424b3
Filed pursuant to
Rule 424(b)(3) and Rule 424(c)
Registration
No. 333-170971
April 13, 2011
Prospectus Supplement
No. 1
FIBROCELL SCIENCE,
INC.
10,073,693 Common Stock
This prospectus amends
the prospectus dated February 11, 2011 that related to the resale of our
common stock by certain of our stockholders, or Selling Stockholders, named in
the section of the original prospectus titled “Selling Security
Holders.” The following shares may be offered for resale under this
prospectus: (a) 6,349,200 shares of common stock representing 110% of the
shares underlying the Series A convertible preferred stock, or
Series A Preferred, we issued in October 2009; (b) 1,624,996
shares of common stock underlying Class A warrants issued in the
Series A Preferred offering; (c) 1,624,997 shares of common stock
underlying Class B warrants issued in the Series A Preferred
offering; and (d) 474,500 shares of common stock underlying warrants
issued to the placement agent in the Series A Preferred offering.
Although we will pay
substantially all the expenses incident to the registration of the shares, we
will not receive any proceeds from the sales by the Selling Stockholders. We
will, however, receive proceeds if the warrants are exercised; to the extent we
receive such proceeds, they will be used for working capital purposes..
Our common stock is
presently quoted for trading under the symbol “FCSC” on the
over the counter bulletin board, or OTCBB. On April 11, 2011, the last
sales price of the common stock, as reported on the OTCBB was $0.86 per share.
This prospectus
supplement is being filed to include the information set forth in the Annual
Report on Form 10-K filed on March 30, 2011, which is set forth below.
This prospectus supplement should be read in conjunction with the prospectus
dated February 11, 2011, which is to be delivered with this prospectus
supplement.
Investing in our
common stock is highly speculative and involves a high degree of risk. You
should purchase these securities only if you can afford a complete loss of your
investment. You should carefully consider the risks and uncertainties described
under the heading “Risk Factors” beginning on page 4 of the
original prospectus before making a decision to purchase our common stock.
Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this Prospectus
Supplement No. 1 is April 13, 2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2010
OR
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Fibrocell Science, Inc.
(Exact name of registrant as specified in its Charter.)
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Delaware
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001-31564
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87-0458888 |
(State or other jurisdiction
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(Commission File Number)
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(I.R.S. Employer |
of incorporation)
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Identification No.) |
405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of principal executive offices, including zip code)
(484) 713-6000
(Issuers telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
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Title of Each Class
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Name of Each Exchange on which Registered |
Common Stock, $.001 par value
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Over the Counter Bulletin Board |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for any shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K contained in this form, and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is shell company (as defined in the Exchange Act
Rule 12b-2) Yes o No þ
The aggregate market value of common stock held by non-affiliates of the registrant was $15.3
million as of June 30, 2010, the last business day of the registrants most recently completed
second fiscal quarter. Such aggregate market value was computed by reference to the closing price
of the common stock as reported on the OTC Bulletin Board on June 30, 2010. For purposes of
determining this amount only, the registrant has defined affiliates as including (a) the executive
officers of the registrant as of June 30, 2010 and (b) all directors of the registrant as of June
30, 2010.
Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes þ No o
As of June 30, 2010, issuer had 19,168,831 shares issued and outstanding of common stock, par
value $0.001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2010 Annual Meeting of Stockholders (the Proxy
Statement), to be filed within 120 days of the end of the fiscal year ended December 31, 2010, are
incorporated by reference in Part III hereof. Except with respect to information specifically
incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part
hereof.
TABLE OF CONTENTS
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Part 1
This Annual Report on Form 10-K (including the section regarding Managements Discussion and
Analysis of Financial Condition and Results of Operations) contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to
Fibrocell Science, Inc. and its subsidiaries (referred to as Fibrocell, Company, we, or
our) that is based on managements exercise of business judgment and assumptions made by and
information currently available to management. Although forward-looking statements in this Annual
Report on Form 10-K reflect the good faith judgment of our management, such statements can only be
based on facts and factors currently known by us. Consequently, forward-looking statements are
inherently subject to risks and uncertainties and actual results and outcomes may differ materially
from the results and outcomes discussed in or anticipated by the forward-looking statements. When
used in this document and other documents, releases and reports released by us, the words
anticipate, believe, estimate, expect, intend, the facts suggest and words of similar
import, are intended to identify any forward-looking statements. You should not place undue
reliance on these forward-looking statements. These statements reflect our current view of future
events and are subject to certain risks and uncertainties as noted below. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our
actual results could differ materially from those anticipated in these forward-looking statements.
Actual events, transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. Although we believe that our expectations are
based on reasonable assumptions, we can give no assurance that our expectations will materialize.
Many factors could cause actual results to differ materially from our forward looking statements
including those set forth in Item 1A of this report. Other unknown, unidentified or unpredictable
factors could materially and adversely impact our future results. We undertake no obligation and do
not intend to update, revise or otherwise publicly release any revisions to our forward-looking
statements to reflect events or circumstances after the date hereof or to reflect the occurrence of
any unanticipated events.
We file reports with the Securities and Exchange Commission (SEC or Commission). We make
available on our website (www.Fibrocellscience.com) free of charge our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon
as reasonably practicable after we electronically file such materials with or furnish them to the
SEC. Information appearing at our website is not a part of this Annual Report on Form 10-K. You can
also read and copy any materials we file with the Commission at its Public Reference Room at 100 F
Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the Commission
maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the Commission, including
Fibrocell Science.
Our corporate headquarters is located at 405 Eagleview Boulevard, Exton, Pennsylvania 19341.
Our phone number is (484) 713-6000. Our fiscal year begins on January 1, and ends on December 31,
and any references herein to Fiscal 2010 mean the year ended December 31, 2010, and references to
other Fiscal years mean the year ending December 31, of the year indicated.
We own or have rights to various copyrights, trademarks and trade names used in our business
including but not limited to the following: Fibrocell Science, Fibrocell Therapy, Fibrocell Science
Process, Agera and Agera Rx. This report also includes other trademarks, service marks and trade
names of other companies. Other trademarks and trade names appearing in this report are the
property of the holder of such trademarks and trade names.
We obtained statistical data, market data and other industry data and forecasts used in this
Form 10-K from publicly available information. While we believe that the statistical data, industry
data, forecasts and market research are reliable, we have not independently verified the data, and
we do not make any representation as to the accuracy of that information.
Overview
2
We are an aesthetic and therapeutic development stage biotechnology company focused on
developing novel skin and tissue rejuvenation products. Our clinical development product candidates
are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne
and burn scars with a patients own, or autologous, fibroblast cells produced by our proprietary
Fibrocell process. Our clinical development programs encompass both aesthetic and therapeutic
indications. Our most advanced indication is for the treatment of nasolabial folds/wrinkles (United
States adopted name, or USAN, is azficel-T, proposed brand name laViv®) and has completed Phase III
clinical studies, and the related Biologics License Application, or BLA, has been submitted to the
Food and Drug Administration, or FDA. In October 2009, the FDAs Cellular, Tissue and Gene
Therapies Advisory Committee reviewed this indication. On December 21, 2009, Fibrocell received a
Complete Response (CR) letter from the FDA related to the BLA for azficel-T, an autologous cell
therapy for the treatment of moderate to severe nasolabial folds/wrinkles in adults. A Complete
Response letter is issued by the FDAs Center for Biologics Evaluation and Research (CBER) when
the review of a file is completed and additional data are needed prior to approval. The Complete
Response letter requested that Fibrocell Science provide data from a histopathological study on
biopsied tissue samples from patients following injection of azficel-T. The histology study
(IT-H-001) evaluated tissue treated with azficel-T as compared to tissue treated with sterile
saline (placebo). The study also provided information about the skin after treatment, including
evaluation of collagen and elastin fibrils, and cellular structure of the sampled tissues.
On May 13, 2010, we announced the initiation of the small histology study of azficel-T,
discussed above. The study had a target enrollment of approximately 20 participants from the
completed and statistically significant pivotal Phase III studies of azficel-T (IT-R-005 and
IT-R-006). We announced on July 8, 2010, the completion of enrollment of and first treatment visits
for participants in its histology study of azficel-T. The second treatment visits for participants
enrolled in the histology study of azficel-T were completed by the end of July. The third treatment
visits for participants enrolled in the histology study of azficel-T were completed by the end of
August.
The Complete Response letter also requested finalized Chemistry, Manufacturing and Controls
(CMC) information regarding the manufacture of azficel-T as follow-up to discussions that
occurred during the BLA review period, as well as revised policies and procedures.
We announced on December 20, 2010, that we had submitted our complete response to the CR
letter issued by the FDA regarding our BLA for azficel-T. On January 22, 2011, the FDA accepted for
review our complete response submission. Even though the FDA has accepted our response for complete
evaluation, there is no assurance that it will approve our product. The FDA, under the
Prescription Drug User Fee Act (PDUFA), has a target six months review window to completely
evaluate the Companys response. The PDUFA date is June 22, 2011. We announced on March 16, 2011,
that we had submitted a final study report to the FDA for the completed, six-month histological
study examining skin after injections of azficel-T.
During 2009 we completed a Phase II/III study for the treatment of acne scars. During 2008 we
completed our open-label Phase II study related to full face rejuvenation.
We also develop and market an advanced skin care product line through our Agera subsidiary, in
which we acquired a 57% interest in August 2006.
Exit from Bankruptcy
On August 27, 2009, the United States Bankruptcy Court for the District of Delaware in
Wilmington entered an order, or Confirmation Order, confirming the Joint First Amended Plan of
Reorganization dated July 30, 2009, as supplemented by the Plan Supplement dated August 21, 2009,
or the Plan, of Isolagen, Inc. and Isolagens wholly owned subsidiary, Isolagen Technologies, Inc.
The effective date of the Plan was September 3, 2009. Isolagen, Inc. and Isolagen Technologies,
Inc. were subsequently renamed Fibrocell Science, Inc. and Fibrocell Technologies, Inc.,
respectively. Fibrocell now operates outside of the restraints of the bankruptcy process, free of
the debts and liabilities discharged by the Plan.
3
Going Concern
The Successor Company emerged from Bankruptcy in September 2009 and continues to operate as a
going concern. At December 31, 2010, the Successor Company had cash and cash equivalents of
approximately $0.9 million and negative working capital of less than $0.1 million. The Successor
Company has raised approximately $6.1 million less fees as the result of the issuance of Preferred
Stock Series D and warrants in the period from January 1, 2011 through March 1, 2011. The Company
received $0.2 million in subscription receivables from a July financing in mid-March 2011.
As of March 24, 2011, the Company had cash and cash equivalents of approximately $3.4 million
and current liabilities of approximately $0.6 million. The Companys current monthly cash run-rate
is approximately $1.0 million. The Company is also planning to purchase manufacturing equipment and
incur marketing expenditures within the next three months to prepare the Company for launch post a
possible FDA approval. Thus, the Successor Company will need to access the capital markets in the
near future in order to fund future operations. There is no guarantee that any such required
financing will be available on terms satisfactory to the Successor Company or available at all.
These matters create uncertainty relating to its ability to continue as a going concern. The
accompanying consolidated financial statements do not reflect any adjustments relating to the
recoverability and classification of assets or liabilities that might result from the outcome of
these uncertainties.
Further, if the Successor Company raises additional cash resources in the near future, it may
be raised in contemplation of or in connection with bankruptcy. In the event of a bankruptcy, it is
likely that its common stock and common stock equivalents will become worthless and our creditors
will receive significantly less than what is owed to them.
Through December 31, 2010, the Successor Company has been primarily engaged in developing its
initial product technology. In the course of its development activities, the Company has sustained
losses and expects such losses to continue through at least 2011. During the year ended December
31, 2010, the Successor Company financed its operations primarily through its existing cash
received from external equity financings, but as discussed above it now requires additional
financing. There is substantial doubt about the Successor Companys ability to continue as a going
concern.
The Successor Companys ability to complete additional offerings is dependent on the state of
the debt and/or equity markets at the time of any proposed offering, and such markets reception of
the Successor Company and the offering terms. The Successor Companys ability to complete an
offering is also dependent on the status of its FDA regulatory milestones and its clinical trials,
and in particular, the status of its indication for the treatment of nasolabial folds/wrinkles and
the potential approval of the related BLA, which cannot be predicted. There is no assurance that
capital in any form would be available to the Company, and if available, on terms and conditions
that are acceptable.
As a result of the conditions discussed above, and in accordance with GAAP, there exists
substantial doubt about the Successor Companys ability to continue as a going concern, and its
ability to continue as a going concern is contingent, among other things, upon its ability to
secure additional adequate financing or capital in the near future. If the Successor Company does
not obtain additional funding, or does not anticipate additional funding, in the very near future,
it will likely enter into bankruptcy and/or cease operations. Further, if it does raise additional
cash resources in the near future, it may be raised in contemplation of or in connection with
bankruptcy. If the Successor Company enters into bankruptcy, it is likely that its common stock and
common stock equivalents will become worthless and its creditors, including preferred stock, will
receive significantly less than what is owed to them.
4
Fibrocell Sciences Technology Platform
We use our proprietary Fibrocell Science Process to produce an autologous living cell therapy.
We refer to this autologous living cell therapy as the Fibrocell Therapy. We believe this therapy
addresses the normal effects of aging or injury to the skin. Each of our product candidates is
designed to use Fibrocell Therapy to treat an indicated condition. We use our Fibrocell Science
Process to harvest autologous fibroblasts from a small skin punch biopsy from behind the ear with
the use of a local anesthetic. We chose this location both because of limited exposure to the
sun and to avoid creating a visible scar. In the case of our dental product candidate, the
biopsy is taken from the patients palette. The biopsy is then packed in a vial in a special
shipping container and shipped to our laboratory where the fibroblast cells are released from the
biopsy and initiated into our cell culture process where the cells proliferate until they reach the
required cell count. The fibroblasts are then harvested, tested by quality control and released by
quality assurance prior to shipment. The number of cells and the frequency of injections may vary
and will depend on the indication or application being studied.
If and when approved, we expect our product candidates will offer patients their own living
fibroblast cells in a personalized therapy designed to improve the appearance of damaged skin and
wrinkles; or in the case of restrictive burn scars, improve range of motion. Our product candidates
are intended to be a minimally invasive alternative to surgical intervention and a viable natural
alternative to other chemical, synthetic or toxic treatments. We also believe that because our
product candidates are autologous, the risk of an immunological or allergic response is low. With
regard to the therapeutic markets, we believe that our product candidates may address an
insufficiently met medical need for the treatment of each of restrictive burn scars, acne scars and
dental papillary insufficiency, or gum recession, and potentially help patients avoid surgical
intervention. Certain of our product candidates are still in clinical development and, as such,
benefits we expect to see associated with our product candidates may not be validated in our
clinical trials. In addition, disadvantages of our product candidates may become known in the
future.
Our Strategy
Our business strategy is primarily focused on our approval efforts related to our nasolabial
folds/wrinkles indication, for which we have submitted our response to the FDAs Complete Response
letter and have a PDUFA date of June 22, 2011. Our additional objectives include achieving
regulatory milestones related to our other Phase II/III Acne Scar program and potentially pursuing
other clinical trials in burn scarring, vocal scarring and the dental arena, as funding permits in
the future. Refer to Clinical Development Programs below for current status.
Trading of Common Stock
The Predecessors common stock ceased trading on the NYSE Amex on May 6, 2009 and in
June 2009 the NYSE Amex delisted the Predecessors common stock from listing on the NYSE Amex.
Upon the Effective Date, the outstanding common stock of the Predecessor Company was cancelled for
no consideration. Consequently, the Predecessors stockholders prior to the Effective Date no
longer have any interest as stockholders of the Predecessor Company by virtue of their ownership of
the Predecessors common stock prior to the emergence from bankruptcy. On October 21, 2009, the
Successor Company was available for trading on the OTC Bulletin Board under the symbol FCSC.
Clinical Development Programs
Our product development programs are focused on the aesthetic and therapeutic markets. These
programs are supported by a number of clinical trial programs at various stages of development.
Our aesthetics development programs include product candidates to treat nasolabial
folds/wrinkles and to provide full-face rejuvenation that includes the improvement of fine lines,
wrinkles, skin texture and appearance. Our therapeutic development programs are designed to treat
acne scars, restrictive burn scars and dental papillary recession. All of our product candidates
are non-surgical and minimally invasive. Although the discussions below may include estimates of
when we expect trials to be completed, the prediction of when a clinical trial will be completed is
subject to a number of factors and uncertainties. Also, please refer to Part I, Item 1A of our Form
10-K for the year ended December 31, 2010, for a discussion of certain of our risk factors related
to our clinical development programs, as well as other risk factors related to our business.
5
Aesthetic Development Programs
Nasolabial Folds/Wrinkles Phase III Trials: In October 2006, we reached an agreement
with the FDA, on the design of a Phase III pivotal study protocol for the treatment of nasolabial
folds/wrinkles (lines which run from the sides of the nose to the corners of the mouth). The
randomized, double-blind protocol was submitted to the FDA
under the agencys Special Protocol Assessment, or SPA. Pursuant to this assessment process,
the FDA has agreed that our study design for two identical trials, including subject numbers,
clinical endpoints, and statistical analyses, is adequate to provide the necessary data that,
depending on the outcome, could form the basis of an efficacy claim for a marketing application.
The pivotal Phase III trials evaluated the efficacy and safety of our Fibrocell therapy (USAN name
- azficel-T) against placebo in approximately 400 subjects total with approximately 200 subjects
enrolled in each trial. The injections were completed in January 2008 and the trial data results
were disclosed in October 2008. The Phase III trial data results indicated statistically
significant efficacy results for the treatment of nasolabial folds/wrinkles. The Phase III data
analysis, including safety results, was disclosed in October 2008. We submitted the related BLA to
the FDA in March 2009. In May 2009, the FDA accepted our BLA submission for filing. On October 9,
2009, the FDAs Cellular, Tissue and Gene Therapies Advisory Committee reviewed azficel-T. The
committee voted 11 yes to 3 no that the data presented on azficel-T demonstrated efficacy, and
6 yes to 8 no that the data demonstrated safety, both for the proposed indication. A Complete
Response letter is issued by the FDAs CBER when the review of a file is completed and additional
data are needed prior to approval. On December 21, 2009, we received a Complete Response letter
from the FDA related to the BLA for azficel-T. The Complete Response letter requested that we
provide data from a histopathological study on biopsied tissue samples from patients following
injection of azficel-T. The histology study (IT-H-001) evaluated tissue treated with azficel-T as
compared to tissue treated with sterile saline (placebo). The study also provided information about
the skin after treatment, including evaluation of collagen and elastin fibrils, and cellular
structure of the sampled tissues.
On May 13, 2010, we announced the initiation of a small histology study (IT-H-001) of
azficel-T, discussed above. The study had a target enrollment of approximately 20 participants from
the completed and statistically significant pivotal Phase III studies of azficel-T (IT-R-005 and
IT-R-006). We announced on July 8, 2010, the completion of enrollment of and first treatment visits
for participants in our histology study of azficel-T. The second treatment visits for participants
enrolled in the histology study of azficel-T were completed by the end of July. The third treatment
visits for participants enrolled in the histology study of azficel-T were completed by the end of
August.
The Complete Response letter also requested finalized Chemistry, Manufacturing and Controls
(CMC) information regarding the manufacture of azficel-T as follow-up to discussions that
occurred during the BLA review period, as well as revised policies and procedures regarding
shipping practices, and proposed labeling.
We announced on December 20, 2010, that we had submitted our complete response to the Complete
Response (CR) letter issued by the FDA regarding the Companys BLA for azficel-T. On January 22,
2011, the FDA accepted for review the Companys complete response submission for azficel-T. Even
though the FDA has accepted the Companys response for complete evaluation, there is no assurance
that it will approve our product. The FDA, under the Prescription Drug User Fee Act (PDUFA), has
a target six months review window to completely evaluate the Companys response upon acceptance of
the response. The PDUFA date is June 22, 2011. The Company announced on March 16, 2011, that it had
submitted a final study report to the FDA for the completed, six-month histological study examining
skin after injections of azficel-T.
The United States Adopted Names (USAN) Council adopted the USAN name, azficel-T, on October
28, 2009, and the FDA is currently evaluating a proposed brand name, laViv®.
Full Face Rejuvenation Phase II Trial: In March 2007, the Predecessor Company
commenced an open label (unblinded) trial of approximately 50 subjects. Injections of azficel-T
began to be administered in July 2007. This trial was designed to further evaluate the safety and
use of azficel-T to treat fine lines and wrinkles for the full face. Five investigators across the
United States participated in this trial. The subjects received two series of injections
approximately one month apart. In late December 2007, all 45 remaining subjects completed
injections. The subjects were followed for twelve months following each subjects last injection.
Data results related to this trial were disclosed in August 2008, which included top line positive
efficacy results related to this open label Phase II trial.
Additional safety data from this trial, collected through telephone calls placed to
participating subjects twelve months from the date of their final study treatment, were submitted
to the FDA on November 1, 2009. No changes to the safety profile of azficel-T were identified
during our review of this data.
6
Therapeutic Development Programs
Acne Scars Phase II/III Trial: In November 2007, the Predecessor Company commenced
an acne scar Phase II/III study. This study included approximately 95 subjects. This placebo
controlled trial was designed to evaluate the use of azficel-T to correct or improve the appearance
of acne scars. Each subject served as their own control, receiving azficel-T on one side of their
face and placebo on the other. The subjects received three treatments two weeks apart. The
follow-up and evaluation period was completed four months after each subjects last injection. In
March 2009, the Predecessor Company disclosed certain trial data results, which included
statistically significant efficacy results for the treatment of moderate to severe acne scars.
Compilation of safety data and data related to the validation of the study photo guide assessment
scale discussed below is ongoing and is also subject to additional financing.
In connection with this acne scar program, the Predecessor Company developed a photo guide for
use in the evaluators assessment of acne study subjects. The Predecessor Company had originally
designed the acne scar clinical program as two randomized, double-blind, Phase III,
placebo-controlled trials. However, our evaluator assessment scale and photo guide have not
previously been utilized in a clinical trial. In November 2007, the FDA recommended that the
Predecessor Company consider conducting a Phase II study in order to address certain study issues,
including additional validation related to our evaluator assessment scale. As such, the Predecessor
Company modified our clinical plans to initiate a single Phase II/III trial. This Phase II/III
study, was powered to demonstrate efficacy, and has allowed for a closer assessment of the
evaluator assessment scale and photo guide that is ongoing. The Successor Company submitted on
August 9, 2010, a clinical study report for its Phase II/III study of azficel-T for the treatment
of moderate to severe acne scars to the FDA. The next step is to initiate a discussion with the FDA
concerning the validation of the evaluator assessment scale and agree the path forward. These
steps will be subject to obtaining sufficient financial resources.
Restrictive Burn Scars - Phase II Trial: In January 2007, the Predecessor Company met
with the FDA to discuss our clinical program for the use of azficel-T for restrictive burn scar
patients. This Phase II trial would evaluate the use of azficel-T to improve range of motion,
function and flexibility, among other parameters, in existing restrictive burn scars in
approximately 20 patients. However, the Predecessor Company delayed the screening and enrollment in
this trial until such time as we raise sufficient additional financing and gather additional data
regarding the burn scar market. The development of this program will be subject to obtaining
sufficient financial resources.
Dental Study - Phase II Trial: In late 2003, the Predecessor Company completed a Phase
I clinical trial for the treatment of condition relating to periodontal disease, specifically to
treat Interdental Papillary Insufficiency. In the second quarter of 2005, the Predecessor Company
concluded the Phase II dental clinical trial with the use of azficel-T and subsequently announced
that investigator and subject visual analog scale assessments demonstrated that the azficel-T was
statistically superior to placebo at four months after treatment. Although results of the
investigator and subject assessment demonstrated that the azficel-T was statistically superior to
placebo, an analysis of objective linear measurements did not yield statistically significant
results.
In 2006, the Predecessor Company commenced a Phase II open-label dental trial for the
treatment of Interdental Papillary Insufficiency. This single site study included 11 subjects. All
study treatment and follow up visits were completed, but full analysis of the study was previously
placed on internal hold due to our financial resource constraints. The Company is also currently
reviewing potential other clinical paths in the dental arena.
Agera Skincare Systems
The Successor Company markets and sells a skin care product line through our majority-owned
subsidiary, Agera Laboratories, Inc., which the Predecessor Company acquired in August 2006. Agera
offers a complete line of skincare systems based on a wide array of proprietary formulations,
trademarks and nano-peptide technology. These skincare products can be packaged to offer
anti-aging, anti-pigmentary and acne treatment systems. Agera primarily markets its products in
both the United States and Europe (primarily the United Kingdom).
7
Our Target Market Opportunities
Aesthetic Market Opportunity
Our product candidate for nasolabial folds/wrinkles and full face rejuvenation are directed
primarily at the aesthetic market. Aesthetic procedures have traditionally been performed by
dermatologists, plastic surgeons and other cosmetic surgeons. According to the American Society for
Aesthetic Plastic Surgery, or ASAPS, the total market for non-surgical cosmetic procedures was
approximately $4.5 billion in 2009. We believe the aesthetic procedure market is driven by:
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aging of the baby boomer population, which currently includes ages approximately
46 to 64; |
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the desire of many individuals to improve their appearance; |
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impact of managed care and reimbursement policies on physician economics, which
has motivated physicians to establish or expand the menu of elective, private-pay aesthetic
procedures that they offer; and |
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broadening base of the practitioners performing cosmetic procedures beyond
dermatologists and plastic surgeons to non-traditional providers. |
According to the ASAPS, 10.0 million surgical and non-surgical cosmetic procedures were
performed in 2009, as compared to 10.3 million in 2008. Also according to the ASAPS, approximately
8.5 million non-surgical procedures were performed in 2009 and 2008. We believe that the concept of
non-surgical cosmetic procedures involving injectable materials has become more mainstream and
accepted. According to the ASAPS, the following table shows the top five non-surgical cosmetic
procedures performed in 2009:
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Procedure |
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Number |
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Botulinum toxin type A |
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2,557,068 |
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Hyaluronic acid |
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1,313,038 |
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Laser hair removal |
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1,280,031 |
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Microdermabrasion |
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621,943 |
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Chemical peel |
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529,285 |
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Procedures among the 35 to 50 year old age group made up approximately 44% of all cosmetic
procedures in 2009. The 51 to 64 year old age group made up 27% of all cosmetic procedures in 2009,
while the 19 to 34 year old age group made up 20% of cosmetic procedures in 2009. The Botulinum
toxin type A injection was the most popular treatment among the 35 to 50 year old age group.
Therapeutic Market Opportunities
In addition to the aesthetic market, we believe there are opportunities for our Fibrocell
Therapy to treat certain medical conditions such as acne scars, restrictive burn scars and tissue
loss due to papillary recession. Presently, we are studying therapeutic applications of our
technology for acne scars. Indications related to acne scars, restrictive burn scars and
periodontal disease are on internal company hold. We are not aware of other autologous cell-based
treatments for any of these therapeutic applications.
Sales and Marketing
While our Fibrocell Therapy product candidates are still in the pre-approval phase in the
United States, no marketing or sales can occur within the United States. Our Agera skincare
products are primarily sold directly to our established distributors and salons, with historically
and recently very little focus on marketing efforts. We continue to attempt to identify additional
third party distributors for our Agera product line.
Intellectual Property
We believe that patents, trademarks, copyrights, proprietary formulations (related to our
Agera skincare products) and other proprietary rights are important to our business. We also rely
on trade secrets, know-how and continuing technological innovations to develop and maintain our
competitive position. We seek to protect our intellectual property rights by a variety of means,
including obtaining patents, maintaining trade secrets and proprietary
know-how, and technological innovation to operate without infringing on the proprietary rights of
others and to prevent others from infringing on our proprietary rights. Our policy is to seek to
protect our proprietary position by, among other methods, actively seeking patent protection in the
United States and certain foreign countries.
8
As of December 31, 2010, we had 10 issued U.S. patents, 3 pending U.S. patent applications, 30
granted foreign patents and no pending international patent applications. Our issued patents and
patent applications primarily cover the method of using autologous cell fibroblasts for the repair
of skin and soft tissue defects and the use of autologous fibroblast cells for tissue regeneration.
