BIOSTEM U.S. CORP - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - BIOSTEM U.S. CORP	Financial_Report.xls
EX-32.1 - CERTIFICATION - BIOSTEM U.S. CORP	biostem_ex321.htm
EX-31.1 - CERTIFICATION - BIOSTEM U.S. CORP	biostem_ex311.htm
EX-31.2 - CERTIFICATION - BIOSTEM U.S. CORP	biostem_ex312.htm
EX-32.2 - CERTIFICATION - BIOSTEM U.S. CORP	biostem_ex322.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31.

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 333-158560

BIOSTEM U.S. CORPORATION

Exact Name of Company as Specified in Its Charter)

Nevada		80-0324801
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer or Organization Identification No.)

13555 Automobile and Umberton Road, Suite 110 Clearwater, FL 33762 (727) 446-5000

(Address of Principal Executive Offices, Company’s Telephone Number)

Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Company is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company.

Large accelerated filer	o	Accelerated filed	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of October 19, 2012, there were 273,365,856 shares of Common Stock of the issuer outstanding.

BIOSTEM U.S. CORPORATION.

Form 10-Q

		page
Part 1	FINANCIAL INFORMATION

Item 1	Financial Statements
	Balance Sheets as of August 31, 2012 and February 29, 2012 (Unaudited)		4
	Statements of Operations for the Three and Six Months Ended August 31, 2012 and 2011 (Unaudited)		5
	Statements of Cash Flows for the Six Months Ended August 31, 2012 and 2011(Unaudited)		6
	Notes to Financial Statements(Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		13

Item 4.T	Controls and Procedures		13

Part II.	OTHER INFORMATION

Item 1	Legal Proceedings		14

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		18

Item 3	Defaults Upon Senior Securities		18

Item 4	Mine Safety Disclosure		18

Item 5	Other Information		18

Item 6	Exhibits		18

FORWARD LOOKING STATEMENTS

Statements made in this Form 10-Q that are not historical or current facts are forward-looking statements. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. Among the factors that could cause actual results to differ materially from the forward-looking statements are the following: the Company’s ability to obtain necessary capital, the Company’s ability to meet anticipated development timelines, the Company’s ability to protect its proprietary technology and knowhow; the Company’s ability to identify and develop a network of physicians, the Company’s ability to establish a global market, clinical trial results, the Company’s ability to successfully consummate future acquisitions and such other risk factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission, including those filed with this Form 10-Q quarterly report. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

PART I

ITEM 1: FINANCIAL STATEMENTS

BIOSTEM U.S. CORPORATION

Balance Sheets

(Unaudited)

	August 31,			February 29,
	2012			2012

ASSETS
Current assets
Cash	$	1,360		$	4,202
Prepaid		-			11,702
Total current assets		1,360			15,904

Total assets	$	1,360		$	15,904

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities
Accounts payable and accrued expense	$	294,407		$	79,147
Note payable – related party		285,000			-
Advances-third party		7,164			7,164
Advances – related parties		4,007			4,007
Total current liabilities		590,578			90,318

Stockholders’ deficit
Common stock, par value $0.001 authorized 600,000,000 shares,
issued and outstanding 273,365,856 and 280,490,856
as August 31, 2012 and February 28, 2012, respectively		273,366			280,491
Additional paid-in capital		5,688,731			3,191,333
Accumulated deficit		(6,551,315	)		(3,546,238	)
Total stockholders’ deficit		(589,218	)		(74,414	)

Total liabilities and stockholders’ deficit	$	1,360		$	15,904

The accompanying notes are an integral part of the unaudited financial statements

BIOSTEM U.S. CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	August 31,						August 31
	2012			2011			2012			2011
Revenue	$	120		$	5,736		$	744		$	93,406
Cost of goods sold		423			54			423			38,489
Gross profit		(303	)		5,682			321			54,917
Selling, general and
administrative expenses		2,114,402			1,298,807			2,998,763			1,510,837

