the Company’s inability to obtain appropriate governmental licenses or any other adverse effect or limitations caused by government regulation of the business; (vii) whether any of the Company’s current or future patent applications result in issued patents;patents and the Company’s ability to obtain and maintain other rights to technology required or desirable for the conduct of its business; (viii) whether any potential strategic benefits of various licensing transactions will be realized and whether any potential benefits from the acquisition of these new licensed technologies will be realized; (ix) whether the Company can obtain the consents it may require to sublicensing arrangements from technology licensors in connection with technology development; (x) the Company’s ability to maintain its NYSE Amex listing; and (xi) the other factors listed underdiscussed in Item 1A, “Risk Factors” contained in our annual reportthe Company’s Annual Report on Form 10-K/A10-K for the year ended December 31, 20072008 (the “Form 10-K”) and in other reports that we file with the SecuritiesSEC.  

Proposed Merger; Share Exchange Agreement; Other China Initiatives

Additional risks and uncertainties relate to (i) the Company’s proposed merger transaction (“Merger”) pursuant to an Agreement and Plan of Merger with China Biopharmaceuticals Holdings, Inc., a Delaware corporation ("CBH"), China Biopharmaceuticals Corp., a British Virgin Islands corporation and wholly-owned subsidiary of CBH, and CBH Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of NeoStem to acquire a 51% ownership interest in Suzhou Erye Pharmaceuticals Company Ltd., a Sino-foreign joint venture with limited liability organized under the laws of the People’s Republic of China; (ii) the Company’s proposed share exchange transaction (“Share Exchange”) pursuant to a Share Exchange Commission.Agreement to acquire through a series of contractual arrangements certain benefits from Shandong New Medicine Research Institute of Integrated Traditional and Western Medicine Limited Liability Company, a China limited liability company; and (iii) the Company’s other initiatives in China, that may cause actual future experience and results to differ materially from those discussed in these forward-looking statements. Important factors (i) related to the proposed Merger that might cause such a difference include, but are not limited to, (a) costs related to the Merger; (b) failure of the Company's or CBH’s stockholders to approve the Merger; (c) the Company's or CBH's inability to satisfy the conditions of the Merger; (d) the Company's inability to maintain its NYSE Amex listing; (e) the inability to integrate the Company’s and CBH's businesses successfully and grow such merged businesses as anticipated; (f) the need for outside financing to meet capital requirements; (g) failure to have an effective Joint Venture Agreement satisfactory to the parties and regulatory authorities; (ii) related to the Share Exchange that might cause such a difference include, but are not limited to, (a) costs related to the Share Exchange; (b) failure of the Company’s stockholders to approve the Share Exchange; (c) an inability to satisfy the conditions of the Share Exchange; (d) the Company's inability to maintain its NYSE Amex listing; (e) the successful application of the variable interest entity to a prohibited business in China; (f) the inability to integrate the Company’s and Shandong's businesses successfully and grow such merged businesses as anticipated; and (g) the need for outside financing to meet capital requirements; (iii) related to the Company’s other initiatives in China that might cause such a difference include, but are not limited to, (a) costs related to funding these initiatives; (b) the successful application under Chinese law of the variable interest entity structure to a prohibited business in China; (c) the inability to integrate the Company and the business operations in China successfully and grow such merged businesses as anticipated; and (d) the need for outside financing to meet capital requirements; and (iv) related to each of the Merger, the Share Exchange and the Company’s other initiatives in China, respectively, the other events and factors disclosed in the Company’s Current Reports on Form 8-K dated November 2, 2008 relating to the Merger and the Share Exchange, and other risk factors discussed in Item 1A, “Risk Factors” contained in the Company’s Form 10-K and in other periodic Company filings with the SEC and to be disclosed in the Proxy Statement/Registration Statement on Form S-4 anticipated to be filed in connection with the Merger and the Share Exchange. The Company’s filings with the Securities and Exchange Commission are available for review at www.sec.gov under “Search for Company Filings.”  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.
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GENERAL

