Segment Information

3 Months Ended

Mar. 31, 2012

Segment Information

Note 14 – Segment Information

The Company operates in two reportable segments: (i) Cell Therapy — United States; and (ii) Pharmaceutical Manufacturing —China. Effective March 31, 2012, the Company no longer operated in the Regenerative Medicine – China reportable segment, which is now reported in discontinued operations (see Note 15). The Company’s operating businesses are organized based on the nature of markets and customers. The Company’s CEO, as chief operating decision maker, evaluates the results of operations along these reporting segments.

The Company’s financial information broken down by reportable segment was as follows (in thousands):

	Three Months Ended March 31,
	2012			2011
Revenues
Pharmaceutical Manufacturing - China (products)	$	18,284.0		$	18,141.9
Cell Therapy - United States (services)		3,772.8			1,449.1
	$	22,056.8		$	19,591.0
Income (loss) from operations
Pharmaceutical Manufacturing - China	$	1,110.9		$	2,119.5
Cell Therapy - United States		(3,065.6	)		(3,776.0	)
Corporate office		(4,476.8	)		(5,419.1	)
	$	(6,431.5	)	$	(7,075.6	)

Total assets	March 31, 2012		December 31, 2011
Pharmaceutical Manufacturing - China	$	116,405.5	$	106,284.8
Cell Therapy - United States		41,347.1		40,653.1
Corporate office		9,531.7		6,596.4
Assets related to discontinued operations		-		1,793.5
	$	167,284.3	$	155,327.8

The Cell Therapy – United States revenues include approximately $1,106,900 and $489,300 for stem cell related services reimbursed expenses for the three months ended March 31, 2012 and 2011, respectively.

Concentration of Risks

For the three months ended March 31, 2012, three major suppliers provided approximately 38.6% of Erye’s purchases of raw materials with each supplier individually accounting for approximately 14.3%, 12.6% and 11.7%, respectively. As of March 31, 2012, the total accounts payable to the three major suppliers represented 37.7% of the total accounts payable balance.

Approximately 85% of Erye’s revenues are derived from products that use penicillin or cephalosporin as the key active ingredient. These products are manufactured on two of the eight production lines in Erye’s manufacturing facility. Any issues or incidents that might disrupt the manufacturing of products requiring penicillin or cephalosporin could have a material impact on the operating results of Erye. Any interruption or cessation in production could impact market sales.

In March 2011, the National Development and Reform Commission in China issued insurance reimbursement price cuts which impacted two of Erye products. The Company recognizes that there will be continuous pressure on Erye product pricing as a result of such actions.

Statutory Reserves

Pursuant to laws applicable to entities incorporated in the PRC, the PRC subsidiaries are prohibited from distributing their statutory capital and are required to appropriate from PRC GAAP profit after tax to other non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits (i.e., 50% of the registered capital of the relevant company), the general reserve fund requires annual appropriation at 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end); the appropriation to the other funds are at the discretion of the subsidiaries.

The general reserve is used to offset extraordinary losses. Subject to approval by the relevant authorities, a subsidiary may, upon a resolution passed by the shareholders, convert the general reserve into registered capital provided that the remaining general reserve after the conversion shall be at least 25% of the registered capital of the subsidiary before the capital increase as a result of the conversion. The staff welfare and bonus reserve is used for the collective welfare of the employees of the subsidiary. The enterprise expansion reserve is for the expansion of the subsidiary’s operations and can also be converted to registered capital upon a resolution passed by the shareholders subject to approval by the relevant authorities. These reserves represent appropriations of the retained earnings determined in accordance with Chinese law, and are not distributable as cash dividends to the parent company, NeoStem. Statutory reserves are $2,478,000 and $2,488,000 as of March 31, 2012 and December 31, 2011, respectively.

Relevant PRC statutory laws and regulations permit payment of dividends by the Company’s PRC subsidiaries only out of their accumulated earnings, if any, as determined in accordance with PRC accounting standards and regulations. As a result of these PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets either in the form of dividends, loans or advances. The restricted amount was $186,000 at March 31, 2012 and $185,000 at December 31, 2011.