Loss from operations		(2,114,705	)		(1,293,125	)		(2,998,442	)		(1,455,920	)

Other income(expense)
Interest income		1			-			9			--
Interest expense		(6,644	)					(6,644	)
Total other income(expense)		(6,643	)		-			(6,635	)		--

Net loss	$	(2,121,348	)	$	(1,293,125	)	$	( 3,005,077	)	$	(1,455,920	)
Loss per common share Basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)

Weighted average number of common shares outstanding		280,529,986			150,844,788			280,510,421			331,084,788

The accompanying notes are an integral part of the unaudited financial statements

BIOSTEM U.S. CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months
	Ended August 31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(3,005,077	)	$	(1,455,920	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		2,475,273			1,068,160
Changes in operating assets and liabilities:
Inventory		-			323
Prepaid		11,702			--
Accounts payable and accrued expense		215,260			20,201

Net cash used in operating activities		(302,842	)		(367,236	)

Cash flows from financing activities:
Sale of common stock		15,000			126,000
Notes payable – related parties		285,000			-

Net cash provided by financing activities		300,000			126,000

Net increase(decrease)in cash		(2,842	)		(241,236	)
Cash at beginning of period		4,202			287,126
Cash at end of period	$	1,360		$	45,890
Supplemental schedule of cash flow information:
Interest paid	$	-		$	--
Income taxes paid	$	-		$	--

Noncash investing and financing

Settlement of accounts payable – related party	$	-		$	(46,899	)
Return of assets – related party	$	-		$	10,500
Common stock returned and cancelled	$	(7,200	)	$	(12,613	)

The accompanying notes are an integral part of the unaudited financial statements

BIOSTEM U.S. CORPORATION

Notes to the Financial Statements

(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION

The Company was incorporated as Equinox International, Inc. on November 5, 2008 in the state of Nevada. The Company acquired from Biostem US LLC, a privately held Florida limited liability company (the “LLC”), certain assets (the “Acquired Assets”) related to hair transplant and hair regrowth procedures (the “Asset Transfer”). Specifically, the Acquired Assets consists of a hair transplant and hair protocols known as the “Biostem Method” that involves the injection of autologous platelet rich plasma containing stem cells from the patient to the scalp of the patient in combination with an oral nutriceutical and the concomitant use of low-level laser therapy, which combination the Company believes helps support the healing of transplant areas and increases the success of the hair transplant and hair regrowth surgery.

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s February 29, 2012 Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end February 29, 2012, as reported on Form 10-K, have been omitted.

NOTE 2- GOING CONCERN

As shown in the accompanying financial statements, Biostem has an accumulated deficit of $6,551,315 as of August 31, 2012 and incurred a net loss of $3,005,077 for the six months ended August 31, 2012. Unless the Company becomes profitable and increases stockholders’ equity, these conditions raise substantial doubt as to Biostem’s ability to continue as a going concern. These financial statements do not include any adjustments that might be necessary if Biostem is unable to continue as a going concern. Biostem continues to review its expense structure, reviewing costs and their reduction to move towards profitability. The Company’s expenses are planned to decrease as a percentage of revenue resulting in profitability and increased stockholders’ equity.

NOTE 3- RELATED PARTY TRANSACTIONS

On March 20, 2012 the Company issued a note to a stockholder for $25,000 which was due on July 20, 2012 and bears interest at 8%.

On March 20, 2012 the Company issued a note to a related party for $60,000 which was due on July 20, 2012 and bears interest at 8%.

On April 18, 2012 the Company issued a note to a related party for $100,000 which was due on August 18, 2012 and bears interest at 8%.

On April 13, 2012 the Company issued a note to a related party for $40,000 which was due on August 13, 2012 and bears interest at 8%.

On July 13, 2012 the Company issued a note to a related party for $60,000 which is due on October 13, 2012 and bears interest at 8%.