NeoStem is engaged in a platform 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 stem cells from adult donors that theywhich can accessthen be accessed for their own future medical treatment.  We are managing a network of adult stem cell collection centers in major metropolitan areas of the United States. We have also entered the research and development arenas, through the acquisition of a worldwide exclusive license to an early-stage technology to identify and isolate rare stem cells from adult human bone marrow, called VSEL (very small embryonic-like) stem cells. VSELs have many physical characteristics typically found in embryonic stem cells, including the ability to differentiate into specialized cells found in substantially all the different types of cells and tissue that make up the body. On January 19, 2006,Additionally, we consummated the acquisition of the assets of NS California, Inc., a California corporation (“NS California”) relatingare pursuing other technologies to NS California’s business of collecting and storing adult stem cells.  Effective with the acquisition, the business of NS California becameadvance our principal business, rather than our historic business of providing capital and business guidance to companiesposition in the healthcare and life science industries.  The Company provides adultfield of stem cell processing, collection 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. 

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tissue regeneration.
 
The adult stem cell industry is a field independent of embryonic stem cell research which the CompanyNeoStem believes is more likely to be burdened by governmental,regulatory, legal, ethical and technical issues than adult stem cell research. Embryonic stem cell research is also burdened with the issues of tissue compatibility.  Medical researchers, scientists, medical institutions, physicians, pharmaceutical companies and biotechnology companies are currently developing therapies for the treatment of disease using adult stem cells.  As these adult stem cell therapies obtain necessary regulatory approvals and become standard of care, patients will need a service to collect, process and bank their stem cells. The CompanyNeoStem intends to provide this service.

Initial participants in our collection center network have been single physician practices who opened collection centers in California, Pennsylvania and Nevada. Revenues generated by these early adopters have not been significant and are not expected to become significant. However, these centers have served as a platform for the development of the Company’sNeoStem’s business model and the Company redirected its focus totoday NeoStem is focusing on multi-physician and multi-specialty practices joining its network in major metropolitan areas.areas but continues to align with physicians that have a client base who have indicated a particular interest in stem cell collection and storage.  Toward this end, the CompanyNeoStem signed an agreement in June 2008 for a New York City stem cell collection center to be opened by Bruce Yaffe, M.D., of Yaffe, Ruden and anticipates thisAssociates, which facility beingbecame operational in the fall ofNovember 2008. In July 2008, the CompanyNeoStem signed an agreement for a Santa Monica, California based stem cell collection center to be opened by Stem Collect of Santa Monica LLC at The Hall Center and anticipates thisCenter.  This facility beingbecame operational in the summerfall of 2008. Additionally, the CompanyNeoStem signed an agreement with Celvida LLC pursuant to which a Southern Florida stem cell collection center located in Coral Gables, a suburb of Miami, is targetedbecame operational in September 2008.  In March 2009, the Company signed an agreement to open a collection center with the Giampapa Institute for Anti-Aging Medical Therapy in September 2008.Montclair, New Jersey. In addition, in May 2009 the Company entered into a collection agreement with Primary Care of Malibu in California.

During 2008, parallel to growing the platform business and the efforts we undertook in that regard to establish a network of collection centers in certain major metropolitan areas of the United States to drive growth, we recognized the need to acquire a revenue generating business in the United States or abroad and began exploring acquisition opportunities of revenue generating businesses.  In November 2008, NeoStem entered into the Merger Agreement with China Biopharmaceuticals Holdings, Inc. (“CBH”) to acquire the 51% interest in Suzhou Erye Pharmaceuticals Company Ltd. (“Erye”) a Sino-foreign limited liability joint venture organized under the laws of the PRC, which has been in business for more than 50 years and currently manufactures over 100 drugs on seven Good Manufacturing Practices (GMP) lines, including small molecule drugs. Erye specializes in research and development, production and sales of pharmaceutical products, as well as chemicals used in pharmaceutical products. Also in November 2008, NeoStem entered into the Share Exchange Agreement to obtain benefits from Shandong New Medicine Research Institute of Integrated Traditional and Western Medicine Limited Liability Company, a China limited liability company, which is engaged in the business of research, development, popularization and transference of regenerative medicine technology (except for those items for which it does not have special approval) in the PRC.  Subject to the fulfillment of various closing conditions (including stockholder approval), the Merger and the Share Exchange are currently anticipated to close in the third quarter of 2009.
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The Company has begun other initiatives to expand its operations into China including with respect to technology licensing, establishment of stem cell processing and storage capabilities and research and clinical development.  RimAsia, a principal stockholder of the Company, has been facilitating certain of these efforts and has paid certain expenses that the Company has agreed to reimburse (approximately $473,000 of which was reimbursed out of the proceeds of the private placement financing of preferred stock and warrants in April 2009 which raised gross proceeds of $11 million, described below).  The Company is taking steps to establish a separate wholly foreign owned enterprise (a “WFOE”) and one or more limited liability companies and put in place separate variable interest entity documents with respect to these activities.  The Company is exploring the possibility of these expansion activities and other activities being a substitute for its moving forward with closing the transactions under the Share Exchange Agreement.

