"Intent Ot Purchase Shares"
March 21, 2007 United States – Healthcare TRI-STATE CAPITAL Biotechnology Michael Grobler, CFA Romark7@aol.com Website: Exchange: http://www.cryo-intl.com US – OTC Bulletin Board Recent Price: $1.55 (917) 345 9894 Contact: Robert Gravely, VP Marketing Target Price: $3.40 (407) 834-8333 (12-month) firstname.lastname@example.org Main Headquarters BioStem, Inc. 200 Hannover Park Road Company Overview Suite #120 Atlanta, GA 30350 BioStem, Inc. (OTC:BB – BTEM) is a company who is in process of acquiring United States of America Cryobanks International Inc. (CII). CII is a leader in the collection, processing, and banking of stem cells derived from the umbilical cord (CBSCs) immediately after birth. Tel: (770) 650 1733 The units of cord blood (CB) are processed and stored at CII for use in unrelated Fax: transplants (where the donor is a histo-compatible match, but is anonymous and unrelated to the recipient) and for personal storage and use. • Cryobanks International, Inc., is a pioneer in the collection, isolation, and storage technologies for cord blood stem cells. CII’s mission is to become the largest provider of cord blood stem cells (CBSCs) for transplant and research purposes in the world. • Cord blood transplants (CBTs) have become widely recognized as a safe, effective, and in many ways preferable, alternative to bone marrow transplants (BMT). • There is tremendous potential need for CBTs in the United States and worldwide. Based BIOSTEM INC. on company estimates, demand may be as many as 35,000 transplant requests (all figures in millions) per year in the U.S. alone. Cryobanks International is well poised to help meet that need, equipped with an inventory of over 9,000 (CB) cord blood units. 52 Week Hi/Lo Range 5.55/0.45 Fiscal Year End 31-Dec • Cryobanks International, Inc. is the only Cord Blood Bank accepting donated Cord Blood Units nationwide year round, 24 hrs/day, 7days of the week. Shares Outstanding (11/15/2006) 175.2 Float (approximately) • Currently CII has 10 licensed affiliates. Two are operational in Athens, Greece and Share price (03/19/2007) 1.86 New Delhi, India with construction underway at the United Arab Emirates (UAE) Market Capitalization 325.9 location and newly signed Bangkok location. Seven to six additional locations will Average Volume (3 months) 0.007 Insider Ownership(approximately) 62% open in India over the course of the next 36 months. Additionally, CII projects Institutional Ownership 22% more than 40 locations scheduled to open worldwide over the next few years. Enterprise Value (EV) 325.98 • A private investment fund has signed a Letter of Intent agreed to purchase $9 million Long Term Debt (09-30-06) 0.092 Total Cash (09-30-06) 0.000 of Class A Secured Convertible Debentures of Cryobanks, which are to bear interest at the rate of 10% per annum, are convertible into 7.5% of Cryobanks 12/31/2007 12/31/2008 outstanding common stock on a fully diluted basis, and are due and payable on Dec 31, FY2007 E FY2008 E 2008. The financing is subject to completion of due diligence within 30 days. Earnings Per Share (EPS) 0.023 0.094 • Cryobanks International, Inc., which is to be acquired by BioStem, Inc. announced that upon the completion of the $9.0 million funding announced on March 14, 2007, Book Value ($/share) Biostem intends to file an application to list on the American Stock Exchange with FY2007 E FY2008 E the hope the AMEX listing will become effective upon the closing of the merger. Total Revenue 16.106 35.796 Cost of Sales • Expiration of the merger agreement has been extended to June 30th, 2007, and is Gross Profit/Loss contingent upon CII raising at least $10 million in a private placement. It is Operating expenditures accepted that the merger agreement will be extended again to permit the $9 million Income/Loss from Operations 5.875 23.492 Other Expenses dollar financing to close. Tax Items 1.763 7.048 • The $9 million financing deal will put Cryobanks substantially over this Net Income 4.113 16.444 prescribed financing condition, and BioStem and Cryobanks will proceed to NA = Not applicable/Not Available. close the merger as soon as possible. The merger and capital infusion provides A = Actual Reported figures E = Estimates Cryobanks the necessary capital to further its international licensing model and bolster market presence as it relates to other existing lines of revenue. Balance Sheet & Financial Statement Extracts (09-30-2006) BTEM shares are a direct play on “The Stem Cell Therapeutic and Research Act Current Assets 0.034 of 2005” that came into law, following approval by Congress. This $US 79 Current Liabilities 1.311 million Bill will establish a national cord blood bank, and will bring media Total Assets 0.260 Total Shareholders Deficit 1.143 attention and public awareness to the benefits of cord blood and expand CBSC Accumulated Deficit 1.614 inventories in the US. Cryobanks is one of only 15 cord blood banks in the National Marrow Donor Program Network (NMDP), and expects to benefit Capital Structure (11-15-2006) Authorized Common Stock 300 000 000 directly from this ground breaking legislation. See INVESTMENT THESIS & Authorized Preferred Stock 10 000 000 RECOMMENDATION for more in-depth discussion (Page 19-23). (Non-Convertible Non-Tradeable) Warrants Oustanding 2 000 000 See Appendix A-1 for Analyst Certification and Important Disclosures. Page 2 of 23 COMPANY Biostem Inc. (OTCBB: BTEM), is the new name of the publicly traded company National Parking Systems Inc. (OTCBB:NPGS), formerly named both Cascade Mountain Mining Company, and Web Views Corporation. The Company was originally incorporated under the name Web Views Corporation in Nevada in 2001. After changing its name to BioStem in November 2005, the Board of Directors actively sought a merger with a privately held company in the cord blood banking business. On November 22, 2005, BioStem Inc. agreed to merge with Cryobanks International, Inc. (CII). Prior to this merger, BioStem had limited operations focused mainly on parking and parking related services. Upon closing of the merger, these subsidiaries will be divested from BTEM, and Cryobanks will be the only remaining entity. Cryobanks International, Inc., a pioneer in the collection, isolation, and storage technologies for cord blood stem cells. Cryobanks International Inc. (CII), located in Altamonte Springs Florida, is engaged in the collection, processing, and cryogenic cellular storage of umbilical cord blood stem cells from non-related donors, for personal or sibling use, and for research purposes. The company was founded in 1993 in Altamonte Springs, Florida, which is a suburb of Orlando, and has a growing inventory of over 9,700 CBUs for future use in transplants and medical research. Cryobanks International, initially formed as a semen bank and a clinical and andrology laboratory, expanded its scope of business into the field of cord blood banking in mid-1995. The company is focused on providing high-quality umbilical cord blood stem cell processing, and storage for both private family use and public donation purposes. Cryobanks International was incorporated as a Delaware corporation in May 1999 as an umbilical cord blood stem cell collecting, processing & storage enterprise, processing both personal and donated cord blood for use in transplantation & research. CII established the first and only nationwide system for donating cord blood. Since 1995, Cryobanks International, Inc. (CII) has been accepting and processing donated cord blood units from anywhere in the United States. It is the only facility accepting donated cord blood units from anywhere in the continental U.S., every day of the week 24 hours per day. Fully accredited by the American Association of Blood Banks (AABB) and a member of the National Marrow Donor Program® Cord Blood Bank Network (NMDP), CII processes donated units following the highest standards in the industry and is a licensed PharmaStem cord blood bank. Units that qualify are listed on international registries so that anyone in need of a potential life-saving stem cell transplant may find an acceptable match. Cryobanks is New York and New Jersey State licensed, and is FDA registered. The Closing of the merger between Cryobanks and Biostem is subject to certain contingencies more fully described in Current Form 8-K filed November 28, 2005 with the SEC. According to the terms of the merger with Cryobanks, BioStem must restructure its capitalization by canceling certain shares held by former shareholders, and potentially effecting a reverse split of its common stock, and must reduce its debt to under $25,000 in accrued liabilities. In addition, Cryobanks must successfully raise at least $10,000,000 in a private placement offering. The offering was planned is for preferred stock at $1.00 per share with warrants to purchase 3,000,000 shares of Cryobanks common stock, exercisable at $1.10 per share. Upon closing of the merger, BTEM will divest its two operating subsidiaries, issue 120,000,000 shares of common stock or an approximately 88% majority to Cryobanks shareholders. Additional terms of the merger calls for the current management of BioStem to resign, and the Board of Cryobanks to assume control of the company. The closing date was recently extended and now specifies that the merger must be completed by June 30th, 2007 or the letter of intent will expire. BioStem anticipates that the merger will be extended again to allow time for the $9.0 million financing to close, although there is no assurance that this will happen. The company is focused on four lines of business all related to collection and storage of cord blood stem cells: i. Umbilical Cord Donation: Anonymous donor CBUs for unrelated cord blood transplants, ii. Umbilical Cord Research, iii. Umbilical Cord Storage: Personal cord blood storage for possible future use by the family, and iv. Licensing of Proprietary Standard Operating Procedures: The licensing of the company’s proprietary process for setting up and operating a cryogenic storage facility. The company has also partnered with research institutions that are developing stem cell based therapies to treat disease. The Company has processed over 15,000 units of cord blood to date. Its first licensed facility opened in Athens Greece in December 2005. Its second licensed facility opened in Delhi, India in October 2006. Cryobanks occupies a modern state-of-the-art facility of approximately 6,200 square feet and has 19 employees. The Company has a well-established Business Board, and an active Scientific and Medical Board of Advisors (S.A.M.B.A.). See Appendix A-1 for Analyst Certification and Important Disclosures. Page 3 of 23 Mission To become the largest provider of cord blood stem cells (CBSCs) for transplant and research purposes in the world. Accreditations Cryobanks International is an NMDP Bank accredited by the American Association of Blood Banks (AABB) in cord blood activities, licensed for tissue banking operations by the New York and New Jersey State Departments of Health and registered with the Food and Drug Administration. In addition, many members of its staff are currently active in dozens of related organizations. Such as: • American Society of Hematology. • World Marrow Donor Association. • American Association of Tissue Banks. • American Society for Clinical Pathology. • International Cord Blood Society. • American Association of Bioanalysts. • State of Florida Department of Health - Division of Medical Quality Assurance. Cryobanks has a license agreement with Pharmastem Therapeutics for certain technologies related to cord blood processing. Upcoming judicial decisions involving Pharmastem’s patents may adversely affect several of Cryobanks’ largest unlicensed competitors and serve to put the Company in a even more commanding competitive position. Cryobanks International, Inc., announced on March 16, 2007 that upon the completion of a $9.0 million funding agreement announced on March 14, 2007, they intend to file an application to commence the process of having BioStem, Inc listed on the American Stock Exchange. A private investment fund signed a LOI agreed to purchase $9 million of Class A Secured Convertible Debentures of Cryobanks. Cryobanks has reviewed its balance sheet and financial condition and determined that in the event the Financing closes as anticipated, it will meet the required shareholder's equity listing criteria set by the American Stock Exchange. There can be no assurance, however, that the American Stock Exchange will ultimately accept the listing. Prior to completion of the merge and submission of formal requests to transfer to the AMEX, Cryobanks has informally consulted with one of the largest specialists on the AMEX to ensure the success of a proposed transfer. Should everything proceed as anticipated, the company expects that Biostem will file the application simultaneous with the filing of the registration statement which is required to close the merger of BioStem and Cryobanks, with the hope that the AMEX listing will become effective upon the closing of the merger. GROWTH STRATEGY & PRICING The Company is one of the distinct leaders in its field and has a goal of developing largest database of quality transplantable cord blood stem cell units worldwide. It is the mission of Cryobanks to ensure that anyone in need of a cord blood stem cell transplant will have a matched unit to access. Umbilical Cord Stem Cells are used today to treat cancers of the blood, sickle cell anemia, and over 75 illnesses. Not everyone who needs one can get a cord blood stem cell transplant. CII is currently working on an urgent nationwide effort to increase the numbers of donated cord blood units from several ethnic minority groups. To address this immediate need, CII is focusing on collecting cord blood units from the African American, Asian/Pacific Islander and Hispanic communities. This focused drive lasts through March 31st. Less than half of the cord blood units in the NMDP registry are from minority donors. Because tissue types are inherited, minority patients are more likely to match with units donated from a person of the same minority or ethnic background. CII works with the donor mother to manage the enrollment process providing qualified mothers with a proprietary collection kit to take with her to the hospital. CII then arranges for the return of the unit for processing following its strict guidelines and procedures. Finally, the unit is added to the registry system. The donation process is free to the donating family, takes only a few minutes to perform by their physician, and is painless to both mother and baby. CI has its own uninterruptible power source/generator system at its 6,200 sq.ft Altamonte Springs, FL facility. The laboratory houses state-of-the-art equipment for microbiology screening, cell counting and general processing of stem cells. The laboratory utilizes controlled rate freezers and long-term nitrogen vapor storage systems. CI has the ability to store more than 30,000 units of cord blood without having to expand its current space. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 4 of 23 In order to pursue its growth strategy the Company must Implement Existing Business Plan by extending its Marketing Campaign to: Increase sales of personally stored units. Increase number of donated units on registries to achieve higher throughput. Attract additional research opportunities. and secondly the Company will hire Additional Staff for Expansion to: Facilitate opening of 2 to 3 licensees per month. Process additional stored and donated units at CII. Pricing Cryobanks International believes that everyone deserves the opportunity to affordably store their child’s umbilical cord blood. CII offers flexible payment plans to fit the budget. Active discounts are listed on the Company’s homepage on its website and indicate if its regular discounts apply. Only one discount per contract is available. CII’s Advance Pay Storage plan is always available so families can “lock” in the annual storage fee by paying in advance for a 5 year or 10 year period. Both plans provide a discount on storage costs and can be included in the Flex-Pay Plan. Using CII’s Flex-Pay Plan families can spread the first year costs and optional Advanced Pay Storage over 6 monthly installments after a minimum $500 deposit. The Company charges no interest or service charge for this plan. All that is required is a valid credit card for monthly billing. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 5 of 23 Discounts & Promotions Advance Pay Storage – Pre-paid storage options that allows you to “lock in” your annual storage fees and save $30 to $120. The pre-paid storage plans can be included with a Flex-Pay Plan. Active Military Discount – Active military and spouses earn a credit on their processing and first year storage fees. Proof of active duty required. Health Care Professional Discount – Licensed M.D.s, D.O.s or Certified Nurse Midwives and spouses earn a credit on your processing and first year storage fees. Proof of license required. Return Clients – Earn an additional free year of storage on your new contract. Referrals – Earn an additional free year of storage for referring a friend who contracts to store their cord blood with Cryobanks International. PRODUCT/SERVICE DESCRIPTION Cord blood contains a very concentrated source of stem cells that produced blood cells (red, white, platelets) and ultimately may differentiate into all other cells in the body, such as brain cells, liver cells or any other cell type. Transplanted into humans with a variety of diseases, CBSCs can often reverse or even cure the disease. CB is a non-controversial source of stem cells, as it does not involve the use or destruction of an embryo or fetal tissue and would otherwise be discarded as medical waste. In addition to therapeutic uses through transplant, CB stem cells can be used to develop new therapies and as sources of specific cell types for research purposes. A new legislation, enacted by Congress, underscores the importance of this technology and should create a rapid expansion of a national cord blood inventory. The company is poised to be at the heart of this expansion. Cryobanks is engaged in three core businesses, all related to CB collection, storage and use. UMBILICAL CORD BLOOD DONATION The first business is the collection and storage of CB units donated by the parents at birth for unrelated cord blood transplants (Donor Units). While Cryobanks bears the cost of collection and processing, these Donor Units have three distinct uses for therapeutic purposes: for CB transplant, for research in the discovery of new therapeutics, and for sale of the stem cells for other research purposes. Currently, the company lists its unrelated transplantable units on three key worldwide registries. Donated umbilical cord blood processed by company for potential future reimbursement. Cost to collect and process $700. Reimbursement ranges from$19,500-$22,500, if unit is selected as match on registry. 9,700 + units placed to date on various registries – 2nd largest private inventory in the world. Carried on balance sheet at cost: $3,236,764. Company collects through nationwide hospital and unique individual donor programs. 12-14 competitors, primarily in university settings with limited operational times and locations. Company intends to utilize funds to grow existing inventory. World public CBU inventory approximately 125,000 units. World need projected at over 400,000 units. UMBILICAL CORD BLOOD STORAGE The second business involves the collection of CB units for personal storage (Storage Units), to be used, if necessary, by the donor family or its designees. In this case, the donating family pays for collection, processing and storage, plus an annual fee for continued storage. Umbilical cord blood processed, stored & saved for personal use. Fee based. Used to treat over 75 life-threatening diseases. Potential use for regenerative medicine – regrowing body parts lost from disease, injury, etc. 2006 Costs of processing and 1st year storage $300. Fee for processing and 1st year storage $1,749 Annual storage renewal fee $120. Over 2,100 units currently stored. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 6 of 23 Company intends to grow this business by: Building a call center. Placing mixed media. Advancing web site. Target market - 4,100,000 live births in the U.S. each year. Highly competitive arena, 12-14 competitors in U.S. LICENSING The third business involves technology licensing. Cryobanks has been asked by many international groups to help them set up CB collection and storage facilities. Cryobanks has developed a model for assisting other parties in this endeavor and already has facilitiesopen in India and Greece. Standard operation procedures are licensed to other countries and companies worldwide. Program includes equipment, staff training, lab management, facility set-up, and marketing assistance. Saves licensees roughly $2million, substantial time and guarantees accreditation. Licensee begins in personal storage business only and advances to donation and research models. Company receives seven figure licensing fee, on-going royalties and equity ownership. First license sold in Greece, opened late December 2005 generating substantial revenues. (October 2006 - $87,000 USD) Second in October 2006, New Delhi, India – six more scheduled to open on this same contract. Thailand & Emirates signed October 2006, opening summer 2007. 14 Locations signed, 22 under LOI. Competition extremely limited. The Company is able to open 4 to 6 new licensee facilities per year with current staff. The Company expects to open 9 locations in 2007. With additional staff & capital, CII can open as much as 2 to 3 locations per month. Currently Cryobanks International has projected licensing and royalty fees of $14 million for 2007. Its very first Licensee was IASO - largest hospital in Greece & largest publicly traded company on Greek Stock Exchange. The IASO has over 22,000 deliveries per year IASO determined set-up would be expensive & lengthy, therefore, sought solution and teamed up with CII. UMBILICAL CORD BLOOD RESEARCH Additionally, Cryobanks sponsors research in areas related to stem cell therapy. In return, Cryobanks will have first rights to licensing and royalty income when and if the therapies based on this research are developed. Due to the long, 10 to 12 year, development time of biological therapeutics, Cryobanks does not expect to see significant revenues from this business within the first 5 years. Cryobanks also sells research units outright. Cryobanks has signed one Material Transfer Agreement with a well-known cancer research center and has several other agreements pending, which there can be no assurance will close. Cord blood is the blood that remains in the umbilical cord after the baby is born and the umbilical cord is cut. Although once considered medical waste and thrown away, scientists now know that cord blood is rich in stem cells. Stem cells are very important because they make many different types of cells in the body including blood cells that carry oxygen, fight disease and help stop bleeding. Umbilical cord blood stem cells are collected after the baby has been born and the umbilical cord has been clamped and cut. For these reasons, the stem cells can be safely obtained without any risk or pain to the mother or baby. Once collected, the stem cells can then be preserved for future uses. Units not meeting standard for unrelated stem cell transplant sold for testing, research & development. Also used as equity investment into research projects seeking licensing or patent opportunities. In-house research seeking treatment & drug development opportunities. Target market – scientists, universities, biotech development companies. Competition is sparse, generally unable to deliver with reliability. Company seeking to expand scientific staff to pursue grant opportunities. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 7 of 23 INDUSTRY The cord blood industry still in its infancy stages is gaining momentum as we enter second quarter of 2007. The recent passing into law of the Stem Cell Therapeutic and Research Act of 2005, will create a national network of cord blood units with an large inventory supplied by qualified cord blood stem cell banks. This bill authorized up to $34 million in federal support in Fiscal Year 2006, with another $53 million in each of the following years, up to FY 2010. The goal is to reach a total inventory if 150,000 units so that matched stem cells will be available to treat more than 90% of patients, with a special focus on providing units for diverse patient populations. Cryobanks intends to be at the center of this growth and is already benefiting from this improved environment. One of the most promising and controversial areas studied in the scientific community today is stem cell research. Stem cells are primative, un-specialized cells that exhibit unique characteristics that differentiate them from other cells in the body. These cells can reproduce themselves many times over through cell division, and also can be influenced in the right environment to become specialized cells with specific functions, such as specific tissue or possibly organs. There are two main types of stem cells: embryonic, and somatic or adult stem cells. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 8 of 23 Embryonic stem cells are cells extracted from living embryos usually four or five days old; a process full of controversy. These cells are the most primitive cells and are believed to have the greatest potential to become a wide variety of cell types, although no human diseases have yet been successfully treated with them. Based on several studies, certain scientists believe that embryonic stem cells can be used to cure and treat a wide variety of diseases such as Parkinson’s, Alzheimer’s, spinal cord injuries, heart disease, diabetes, cancers, and many other afflictions. Adult or somatic stem cells exist throughout certain parts of the body with the main purpose to maintain and repair tissues or organs. Normally, most of the stem cells found in the body are in the bone marrow, and these are the cells used in bone marrow transplants. Stem cells transplanted into a cancer patient, allow the patient to recover from high-dose treatments of chemotherapy. Bone marrow contains two types of stem cells, hematopoietic stem cells which become red and white blood cells, and stromal cells that become tissue, bone, and cartilage. Stems cells have also been found in smaller quantities in other areas of the body including the brain, peripheral blood, blood vessels, skeletal muscle, skin and liver. Like bone marrow, umbilical cord blood stem cells contain hematopoietic stem cells and the medical community is growing more accepting to utilize these stem cells in lieu of a bone marrow transplant. Cord blood transplants have distinct advantages over bone marrow transplants in stimulating the growth of healthy blood cells. The collection of cord blood is painless and simple, while bone marrow donors must be subject to an invasive operation under anesthesia. Also, tests have shown that complications such as graft vs. host disease - where the new transplanted cells attack the patient, are less severe with cord blood transplants. Because cord blood cells are more primitive than marrow cells, successful transplants do not require a perfect match, and more stem cells may be available to the patient. Recent studies, published in the New England Journal of Medicine, showed that cord blood transplants work as well as slightly mismatched bone marrow. Nearly 16,000 people with leukemia who need transplants, do not get one because they cannot find perfect matching bone marrow. Cord blood is said to contain 10 times the amount of stem cells as an equally sized portion of bone marrow. The first cord blood transplant was conducted in Europe in 1998, and now nearly 7,000 cord blood transplants have been performed worldwide, most of them on leukemia patients. Total number of unrelated blood stem cell transplantations 8,392 9,000 7,348 8,000 6,494 Number of unrelated 7,000 5,457 transplantations 5,032 6,000 4,718 3,834 5,000 3,237 4,000 3,000 2,000 1,000 0 1997 1998 1999 2000 2001 2002 2003 2004 Year no data available before 1997 Source: World Marrow Donor Association (WMDA) In addition to treating leukemia and other blood disorders, further optimism is being generated from evidence that hematopoietic stem cells may differentiate into brain cells (neurons, oligodendrocytes, and astrocytes); skeletal muscle cells; cardiac muscle cells; and liver cells. If this is proven, these findings may prove that cord blood could treat an even wider variety of disease and human afflictions. Despite the optimism, stem cell based therapies are still in the infancy stages, and several hurdles still need to be overcome before these treatments attain critical mass. For example, cord blood takes longer to be accepted by the body than bone marrow and has more of a risk of an infection. Also, because there is a relatively small number of hematopoetic stem cells contained in 1 unit of cord blood, all of the nearly 9,000 transplants to date have been done in children. In fact, more than 1000 of the 9000 transplants were in adults. The number of stem cells transplanted is directly linked to the probability of success. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 9 of 23 Complications arise in larger children and adults if too few stem cells are available. To overcome this problem, several companies are developing proprietary processes to expand stems cells in the laboratory. The ultimate success of current and future cell therapies is dependent on the availability of a rich and abundant source of stem cells. Cryobanks mission is to become the largest single source for cord blood stem cells and is taking steps to accomplish this goal. The personal storage business offers a great opportunity for investors looking for growth potential; research has determined that only 3% of birthing parents are currently banking cord blood. There are approximately 4 million childbirths each year in the United States alone, hence the potential for further market penetration and growth is considerable. In addition, growth will be global; countries throughout the world are starting to establish both public and private cord blood banks. Sweden recently announced plans to establish a national cord blood bank, and over 25 different countries throughout the world have at least 1 cord blood bank. There are a total of about 750,000 cord blood units stored in the United States. Public banks hold less than 12% approximately 60,000 CBUs. In the personal storage business, most companies charge an initial 1st year collection and processing fee of between $1300 - $2,000, and annual storage fees between $100 and $150 per year. Industry experts estimate that the initial target U.S. market is about 30% of the 4 million births/1.2 million potential customers per year. Studies have shown that in most cases if the parents can afford to store the cord blood, they will decide to store it. As a result cord blood banks are now offering more flexible payment options to attract additional customers. Cryobanks’ prices are some of the most inexpensive compared to its peers, which should help the company gain significant market share. INTERNATIONAL CO-OPERATION The World Marrow Donor Association (WMDA) developed guidelines to facilitate international exchange of blood stem cells. The WMDA has initiated an accreditation program for national donor registries to ensure uniform standards for international donor exchange. By 2004, 35% of the 7,266 unrelated blood stem cell donations were provided to patients in another country. Cryobanks CEO, Dweight Brunoehler serves on the Cord Blood and Finance sub committees of the WMDA. DONOR DATA Because a person’s HLA characteristics are inherited, a patient is more likely to find a matching donor from within his or her own racial or ethnic group. Donors of all ethnic groups other than North Western European origin are still underrepresented in the database of blood stem cell donors. The chance of finding a potential donor for patients of North Western European origin is much higher than for patients from other ethnic groups. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 10 of 23 The World Marrow Donor Association produces annual statistics on worldwide-unrelated stem cell transplantation activity. In 2004: 7,266 blood stem cell donations (bone marrow & peripheral) and 1,126 cord blood units were provided for patients in desperate need. More than 50,000 patients worldwide have received blood stem cells from an unrelated donor. Approximately 9,000 patients worldwide have received an unrelated cord blood transplant. The cord blood banking industry is set to grow significantly due to several factors including the public’s increased awareness about the availability and benefits of preserving cord blood; the growing number of endorsements by the medical community, and further advances in cell therapy applications. COMPETITION Cryobanks has two categories of competitors. The first category is the personal storage for fee business. To date, this has been by far the most lucrative area of cord blood banking. For personal storage, a family will pay a large initial fee (usually $1,300 to $2,000) to process and store their cord blood for private use, plus an annual storage fee of $95 to $150. The primary companies in this area are Cord Blood Registry and ViaCell. Cryobanks believes that the prices it charges for the storage of cord blood is competitive with other companies. Another category of competition in the cord blood arena is the collection of unrelated donated units (donations not from relatives), at no charge to the donor. Cryobanks invests its own money to process these units. The units are then placed on international registries with the expectation that these units will be selected for transplant. If a unit is selected for transplant, Cryobanks will receive between $19,500 and $22,500 as reimbursement for each transplantable CB unit. Not every unit donated will be selected for transplant and a facility must have a large inventory, estimated at 20,000 or greater, in order to have sales at a rate of 10 percent. The largest existing inventory is at the New York Blood Center - with approximately 16,000 stored and registered units of which over approximately 1,700 have already been used for transplant. The competing facilities in this category are hospitals and universities that are primarily funded through private or government grants. Historically, processing costs are high and efficiencies are low resulting in the failure or constant start-up/shut-down of their operations. The Health Resources and Services Administration (HRSA), part of the U.S. Department of Health and Human Services, recently awarded funds totaling $12 million to the first group of 6 public cord blood banks selected to begin collections for a new National Cord Blood Inventory (NCBI). The New York Blood Center's National Cord Blood Program received a $3 million allocation, as did two other cord blood bank. The remaining $3 million was divided among three smaller banks. HRSA estimates that this will help add 10,500 new units of ethnically-diverse cord blood units to the National Inventory. “These awards will help to build and maintain a collection of cord blood which could provide lifesaving stem cells to individuals who need them for transplantation,” said HRSA Administrator Betty Duke. “This first year’s collections should help add 10,500 new units of cord blood to the National Cord Blood Inventory.” The statutory target under the Stem Cell Therapeutic and Research Act of 2005, for the National Cord Blood Inventory is 150,000 new units of high quality cord blood collected from diverse populations, including minority populations, which historically have been the least able to find a suitable matched adult bone marrow donor. The demographics of these initial cord blood collections will be as follows: 19% African-American; 26% Hispanic; 6.5% Asian; 37.5% Caucasian; 10% Multi-Race; 1% Other Minorities. HRSA plans a second cycle of competitive contracts to increase the National Cord Blood Inventory early in FY 2007. 2006 C.W. Bill Young Cell Transplantation Program National Cord Blood Inventory Contracts Institution City State Award M.D. Anderson Cord Blood Bank Houston Texas $3,001,248 The Carolinas Cord Blood Bank at Duke University Medical Center Durham North Carolina 3,000,126 The Milstein National Cord Blood Program at the New York Blood Center New York New York 3,000,050 StemCyte, Inc. Arcadia California 1,499,152 The University of Colorado Cord Blood Bank Aurora Colorado 1,000,195 The Puget Sound Blood Center Seattle Washington 500,000 TOTAL: $12,000,771 See Appendix A-1 for Analyst Certification and Important Disclosures. Page 11 of 23 RECENT DEVELOPMENTS & CONVERTIBLE DEBENTURES FINANCING On November 17,2006 Cryobanks International, Inc. (CII) reported that its first international licensed affiliate, Cryobanks International Services – Athens, reported growth of more than 200% for stored cord blood units for the third straight quarter. Units processed and stored have grown to a total of 3,700 since December 2005. Umbilical cord blood continues to surprise the science world with its adaptability and flexibility making storing these precious cells even more important. It was reported recently that scientists in the UK had developed a mini-liver from cord blood stem cells. “With these kinds of medical advancements, uses for umbilical cord blood in disease treatment should become more common,” said Antonios Vlachoussis, M.D., Ph.D., Chairman of Cryobanks International Services – Athens. Dwight Brunoehler, CEO and Founder of CII, stated, “it is very exciting for us as a company to see the unabashed acceptance and growth of cord blood storage in Greece. When we entered into the agreement, we were hopeful but not sure what the reception would be as this was our first licensee program. With Greece showing such tremendous month-to-month and quarter-to- quarter growth we are very confident that the licensing program will enjoy similar results in the other markets we have licensed and those still under negotiation.” On Mar 15, 2007, Cryobanks International, Inc. announced it has approved and signed a letter of intent for a $9.0 million financing, which will satisfy the last item needed to complete its merger into BioStem, Inc. The merger is part of an Agreement and Plan of Merger initially filed by Cryobanks International and BioStem on November 28, 2005. The merger and capital infusion provides Cryobanks the necessary capital to further its international licensing model and bolster market presence as it relates to other existing lines of revenue. The Merger, which is contingent upon Cryobanks raising at least $10,000,000 pursuant to a private placement, has been extended to June 30th, 2007. If the financing successfully closes, this will put Cryobanks substantially over the $10,000,000 financing condition, and BioStem and Cryobanks will proceed to close the merger as soon as possible. Pursuant to the Letter of Intent, subject to completion of due diligence within 30 days, , the investment fund, agreed to purchase $9,000,000 of Class A Secured Convertible Debentures of Cryobanks, which are to bear interest at the rate of 10% per annum, are convertible into 7.5% of Cryobanks' outstanding common stock on a fully diluted basis, and are due and payable on December 31, 2008. The Debentures automatically convert into registered shares of the Company's common stock upon the completion of the Merger and the subsequent effectiveness of a registration