On July 5, 2012 the holders of the notes as described above agreed to extend their notes up to 90 days from date of maturity. On September 20,2012 one holder agreed to extend the due date of their notes until at which time the Company was profitable. The Company evaluated the modification and determined that is was not substantial and therefore did not qualify for debt extinguishment.

As of August 31, 2012 the total outstanding of notes payable was $285,000 plus accrued interest of $6,644 for a total of $291,644.

NOTE 4- EQUITY

During the six months August 31, 2012, the Company recognized $800,000 in stock compensation expense related to 1,600,000 shares issued to the CEO in the prior year. The shares vest over the term of the agreement, 36 months.

On July 14, 2011, the Company entered into a Consulting Agreement with NVO, LLC, and issued 12,000,000 shares of restricted common stock to NVO 3,000,000 of which vested immediately on July 14, 2011 and the balance of which vests in 18 monthly installments of 500,000 commencing on January 14, 2012. The 3,000,000 shares which vested on July 14, 2011 were measured and recognized as expense during the quarter ending August 31, 2011, The remaining 9,000,000 shares are measured and expensed at the completion of each month during the remaining 18-month vesting period based on the price of the Company’s stock price during such period, which will result in future expenses that will fluctuate based on the stock price in each future month during the vesting period..

On August 21, 2012 the NVO agreement was amended to completely vest the remaining 5,250,000 of 12 million shares of common stock with a value of $1,005,900 at $0.1916 per share. As of August 31, 2012, all 12 million shares have been vested and for the six months ended August 31, 2012, the company recognized $1,675,273 as stock compensation expense pursuant to the agreement

On July 12, 2012 the Company issued 25,000 shares of common stock for cash with a value of $5,000 at $0.20 per share

On July 14, 2012 the Company issued 50,000 shares of common stock for cash with a value of $10,000 at $0.20 per share.

On August 31, 2012, the CFO, John Satino, and the Company cancelled 7,200,000 million shares issued in prior years.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

On May 8, 2012 the Company signed a consulting agreement with an investor relations firm. The Company paid the firm $5,000 on May 21, 2012 and is committed to pay $5,000 on June 21. 2012 and $5,000 on July 21, 2012 plus any additional expenses approved by the Company. As of August 31, 2012 the outstanding balance due was $5,000.

On May 23, 2012 The Company entered into a stock purchase agreement with Elco Securities Ltd. (“Elco”), pursuant to which the Company agreed to sell to Elco, and Elco agreed to purchase from the Company, 20,000,000 shares of common stock of the Company for an aggregate purchase price of $5,000,000, which amount is payable in six equal monthly installments. The stock purchase agreement provides that the closing of the forgoing transaction will occur on July 1, 2012 or at such other time as the parties may agree.

As of August 31, 2012 none of the shares have been purchased.

On July 1, 2012 the Company signed an affiliate contract with three clinics where the clinics will use the Company’s process in their treatment. The Clinic doctor will also serve as the Medical Director for the Biostem and one of the facilities will be the training center for future Biostem affiliates.

NOTE 6 – SUBSEQUENT EVENT

On October 15, 2012 the Company issued a note to a related party for $20,000 which is due on January 15, 2013 and bears interest at 8% per annum.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Introduction and Business Plan

The Company was incorporated as Equinox International, Inc. on November 5, 2008 in the state of Nevada. The Company acquired from Biostem US LLC, a privately held Florida limited liability company (the “LLC”), certain assets (the “Acquired Assets”) related to hair transplant and hair regrowth procedures (the “Asset Transfer”). Specifically, the Acquired Assets consists of a hair transplant and hair regrowth process and protocols known as the “Biostem Method” that involves the injection of autologous platelet rich plasma containing stem cells from the patient to the scalp of the patient in combination with an oral nutriceutical and the concomitant use of low-level laser therapy, which combination the Company believes helps support the healing of transplant and hair regrowth areas and increases the success of the hair transplant and hair regrowth surgery.