We are in the process of pursuing several other patent applications.
In January 2003, the Predecessor Company acquired two pending U.S. patent applications. As
consideration, the Predecessor Company issued 100,000 shares of its common stock and agreed to pay
a royalty on revenue from commercial applications and licensing, up to a maximum of $2.0 million.
In August 2006, we acquired 57% of the common stock of Agera Laboratories. Agera has a number
of trade names, trademarks, exclusive proprietary rights to product formulations and specified
peptides that are used in the Agera skincare products.
Our success depends in part on our ability to maintain our proprietary position through
effective patent claims and their enforcement against our competitors, and through the protection
of our trade secrets. Although we believe our patents and patent applications provide a competitive
advantage, the patent positions of companies like ours are generally uncertain and involve complex
legal and factual questions. We do not know whether any of our patent applications or those patent
applications which we have acquired will result in the issuance of any patents. Our issued patents,
those that may be issued in the future or those acquired by us, may be challenged, invalidated or
circumvented, and the rights granted under any issued patent may not provide us with proprietary
protection or competitive advantages against competitors with similar technology. In particular, we
do not know if competitors will be able to design variations on our treatment methods to circumvent
our current and anticipated patent claims. Furthermore, competitors may independently develop
similar technologies or duplicate any technology developed by us. Because of the extensive time
required for the development, testing and regulatory review of a potential product, it is possible
that, before any of our products can be commercialized or marketed, any related patent claim may
expire or remain in force for only a short period following commercialization, thereby reducing the
advantage of the patent.
We also rely upon trade secrets, confidentiality agreements, proprietary know-how and
continuing technological innovation to remain competitive, especially where we do not believe
patent protection is appropriate or obtainable. We continue to seek ways to protect our proprietary
technology and trade secrets, including entering into confidentiality or license agreements with
our employees and consultants, and controlling access to and distribution of our technologies and
other proprietary information. While we use these and other reasonable security measures to protect
our trade secrets, our employees or consultants may unintentionally or willfully disclose our
proprietary information to competitors.
Our commercial success will depend in part on our ability to operate without infringing upon
the patents and proprietary rights of third parties. It is uncertain whether the issuance of any
third party patents would require us to alter our products or technology, obtain licenses or cease
certain activities. Our failure to obtain a license to technology that we may require to discover,
develop or commercialize our future products may have a material adverse impact on us. One or more
third-party patents or patent applications may conflict with patent applications to which we have
rights. Any such conflict may substantially reduce the coverage of any rights that may issue from
the patent applications to which we have rights. If third parties prepare and file patent
applications in the United States that also claim technology to which we have rights, we may have
to participate in interference proceedings in the United States Patent and Trademark Office to
determine priority of invention.
We have collaborated and may collaborate in the future with other entities on research,
development and commercialization activities. Disputes may arise about inventorship and
corresponding rights in know-how and inventions resulting from the joint creation or use of
intellectual property by us and our subsidiaries, collaborators, partners, licensors and
consultants. As a result, we may not be able to maintain our proprietary position.
9
Competition
The pharmaceutical and dermal aesthetics industries are characterized by intense competition,
rapid product development and technological change. Competition is intense among manufacturers of
prescription pharmaceuticals and dermal injection products. Our core products are considered dermal
injection products.
If certain of our product candidates are approved, we will compete with a variety of companies
in the dermatology and plastic surgery markets, many of which offer substantially different
treatments for similar problems. These include silicone injections, laser procedures, facial
surgical procedures, such as facelifts and eyelid surgeries, fat injections, dermabrasion,
collagen, allogenic cell therapies, hyaluronic acid injections and Botulinum toxin injections, and
other dermal fillers. Indirect competition comes from facial care treatment products. Items
catering to the growing demand for therapeutic skin care products include facial scrubs, anti-aging
treatments, tonics, astringents and skin-restoration formulas.
Many of our competitors are large, well-established pharmaceutical, chemical, cosmetic or
health care companies with considerably greater financial, marketing, sales and technical resources
than those available to us. Additionally, many of our present and potential competitors have
research and development capabilities that may allow them to develop new or improved products that
may compete with our product lines. Our products could be rendered obsolete or made uneconomical by
the development of new products to treat the conditions addressed by our products, technological
advances affecting the cost of production, or marketing or pricing actions by one or more of our
competitors. Our facial aesthetics product may compete for a share of the existing market with
numerous products and/or technologies that have become relatively accepted treatments recommended
or prescribed by dermatologists and administered by plastic surgeons and aesthetic dermatologists.
There are several dermal filler products under development and/or in the FDA pipeline for
approval which claim to offer certain facial aesthetic benefits. Depending on the clinical outcomes
of the Fibrocell Therapy trials in aesthetics, the success or failure of gaining approval and the
label granted by the FDA if and when the therapy is approved, the competition for the Fibrocell
Therapy may prove to be direct competition to certain dermal fillers, laser technologies or new
technologies. However, if we gain approval, we believe our Fibrocell Therapy would be a first to
market autologous cellular technology that could complement other modalities of treatment and
represent a significant additional market opportunity.
The field for therapeutic treatments or tissue regeneration for use in wound healing is
rapidly evolving. A number of companies are either developing or selling therapies involving stem
cells, human-based, animal-based or synthetic tissue products. If approved as a therapy for acne
scars, restrictive burn scars or periodontal disease, our product candidates would or may compete
with synthetic, human or animal derived cell or tissue products marketed by companies larger and
better capitalized than us.
The market for skincare products is quite competitive with low barriers to entry.
Government Regulation
Our Fibrocell Therapy technologies are subject to extensive government regulation, principally
by the FDA and state and local authorities in the United States and by comparable agencies in
foreign countries. Governmental authorities in the United States extensively regulate the
pre-clinical and clinical testing, safety, efficacy, research, development, manufacturing,
labeling, storage, record-keeping, advertising, promotion, import, export, marketing and
distribution, among other things, of pharmaceutical products under various federal laws including
the Federal Food, Drug and Cosmetic Act, or FFDCA, the Public Health Service Act, or PHSA, and
under comparable laws by the states and in most foreign countries.
Domestic Regulation
In the United States, the FDA, under the FFDCA, the PHSA, and other federal statutes and
regulations, subjects pharmaceutical and biologic products to rigorous review. If we do not comply
with applicable requirements, we may be fined, the government may refuse to approve our marketing
applications or allow us to manufacture or market our products or product candidates, and we may be
criminally prosecuted. The FDA also has the authority to discontinue or suspend manufacture or
distribution, require a product withdrawal or recall or revoke previously granted
marketing authorizations if we fail to comply with regulatory standards or if we encounter problems
following initial marketing.
10
FDA Approval Process
To obtain approval of a new product from the FDA, we must, among other requirements, submit
data demonstrating the products safety and efficacy as well as detailed information on the
manufacture and composition of the product candidate. In most cases, this entails extensive
laboratory tests and pre-clinical and clinical trials. This testing and the preparation of
necessary applications and processing of those applications by the FDA are expensive and typically
take many years to complete. The FDA may deny our applications or may not act quickly or favorably
in reviewing these applications, and we may encounter significant difficulties or costs in our
efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may
develop. The FDA also may require post-marketing testing and surveillance to monitor the effects of
approved products or place conditions on any approvals that could restrict the commercial
applications of these products. Regulatory authorities may withdraw product approvals if we fail to
comply with regulatory standards or if we encounter problems following initial marketing. With
respect to patented products or technologies, delays imposed by the governmental approval process
may materially reduce the period during which we will have the exclusive right to exploit the
products or technologies.
The FDA does not apply a single regulatory scheme to human tissues and the products derived
from human tissue. On a product-by-product basis, the FDA may regulate such products as drugs,
biologics, or medical devices, in addition to regulating them as human cells, tissues, or cellular
or tissue-based products (HCT/Ps), depending on whether or not the particular product triggers
any of an enumerated list of regulatory factors. A fundamental difference in the treatment of
products under these classifications is that the FDA generally permits HCT/Ps that do not trigger
any of those regulatory factors to be commercially distributed without marketing approval. In
contrast, products that trigger those factors, such as if they are more than minimally manipulated
when processed or manufactured, are regulated as drugs, biologics, or medical devices and require
FDA approval. We have determined that our Fibrocell Therapy (TM) triggers regulatory factors that
make it a biologic, in addition to an HCT/P, and consequently, we must obtain approval from FDA
before marketing Fibrocell Therapy (TM) and must also satisfy all regulatory requirements for
HCT/Ps.
The process required by the FDA before a new drug or biologic may be marketed in the United
States generally involves the following:
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completion of pre-clinical laboratory tests or trials and formulation studies; |
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submission to the FDA of an IND for a new drug or biologic, which must become
effective before human clinical trials may begin; |
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performance of adequate and well-controlled human clinical trials to establish the
safety and efficacy of the proposed drug or biologic for its intended use; |
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detailed information on product characterization and manufacturing process; and |
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submission and approval of a New Drug Application, or NDA, for a drug, or a
Biologics License Application, or BLA, for a biologic. |
Pre-clinical tests include laboratory evaluation of product chemistry formulation and
stability, as well as animal and other studies to evaluate toxicity. In view of the autologous
nature of our product candidates and our prior clinical experience with our product candidates, we
concluded that it was reasonably safe to initiate clinical trials without pre-clinical studies and
that the clinical trials would be adequate to further assess both the safety and efficacy of our
product candidates. Under FDA regulations, the results of any pre-clinical testing, together with
manufacturing information and analytical data, are submitted to the FDA as part of an IND
application. The FDA requires a 30-day waiting period after the filing of each IND application
before clinical trials may begin, in order to ensure that human research subjects will not be
exposed to unreasonable health risks. At any time during this 30-day period or at any time
thereafter, the FDA may halt proposed or ongoing clinical trials, or may authorize trials only on
specified terms. The
IND application process may become extremely costly and substantially delay development of our
products. Moreover, positive results of pre-clinical tests will not necessarily indicate positive
results in clinical trials.
11
The sponsor typically conducts human clinical trials in three sequential phases, which may
overlap. These phases generally include the following:
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Phase I: The product is usually first introduced into healthy humans or, on
occasion, into patients, and is tested for safety, dosage tolerance, absorption,
distribution, excretion and metabolism. |
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Phase II: The product is introduced into a limited subject population to: |
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assess its efficacy in specific, targeted indications; |
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assess dosage tolerance and optimal dosage; and |
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identify possible adverse effects and safety risks. |
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Phase III: These are commonly referred to as pivotal studies. If a product is found
to have an acceptable safety profile and to be potentially effective in Phase II
clinical trials, new clinical trials will be initiated to further demonstrate clinical
efficacy, optimal dosage and safety within an expanded and diverse subject population
at geographically-dispersed clinical study sites. |
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If the FDA does ultimately approve the product, it may require post-marketing
testing, including potentially expensive Phase IV studies, to confirm or further
evaluate its safety and effectiveness. |
Before proceeding with a study, sponsors may seek a written agreement from the FDA regarding
the design, size, and conduct of a clinical trial. This is known as a Special Protocol Assessment,
or SPA. Among other things, SPAs can cover clinical studies for pivotal trials whose data will form
the primary basis to establish a products efficacy. SPAs thus help establish up-front agreement
with the FDA about the adequacy of a clinical trial design to support a regulatory approval, but
the agreement is not binding if new circumstances arise. Even if the FDA agrees to a SPA, the
agreement may be changed by the sponsor or the FDA on written agreement by both parties, or a
senior FDA official determines that a substantial scientific issue essential to determining the
safety or effectiveness of the product was identified after the testing began. There is no
guarantee that a study will ultimately be adequate to support an approval even if the study is
subject to an SPA. The FDA retains significant latitude and discretion in interpreting the terms of
the SPA agreement and the data and results from any study that is the subject of the SPA agreement.
Clinical trials must meet requirements for Institutional Review Board, or IRB, oversight,
patient informed consent and the FDAs Good Clinical Practices. Prior to commencement of each
clinical trial, the sponsor must submit to the FDA a clinical plan, or protocol, accompanied by the
approval of the committee responsible for overseeing clinical trials at the clinical trial sites.
The FDA or the IRB at each institution at which a clinical trial is being performed may order the
temporary or permanent discontinuation of a clinical trial at any time if it believes that the
clinical trial is not being conducted in accordance with FDA requirements or presents an
unacceptable risk to the clinical trial subjects. Data safety monitoring committees, who monitor
certain studies to protect the welfare of study subjects, may also require that a clinical study be
discontinued or modified.
12
The sponsor must submit to the FDA the results of the pre-clinical and clinical trials,
together with, among other things, detailed information on the manufacturing and composition of the
product, and proposed labeling, in the form of an NDA, or, in the case of a biologic, a BLA. The
applicant must also submit with the NDA or BLA a substantial user fee payment, unless a waiver or
reduction applies. On February 17, 2009, the US Small Business Administration issued a letter
formally determining that we are a small business and therefore qualify for the Small Business
Exception to the Prescription Drug and User fee Act of 1992 (21 USC § 379h(b)(2)) related to our
BLA submission for the nasolabial folds/wrinkles indication. For fiscal year 2009, this fee was
$1,247,200 for companies that did not receive an exception. The FDA has advised us it is regulating
our Fibrocell Therapy as a biologic. Therefore, we expect to submit BLAs to obtain approval of our
product candidates. In some cases, we may be able to
expand the indications in an approved BLA through a Prior Approval Supplement. Each NDA or BLA
submitted for FDA approval is usually reviewed for administrative completeness and reviewability
within 45 to 60 days following submission of the application. If deemed complete, the FDA will
file the NDA or BLA, thereby triggering substantive review of the application. The FDA can refuse
to file any NDA or BLA that it deems incomplete or not properly reviewable. Once the submission has
been accepted for filing, the FDA will review the application and will usually respond to the
applicant in accordance with performance goals the FDA has established for the review of NDAs and
BLAs six months from the receipt of the application for priority applications and ten months for
regular applications. The review process is often significantly extended by FDA requests for
additional information, preclinical or clinical studies, clarification, or a risk evaluation and
mitigation strategy, or REMS, or by changes to the application submitted by the applicant in the
form of amendments.
It is possible that our product candidates will not successfully proceed through this approval
process or that the FDA will not approve them in any specific period of time, or at all. The FDA
may deny or delay approval of applications that do not meet applicable regulatory criteria, or if
the FDA determines that the clinical data do not adequately establish the safety and efficacy of
the product. Satisfaction of FDA pre-market approval requirements for a new biologic is a process
that may take a number of years and the actual time required may vary substantially based upon the
type, complexity and novelty of the product or disease. The FDA reviews these applications and,
when and if it decides that adequate data are available to show that the product is both safe and
effective and that other applicable requirements have been met, approves the drug or biologic for
marketing. Government regulation may delay or prevent marketing of potential products for a
considerable period of time and impose costly procedures upon our activities. Success in early
stage clinical trials does not assure success in later stage clinical trials. Data obtained from
clinical activities is not always conclusive and may be susceptible to varying interpretations that
could delay, limit or prevent regulatory approval. Upon approval, a product candidate may be
marketed only for those indications approved in the BLA or NDA and may be subject to labeling and
promotional requirements or limitations, including warnings, precautions, contraindications and use
limitations, which could materially impact profitability. Once approved, the FDA may withdraw the
product approval if compliance with pre- and post-market regulatory standards is not maintained or
if safety, efficacy or other problems occur after the product reaches the marketplace.
The FDA may, during its review of an NDA or BLA, ask for additional test data. If the FDA does
ultimately approve the product, it may require post-marketing testing, including potentially
expensive Phase IV studies, to confirm or otherwise further evaluate the safety and effectiveness
of the product. The FDA also may require, as a condition to approval or continued marketing of a
drug, a risk evaluation and mitigation strategy, or REMS, if deemed necessary to manage a known or
potential serious risk associated with the product. REMS can include additional educational
materials for healthcare professionals and patients such as Medication Guides and Patient Package
Inserts, a plan for communicating information to healthcare professionals, and restricted
distribution of the product. In addition, the FDA may, in some circumstances, impose restrictions
on the use of the product, which may be difficult and expensive to administer and may require prior
approval of promotional materials. Following approval, FDA may require labeling changes or impose
new post-approval study, risk management, or distribution restriction requirements.
Ongoing FDA Requirements
Before approving an NDA or BLA, the FDA usually will inspect the facilities at which the
product is manufactured and will not approve the product unless the manufacturing facilities are in
compliance with the FDAs current Good Manufacturing Practices, or cGMP, requirements which govern
the manufacture, holding and distribution of a product. Manufacturers of human cellular or
tissue-based biologics also must comply with the FDAs Good Tissue Practices, as applicable, and
the general biological product standards. Following approval, the FDA periodically inspects drug
and biologic manufacturing facilities to ensure continued compliance with the cGMP requirements.
Manufacturers must continue to expend time, money and effort in the areas of production, quality
control, record keeping and reporting to ensure compliance with those requirements. Failure to
comply with these requirements subjects the manufacturer to possible legal or regulatory action,
such as suspension of manufacturing, seizure of product, voluntary recall of product, withdrawal of
marketing approval or civil or criminal penalties. Adverse experiences with the product must be
reported to the FDA and could result in the imposition of marketing restrictions through labeling
changes or market removal. Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if problems concerning safety or efficacy of the product occur
following approval.
13
The labeling, advertising, promotion, marketing and distribution of a drug or biologic product
also must be in compliance with FDA and FTC requirements which include, among others, standards and
regulations for direct-to-consumer advertising, industry-sponsored scientific and educational
activities, and promotional activities involving the internet. In general, all product promotion
must be consistent with the FDA approval for such product, contain a balanced presentation of
information on the products uses and benefits and important safety information and limitations on
use, and otherwise not be false or misleading. The FDA and FTC have very broad enforcement
authority, and failure to abide by these regulations can result in penalties, including the
issuance of a Warning Letter directing a company to correct deviations from regulatory standards
and enforcement actions that can include seizures, injunctions and criminal prosecution.
Manufacturers are also subject to various laws and regulations governing laboratory practices,
the experimental use of animals and the use and disposal of hazardous or potentially hazardous
substances in connection with their research. In each of the above areas, the FDA has broad
regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend
or delay issuance of approvals, seize or recall products and deny or withdraw approvals.
HIPAA Requirements
Other federal legislation may affect our ability to obtain certain health information in
conjunction with our research activities. The Health Insurance Portability and Accountability Act
of 1996, or HIPAA, mandates, among other things, the adoption of standards designed to safeguard
the privacy and security of individually identifiable health information. In relevant part, the
U.S. Department of Health and Human Services, or HHS, has released two rules to date mandating the
use of new standards with respect to such health information. The first rule imposes new standards
relating to the privacy of individually identifiable health information. These standards restrict
the manner and circumstances under which covered entities may use and disclose protected health
information so as to protect the privacy of that information. The second rule released by HHS
establishes minimum standards for the security of electronic health information. While we do not
believe we are directly regulated as a covered entity under HIPAA, the HIPAA standards impose
requirements on covered entities conducting research activities regarding the use and disclosure of
individually identifiable health information collected in the course of conducting the research. As
a result, unless they meet these HIPAA requirements, covered entities conducting clinical trials
for us may not be able to share with us any results from clinical trials that include such health
information.
Other U.S. Regulatory Requirements
In the United States, the research, manufacturing, distribution, sale, and promotion of drug
and biological products are potentially subject to regulation by various federal, state and local
authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services
(formerly the Health Care Financing Administration), other divisions of the U.S. Department of
Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice
and individual U.S. Attorney offices within the Department of Justice, and state and local
governments. For example, sales, marketing and scientific/educational grant programs must comply
with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and
similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid
rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care
Act of 1992, each as amended. If products are made available to authorized users of the Federal
Supply Schedule of the General Services Administration, additional laws and requirements apply. All
of these activities are also potentially subject to federal and state consumer protection, unfair
competition, and other laws.
International Regulation
The regulation of our product candidates outside of the United States varies by country.
Certain countries regulate human tissue products as a pharmaceutical product, which would require
us to make extensive filings and obtain regulatory approvals before selling our product candidates.
Certain other countries classify our product candidates as human tissue for transplantation but may
restrict its import or sale. Other countries have no application regulations regarding the import
or sale of products similar to our product candidates, creating uncertainty as to what standards we
may be required to meet.
14
Manufacturing
We currently have one operational manufacturing facility located in Exton, Pennsylvania. The
costs incurred in operating our Exton facility (except for costs related to general corporate
administration) are currently classified as research and development expenses as the activities
there have been devoted to the research and development of our clinical applications and the
development of a commercial scale in a cost-effective production method. All component parts used
in our Exton, Pennsylvania manufacturing process are readily available with short lead times, and
all machinery is maintained and calibrated. We believe we have made improvements in our
manufacturing processes, and we expect to continue such efforts in the future.
Our Agera products are manufactured by a third-party contract manufacturer under a contract
manufacturing agreement. The agreement is effective through July 2014.
Research and Development
In addition to our clinical development activities, our research and development activities
include improving our manufacturing processes and reducing manufacturing costs. We expense research
and development costs as they are incurred. For the years ended December 31, 2010 and 2009, we
incurred research and development expenses of $5.5 million and $3.9 million, respectively.
Employees
As of March 22, 2011, we employed 23 people on a full-time basis, all located in the United
States, and one employee, our Chief Operating and Chief Financial Officer, who is based in Ireland
and works in both Ireland and the United States. We also employ one full-time and one part-time
Agera employees. None of our employees are covered by a collective bargaining agreement, and we
consider our relationship with our employees to be good. We also employ consultants and temporary
labor on an as needed basis to supplement existing staff.
Segment Information
Financial information concerning the Companys business segments and geographic areas of
operation is included in Note 17 in the Notes to Consolidated Financial Statements contained in
Item 8 of this Form 10-K.
Corporate History
On August 10, 2001, our company, then known as American Financial Holding, Inc., acquired
Isolagen Technologies through the merger of our wholly-owned subsidiary, Isolagen Acquisition
Corp., and an affiliated entity, Gemini IX, Inc., with and into Isolagen Technologies. As a result
of the merger, Isolagen Technologies became our wholly owned subsidiary. On November 13, 2001, we
changed our name to Isolagen, Inc. On August 27, 2009, the United States Bankruptcy Court for the
District of Delaware in Wilmington entered an order, or Confirmation Order, confirming the Joint
First Amended Plan of Reorganization dated July 30, 2009, as supplemented by the Plan Supplement
dated August 21, 2009, or the Plan, of Isolagen, Inc. and Isolagens wholly owned subsidiary,
Isolagen Technologies, Inc. The effective date of the Plan was September 3, 2009. Isolagen, Inc.
and Isolagen Technologies, Inc. were subsequently renamed Fibrocell Science, Inc. and Fibrocell
Technologies, Inc. respectively.
Investing in our company involves a high degree of risk. Before investing in our company you should
carefully consider the following risks, together with the financial and other information contained
in this 10-K. If any of the following risks actually occurs, our business, prospects, financial
condition and results of operations could be adversely affected. In that case, the trading price of
our common stock would likely decline and you may lose all or a part of your investment.
We could fail to remain a going concern. We will need to raise substantial additional capital to
fund our operations through commercialization of our product candidates, and we do not have any
commitments for that capital.
15
There exists substantial doubt regarding our ability to continue as a going concern. As of
December 31, 2010 we had cash and cash equivalents of $0.9 million and negative working capital of
less than $0.1 million. The Successor Company has raised approximately $6.1 million less fees as
the result of the issuance of Preferred Stock Series D and warrants in the period from January 1,
2011 through March 1, 2011. We received $0.2 million in subscription receivables from a July
financing in mid-March 2011.
As of March 24, 2011, we had cash and cash equivalents of approximately $3.4 million and
current liabilities of approximately $0.6 million. Our current monthly cash run-rate is
approximately $1.0 million. The Company is also planning to purchase manufacturing equipment and
incur marketing expenditures within the next three months to prepare the Company for launch post a
possible FDA approval. Thus, we will be required to raise additional cash resources in the near
future, or it will likely cease operations. We will need to access the capital markets in the near
future in order to fund future operations. There is no guarantee that any such required financing
will be available on terms satisfactory to us or available at all. These matters create uncertainty
relating to its ability to continue as a going concern.
We will need additional capital to achieve commercialization of our product candidates and to
execute our business strategy, and if we are unsuccessful in raising additional capital we will be
unable to achieve commercialization of our product candidates or unable to fully execute our
business strategy on a timely basis, if at all. If we raise additional capital through the issuance
of debt securities, the debt securities may be secured and any interest payments would reduce the
amount of cash available to operate and grow our business. If we raise additional capital through
the issuance of equity securities, such issuances will likely cause dilution to our stockholders,
particularly if we are required to do so during periods when our common stock is trading at low
price levels. If we file for bankruptcy, it is likely that our common stock will become worthless,
given that there currently exists approximately $7.5 million of debt as of March 25, 2011, which
has a priority over common shareholders. In addition, our Series A, B and D Preferred Stock are
senior to our common stock, and would be given a liquidation preference prior to the common stock
in a bankruptcy event. Additionally, we do not know whether any financing, if obtained, will be
adequate to meet our capital needs and to support our growth. If adequate capital cannot be
obtained on satisfactory terms, we may terminate or delay our efforts related to regulatory
approval of one or more of our product candidates, curtail or delay the implementation of
manufacturing process improvements or delay the expansion of our sales and marketing capabilities,
any of which could cause our business to fail.
If we do not obtain additional funding, we will likely enter into bankruptcy and/or cease
operations. Further, if we do raise additional cash resources in the near future, it may be raised
in contemplation of or in connection with bankruptcy. If we enter into bankruptcy, it is likely
that our common stock and common stock equivalents will become worthless and our creditors will
receive significantly less than what is owed to them.
Our independent registered public accounting firm issued their report for our fiscal year
ended December 31, 2010, which included an explanatory paragraph for our uncertainty to continue as
a going concern. If we became unable to continue as a going concern, we would have to liquidate our
assets and we may likely receive significantly less than the values at which they are carried on
our consolidated financial statements. The inclusion of a going concern explanatory paragraph in
our independent registered public accounting firms audit opinion for the year ended December 31,
2010 may materially and adversely affect our stock price and our ability to raise new capital.
16
We could fail to obtain approval of our lead product, azficel-T, from the FDA. The FDA accepted
our response to their Complete Response Letter in January 2011 and set a PDUFA date of June 22,
2011. However, the FDA may not approve our product candidate or may delay our approval. Either of
these situations could significantly impact our ability to raise required capital to continue
operations.
We have finished injections related to our pivotal Phase III clinical trial for our lead
facial product candidate, azficel-T, and have submitted the related BLA to the FDA. In October
2009, the FDA Cellular, Tissue and Gene Therapies Advisory Committee reviewed our nasolabial
folds/wrinkles product candidate. The Committee voted 11 yes to 3 no that the data presented
on our product demonstrated efficacy, and 6 yes to 8 no that the data demonstrated safety; both
for the proposed indication of treatment of nasolabial folds/wrinkles. The Committees
recommendations are not binding on the FDA, but the FDA will consider their recommendations during
their review of our application, which could adversely affect the application. On December 21,
2009, we received a Complete Response letter from the FDA related to the BLA for azficel-T. A
Complete Response letter is
issued by the FDAs CBER when the review of a file is completed and additional data are needed
prior to approval. The Complete Response letter requested that we provide data from a
histopathological study on biopsied tissue samples from patients following injection of azficel-T.
The letter also requested finalized CMC information regarding the manufacture of azficel-T as
follow-up to discussions that occurred during the BLA review period, as well as revised policies
and procedures. We announced on December 20, 2010, that we had submitted our complete response to
the CR letter issued by the FDA regarding our BLA for azficel-T. On January 22, 2011, the FDA
accepted for review our complete response submission for azficel-T. Even though the FDA has
accepted our response for complete evaluation, there is no assurance that it will approve our
product. The FDA, under the PDUFA, has a target six months review window to completely evaluate
our response. The PDUFA date is June 22, 2011. To the extent that the data obtained from the
histopathological study is negative and/or the CMC information and revised policies and procedures
required by the FDA is not satisfactory, we may not obtain approval from the FDA or there may be a
delay in approval.