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). 

The acquisition of the VSEL technology was made through our acquisition of our subsidiary Stem Cell Technologies, Inc. (“SCTI”) in a stock-for-stock exchange.  Although the funds obtained through the acquisition of SCTI funded certain early obligations under NeoStem’s agreements relating to the VSEL technology, substantial additional funds will be needed and additional research and development capacity will be required to meet its development obligations under the License Agreement and develop the VSEL technology.   NeoStem has applied for Small Business Innovation Research (SBIR) grants and may also seek to obtain funds through applications for other State and Federal grants, grants abroad, direct investments, strategic arrangements as well as other funding sources to help offset all or a portion of these costs.  

During the quarter ended March 31, 2009 the Company took steps to improve its cryopreservation operations and reduce its fixed overhead by entering into a four year agreement with Progenitor Cell Therapy LLC (“PCT”) to outsource cryopreservation operations to PCT. Prior to commencing these services, PCT agrees to provide certain preliminary services consisting of technology transfer and protocol review and revision to ensure that the processing and storage services are cGMP compliant.  The agreement sets forth agreed upon fees for the delivery of the services as well as providing for a one-time payment of $35,000 for the preliminary services associated with the transfer of the Company’s cryopreservation process  and standard operating practices to  PCT’s laboratory and incorporation into PCT’s existing standard operating practices.  An initial payment of $20,000 was paid upon commencement of services during the quarter ended March 31, 2009.  The transfer of cryopreservation operations was completed in April 2009, the final $15,000 was paid and the Company’s laboratory in Los Angeles is being closed. The Company does not anticipate any significant losses as a result of closing this laboratory. In addition, the Company believes the shifting of our cryopreservation activities from a fixed cost to a variable cost will allow the Company to utilize its cash in a more strategic fashion.

In March 2009, the Company and PCT expanded PCT’s services to include its developing a plan to set up a stem cell processing and manufacturing operation in Beijing, China that the Company would pursue in partnership with an off-shore entity.  This plan would support research and cell therapy development and manufacturing operations.  The plan will include a conceptual architectural design, cost estimates for construction, facility validation to meet cGMP standards, equipment requirements and estimated costs of equipment procurement, and other related matters.  PCT’s fees for this work will be $100,000 (of which $50,000 was paid in March 2009) plus expenses.

In order to advance our regenerative medicine business here and abroad, in February 2009, the Company entered into a License Agreement with Vincent Giampapa, M.D., F.A.C.S pursuant to which the Company acquired a world-wide, exclusive, royalty bearing, perpetual and irrevocable license, with the right to sublicense, to certain innovative stem cell technology and applications for cosmetic facial and body procedures and skin rejuvenation. In addition, in January 2009, the Company and Dr. Giampapa entered into a three year consulting agreement whereby Dr. Giampapa will provide consulting services in the anti-aging area.
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In order to advance our regenerative medicine business abroad and expand our expertise into a new area, effective March 2009,  the Company entered into a License Agreement with Regenerative Sciences, LLC (“RSI”), pursuant to which the Company acquired an exclusive, royalty bearing, perpetual and irrevocable license, with the right to sublicense, for the Asia territory, to use an innovative process that rapidly grows a patient’s own adult stem cells to treat a variety of musculoskeletal diseases.   The licensed procedure has been developed by RSI, a Colorado-based company focused on developing a medical procedure for the treatment of chronic orthopedic conditions.  In addition, effective March 2009, the Company and RSI entered into a three year consulting agreement whereby RSI will provide to the Company consulting services in the area of stem cell therapy in orthopedics for the development of business in Asia.

In April 2009, the Company entered into a License Agreement with Vincent Falanga, M.D., pursuant to which the Company acquired a world-wide, exclusive, royalty bearing license, with the right to sublicense, to certain innovative stem cell technology and applications for wound healing, continuing until the later of ten years from the first commercial sale or the last to expire patent claim.