The Company plans to enter into arrangements with other medical providers and to grow its affiliate network throughout the country and eventually in international markets as well. The Company will not provide any medical procedures directly, including hair transplant and hair regrowth, but instead through a network of qualified medical providers, who will perform the medical procedures on their patients, using the Company’s protocols and procedures. It is expected that each such affiliated medical provider, will, among other things: (1) be granted the right to use the Company’s procedures, protocols and trade names and the right to hold itself out as a Biostem provider; (2) receive certain training and ongoing support regarding the Company’s procedure and protocols; (3) be supplied with certain support products, lasers and other equipment necessary to undertake the medical procedures using the Company’s procedures and protocols; and (4) receive the benefit of the Company’s marketing efforts. In consideration thereof, the affiliated medical providers will pay to the Company certain licensing, marketing and leasing fees. In June 2011, the Company hired a new Chief Executive Officer, Dwight Brunoehler, and appointed a new board of directors. Mr. Brunoehler devotes substantially all of his business time and efforts to the Company. Mr. Brunoehler has reviewed the Company’s systems, protocols and processes and renegotiated the Company’s agreements with its former management. The Company has concluded that while the Biostem Method, in the form acquired by the Company, is effective and achieves positive results in hair transplant and hair regrowth, it is unlikely that the Company will be able to patent the current Biostem Method protocols and procedures because, while the current Biostem Method is a unique arrangement and conglomeration of several discrete procedures (such as the use of low-level laser treatments and PRP injections to the affected scalp areas), no individual procedure is novel and each has previously been used in hair transplant and hair regrowth procedures. The Company’s ability to develop a significant network of medical affiliates and its ability to charge those affiliates appropriate marketing and licensing fees could be materially negatively impacted. The Company believes its success in (a) developing a robust network of medical affiliates, (b) developing brand recognition for Biostem services and products and (c) its ability grow its regenerative medicine business depends, in part, on the value, uniqueness, protectability and effectiveness of its processes, procedures and knowhow. As such, the Company is pursuing additional protocols and procedures that could be incorporated into the Biostem Method that would not only continue to improve its effectiveness in hair transplant and hair regrowth and other regenerative procedures, but that also would make it unique and exclusive to the Company, thus allowing it to patent and protect its proprietary property. Until a patent is issued, the Company has been informed that its original Biostem Method can most effectively be protected with confidentiality and other appropriate agreements. The Company has entered into confidentiality or other similar agreements with each of its material suppliers and the other parties who, to its knowledge, have had access to its protocols and procedures, and it intends to continue to enter into such agreements when appropriate and necessary to protect its confidential information. Furthermore, the Company intends to file applications to register its trademark (Biostem) and any new protocols and procedures as they are developed and as cash flow allows.

In addition to expanding and improving its hair regrowth protocols and procedures, the Company also currently is working on (a) studying, exploring and pursuing other regenerative medicine opportunities, (b) protecting its intellectual property through trademark and patent registrations and (c) negotiating the potential acquisition of a non-U.S. healthcare company in the stem cell sciences business. If the Company is successful with the forgoing objectives, the changes to its current products and services could be significant since not only will it have improved its existing products and services, but broadened its product and service offering.

The other regenerative medicine opportunities the Company is exploring include the use of nano-technology in hair transplant and hair regrowth procedures and the use of autologous platelet rich plasma containing stem cells for joint and ligament repair. To the Company’s knowledge, written protocols applying these technologies to these uses do not yet exist. The Company has entered into a letter of intent with an R&D laboratory associated with a major U.S. university and is undertake the testing necessary to enable the Company (using its internal staff and resources as well as the assistance of the laboratory) to develop written protocols to put this technology to use in practical applications for hair transplant and hair regrowth and joint and ligament injections. The forgoing testing is not a clinical trial and the Company is not currently undertaking any clinical trials, including any that would require FDA approval. The Company may license certain technology on which these applications are based from the forgoing university and the parties are in discussion regarding the terms of any such license. The Company intends to pay for the referenced license either with stock of the Company, cash or a combination of both. The Biostem Method does not require FDA approval and doctors providing hair transplant and hair regrowth using the Biostem Method do not require FDA approval to provide such procedures. Furthermore, the Company does not intend, at this time, to license to medical affiliates or to develop or otherwise pursue any products or services that require FDA approval.