statement on Form S-4 registering the shares, which the Debentures are convertible into. In addition the LOI specifies, Cryobanks is to receive $2,000,000 of the proceeds from the Debentures upon the execution of final documents regarding the transactions contemplated by the Letter of Intent, with the remaining $7,000,000 payable on the Effectiveness Date. The Letter of Intent calls for a registration statement to be filed within 60 days of the Closing and to obtain effectiveness of such Form S-4 registration statement within 150 days of the Closing. If the Form S-4 registration statement is not declared effective by the 150th day following the Closing, the Debentures shall bear interest at the rate of 15% per annum until paid in full, and Cryobanks shall commence monthly interest only payments starting the first day of the month following the expiration of such 150 day period. The Letter of Intent also calls for the investment fund to be able to elect two members to the Company's Board of Directors, following the increase in the Company's Board of Directors from three members to five members. The Investment fund will also receive warrants in connection with the Closing, including a five year Class A Warrant to purchase up to 3.5% of Cryobanks' outstanding common stock on a fully diluted basis (which includes the shares issuable in connection with the conversion of the Debentures), with an exercise price equal to the conversion price of the Debentures; and a five year Class B Warrant to purchase up to 3.75% of Cryobanks' outstanding common stock on a fully diluted basis (which includes the shares issuable in connection with the conversion of the Debentures), with an exercise price equal to $0.001 per share. The LOI additionally includes a closing fee equal to 13% of the proceeds received by Cryobanks, and a separate warrant to purchase 1.125% of Cryobanks' outstanding common stock on a fully diluted basis (which includes the shares issuable in connection with the conversion of the Debentures), on the same terms as the investment fund warrants payable to a consultant, as well as a $35,000 structuring fee payable to Samarium. Finally, the Letter of Intent requires that all the current shareholders of Cryobanks agree to lockup period for shares which they currently hold for one year from the effective date of the Merger, which lockup shall terminate as to 25% of the shares locked up by each shareholder on the 90th, 180th, 270th and 365th day following the Merger. The Closing is anticipated to occur on or before June 30th, 2007, of which there can be no assurance, subject to completion of due diligence by the investment fund in its sole discretion. The provisions of the final Closing documents to be executed by Cryobanks and the investment fund may or may not contain the terms and provisions described above and in the Letter of Intent. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 12 of 23 FINANCIAL STATEMENTS & OUTLOOK The company is a fully reporting company and readers can view its recently filed Form 10-QSB containing financials for the period ended September 30, 2006 (Q3 FY2006), filed with SEC on November 20, 2006 for the period ending September 30, 2006. The Company has its fiscal year-end on December 31. Most recent results for the first 9 months of FY2006 were un- audited. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We believe past financials for BioStem Inc. is of limited value to investors due to the nature of its business that will change one the BioStem/CII merger closes. Interested readers are directed to: http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0001332277-06-000599&Type=HTML. Cryobanks has provided audited financial statements for the years ended December 31, 2003, 2004 and un-audited statements for the ten (10) months ended October 31, 2005. This analysis will focus on the status of Cryobanks’ balance sheet as of October 2005. The company had $655,137 in cash and total working capital of negative ($2,574,181). Total Assets were $4,530,764 with the deferred processing costs accounting for $3,248,294 of this value. Deferred processing costs are booked when the company realizes storage and processing costs of donated cord blood stem cells but before revenues are booked from the match and use of the stem cells. Included in these costs are laboratory expenses, transportation costs, and labor. These are stated in a FIFO first in first out accounting basis which may lead to the highest net income in an inflationary environment, or an environment of rising costs. FIFO may also lead to more volatility in gross margins than in a LIFO basis. The company regularly evaluates these costs and has recorded write-downs to insure that they are booked at the lower of cost or market values. The company has an outstanding note payable of $2,000,000 to 1 investor and and additional note of $248,500 payable to PharmaStem. The company has virtually no long term debt. This unsecured 10% note may be converted to approximately 2 million shares of stock. For the 10 months ending 10/31/2005, total revenues were $ 393,394, down from $413,287 in the comparable 2004 period. The company recorded 147 personal storage fees and 1606 annual renewal fees. Total net loss was $3,435,043 up from $2,269,105.Investors should look for signs of sales growth from each of Cryobanks’ divisions. We expect to see much better results in the personal storage business with the company’s new marketing campaign in the coming quarters. Also, we expect to start to see dollars hit the company’s income statement from the new licensing agreements in Greece and India and new licensees that will launch operations in 2007. The table below indicates abridged pro-forma projections for FY2007 through FY2008. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 13 of 23 Liquidity and Capital Resources Currently operational cash flow does not support Cryobanks’ business operations and the company has not posted a profit since inception. As a result the company has relied on outside financing to maintain its operations. This financing has for the most part been supplied by Cryobanks’ principal shareholder Kazi Management IV, and affiliates thereof. As part of the merger agreement, much of the outstanding debt owed to these affiliates will be converted into shares and warrants of Cryobanks. In addition, preferred shares from the planned upcoming $10 million private placement as per conditions of the merger with BioStem, and 2,000,000 shares which are issuable upon conversion of $2,000,000 of debt of Cryobanks, will not be subject to any restriction or lock-up, and will be registered for resale by the Company on a registration statement. This may be a significant factor to shareholders if the trading volume remains low and these shares are purchased at $1.00 and become free trading. Cryobanks has an agreement with the holder of its Series A Preferred Stock, of which there are 7,000,000 shares outstanding, that half of the proceeds of the $10 million private placement will be used to redeem the Series A Preferred Stock at a redemption price of $1.00 per share. As part of the license agreement, PharmaStem may also be due 5% of any proceeds received from the sale of stock in the company. Therefore if the company raises $10 million as per the BioStem agreement, $500,000 may be immediately due to PharmaStem. The above details on the preferred shares issuance as capital raising event has now been abandoned and the Company has opted to engage in the Convertible Debenture financing deal to comply with the terms prescribed in the merger documents as explained in detail on Page 11. Cryobanks is committed to spending a significant portion of available resources on marketing the new personal storage division: The projected marketing budget (post funding) is as follows: 2006 $1.2 million. 2007 $2.5 million. 2008 $4.0 million. Total operating expenses are running about $340,000 per month or $4 million per year. Other noteworthy financial and per share statistics are listed in the table found on page 1 of this report. RISK FACTORS /CONCERNS The business model, and longer-term consistency of revenue and income potential, remain uncertain and are not yet proven. Although stem cell therapies are gaining acceptance, cord blood stem cells are still unproven for mainstream treatment of diseases and human afflictions. In the event that these therapies experience set backs and are not embraced by the medical community, the storage of cord blood may be determined fruitless, which would have a material impact on the company’s business. The company is dependent on the successful development of its cord blood stem cell processing and storage and transplant business and the licensing of this potential technology. While there is strong indication that CBSC transplants are in many ways superior to the current common practice of bone marrow transplants, and there appears to be an increasing use of CBSC transplants in place of bone marrow transplants, a significant portion of Cryobanks' projected revenues over the next five years is dependent on this trend to continue and increase even more over time. The slowing down of this trend would represent a significant risk to Cryobanks. Further, a major adverse event in the use of cord blood for transplant could adversely affect Cryobanks main business. Some medical groups have recommended that birthing mothers not store cord blood for personal use. Reasons include the low likelihood that the personal unit will ever be used for homogeneic transplant (to the child). If there is a need within a family, there is a greater chance of a match, and the family members could take advantage of the stored unit. While estimations are that with 300,000 registered units in storage there would be sufficient units and matches to treat the world's population in need of transplant, these units are not yet available. A fraction of Cryobanks intended revenues comes from the projected building of the personal storage units business. Other companies have been able to build banks of 30,000 and 45,000 stored units, indicating the desirability of personal storage and the viability of the business plan. However, the continued popularity of the practice of personal storage of cord blood cannot be guaranteed. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 14 of 23 Technology related to stem cells, regeneration of blood and immunological function and other therapeutic actions of CB is always being advanced. It is possible that some, currently undiscovered, technology will be able to effect hematopoietic cell rejuvenation or the reversal of specific diseases that CB transfers will be targeting. While advances of these types cannot be ruled out, the time lag for development, regulatory approval, and acceptance likely gives Cryobanks a lead of five to ten years. Additionally, a suite of patents held by Biocyte Corporation and its successors PharmaStem Therapeutics have been alleged to require licensing. In October 2003, PharmaStem won a jury verdict against ViaCell, Cryo-Cell International, CorCell and CBR Systems, the four largest personal storage unit companies. Following suit, the trial court invalidated the jury's findings and multiple appeals thereafter followed. Concurrently, the European Patent Office invalidated the patents on the continent of Europe and, after challenge, the United States Patent Office has invalidated one of the underlying patents. Despite these facts, and the fact that the United States patents expire in 2007, Cryobanks was named as a defendant in a patent infringement suit brought by PharmaStem. Cryobanks has determined the cost and risks of litigation would likely far outweigh costs and risks of entering into a royalty agreement with PharmaStem. Accordingly, an agreement was reached which calls for payment of a sum for past violations and payment of a royalty on an ongoing basis. The agreement terminates if the patents are determined to be invalid or at the expiration of the patents, whichever is first to occur. There is no intellectual property that would prohibit human serum storage companies from entering into the business, or prohibit new companies from being formed in this area. Cryobanks believes that the Federal guidelines regulating cord blood collection and storage will create a significant barrier to entry to many other groups. Cryobanks meets or exceeds all requirements in the new legislation. Historically, the general level of economic activity has significantly affected the demand for scientific research and advancement. If the general level of economic activity slows, BTEM’s clients may not require its services and may delay or cancel plans that involve using its services and technology. Consequently, the time from initial contact with a potential client to the time of sale could increase and the demand for BSTEM’s services could decline, resulting in a loss of revenue harming its business, operating results and financial condition. Cryobanks future success will depend on its ability to grow and maintain its client base and revenue. This will require that Cryobanks offer services that are superior to the services being offered by its competitors and that its services are priced competitively. Cryobanks believes that its success will depend to