If the FDA does not approve our product candidate or, alternatively, if there is a delay in
approval, we will be required to raise additional cash resources in the near future, or it will
likely cease operations. There is no guarantee that any such required financing will be available
to us.
Obtaining FDA and other regulatory approvals is complex, time consuming and expensive, and the
outcomes are uncertain.
The process of obtaining FDA and other regulatory approvals is time consuming, expensive and
difficult. Clinical trials are required and the marketing and manufacturing of our product
candidates are subject to rigorous testing procedures.
The commencement and completion of clinical trials for any of our product candidates could be
delayed or prevented by a variety of factors, including:
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delays in obtaining regulatory approvals to commence a study; |
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delays in identifying and reaching agreement on acceptable terms with prospective
clinical trial sites; |
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delays or failures in obtaining approval of our clinical trial protocol from an
institutional review board, or IRB, to conduct a clinical trial at a prospective study
site; |
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delays in the enrollment of subjects; |
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manufacturing difficulties; |
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failure of our clinical trials and clinical investigators to be in compliance with the
FDAs Good Clinical Practices, or GCP; |
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failure of our third-party contract research organizations, clinical site organizations
and other clinical trial managers, to satisfy their contractual duties, comply with
regulations or meet expected deadlines; |
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lack of efficacy during clinical trials; or |
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unforeseen safety issues. |
17
We do not know whether our clinical trials will need to be restructured or will be completed
on schedule, if at all, or whether they will provide data necessary to support necessary regulatory
approval. Significant delays in clinical trials will impede our ability to commercialize our
product candidates and generate revenue, and could significantly increase our development costs.
We utilize bovine-sourced materials to manufacture our Fibrocell Therapy. Future FDA
regulations, as well as currently proposed regulations, may require us to change the source of the
bovine-sourced materials we use in our
products or to cease using bovine-sourced materials. If we are required to use alternative
materials in our products, and in the event that such alternative materials are available to us, or
if we choose to change the materials used in our products in the future, we would need to validate
the new manufacturing process and run comparability trials with the reformulated product, which
could delay our submission for regulatory approval.
Even if marketing approval from the FDA is received for one or more of our product candidates,
the FDA may impose post-marketing requirements, such as:
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labeling and advertising requirements, restrictions or limitations, including the
inclusion of warnings, precautions, contra-indications or use limitations that could have a
material impact on the future profitability of our product candidates; |
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testing and surveillance to further evaluate or monitor our future products and their
continued compliance with regulatory standards and requirements; |
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submitting products for inspection; or |
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imposing a risk evaluation and mitigation strategy, or REMS, to ensure that the benefits
of the drug outweigh the risks. |
Because our consolidated financial statements for the year ended December 31, 2009 reflect
fresh-start accounting adjustments made on emergence from bankruptcy and because of the effects of
the transactions that became effective pursuant to the Plan, financial information in our current
and future financial statements will not be comparable to our financial information from prior
periods.
In connection with our emergence from bankruptcy, we adopted fresh-start accounting as of
September 1, 2009 in accordance with ASC 852-10. The adoption of fresh-start accounting resulted in
our becoming a new entity for financial reporting purposes. As required by fresh-start accounting,
our assets and liabilities have been preliminarily adjusted to fair value, and certain assets and
liabilities not previously recognized in our financial statements have been recognized. In addition
to fresh-start accounting, our financial statements reflect all effects of the transactions
implemented by the Plan. Accordingly, the financial statements prior to September 1, 2009 are not
comparable with the financial statements for periods on or after September 1, 2009. Furthermore,
the estimates and assumptions used to implement fresh-start accounting are inherently subject to
significant uncertainties and contingencies beyond our control. Accordingly, we cannot provide
assurance that the estimates, assumptions, and values reflected in the valuations will be realized,
and actual results could vary materially. For further information about fresh-start accounting, see
Note 5 Fresh-Start Accounting in Notes to Consolidated Financial Statements.
Protocol deviations may release the FDA from its binding acceptance of our SPA study design, which
may result in the delay, or non-approval, by the FDA of the Fibrocell Therapy.
In connection with preparations for FDA Investigator Inspections related to our nasolabial
folds/wrinkles Phase III studies, we identified protocol deviations related to the timing of visits
and other types of deviations. The possibility exists that our special protocol assessment could no
longer be binding on the FDA if the FDA considers these deviations, individually or in aggregate,
to be significant. Further, future investigator audits may identify deviations unknown at this
time. Accordingly, the possibility exists that although our Phase III studies yielded statistically
significant results, the studies may not be acceptable to the FDA under the SPA.
18
Clinical trials may fail to demonstrate the safety or efficacy of our product candidates, which
could prevent or significantly delay regulatory approval and prevent us from raising additional
financing.
Prior to receiving approval to commercialize any of our product candidates, we must
demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction
of the FDA and other regulatory authorities in the United States and abroad, that our product
candidates are both safe and effective. We will need to demonstrate our product candidates
efficacy and monitor their safety throughout the process. We have recently completed a pivotal
Phase III clinical trial related to our lead facial aesthetic product candidate. The success of
prior
pre-clinical or clinical trials does not ensure the success of these trials, which are being
conducted in populations with different racial and ethnic demographics than our previous trials. If
our current trials or any future clinical trials are unsuccessful, our business and reputation
would be harmed and the price at which our stock trades could be adversely affected. In addition,
if our Phase III clinical trials related to our lead facial aesthetic product candidate is deemed
to be unacceptable or deficient in any way by the FDA, we may be unable to raise additional equity
or debt financing that we may require to continue our operations.
All of our product candidates are subject to the risks of failure inherent in the development
of biotherapeutic products. The results of early-stage clinical trials of our product candidates do
not necessarily predict the results of later-stage clinical trials. Product candidates in
later-stage clinical trials may fail to demonstrate desired safety and efficacy traits despite
having successfully progressed through initial clinical testing. Even if we believe the data
collected from clinical trials of our product candidates is promising, this data may not be
sufficient to support approval by the FDA or any other U.S. or foreign regulatory approval.
Pre-clinical and clinical data can be interpreted in different ways. Accordingly, FDA officials
could reach different conclusions in assessing such data than we do, which could delay, limit or
prevent regulatory approval. In addition, the FDA, other regulatory authorities, our Institutional
Review Boards or we, may suspend or terminate clinical trials at any time.
Unlike our Phase III nasolabial folds/wrinkles trial, our Phase II/III Acne Scar trial is not
subject to a SPA with the FDA. In addition, we have developed a photo guide for use in the
evaluators assessment of acne study subjects. Our evaluator assessment scale and photo guide have
not been previously used in a clinical trial. To obtain FDA approval with respect to the acne scar
indication, we will require FDA concurrence with the use of our evaluator assessment scale and
photo guide.
Any failure or delay in completing clinical trials for our product candidates, or in receiving
regulatory approval for the sale of any product candidates, has the potential to materially harm
our business, and may prevent us from raising necessary, additional financing that we may need in
the future.
Since our emergence from bankruptcy we have completed numerous equity financings of convertible
securities, and it is likely that we will make additional equity financings in the future, which
may materially and adversely affect the price of our common stock. We have a significant number of
convertible securities that may result in significant dilution to our common stockholders.
Sales of substantial amounts of shares of our common stock in the public market, or the
perception that those sales may occur, could cause the market price of our common stock to decline.
We have used and it is likely that we will continue to use our common stock or securities
convertible into or exchangeable for our common stock to fund our working capital needs or to
acquire technology, product rights or businesses, or for other purposes. If we issue additional
equity securities, particularly during times when our common stock is trading at relatively low
price levels, the price of our common stock may be materially and adversely affected.
Since our emergence from bankruptcy we have completed numerous equity financings of
convertible preferred stock and warrants. The conversion or exercise of the preferred stock or
warrants, as applicable, into common stock and the sale of such common stock into the market may
cause the price of our common stock to fall. Even if such sales do not occur, the market may
anticipate such sales in the future, which may cause the price of our common stock to fall.
Furthermore, the preferred stock has a mandatory conversion feature that we may trigger if the
price of our common stock trades above $1.00 per share. As of March 24, 2011, if such price occurs
and if we trigger the mandatory conversion feature, we would be required to issue in excess of 27
million shares of common stock. The issuance of these shares or the sale of these shares may
materially reduce the price of our common stock.
19
We have a significant number of warrants and convertible preferred stock outstanding that contain
anti-dilution and price-protection provisions that may result in the reduction of their exercise
prices or conversion prices in the future.
In October 2009, we completed an offering of Series A Preferred Stock and warrants, and, in
March 2010, we completed an offering of common stock and warrants. In November 2010, we completed
an offering of Series B
Preferred Stock and warrants, and, in March 2011, we completed an offering of Series D Preferred
Stock and warrants. Each of the foregoing securities were subject to certain anti-dilution
provisions, which provisions require the lowering of the conversion price or exercise price, as
applicable, to the purchase price of future offerings. Furthermore, with respect to the warrants,
if we complete an offering below the exercise price of such warrants, the number of shares issuable
under the warrants will be proportionately increased such that the aggregate exercise price payable
after taking into account the decrease in the exercise price, shall be equal to the aggregate
exercise price prior to such adjustment. The conversion and exercise price of securities related
to the Preferred Stock Series A and warrants, the common stock and warrants issued in the March
2010 offering and the Preferred Stock Series B and warrants offering were adjusted due to the
Preferred Stock Series D and warrants offering. If in the future we issue securities for less than
the conversion or exercise price of the securities we issued so far, we may be required to further
reduce the relevant conversion or exercise prices, and the number of shares underlying the warrants
may be increased.
During the term that the warrants and preferred stock are outstanding, the holders of those
securities are given the opportunity to profit from a rise in the market price of our common stock.
In addition, certain of the warrants are not redeemable by us. We may find it more difficult to
raise additional equity capital while these warrants or preferred stock are outstanding. At any
time during which these warrants are likely to be exercised, we may be able to obtain additional
equity capital on more favorable terms from other sources.
We have yet to be profitable, losses may continue to increase from current levels and we will
continue to experience significant negative cash flow as we expand our operations, which may limit
or delay our ability to become profitable.
We have incurred losses since our inception, have never generated significant revenue from
commercial sales of our products, and have never been profitable. We are focused on product
development, and we have expended significant resources on our clinical trials, personnel and
research and development. We expect these costs to continue to rise in the future. We expect to
continue to experience increasing operating losses and negative cash flow as we expand our
operations.
We expect to continue to incur significant additional costs and expenses related to:
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FDA clinical trials and regulatory approvals; |
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expansion of laboratory and manufacturing operations; |
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research and development; |
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development of relationships with strategic business partners, including physicians who
might use our future products; and |
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interest expense and amortization of issuance costs related to our outstanding note
payables. |
If our product candidates fail in clinical trials or do not gain regulatory approval, if our
product candidates do not achieve market acceptance, or if we do not succeed in effectively and
efficiently implementing manufacturing process and technology improvements to make our product
commercially viable, we will not be profitable. If we fail to become and remain profitable, or if
we are unable to fund our continuing losses, our business may fail.
We will continue to experience operating losses and significant negative cash flow until we
begin to generate significant revenue from (a) the sale of our product candidates, which is
dependent on the receipt of FDA approval for our product candidates and is dependent on our ability
to successfully market and sell such product candidates, and (b) our Agera product line, which is
dependent on achieving significant market penetration in its
markets.
20
We may be unable to successfully commercialize any of our product candidates currently under
development.
Before we can commercialize any of our product candidates in the United States, we will need
to:
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conduct substantial additional research and development; |
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successfully complete lengthy and expensive pre-clinical and clinical testing, including
the Phase II/III clinical trial for our acne scar product candidate; |
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successfully improve our manufacturing process; and |
Even if our product development efforts are successful, we cannot assure that we will be able
to commercialize any of our product candidates currently under development. In that event, we will
be unable to generate significant revenue, and our business will fail.
We have not generated significant revenue from commercial sales of our products to date, and we do
not know whether we will ever generate significant revenue.
We are focused on product development and have not generated significant revenue from
commercial sales of our products to date. Prior to the fourth quarter of 2006 we offered the
Fibrocell Therapy for sale in the United Kingdom. Our United Kingdom operation had been operating
on a negative gross margin as we investigated means to improve manufacturing technologies for the
Fibrocell Process.
We do not currently offer any products for sale that are based upon our Fibrocell Therapy, and
we cannot guarantee that we will ever market any such products. We must demonstrate that our
product candidates satisfy rigorous standards of safety and efficacy before the FDA and other
regulatory authorities in the United States and abroad will approve the product candidates for
commercial marketing. We will need to conduct significant additional research, including
potentially pre-clinical testing and clinical testing before we can file additional applications
with the FDA for approval of our product candidates. We must also develop, validate and obtain FDA
approval of any improved manufacturing process. In addition, to compete effectively our future
products must be easy to use, cost-effective and economical to manufacture on a commercial scale.
We may not achieve any of these objectives, and we may never generate revenue from our product
candidates.
Our ability to effectively commercialize our product candidates depends on our ability to improve
our manufacturing process and validate such future improvements.
As part of the approval process, we must pass a pre-approval inspection of our manufacturing
facility before we can obtain marketing approval for our product candidates. The Complete Response
letter that we received from the FDA in December 2009 requested finalized CMC information regarding
the manufacture of azficel-T as follow-up to discussions that occurred during the BLA review
period. We cannot guarantee that this CMC information will satisfy the FDAs requirements for
approval. All of our manufacturing methods, equipment and processes for the active pharmaceutical
ingredient and finished product must comply with the FDAs current Good Manufacturing Practices, or
cGMP, requirements. We will also need to perform extensive audits of our suppliers, vendors and
contract laboratories. The cGMP requirements govern all areas of recordkeeping, production
processes and controls, personnel and quality control. To ensure that we meet these requirements,
we will expend significant time, money and effort. Due to the unique nature of our Fibrocell
Therapy, we cannot predict the likelihood that the FDA will approve our facility as compliant with
cGMP requirements even if we believe that we have taken the steps necessary to achieve compliance.
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The FDA, in its regulatory discretion, may require us to undergo additional clinical trials
with respect to any new or improved manufacturing process we develop or utilize, in the future, if
any. This could include a
requirement to change the materials used in our manufacturing process. These improvements or
modifications could delay or prevent approval of our product candidates. If we fail to comply with
cGMP requirements, pass an FDA pre-approval inspection or obtain FDA approval of our manufacturing
process, we would not receive FDA approval and would be subject to possible regulatory action. The
failure to successfully implement our manufacturing process may delay or prevent our future
profitability.
Even if we obtain FDA approval in the future and satisfy the FDA with regard to a validated
manufacturing process, we still may be unable to commercially manufacture the Fibrocell Therapy
profitably. Our manufacturing cost has been subject to fluctuation, depending, in part, on the
yields obtained from our manufacturing process. There is no guarantee that future manufacturing
improvements will result in a manufacturing cost low enough to effectively compete in the market.
Further, we currently manufacture the Fibrocell Therapy on a limited basis (for research and
development and for trial purposes only) and we have not manufactured commercial levels of the
Fibrocell Therapy in the United States. Such commercial manufacturing volumes, in the future, could
lead to unexpected inefficiencies and result in unprofitable performance results.
We may not be successful in our efforts to develop commercial-scale manufacturing technology and
methods.
In order to successfully commercialize any approved product candidates, we will be required to
produce such products on a commercial scale and in a cost-effective manner. As stated in the
preceding risk factor, we intend to seek FDA approval of our manufacturing process as a component
of the BLA application and approval process. However, we can provide no assurance that we will be
able to cost-effectively and commercially scale our operations using our current manufacturing
process. If we are unable to develop suitable techniques to produce and manufacture our product
candidates, our business prospects will suffer.
We depend on a third-party manufacturer for our Agera product line, the loss or unavailability of
which would require us to find a substitute manufacturer, if available, resulting in delays in
production and additional expenses.
Our Agera skin care product line is manufactured by a third party. We are dependent on this
third party to manufacture Ageras products, and the manufacturer is responsible for supplying the
formula ingredients for the Agera product lines. If for any reason the manufacturer discontinues
production of Ageras products at a time when we have a low volume of inventory on hand or are
experiencing a high demand for the products, significant delays in production of the products and
interruption of product sales may result as we seek to establish a relationship and commence
production with a new manufacturer, which would negatively impact our results of operation.
The large majority of our revenue, which relates to the Agera business segment, is to one
international customer.
Our revenues, which relate solely to the Agera business segment, are highly concentrated in
one large, international customer. This large customer represented 72% and 64% of 2010 and 2009
consolidated revenues, respectively. Further, this large customer represented 88% and 87% of
consolidated accounts receivable, net, at December 31, 2010 and December 31, 2009, respectively. A
reduction of revenue related to this large customer, due to competitor product alternatives,
pricing pressures, the financial health of the large customer, or otherwise, would have a
significant, negative impact on the business of Agera, and the related value thereof.
If our Fibrocell Therapy is found to be unsafe or ineffective, or if our Fibrocell Therapy is
perceived to be unsafe or ineffective, our business would be materially harmed.
Our product candidates utilize our Fibrocell Therapy. In addition, we expect to utilize our
Fibrocell Therapy in the development of any future product candidates. If our Fibrocell Therapy is
found to be, or perceived to be, unsafe or ineffective, we will not be successful in obtaining
marketing approval for any product candidates then pending, and we may have to modify or cease
production of any products that previously may have received regulatory approval. Negative media
exposure, whether founded or unfounded, related to the safety and/or effectiveness of our Fibrocell
Therapy may harm our reputation and/or competitive position.
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If physicians do not follow our established protocols, the efficacy and safety of our product
candidates may be adversely affected.
We are dependent on physicians to follow our established protocols both as to the
administration and the handling of our product candidates in connection with our clinical trials,
and we will continue to be dependent on physicians to follow such protocols if our product
candidates are commercialized. The treatment protocol requires each physician to verify the
patients name and date of birth with the patient and the patient records immediately prior to
injection. In the event more than one patients cells are delivered to a physician or we deliver
the wrong patients cells to the physician, which has occurred in the past, it is the physicians
obligation to follow the treatment protocol and assure that the patient is treated with the correct
cells. If the physicians do not follow our protocol, the efficacy and safety of our product
candidates may be adversely affected.
Our business, which depends on one facility, is vulnerable to natural disasters, telecommunication
and information systems failures, terrorism and similar problems, and we are not fully insured for
losses caused by all of these incidents.
We currently conduct all our research, development and manufacturing operations in one
facility located in Exton, Pennsylvania. As a result, if we obtain FDA approval of any of our
product candidates, all of the commercial manufacturing for the U.S. market are currently expected
to take place at a single U.S. facility. If regulatory, manufacturing or other problems require us
to discontinue production at that facility, we will not be able to supply product, which would
adversely impact our business.
Our Exton facility could be damaged by fire, floods, power loss, telecommunication and
information systems failures or similar events. Our insurance policies have limited coverage levels
for loss or damages in these events and may not adequately compensate us for any losses that may
occur. In addition, terrorist acts or acts of war may cause harm to our employees or damage our
Exton facility. The potential for future terrorist attacks, the national and international
responses to terrorist attacks or perceived threats to national security, and other acts of war or
hostility have created many economic and political uncertainties that could adversely affect our
business and results of operations in ways that we cannot predict, and could cause our stock price
to fluctuate or decline. We are uninsured for these types of losses.
As a result of our limited operating history, we may not be able to correctly estimate our future
operating expenses, which could lead to cash shortfalls.
We have a limited operating history and our primary business activities consist of conducting
clinical trials. As such, our historical financial data is of limited value in estimating future
operating expenses. Our budgeted expense levels are based in part on our expectations concerning
the costs of our clinical trials, which depend on the success of such trials and our ability to
effectively and efficiently conduct such trials, and expectations related to our efforts to achieve
FDA approval with respect to our product candidates. In addition, our budgeted expense levels are
based in part on our expectations of future revenue that we may receive from our Agera product
line, and the size of future revenue depends on the choices and demand of individuals. Our limited
operating history and clinical trial experience make these costs and revenues difficult to forecast
accurately. We may be unable to adjust our operations in a timely manner to compensate for any
unexpected increase in costs or shortfall in revenue. Further, our fixed manufacturing costs and
business development and marketing expenses will increase significantly as we expand our
operations. Accordingly, a significant increase in costs or shortfall in revenue could have an
immediate and material adverse effect on our business, results of operations and financial
condition.
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Our operating results may fluctuate significantly in the future, which may cause our results to
fall below the expectations of securities analysts, stockholders and investors.
Our operating results may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside of our control. These factors include, but are not limited to:
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the level of demand for the products that we may develop; |
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the timely and successful implementation of improved manufacturing processes; |
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our ability to attract and retain personnel with the necessary strategic, technical and
creative skills required for effective operations; |
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the amount and timing of expenditures by practitioners and their patients; |
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introduction of new technologies; |
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product liability litigation, class action and derivative action litigation, or other
litigation; |
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the amount and timing of capital expenditures and other costs relating to the expansion
of our operations; |
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the state of the debt and/or equity markets at the time of any proposed offering we
choose to initiate; |
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our ability to successfully integrate new acquisitions into our operations; |
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government regulation and legal developments regarding our Fibrocell Therapy in the
United States and in the foreign countries in which we may operate in the future; and |
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general economic conditions. |
As a strategic response to changes in the competitive environment, we may from time to time
make pricing, service, technology or marketing decisions or business or technology acquisitions
that could have a material adverse effect on our operating results. Due to any of these factors,
our operating results may fall below the expectations of securities analysts, stockholders and
investors in any future period, which may cause our stock price to decline.
We may be liable for product liability claims not covered by insurance.
Physicians who used our facial aesthetic product in the past, or who may use any of our future
products, and patients who have been treated by our facial aesthetic product in the past, or who
may use any of our future products, may bring product liability claims against us. While we have
taken, and continue to take, what we believe are appropriate precautions, we may be unable to avoid
significant liability exposure. We currently keep in force product liability insurance, although
such insurance may not be adequate to fully cover any potential claims or may lapse in accordance
with its terms prior to the assertion of claims. We may be unable to obtain product liability
insurance in the future, or we may be unable to do so on acceptable terms. Any insurance we obtain
or have obtained in the past may not provide adequate coverage against any asserted claims. In
addition, regardless of merit or eventual outcome, product liability claims may result in:
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diversion of managements time and attention; |
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expenditure of large amounts of cash on legal fees, expenses and payment of damages; |
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decreased demand for our products or any of our future products and services; or |
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injury to our reputation. |
If we are the subject of any future product liability claims, our business could be adversely
affected, and if these claims are in excess of insurance coverage, if any, that we may possess, our
financial position will suffer.
24
Our failure to comply with extensive governmental regulation may significantly affect our operating
results.
Even if we obtain regulatory approval for some or all of our product candidates, we will
continue to be subject to extensive ongoing requirements by the FDA, as well as by a number of
foreign, national, state and local agencies. These regulations will impact many aspects of our
operations, including testing, research and development, manufacturing, safety, efficacy, labeling,
storage, quality control, adverse event reporting, import and
export, record keeping, approval, distribution, advertising and promotion of our future
products. We must also submit new or supplemental applications and obtain FDA approval for certain
changes to an approved product, product labeling or manufacturing process. Application holders must
also submit advertising and other promotional material to the FDA and report on ongoing clinical
trials. The FDA enforces post-marketing regulatory requirements, including the cGMP requirements,
through periodic unannounced inspections. We do not know whether we will pass any future FDA
inspections. Failure to pass an inspection could disrupt, delay or shut down our manufacturing
operations. Failure to comply with applicable regulatory requirements could, among other things,
result in:
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administrative or judicial enforcement actions; |
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changes to advertising; |
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failure to obtain marketing approvals for our product candidates; |
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revocation or suspension of regulatory approvals of products; |
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product seizures or recalls; |
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court-ordered injunctions; |
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delay, interruption or suspension of product manufacturing, distribution, marketing and
sales; or |
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civil or criminal sanctions. |
The discovery of previously unknown problems with our future products may result in
restrictions of the products, including withdrawal from the market. In addition, the FDA may
revisit and change its prior determinations with regard to the safety or efficacy of our future
products. If the FDAs position changes, we may be required to change our labeling or cease to
manufacture and market our future products. Even prior to any formal regulatory action, we could
voluntarily decide to cease the distribution and sale or recall any of our future products if
concerns about their safety or efficacy develop.
In their regulation of advertising and other promotion, the FDA and the FTC may issue
correspondence alleging that some advertising or promotional practices are false, misleading or
deceptive. The FDA and FTC are authorized to impose a wide array of sanctions on companies for such
advertising and promotion practices, which could result in any of the following:
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incurring substantial expenses, including fines, penalties, legal fees and costs to
comply with the FDAs requirements; |
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changes in the methods of marketing and selling products; |
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taking FDA mandated corrective action, which may include placing advertisements or
sending letters to physicians rescinding previous advertisements or promotions; or |
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disruption in the distribution of products and loss of sales until compliance with the
FDAs position is obtained. |
Improper promotional activities may also lead to investigations by federal or state
prosecutors, and result in criminal and civil penalties. If we become subject to any of the above
requirements, it could be damaging to our reputation and restrict our ability to sell or market our
future products, and our business condition could be adversely affected. We may also incur
significant expenses in defending ourselves.
25
Physicians may prescribe pharmaceutical or biologic products for uses that are not described
in a products labeling or differ from those tested by us and approved by the FDA. While such
off-label uses are common and the FDA does not regulate physicians choice of treatments, the FDA
does restrict a manufacturers communications on the subject of off-label use. Companies cannot
promote FDA-approved pharmaceutical or biologic products for off-label uses, but under certain
limited circumstances they may disseminate to practitioners articles published in peer-reviewed
journals. To the extent allowed by the FDA, we intend to disseminate peer-reviewed articles on our
future products to practitioners. If, however, our activities fail to comply with the FDAs
regulations or guidelines, we may be subject to warnings from, or enforcement action by, the FDA or
other regulatory or law enforcement authorities.
Our sales, marketing, and scientific/educational grant programs, if any in the future, must
also comply with applicable requirements of the anti-fraud and abuse provisions of the Social
Security Act, the False Claims Act, the federal anti-kickback law, and similar state laws, each as
amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the
Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as
amended. If products are made available to authorized users of the Federal Supply Schedule of the
General Services Administration, additional laws and requirements apply. All of these activities
are also potentially subject to federal and state consumer protection and unfair competition laws.
The distribution of product samples to physicians must comply with the requirements of the
Prescription Drug Marketing Act.
Depending on the circumstances, failure to meet post-approval requirements can result in
criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total
or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or
refusal to allow us to enter into supply contracts, including government contracts. Any government
investigation of alleged violations of law could require us to expend significant time and
resources in response, and could generate negative publicity.
Legislative or regulatory reform of the healthcare system may affect our ability to sell our future
products profitably.
In the United States and a number of foreign jurisdictions, there have been legislative and
regulatory proposals to change the healthcare system in ways that could impact our ability to sell
our future products profitably. For instance, there currently is no legal pathway for generic or
similar versions of BLA-approved biologics, sometimes called follow-on biologics or
biosimilars, but there is continuing interest by Congress on this issue and on healthcare reform
in general. It is unknown what type of regulatory framework, what legal provisions, and what
timeframes for issuance of regulations or guidance any final legislation on biosimilars would
contain, but the future profitability of any approved biological product could be materially
adversely impacted by the approval of a biosimilar product. The FDAs policies may change and
additional government regulations may be enacted, which could prevent or delay regulatory approval
of our product candidates. We cannot predict the likelihood, nature or extent of adverse government
regulation that may arise from future legislation or administrative action, either in the United
States or abroad. If we are not able to maintain regulatory compliance, we might not be permitted
to market our future products and our business could suffer.
Any future products that we develop may not be commercially successful.
Even if we obtain regulatory approval for our product candidates in the United States and
other countries, those products may not be accepted by the market. A number of factors may affect
the rate and level of market acceptance of our products, including:
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labeling requirements or limitations; |
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market acceptance by practitioners and their patients; |
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our ability to successfully improve our manufacturing process; |
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the effectiveness of our sales efforts and marketing activities; and |
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the success of competitive products. |
26
If our current or future product candidates fail to achieve market acceptance, our
profitability and financial condition will suffer.
Our competitors in the pharmaceutical, medical device and biotechnology industries may have
superior products, manufacturing capabilities, financial resources or marketing position.