To assist the Company with the forgoing business plans and objectives, on July 14, 2011, the Company entered into a Consulting Agreement with NVO, LLC, a California limited liability company, pursuant to which NVO will assist the Company with its business objectives, including (i) identifying, analyzing, structuring and/or negotiating business sales and/or acquisitions, (ii) assisting the Company in its corporate strategies, (iii) assisting the Company in the implementation of its business plan, and (iv) assisting the Company in the negotiation, documentation and closing of strategic alliances, partnerships and joint ventures. In consideration thereof, the Company is making certain cash payments to NVO and issued 12,000,000 shares of restricted common stock to NVO.

In May, 2012 the Company signed an agreement with an Investors Relations Service. The service will be instrumental in communicating with investors about the Company and its achievements. The Company feels the service will be beneficial to both the Company and its investors helping the public to better understand the nature and scope of the Company’s procedures and the market for its procedures.

The Company has engaged a leading marketing and advertising agency to develop and assist in the execution of the communications program for marketing the Company’s process. The agency will develop the plan, create the media and implement it as it is approve by the Company. The plan will target major cities to seek medical affiliates as well as potential patients for those affiliates.

On July 1, 2012 the Company signed an affiliate contract with a leading hair transplant clinic with established locations in three major cities in Florida whereby the clinics will use the Biostem process in it treatment of patients. In addition. one of the clinics will serve as a training facility to train future affiliates that associate with the company. The Company will receive monthly revenue along with the endorsement of one of the leading clinics in the business. Further the medical doctor of the clinic will serve as the Medical Director of Biostem.

The Company has depleted its cash and required significant additional financing to achieve it business plans and objectives. As a result, the Company entered into a stock purchase agreement with Elco Securities Ltd. (“Elco”), pursuant to which the Company agreed to sell to Elco, and Elco agreed to purchase from the Company, 20,000,000 shares of common stock of the Company for an aggregate purchase price of $5,000,000, which amount is payable in six equal monthly installments. As the market price of the Company’s stock is below the agreed offering price of $0.25 per share, the Company has elected to not pursue the stock purchase agreement until a more favorable market price is realized.

The Company’s ability to effectuate its business plans and objectives are subject to various risks. See “Risk Factors.”

RESULTS OF OPERATIONS

During the three and six months period ended August 31, 2012, the Company had revenues of $120 and $744 with cost of goods sold of $423 for both periods, compared to $5,736 and $93,406 revenues with $5,682 and $54,917 in costs of goods sold for the same periods in 2011. The Company’s 2011 revenues consisted of fees received from its sole medical affiliate for the services it provides to him. Additionally, the Company had general and administrative expenses of $2,114,402 and $2,998,763 for the three and six month period ended August 31, 2012 compared to $$1,298,807 and $1,510,837 for the same periods in 2011. The dramatic increase was due to the issuance of stock for services, totaling $1,675,273 during the period ended August 31, 2012. The shares issued were valued monthly over the vesting period or expensed on date of vesting at the closing price for that date. Net loss for the three and six month period ended August 31, 2012 was $2,121,348 and $3,005,077 compared to a net loss of $1,293,125 and $1,455,920 during the same periods in 2011. The increase in net loss also is the result of the additional cost and expenses incurred for consulting and the ongoing implementation of the Company’s business plan.