All of the activities above are designed to broaden the scope of the Company’s operations and to enter into the arena of advanced stem cell and regenerative medicine therapies in the United States and China. While the Company continues to pursue its platform business of operating a commercial autologous adult stem cell bank, it has made a determination that the platform business will be enhanced if the Company acquires and develops advanced stem cell regenerative medicine therapies.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2008March 31, 2009 Compared to Three Months June 30, 2007Ended March 31, 2008
 
For the three months ended June 30, 2008,March 31, 2009, total revenues were $23,500$45,100 compared to $6,000$700 for the three months ended June 30, 2007.March 31, 2008.  The revenues generated in the three months ended June 30, 2008 areMarch 31, 2009 were a combination of revenues from start up fees collected from physicians in the Company’s physician’s network, stem cell collection fees and monthly stem cell storage fees and the revenues generated in the three months ended June 30, 2007March 31, 2008 were principally derived from amonthly stem cell collectionstorage fees in the period.
 
Selling, general and administrationadministrative expenses for the three months ended June 30, 2008 has increasedMarch 31, 2009 have decreased by $419,000$645,800 or 21%26% over the three months ended June 30, 2007,March 31, 2008, from $1,960,400$2,524,300 to $2,379,000.$1,878,500. This decrease in expense is the result of management decisions to reduce various expenses to conserve cash and reduce our operating expenses. During the last two years the Company has used a variety of equity instruments to pay for services in an effort to minimize its use of cash to incentivize staff, consultants and consultantsother service providers and in the quarter ending June 30, 2008March 31, 2009 the reduced use of equity instruments was the primary source of increasedecrease in operating expenses. The reduced use of equity instruments to pay for staff compensation, director fees, marketing activities, investor relations and other activities and investment banking services increaseddecreased our operating expenses by $304,000, or 41%.$1,093,400. Operating expenses funded by cash were $1,339,200$1,671,000 for the three months ended June 30, 2008March 31, 2009 compared with $1,230,700$1,199,000 in cash funded expenses for the three months ended June 30, 2007,March 31, 2008, an increase of $108,500 or 9%.$447,000. The increase in cash expenses was primarily related to an increase in legal and professional services, of $284,600, utilized to prepare for public filings and shareholder approval of our proposed merger with CBH and our expansion into China, payments of $66,000 to the University of Louisville in connection with our obligations for the VSEL technology licensed in November 2007, payments totaling $70,000 to plan the establishment of stem cell collection cryopreservation operations in China and to outsource our US stem cell cryopreservation operations to Progenitor Cell Therapy, an increase in consulting fees of $78,900, expenses totaling $45,000  associated with the filing of an additional shares listing application with the NYSE Amex for additional shares being listed by the Company in connection with the adoption of the 2009 Plan, an increase in depreciation and amortization of $30,200 due primarily to amortization of intangible assets, an increase in legal fees of $29,800 associated with corporate governance and other matters and prepaid computer licenses and an increase in occupancy cost of $8,800. These increases were offset by reductions in salary and benefits of $84,300, investor relations activities$52,700 as a result of $81,600, and fees associated with registering additional shares on the American Stock Exchange of $38,000. These expense increases were offset bystaff reductions, a reduction in legal feesmarketing expense of $101,600$84,300 due to concentrating our efforts on recruiting clients in the New York and Southern California areas, a reduction in investor relations and communications of $22,800 and a reduction in a variety of other expenses that resultednetting $6,600.

Interest expense increased by $7,000 as a result of the RimAsia Notes issued in a net expense reduction of $6,200.February and March 2009 to RimAsia totaling $1,150,000.

For the reasons cited above the net loss for the three months ended June 30, 2008 increasedMarch 31, 2009 was reduced to $2,361,800$1,867,200 from $1,958,300$2,527,000 for the three months ended June 30, 2007.March 31, 2008.

Six Month Ended June 30, 2008 Compared to Six Months June 30, 2007
For the six months ended June 30, 2008, total revenues were $24,200 compared to $61,900 for the six months ended June 30, 2007. The revenues generated in the six months ended June 30, 2008 are a combination of revenues from start up fees collected from physicians in the Company’s physician’s network, stem cell collection fees and monthly stem cell storage fees and the revenues generated in the six months ended June 30, 2007 were principally a combination of revenues from start up fees collected from physicians in the Company’s physician’s network, stem cell collection fees and monthly stem cell storage fees. The reduction in revenues was due primarily to a reduction in fees collected from physicians in the Company’s physician’s network. The Company has reduced its activity in recruiting physicians and is concentrating its efforts on recruiting clients into the existing network in major metropolitan areas.