The human healthcare products and services industry is extremely competitive. Our competitors
include major pharmaceutical, medical device and biotechnology companies. Most of these competitors
have more extensive research and development, marketing and production capabilities and greater
financial resources than we do. Our future success will depend on our ability to develop and market
effectively our future products against those of our competitors. If our future products receive
marketing approval but cannot compete effectively in the marketplace, our results of operations and
financial position will suffer.
We are dependent on our key scientific and other management personnel, and the loss of any of these
individuals could harm our business.
We are dependent on the efforts of our key management and scientific staff. The loss of any of
these individuals, or our inability to recruit and train additional key personnel in a timely
manner, could materially and adversely affect our business and our future prospects. A loss of one
or more of our current officers or key personnel could severely and negatively impact our
operations. We have employment agreements with most of our key management personnel, but some of
these people are employed at-will, and any of them may elect to pursue other opportunities at any
time. We have no present intention of obtaining key man life insurance on any of our executive
officers or key management personnel.
We may need to attract, train and retain additional highly qualified senior executives and
technical and managerial personnel in the future.
In the future, we may need to seek additional senior executives, as well as technical and
managerial staff members. There is a high demand for highly trained executive, technical and
managerial personnel in our industry. We do not know whether we will be able to attract, train and
retain highly qualified technical and managerial personnel in the future, which could have a
material adverse effect on our business, financial condition and results of operations.
If we are unable to effectively promote our brands and establish a competitive position in the
marketplace, our business may fail.
Our Fibrocell Therapy brand names are new and unproven. We believe that the importance of
brand recognition will increase over time. In order to gain brand recognition, we may increase our
marketing and advertising budgets to create and maintain brand loyalty. We do not know whether
these efforts will lead to greater brand recognition. If we are unable to effectively promote our
brands, including our Agera product line, and establish competitive positions in the marketplace,
our business results will be materially adversely affected.
If we are unable to adequately protect our intellectual property and proprietary technology, the
value of our technology and future products will be adversely affected, and if we are unable to
enforce our intellectual property against unauthorized use by third parties our business may be
materially harmed.
Our long-term success largely depends on our future ability to market technologically
competitive products. Our ability to achieve commercial success will depend in part on obtaining
and maintaining patent protection and trade secret protection of our technology and future
products, as well as successfully defending these patents against third party challenges. In order
to do so we must:
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obtain and protect commercially valuable patents or the rights to patents both
domestically and abroad; |
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operate without infringing upon the proprietary rights of others; and |
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prevent others from successfully challenging or infringing our proprietary rights. |
27
As of December 31, 2010, we had 10 issued U.S. patents, 3 pending U.S. patent applications, 30
granted foreign patents and no pending international patent application. However, we may not be
able to obtain additional patents relating to our technology or otherwise protect our proprietary
rights. If we fail to obtain or maintain patents from our pending and future applications, we may
not be able to prevent third parties from using our proprietary technology. We will be able to
protect our proprietary rights from unauthorized use only to the extent that these rights are
covered by valid and enforceable patents that we control or are effectively maintained by us as
trade secrets. Furthermore, the degree of future protection of our proprietary rights is uncertain
because legal means afford only limited protection and may not adequately protect our rights or
permit us to gain or keep a competitive advantage.
The patent situation of companies in the markets in which we compete is highly uncertain and
involves complex legal and factual questions for which important legal principles remain
unresolved. No consistent policy regarding the breadth of claims allowed in such companies patents
has emerged to date in the United States. The laws of other countries do not protect intellectual
property rights to the same extent as the laws of the United States, and many companies have
encountered significant problems in protecting and defending such rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the
enforcement of patents and other intellectual property protection, particularly those relating to
biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement
of our patents in foreign countries in which we hold patents. Proceedings to enforce our patent
rights in the United States or in foreign jurisdictions would likely result in substantial cost and
divert our efforts and attention from other aspects of our business. Changes in either the patent
laws or in interpretations of patent laws in the United States or other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may
be allowed or enforced in our patents or in third-party patents.
Other risks and uncertainties that we face with respect to our patents and other proprietary
rights include the following:
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the inventors of the inventions covered by each of our pending patent applications might
not have been the first to make such inventions; |
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we might not have been the first to file patent applications for these inventions or
similar technology; |
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the future and pending applications we will file or have filed, or to which we will or
do have exclusive rights, may not result in issued patents or may take longer than we
expect to result in issued patents; |
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the claims of any patents that are issued may not provide meaningful protection; |
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our issued patents may not provide a basis for commercially viable products or may not
be valid or enforceable; |
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we might not be able to develop additional proprietary technologies that are patentable; |
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the patents licensed or issued to us may not provide a competitive advantage; |
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patents issued to other companies, universities or research institutions may harm our
ability to do business; |
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other individual companies, universities or research institutions may independently
develop or have developed similar or alternative technologies or duplicate our technologies
and commercialize discoveries that we attempt to patent; |
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other companies, universities or research institutions may design around technologies we
have licensed, patented or developed; and |
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many of our patent claims are method, rather than composition of matter, claims;
generally composition of matter claims are easier to enforce and are more difficult to
circumvent. |
28
Our business may be harmed and we may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property rights.
A third party may assert that we, one of our subsidiaries or one of our strategic
collaborators has infringed his, her or its patents and proprietary rights or challenge the
validity or enforceability of our patents and proprietary rights. Likewise, we may need to resort
to litigation to enforce our patent rights or to determine the scope and validity of a third
partys proprietary rights.
We cannot be sure that other parties have not filed for or obtained relevant patents that
could affect our ability to obtain patents or operate our business. Even if we have previously
filed patent applications or obtain issued patents, others may file their own patent applications
for our inventions and technology, or improvements to our inventions and technology. We have become
aware of published patent applications filed after the issuance of our patents that, should the
owners pursue and obtain patent claims to our inventions and technology could require us to
challenge such patent claims. Others may challenge our patent or other intellectual property rights
or sue us for infringement. In all such cases, we may commence legal proceedings to resolve our
patent or other intellectual property disputes or defend against charges of infringement or
misappropriation. An adverse determination in any litigation or administrative proceeding to which
we may become a party could subject us to significant liabilities, result in our patents being
deemed invalid, unenforceable or revoked, or drawn into an interference, require us to license
disputed rights from others, if available, or to cease using the disputed technology. In addition,
our involvement in any of these proceedings may cause us to incur substantial costs and result in
diversion of management and technical personnel. Furthermore, parties making claims against us may
be able to obtain injunctive or other equitable relief that could effectively block our ability to
develop, commercialize and sell products, and could result in the award of substantial damages
against us.
The outcome of these proceedings is uncertain and could significantly harm our business. If we
do not prevail in this type of litigation, we or our strategic collaborators may be required to:
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expend time and funding to redesign our Fibrocell Therapy so that it does not infringe
others patents while still allowing us to compete in the market with a substantially
similar product; |
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obtain a license, if possible, in order to continue manufacturing or marketing the
affected products or services, and pay license fees and royalties, which may be
non-exclusive. This license may be non-exclusive, giving our competitors access to the same
intellectual property, or the patent owner may require that we grant a cross-license to our
patented technology; or |
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stop research and commercial activities relating to the affected products or services if
a license is not available on acceptable terms, if at all. |
Any of these events could materially adversely affect our business strategy and the value of
our business.
In addition, the defense and prosecution of intellectual property suits, interferences,
oppositions and related legal and administrative proceedings in the United States and elsewhere,
even if resolved in our favor, could be expensive and time consuming and could divert financial and
managerial resources. Some of our competitors may be able to sustain the costs of complex patent
litigation more effectively than we can because they have substantially greater financial
resources.
29
If we are unable to keep up with rapid technological changes, our future products may become
obsolete or unmarketable.
Our industry is characterized by significant and rapid technological change. Although we
attempt to expand our technological capabilities in order to remain competitive, research and
discoveries by others may make our future products obsolete. If we cannot compete effectively in
the marketplace, our potential for profitability and financial position will suffer.
We have not declared any dividends on our common stock to date, and we have no intention of
declaring dividends in the foreseeable future.
The decision to pay cash dividends on our common stock rests with our Board of Directors and
will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do
not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess
cash to fund our operations. Investors in our common stock should not expect to receive dividend
income on their investment, and investors will be dependent on the appreciation of our common stock
to earn a return on their investment.
Provisions in our charter documents could prevent or delay stockholders attempts to replace or
remove current management.
Our charter documents provide for staggered terms for the members of our Board of Directors.
Our Board of Directors is divided into three staggered classes, and each director serves a term of
three years. At stockholders meetings, only those directors comprising one of the three classes
will have completed their term and be subject to re-election or replacement.
In addition, our Board of Directors is authorized to issue blank check preferred stock, with
designations, rights and preferences as they may determine. Accordingly, our Board of Directors has
in the past and may in the future, without stockholder approval, issue shares of preferred stock
with dividend, liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of our common stock. This type of preferred stock could
also be issued to discourage, delay or prevent a change in our control.
The use of a staggered Board of Directors, the ability to issue blank check preferred stock,
and the adoption of stockholder rights plans are traditional anti-takeover measures. These
provisions in our charter documents make it difficult for a majority stockholder to gain control of
the Board of Directors and of our company. These provisions may be beneficial to our management and
our Board of Directors in a hostile tender offer and may have an adverse impact on stockholders who
may want to participate in such a tender offer, or who may want to replace some or all of the
members of our Board of Directors.
Provisions in our bylaws provide for indemnification of officers and directors, which could require
us to direct funds away from our business and future products.
Our bylaws provide for the indemnification of our officers and directors. We have in the past
and may in the future be required to advance costs incurred by an officer or director and to pay
judgments, fines and expenses incurred by an officer or director, including reasonable attorneys
fees, as a result of actions or proceedings in which our officers and directors are involved by
reason of being or having been an officer or director of our company. Funds paid in satisfaction of
judgments, fines and expenses may be funds we need for the operation of our business and the
development of our product candidates, thereby affecting our ability to attain profitability.
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of substantial amounts
of our common stock in the public market, or as a result of the perception that these sales could
occur, which could occur if we issue a large number of shares of common stock (or securities
convertible into our common stock) in connection with a future financing, as our common stock is
trading at low levels. These factors could make it more difficult for us to raise funds through
future offerings of common stock or other equity securities. As of March 24, 2011, there were
24,469,099 shares of common stock issued and outstanding. All of our outstanding shares are freely
transferable without restriction or further registration under the Securities Act. In addition to
our common stock outstanding, as of such date, we had preferred stock outstanding that was
convertible into a total of 26,806,000
shares of common stock and warrants outstanding that were exercisable for a total of 33,701,250
shares of common stock.
30
There is a limited, volatile and sporadic public trading market for our common stock.
There is a limited, volatile and sporadic public trading market for our common stock. Without
an active trading market, there can be no assurance of any liquidity or resale value of our common
stock, and stockholders may be required to hold shares of our common stock for an indefinite period
of time.
Lack of effectiveness of internal controls over financial reporting could adversely affect the
value of our securities.
As directed by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules requiring public
companies to include a report of management on the companys internal control over financial
reporting in their annual reports on Form 10-K that contains an assessment by management of the
effectiveness of the companys internal control over financial reporting. Ineffective internal
controls over our financial reporting have occurred in the past and may arise in the future. As a
consequence, our investors could lose confidence in the reliability of our financial statements,
which could result in a decrease in the value of our securities.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including the documents we incorporate by reference, contains certain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information
relating to Fibrocell that is based on managements exercise of business judgment and assumptions
made by and information currently available to management. When used in this document and other
documents, releases and reports released by us, the words anticipate, believe, estimate,
expect, intend, the facts suggest and words of similar import, are intended to identify any
forward-looking statements. You should not place undue reliance on these forward-looking
statements. These statements reflect our current view of future events and are subject to certain
risks and uncertainties as noted below. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, our actual results could differ
materially from those anticipated in these forward-looking statements. Actual events, transactions
and results may materially differ from the anticipated events, transactions or results described in
such statements. Although we believe that our expectations are based on reasonable assumptions, we
can give no assurance that our expectations will materialize. Many factors could cause actual
results to differ materially from our forward looking statements. Several of these factors include,
without limitation:
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our ability to finance our business and continue in operations; |
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whether the results of our full Phase III pivotal study and our BLA filing will
result in approval of our product candidate, and whether any approval will occur on a timely
basis; |
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our ability to meet requisite regulations or receive regulatory approvals in the
United States, Europe, Asia and the Americas, and our ability to retain any regulatory
approvals that we may obtain; and the absence of adverse regulatory developments in the
United States, Europe, Asia and the Americas or any other country where we plan to conduct
commercial operations; |
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whether our clinical human trials relating to the use of autologous cellular therapy
applications, and such other indications as we may identify and pursue can be conducted
within the timeframe that we expect, whether such trials will yield positive results, or
whether additional applications for the commercialization of autologous cellular therapy can
be identified by us and advanced into human clinical trials; |
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our ability to develop autologous cellular therapies that have specific applications
in cosmetic dermatology, and our ability to explore (and possibly develop) applications for
periodontal disease, reconstructive dentistry, treatment of restrictive scars and burns and
other health-related markets; |
31
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our ability to decrease our manufacturing costs for our Fibrocell Therapy product
candidates through the improvement of our manufacturing process, and our ability to validate
any such improvements with the relevant regulatory agencies; |
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our ability to reduce our need for fetal bovine calf serum by improved use of less
expensive media combinations and different media alternatives; |
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continued availability of supplies at satisfactory prices; |
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new entrance of competitive products or further penetration of existing products in
our markets; |
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the effect on us from adverse publicity related to our products or the company
itself; |
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any adverse claims relating to our intellectual property; |
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the adoption of new, or changes in, accounting principles; |
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our issuance of certain rights to our shareholders that may have anti-takeover
effects; |
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our dependence on physicians to correctly follow our established protocols for the
safe administration of our Fibrocell Therapy; and |
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other risks referenced from time to time elsewhere in this prospectus and in our
filings with the SEC. |
These factors are not necessarily all of the important factors that could cause actual results
of operations to differ materially from those expressed in these forward-looking statements. Other
unknown or unpredictable factors also could have material adverse effects on our future results. We
undertake no obligation and do not intend to update, revise or otherwise publicly release any
revisions to these forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of any unanticipated events. We cannot assure you that
projected results will be achieved.
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Item 1B. |
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Unresolved Staff Comments |
None.
Our corporate headquarters and manufacturing operations are located in one location, Exton,
Pennsylvania. The Exton, Pennsylvania location is leased and consists of approximately 86,500
square feet. The lease is noncancelable through March 31, 2013.
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Item 3. |
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Legal Proceedings |
None.
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Item 4. |
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(Removed and Reserved) |
Reserved.
32
Part II
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Item 5. |
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Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Market Information
On October 21, 2009, our common stock became available for trading OTCBB under the symbol
FCSC. Currently, there is only a limited, sporadic and volatile market for our stock on the
OTCBB. The table below presents the high and low bid price for our common stock each quarter during
the past two years and reflects inter-dealer prices, without retail markup, markdown, or
commission, and may not represent actual transactions.
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Quarter Ended |
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High |
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Low |
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December 31, 2009 (from October 21, 2009) |
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$ |
2.40 |
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$ |
0.50 |
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March 31, 2010 |
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$ |
1.13 |
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$ |
0.80 |
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June 30, 2010 |
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$ |
1.04 |
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$ |
0.65 |
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September 30, 2010 |
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$ |
0.85 |
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$ |
0.53 |
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December 31, 2010 |
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$ |
0.60 |
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$ |
0.40 |
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The closing price of our common stock on March 24, 2011 was $0.77.
The common stock of our predecessor company, Isolagen, Inc., traded on the NYSE Amex under the
symbol ILE. The common stock ceased trading on the NYSE Amex on May 6, 2009 and in June 2009 the
NYSE Amex delisted the common stock from listing on the NYSE Amex. Upon the effective date of our
bankruptcy plan, the outstanding common stock of Isolagen was cancelled. Consequently, the
stockholders of Isolagen prior to the effective date of the bankruptcy plan no longer have any
interest as stockholders of Fibrocell by virtue of their ownership of Isolagens common stock prior
to the emergence from bankruptcy.
Holders
As of March 24, 2011, there were 24,469,099 shares of our common stock outstanding and held by
227 stockholders of record. As of March 24, 2011, there were 3,250 shares issued and 2,886 shares
outstanding for Series A preferred stock, 4,640 shares issued and 2,738 shares outstanding for
Series B preferred stock and 7,779 shares Series D preferred stock issued and outstanding.
Dividends
We have never paid any cash dividends on our common stock and our board of directors does not
intend to do so in the foreseeable future. The declaration and payment of dividends in the future,
of which there can be no assurance, will be determined by the board of directors in light of
conditions then existing, including earnings, financial condition, capital requirements and other
factors.
Holders of the Series A, Series B and Series D Preferred Stock are entitled to receive
cumulative dividends at the rate per share (as a percentage of the stated value per share) of 6%
per annum (subject to increase in certain circumstances), payable quarterly in arrears on January
15, April 15, July 15 and October 15, beginning on April 15, 2010, January 15, 2011 and July 15,
2011, respectively. The dividends are payable in cash, or at our option, in duly authorized,
validly issued, fully paid and non-assessable shares of common stock equal to 110% of the cash
dividend amount payable on the dividend payment date, or a combination thereof; provided that we
may not pay the dividends in shares of common stock unless we meet certain conditions described in
the Certificate of Designation, including that the resale of the shares has been registered under
the Securities Act. If we pay the dividend in shares of common stock, the common stock will be
valued for such purpose at 80% of the average of the volume weighted average price for the 10
consecutive trading days ending on the trading day that is immediately prior to the dividend
payment date. Cash payments for Series A dividends were approximately $0.1 million for both 2010
and the first quarter 2011. No dividend cash payments have been made for the Series B or Series D
as of March 24, 2011.
33
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with
transactions in penny stocks. Our stock is currently a penny stock. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities registered on certain
national securities exchanges. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules,
deliver a standardized risk disclosure document prepared by the SEC, which: (a) contains a
description of the nature and level of risk in the market for penny stocks in both public offerings
and secondary trading; (b) contains a description of the brokers or dealers duties to the
customer and of the rights and remedies available to the customer with respect to a violation to
such duties or other requirements of securities laws; (c) contains a brief, clear, narrative
description of a dealer market, including bid and ask prices for penny stocks and significance of
the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries
on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct
of trading in penny stocks; and (f) contains such other information and is in such form as the SEC
shall require by rule or regulation. The broker-dealer also must provide to the customer, prior to
effecting any transaction in a penny stock, (a) bid and offer quotations for the penny stock; (b)
the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of
shares to which such bid and ask prices apply, or other comparable information relating to the
depth and liquidity of the market for such stock; and (d) monthly account statements showing the
market value of each penny stock held in the customers account. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchasers written acknowledgment of the receipt of a
risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed
and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the
secondary market for our stock if it becomes subject to these penny stock rules.
Recent Sales of Unregistered Securities
All information regarding the financings we completed during 2010 have been previously
disclosed in current reports we have filed on Form 8-K.
Purchases of Equity Securities.
We did not repurchase any of our equity securities during the twelve months ended 2010.
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Item 6. |
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Selected Financial Data |
We are a smaller reporting company, and are not required to report this information.
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Item 7. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
General
We are an aesthetic and therapeutic development stage biotechnology company focused on
developing novel skin and tissue rejuvenation products. Our clinical development product candidates
are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne
and burn scars with a patients own, or autologous, fibroblast cells produced by our proprietary
Fibrocell Process. Our clinical development programs encompass both aesthetic and therapeutic
indications. Our most advanced indication utilizing the Fibrocell Therapy is for the treatment of
nasolabial folds/wrinkles, which completed Phase III clinical studies and the related Biologics
License Application (BLA) was accepted for filing by the Food and Drug Administration (FDA)
during May 2009. On October 9, 2009 the FDA Cellular, Tissue and Gene Therapies Advisory Committee
reviewed our nasolabial folds/wrinkles product candidate. The Committee voted 11 yes to 3 no
that the data presented on our product demonstrated efficacy, and 6 yes to 8 no that the data
demonstrated safety; both for the proposed indication of treatment of nasolabial folds/wrinkles.
The committees recommendations are not binding on the FDA, but the FDA will consider their
recommendations during their review of our application. The United States Adopted Names (USAN)
Council adopted the USAN name, azficel-T, for our product on October 28, 2009, and the FDA is
currently evaluating a proposed brand name, laViv®. On December 21, 2009, Fibrocell Science
received a Complete Response letter from the FDA related to the BLA for azficel-T. A Complete
Response letter is issued by the FDAs Center for Biologics Evaluation and Research (CBER) when the
review of a file is completed and additional data are needed prior to approval. The Complete
Response letter requested that Fibrocell Science
34
provide data from a histopathological study on biopsied tissue samples from patients following
injection of azficel-T. The letter also requested finalized Chemistry, Manufacturing and Controls
(CMC) information regarding the manufacture of azficel-T as follow-up to discussions that occurred
during the BLA review period, as well as revised policies and procedures regarding shipping
practices, and proposed labeling. The Company announced on December 20, 2010, that it had submitted
its complete response to the Complete Response (CR) letter issued by the FDA regarding the
Companys BLA for azficel-T. On January 22, 2011, the FDA accepted for review the Companys
complete response submission for azficel-T. Even though the FDA has accepted the Companys response
for complete evaluation, there is no assurance that it will approve our product. The FDA, under
the Prescription Drug User Fee Act (PDUFA), has a target six months review window to completely
evaluate the Companys response upon acceptance of the response. The PDUFA date is June 22, 2011.
The Company announced on March 16, 2011, that it had submitted a final study report to the FDA for
the completed, six-month histological study examining skin after injections of azficel-T.
During 2009 we completed a Phase II/III study for the treatment of acne scars. During 2008 we
completed our open-label Phase II study related to full face rejuvenation.
We also develop and market an advanced skin care product line through our Agera subsidiary, in
which we acquired a 57% interest in August 2006.
Exit from Bankruptcy
On August 27, 2009, the United States Bankruptcy Court for the District of Delaware in
Wilmington entered an order, or Confirmation Order, confirming the Joint First Amended Plan of
Reorganization dated July 30, 2009, as supplemented by the Plan Supplement dated August 21, 2009,
or the Plan, of Isolagen, Inc. and Isolagens wholly owned subsidiary, Isolagen Technologies, Inc.
The effective date of the Plan was September 3, 2009. Isolagen, Inc. and Isolagen Technologies,
Inc. were subsequently renamed Fibrocell Science, Inc. and Fibrocell Technologies, Inc.,
respectively. Fibrocell now operates outside of the restraints of the bankruptcy process, free of
the debts and liabilities discharged by the Plan.
Going Concern
The Successor Company emerged from Bankruptcy in September 2009 and continues to operate as a
going concern. At December 31, 2010, the Successor Company had cash and cash equivalents of
approximately $0.9 million and negative working capital of less than $0.1 million. The Successor
Company has also raised approximately $6.1 million less fees as the result of the issuance of
Preferred Stock Series D and warrants in the period from January 1, 2011 through March 1, 2011. We
received $0.2 million in subscription receivables from a July financing in mid-March 2011.
As of March 24, 2011, the Company had cash and cash equivalents of approximately $3.4 million
and current liabilities of approximately $0.6 million. The Companys current monthly cash run-rate
is approximately $1.0 million. The Company is also planning to purchase manufacturing equipment and
incur marketing expenditures within the next three months to prepare the Company for launch post a
possible FDA approval. Thus, the Successor Company will need to access the capital markets in the
near future in order to fund future operations. There is no guarantee that any such required
financing will be available on terms satisfactory to the Successor Company or available at all.
These matters create uncertainty relating to its ability to continue as a going concern. The
accompanying consolidated financial statements do not reflect any adjustments relating to the
recoverability and classification of assets or liabilities that might result from the outcome of
these uncertainties.
Further, if the Successor Company raises additional cash resources in the near future, it may
be raised in contemplation of or in connection with bankruptcy. In the event of a bankruptcy, it is
likely that its common stock and common stock equivalents will become worthless and our creditors
will receive significantly less than what is owed to them.
Through December 31, 2010, the Successor Company has been primarily engaged in developing its
initial product technology. In the course of its development activities, the Company has sustained
losses and expects such losses to continue through at least 2011. During the year ended December
31, 2010, the Successor Company
financed its operations primarily through its existing cash, but as discussed above it now
requires additional financing. There is substantial doubt about the Successor Companys ability to
continue as a going concern.
35
The Successor Companys ability to complete additional offerings is dependent on the state of
the debt and/or equity markets at the time of any proposed offering, and such markets reception of
the Successor Company and the offering terms. The Successor Companys ability to complete an
offering is also dependent on the status of its FDA regulatory milestones and its clinical trials,
and in particular, the status of its indication for the treatment of nasolabial folds/wrinkles and
the potential approval of the related BLA, which cannot be predicted. There is no assurance that
capital in any form would be available to the Company, and if available, on terms and conditions
that are acceptable.
As a result of the conditions discussed above, and in accordance with GAAP, there exists
substantial doubt about the Successor Companys ability to continue as a going concern, and its
ability to continue as a going concern is contingent, among other things, upon its ability to
secure additional adequate financing or capital in the near future. If the Successor Company does
not obtain additional funding, or does not anticipate additional funding, in the near future, it
will likely enter into bankruptcy and/or cease operations. Further, if it does raise additional
cash resources in the near future, it may be raised in contemplation of or in connection with
bankruptcy. If the Successor Company enters into bankruptcy, it is likely that its common stock and
common stock equivalents will become worthless and its creditors, including preferred stock, will
receive significantly less than what is owed to them.
Critical Accounting Policies
The following discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in conformity with
accounting principles generally accepted in the United States of America. However, certain
accounting policies and estimates are particularly important to the understanding of our financial
position and results of operations and require the application of significant judgment by our
management or can be materially affected by changes from period to period in economic factors or
conditions that are outside of the control of management. As a result they are subject to an
inherent degree of uncertainty. In applying these policies, our management uses their judgment to
determine the appropriate assumptions to be used in the determination of certain estimates. Those
estimates are based on our historical operations, our future business plans and projected financial
results, the terms of existing contracts, our observance of trends in the industry, information
provided by our customers and information available from other outside sources, as appropriate. The
following discusses our critical accounting policies and estimates.
Intangible assets: Intangible assets are research and development assets related to the
Successor Companys primary study that was recognized upon emergence from bankruptcy (see Note 5).
Intangibles are tested for recoverability whenever events or changes in circumstances indicate the
carrying amount may not be recoverable. An impairment loss, if any, would be measured as the excess
of the carrying value over the fair value determined by discounted cash flows.
Income taxes: An asset and liability approach is used for financial accounting and reporting
for income taxes. Deferred income taxes arise from temporary differences between income tax and
financial reporting and principally relate to recognition of revenue and expenses in different
periods for financial and tax accounting purposes and are measured using currently enacted tax
rates and laws. In addition, a deferred tax asset can be generated by net operating loss (NOLs)
carryover. If it is more likely than not that some portion or all of a deferred tax asset will not
be realized, a valuation allowance is recognized.
Warrant Liability: We account for our warrants in accordance with U.S. GAAP. The warrants
are measured at fair value and liability-classified under ASC 815, Derivatives and Hedging, (ASC
815) because the warrants contain down-round protection and therefore, do not meet the scope
exception for treatment as a derivative under ASC 815. Since down-round protection is not an
input into the calculation of the fair value of the warrants, the warrants cannot be considered
indexed to the Companys own stock which is a requirement for the scope exception as outlined under
ASC 815. The fair value of the warrants is determined using the Black-Scholes option pricing model
and is affected by changes in inputs to that model including our stock price, expected stock price
volatility, the contractual term, and the risk-free interest rate. We will continue to classify the
fair value of the
warrants as a liability until the warrants are exercised, expire or are amended in a way that
would no longer require these warrants to be classified as a liability.
36
Preferred Stock and Derivative Liability: The preferred stock has been classified within the
mezzanine section between liabilities and equity in its consolidated balance sheets in accordance
with ASC 480, Distinguishing Liabilities from Equity (ASC 480) because any holder of Series A, B
or D Preferred may require the Successor Company to redeem all of its Series A, B or D Preferred in
the event of a triggering event which is outside of the control of the Successor Company.