LIQUIDITY AND CAPITAL RESOURCES

At the six month period ended August 31, 2012, the Company’s current assets were $1,360 and its current liabilities were $590,578, which resulted in negative working capital of $589,218. Stockholders’ deficit was $6,551,315 for the period ended August 31, 2012, compared to a deficit of $3,546,238 as of February 29, 2012. The Company anticipates that its working capital requirements will continue to increase as it implements its business plans, acquires inventory and equipment, undertakes increased marketing and explores other regenerative healthcare opportunities. While the Company is exploring financing options, there can be no assurances that it will be able to obtain additional financing. The Company’s ability to effectuate its business plans and objectives are subject to various risks. See “Risk Factors.”

Cash Flows from Operating Activities

For the six month period ended August 31, 2012 and 2011, net cash flows used in operating activities were $302,842 in 2012 and $367,236, respectively. The increase is the result of the additional cost and expenses incurred in connection with the ongoing implementation of the Company’s business plan.

Cash Flows from Financing Activities

The Company issued notes to two related parties totaling $285,000 during the six month period ended August 31, 2012.

The Company issued 70,000 shares of common stock for cash with a value of $15,000

For the six month period ending August 31, 2012, net cash provided by financing activities was $300,000 compared to $126,000 for the same period in 2011.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required under this Item.

ITEM 4: CONTROLS AND PROCEDURES

This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 under the Securities Exchange Act of 1934 (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this report, our management, under the supervision and with participation of our Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2012. Based on that evaluation, our management concluded that there is a material weakness in our disclosure controls and procedures over financial reporting. The material weakness results from a lack of written procedures which effectively documents the proper procedures and descriptions of the duties of all persons involved in the disclosure controls of the Company. The Company hopes to implement plans to document the procedures and internal controls of the Company. A material weakness is a deficiency, or a combination of control deficiencies, in disclosure control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. This does not include an evaluation by the Company’s registered public accounting firm regarding the Company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our first quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management believes that the Unaudited Financial Statements included herein present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods presented.

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

None

RISKS RELATED TO OUR BUSINESS:

The Company has a limited operating history upon which you can evaluate its business and its business model continues to evolve.

The Company’s past operating history may not provide an adequate gauge of its potential for growth and future profitability. The limited amount of information about the Company makes it more difficult for you to predict whether or not the Company will be successful. You should evaluate the Company’s chances of financial and operational success in light of the risks, uncertainties, expenses, delays and difficulties associated with starting a new business, many of which may be beyond the Company’s control. In addition to the uncertainties involved in developing, managing and maintaining a business of the type proposed by the Company, there are a number of other risk factors customarily associated with the commencement of any new business that can reduce the funds available for the initial operations of the enterprise. In the event of cost overruns or in the event those other contingencies arise, the Company may require additional capital or financing, which may not be available on terms acceptable to the Company or at all.

To date, the Company has only incurred losses and it is expected it will continue to incur losses in the immediate future and it currently has depleted its cash reserves, which raise significant doubt about its ability to continue as a going concern.

The Company has incurred losses since inception and has depleted its cash reserves. Additionally, the Company recently has suspended its hair transplant and hair regrowth marketing efforts, which saves cash but also is expected to materially negatively impact its revenues. The Company will require significant funds to develop and implement its business plans. All these facts raise significant doubts about the Company’s ability to continue as a going concern.

The Company has issued shares to a consultant which could have a material negative impact on its income from continuing operations.

As discussed above, on July 14, 2011, the Company entered into a one-year Consulting Agreement with NVO, LLC, pursuant to which the Company is making certain cash payments to NVO and has issued 12,000,000 shares of restricted common stock to NVO, 3,000,000 of which vested immediately on July 14, 2011 and the balance of which vests in 18 monthly installments of 500,000 commencing on January 14, 2011. The 3,000,000 shares which have vested were measured and recognized as expense during the quarter ending August 31, 2011, resulting in an expense of $750,000. The remaining 9,000,000 shares have been expensed as of August 31, 2012 for a total amount of $1,675,273.