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Selling, general and administration expenses for the six months ended June 30, 2008 has increased by $1,068,000 or 28% over the six months ended June 30, 2007, from $3,835,700 to $4,903,700. During the last two years the Company has used a variety of equity instruments to pay for services in an effort to minimize its use of cash to incentivize staff and consultants and in the six months ended June 30, 2008 the use of equity instruments was the primary source of increase in operating expenses. The use of equity instruments to pay for staff compensation, director fees, investor relations activities and investment banking services increased our operating expenses by $1,130,000, or 87%. Operating expenses funded by cash were $2,470,000 for the six months ended June 30, 2008 compared with $2,534,200 in cash funded expenses for the six months ended June 30, 2007, a decrease of $64,000 or 3%. The decrease in cash funded operating expenses was primarily related to a decrease in legal expense of $265,200, consulting fees of $93,500, laboratory expenses of $22,700 and laboratory validations expenses of $64,800, which decreases were offset by increases in salary and benefits of $213,300, marketing expenses of $41,400, depreciation expense of $18,000, office supplies of $15,000, telephone expense of $5,500, rent of $21,800, investor relations activities of $8,500, fees associated with registering additional shares on the American Stock Exchange of $52,200 and a variety of other expenses that resulted in a net expense increase of $6,300.
For the reasons cited above the net loss for the six months ended June 30, 2008 increased to $4,889,000 from $3,774,600 for the six months ended June 30, 2007.

LIQUIDITY AND CAPITAL RESOURCES

General

At June 30, 2008,March 31, 2009, the Company had negative working capital of $371,000.$2,074,000.  The Company generates revenues from its adult stem cell collection activities. To date,activities, however, our revenues generated from such activities have not been significantsignificant.  During the first quarter 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). On April 9, 2009, Company completed a private placement financing totaling $11 million from three Asia-based investors, including RimAsia.  The financing consisted of the issuance of 880,000 units priced at $12.50 per unit, with each unit consisting of one share of the Company’s Series D Convertible Redeemable Preferred Stock (“Series D Stock”) (convertible into 10 shares of Common Stock) and we had minimal adultten warrants each to purchase one share of common stock. The conversion of the Series D Stock and the exercise of warrants is subject to shareholder approval and the rules of NYSE Amex as described in Note 8 – Subsequent Events. If by October 31, 2009 such shareholder approval of the conversion of Series D Stock 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 Series D Stock has an accruing dividend of ten percent (10%) per annum, payable (i) annually in cash on each anniversary of the issue date so long as the Series D Stock remains outstanding or (ii) upon a liquidation, dissolution or winding up of the Company.  The Series D Stock ranks senior to all of the Company’s capital stock with respect to the payment of dividends and to the distribution of assets upon liquidation, dissolution or winding up. The  warrants will be exercisable for 5 years and  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.  

As a result of NeoStem exploring acquisition opportunities of revenue generating businesses, in November 2008 NeoStem entered into the Merger Agreement with CBH to acquire the 51% ownership interest in Erye, which manufactures over 100 drugs on seven cGMP lines and the Share Exchange Agreement with respect to Shandong which is engaged in the business of research, development, popularization and transference of regenerative medicine technology (except for those items for which it does not have special approval) in the PRC.  The Company is also engaged in other initiatives to expand its operations into China including with respect to technology licensing, establishment of stem cell collection activity in the first six months of 2008.processing and storage capacities and research and clinical development.  The Company has metincurred and expects to continue to incur substantial expenses in connection with these China activities.  The acquisition transactions are not expected to close before the third quarter of 2009 and in any event neither the acquisition transactions nor the Company’s other initiatives in China are expected to generate sufficient excess cash flow to support NeoStem’s platform business or its immediate cash requirements through an offering of common stock and warrants completedinitiatives in May 2008 in the amount of $900,000. The Company currently intends to meet its cash requirementsChina in the near term through further financing activities andterm.  The Company is also activelyexploring the possibility of its other initiatives in China being a substitute for its moving forward with closing the process of identifying an acquisition transaction or collaborative arrangement, both domestically and abroad, that will generate revenue. Intransactions under the event these activities are not successful, the Company would need to curtail its operations. In August 2008, several members of senior management and senior staff voluntarily deferred the receipt of some or all of their salary until additional capital is raised.Share Exchange Agreement.