The embedded conversion option for the Series A Preferred, Series B Preferred and Series D
Preferred has been recorded as a derivative liability under ASC 815 in the Successors consolidated
balance sheet as of December 31, 2010 and will be re-measured on the Successor Companys reporting
dates. The fair value of the derivative liability is determined using the Black-Scholes option
pricing model and is affected by changes in inputs to that model including our stock price,
expected stock price volatility, the contractual term, and the risk-free interest rate. The
Successor Company will continue to classify the fair value of the embedded conversion option as a
liability until the preferred stock is converted into common stock.
Stock-Based Compensation: We account for stock-based awards to employees and non-employees
using the fair value based method to determine compensation for all arrangements where shares of
stock or equity instruments are issued for compensation. We use a Black-Scholes options-pricing
model to determine the fair value of each option grant as of the date of grant for expense
incurred. The Black-Scholes model requires inputs for risk-free interest rate, dividend yield,
volatility and expected lives of the options. Expected volatility is based on historical
volatility of our competitors stock since the Predecessor Company ceased trading as part of the
bankruptcy and emerged as a new entity. The risk-free rate for periods within the contractual life
of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The
expected lives for options granted represents the period of time that options granted are expected
to be outstanding and is derived from the contractual terms of the options granted. We estimate
future forfeitures of options based upon expected forfeiture rates.
Research and Development Expenses: Research and development costs are expensed as incurred
and include salaries and benefits, costs paid to third-party contractors to perform research,
conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion
of facilities cost. Clinical trial costs are a significant component of research and development
expenses and include costs associated with third-party contractors. Invoicing from third-party
contractors for services performed can lag several months. We accrue the costs of services rendered
in connection with third-party contractor activities based on our estimate of management fees, site
management and monitoring costs and data management costs. Actual clinical trial costs may differ
from estimated clinical trial costs and are adjusted for in the period in which they become known.
Emergence from Voluntary Reorganization Under Chapter 11 Proceedings and Reorganization Plan
Fibrocell emerged from Chapter 11 on September 3, 2009. See Note 2 in the accompanying
Consolidated Financial Statements.
Basis of Presentation
As of September 1, 2009, the Successor Company adopted fresh-start accounting in accordance
with ASC 852-10, Reorganizations. The Successor Company selected September 1, 2009, as the date to
effectively apply fresh-start accounting based on the absence of any material contingencies at the
August 27, 2009 confirmation hearing and the immaterial impact of transactions between August 27,
2009 and September 1, 2009. The adoption of fresh-start accounting resulted in the Successor
Company becoming a new entity for financial reporting purposes.
Accordingly, the financial statements prior to September 1, 2009 are not comparable with the
financial statements for periods on or after September 1, 2009. References to Successor or
Successor Company refer to the Company on or after September 1, 2009, after giving effect to the
cancellation of Isolagen, Inc. common stock issued prior to the Effective Date, the issuance of new
Fibrocell Science, Inc. common stock in accordance with the Plan, and the application of
fresh-start accounting. References to Predecessor or Predecessor Company refer to
the Company prior to September 1, 2009. See Note 5 Fresh Start Accounting in the notes
to these Consolidated Financial Statements for further details.
37
For discussions on the results of operations, the Successor Company has combined the results
of operations for the eight months ended August 31, 2009, with the results of operations for the
four months ended December 31, 2009. The combined periods have been compared to the year-ended
December 31, 2010. The Successor Company believes that the combined financial results provide
management and investors a more meaningful analysis of the Companys performance and trends for
comparative purposes.
The following discussion should be read in conjunction with the Consolidated Financial
Statements and the accompanying Notes to the Consolidated Financial Statements in Part 1, Item 1 of
this report.
Results of OperationsComparison of Years Ending December 31, 2010 and 2009
REVENUES. Revenue remained constant at $0.9 million for the year ended December 31, 2010 and
for the year ended December 31, 2009. Our revenue from continuing operations is from the operations
of Agera which we acquired on August 10, 2006. Agera markets and sells a complete line of advanced
skin care systems based on a wide array of proprietary formulations, trademarks and non-peptide
technology.
COST OF SALES. Costs of sales decreased $0.1 million to $0.5 million for the year ended
December 31, 2010 as compared to $0.6 million for the year ended December 31, 2009. Our cost of
sales relates to the operation of Agera. As a percentage of revenue, Agera cost of sales were
approximately 55% for the year ended December 31, 2010 and 70% for the year ended December 31,
2009. Cost of sales as a percentage of revenue in 2010 has decreased as compared to 2009 primarily
due to the recording of a reserve for slow moving and obsolete inventory in 2009.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses
increased by approximately $0.4 million, or 6%, to $6.5 million for the year ended December 31,
2010 as compared to $6.1 million for the year ended December 31, 2009. The increase primarily
relates to a $0.3 million increase related to general and administrative expenses associated with
consultants for financing and marketing as well as office expenses, $0.3 million increase related
to legal expenses, $0.1 million increase in marketing, offset by a $0.3 million decrease in payroll
related expenses. Legal expenses for the year ended December 31, 2009 were $0.2 million due to a
$0.3 million reimbursement received from our insurance carrier related to defense costs associated
with our class action and derivative matters. Had we not received this reimbursement, legal
expenses would have been $0.5 million for both years ended December 31, 2010 and December 31, 2009.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by approximately $1.6
million, or 40%, to $5.5 million for the year ended December 31, 2010 as compared to $3.9 million
for the year ended December 31, 2009. The increase primarily relates to a $0.7 million increase in
payroll related expenses, $0.5 million increase in consulting fees and $0.2 million increase in
laboratory costs associated with clinical and manufacturing activities in our Exton, Pennsylvania
location. Research and development costs are composed primarily of costs related to our efforts to
gain FDA approval for our Fibrocell Therapy for specific dermal applications in the United States,
as well as costs related to other potential indications for our Fibrocell Therapy, such as acne
scars and burn scars. Also, research and development expense includes costs to develop
manufacturing, cell collection and logistical process improvements. Research and development costs
primarily include personnel and laboratory costs related to these FDA trials and certain consulting
costs. The total inception (December 28, 1995) to date cost of research and development as of
August 31, 2009 for the Predecessor Company was $56.3 million and total inception (September 1,
2009) to date cost of research and development as of December 31, 2010, for the Successor Company
was $7.3 million.
The FDA approval process is extremely complicated and is dependent upon our study protocols
and the results of our studies. In the event that the FDA requires additional studies for our
product candidate or requires changes in our study protocols or in the event that the results of
the studies are not consistent with our expectations, the process will be more expensive and time
consuming. Due to the complexities of the FDA approval process, we are unable to predict what the
cost of obtaining approval for our dermal product candidate will be.
38
REORGANIZATION ITEMS, NET. On June 15, 2009, Isolagen, Inc. and its wholly-owned, U.S.
subsidiary Isolagen Technologies, Inc., filed voluntary petitions for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court for the District of Delaware, as
more fully discussed under Bankruptcy, Debt and Going Concern. A reorganization gain, net of
reorganization costs, of less than $0.1 million and $73.5 million was recorded for the year ended
December 31, 2010 and December 31, 2009, respectively, which was comprised primarily of legal fees
and the unamortized debt acquisition costs, and gain of discharge of liabilities.
OTHER INCOME, NET. In November 2010, we received one grant totaling $0.2 million under the
Qualified Therapeutic Discovery Project Grants Program. The Qualified Therapeutic Discovery Project
Grants Program was included in the healthcare reform legislation, and established a one-time pool
of $1 billion for grants to small biotechnology companies developing novel therapeutics which show
potential to: (a) result in new therapies that either treat areas of unmet medical need, or
prevent, detect, or treat chronic or acute diseases and conditions; (b) reduce long-term health
care costs in the United States; or (c) significantly advance the goal of curing cancer within a
the 30-year period. There are no matching funding requirements or other requirements necessary to
receive the funding.
INTEREST EXPENSE. Interest expense decreased $1.4 million to $1.1 million for the year ended
December 31, 2010, as compared to $2.5 million for the year ended December 31, 2009. Our interest
expense for the year ended December 31, 2010 is related to the 12.5% notes we issued in connection
with our bankruptcy plan. We have been accreting the interest to principal at the rate of 15%. Our
interest expense for the year ended December 31, 2009 is related to our $90.0 million, 3.5%
convertible subordinated notes, as well as the related amortization of deferred debt issuance costs
of $0.1 million and interest expense related to the secured bridge loan and DIP financing until the
emergence out of bankruptcy. With the emergence out of bankruptcy, the 3.5% convertible
subordinated notes were exchanged for $6.0 million of debt and 3,960,000 shares of the new common
stock. There is also interest expense related to the 12.5% notes for the year end December 31,
2009.
NONCONTROLLING INTEREST. The noncontrolling interest income was approximately $0.1 million for
the year ended December 31, 2010, as compared to noncontrolling interest income of $0.2 million for
the year ended December 31, 2009. The decrease in noncontrolling interest income of $0.1 million is
due to Ageras decrease in net income in 2010 as compared to 2009.
NET INCOME/(LOSS). Net loss, excluding reorganization items, was relatively constant at $12.9
million for the year ended December 31, 2010 as compared to a net loss of $12.8 million for the
year ended December 31, 2009. Net income of $60.7 million for the year ended December 31, 2009,
included reorganization items of $73.5 million as a result of the emergence out of bankruptcy and
discharge of debt and unsecured liabilities.
Liquidity and Capital Resources
Net cash provided by (used in) operating, investing and financing activities for the two years
ended December 31, 2010 and 2009 were as follows:
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Year Ended December 31, |
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2010 |
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2009 |
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(in millions) |
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Cash flows from operating activities |
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$ |
(9.3 |
) |
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$ |
(9.0 |
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Cash flows from investing activities |
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Cash flows from financing activities |
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8.8 |
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7.5 |
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OPERATING ACTIVITIES. Cash used in operating activities during the year ended December 31,
2010 amounted to $9.3 million, an increase of $0.3 million over the year ended December 31, 2009.
The increase in our cash used in operating activities over the prior year is primarily due to an
increase in net losses (adjusted for non-cash items) of $0.7 million, offset by operating cash
inflows from changes in operating assets and liabilities. The change in operating assets and
liabilities is primarily due to a large increase in accounts payable at December 31, 2010 as
compared to December 31, 2009.
39
Our negative operating cash flows in 2010 were funded from cash on hand at December 31, 2009,
which were primarily the result of previously completed debt and equity offerings, as well as funds
received for the issuance of preferred stock and common stock in 2010.
INVESTING ACTIVITIES. Minimal or no cash was used in investing activities during the year
ended December 31, 2010 and during the year ended December 31, 2009.
FINANCING ACTIVITIES. There were $8.8 million cash proceeds from financing activities during
the year ended December 31, 2010, as compared to $7.5 million received from financing activities
during the year ended December 31, 2009. During 2010, we raised cash from the issuance of preferred
stock, common stock and warrants.
Working Capital
As of December 31, 2010, we had cash and cash equivalents of $0.9 million and negative working
capital of less than $0.1 million. The Successor Company has raised approximately $6.1 million less
fees as the result of the issuance of Series D Preferred Stock and warrants in the period from
January 1, 2011 through March 1, 2011.
As of March 24, 2011, the Company had cash and cash equivalents of approximately $3.4 million and
current liabilities of approximately $0.6 million. The Companys current monthly cash run-rate is
approximately $1.0 million. The Company is also planning to purchase manufacturing equipment and
incur marketing expenditures within the next three months to prepare the Company for launch post a
possible FDA approval. Thus, the Successor Company will need to access the capital markets in the
near future in order to fund future operations. There is no guarantee that any such required
financing will be available on terms satisfactory to the Successor Company or available at all.
These matters create uncertainty relating to its ability to continue as a going concern. The
accompanying consolidated financial statements do not reflect any adjustments relating to the
recoverability and classification of assets or liabilities that might result from the outcome of
these uncertainties.
Debt
The Successor Companys outstanding long-term debt at December 31, 2010 and December 31, 2009
consists of $7.3 million and $6 million, respectively, of 12.5% Unsecured Promissory Notes (New
Notes). Unpaid interest has been accreted to the principal at a rate of 15%. The New Notes have
the following features: (1) 12.5% interest payable quarterly in cash or, at the Successor Companys
option, 15% payable in kind by capitalizing such unpaid amount and adding it to the principal as of
the date it was due; (2) maturing June 1, 2012; (3) at any time prior to the maturity date, the
Successor Company may redeem any portion of the outstanding principal of the New Notes in Cash at
125% of the stated face value of the New Notes. There is a mandatory redemption feature that
requires the Successor Company to redeem all outstanding new notes if: (1) the Successor Company
successfully completes a capital campaign raising in excess of $10 million; or (2) the Successor
Company is acquired by, or sell a majority stake to, an outside party.
Factors Affecting Our Capital Resources
Inflation did not have a significant impact on the Companys results during the year ended
December 31, 2010.
Off-Balance Sheet Transactions
We do not engage in material off-balance sheet transactions.
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Item 8. |
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Financial Statements and Supplementary Data |
The financial statements, including the notes thereto and report of the independent registered
public accounting firm thereon are included in this report as set forth in the Index to Financial
Statements. See F-1 for Index to Consolidated Financial Statements.
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Item 9. |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
40
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Item 9A. |
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Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive officer and principal financial officer,
evaluated the disclosure controls and procedures related to the recording, processing,
summarization and reporting of information in the periodic reports that the Company files with the
SEC. These disclosure controls and procedures have been designed to ensure that (a) material
information relating to the Company, including its consolidated subsidiaries, is made known to
management, including these officers, by other employees of the Company, and (b) this information
is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods
specified in the SECs rules and forms. As of December 31, 2010, the officers (the principal
executive officer and principal financial officer) concluded that the Companys disclosure controls
and procedures were effective.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our principal executive
officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Our internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles in the
United States of America. Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Based on our evaluation under the framework in Internal Control Integrated Framework, our
management concluded that our internal control over financial reporting was effective as of
December 31, 2010. This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting. As we are a smaller
reporting company, managements report is not subject to attestation by our registered public
accounting firm pursuant to Section 404(c) of the Sarbanes-Oxley Act of 2002 that permits us to
provide only managements report in this annual report.
Changes in Internal Controls
There was no change in our internal control over financial reporting that occurred during the
fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
41
|
|
|
Item 9B. |
|
Other Information |
On January 28, 2011, we completed a private placement of securities in which we sold to
certain accredited investors in the aggregate: (i) 1,414 shares of Series D Convertible Preferred
Stock, with a par value of $0.001 per share and a stated value of $1,000 per share (Series D
Preferred), and (ii) warrants to purchase 2,828,000 shares of Company common stock (Common
Stock) at an exercise price of $0.50 per share.
The aggregate purchase price paid by the Purchasers for the Series D Preferred and the
warrants was $1,414,000 (representing $1,000 for each share of Series D Preferred together with
warrants). We intend to use the proceeds for working capital purposes.
The placement agents for the offering received cash compensation of $113,120 and warrants to
purchase 226,240 shares of Common Stock at an exercise price of $0.50 per share.
Part III
|
|
|
Item 10. |
|
Directors, Executive Officers and Corporate Governance |
The information required by this Item 10 will be included in the Companys Proxy Statement for
the 2011 Annual Meeting of Stockholders which will be filed with the Securities and Exchange
Commission no later than May 2, 2011 and is incorporated into this Item 10 by reference.
Code of Ethics. We have adopted a written code of ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or controller and any
persons performing similar functions. The code of ethics is on our website at
www.fibrocellscience.com. We intend to disclose any future amendments to, or waivers from, the code
of ethics within four business days of the waiver or amendment through a website posting or by
filing a Current Report on Form 8-K with the SEC.
|
|
|
Item 11. |
|
Executive Compensation |
The information required by this Item 11 will be included in the Companys Proxy Statement for
the 2011 Annual Meeting of Stockholders which will be filed with the Securities and Exchange
Commission no later than May 2, 2011 and is incorporated into this Item 11 by reference.
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
The information required by this Item 12 will be included in the Companys Proxy Statement for
the 2011 Annual Meeting of Stockholders which will be filed with the Securities and Exchange
Commission no later than May 2, 2011 and is incorporated into this Item 12 by reference.
|
|
|
Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item 13 will be included in the Companys Proxy Statement for
the 2011 Annual Meeting of Stockholders which will be filed with the Securities and Exchange
Commission no later than May 2, 2011 and is incorporated into this Item 13 by reference.
|
|
|
Item 14. |
|
Principal Accountant Fees and Services |
The information required by this Item 14 will be included in the Companys Proxy Statement for
the 2011 Annual Meeting of Stockholders which will be filed with the Securities and Exchange
Commission no later than May 2, 2011 and is incorporated into this Item 14 by reference.
42
Part IV
|
|
|
Item 15. |
|
Exhibits and Financial Statement Schedule |
(a)(1) Financial Statements.
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
|
Consolidated Balance Sheets as of December 31, 2010 (Successor Company) and 2009
(Successor Company) |
|
|
|
Consolidated Statements of Operations for the year ended December 31, 2010
(Successor Company), four months ended December 31, 2009 (Successor Company), from
inception (September 1, 2009) to December 31, 2010 (Successor Company), eight months
ended August 31, 2009 (Predecessor Company) and from inception to August 31, 2009
(Predecessor Company) |
|
|
|
Consolidated Statements of Shareholders Equity (Deficit) and Comprehensive Income
(Loss) from inception to August 31, 2009 (Predecessor Company) and from inception
(September 1, 2009) to December 31, 2010 (Successor Company) |
|
|
|
Consolidated Statements of Cash Flows for the year ended December 31, 2010, four
months ended December 31, 2009, from inception (September 1, 2009) to December 31, 2010
(Successor Company), eight months ended August 31, 2009 (Predecessor Company) and
cumulative period from inception to August 31, 2009 (Predecessor Company) |
|
|
|
Notes to Consolidated Financial Statements |
(a)(2) Financial Statement Schedule.
All schedules are omitted because of the absence of conditions under which they are required
or because the required information is presented in the Financial Statements or Notes thereto.
(a)(3) The exhibits listed under Item 15(b) are filed or incorporated by reference herein.
(b) Exhibits.
The following exhibits are filed as part of this annual report:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
IDENTIFICATION OF EXHIBIT |
|
2.1 |
|
|
Debtors First Amended Joint Plan of Reorganization dated July
30, 2009 and Disclosure Statement (filed as Exhibit 10.2 to
the Companys Form 10-Q for quarter ended June 30, 2009, filed
on August 12, 2009 and as Exhibit 99.1 to our Form 8-K filed
September 2, 2009) |
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our Form 8-K
filed September 2, 2009) |
|
3.2 |
|
|
Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to our Form 8-K filed September 2, 2009) |
|
3.3 |
|
|
Certificate of Designation of Preferences, Rights and
Limitations of Series A 6% Convertible Preferred Stock
(incorporated by reference to Exhibit 3.1 to our Form 8-K
filed October 14, 2009) |
|
3.4 |
|
|
Certificate of Designation of Preferences, Rights and
Limitations of Series B Convertible Preferred Stock, dated
July 16, 2010. (incorporated by reference to Exhibit 3.1 to
our Form 8-K filed July 20, 2010). |
|
3.5 |
|
|
Amended and Restated Certificate of Designation of
Preferences, Rights and Limitations of Series D Convertible
Preferred Stock. (incorporated by reference to Exhibit 3.2 to
our Form 8-K filed December 8, 2010). |
|
4.1 |
|
|
Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to our Form 10-Q filed November 23, 2009) |
43
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
IDENTIFICATION OF EXHIBIT |
|
4.2 |
|
|
Form of Class A/B Common Stock Purchase Warrant issued in
October 2009 offering (incorporated by reference to Exhibit
4.1 to our Form 8-K filed October 14, 2009) |
|
4.3 |
|
|
Form of 12.5% Promissory Note (incorporated by reference to
Exhibit 10.1 to our Form 8-K filed September 10, 2009) |
|
4.4 |
|
|
Form of Placement Agent Warrant issued in November 2009
offering (incorporated by reference to Exhibit 4.2 to our Form
10-Q filed November 23, 2009) |
|
4.5 |
|
|
Common Stock Purchase Warrant issued in March 2010 offering
(incorporated by reference to Exhibit 4.1 to our Form 8-K
filed March 3, 2010) |
|
4.6 |
|
|
Form of Common Stock Purchase Warrant issued in July 2010
Series B preferred stock offering (incorporated by reference
to Exhibit 4.1 to our Form 8-K filed July 20, 2010) |
|
4.7 |
|
|
Form of Placement Agent Warrant issued in July 2010 Series B
preferred stock offering (incorporated by reference to Exhibit
4.2 to our Form 8-K filed July 20, 2010) |
|
4.8 |
|
|
Form of Common Stock Purchase Warrant used for Series B
preferred stock offering (incorporated by reference to Exhibit
4.1 of the Form 8-K filed October 22, 2010). |
|
4.9 |
|
|
Form of Common Stock Purchase Warrant used for the Series D
preferred stock offering (incorporated by reference to Exhibit
4.1 of the Form 8-K filed February 15, 2011). |
|
10.1 |
|
|
Securities Purchase Agreement dated October 13, 2009 between
the Company and the Series A Preferred Stock Purchasers
(incorporated by reference to Exhibit 10.1 to our Form 8-K
filed October 14, 2009) |
|
10.2 |
|
|
Amended and Restated Employment Agreement between the Company
and Declan Daly dated August 24, 2010 (incorporated by
reference to Exhibit 10.1 to our Form 8-K filed August 27,
2010) |
|
10.3 |
|
|
Consulting Agreement between the Company and Robert Langer
(incorporated by reference to Exhibit 10.2 to our Form 10-Q
filed November 23, 2009) |
|
10.4 |
|
|
2009 Equity Incentive Plan, as amended (incorporated by
reference to Exhibit 4.5 to our Form S-8 filed March 3, 2011) |
|
10.5 |
|
|
Lease Agreement between Isolagen, Inc and The Hankin Group
dates April 7, 2005 (previously filed as an exhibit to the
companys Form 8-K, filed on April 12, 2005) |
|
10.6 |
|
|
Purchase Option Agreement between Isolagen, Inc and 405
Eagleview Associates dated April 7, 2005 (previously filed as
an exhibit to the companys Form 8-K, filed on April 12, 2005) |
|
10.7 |
|
|
Intellectual Property Purchase Agreement between Isolagen
Technologies, Inc., Gregory M. Keller, and PacGen Partners
(previously filed as an exhibit to the companys amended Form
S-1, as filed on October 24, 2003) |
|
10.8 |
|
|
Employment Agreement between the Company and David Pernock
(incorporated by reference to Exhibit 10.1 to our Form 8-K
filed February 1, 2010) |
|
10.9 |
|
|
Securities Purchase Agreement dated March 2, 2010
(incorporated by reference to Exhibit 10.1 to our Form 8-K
filed March 3, 2010) |
|
10.10 |
|
|
Registration Rights Agreement dated March 2, 2010
(incorporated by reference to Exhibit 10.1 to our Form 8-K
filed March 3, 2010) |
|
10.11 |
|
|
Registration Rights Agreement between the Company and the
Series A Preferred Stock Purchasers, dated October 13, 2009
(incorporated by reference to Exhibit 10.2 to our Form 8-K
filed October 14, 2009) |
|
10.12 |
|
|
Securities Purchase Agreement between the Company and Series B
Preferred Stock Purchasers (incorporated by reference to
Exhibit 10.1 to our Form 8-K filed July 20, 2010) |
|
10.13 |
|
|
Form of Registration Rights Agreement between the Company and
Series B Preferred Stock Purchasers (incorporated by reference
to Exhibit 10.2 to our Form 8-K filed July 20, 2010) |
|
10.14 |
|
|
Form of Securities Purchase Agreement between the Company and
Series B Preferred Stock Purchasers (incorporated by reference
to Exhibit 4.1 of the Form 8-K filed October 22, 2010). |
|
21 |
|
|
List of Subsidiaries (previously filed as an exhibit to the
companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2006) |
|
*23.1 |
|
|
Consent of BDO USA, LLP |
|
*31.1 |
|
|
Certification pursuant to Rule 13a-14(a) and 15d-14(a),
required under Section 302 of the Sarbanes-Oxley Act of 2002 |
|
*31.2 |
|
|
Certification pursuant to Rule 13a-14(a) and 15d-14(a),
required under Section 302 of the Sarbanes-Oxley Act of 2002 |
|
*32.1 |
|
|
Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
*32.2 |
|
|
Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
Fibrocell Science, Inc. |
|
|
|
|
|
|
|
By:
|
|
/s/ David Pernock |
|
|
|
|
David Pernock
|
|
|
|
|
Chief Executive Officer |
|
|
Date: March 30, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ David Pernock
David Pernock
|
|
Chief Executive Officer
and Chairman of the
Board of Directors
|
|
March 30, 2011 |
|
|
|
|
|
/s/ Declan Daly
Declan Daly
|
|
Chief Financial Officer,
Chief Operating Officer
and Director
|
|
March 30, 2011 |
|
|
|
|
|
/s/ Kelvin Moore
Kelvin Moore
|
|
Director
|
|
March 30, 2011 |
|
|
|
|
|
/s/ Dr. Robert Langer
Dr. Robert Langer
|
|
Director
|
|
March 30, 2011 |
|
|
|
|
|
/s/ Marc Mazur
Marc Mazur
|
|
Director
|
|
March 30, 2011 |
|
|
|
|
|
/s/ Dr. George Korkos
Dr. George Korkos
|
|
Director
|
|
March 30, 2011 |
45
Fibrocell Science, Inc.