Unfavorable general economic conditions could negatively impact our operating results and financial condition.

While it is often difficult to predict the impact of general economic conditions on our business, these conditions could adversely affect the demand for our products and services. Generally, these products and services are not covered by health insurance or Medicare or Medicaid and, accordingly, customers and patients must pay for them with cash. Accordingly, a decline in the economy, or even a perceived or anticipated decline, could cause a decline in the demand for those products and services.

We will incur additional expenses as a result of being a reporting public company, which may further strain our limited resources.

We expect to continue to incur significant expenses as a result of being a reporting company, including increased legal and accounting expenses and expenses incurred in complying with the internal controls requirements of the Sarbanes Oxley Act. Currently, the Company estimates that the total amount of these additional expenses approximates $250,000. Our failure to generate sufficient revenue and gross profit could result in reduced profits or increased losses as a result of the additional expenses.

The Company may not be able to protect its processes, procedures and knowhow and the worth of such processes, procedures and knowhow is uncertain.

The Company has not attempted to register its trademark (Biostem) and it does not believe it can receive patent protection on its current Biostem Method processes, procedures and knowhow for the reasons discussed in Section 1 above. As a result, the Company may not be able to enjoin or otherwise restrict the ability of any other person from using intellectual property, procedures or knowhow that are the same or similar to those of the Company, which may limit the Company’s ability to develop its network of medical affiliates and negatively impact its revenues.

Our growth strategy is dependent in part on developing a network of affiliated medical providers.

While the Company intends to sell certain products directly to consumers and hair transplant and hair regrowth clinics, it will not perform any medical procedures. Instead, the Company intends to market the Biostem procedures and develop a network of qualified medical providers that will perform the procedures on their patients. Accordingly, the Company’s growth and revenues will depend on revenue generated by its affiliated medical providers. Currently the Company does not have any formal agreements with any medical providers. The Company believes its success in (a) developing a robust network of medical affiliates, (b) developing brand recognition for Biostem services and products and (c) its ability grow its hair transplant and hair regrowth business depends, in part, on the value and effectiveness of its hair transplant and hair regrowth processes, procedures and knowhow. As discussed further above, the Company does not believe it can secure patent protection for its current Biostem Method process and protocols.

We are dependent on certain officers of the Company.

Dwight C. Brunoehler, our CEO, is actively engaged in growing and managing our business. The loss of any of Mr. Brunoehler could adversely and materially impact the Company.

Our success depends, in part, on the quality of our products and services.

Our success depends, in part, on the quality of our products and services. If our products and services are found to be defective or unsafe, or if they otherwise fail to meet our medical affiliates’ standards, our relationships with our medical affiliates could suffer, our brand appeal could be diminished, and we could lose market share and/or become subject to liability claims, any of which could result in a material adverse effect on our business, results of operations and financial condition.

We may be subject to various regulations, including health care laws.

The health care industry is highly regulated, with each state and the federal government imposing its own requirements. Among other things, most states prohibit corporations that are not owned exclusively by medical professionals from providing medical services and procedures. Furthermore, most states have laws prohibiting paying or receiving any remuneration, direct or indirect, that is intended to induce referrals for health care products or services. Many states also prohibit “fee-splitting” by medical professionals with any party except other medical professionals in the same professional corporation or practice association. In most cases, these laws apply to the paying of a fee based on a percentage of the practice’s revenues to another person for referring a patient or otherwise generating business, and do not prohibit payment of reasonable compensation for facilities, equipment and other services. The Company intends to comply with all applicable health care regulations on a state-by-state basis, starting with Florida and expanding into other states as the Company grows. With the assistance of health care counsel, before entering a state, the Company will analyze the state rules and regulations and endeavor to structure its financial and business arrangements with medical providers in each state in which the Company operates in a manner that complies with that state’s regulations. Without limiting the forgoing, the Company will only provide such services and support to its medical affiliates, including paid support staff to assist with medical procedures, if allowed by the rules and regulations of such state. This analysis may be expensive and time consuming and the restrictions imposed by applicable laws and regulations may negatively impact the Company’s profitability. Further, there can be no assurance that the regulatory environment in which the Company operates will not change significantly and adversely in the future. Monitoring and compliance with such regulations will increase the operating expenses of the Company.