a large extent on its ability to successfully develop, strengthen and maintain its brand recognition and reputation. In order to strengthen and maintain its brand recognition and reputation, the Company invests and will need to continue to invest substantial resources in its marketing efforts and maintain high standards for actual and perceived quality, and security. If it fails to successfully promote and maintain its brand name, particularly after incurring significant expenses in promoting its brand name, or encounters legal obstacles, which prevent its continued use of its brand name, its business, operating results and financial condition could be materially adversely affected. Moreover, even if Cryobanks does continue to provide quality service to its clients, factors outside of its control, including actions by organizations that are mistaken for it and factors generally affecting its industry, could affect its brand and the perceived quality of its services. Cryobanks success depends to a significant degree upon the protection of its proprietary technologies and brand names. The unauthorized reproduction or other misappropriation of its proprietary technologies could provide third parties with access to its technologies without payment. If this were to occur, Cryobank's proprietary technologies would lose value and its business, operating results and financial condition could be materially adversely affected. Cryobanks relies upon a combination of copyright, trade secret and trademark laws and non-disclosure and other contractual arrangements to protect its proprietary rights. The measures it has taken to protect its proprietary rights, however, may not be adequate to deter misappropriation of proprietary information or protect Cryobanks if misappropriation occurs. Policing unauthorized use of Cryobank's technologies and other intellectual property is difficult, particularly because of the global nature of its industry. Cryobanks may not be able to detect unauthorized use of its proprietary information and take appropriate steps to enforce its intellectual property rights. If Cryobanks resorts to legal proceedings to enforce its intellectual property rights, the proceedings could be burdensome and expensive and could involve a high degree of risk. Uncertainty and new regulations relating to the biotechnology or stem cell storage could increase Cryobank's costs of doing business, prevent it from providing its services, slow the growth of its business model or subject it to liability, any of which could adversely affect its business, operating results and prospects. In addition to new laws and regulations being adopted, existing laws may be applied to the stem cell research business. Cryobanks has been in the cryogenic cord blood storage business since 1995, however the company has only recently entered the area of business that is growing the fastest; the related personal storage business. The private umbilical cord banking business is extremely competitive. Consequently, since they are late to the game, the market already has more established companies in an industry where brand name is very important. The three largest companies, Cord Blood Registry (CBR), Viacell, and Cryo-Cell, together have captured nearly 80% of the market, and dozens of other smaller cord blood banking companies offer the same services. These larger companies each have over 80,000 paying customers, are better capitalized, and have a first to market advantage over Cryobanks. Also, Cryobanks competes with the public cord banks such as the New York Blood Center (National Cord Blood Program), University of Colorado Cord Blood Bank, Milan Cord Blood Bank, Düsseldorf Cord Blood Bank, and approximately 50 other cord blood banks around the world. If Cryobanks cannot establish itself as an industry leader, it may be pushed out of the market or consolidated. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 15 of 23 As with most growing public companies, dilution is the key risk factor that should be monitored. It is dilution that may cause a significant depreciation in the stock price over the short and long term. The price and conversion ratios of equity financing or conversion of convertible debentures and associated exercise of warrants must be analyzed as investors look for a market entry points. Cryobanks future capital requirements depend on a number of factors, including its ability to grow its revenue. It is possible that Cryobanks may need to raise additional funds sooner than expected in order to fund expansion, develop new and enhance existing, services or acquire complementary businesses or technologies or if its revenues are less or its expenses are greater than is expected. Cryobanks business could suffer if financing is not available when required or is not available on acceptable terms. BioStem business development is substantially dependent on the expertise of its management team and scientific team, the loss of which could materially adversely affect future anticipated results.. The company may not be able to generate or obtain sufficient funds to operate its business, which could harm results, and force the company to curtail or cease planned operations. Most recent financials statements alert to the fact that liquidity is insufficient to support the expansion, research and development plan(s) of BioStem. There can be no assurance the company will be successful in its effort to secure additional for the R&D work, marketing and working capital needs that lie ahead in the coming year. Cryobanks faces an inherent risk of exposure to product liability claims if the use of its products results, or is alleged to result in injury to persons who receive stem cell transplants from core blood supplied by Cryobanks. With respect to product liability claims, Cryobanks maintains product liability insurance. There can be no assurance that such insurance will continue to be available at a reasonable cost, or; if available, will adequately cover the Company's liabilities. If Cryobanks does not have adequate insurance, product liabilities relating to defective products could have a material adverse effect on Cryobanks' business, financial condition and results of operations. Other risks include liquidity risk due to the relatively light trading volume of BTEM and its OTCBB listing. BTEM common stock may be subject to large percentage price fluctuations in both directions with relatively low trading volume. If trading activity remains as it is today, it may take days if not weeks to accumulate or sell off a large BTEM position. It is recommended that investors use limit orders when entering trades, and should expect to take a significant loss if they are forced to liquidate unexpectedly to raise capital. Trading in the shares will continue to be subject to major fluctuations for the foreseeable future. The stock is thinly traded at prices around $2.00 and selling of small positions could have a negative impact on the share price in absence of sufficient liquidity. The reverse is true if one or more large investors decide to acquire a block of BioStem shares that would result in demand outstripping supply and result in an upward squeeze in the price given the low liquidity and daily trading volume. As of November 15, 2007, the Company had 175,218,044 outstanding shares of common stock. We caution that historical volume activity on BioStem has been noticeably light, and we are unable to predict the direction of trading volumes over the coming months. Major dilution of common stock can occur if company issues large blocks of common stock or convertible debt is converted or warrants are exercised into common stock that can negatively impact on the value of its shares. NASD and SEC Regulations covering rules on Penny Stocks apply for BioStem. Further details and a more elaborate discussion of risk factors can be found in its future SEC filings of BioStem Inc. submitted to the Commission, particularly its 8-K and 10-QSB filings. Many of the risks associated with an investment in Biostem (BTEM), are highlighted in these filings, and this analyst recommends that investors take the time to read this important information. A BTEM investment exhibits characteristics that are attractive to aggressive growth investors who seek out high return, high-risk investments. Investors of this type often begin taking positions in early stage companies long before these companies are profitable. MANAGEMENT, BOARD OF DIRECTORS & SCIENTIFIC TEAM Dwight C. Brunoehler – Chief Executive Officer, President, Founder & Director Mr. Brunoehler founded Cryobanks in 1993 as a cryocenter focusing on infertility. In 1995, he shifted the Company's focus towards building a bank of donated unrelated umbilical cord blood for transplantation. He has been instrumental in developing the Company's proprietary collection and processing system to aid in the quality and viability of each unit stored. His skills in public relations have allowed Cryobanks International to partner with physicians and hospitals nationwide to provide a vehicle that allows patients to donate their baby's cord blood easily and without confusion. This increased attention has also opened many doors engaging Cryobanks in furthering research involving the benefits of cord blood stem cells. Mr. Brunoehler is an Active Member of the American Society of Hematology, a Founding Member of the International Cord Blood Society, and a member of The Cord Blood Work Group and the finance sub committee of the World Marrow Donor Association. Mr. Brunoehler has lectured in numerous hospitals and universities throughout the country on the subject of cord blood donation. He established the first and only nationwide cord blood donation system. Prior to his work at Cryobanks International, Mr. Brunoehler participated in a wide variety of successful ventures. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 16 of 23 He owned and operated many different businesses as well as serving in executive level positions in marketing, public relations and new product development capacities in both established and start-up companies, including seven years with the Bell system. Honors have included the Florida Public Relations Association's Golden Image Award of Distinction, being a featured speaker at the National Convention of State Delegates, and numerous awards and accolades in both the corporate and civic arenas including March of Dimes Corporate Volunteer of the Year. He is a graduate of the University of Central Florida. Julio Miranda – Chief Financial Officer Julio M. Miranda graduated from the University of Puerto Rico, with a Bachelors Degree in Business Administration majoring in Accounting (Cum Laude) with a minor in Finance. Spanning two decades in the accounting field, Mr. Miranda's career includes senior management positions as Controller, Director for Accounting and Finance and Chief Financial Officer for numerous private companies. He has worked as a senior field auditor, corporate and individual tax preparer and as a senior partner for several independent Certified Public Accounting firms. As an owner and partner with JM Accounting & Associates Accounting Service, providing consulting & business planning services for corporations and individuals, Mr. Miranda has enjoyed business ownership as well. During his time in Central Florida he has served as controller for Proline Billiards Factory and McCroire Group Corporation, with operations in Florida, Georgia and North Carolina. Mr. Miranda was instrumental in the development of the areas first Hispanic Radio station La Mega 88.7 where he served as General Manager and later as Chief Financial Officer. Mr. Miranda is an active member of various professional and cultural organizations focused on the development and promotion of the Hispanic Community in Central Florida. Robert Gravely – Vice-President Marketing Mr. Gravely comes to Cryobanks International with over 20 years of business ownership and management experience. A graduate of Florida State University with a Bachelors degree in marketing with sub-specialization in International Business, his career has been focused in the professional liability insurance field, primarily medical and lawyers malpractice insurance. Mr. Gravely has worked in all aspects of the insurance and reinsurance industry dealing with clients and markets around the world. He has served on numerous insurance agency and company advisory boards assisting in product placement, marketing and branding initiatives. Mr. Gravely joins Cryobanks International as VP of Marketing. Prior to formally joining Cryobanks International, Mr. Gravely participated in the company's early marketing efforts and served on the Board of Directors. He was instrumental in the development of the company's early internet exposure. Donald Hudspeth, MT (ASCP) – International Projects Manager Mr. Hudspeth, a certified Medical Technologist (ASCP) and Licensed Supervisor by the State of Florida in laboratory services, received a Bachelor’s Degree in Clinical Laboratory Sciences from the University of North Carolina at Chapel Hill. Mr. Hudspeth has over 12 years of clinical laboratory experience. At Cryobanks International Mr. Hudspeth manages all International Projects. Mr. Hudspeth trains Medical Professionals