(A Development Stage Company)
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
PAGE |
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the year ended December
31, 2010 (Successor Company), four months ended December 31, 2009
(Successor Company), cumulative period from inception (September
1, 2009) to December 31, 2010 (Successor Company), eight months
ended August 31, 2009 (Predecessor Company) and cumulative period
from inception (December 28, 1995) to August 31, 2009
(Predecessor Company) |
|
|
F-17 |
|
|
|
|
|
|
|
|
|
F-19 |
|
|
|
|
|
|
F1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Fibrocell Science, Inc. (a development stage company)
Exton, Pennsylvania
We have audited the accompanying consolidated balance sheets of Fibrocell Science, Inc. (in the
development stage) as of December 31, 2010 and 2009 and the related consolidated statements of
operations, shareholders equity (deficit) and comprehensive loss, and cash flows for the year
ended December 31, 2010 (Successor), for the period from January 1 to August 31, 2009
(Predecessor as described in Note 1 of the notes to the consolidated financial statements) and
for the period from the Successors inception of operations (September 1, 2009) through December
31, 2009. We have also audited the statements of shareholders equity (deficit) for the period from
December 28, 1995 (Predecessors inception) to December 31, 2008. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. Our audit
included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Fibrocell Science, Inc. at December 31, 2010 and 2009,
and the results of its operations and its cash flows for the year ended December 31, 2010
(Successor), for the period from January 1 to August 31, 2009 (Predecessor) and for the period
from the Successors inception of operations (September 1, 2009) through December 31, 2009 and the
statements of shareholders equity (deficit) for the period from December 28, 1995 (Predecessors
inception) to August 31, 2009 and for the period from the Successors inception of operations
(September 1, 2009) through December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 3 to the financial statements, the Company has suffered
recurring losses from operations, has a net capital deficit, and has limited cash resources that
raise substantial doubt about its ability to continue as a going concern. Managements plan in
regard to these matters is also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO USA, LLP
Houston, Texas
March 30, 2011
F2
Fibrocell Science, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
867,738 |
|
|
$ |
1,362,488 |
|
Accounts receivable, net |
|
|
229,891 |
|
|
|
269,759 |
|
Inventory, net |
|
|
258,939 |
|
|
|
226,032 |
|
Prepaid expenses and other current assets |
|
|
559,082 |
|
|
|
525,024 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,915,650 |
|
|
|
2,383,303 |
|
Property and equipment, net of accumulated depreciation of $8,085 and $0,
respectively |
|
|
21,589 |
|
|
|
|
|
Other assets |
|
|
250 |
|
|
|
250 |
|
Intangible assets |
|
|
6,340,656 |
|
|
|
6,340,656 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,278,145 |
|
|
$ |
8,724,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Preferred Stock, Shareholders Deficit and Noncontrolling
Interest |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current debt |
|
$ |
56,911 |
|
|
$ |
47,795 |
|
Accounts payable |
|
|
1,096,125 |
|
|
|
245,023 |
|
Accrued expenses |
|
|
789,482 |
|
|
|
544,260 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,942,518 |
|
|
|
837,078 |
|
Long-term debt |
|
|
7,290,881 |
|
|
|
6,000,060 |
|
Deferred tax liability |
|
|
2,500,000 |
|
|
|
2,500,000 |
|
Warrant liability |
|
|
8,171,518 |
|
|
|
635,276 |
|
Derivative liability |
|
|
2,120,360 |
|
|
|
|
|
Other long-term liabilities |
|
|
255,606 |
|
|
|
369,210 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
22,280,883 |
|
|
|
10,341,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock series A, $0.001 par value; 9,000 shares authorized; 3,250 shares
issued and 2,886 shares outstanding |
|
|
1,280,150 |
|
|
|
2,511,070 |
|
Preferred stock series B, $0.001 par value; 9,000 shares authorized; 4,640 shares
issued and outstanding |
|
|
|
|
|
|
|
|
Preferred stock series B, $0.001 par value; subscription receivable |
|
|
(210,000 |
) |
|
|
|
|
Preferred stock series D, $0.001 par value; 8,000 shares authorized; 1,645 shares
issued and outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fibrocell Science, Inc. shareholders deficit: |
|
|
|
|
|
|
|
|
Successor common stock, $0.001 par value; 250,000,000 shares authorized;
20,375,500 issued and outstanding |
|
|
20,376 |
|
|
|
14,692 |
|
Additional paid-in capital |
|
|
2,437,893 |
|
|
|
508,347 |
|
Accumulated deficit during development stage |
|
|
(17,981,530 |
) |
|
|
(5,049,999 |
) |
|
|
|
|
|
|
|
Total Fibrocell Science, Inc. shareholders deficit |
|
|
(15,523,261 |
) |
|
|
(4,526,960 |
) |
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
450,373 |
|
|
|
398,475 |
|
|
|
|
|
|
|
|
Total deficit and noncontrolling interest |
|
|
(15,072,888 |
) |
|
|
(4,128,485 |
) |
|
|
|
|
|
|
|
Total liabilities, preferred stock, shareholders deficit and noncontrolling interest |
|
$ |
8,278,145 |
|
|
$ |
8,724,209 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F3
Fibrocell Science, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Cumulative period |
|
|
|
|
|
|
|
Cumulative period |
|
|
|
|
|
|
|
|
|
|
|
from September 1, |
|
|
|
|
|
|
|
from December 28, |
|
|
|
|
|
|
|
For the four months |
|
|
2009 (date of |
|
|
|
For the eight |
|
|
1995 (date of |
|
|
|
For the year ended |
|
|
ended December 31, |
|
|
inception) to |
|
|
|
months ended |
|
|
inception) to August |
|
|
|
December 31, 2010 |
|
|
2009 |
|
|
December 31, 2010 |
|
|
|
August 31, 2009 |
|
|
31, 2009 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
936,369 |
|
|
$ |
329,941 |
|
|
$ |
1,266,310 |
|
|
|
$ |
538,620 |
|
|
$ |
4,818,994 |
|
License fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
936,369 |
|
|
|
329,941 |
|
|
|
1,266,310 |
|
|
|
|
538,620 |
|
|
|
5,078,994 |
|
Cost of sales |
|
|
502,648 |
|
|
|
182,048 |
|
|
|
684,696 |
|
|
|
|
424,139 |
|
|
|
2,279,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
433,721 |
|
|
|
147,893 |
|
|
|
581,614 |
|
|
|
|
114,481 |
|
|
|
2,799,659 |
|
Selling, general and administrative expenses |
|
|
6,515,581 |
|
|
|
2,708,356 |
|
|
|
9,223,937 |
|
|
|
|
3,427,374 |
|
|
|
84,805,520 |
|
Research and development expenses |
|
|
5,486,319 |
|
|
|
1,823,196 |
|
|
|
7,309,515 |
|
|
|
|
2,107,718 |
|
|
|
56,269,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(11,568,179 |
) |
|
|
(4,383,659 |
) |
|
|
(15,951,838 |
) |
|
|
|
(5,420,611 |
) |
|
|
(138,275,730 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
248 |
|
|
|
6,989,539 |
|
Reorganization items, net |
|
|
3,303 |
|
|
|
(72,477 |
) |
|
|
(69,174 |
) |
|
|
|
73,538,984 |
|
|
|
73,538,984 |
|
Other income (expense) |
|
|
244,479 |
|
|
|
|
|
|
|
244,479 |
|
|
|
|
(6,243 |
) |
|
|
316,338 |
|
Warrant expense |
|
|
(465,232 |
) |
|
|
(319,084 |
) |
|
|
(784,316 |
) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(1,045,199 |
) |
|
|
(247,174 |
) |
|
|
(1,292,373 |
) |
|
|
|
(2,232,138 |
) |
|
|
(18,790,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes |
|
|
(12,830,828 |
) |
|
|
(5,022,393 |
) |
|
|
(17,853,221 |
) |
|
|
|
65,880,240 |
|
|
|
(76,221,087 |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(12,830,828 |
) |
|
|
(5,022,393 |
) |
|
|
(17,853,221 |
) |
|
|
|
65,880,240 |
|
|
|
(76,030,333 |
) |
Income (loss) from discontinued operations |
|
|
(48,805 |
) |
|
|
(12,113 |
) |
|
|
(60,918 |
) |
|
|
|
46,923 |
|
|
|
(41,091,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(12,879,633 |
) |
|
|
(5,034,506 |
) |
|
|
(17,914,139 |
) |
|
|
|
65,927,163 |
|
|
|
(117,121,644 |
) |
Deemed dividend associated with beneficial
conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,423,824 |
) |
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,589,861 |
) |
Net (income)/loss attributable to
noncontrolling interest |
|
|
(51,898 |
) |
|
|
(15,493 |
) |
|
|
(67,391 |
) |
|
|
|
(205,632 |
) |
|
|
1,799,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Fibrocell
Science, Inc. common shareholders |
|
$ |
(12,931,531 |
) |
|
$ |
(5,049,999 |
) |
|
$ |
(17,981,530 |
) |
|
|
$ |
65,721,531 |
|
|
$ |
(128,335,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations-basic and diluted |
|
$ |
(0.68 |
) |
|
$ |
(0.35 |
) |
|
$ |
(1.01 |
) |
|
|
$ |
1.72 |
|
|
$ |
(4.30 |
) |
Loss from discontinued operations-basic and
diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.32 |
) |
Income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend associated with beneficial
conversion of preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.65 |
) |
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common
shareholders per common sharebasic and
diluted |
|
$ |
(0.68 |
) |
|
$ |
(0.35 |
) |
|
$ |
(1.01 |
) |
|
|
$ |
1.72 |
|
|
$ |
(7.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of basic and diluted
common shares outstanding |
|
|
18,757,756 |
|
|
|
14,380,381 |
|
|
|
17,681,500 |
|
|
|
|
38,230,886 |
|
|
|
17,678,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F4
Fibrocell Science, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders Equity (Deficit) and Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Stage |
|
|
(Deficit) |
|
Issuance of common stock for
cash on 12/28/95 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
2,285,291 |
|
|
$ |
2,285 |
|
|
$ |
(1,465 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
820 |
|
Issuance of common stock for cash
on 11/7/96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,149 |
|
|
|
11 |
|
|
|
49,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
Issuance of common stock for cash
on 11/29/96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,230 |
|
|
|
2 |
|
|
|
9,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
Issuance of common stock for cash
on 12/19/96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,690 |
|
|
|
7 |
|
|
|
29,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
Issuance of common stock for cash
on 12/26/96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,148 |
|
|
|
11 |
|
|
|
49,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(270,468 |
) |
|
|
(270,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/96 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
2,316,508 |
|
|
$ |
2,316 |
|
|
$ |
138,504 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(270,468 |
) |
|
$ |
(129,648 |
) |
Issuance of common stock for cash
on 12/27/97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,182 |
|
|
|
21 |
|
|
|
94,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,000 |
|
Issuance of common stock for
services on 9/1/97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,148 |
|
|
|
11 |
|
|
|
36,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,260 |
|
Issuance of common stock for
services on 12/28/97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287,193 |
|
|
|
287 |
|
|
|
9,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,255 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,550 |
) |
|
|
(52,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/97(Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
2,636,031 |
|
|
$ |
2,635 |
|
|
$ |
279,700 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(323,018 |
) |
|
$ |
(40,683 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Stage |
|
|
(Deficit) |
|
Issuance of common stock for
cash on 8/23/98 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
4,459 |
|
|
$ |
4 |
|
|
$ |
20,063 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,067 |
|
Repurchase of common stock on
9/29/98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
(50,280 |
) |
|
|
|
|
|
|
|
|
|
|
(50,280 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,675 |
) |
|
|
(195,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/98 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
2,640,490 |
|
|
$ |
2,639 |
|
|
$ |
299,763 |
|
|
|
2,400 |
|
|
$ |
(50,280 |
) |
|
$ |
|
|
|
$ |
(518,693 |
) |
|
$ |
(266,571 |
) |
Issuance of common stock for
cash on 9/10/99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,506 |
|
|
|
53 |
|
|
|
149,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,306,778 |
) |
|
|
(1,306,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/99 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
2,692,996 |
|
|
$ |
2,692 |
|
|
$ |
449,710 |
|
|
|
2,400 |
|
|
$ |
(50,280 |
) |
|
$ |
|
|
|
$ |
(1,825,471 |
) |
|
$ |
(1,423,349 |
) |
Issuance of common stock for
cash on 1/18/00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,583 |
|
|
|
54 |
|
|
|
1,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,923 |
|
Issuance of common stock for
services on 3/1/00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,698 |
|
|
|
69 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
Issuance of common stock for
services on 4/4/00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,768 |
|
|
|
28 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(807,076 |
) |
|
|
(807,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/00 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
2,843,045 |
|
|
$ |
2,843 |
|
|
$ |
451,517 |
|
|
|
2,400 |
|
|
$ |
(50,280 |
) |
|
$ |
|
|
|
$ |
(2,632,547 |
) |
|
$ |
(2,228,467 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Stage |
|
|
(Deficit) |
|
Issuance of
common stock for
services on 7/1/01 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
156,960 |
|
|
$ |
157 |
|
|
$ |
(101 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
56 |
|
Issuance of common
stock for services
on 7/1/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
125 |
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
Issuance of common
stock for
capitalization of
accrued salaries on
8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000 |
|
|
|
70 |
|
|
|
328,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328,125 |
|
Issuance of common
stock for
conversion of
convertible debt on
8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,750,000 |
|
|
|
1,750 |
|
|
|
1,609,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,611,346 |
|
Issuance of common
stock for
conversion of
convertible
shareholder notes
payable on 8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,972 |
|
|
|
209 |
|
|
|
135,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,667 |
|
Issuance of common
stock for bridge
financing on
8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
300 |
|
|
|
(192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108 |
|
Retirement of
treasury stock on
8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,280 |
) |
|
|
(2,400 |
) |
|
|
50,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock for net
assets of Gemini on
8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,942,400 |
|
|
|
3,942 |
|
|
|
(3,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock for net
assets of AFH on
8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,899,547 |
|
|
|
3,900 |
|
|
|
(3,900 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock for cash on
8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,346,669 |
|
|
|
1,347 |
|
|
|
2,018,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,020,000 |
|
Transaction and
fund raising
expenses on 8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,547 |
) |
Issuance of common
stock for services
on 8/10/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
Issuance of common
stock for cash on
8/28/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,667 |
|
|
|
27 |
|
|
|
39,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
Issuance of common
stock for services
on 9/30/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,370 |
|
|
|
314 |
|
|
|
471,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,555 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Stage |
|
|
(Deficit) |
|
Uncompensated contribution of
services3rd quarter |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
55,556 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
55,556 |
|
Issuance of common stock for
services on 11/1/01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,933 |
|
|
|
146 |
|
|
|
218,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,900 |
|
Uncompensated contribution of
services4th quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,652,004 |
) |
|
|
(1,652,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/01 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
15,189,563 |
|
|
$ |
15,190 |
|
|
$ |
5,321,761 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(4,284,551 |
) |
|
$ |
1,052,400 |
|
Uncompensated contribution of
services1st quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Issuance of preferred stock for
cash on 4/26/02 |
|
|
905,000 |
|
|
|
905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,817,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,818,236 |
|
Issuance of preferred stock for
cash on 5/16/02 |
|
|
890,250 |
|
|
|
890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,772,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,773,129 |
|
Issuance of preferred stock for
cash on 5/31/02 |
|
|
795,000 |
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,473,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,474,175 |
|
Issuance of preferred stock for
cash on 6/28/02 |
|
|
229,642 |
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
713,221 |
|
Uncompensated contribution of
services2nd quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Issuance of preferred stock for
cash on 7/15/02 |
|
|
75,108 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,961 |
|
Issuance of common stock for cash
on 8/1/02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,400 |
|
|
|
38 |
|
|
|
57,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,600 |
|
Issuance of warrants for services
on 9/06/02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,388 |
|
Uncompensated contribution of
services3rd quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Uncompensated contribution of
services4th quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Issuance of preferred stock for
dividends |
|
|
143,507 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
502,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(502,661 |
) |
|
|
|
|
Deemed dividend associated with
beneficial conversion of preferred
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,178,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,178,944 |
) |
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,433,055 |
) |
|
|
(5,433,055 |
) |
Other comprehensive income,
foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,875 |
|
|
|
|
|
|
|
13,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,419,180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/02 (Predecessor) |
|
|
3,038,507 |
|
|
$ |
3,039 |
|
|
|
|
|
|
$ |
|
|
|
|
15,227,963 |
|
|
$ |
15,228 |
|
|
$ |
25,573,999 |
|
|
|
|
|
|
$ |
|
|
|
$ |
13,875 |
|
|
$ |
(20,399,211 |
) |
|
$ |
5,206,930 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Stage |
|
|
(Deficit) |
|
Issuance of common stock for cash
on 1/7/03 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
61,600 |
|
|
$ |
62 |
|
|
$ |
92,338 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
92,400 |
|
Issuance of common stock for
patent pending acquisition on
3/31/03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
100 |
|
|
|
539,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
540,000 |
|
Cancellation of common stock on
3/31/03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,382 |
) |
|
|
(79 |
) |
|
|
(119,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,459 |
) |
Uncompensated contribution of
services1st quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Issuance of preferred stock for
cash on 5/9/03 |
|
|
|
|
|
|
|
|
|
|
110,250 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
2,773,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,773,328 |
|
Issuance of preferred stock for
cash on 5/16/03 |
|
|
|
|
|
|
|
|
|
|
45,500 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
1,145,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,145,750 |
|
Conversion of preferred stock into
common stock2nd qtr |
|
|
(70,954 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
147,062 |
|
|
|
147 |
|
|
|
40,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,701 |
|
Conversion of warrants into common
stock2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,598 |
|
|
|
114 |
|
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncompensated contribution of
services2nd quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Issuance of preferred stock
dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,087,200 |
) |
|
|
(1,087,200 |
) |
Deemed dividend associated with
beneficial conversion of preferred
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,244,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,244,880 |
) |
|
|
|
|
Issuance of common stock for
cash3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,500 |
|
|
|
202 |
|
|
|
309,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,000 |
|
Issuance of common stock for cash
on 8/27/03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,359,331 |
|
|
|
3,359 |
|
|
|
18,452,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,455,561 |
|
Conversion of preferred stock into
common stock3rd qtr |
|
|
(2,967,553 |
) |
|
|
(2,967 |
) |
|
|
(155,750 |
) |
|
|
(156 |
) |
|
|
7,188,793 |
|
|
|
7,189 |
|
|
|
(82,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,809 |
) |
Conversion of warrants into common
stock3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,834 |
|
|
|
213 |
|
|
|
(213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense on warrants
issued to non-employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
412,812 |
|
Issuance of common stock for
cash4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,500 |
|
|
|
137 |
|
|
|
279,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279,500 |
|
Conversion of warrants into common
stock4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,268,294 |
) |
|
|
(11,268,294 |
) |
Other comprehensive income,
foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360,505 |
|
|
|
|
|
|
|
360,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,907,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/03 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
26,672,192 |
|
|
$ |
26,672 |
|
|
$ |
50,862,258 |
|
|
|
|
|
|
$ |
|
|
|
$ |
374,380 |
|
|
$ |
(33,999,585 |
) |
|
$ |
17,263,725 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
Shareholders |
|
|
|
Number |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Equity |
|
|
|
of Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Stage |
|
|
(Deficit) |
|
Conversion of warrants into common
stock1st qtr |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
78,526 |
|
|
$ |
79 |
|
|
$ |
(79 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Issuance of common stock for cash in
connection with exercise of stock
options1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
15 |
|
|
|
94,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,000 |
|
Issuance of common stock for cash in
connection with exercise of
warrants1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
4 |
|
|
|
7,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,720 |
|
Compensation expense on options and warrants
issued to non-employees and
directors1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,410,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,410,498 |
|
Issuance of common stock in connection with
exercise of warrants2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,828 |
|
|
|
52 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for
cash2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200,000 |
|
|
|
7,200 |
|
|
|
56,810,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,817,434 |
|
Compensation expense on options and warrants
issued to non-employees and
directors2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,462 |
|
Issuance of common stock in connection with
exercise of warrants3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,431 |
|
|
|
7 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash in
connection with exercise of stock
options3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,000 |
|
|
|
110 |
|
|
|
189,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,000 |
|
Issuance of common stock for cash in
connection with exercise of
warrants3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,270 |
|
|
|
28 |
|
|
|
59,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,695 |
|
Compensation expense on options and warrants
issued to non-employees and
directors3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,133 |
|
Issuance of common stock in connection with
exercise of warrants4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,652 |
|
|
|
28 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense on options and warrants
issued to non-employees, employees, and
directors4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,497 |
|
Purchase of treasury stock4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
(25,974,000 |
) |
|
|
|
|
|
|
|
|
|
|
(25,974,000 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,474,469 |
) |
|
|
(21,474,469 |
) |
Other comprehensive income, foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,725 |
|
|
|
|
|
|
|
79,725 |
|
Other comprehensive income, net unrealized
gain on available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,005 |
|
|
|
|
|
|
|
10,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,384,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/04 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
34,194,899 |
|
|
$ |
34,195 |
|
|
$ |
109,935,174 |
|
|
|
4,000,000 |
|
|
$ |
(25,974,000 |
) |
|
$ |
464,110 |
|
|
$ |
(55,474,054 |
) |
|
$ |
28,985,425 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Stage |
|
|
(Deficit) |
|
Issuance of common stock for
cash in connection with
exercise of stock
options1st qtr |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
25,000 |
|
|
$ |
25 |
|
|
$ |
74,975 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
75,000 |
|
Compensation expense on
options and warrants issued to
non-employees1st
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,565 |
|
Conversion of warrants into
common stock2nd
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,785 |
|
|
|
28 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense on
options and warrants issued to
non-employees2nd
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,762 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,762 |
) |
Compensation expense on
options and warrants issued to
non-employees3rd
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137,187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137,187 |
) |
Conversion of warrants into
common stock3rd
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,605 |
|
|
|
12 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense on
options and warrants issued to
non-employees4th
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,844 |
|
Compensation expense on
acceleration of
options4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,950 |
|
Compensation expense on
restricted stock award issued
to employee4th
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606 |
|
Conversion of predecessor
company shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,777,584 |
) |
|
|
(35,777,584 |
) |
Other comprehensive loss,
foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,372,600 |
) |
|
|
|
|
|
|
(1,372,600 |
) |
Foreign exchange gain on
substantial liquidation of
foreign entity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,851 |
|
|
|
|
|
|
|
133,851 |
|
Other comprehensive loss, net
unrealized gain on
available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,005 |
) |
|
|
|
|
|
|
(10,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,026,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 12/31/05 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
34,260,383 |
|
|
$ |
34,260 |
|
|
$ |
109,879,125 |
|
|
|
4,000,000 |
|
|
$ |
(25,974,000 |
) |
|
$ |
(784,644 |
) |
|
$ |
(91,251,638 |
) |
|
$ |
(8,096,897 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
|
|
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Noncontrolling |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Stage |
|
|
Interest |
|
|
(Deficit) |
|
Compensation expense on options and warrants issued to
non-employees1st qtr |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
42,810 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
42,810 |
|
Compensation expense on option awards issued to employees and
directors1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,336 |
|
Compensation expense on restricted stock issued to
employees1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,750 |
|
|
|
129 |
|
|
|
23,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,497 |
|
Compensation expense on options and warrants issued to
non-employees2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,177 |
|
Compensation expense on option awards issued to employees and
directors2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,012 |
|
Compensation expense on restricted stock to
employees2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,210 |
|
Cancellation of unvested restricted stock 2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,400 |
) |
|
|
(97 |
) |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash in connection with exercise of
stock options2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
10 |
|
|
|
16,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,500 |
|
Compensation expense on options and warrants issued to
non-employees3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,627 |
|
Compensation expense on option awards issued to employees and
directors3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389,458 |
|
Compensation expense on restricted stock to
employees3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,605 |
|
Issuance of common stock for cash in connection with exercise of
stock options3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,000 |
|
|
|
76 |
|
|
|
156,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,900 |
|
Acquisition of Agera |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,182,505 |
|
|
|
2,182,505 |
|
Compensation expense on options and warrants issued to
non-employees4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,772 |
|
Compensation expense on option awards issued to employees and
directors4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,547 |
|
Compensation expense on restricted stock to
employees4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Cancellation of unvested restricted stock award4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,002 |
) |
|
|
(15 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,821,406 |
) |
|
|
(78,132 |
) |
|
|
(35,899,538 |
) |
Other comprehensive gain, foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
657,182 |
|
|
|
|
|
|
|
|
|
|
|
657,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,242,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 12/31/06 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
34,362,731 |
|
|
$ |
34,363 |
|
|
$ |
111,516,561 |
|
|
|
4,000,000 |
|
|
$ |
(25,974,000 |
) |
|
$ |
(127,462 |
) |
|
$ |
(127,073,044 |
) |
|
$ |
2,104,373 |
|
|
$ |
(39,519,209 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
|
|
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Noncontrolling |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Stage |
|
|
Interest |
|
|
(Deficit) |
|
Compensation expense on options
and warrants issued to
non-employees1st
qtr |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
39,742 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
39,742 |
|
Compensation expense on option
awards issued to employees and
directors1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448,067 |
|
Compensation expense on
restricted stock issued to
employees1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Issuance of common stock for
cash in connection with
exercise of stock
options1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
15 |
|
|
|
23,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,100 |
|
Expense in connection with
modification of employee stock
options 1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,178,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,178,483 |
|
Compensation expense on options
and warrants issued to
non-employees2nd
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,981 |
|
Compensation expense on option
awards issued to employees and
directors2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462,363 |
|
Compensation expense on
restricted stock issued to
employees2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Compensation expense on option
awards issued to employees and
directors3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,795 |
|
Compensation expense on
restricted stock issued to
employees3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
Issuance of common stock upon
exercise of
warrants3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492,613 |
|
|
|
493 |
|
|
|
893,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
894,304 |
|
Issuance of common stock for
cash, net of offering
costs3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,767,647 |
|
|
|
6,767 |
|
|
|
13,745,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,752,167 |
|
Issuance of common stock for
cash in connection with
exercise of stock
options3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666 |
|
|
|
2 |
|
|
|
3,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,166 |
|
Compensation expense on option
awards issued to employees and
directors4thqtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,827 |
|
Compensation expense on
restricted stock issued to
employees4thqtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,573,114 |
) |
|
|
(246,347 |
) |
|
|
(35,819,461 |
) |
Other comprehensive gain,
foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
846,388 |
|
|
|
|
|
|
|
|
|
|
|
846,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,973,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 12/31/07 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
41,639,657 |
|
|
$ |
41,640 |
|
|
$ |
129,208,631 |
|
|
|
4,000,000 |
|
|
$ |
(25,974,000 |
) |
|
$ |
718,926 |
|
|
$ |
(162,646,158 |
) |
|
$ |
1,858,026 |
|
|
$ |
(56,792,935 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
|
|
|
|
Shareholders |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Noncontrolling |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Stage |
|
|
Interest |
|
|
(Deficit) |
|
Compensation expense on vested options related to
non-employees1st qtr |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
44,849 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
44,849 |
|
Compensation expense on option awards issued to
employees and directors1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,305 |
|
Expense in connection with modification of employee
stock options 1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,262,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,262,815 |
|
Retirement of restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Compensation expense on vested options related to
non-employees2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,697 |
|
Compensation expense on option awards
issued to employees and directors2nd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,754 |
|
Compensation expense on vested options
related to non-employees3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,687 |
|
Compensation expense on option awards
issued to employees and directors3rd qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,012 |
|
Compensation expense on vested options
related to non-employees4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86,719 |
) |
Compensation expense on option awards
issued to employees and directors4th qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,411,179 |
) |
|
|
(1,680,676 |
) |
|
|
(33,091,855 |
) |
Reclassification of foreign exchange gain on
substantial liquidation of foreign entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,152,569 |
) |
|
|
|
|
|
|
|
|
|
|
(2,152,569 |
) |
Other comprehensive gain, foreign currency translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,433,643 |
|
|
|
|
|
|
|
|
|
|
|
1,433,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,810,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 12/31/08 (Predecessor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
41,639,492 |
|
|
$ |
41,639 |
|
|
$ |
131,341,227 |
|
|
|
4,000,000 |
|
|
$ |
(25,974,000 |
) |
|
$ |
|
|
|
$ |
(194,057,337 |
) |
|
$ |
177,350 |
|
|
$ |
(88,471,121 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
|
|
|
|
Total |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Noncontrolling |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Stage |
|
|
Interest |
|
|
(Deficit) |
|
Compensation expense on vested options
related to non-employees1st
qtr |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
1,746 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,746 |
|