We are subject to competition.

The Company expects to encounter well-established competitors with substantially greater financial and other resources than the Company. Some of the Company’s competitors have been in existence for a substantially longer period than the Company and may be better established in the markets where the Company may be located.

RISKS RELATING TO OUR COMMON STOCK:

Fluctuations in our operating results and announcements and developments concerning our business affect our stock price.

Our quarterly operating results, the number of stockholders desiring to sell their shares, changes in general economic conditions and the financial markets, the execution of new contracts and the completion of existing agreements and other developments affecting us, could cause the market price of our common stock to fluctuate substantially.

We are not required to meet or maintain any listing standards for our common stock to be quoted on the OTCQB, which could affect our stockholders’ ability to access trading information about our stock.

OTC Markets is separate and distinct from the NASDAQ Stock Market and any national stock exchange, such as the New York Stock Exchange or the American Stock Exchange. Although the OTCQB is a regulated quotation service operated by the OTC Markets that displays real-time quotes, last sales prices, and volume information in over-the-counter (OTC) equity securities like our Common Stock, we are not required to meet or maintain any qualitative or quantitative standards for our Common Stock to be quoted on the OTCBB. Our Common Stock does not presently, and may never; meet the minimum listing standards for listing on the NASDAQ Stock Market or any national securities exchange.

If we cease filing periodic reports with the SEC, the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market would be negatively impacted.

If we cease filing periodic reports with the SEC, it will affect our stockholders’ ability to access trading information about our Common Stock and the Company will no longer qualify for quotation on the OTCQB and will instead be eligible only for quotation on the Pink Sheets, which could negatively impact our stock price and the liquidity of our Common Stock. Companies trading on the OTCQB, such as us, must be current in their SEC reports to maintain price quotation privileges on the OTCQB. The Company currently is not required to file periodic reports with the SEC.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results and stockholders could lose confidence in our financial reporting.

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. This does not include an evaluation by the Company’s registered public accounting firm regarding the Company’s internal control over financial reporting.

The Company has concluded the weakness is a result of a lack of written procedures which effectively document the proper procedures and descriptions of the duties of all persons involved in the internal controls of the Company. The Company hopes to implement plans to document the procedures and internal controls of the Company

Because we may be subject to the “penny stock” rules, you may have difficulty in selling our Common Stock.

Our stock currently is subject to the SEC’s penny stock rules, which impose additional sales practice requirements and restrictions on broker-dealers that sell our stock to persons other than established customers and institutional accredited investors. The application of these rules may affect the ability of broker-dealers to sell our Common Stock and may affect your ability to sell any Common Stock you may own. According to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:

	•	Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
	•	Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
	•	“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
	•	Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
	•	The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

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

On July 12, 2012 the Company issued 25,000 shares of common stock for cash with a value of $5,000 at $0.20 per share

On July 14, 2012 the Company issued 50,000 shares of common stock for cash with a value of $10,000 at $0.20 per share.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4: MINE SAFETY DISCLOSURE

Not Applicable

ITEM 5: OTHER INFORMATION

None

ITEM 6: EXHIBITS

Exhibits:

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

32.1		Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d- 14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

32.2		Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d- 14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

101.INS **		XBRL Instance Document

101.SCH **		XBRL Taxonomy Extension Schema Document

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Biostem U.S. Corporation

Dated: October 19, 2012	By:	/s/ Dwight Brunoehler
		Dwight Brunoehler,
		Chief Executive Officer


Dated: October 19, 2012	By:	/s/ John Satino
		John Satino, Chief Financial Officer

Attached files

BIOSTEM U.S. CORP Reports

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