The following chart represents the net funds provided by or used in operating, financing and investment activities for each period indicated:
 
   
 
Six Months Ended
 
   
 
June 30, 2008
 
June 30, 2007
 
Cash (used) in Operating activities  
 $(2,698,000)$(2,654,000)
Cash (used) in investing activities  
 $
(2,400)
))
$(19,200)
Cash provided by financing activities  
 $925,400 $2,292,000 
  Three Months Ended 
  March 31, 2009  March 31, 2008 
Cash used in Operating activities $(1,253,000) $(1,401,700)
Cash used in investing activities $(5,700) ))  $(2,400)
Cash provided by financing activities $1,220,700  $69,700 
 
At June 30, 2008March 31, 2009 the Company had a cash balance of $529,000,$392,800, negative working capital of $371,000$2,074,000 and a negative stockholders’ equity of $1,732,000.$804,400. The Company incurred a net loss of $4,889,000$1,867,200 for the sixthree months ended June 30, 2008. SuchMarch 31, 2009.  Our cash used for operating activities in the three months ended March 31, 2009 totaled $1,253,000 which reflects adjustments  of our net loss adjustedof $1,867,200 for non-cash items, including common stock, common stock option and common stock purchase warrant issuances which were related to services rendered of $2,408,000,$199,600 and depreciation and amortization of $41,000 which was offset by$29,900; an adjustment for cash settlementsretained within the Company as a result of  increases in  various accounts payable, notes payable, accrued liabilities and unearned revenue totaling  $433,500 and an adjustment for cash required for our operating activities reflected in increases in prepaid insurance expenses and accounts receivable of $259,000, resulted in cash used in operations totaling $2,698,000 for the period ended June 30, 2008. Accordingly, the large difference between operating loss and cash used in operations was the result of a number of non-cash expenses charged to results of operations.$48,700.

ToThe Company relied on the RimAsia Notes issued to RimAsia for $1,150,000 and its existing cash balances to meet its cash requirement for the three months ended June 30, 2008,March 31, 2009. In April the Company relied on an offeringcompleted a private placement financing totaling $11 million which will be used to fund current operations.  Approximately $1,162,000 of common stocksuch gross proceeds was utilized to repay the RimAsia Notes plus accrued interest and warrants completedapproximately $473,000 was utilized to reimburse RimAsia for certain costs advanced by RimAsia in May 2008 and its existing cash balances.connection with the Company’s expansion activities into China. The Company believes that it will need to raise additional capital or acquire ato fund its expansion into advanced technologies and therapies in the US and China including with respect to its VSEL technology licensed from the University of Louisville and its other regenerative technologies, including relating to anti-aging of skin, wound healing and orthopedic applications.  It currently intends to accomplish this through additional financing activities, acquisitions of revenue generating business withinbusinesses and ultimately the next twelve (12) monthsgrowth of its revenue generating activities in order to fund operations.China. In addition the Company will seek grants for scientific and clinical studies from the National Institutes of Health and other funding agencies but there is no assurance that we will be successful in obtaining such grants. It also anticipates that certain of its recent collaborative marketing efforts will drive revenues particularly in its stem cell collection business. The Company’s history of losses and liquidity problems may make it difficult to raise additional funding.funds. There can be no assurance that the Company will be able to obtainsuccessful in obtaining additional funding on terms acceptable to the Company.Company or otherwise generating additional capital or revenue. Any equity financing may be dilutive to stockholders and debt financing, if available, may involve significant restrictive covenants.