Compensation expense on option awards
issued to employees and
directors1st qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,798 |
|
Conversion of debt into common stock
1st qtr 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,564 |
|
|
|
38 |
|
|
|
343,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,000 |
|
Compensation expense on option awards
issued to employees and directors2nd
qtr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,616 |
|
Conversion of debt into common stock
2nd qtr 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,143,324 |
|
|
|
1,143 |
|
|
|
10,468,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,470,000 |
|
Compensation expense on option awards
issued to employees and directors2
months ended 8/31/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,382 |
|
Balance of expense due to cancellation
of options issued to employees and
directors in bankruptcy2 months ended
8/31/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,721,531 |
|
|
|
205,632 |
|
|
|
65,927,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,927,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 8/31/09 (Predecessor) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,820,380 |
|
|
$ |
42,820 |
|
|
$ |
142,737,500 |
|
|
|
4,000,000 |
|
|
$ |
(25,974,000 |
) |
|
$ |
|
|
|
$ |
(128,335,806 |
) |
|
$ |
382,982 |
|
|
$ |
(11,146,504 |
) |
Cancellation of Predecessor common stock
and fresh start adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,820,380 |
) |
|
|
(42,820 |
) |
|
|
(150,426,331 |
) |
|
|
(4,000,000 |
) |
|
|
25,974,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,495,151 |
) |
Elimination of Predecessor accumulated
deficit and accumulated other
comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,335,806 |
|
|
|
|
|
|
|
128,335,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 9/1/09 (Predecessor) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,688,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382,982 |
|
|
|
(7,305,849 |
) |
Issuance of 11.4 million shares of
common stock in connection with
emergence from Chapter 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,400,000 |
|
|
|
11,400 |
|
|
|
5,460,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,472,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 9/1/09 (Successor) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,400,000 |
|
|
|
11,400 |
|
|
|
(2,228,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382,982 |
|
|
|
(1,833,849 |
) |
Issuance of 2.7 million shares of common
stock in connection with the exit
financing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,666,666 |
|
|
|
2,667 |
|
|
|
1,797,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800,000 |
|
Issuance of common stock on Oct. 28, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,501 |
|
|
|
25 |
|
|
|
58,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,652 |
|
Compensation expense on shares issued to
management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000 |
|
|
|
600 |
|
|
|
167,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,000 |
|
Compensation expense on option awards
issued to directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,838 |
|
Compensation expense on option awards
issued to non-employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,049,999 |
) |
|
|
15,493 |
|
|
|
(5,034,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,034,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 12/31/09 (Successor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
14,692,167 |
|
|
$ |
14,692 |
|
|
$ |
508,347 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(5,049,999 |
) |
|
$ |
398,475 |
|
|
$ |
(4,128,485 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
Other |
|
|
During |
|
|
|
|
|
|
Total |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Paid-In |
|
|
Number of |
|
|
|
|
|
|
Comprehensive |
|
|
Development |
|
|
Noncontrolling |
|
|
Equity |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Shares |
|
|
Amount |
|
|
Income (Loss) |
|
|
Stage |
|
|
Interest |
|
|
(Deficit) |
|
Issuance of 5.1 million shares of
common stock in March 2010, net of
issuance costs of $338,100 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
5,076,664 |
|
|
$ |
5,077 |
|
|
$ |
3,464,323 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,469,400 |
|
Warrant fair value associated with
common shares issued in March 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,890,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,890,711 |
) |
Compensation expense on shares
issued to management 1Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
Compensation expense on option
awards issued to
directors/employees-1Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,377 |
|
Compensation expense on option
awards issued to
non-employees-1Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,391 |
|
Compensation expense on shares
issued to management 2Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
Compensation expense on option
awards issued to
directors/employees-2Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,011 |
|
Compensation expense on option
awards issued to
non-employees-2Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,206 |
|
Compensation expense on shares
issued to management 3Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
Compensation expense on option
awards issued to
directors/employees-3Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,231 |
|
Compensation expense on option
awards issued to
non-employees-3Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,724 |
|
Compensation expense on shares
issued to management 4Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
Compensation expense on option
awards issued to
directors/employees-4Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,094 |
|
Compensation expense on option
awards issued to
non-employees-4Q10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,507 |
|
Preferred Stock Series A conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606,667 |
|
|
|
607 |
|
|
|
363,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,931,531 |
) |
|
|
51,898 |
|
|
|
(12,879,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,879,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 12/31/10 (Successor) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
20,375,498 |
|
|
$ |
20,376 |
|
|
$ |
2,437,893 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(17,981,530 |
) |
|
$ |
450,373 |
|
|
$ |
(15,072,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F16
Fibrocell Science, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, |
|
|
|
|
|
|
Cumulative period |
|
|
|
Twelve months |
|
|
Four months |
|
|
2009 (date of |
|
|
|
|
|
|
from December 31, |
|
|
|
ended |
|
|
ended |
|
|
inception) to |
|
|
|
Eight months |
|
|
1995 (date of |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
ended August 31, |
|
|
inception) to August |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
|
2009 |
|
|
31, 2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(12,931,531 |
) |
|
$ |
(5,049,999 |
) |
|
$ |
(17,981,530 |
) |
|
|
$ |
65,721,531 |
|
|
$ |
(115,322,121 |
) |
Adjustments to reconcile net (loss) income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items, net |
|
|
|
|
|
|
72,477 |
|
|
|
72,477 |
|
|
|
|
(74,648,976 |
) |
|
|
(74,648,976 |
) |
Expense related to equity awards and issuance of stock |
|
|
992,541 |
|
|
|
881,218 |
|
|
|
1,873,759 |
|
|
|
|
583,453 |
|
|
|
10,608,999 |
|
Warrant expense |
|
|
465,232 |
|
|
|
319,084 |
|
|
|
784,316 |
|
|
|
|
|
|
|
|
|
|
Uncompensated contribution of services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755,556 |
|
Depreciation and amortization |
|
|
8,085 |
|
|
|
|
|
|
|
8,085 |
|
|
|
|
|
|
|
|
9,091,990 |
|
Provision for doubtful accounts |
|
|
(7,818 |
) |
|
|
(46,619 |
) |
|
|
(54,437 |
) |
|
|
|
501 |
|
|
|
337,810 |
|
Provision for excessive and/or obsolete inventory |
|
|
(60,366 |
) |
|
|
11,664 |
|
|
|
(48,702 |
) |
|
|
|
169,085 |
|
|
|
259,427 |
|
Amortization of debt issue costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
985,237 |
|
|
|
4,107,067 |
|
Amortization of debt discounts on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(508,983 |
) |
Loss on disposal or impairment of property and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,668,477 |
|
Foreign exchange gain on substantial liquidation of foreign entity |
|
|
(5,072 |
) |
|
|
(2,614 |
) |
|
|
(7,686 |
) |
|
|
|
30,012 |
|
|
|
(2,256,408 |
) |
Net (loss) income attributable to non-controlling interest |
|
|
51,898 |
|
|
|
15,493 |
|
|
|
67,391 |
|
|
|
|
205,632 |
|
|
|
(1,799,523 |
) |
Change in operating assets and liabilities, excluding effects of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable |
|
|
47,686 |
|
|
|
23,544 |
|
|
|
71,230 |
|
|
|
|
91,666 |
|
|
|
(91,496 |
) |
Decrease (increase) in other receivables |
|
|
(4,033 |
) |
|
|
4,740 |
|
|
|
707 |
|
|
|
|
23,632 |
|
|
|
218,978 |
|
Decrease (increase) in inventory |
|
|
27,459 |
|
|
|
30,923 |
|
|
|
58,382 |
|
|
|
|
29,543 |
|
|
|
(455,282 |
) |
Decrease (increase) in prepaid expenses |
|
|
42,799 |
|
|
|
(244,905 |
) |
|
|
(202,106 |
) |
|
|
|
628,197 |
|
|
|
34,341 |
|
Decrease (increase) in other assets |
|
|
|
|
|
|
4,120 |
|
|
|
4,120 |
|
|
|
|
(112,441 |
) |
|
|
71,000 |
|
Increase (decrease) in accounts payable |
|
|
851,102 |
|
|
|
107,622 |
|
|
|
958,724 |
|
|
|
|
(230,592 |
) |
|
|
57,648 |
|
Increase (decrease) in accrued expenses, liabilities subject to compromise and other liabilities |
|
|
1,256,140 |
|
|
|
(425,794 |
) |
|
|
830,346 |
|
|
|
|
1,868,162 |
|
|
|
3,311,552 |
|
Increase (decrease) in deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,522 |
) |
|
|
(50,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(9,265,878 |
) |
|
|
(4,299,046 |
) |
|
|
(13,564,924 |
) |
|
|
|
(4,662,880 |
) |
|
|
(148,610,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Agera, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,016,520 |
) |
Purchase of property and equipment |
|
|
(29,674 |
) |
|
|
|
|
|
|
(29,674 |
) |
|
|
|
|
|
|
|
(25,515,170 |
) |
Proceeds from the sale of property and equipment, net of selling costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,542,434 |
|
Purchase of investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152,998,313 |
) |
Proceeds from sales and maturities of investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,507,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(29,674 |
) |
|
|
|
|
|
|
(29,674 |
) |
|
|
|
|
|
|
|
(20,480,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,450,000 |
|
Offering costs associated with the issuance of convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,746,193 |
) |
Proceeds from notes payable to shareholders, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,667 |
|
Proceeds from the issuance of redeemable preferred stock series A, net |
|
|
|
|
|
|
2,870,000 |
|
|
|
2,870,000 |
|
|
|
|
|
|
|
|
12,931,800 |
|
Proceeds from the issuance of redeemable preferred stock series B, net |
|
|
4,019,570 |
|
|
|
|
|
|
|
4,019,570 |
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of redeemable preferred stock series D, net |
|
|
1,509,400 |
|
|
|
|
|
|
|
1,509,400 |
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock, net |
|
|
3,469,400 |
|
|
|
1,800,000 |
|
|
|
5,269,400 |
|
|
|
|
|
|
|
|
93,753,857 |
|
Costs associated with secured loan and debtor-in-possession loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(360,872 |
) |
|
|
(360,872 |
) |
Proceeds from secured loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,471 |
|
|
|
500,471 |
|
Proceeds from debtor-in-possession loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,750,000 |
|
|
|
2,750,000 |
|
Payments on insurance loan |
|
|
(63,683 |
) |
|
|
(21,891 |
) |
|
|
(85,574 |
) |
|
|
|
(63,983 |
) |
|
|
(79,319 |
) |
Cash dividends paid on preferred stock |
|
|
(139,750 |
) |
|
|
|
|
|
|
(139,750 |
) |
|
|
|
|
|
|
|
(1,087,200 |
) |
Cash paid for fractional shares of preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,108 |
) |
Merger and acquisition expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,547 |
) |
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,024,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
8,794,937 |
|
|
|
4,648,109 |
|
|
|
13,443,046 |
|
|
|
|
2,825,616 |
|
|
|
170,137,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash balances |
|
|
5,865 |
|
|
|
3,149 |
|
|
|
9,014 |
|
|
|
|
(6,760 |
) |
|
|
(36,391 |
) |
F17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, |
|
|
|
|
|
|
Cumulative period |
|
|
|
Twelve months |
|
|
Four months |
|
|
2009 (date of |
|
|
|
|
|
|
from December 31, |
|
|
|
ended |
|
|
ended |
|
|
inception) to |
|
|
|
Eight months |
|
|
1995 (date of |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
ended August 31, |
|
|
inception) to August |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
|
2009 |
|
|
31, 2009 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
(494,750 |
) |
|
|
352,212 |
|
|
|
(142,538 |
) |
|
|
|
(1,844,024 |
) |
|
|
1,010,276 |
|
Cash and cash equivalents, beginning of period |
|
|
1,362,488 |
|
|
|
1,010,276 |
|
|
|
1,010,276 |
|
|
|
|
2,854,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
867,738 |
|
|
$ |
1,362,488 |
|
|
$ |
867,738 |
|
|
|
$ |
1,010,276 |
|
|
$ |
1,010,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor cash paid for interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
12,715,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor cash paid for dividends |
|
|
139,750 |
|
|
|
|
|
|
|
139,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor deemed dividend associated with beneficial conversion of preferred stock |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
$ |
11,423,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor preferred stock dividend |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,589,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor accrued preferred stock dividend |
|
|
191,417 |
|
|
|
42,740 |
|
|
|
191,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor uncompensated contribution of services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor common stock issued for intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
540,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor common stock issued in connection with conversion of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,814,000 |
|
|
|
10,814,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor equipment acquired through capital lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor/Predecessor financing of insurance premiums |
|
|
97,065 |
|
|
|
81,517 |
|
|
|
178,582 |
|
|
|
|
|
|
|
|
87,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor issuance of notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,060 |
|
|
|
6,000,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor common stock issued in connection with reorganization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,472,000 |
|
|
|
5,472,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,340,656 |
|
|
|
6,340,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor deferred tax liability in connection with fresh-start |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500,000 |
|
|
|
2,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of Predecessor common stock and fresh start adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,780,320 |
|
|
|
14,780,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor subscription receivable |
|
|
210,000 |
|
|
|
316,192 |
|
|
|
210,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor accrued warrant liability |
|
|
7,071,010 |
|
|
|
316,192 |
|
|
|
7,387,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor conversion of preferred stock into common stock |
|
|
364,000 |
|
|
|
|
|
|
|
364,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor accrued derivative liability |
|
|
2,120,360 |
|
|
|
|
|
|
|
2,120,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F18
Fibrocell Science, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1Business and Organization
Fibrocell Science, Inc. (Fibrocell or the Company or the Successor) is the parent
company of Fibrocell Technologies (Fibrocell Tech) and Agera Laboratories, Inc., a Delaware
corporation (Agera). Fibrocell Technologies is the parent company of Isolagen Europe Limited, a
company organized under the laws of the United Kingdom (Isolagen Europe), Isolagen Australia Pty
Limited, a company organized under the laws of Australia (Isolagen Australia), and Isolagen
International, S.A., a company organized under the laws of Switzerland (Isolagen Switzerland).
The Company is an aesthetic and therapeutic company focused on developing novel skin and
tissue rejuvenation products. The Companys clinical development product candidates are designed to
improve the appearance of skin injured by the effects of aging, sun exposure, acne and burns with a
patients own, or autologous, fibroblast cells produced in the Companys proprietary Fibrocell
Process. The Company also markets an advanced skin care line with broad application in core target
markets through its Agera subsidiary.
In October 2006, the Predecessor Company reached an agreement with the U.S. Food and Drug
Administration (FDA) on the design of a Phase III pivotal study protocol for the treatment of
nasolabial folds/wrinkles. The randomized, double-blind protocol was submitted to the FDA under the
agencys Special Protocol Assessment (SPA) regulations. Pursuant to this assessment process, the
FDA has agreed that the Predecessor Companys study design for two identical trials, including
patient numbers, clinical endpoints, and statistical analyses, is acceptable to the FDA to form the
basis of an efficacy claim for a marketing application. The randomized, double-blind, pivotal Phase
III trials will evaluate the efficacy and safety of our product against placebo in approximately
400 patients with approximately 200 patients enrolled in each trial. The Predecessor Company
completed enrollment of the study and commenced injection of subjects in early 2007. All injections
were completed in January 2008 and top line results from this trial were publically announced in
August 2008. The data analysis, including safety data, was publically released in October 2008. The
related Biologics License Application (BLA) was submitted to the FDA in March 2009. In May 2009,
the Predecessor Company announced that the FDA had completed its initial review of the Companys
BLA related to its nasolabial folds/wrinkles product candidate and that the FDA had accepted (or
filed) the BLA for full review.
On October 9, 2009, the FDA Cellular, Tissue and Gene Therapies Advisory Committee reviewed
the Companys nasolabial folds/wrinkles product candidate. The Committee voted 11 yes to 3 no
that the data presented on our product demonstrated efficacy, and 6 yes to 8 no that the data
demonstrated safety; both for the proposed indication of treatment of nasolabial folds/wrinkles.
The Committees recommendations are not binding on the FDA, but the FDA will consider their
recommendations during their review of our application. The United States Adopted Names (USAN)
Council adopted the USAN name, azficel-T, for our nasolabial folds/wrinkles product candidate on
October 28, 2009, and the FDA is currently evaluating a proposed brand name, laViv®.
On December 21, 2009, Fibrocell received a Complete Response letter from the FDA related to
the BLA for azficel-T, an autologous cell therapy for the treatment of moderate to severe
nasolabial folds/wrinkles in adults. A Complete Response letter is issued by the FDAs Center for
Biologics Evaluation and Research (CBER) when the review of a file is completed and additional
data are needed prior to approval. The Complete Response letter requested that Fibrocell Science
provide data from a histopathological study on biopsied tissue samples from patients following
injection of azficel-T. The histology study (IT-H-001) will evaluate tissue treated with azficel-T
as compared to tissue treated with sterile saline (placebo). The study will also provide
information about the skin after treatment, including evaluation of collagen and elastin fibrils,
and cellular structure of the sampled tissues. The Company
submitted a proposed protocol concerning a histopathological study on biopsied samples to the
FDA and to the Companys Investigational Review Board (IRB). The IRB has approved the protocol
and the Company received the comments from the FDA on the protocol in May 2010.
F19
On May 13, 2010, the Company announced the initiation of the small histology study of
azficel-T, discussed above. The study had a target enrollment of approximately 20 participants from
the completed and statistically significant pivotal Phase III studies of azficel-T (IT-R-005 and
IT-R-006). The Company announced on July 8, 2010, the completion of enrollment of and first
treatment visits for participants in its histology study of azficel-T. The second treatment visits
for participants enrolled in the histology study of azficel-T were completed by the end of July.
The third treatment visits for participants enrolled in the histology study of azficel-T were
completed by the end of August.
The Complete Response letter also requested finalized Chemistry, Manufacturing and Controls
(CMC) information regarding the manufacture of azficel-T as follow-up to discussions that
occurred during the BLA review period, as well as revised policies and procedures.
The Company announced on December 20, 2010, that it had submitted its complete response to the
Complete Response (CR) letter issued by the FDA regarding the Companys BLA for azficel-T. On
January 22, 2011, the FDA accepted for review the Companys complete response submission. Even
though the FDA has accepted the Companys response for complete evaluation, there is no assurance
that it will approve our product. The FDA, under the Prescription Drug User Fee Act (PDUFA), has
a target six months review window to completely evaluate the Companys response. The PDUFA date is
June 22, 2011.
Trading of Common Stock
The Predecessors common stock ceased trading on the NYSE Amex on May 6, 2009 and in June 2009
the NYSE Amex delisted the Predecessors common stock from listing on the NYSE Amex. Upon the
Effective Date, the outstanding common stock of the Predecessor Company was cancelled for no
consideration. Consequently, the Predecessors stockholders prior to the Effective Date no longer
have any interest as stockholders of the Predecessor Company by virtue of their ownership of the
Predecessors common stock prior to the emergence from bankruptcy. On October 21, 2009, the
Successor Company was available for trading on the OTC Bulletin Board under the symbol FCSC.
Note 2Basis of Presentation
Basis of Presentation
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Codification 105 (ASC), Generally Accepted Accounting Principles, which became the
single source of authoritative nongovernmental U.S. generally accepted accounting principles
(GAAP), superseding existing FASB, American Institute of Certified Public Accountants (AICPA),
Emerging Issues Task Force (EITF), and related accounting literature. This pronouncement
reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays
them using a consistent structure. Also included is relevant Securities and Exchange Commission
guidance organized using the same topical structure in separate sections and will be effective for
financial statements issued for reporting periods that end after September 15, 2009. This will have
an impact on our financial disclosures since all future references to authoritative accounting
literature will be references in accordance with ASC 105.
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
On June 15, 2009 Isolagen, Inc. (the Predecessor) and Isolagens wholly owned subsidiary,
Isolagen Technologies, Inc. (Isolagen Tech) (Isolagen and Isolagen Tech are referred as the
Debtors), each filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the
District of Delaware in Wilmington (the Bankruptcy Court) under Case Nos. 09-12072 and 09-12073,
respectively.
F20
On August 27, 2009 (the Confirmation Date), the Bankruptcy Court entered an order (the
Confirmation Order) confirming the Debtors Joint First Amended Plan of Reorganization dated July
30, 2009, as supplemented by the Plan Supplement dated August 21, 2009 (as so modified and
supplemented, the Plan). The (Effective Date) of the Plan was September 3, 2009. Isolagen and
Isolagen Tech emerged from bankruptcy as the reorganized debtors, Fibrocell Science, Inc.
(Fibrocell or the Company or the Successor) and Fibrocell Technologies, Inc. (Fibrocell
Tech), respectively (collectively, the Reorganized Debtors), and the bankruptcy cases remain
pending only to reconcile the claims asserted against the Debtors. Fibrocell now operates outside
of the restraints of the bankruptcy process, free of the debts and liabilities discharged by the
Plan.
Overall, ASC 852-10, Financial Reporting by Entities in Reorganization under the Bankruptcy
Code, (ASC 852) applies to the Companys financial statements for the periods that the Company
operated under the provisions of Chapter 11. ASC 852 does not change the application of generally
accepted accounting principles in the preparation of financial statements. However, for periods
including and subsequent to the filing of the Chapter 11 petition, ASC 852 does require that the
financial statements distinguish transactions and events that are directly associated with the
reorganization from the ongoing operations of the business. Accordingly, certain revenues,
expenses, gains, and losses that were realized or incurred during the Chapter 11 proceedings have
been classified as reorganization items, net on the accompanying consolidated statements of
operations.
As of September 1, 2009, the Successor Company adopted fresh-start accounting in accordance
with ASC 852-10. The Successor Company selected September 1, 2009, as the date to effectively
apply fresh-start accounting based on the absence of any material contingencies at the September 3,
2009 effective date and the immaterial impact of transactions between September 1, 2009 and
September 3, 2009. The adoption of fresh-start accounting resulted in the Successor Company
becoming a new entity for financial reporting purposes. The Successor Company is a development
stage company in accordance with ASC 915, Development Stage Entities. As such, the cumulative to
date totals commenced on September 1, 2009 for the Successor Company.
Accordingly, the financial statements prior to September 1, 2009 are not comparable with the
financial statements for periods on or after September 1, 2009. References to Successor or
Successor Company refer to the Company on or after September 1, 2009, after giving effect to the
cancellation of Isolagen, Inc. common stock issued prior to the Effective Date, the issuance of new
Fibrocell Science, Inc. common stock in accordance with the Plan, and the application of
fresh-start accounting. References to Predecessor or Predecessor Company refer to the Company
prior to September 1, 2009. See Note 5 Fresh-Start Accounting in the notes to these
Consolidated Financial Statements for further details.
For discussions on the results of operations, the Successor Company has combined the results
of operations for the eight months ended August 31, 2009, with the results of operations for the
four months ended December 31, 2009. The combined periods have been compared to the year ended
December 31, 2010. The Successor Company believes that the combined financial results provide
management and investors a more meaningful analysis of the Successor Companys performance and
trends for comparative purposes.
Note 3Going Concern
The Successor Company emerged from Bankruptcy in September 2009 and continues to operate as a
going concern. At December 31, 2010, the Successor Company had cash and cash equivalents of
approximately $0.9 million and negative working capital of less than $0.1 million. The Successor
Company has raised approximately $6.1 million less fees as the result of the issuance of Series D
Preferred Stock and warrants in the period from January 1, 2011 through March 1, 2011. The Company
received $0.2 million in subscription receivables from a July financing in mid-March 2011.
F21
As of March 24, 2011, the Company had cash and cash equivalents of approximately $3.4 million
and current liabilities of approximately $0.6 million. The Companys current monthly cash run-rate
is approximately $1.0 million. The Company is also planning to purchase manufacturing equipment and
incur marketing expenditures within the next three months to prepare the Company for launch post a
possible FDA approval. Thus, the Successor Company will need to access the capital markets in the
near future in order to fund future operations. There is no guarantee that any such required
financing will be available on terms satisfactory to the Successor Company or available at all.
These matters create uncertainty relating to its ability to continue as a going concern. The
accompanying consolidated financial statements do not reflect any adjustments relating to the
recoverability and classification of assets or liabilities that might result from the outcome of
these uncertainties.
Further, if the Successor Company raises additional cash resources in the near future, it may
be raised in contemplation of or in connection with bankruptcy. In the event of a bankruptcy, it is
likely that its common stock and common stock equivalents will become worthless and our creditors
will receive significantly less than what is owed to them.
Through December 31, 2010, the Successor Company has been primarily engaged in developing its
initial product technology. In the course of its development activities, the Company has sustained
losses and expects such losses to continue through at least 2011. During the year ended December
31, 2010, the Successor Company financed its operations primarily through its existing cash
received from external financings, but as discussed above it now requires additional financing.
There is substantial doubt about the Successor Companys ability to continue as a going concern.
The Successor Companys ability to complete additional offerings is dependent on the state of
the debt and/or equity markets at the time of any proposed offering, and such markets reception of
the Successor Company and the offering terms. The Successor Companys ability to complete an
offering is also dependent on the status of its FDA regulatory milestones and its clinical trials,
and in particular, the status of its indication for the treatment of nasolabial folds/wrinkles and
the potential approval of the related BLA, which cannot be predicted. There is no assurance that
capital in any form would be available to the Company, and if available, on terms and conditions
that are acceptable.
As a result of the conditions discussed above, and in accordance with GAAP, there exists
substantial doubt about the Successor Companys ability to continue as a going concern, and its
ability to continue as a going concern is contingent, among other things, upon its ability to
secure additional adequate financing or capital in the near future. If the Successor Company does
not obtain additional funding, or does not anticipate additional funding, in the near future, it
will likely enter into bankruptcy and/or cease operations. Further, if it does raise additional
cash resources in the near future, it may be raised in contemplation of or in connection with
bankruptcy. If the Successor Company enters into bankruptcy, it is likely that its common stock and
common stock equivalents will become worthless and its creditors, including preferred stock, will
receive significantly less than what is owed to them.
Note 4Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts in the consolidated financial statements
and notes. In addition, managements assessment of the Successor Companys ability to continue as a
going concern involves the estimation of the amount and timing of future cash inflows and outflows.
Actual results may differ materially from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
F22
Concentration of Credit Risk
As of December 31, 2010, the Successor Company maintains the majority of its cash primarily
with one major U.S. domestic bank. All of our non-interest bearing cash balances were
fully insured at December 31, 2010 due to a temporary federal program in effect from December 31,
2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for
eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each
financial institution, and our non-interest bearing cash balances may again exceed federally
insured limits. The terms of these deposits are on demand to minimize risk. The Successor Company
has not incurred losses related to these deposits. Cash and cash equivalents of approximately $0.1
million, related to Agera and the Successor Companys Swiss subsidiary, is maintained in two
separate financial institutions. The Successor Company invests these funds primarily in demand
deposit accounts.
Allowance for Doubtful Accounts
The Successor Company maintains an allowance for doubtful accounts related to its accounts
receivable that have been deemed to have a high risk of collectability. Management reviews its
accounts receivable on a monthly basis to determine if any receivables will potentially be
uncollectible. One foreign customer represents 88% and 87% of accounts receivable, net, at December
31, 2010 and 2009, respectively. Management analyzes historical collection trends and changes in
its customer payment patterns, customer concentration, and creditworthiness when evaluating the
adequacy of its allowance for doubtful accounts. In its overall allowance for doubtful accounts,
the Successor Company includes any receivable balances that are determined to be uncollectible.
Based on the information available, management believes the allowance for doubtful accounts is
adequate; however, actual write-offs might exceed the recorded allowance.
The allowance for doubtful accounts was $29,280 and $37,098 at December 31, 2010 and 2009,
respectively.
Inventory
Agera purchases the large majority of its inventory from one contract manufacturer. Agera
accounts for its inventory on the first-in-first-out method. At December 31, 2010, Ageras
inventory of $0.3 million consisted of $0.2 million of raw materials and $0.1 million of finished
goods. At December 31, 2009, Ageras inventory of $0.2 million consisted of $0.2 million of raw
materials and less than $0.1 million of finished goods.
Property and equipment
Property and equipment is carried at cost less accumulated depreciation and amortization.
Generally, depreciation and amortization for financial reporting purposes is provided by the
straight-line method over the estimated useful life of three years, except for leasehold
improvements which are amortized using the straight-line method over the remaining lease term or
the life of the asset, whichever is shorter. The cost of repairs and maintenance is charged as an
expense as incurred.
Intangible assets
Intangible assets are research and development assets related to the Successor Companys
primary study that was recognized upon emergence from bankruptcy (see Note 5). Intangibles are
tested for recoverability whenever events or changes in circumstances indicate the carrying amount
may not be recoverable. An impairment loss, if any, would be measured as the excess of the carrying
value over the fair value determined by discounted cash flows. There was no impairment of the
intangible assets as of December 31, 2010.
Revenue recognition
The Successor Company recognizes revenue over the period the service is performed in
accordance with ASC 605, Revenue Recognition (ASC 605). In general, ASC 605 requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists, (2) delivery has
occurred or services rendered, (3) the fee is fixed and determinable and (4) collectability is
reasonably assured.
F23
Revenue from the sale of Ageras products is recognized upon transfer of title, which is upon
shipment of the product to the customer. The Successor Company believes that the requirements of
ASC 605 are met when the ordered product is shipped, as the risk of loss transfers to our customer
at that time, the fee is fixed and determinable and collection is reasonably assured. Any advanced
payments are deferred until shipment.
Shipping and handling costs
Agera charges its customers for shipping and handling costs. Such charges to customers are
presented net of the costs of shipping and handling, as selling, general and administrative
expense, and are not significant to the consolidated statements of operations.
Advertising cost
Agera advertising costs are expensed as incurred and include the costs of public relations and
certain marketing related activities. These costs are included in selling, general and
administrative expenses in the accompanying consolidated statements of operations.
Research and development expenses
Research and development costs are expensed as incurred and include salaries and benefits,
costs paid to third-party contractors to perform research, conduct clinical trials, develop and
manufacture drug materials and delivery devices, and a portion of facilities cost. Research and
development costs also include costs to develop manufacturing, cell collection and logistical
process improvements.