worldwide on cord blood processing at the Company’s Florida location. In addition, he travels overseas to assist in the initial setup and implementation of the new facilities. Sara Irrgang – Medical Director Dr. Irrgang received a Bachelor of Science degree in Pharmacy from the University of South Carolina. She attended the Medical College of South Carolina at Charleston where she earned a Medical Doctorate Degree. During the last two years of Medical School, Dr. Irrgang was in the United States Navy 1915 Ensign Program and completed a clerkship at the Naval Hospital at Charleston South Carolina as well as a research clerkship at the Naval Aerospace Institute at Pensacola, Florida. Dr. Irrgang completed her four year Pathology residency at Baylor University Medical Center, and her internship at the University District Hospital, Rio Piedras in San Juan, Puerto Rico. Currently, Dr. Irrgang is Board Certified in Anatomic and Clinical Pathology and licensed in the states of South Carolina, Texas, and Florida and she is an Associate Medical Examiner at the District Nine Medical Examiners Office. Dr. Irrgang is a fellow at numerous organizations including; The College of American Pathologists, National Association of Medical Examiners, Florida Association of Medical Examiners, Seminole County Medical Society, and the Florida Medical Society. Pamela Callaghan, MT (ASCP) – Laboratory Manager Pamela Callaghan, MT (ASCP) has extensive experience in the biotechnology research environment, which has afforded her a clear understanding of the stem cell field. She has over 8 years experience in a clinical laboratory setting, and has experience in project management and systems implementation. Ms. Callaghan is licensed by the State of Florida as a Clinical Laboratory Supervisor in Immunohematology, Hematology, Serology, Clinical Chemistry, and Microbiology as well as a Clinical Laboratory Scientist and is a registered Technologist with the American Society of Clinical Pathologists. She is finishing a PhD in Biomolecular Science at the University of Central Florida's Burnett College of Biomedical Sciences. Ms. Callaghan has completed training to be a FACT (Foundation for the Accreditation of Cellular Therapy) hematopoietic cell laboratory facility inspector. She is a member of the American Society of Clinical Pathology, the Society for Neuroscience, the Neurotrauma Society and the American Association of Blood Banks. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 17 of 23 John R. Edwards, M.D. – Medical Director Dr. John Edwards is currently the Director of the Bone Marrow Transplant Center at the Walt Disney Memorial Cancer Institute at Florida Hospital in Orlando, Florida. He was formerly the Director of Pediatric Bone Marrow Transplantation and Assistant Professor of Pediatrics at Vanderbilt University School of Medicine. Dr. Edwards earned his MD degree from the University of Florida College of Medicine and completed his residency training in pediatrics at the University of California, San Francisco. He completed a fellowship in pediatric hematology/oncology and immunology at the University of California, San Francisco and a fellowship in pediatric hematology/oncology/BMT at the University of Florida. Legna A. Peña – Client Services Supervisor Legna A. Peña serves as the Client Services Supervisor at Cryobanks International. Ms. Peña graduated from the Interamerican University of Puerto Rico with a major in Business Administration with concentration in Management and minor in Marketing. Prior to moving to Florida in 2002, Ms. Peña participated in initial marketing and educational efforts for TRICARE Latin America and Canada at the Naval Base Roosevelt Roads in Puerto Rico where she was a Network Specialist. Peña was the liaison for local hospitals and physicians and helped improve health services provided to military members, their families and veterans. She has worked with several companies including pharmaceuticals, recruiting and insurance continuing her career in the health care industry. Ms. Peña has over twelve years of experience in the customer service field, eight of which have directly involved health care. Tina Sadaat – National Hospital Program Director Mrs. Saadat graduated from Columbia College with a Bachelor of Science degree in Marketing and Management. Mrs. Saadat has over 12 years clinical laboratory experience. At Cryobanks, Mrs. Saadat worked as the Director of Client Services for 4 years, and currently holds the position of the National Hospital Program Director. Zubair Kazi – Chairman Mr. Kazi is the owner of Kazi Food Corporation and KMVI, Inc. Kazi Foods Corporation is the second largest KFC franchisee in the U.S., with over 180 restaurants in 9 states and more than 5,000 employees. KMVI Inc, is a management consulting firm based in St. Thomas. Mr. Kazi's unprecedented experience has earned him international recognition in the business community. US Ambassador Osman Siddique – Director Ambassador M. Osman Siddique combines an outstanding business track record with a powerful understanding of the international business and government environment, gained during a period of service to two U.S. Presidents as an American Ambassador, preceded by a successful career in business, spanning over 25 years. With a commanding international network including key government and business leaders, especially in the United States, the Asia-Pacific Region and the Middle East, he is able to provide a range of advice and assistance to business, boards and non-profits. Ambassador Siddique served as the United States Ambassador to Fiji, Tonga. Nauru and Tuvalu (1999-2001). Prior to his appointment as the United States Ambassador, he was a businessman, entrepreneur and a community leader. He was the chairman and CEO of ITT/Travelogue, a company he founded in Washington, D.C. in 1976. In 1996, Ambassador Siddique also founded International Travel Technologies (ITT) and acquired TravelNet, Inc. of Columbus, Ohio, a premier, technology based T&E Company. He was also the founding member of CorpNet International, a consortium of domestic and international travel management companies, with revenues in excess of $1.5 billion. Other ventures co-founded by Ambassador Siddique were in the areas of banking, real estate and international trade. He has been prominently featured in national magazines and newspapers, among them Forbes, Inc, Success and the Wall Street Journal. Ambassador Siddique received his MBA from Indiana University in 1974. He and his wife, Catherine, have four children. They have been very active and involved in many philanthropic and community based organizations in the greater Washington D.C. area. SCIENTIFIC & MEDICAL ADVISORY BOARD (SAMBA) Cryobanks International relies on a highly acclaimed team of scientists and doctors to provide guidance to its operations and activities. Dr. Sanford Lederman heads a team of nine professionals forming the Company's S.A.M.B.A. Sanford M. Lederman, M.D., F.A.C.O.G. Dr. Sanford Lederman is Chairman of Cryobanks International's SAMBA. He is currently a partner at Brooklyn Women's Health Care in New York. Dr. Lederman is an attending physician at Long Island College Hospital and an Associate Clinical Professor of Obstetrics and Gynecology at State University of New York Downstate in Brooklyn, New York. He was formerly the Chief of Maternal Fetal Medicine at Long Island College Hospital. Dr. Lederman received his MD degree from the Universidad Autonoma de Guadalajara in Mexico and completed his residency at Long Island College Hospital. He completed a fellowship in maternal fetal medicine at Long Beach Memorial Hospital Medical Center in California and the University of California, Irvine. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 18 of 23 Gary J. Schiller, M.D. Dr. Gary Schiller is Vice Chairman of Cryobanks International's SAMBA. He is currently an Associate Professor of Medicine and Director of Leukemia Studies and Leukemia Clinic at the University of California School of Medicine in Los Angeles. Dr. Schiller has served on the editorial board for the Journal of Clinical Oncology and Blood. He received his MD degree from the University of Southern California and completed his residency and fellowship in Hematology/Oncology at the University of California. Elierzer A. Rachmilewitz, M.D. Dr. Eliezer Rachmilewitz is the Director of the Department of Hematology at The Edith Wolfson Medical Center in Holon, Israel. He is the Chairman of the Liaison Committee for the International Society of Hematology. Dr. Rachmilewitz was formerly the Director of Hematology and Professor of Medicine at Hadassah University in Jerusalem, Israel. He was previously the Chairman of the Research Committee at Hadassah University. Dr. Rachmilewitz earned his MD degree from Hebrew University, Hadassah Medical School in Israel. He completed his medical training at Hadassah University, Tufts University, and Albert Einstein Medical School. Benjamin Bonavida, Ph.D. Dr. Bonavida is the Director of the Department of Microbiology and Immunology at the University of California in Los Angeles. He is a member of the American Association for Cancer Research and a member of the UCLA Cancer Center Advisory Committee. Dr. Bonavida received his Ph.D. in immunochemistry from the University of California, Los Angeles and completed a post doctorate fellow in immunochemistry at the Weizman Institute of Science. Elaine Gluckman, M.D., Ph.D. Dr. Eliane Gluckman is the Medical Coordinator for the Department of Hematology/Oncology at Hospital Saint-Louis in Paris, France. She is also the Laboratory Director at Paris University. Dr. Gluckman was a member of the team of physicians that performed the first cord blood stem cell transplant in 1988 on a child with Fanconi's Anemia. Dr. Gluckman is an international instructor on hematology, transplantation, and immunology. She has over 500 scientific publications. Geralyn M. Meny, M.D. Dr. Geralyn Meny is the Medical Director at the American Red Cross, Penn-Jersey Region in Philadelphia, Pennsylvania. Previously, she was the Associate Medical Director of Transfusion Services at the University of Texas, Southwestern Medical Center at Dallas. Dr. Meny received her BS degree in medical technology from the University of Kentucky. She received certification as a medical technologist and a Specialist in Blood Banking from the American Society of Clinical Pathologists and received her MD degree from the University of Texas Southwestern Medical Center at Dallas. Dr. Meny completed a pathology residency at Parkland Memorial Hospital in Dallas. She is board certified by the American Board of Pathology in anatomic and clinical pathology and blood banking/transfusion medicine. Dr. Meny is an American Association of Blood Banks (AABB) assessor and has served as a member of the Hematopoietic Progenitor Cell (HPC) Standards Program Unit, the HPC Accreditation Program Unit, the Accreditation Program Unit and the AABB Certification Committee. Eric S. Sandler, M.D. Dr. Eric Sandler is currently the Chief of Hematology/Oncology for Nemours Children's Clinic at Baptist Hospital in Jacksonville, Florida and is the founding chair of the Pediatric Blood and Marrow Transplant Consortium. He is the former Medical Director of the Bone Marrow Transplant Unit at the Children's Medical Center at Dallas and Assistant Professor of Pediatrics at the University of Texas Southwestern Medical School at Dallas. Dr. Sandler previously served on the Medical Advisory Board for the National Children's Cancer Society and on the Children's Cancer Committee of the Texas Division of the American Cancer Society. Dr. Sadler earned his medical degree from the University of Vermont. He performed his residency training in Pediatrics at the University of California, San Francisco and his fellowship in Pediatric Hematology/ Oncology at the University of Florida. Avi Treves, Ph.D. Dr. Treves is the Executive Director of the Sheba Cancer Research Center, at the Sheba Medical Center in Israel. Dr. Treves has a Ph.D. from the Weizmann Institute of Science and did his post doctorate at Stanford University Medical School. Dr. Treves was the founder and CEO of Gamida-Cell Ltd. and the founder and CEO of Hadasit Ltd., the tech transfer company of the Hadassah Medical Center. He is currently leading several industry and academic R&D programs in stem cell therapy, immunology, and oncology. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 19 of 23 INVESTMENT THESIS AND RECOMMENDATION Our analysis suggests that BioStem Inc. is an interesting speculative play among small-cap companies offering exposure to the investor an unprecedented growth in demand for Cord Blood Stem Cells (CBSCs) in the areas of personal storage, donation, research and for use in transplants. The Company can be considered a direct play on on “The Stem Cell Therapeutic and Research Act of 2005” that came into law, following approval by Congress. This $79 million Bill will establish a national cord blood bank, and will bring media attention and public awareness to the benefits of cord blood and expand CBSC inventories in the US. Cryobanks is one of only 15 cord blood banks in the National Marrow Donor Program Network (NMDP), and expects to benefit directly from this ground breaking legislation. BioStem, Inc. (BTEM) is a company who is in process of acquiring Cryobanks International Inc. (CII). CII is a leader in the collection, processing, and banking of stem cells derived from the umbilical cord (CBSCs) immediately after birth. The units of cord blood (CB) are processed and stored CII for use in unrelated transplants (where the donor is a histo-compatible match, but is anonymous and unrelated to the recipient) and for personal storage and use. Cryobanks International, Inc., a pioneer in the collection, isolation, and storage technologies for cord blood stem cells. CII’s mission is to become the largest provider of cord blood stem cells (CBSCs) for transplant and research purposes in the world. In recent years, cord blood transplants (CBTs) have become widely recognized as a safe, effective, and in many ways preferable, alternative to bone marrow transplants (BMT). There is tremendous potential need for CBTs in the United States and worldwide. Based on company estimates, demand may be as much as 35,000 transplants per year in the U.S. alone. Cryobanks International is well poised to help meet that need, equipped with an inventory of over 9,700 (CB) cord blood units. Cryobanks International, Inc. is the only Cord Blood Bank accepting donated Cord Blood Units nationwide year round, 24 hrs/day, 7days of the week. The cryogenic storage of umbilical cord blood in liquid nitrogen is a relatively new industry, and it is just starting to gain some traction with market leaders experiencing a top line year over year quarterly growth rate from 17%- 27%. This growth can be attributed to the increasing public awareness of cord blood storage, and the media’s coverage of successful developments with stem cells in the medical community. Expecting parents consider paying for personal storage, and view it as a type of insurance policy against future unknown events. This business offers a great opportunity for investors looking for growth potential; research has determined that only 3% of birthing parents are currently banking cord blood. There are approximately 4 million childbirths each year in the United States alone; hence the potential for further market penetration and growth is considerable. In addition, growth will be global; countries throughout the world are starting to establish both public and private cord blood banks. Sweden recently announced plans to establish a national cord blood bank, and over 25 different countries throughout the world have at least 1 cord blood bank. There are a total of about 750,000 cord blood units stored in the United States. Public banks hold less than 12% or about 60,000 CBUs. In the personal storage business, most companies charge an initial 1st year collection and processing fee of in between $1300 - $2,000, and annual storage fees between $100 and $150 per year. This brings the current annuity to approximately $37,500,000. Once considered medical waste, cord blood is a non- controversial source of stem cells, since it does not involve the use or destruction of an embryo or fetal tissue. Competing companies in the related cord blood storage business are experiencing quarterly sales growth between 17% and 27% year over year, in a growing U.S. market where only 3% of birthing parents are choosing personal storage. Industry experts estimate that the initial target U.S. market is about 30% of the 4-million births/1.2 million potential customers per year. Studies have shown that in most cases if the parents can afford to store the cord blood, they will decide to store it. As a result cord blood banks are now offering more flexible payment options to attract additional customers. Cryobanks’ prices are some of the most inexpensive compared to its peers, which should help the company gain significant market share. The ultimate success of current and future cell therapies is dependent on the availability of a rich and abundant source of stem cells. The cord blood banking industry is set to grow significantly due to several factors including the public’s increased awareness about the availability and benefits of preserving cord blood; the growing number of endorsements by the medical community, and further advances in cell therapy applications. The financial risk involved in investing in a young biotechnology company in the Cord Blood Stem Cell business is typically high and should be considered by investors. In this case the risks are tied to the efficacy of BioStem’s strategy to license its cord stem cell procedures and the speed and efficacy of this global roll-out of this technology with new licensees. The Company may also not achieve its targets due to the competition it faces in many of its markets from larger better-capitalized rivals. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 20 of 23 Cryobanks has two categories of competitors. The first category is the personal storage for fee business. Even though Cryobanks believes that the prices it charges for the storage of cord blood are competitive with other companies, it may not be able to realize its targeted numbers for new personal storage business. Another category of competition in the cord blood arena is the collection of unrelated donated units (donations not from relatives), at no charge to the donor. Cryobanks invests its own capital to process these units. The units are then placed on international registries with the expectation that these units will be selected for transplant. If a unit is selected for transplant, Cryobanks will receive approximately $20,000 as reimbursement for each transplantable CB unit. Not every unit donated will be selected for transplant and a facility must have a large inventory, estimated at 20,000 or greater, in order to have sales at a rate of 10 percent. The largest existing inventory is at the New York Blood Center - with approximately 16,000 stored and registered units of which over approximately 1,700 have already been used for transplant. The competing facilities in this category are hospitals and universities that are primarily funded through private or government grants. Historically, processing costs are high and efficiencies are low resulting in the failure or constant start-up/shut- down of their operations. There are other risks associated with penetrating the market with this new technology for storing cord blood stem cells which is viewed as a form of insurance in instances where people opt to store these blood cells at childbirth for future medical needs, and investors should realize that the market is still in its infancy on a worldwide basis. Herein lies the inherent risk that this technology may be replaced or challenged by a rival medical discovery at some future date, or if no viable and economic alternatives prevail, investors will likely reap benefits from a major expansion in both private and public worldwide CBSC inventories. Marketing and capital expenditures and such factors can compound over time and result in full cash burn of all capital raised without deriving the intended economic benefit, sales or intellectual property that holds value for shareholders. Readers should understand that there can be no assurance that the company will be able to fast- track its intended path towards development and commercialization of this cord blood stem cell technologies that will flow through directly to the top and or bottom line to build a consistent longer term profitable track record that will build shareholder value. We therefore only recommend investors that have a high tolerance for risk that are able and willing to forfeit either most or all of their capital in search for extraordinary returns, to consider investing in the shares. Also, in our view investors willing to commit capital to BioStem should do so with absolute minimum 2 year investment horizon, but preferably longer, to allow ample opportunity for growth to emerge until broader price discovery can materialize within the investment community that will allow the value behind the current business plan and intellectual property to be unlocked once licensing agreements are closed and completed and the company can advance its drive towards becoming the largest provider of cord blood stem cells (CBSCs) for transplant and research purposes in the world. Cryobanks International, Inc. (CII) continues to exhibit record growth. With over 15,000 cord blood units processed and 9,700 listed on international registries for transplant, CII continues its push to help close the gap between patient needs and available resources of donated cord blood. Over 35,000 American children and adults with life-threatening illnesses find themselves in need of a transplant each year. That number grows to more than 150,000 annually worldwide. According to Cryobanks' CEO, Dwight Brunoehler, as much as 80% of all the cord blood units donated and collected do not meet the rigid transplant standards. A variety of reasons including low volume, low viability, incomplete paperwork and positive bacterial fungal culturing can restrict the use of the cord blood for transplant. In Cryobanks' case, units that are not acceptable for transplant may be used to advance research in the field. Cryobanks' policy of furnishing cord blood research units to qualified institutions is predicated on the units being used for non-controversial and non-cosmetic purposes. We believe the fact that the Company subscribes and practices such high standards could ultimately lead to to more clinics and centers acting as future licensees and allow BTEM to gain market share over its rivals. Short term we expect some volatility in the price-action of BTEM shares to occur as the stock establishes a trading range. Once company releases news of new licensing or distribution deals struck or licensing revenues generated from new facilities opening to conduct in CBSC personal storage, transplant and research work and or it provides positive updates of meaningful progress in its present units processed at existing centers, it should transpire as a positive catalyst for the stock. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 21 of 23 In the near term a major risk factor of delays in receipt of additional funding to the count of at least $10,000,000 for its Merger Plan with CII to close has now been addressed with the recent Convertible Debenture deal , should no longer hinder further improvement in the rating of the shares and this past headwind has now been removed. It is generally very challenging to use traditional methods based on historic data to make a valuation call on biotechnology related securities, in particular at this early stage in the company’s life cycle, but we have relied on some revenue projections for year 1 and year 2 taken from pro-forma financial data, and some peer comparatives and margin assumptions to derive a ‘fair value’ of what BioStem may be realistically worth. Despite the risk associated with the development of this industry that is highly sensitive to regulatory actions and reliant on federal funding support, we know from other biotechnology cases that similar young biotechnology companies are assigned values for its intellectual property, and that those values typically fluctuate wildly on the back of press releases about progress or lack thereof of clinical trial data and units processed or licensing revenue generated etc. Our screening shows that names in the biotech industry that have entered a company life cycle phase where they are able to report positive EPS, generally command historic PE multiples averaging in excess of 30x and Price-to- Sales multiples can reach from as low as 3x to 7 or 8x revenues. PE multiples assigned to fast growing companies in the CBSCs space is also likely to be this vicinity at a considerable premium to the overall market PE of around 17x for S&P 500 index. There are over 30 different private and public cord blood banks that compete in certain aspects of Cryobanks businesses. Several public companies can be evaluated for comparison purposes. Current Qtrly Revenue Ticker Price to Sales Revenues (ttm) Ratio Growth (yoy) CBAI.OB 1.83 $ 1.68 million 0.06 27.40% VIAC 3.83 $ 54.4 million 3.6 17.60% CCEL.OB 1.43 $ 17.18 million 1.6 16.80% Although these Company’s generate sales from the collection and processing of umbilical cord blood, most are not structured to generate revenues from several distinct divisions. Most of these companies are one dimensional and exclusively dedicated to the personal storage business. Viacell Inc. (NASDAQ: VIAC) has a market capitalization of approximately $211 million and has experienced double digit year over year sales growth in the cord blood processing and storage business through its Viacord subsidiary. Viacell posted quarterly sales for the period ending 9/30/2005 of $11,690,000 up 17.6% from $9,938,000 in ’04. Quarter over quarter sales was up 2.7% from the ’05 June quarter sales number of $11,383,000. For the quarter ending 9/30/2005 Viacell posted $61.5 million in cash and had $63 million in working capital with 38,352,967 shares outstanding. The company raised $63 million in an IPO in January of 2005 @ $7.00 per share. VIAC does not hold the Pharmastem license. Cryo-Cell International, Inc. (OTCBB:CCEL), is another publicly traded company whose main business operations are the storage and processing of cord blood stem cells. This company, like BioStem trades on the OTC Bulletin Board. For the quarter ending 8/31/05, the company posted $6.69 million in cash, $4.84 million in working capital with 11,624,629 shares outstanding for market cap of approximately $24.6 million. For last quarter, Cryo- Cell increased its revenues to $3,772,135, 18% over the level in the 2004 period, and achieved net income of approximately $892,000. CCEL does not hold the Pharmastem license. The third company is Cord Blood America, Inc. (OTCBB: CBAI), which also trades on the OTC BB and is concentrated only on the personal storage business. This company began operations in 2003, and is a customer acquisition company with complimentary advertising divisions. Unlike Cryobanks, CBAI outsources all the cord blood testing, processing and storage and cannot benefit from other areas of the industry such as non-related transplants, research, or the licensing of its technology. The stock is trading at approximately $0.10 and reported approximately 39,733,765 shares outstanding as of November 2005. With a market cap of approximately $4 million, the company is the smallest based on market capitalization. CBAI began operations in 2003, and completed a reverse merger in April 2004. They reported $1,945,289 in cash, and for the nine months ended September 2005, revenues topped 1,895,595 up from 957,308 in the same period 2004. CBAI also holds the Pharmastem license. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 22 of 23 It is also important to note that these and several competing companies are involved in litigation with PharmaStem Therapeutics regarding the infringement of U.S. Patents No. 5,004,681 and No. 5,192,553, relating to collection, cryopreservation and storage of stem cells from umbilical cord blood Upcoming judicial decisions may significantly impact these companies’ gross margins and working capital. In contrast, Cryobanks has completed a licensing agreement with Pharmastem for a payment of $275,000, and royalties in the amount of 15% of initial processing fee or $225 for each unit collected; and 15% of all storage fees. Pharmastem also has a 15% right to other stem cell specimens and will benefit from any use of those specimens. This agreement will be nullified in the event that a definitive judgement on the validity of these patents, or expiration which is believed to occur in 2007. We have consulted the pro-forma revenue, expenses and profit figures for FY2006 through FY2008 that are available. These forecasts for FY2007 and FY2008 are shown in the table on page 1 of this report. Assuming the monthly gross sales is achievable and under the current cost assumptions we arrived at net income forecasts for FY2007 and FY2008 for BioStem. These numbers together with net operating margins (%) and earnings per share (EPS) estimates are provided on the table found on the following page (SEE TABLE below). EPS Revenue Net Income Net Oper Forward EPS Forward Discount Present Forecast Estimate Estimate Margin % PE multiple Growth Price Rate (k) Value ($million) ($million) FY 2007 0.023 16.106 4.113 25.5% 40.0 NA 0.94 12.5% FY 2008 0.094 35.796 16.444 45.9% 40.0 301% 3.75 12.5% 3.337 TOTAL 3.3371 Assumptions Beta 2.20 Rm 8.0% k=R f +(R m -R f )*Beta Rf 4.25% k 12.5% Using these numbers in conjunction with a forward PE methodology, where we apply a PE multiple of 40x to our EPS forecast for FY2008, and thereafter discounting at the required rate of return (k) which is a function of the risk-free rate and market rate of return, together with the stock’s beta measure, to obtain present values for the stock price, and ultimately arrive at a valuation framework for BioStem of $3.33. For FY2007 we have calculated an EPS estimate of +2.3c and for FY2008 we estimate EPS to be closer to +9.4c (using the current number of shares outstanding of 175 million) and providing for a 30-35% effective tax rate. Given these calculations and our bottom up analysis, which is also qualitative in nature, we set a 12-month target price for the security of $3.40. Our 12-month target price implies a market capitalization of $570 million (on 175.2 million shares outstanding), representing a price to sales multiple of 15.9x our FY2008 revenue projection of $35.7 million. This price to sales multiple appears demanding in light of its industry peers, but we believe such premium could be justified by its anticipated high rate of revenue growth to transpire in FY2007 through FY2008 and beyond and we believe that this revenue projection for FY2007 of $16.1 million and $35.7 million for FY2008 is certainly attainable, given the potential pervasive applicability of its CBSC technology and the list of licensees scheduled to open in the coming months. Currently CII has 10 licensed affiliates. Two are operational in Athens, Greece and New Delhi, India with construction underway at the United Arab Emirates (UAE) location and newly signed Bangkok location. Six additional locations will open in India over the course of the next 36 months. Additionally, CII has more than 40 locations scheduled to open worldwide over the next few years. BioStem is merging with Cryobanks International, Inc (CII) which is a pioneer in a high growth industry still in its infancy. The Company has strong internationally recognized staff and advisors and operates from state-of -the art facilities. Furthermore its current lines of business are established and profitable. It is a provider of turn-key licensed facility including accreditation. Its donor inventory is already valued at over $3 million at this early juncture with projected 2007 licensing and royalty fees of $14 million* (* Assumes funding of $8-$10 million). Cryobanks also participates is several research projects involving cord blood stem cells and will share in any commercial benefits that these projects may produce in the future. The company received two High Tech Corridor Grants from the State of Florida for investigation of cord blood use in spinal cord repair, and use of cord blood to treat ALS (Lou Gehrig’s disease). The company has a Material Transfer Agreement with Miami Cancer Research Center, and expects an additional 6-12 agreements before the end of 2007. See Appendix A-1 for Analyst Certification and Important Disclosures. Page 23 of 23 When taking into account all of the factors in this report, the risk associated with a developmental stage biotechnology company (as discussed in length in our section on RISK FACTORS) such as BioStem and relative rating to its peers, we initiate coverage on BioStem with a SPECULATIVE BUY rating under the stated assumptions. We however do recognize that the Company is priced at a premium and should growth and results fail to meet expectations for whatever reason, the Company’s stock price can retreat by a large margin. The $9.0 million fund Technology financing deal will put Cryobanks substantially over this prescribed financing condition, and BioStem and Cryobanks will proceed to close the merger as soon as possible. The merger and capital infusion provides Cryobanks the necessary capital to further its international licensing model and bolster market presence as it relates to other existing lines of revenue. BioStem shares are a direct play on “The Stem Cell Therapeutic and Research Act of 2005” that came into law, following approval by Congress. This $US 79 million Bill will establish a national cord blood bank, and will bring media attention and public awareness to the benefits of cord blood and expand CBSC inventories in the US. DISCLAIMER: BIOSTEM INC. DOES NOT AGREE, NOR DISAGREES WITH THE PROJECTIONS AND THE TIME FRAMES DESCRIBED IN THIS DOCUMENT. Risk to our recommendation include amongst other, a slowing in the trend of CBSC transplants in place of bone marrow transplants, failure to attract further large companies willing to enter into licensing agreements for BioStem technology, a slowdown or disruption in its expansion plans due to other regulatory and legislative issues etc. that serve to push out or hinder such efforts, unfavorable terms with research partners or loss of scientific team members, new or additional competition or availability of rival technologies and medical alternatives in the markets as a result of new medical discovery and innovations that may dampen demand for CBSC storage and use. Stronger than anticipated competitive pressures in the markets where BTEM competes and conducts its business, unforeseen regulatory changes impacting adversely on biotechnology efforts with regards to cord blood stem cell research and development, and/or low acceptance of its products by the medical and non- medical community all pose risk to future success of the Company. An additional risk is that, there can be no assurance that the $9.0 million dollar financing described here in will close, or that the merger between BioStem and Cryobanks will close, or that Cryobanks will be able to sell a significant number of its core blood units within a reasonable amount of time, or that Cryobanks will be successful in its licensing, storage, research, or other business models. Also, any inability to obtain necessary financing from capital markets to proceed with its business plan and maintain sufficient working capital and facilities, the loss of intellectual property and patents, which protect its competitive position, the loss of key personnel and or scientists and/or major share dilution that can occur, if large quantities of shares are issued to extinguish debt or paid for services or convertible debt/warrants are either exercised or converted to common stock, inability to obtain positive results from further marketing campaigns, any product liability lawsuits as a result of actual or perceived negative side effects of its technologies/services are some additional factors that will counteract price appreciation potential or cause shares to decline in value. Investors are also urged to read our section on Risk Factors and the additional risks set forth in the Company’s SEC filings. We would caution that given the size of the company (micro-cap) and risks involved, overall we advise private client positions be limited below 5% of the client’s total portfolio size. See Appendix A-1 for Analyst Certification and Important Disclosures. Additional Notes Our rating system, for stocks we rate, is divided into four main classifications: Buy, Positive, Neutral, and Sell/Avoid. Our Buy rating is divided into sub classifications by our analysts to reflect the degree to which the analyst believes the shares are undervalued in relation to the market and its peers, and the degree of financial risk represented by an investment in the shares. These Buy sub classifications include: SPECULATIVE BUY and SPECULATIVE STRONG BUY. The analyst will comment in the company reports on any of the perceived risk factors underlying the assigned rating. Sub Classification Description Classification The current price of the company reflects a substantial discount from the market and from the Speculative valuation accorded its peers. The analyst believes the stock at current levels represents a Strong Buy compelling opportunity for capital gains over the time period to its target price. Speculative means the company does have significant financial or other risks, while the Strong Buy BUY category means at least 100% gain indicated over 12 months between current and Speculative RATINGS analyst target price. Speculative Buy means at least a 50% appreciation indicated over 12 Buy months between current and analysts' target price. The current price reflects a discount from the market, and from its peers. The analyst believes the stock at current levels will provide an opportunity for capital gains over the period of its Speculative POSITIVE target price. Speculative means the company does have significant financial or other risks. Positive Speculative Positive means 0% up to 50% appreciation indicated over 12 months between current and analysts' target price. The analyst is unable to assign a speculative buy/positive rating due to a number of specified factors noted in the report. These include the stock being fairly valued relative to its Neutral peers and the market, or the company may have risks that make it potentially unsuitable for NEUTRAL Rating investment. Finally, there may be actions or financings the company must accomplish before being considered for raising the investment rating or alternatively the stock has little or no recent financial disclosure or delinquent in SEC filings. The analyst believes that the risks of investment in the company are too severe, and an Avoid investment in the company has a substantial probability for loss of all invested capital. SELL/AVOID We believe that the Company may be fairly valued or overvalued based on its current price, Sell and that an investment in the company should produce below market returns. The table below contains a summary of ratings awarded by TRI-STATE CAPITAL to companies in its coverage universe during the past 18 months: SPECULATIVE SPECULATIVE SPECULATIVE SPECULATIVE RATINGS Universe Distribution NEUTRAL POSITIVE BUY STRONG BUY Percentage: 100% 15% 40% 23% 22% TOTAL COMPANIES 60 9 24 14 13 See Appendix A-1 for Analyst Certification and Important Disclosures. Additional Information