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In November 2007, the Company acquired the exclusive, worldwide rights to very small embryonic like (VSEL) technology developed by researchers at the University of Louisville. These rights were acquired through the Company’s acquisition of Stem Cell Technologies, Inc., the licensee to a license agreement (the “License Agreement”) with the University of Louisville. Concurrent with acquiring these rights, the Company entered into a sponsored research agreement (the "Sponsored Research Agreement" or "SRA") with the University of Louisville Research Foundation (“ULRF”) under which the Company will support further research in the laboratory of Mariusz Ratajczak, M.D., Ph.D., a co-inventor of the VSEL technology and head of the Stem Cell Biology Program at the James Graham Brown Cancer Center at the University of Louisville. The term of the research is two and one-half years and shall commence after all applicable institution (e.g., institutional review board ("IRB")) and Federal approvals are obtained and upon the adult stem cell specimens required for the research being provided to the laboratory. The License Agreement requires the payment of certain license fees, royalties and milestone payments, payments for patent filings and applications and the use of due diligence in developing and commercializing the VSEL technology. The SRA requires periodic and milestone payments. All payments required to be made to date have been made. Under the License Agreement, upon the commencement of the research (which has not yet occurred pending receipt of IRB approvals and collection of the appropriate samples), the Company will be required to make payments of $66,000 in license issue fees and prepayment of patent costs and will be responsible for additional patent-related costs. Thereafter, an annual license maintenance fee of $10,000 will be required upon the issuance of a licensed patent and royalties will be payable based upon the sale of certain licensed products. Under the Sponsored Research Agreement, the Company agreed to support the research as set forth in a research plan in an amount of $375,000. Such costs are to be paid by the Company in accordance with a payment schedule which sets forth the timing and condition of each such payment over the term of the SRA, the first payment of $100,000 (for which there is a $50,000 credit) being due upon the commencement of the research. We will require additional research and development capacity and access to funds to meet our development obligations under the License Agreement and develop the VSEL technology. The Company has applied for Small Business Innovation Research (SBIR) grants and may also seek to obtain funds through applications for other State and Federal grants, direct investments, sublicensing arrangements as well as other funding sources to help offset all or a portion of these costs We are seeking to develop increased internal research capability and sufficient laboratory facilities or establish relationships with third parties to provide such research capability and facilities. In this regard, in July 2008 the Company hired a Director of Stem Cell Research and Laboratory Operations.

In October 2007, the Company entered into a development agreement with Stem Collect LLC (“Stem Collect”) to act as a developer of collection centers to join the Company’s network. Stem Collect agreed to make certain upfront payments of which $30,000 were paid through December 31, 2007. In December 2007, the parties amended the terms of this agreement to provide for the extension of certain other payment and notice periods under the development agreement and in March 2008 Stem Collect advised the Company that due diligence resulting in their revising their targeted locations and associated funding requirements were requiring that Stem Collect have additional time to meet its notice and payment obligations under the development agreement. After discussions between the parties, the original development agreement was terminated, and the Company anticipates discussing the terms of a new development agreement with Stem Collect. Pursuant to the original development agreement, a center agreement had been entered into with Stem Collect of Beverly Hills, LLC which has been replaced by a center agreement entered into in July 2008 with Stem Collect of Santa Monica, LLC for a center to be opened on the premises of The Hall Center in Santa Monica, California.
 
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SEASONALITY

NeoStem does not believe that its operations are seasonal in nature.

OFF-BALANCE SHEET ARRANGEMENTS

NeoStem does not have any off-balance sheet arrangements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.applicable to smaller reporting companies.

ITEM 4T.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported in a complete, accurate and appropriate manner, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the Company's secondCompany’s first  fiscal quarter ended June 30, 2008March 31, 2009 covered by this report, the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective to reasonably ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, 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.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15, that occurred during the quarter ended June 30, 2008March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
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NEOSTEM, INC.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NonePreviously reported on the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Previously reported on the Company’s Current ReportsReport on Form 8-K dated April 13, 2009, and as follows:

In January 2009, the Company entered into an agreement with a consultant which has been providing investor relation services to the Company since 2005, pursuant to which this consultant was retained to provide additional investor relations/media relations services from January 1, 2009 to May 31, 2009.  In consideration for providing services under this agreement, the Company agreed to issue to the consultant an aggregate of 40,000 shares of restricted Common Stock, to vest as to 8,000 shares on the last day of each month of January through May 2009.  The issuance of such securities is subject to the approval of the NYSE Amex.

In January 2009, the Company issued to its grant consultant 20,000 shares of restricted Common Stock as a bonus under the consultant’s Consulting Agreement with the Company dated February 8, 2008, in consideration for such consultant being instrumental in securing the Company’s inclusion in the Department of Defense Fiscal Year 2009 Appropriations Bill in the net amount of approximately $680,000.  The issuance of such securities was subject to the approval of the NYSE Amex, which approval was obtained in January 2009.  The Company has entered into a new consulting agreement with such grant consultant for a one-year term commencing as of January 1, 2009, pursuant to which it will provide assistance to the Company in the following areas:  (i) with regard to negotiation, drafting and finalization of contracts; (ii) in the development of strategic plans; (iii) with regard to funding from various agencies of the State of New Jersey and Federal government; and (iv) with other assignments it may receive from time to time.  In consideration for such services, the consultant will be issued shares of the Company’s restricted Common Stock equal to a value of $60,000 based on the closing price of the Company’s Common Stock on the date of execution of the agreement, which has been determined to be 67,416 shares, to vest as to one-half of such shares on June 30, 2009 and the remaining one-half of such shares on December 31, 2009.  The issuance of such securities is subject to the approval of the NYSE Amex.

In January 2009, the Company issued to a marketing consultant 12,000 shares of restricted Common Stock pursuant to the terms of a three month consulting agreement entered into in October 2008, scheduled to vest pursuant to the agreement as to 4,000 shares at the end of each 30 day period during the term.  The issuance of such securities was subject to the approval of the NYSE Amex, which approval was obtained in January 2009.

In February 2009, the Company issued to a consultant a five year warrant to purchase 5,000 shares of restricted Common Stock at a purchase price of $1.40 per share. This warrant was issued in consideration of services rendered after the expiration of an October 2007 consulting agreement with the Company pursuant to which this consultant was engaged to create marketing materials for our sales and marketing staff. The issuance of this warrant was subject to the approval of the NYSE Amex and vested on issuance.

In March 20,2009, the Company entered into an agreement with a consultant which has been providing financial market related services to the Company since 2008, May 20, 2008pursuant to which this consultant was retained to provide additional financial market related services for a three month period.  In partial consideration for providing services under this agreement, the Company agreed to issue to the consultant an aggregate of 25,000 shares of restricted Common Stock, to vest as to one-third of the shares at the end of each monthly period during the term and July 24, 2008, respectively.a five year warrant to purchase 25,000 shares of restricted Common Stock at a per share exercise price of $1.00, vesting in its entirety at the end of the term.  The issuance of such securities is subject to the approval of the NYSE Amex.
 
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On May 1, 2009, the Company entered into a three year consulting agreement effective March 3, 2009 (the “Effective Date”) whereby the consultant will provide to the Company consulting services in the area of stem cell therapy in orthopedics for the development of business in Asia.  Pursuant to this agreement, as partial compensation for such services, the Company agreed to issue to this consultant a warrant to purchase up to an aggregate of 24,000 shares of Common Stock at an exercise price of $0.50 (the closing price of the Common Stock on the Effective Date) which shall vest and become exercisable as to one-third of such shares on each of the first, second and third anniversaries of the Effective Date.  The issuance of such securities is subject to the approval of the NYSE Amex.

The offer and sale by the Company of the securities described above were made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (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 “accredited investors,” 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  4.1 Certificate of Designations for Series D Preferred Stock (1)
  4.2 Form of SubscriptionWarrant issued in connection with April 2009 private placement (1)
  4.3 Form of subscription agreement (1)
10.1 Amendment No. 1 to Sponsored Research Agreement amongbetween NeoStem, Inc. and certain investors listed therein. (1)the University of Louisville Research Foundation, Inc.*
10.2 FormAmendment No. 1 to Exclusive License Agreement between Stem Cell Technologies, Inc. and the University of Redeemable Warrant to Purchase Shares of Common Stock of NeoStem,Louisville Research Foundation, Inc. (1)*
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.**

(1)Filed as an exhibit, numbered as indicated above, to the current reportCurrent Report of the Company on Form 8-K, dated May 20, 2008,April 13, 2009, which exhibit is incorporated here by reference.
*Filed herewith
**Furnished herewith

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SIGNATURES

Pursuant to 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 MDM.D.
  Robin Smith MD,M.D., Chief Executive Officer
   
 Date: August 14, 2008May 15, 2009
 

 By:/s/ Larry A. May
  Larry A. May, Chief Financial Officer
   
 Date: August 14, 2008May 15, 2009
 

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