Clinical trial costs are a significant component of research and development expenses and
include costs associated with third-party contractors. Invoicing from third-party contractors for
services performed can lag several months. The Successor Company accrues the costs of services
rendered in connection with third-party contractor activities based on its estimate of management
fees, site management and monitoring costs and data management costs. Actual clinical trial costs
may differ from estimated clinical trial costs and are adjusted for in the period in which they
become known.
Other Income, Net
In November 2010, we received one grant totaling $0.2 million under the Qualified Therapeutic
Discovery Project Grants Program. The Qualified Therapeutic Discovery Project Grants Program was
included in the healthcare reform legislation, and established a one-time pool of $1 billion for
grants to small biotechnology companies developing novel therapeutics which show potential to: (a)
result in new therapies that either treat areas of unmet medical need, or prevent, detect, or treat
chronic or acute diseases and conditions; (b) reduce long-term health care costs in the United
States; or (c) significantly advance the goal of curing cancer within a the 30-year period. There
are no matching funding requirements or other requirements necessary to receive the funding.
Warrant Liability
The warrants for the Successor Company are measured at fair value and liability-classified
under ASC 815, Derivatives and Hedging, (ASC 815) because the warrants contain down-round
protection and therefore, do not meet the scope exception for treatment as a derivative under ASC
815. Since down-round protection is not an input into the calculation of the fair value of the
warrants, the warrants cannot be considered indexed to the Companys own stock which is a
requirement for the scope exception as outlined under ASC 815. The fair value of the warrants is
determined using the Black-Scholes option pricing model and is affected by changes in inputs to
that model including our stock price, expected stock price volatility, the contractual term, and
the risk-free interest rate. The Successor Company will continue
to classify the fair value of the warrants as a liability until the warrants are exercised,
expire or are amended in a way that would no longer require these warrants to be classified as a
liability.
F24
Preferred Stock and Derivative Liability
The preferred stock has been classified within the mezzanine section between liabilities and
equity in its consolidated balance sheets in accordance with ASC 480, Distinguishing Liabilities
from Equity (ASC 480) because any holder of Series A, B and D Preferred may require the Successor
Company to redeem all of its Series A, B or D Preferred in the event of a triggering event which is
outside of the control of the Successor Company.
The embedded conversion option for the Series A Preferred, Series B Preferred and Series D
Preferred has been recorded as a derivative liability under ASC 815 in the Successors consolidated
balance sheet as of December 31, 2010 and will be re-measured on the Successor Companys reporting
dates. The fair value of the derivative liability is determined using the Black-Scholes option
pricing model and is affected by changes in inputs to that model including our stock price,
expected stock price volatility, the contractual term, and the risk-free interest rate. The
Successor Company will continue to classify the fair value of the embedded conversion option as a
liability until the preferred stock is converted into common stock.
Stock-based Compensation
The Successor Company accounts for stock-based awards to employees and non-employees using the
fair value based method to determine compensation for all arrangements where shares of stock or
equity instruments are issued for compensation. The Successor Company uses a Black-Scholes
options-pricing model to determine the fair value of each option grant as of the date of grant for
expense incurred. The Black-Scholes model requires inputs for risk-free interest rate, dividend
yield, volatility and expected lives of the options. Expected volatility is based on historical
volatility of the Companys competitors stock since the Predecessor Company ceased trading as part
of the bankruptcy and emerged as a new entity. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of
the grant. The expected lives for options granted represents the period of time that options
granted are expected to be outstanding and is derived from the contractual terms of the options
granted. The Successor Company estimates future forfeitures of options based upon expected
forfeiture rates.
Income taxes
An asset and liability approach is used for financial accounting and reporting for income
taxes. Deferred income taxes arise from temporary differences between income tax and financial
reporting and principally relate to recognition of revenue and expenses in different periods for
financial and tax accounting purposes and are measured using currently enacted tax rates and laws.
In addition, a deferred tax asset can be generated by net operating loss (NOLs) carryover. If it
is more likely than not that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
In the event the Company is charged interest or penalties related to income tax matters, the
Company would record such interest as interest expense and would record such penalties as other
expense in the consolidated statements of operations. No such charges have been incurred by the
Company. As of December 31, 2010 and December 31, 2009, the Successor Company had no accrued
interest related to uncertain tax positions.
At December 31, 2010 and December 31, 2009, the Company has provided a full valuation
allowance for the net deferred tax assets, the large majority of which relates to the future
benefit of loss carryovers. In addition, as a result of fresh-start accounting, the Successor
Company may be limited by section 382 of the Internal Revenue Service Code. The tax years 2007
through 2010 remain open to examination by the major taxing jurisdictions to which we are subject.
The deferred tax liability at
December 31, 2010 and December 31, 2009, relates to the intangible assets recognized upon
fresh-start accounting.
F25
Earnings (loss) per share data
Basic earnings (loss) per share is calculated based on the weighted average common shares
outstanding during the period. Diluted earnings per share (Diluted EPS) also gives effect to the
dilutive effect of stock options, warrants, restricted stock and convertible preferred stock
calculated based on the treasury stock method.
The Predecessor and Successor Companys potentially dilutive securities consist of potential
common shares related to stock options, warrants, restricted stock and convertible preferred stock.
Diluted EPS includes the impact of potentially dilutive securities except in periods in which
there is a loss because the inclusion of the potential common shares would be anti-dilutive. The
Company does not present diluted earnings per share for periods in which it incurred net losses as
the effect is anti-dilutive. There were no potentially dilutive securities for the eight months
ended August 31, 2009, due to the cancellation of the convertible notes and the cancellation of all
the outstanding stock option plans and the last known market price was less than exercise price.
Fair Value of Financial Instruments
The carrying values of certain of the Successor Companys financial instruments, including
cash equivalents and accounts payable approximates fair value due to their short maturities. The
fair values of the Successor Companys long-term obligations are based on assumptions concerning
the amount and timing of estimated future cash flows and assumed discount rates reflecting varying
degrees of risk. The carrying values of the Successor Companys long-term obligations approximate
their fair values.
The fair value of the reorganization value which applies in fresh-start accounting was
estimated by applying the income approach and a market approach. This fair value measurement is
based on significant inputs that are not observable in the market and, therefore, represents a
Level 3 measurement as defined in ASC 820, Fair Value Measurements.
Adoption of Standards
In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
(ASU 2010-06), which amends the existing fair value measurement and disclosure guidance currently
included in ASC Topic 820, Fair Value Measurements and Disclosures, to require additional
disclosures regarding fair value measurements. Specifically, ASU 2010-06 requires entities to
disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value
hierarchy and the reasons for these transfers, the reasons for any transfer in or out of Level 3
and information in the reconciliation of recurring Level 3 measurements about purchases, sales,
issuances and settlements on a gross basis. In addition, ASU 2010-06 also clarifies the
requirement for entities to disclose information about both the valuation techniques and inputs
used in estimating Level 2 and Level 3 fair value measurements. ASU 2010-06 is effective for
interim and annual reporting periods beginning after December 15, 2009, except for additional
disclosures related to Level 3 fair value measurements, which are effective for fiscal years
beginning after December 15, 2010. The adoption of ASU 2010-06 did not impact the Companys
consolidated financial statements or results of operations.
In September 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements (ASU 2009-13), which requires companies to allocate
revenue in arrangements involving multiple deliverables based on the estimated selling price of
each deliverable when such deliverables are not sold separately either by the company or other
vendors. ASU 2009-13 eliminates the requirement that all undelivered elements must have objective
and reliable evidence of fair value before a company can recognize the portion of the overall
arrangement fee that is attributable to items that already have been delivered. As a result, the
new guidance may allow some companies to recognize revenue on transactions that involve multiple
deliverables earlier than under current requirements. ASU 2009-13 is
effective for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted at the beginning of a companys
fiscal year. The Company expects to adopt ASU 2009-13 on January 1, 2011 and does not expect ASU
2009-13 to have a material impact on its consolidated financial statements.
F26
Note 5Fresh-Start Accounting
On September 1, 2009, the Successor Company adopted fresh-start accounting upon the emergence
of bankruptcy in accordance with ASC 852-10, Reorganization. Fresh-start accounting results in the
Company becoming a new entity for financial reporting purposes. Accordingly, the Companys
consolidated financial statements for periods prior to September 1, 2009 are not comparable to
consolidated financial statements presented on or after September 1, 2009. The Company selected
September 1, 2009, as the date to apply fresh-start accounting based on the absence of any material
contingencies at the September 3, 2009 effective date and the immaterial impact of transactions
between September 1, 2009 and September 3, 2009.
Under ASC 852-10, the Successor Company must determine a value to be assigned to the equity of
the emerging company as of the date of the adoption of fresh-start accounting. The Successor
Company obtained an independent appraisal to value the equity and it served as the fair market
value of the emerging Companys equity.
Fresh-start accounting reflects the value of the Successor Company as determined in the
confirmed Plan. Under fresh-start accounting, the Successor Companys assets values are remeasured
and allocated in conformity with ASC 805-20, Business Combinations, Identifiable Assets and
Liabilities, and Any Noncontrolling Interest. Fresh-start accounting also requires that all
liabilities should be stated at fair value. The portion of the reorganization value which was
attributed to identified intangible assets was $6,340,656. This value is related to research and
development assets that are not subject to amortization. In accordance with ASC 805-20, this
amount is reported as intangibles in the consolidated balance sheets, and is not being amortized.
Note 6Liabilities Subject to Compromise and Reorganization Items
Liabilities subject to compromise refers to pre-petition obligations that were impacted by the
Chapter 11 reorganization process. For further information regarding the discharge of liabilities
subject to compromise, see Note 5- Fresh-Start Accounting in the notes of these Financial
Statements. As of December 31, 2010, there were no liabilities subject to compromise.
The Company incurred certain professional fees and other expenses directly associated with the
bankruptcy proceedings. In addition, the Company has made adjustments to the carrying value of
certain prepetition liabilities. Such costs and adjustments are classified as reorganization
items, net and are presented separately in the unaudited consolidated statements of operations.
For the year ended December 31, 2010, for the four months ended December 31, 2009 and for the eight
months ended December 31, 2009, the following have been incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Year ended |
|
|
Four months ended |
|
|
|
Eight months ended |
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
August 31, 2009 |
|
Professional fees expense |
|
$ |
(13,150 |
) |
|
$ |
(13,825 |
) |
|
|
$ |
(533,271 |
) |
Debt issuance costs related to
DIP facility |
|
|
|
|
|
|
|
|
|
|
|
(295,757 |
) |
Other debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
(280,964 |
) |
Gain (loss) on discharge of
liabilities subject to
compromise |
|
|
16,453 |
|
|
|
(58,652 |
) |
|
|
|
74,648,976 |
|
|
|
|
|
|
|
|
|
|
|
|
Total reorganization items, net |
|
$ |
3,303 |
|
|
$ |
(72,477 |
) |
|
|
$ |
73,538,984 |
|
|
|
|
|
|
|
|
|
|
|
|
F27
The $74.6 million gain from discharge of liabilities subject to compromise is the result of
the settlement of 3.5% Subordinated Notes in exchange for $6.0 million in Notes Payable and
3,960,000 shares of the Successor company, Debtor-in-Possession Credit Facility and Prepetition
Secured Loan in exchange for 7,320,000 shares of the Successor Companys common stock and unsecured
claims in exchange for 120,000 shares. On the Effective Date, all stock option plans of the
Predecessor Company were cancelled.
Cash paid for reorganization items during the year ended December 31, 2010 and December 31,
2009 was less than $0.1 million and $0.6 million, respectively. Professional fees include
financial, legal and valuation services directly associated with the reorganization process.
Note 7Agera Laboratories, Inc.
On August 10, 2006, the Predecessor Company acquired 57% of the outstanding common shares of
Agera. Agera is a skincare company that has proprietary rights to a scientifically-based advanced
line of skincare products. Agera markets its product primarily in the United States and Europe. The
results of Ageras operations and cash flows have been included in the consolidated financial
statements from the date of the acquisition. The assets and liabilities of Agera have been included
in the consolidated balance sheets since the date of the acquisition.
Note 8Fair Value Measurements
The Company adopted the accounting guidance on fair value measurements for financial assets
and liabilities measured on a recurring basis. The guidance requires fair value measurements be
classified and disclosed in one of the following three categories:
|
|
|
Level 1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities; |
|
|
|
Level 2: Quoted prices in markets that are not active or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or liability. |
|
|
|
Level 3: Prices or valuation techniques that require inputs that are both significant
to the fair value measurement and unobservable (i.e., supported by little or no market
activity). |
The following fair value hierarchy table presents information about each major category of
the Companys financial assets and liability measured at fair value on a recurring basis
as of December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using |
|
|
|
|
|
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
Quoted prices in |
|
|
other |
|
|
unobservable |
|
|
|
|
|
|
active markets |
|
|
observable |
|
|
inputs |
|
|
|
|
|
|
(Level 1) |
|
|
inputs (Level 2) |
|
|
(Level 3) |
|
|
Total |
|
At December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
867,738 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
867,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
$ |
|
|
|
$ |
|
|
|
$ |
8,171,518 |
|
|
$ |
8,171,518 |
|
Derivative liability |
|
|
|
|
|
|
|
|
|
|
2,120,360 |
|
|
|
2,120,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
10,291,878 |
|
|
$ |
10,291,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using |
|
|
|
|
|
|
|
Significant |
|
|
Significant |
|
|
|
|
|
|
Quoted prices in |
|
|
other |
|
|
unobservable |
|
|
|
|
|
|
active markets |
|
|
observable |
|
|
inputs |
|
|
|
|
|
|
(Level 1) |
|
|
inputs (Level 2) |
|
|
(Level 3) |
|
|
Total |
|
At December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,362,488 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,362,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
$ |
|
|
|
$ |
|
|
|
$ |
635,276 |
|
|
$ |
635,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of warrant liability measured at fair value on a recurring basis using
unobservable inputs (Level 3) is as follows:
|
|
|
|
|
|
|
Warrant |
|
|
|
Liability |
|
Balance at January 1, 2009 |
|
$ |
|
|
Issuance of additional warrants |
|
|
316,192 |
|
Change in fair value of warrant liability |
|
|
319,084 |
|
|
|
|
|
Balance at December 31, 2009 |
|
|
635,276 |
|
Issuance of additional warrants |
|
|
7,071,010 |
|
Change in fair value of warrant liability |
|
|
465,232 |
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
8,171,518 |
|
|
|
|
|
The fair value of the warrant liability is based on Level 3 inputs. For this
liability, the Company developed its own assumptions that do not have observable inputs or
available market data to support the fair value. See note 15 for further discussion of the
warrant liability.
The reconciliation of derivative liability measured at fair value on a recurring basis
using unobservable inputs (Level 3) is as follows:
|
|
|
|
|
|
|
Derivative |
|
|
|
Liability |
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
|
|
Record fair value of derivative liability |
|
|
2,120,360 |
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
2,120,360 |
|
|
|
|
|
The fair value of the derivative liability is based on Level 3 inputs. For this
liability, the Company developed its own assumptions that do not have observable inputs or
available market data to support the fair value. See note 14 for further discussion of the
derivative liability.
F29
Note 9Property and Equipment
As of December 31, 2010 and 2009, property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Lab equipment |
|
$ |
18,685 |
|
|
$ |
|
|
Computer equipment and software |
|
|
10,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,674 |
|
|
|
|
|
Less: Accumulated depreciation
and amortization |
|
|
(8,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
21,589 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Depreciation expense was $8,085 for the year ending December 31, 2010.
Note 10Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Accrued professional fees |
|
$ |
413,384 |
|
|
$ |
147,410 |
|
Accrued compensation |
|
|
7,076 |
|
|
|
7,208 |
|
Accrued interest |
|
|
|
|
|
|
246,578 |
|
Dividend on preferred stock payable |
|
|
191,417 |
|
|
|
42,740 |
|
Accrued other |
|
|
177,605 |
|
|
|
100,324 |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
789,482 |
|
|
$ |
544,260 |
|
|
|
|
|
|
|
|
Note 11Debt
The Successor Companys outstanding long-term debt at December 31, 2010 and December 31, 2009
consists of $7.3 million and $6 million, respectively, of 12.5% Unsecured Promissory Notes (New
Notes). Unpaid interest has been accreted to the principal at a rate of 15%. The New Notes have
the following features: (1) 12.5% interest payable quarterly in cash or, at the Successor Companys
option, 15% payable in kind by capitalizing such unpaid amount and adding it to the principal as of
the date it was due; (2) maturing June 1, 2012; (3) at any time prior to the maturity date, the
Successor Company may redeem any portion of the outstanding principal of the New Notes in Cash at
125% of the stated face value of the New Notes. There is a mandatory redemption feature that
requires the Successor Company to redeem all outstanding new notes if: (1) the Successor Company
successfully completes a capital campaign raising in excess of $10 million; or (2) the Successor
Company is acquired by, or sell a majority stake to, an outside party. The current debt of $57K is
due in 2011 and the promissory note is due June 2012.
Total debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current debt |
|
$ |
56,911 |
|
|
$ |
47,795 |
|
|
|
|
|
|
|
|
Total Current Debt |
|
|
56,911 |
|
|
|
47,795 |
|
Promissory Note |
|
|
7,290,881 |
|
|
|
6,000,060 |
|
|
|
|
|
|
|
|
Total debt |
|
$ |
7,347,792 |
|
|
$ |
6,047,855 |
|
|
|
|
|
|
|
|
Note 12Income Taxes
Fibrocell Science, Inc. and Fibrocell Technologies, Inc. file a consolidated U.S. Federal
income tax return. During the third quarter of 2006, the Company acquired a 57% interest in Agera
(see Note 7 Agera Laboratories, Inc.). Agera files a separate U.S. Federal income tax return.
The Companys foreign subsidiaries, which comprise loss from discontinued operations, file income
tax returns in their respective jurisdictions. The geographic source of loss from continuing
operations is the United States.
F30
The components of the income tax expense/(benefit) related to continuing operations, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
Eight |
|
|
|
|
|
|
|
Four months |
|
|
|
Months |
|
|
|
Year ended |
|
|
ended |
|
|
|
ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
U.S. Federal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between income taxes/(benefit) at the U.S. federal statutory rate and the
amount recorded in the accompanying consolidated financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
|
|
|
|
|
Four months |
|
|
|
Eight months |
|
|
|
Year ended |
|
|
ended |
|
|
|
ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Tax expense/(benefit) at U.S. federal statutory rate |
|
$ |
(4,490,789 |
) |
|
$ |
(1,757,838 |
) |
|
|
$ |
23,058,084 |
|
Increase/(decrease) in domestic valuation allowance |
|
|
5,077,136 |
|
|
|
2,303,065 |
|
|
|
|
(30,209,991 |
) |
State income taxes/(benefit) before valuation allowance,
net of federal benefit |
|
|
(789,894 |
) |
|
|
(357,619 |
) |
|
|
|
4,690,990 |
|
Deferred tax impact of reorganization |
|
|
|
|
|
|
(172,395 |
) |
|
|
|
2,261,359 |
|
Other |
|
|
203,547 |
|
|
|
(15,213 |
) |
|
|
|
199,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the Successor Companys net deferred tax liabilities at December 31, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets |
|
$ |
2,500,000 |
|
|
$ |
2,500,000 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
$ |
2,500,000 |
|
|
$ |
2,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Loss carryforwards |
|
$ |
38,003,210 |
|
|
$ |
32,942,543 |
|
Property and equipment |
|
|
1,460,890 |
|
|
|
1,559,631 |
|
Accrued expenses and other |
|
|
1,285,007 |
|
|
|
1,551,822 |
|
Stock compensation |
|
|
930,103 |
|
|
|
548,078 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
41,679,210 |
|
|
|
36,602,074 |
|
Less: valuation allowance |
|
|
(41,679,210 |
) |
|
|
(36,602,074 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
2,500,000 |
|
|
$ |
2,500,000 |
|
|
|
|
|
|
|
|
F31
As of December 31, 2010, the Company had generated U.S. net operating loss carryforwards of
approximately $81.6 million which expire from 2026 to 2030 and net loss carryforwards in certain
non-US jurisdictions of approximately $24.4 million. The U.S. net operating loss carryforwards
were reduced by approximately $74 million as a result of the Companys emergence from bankruptcy
(see Note 6 Liabilities Subject to Compromise and Reorganization Items). The net operating
loss carryforwards are available to reduce future taxable income. However, a, change in ownership,
as defined by federal income tax regulations, could significantly limit the Companys ability to
utilize its U.S. net operating loss carryforwards. Additionally, because federal tax laws limit
the time during which the net operating loss carryforwards may be applied against future taxes, if
the Company fails to generate taxable income prior to the expiration dates it may not be able to
fully utilize the net operating loss carryforwards to reduce future income taxes. As the Company
has had cumulative losses and there is no assurance of future taxable income, valuation allowances
have been recorded to fully offset the deferred tax asset at December 31, 2010 and 2009. The
valuation allowance increased by $5.1 million during 2010, due to the impact from the current year
net loss, and decreased by $27.3 million during 2009, due primarily to the impact from the
Companys reorganization described above and net loss in that period.
Note 13Commitments and Contingencies
Legal Proceedings
As of December 31, 2010, there were no legal proceedings.
Employment Agreements
On February 1, 2010, the Company entered into an employment agreement with Mr. Pernock
pursuant to which Mr. Pernock agreed to serve as Chief Executive Officer of the Company for an
initial term ending February 1, 2013, which may be renewed for an additional one-year term by
mutual agreement. The agreement provides for an annual salary of $450,000. Mr. Pernock is entitled
to receive an annual bonus each year, payable subsequent to the issuance of the Companys final
audited financial statements, but in no case later than 120 days after the end of its most recently
completed fiscal year. The final determination on the amount of the annual bonus will be made by
the Board of Directors (or the Compensation Committee of the Board of Directors, if such committee
has been formed), based on criteria established by the Board of Directors (or the Compensation
Committee of the Board of Directors, if such committee has been formed). The targeted amount of the
annual bonus shall be 60% of Mr. Pernocks base salary, although the actual bonus may be higher or
lower.
Under the agreement, Mr. Pernock was granted a ten-year option to purchase 1,650,000 shares at
an exercise price per share equal to the closing price of the Companys common stock on the date of
execution of the agreement, or February 1, 2010. The options vest as follows: (i) 250,000 shares
upon execution of the agreement; (ii) 100,000 shares upon the closing of a strategic partnership or
licensing deal with a major partner that enables the Company to significantly improve and/or
accelerate its capabilities in such areas as research, production, marketing and/or sales and
enable the Company to reach or exceed its major business milestones within the Companys strategic
and operational plans, provided Mr. Pernock is the CEO on the closing date of such partnership or
licensing deal (the determination of whether any partnership or licensing deal meets the foregoing
criteria will be made in good faith by the Board upon the closing of such partnership or licensing
deal); and (iii) 1,300,000 shares in equal 1/36th installments (or 36,111 shares per installment)
monthly over a three-year period, provided Executive is the CEO on each vesting date. The vesting
of all options set forth above shall accelerate upon a change in control as defined in the
agreement, provided Mr. Pernock is employed by the Company within 60 days prior to the date of such
change in control.
F32
If Mr. Pernocks employment is terminated at the Companys election at any time, for reasons
other than death, disability, cause (as defined in the agreement) or a voluntary resignation, or by
Mr. Pernock for good reason (as defined in the agreement), Mr. Pernock shall be entitled to receive
severance payments equal to twelve months of Mr. Pernocks base salary and of the premiums
associated with continuation of Mr. Pernocks benefits pursuant to COBRA to the extent that he is
eligible for them following the termination of his employment; provided that if anytime within
eighteen months after a change in control either (i) Mr. Pernock is terminated, at the Companys
election at any time, for reasons other than death, disability, cause or voluntary resignation, or
(ii) Mr. Pernock terminates the agreement for good reason, Mr. Pernock shall be entitled to receive
severance payments equal to: (1) two years of Mr. Pernocks base salary, (2) Mr. Pernocks most
recent annual bonus payment, and (3) the premiums associated with continuation of Mr. Pernocks
benefits pursuant to COBRA to the extent that he is eligible for them following the termination of
his employment for a period of one year after termination. All severance payments shall be made in
a lump sum within ten business days of Mr. Pernocks execution and delivery of a general release of
the Company, its parents, subsidiaries and affiliates and each of its officers, directors,
employees, agents, successors and assigns in a form acceptable to the Company. If severance
payments are being made, Mr. Pernock has agreed not to compete with the Company until twelve months
after the termination of his employment.
On August 24, 2010, the Company entered into an amended and restated employment agreement with
Mr. Declan Daly, which replaced and terminated his prior employment agreement with the Company,
pursuant to which Mr. Daly agreed to serve as Chief Operating Officer and Chief Financial Officer
of the Company for an initial term ending August 24, 2013, which may be renewed for an additional
one-year term by mutual agreement. The agreement provides for an annual salary of $300,000. Mr.
Daly is entitled to receive an annual bonus each year, payable subsequent to the issuance of the
Companys final audited financial statements, but in no case later than 120 days after the end of
its most recently completed fiscal year. The final determination on the amount of the annual bonus
will be made by the Board of Directors (or the Compensation Committee of the Board of Directors, if
such committee has been formed), based on criteria established by the Board of Directors (or the
Compensation Committee of the Board of Directors, if such committee has been formed). The targeted
amount of the annual bonus shall be 50% of Mr. Dalys base salary, although the actual bonus may be
higher or lower.
Under the agreement, Mr. Daly was granted a ten-year option to purchase 400,000 shares at an
exercise price per share equal to the closing price of the Companys common stock on the date of
execution of the agreement, or $0.55 per share. The options vest as follows: (i) 40,000 shares upon
execution of the agreement; and (ii) 360,000 shares in equal 1/36th installments (or 10,000 shares
per installment) monthly over a three-year period, provided Mr. Daly is the COO or CFO on each
vesting date. The vesting of all options set forth above shall accelerate upon a change in
control as defined in the agreement, provided Mr. Daly is employed by the Company within 60 days
prior to the date of such change in control.
Mr. Daly is entitled to receive a one-time bonus in the amount of $50,000 (the Milestone
Bonus) upon the FDAs approval of the Companys Biologics License Application filing, provided
that Mr. Daly is the CFO or COO at the time of said event.
If Mr. Dalys employment is terminated at the Companys election at any time, for reasons
other than death, disability, cause (as defined in the agreement) or a voluntary resignation, or by
Mr. Daly for good reason (as defined in the agreement), Mr. Daly shall be entitled to receive
severance payments equal to twelve months of Mr. Dalys base salary and of the premiums associated
with continuation of Mr. Dalys benefits pursuant to COBRA to the extent that he is eligible for
them following the termination of his employment; provided that if anytime within eighteen months
after a change in control either (i) Mr. Daly is terminated, at the Companys election at any time,
for reasons other than death, disability, cause or voluntary resignation, or (ii) Mr. Daly
terminates the agreement for good reason, Mr. Daly shall be entitled to receive severance payments
equal to: (1) two years of Mr. Dalys base salary, (2) Mr. Dalys most recent annual bonus payment,
and (3) the premiums associated with continuation of Mr. Dalys benefits pursuant to COBRA to the
extent that he is eligible for them following the termination of his employment for a period of one
year after termination. All severance payments shall be made in a lump sum within ten
business days of Mr. Dalys execution and delivery of a general release of the Company, its
parents, subsidiaries and affiliates and each of its officers, directors, employees, agents,
successors and assigns in a form acceptable to the Company. If severance payments are being made,
Mr. Daly has agreed not to compete with the Company until twelve months after the termination of
his employment.
F33
Consulting Agreements
In June 2010, we entered into two consulting agreements with two individuals. We issued the
two consultants options to purchase 150,000 shares each. The options have an expiration date five
years from the date of issuance and an exercise price of $0.93 per share.
In September 2010, we entered into a consulting agreement with one individual and issued the
consultant options to purchase 120,000 shares. The options have an expiration date five years from
the date of issuance and an exercise price of $0.59 per share.
Effective upon our exit from bankruptcy on September 3, 2009, we entered into a consultant
agreement, pursuant to which Dr. Langer agreed to provide consulting services to us, including
serving as a scientific advisor. The agreement has a one year term, provided that either party may
terminate the agreement on 30 days notice. The agreement provides Dr. Langer annual compensation
of $50,000.
In October 2009, we entered into two consulting agreements with two individuals. We issued the
two consultants options to purchase 200,000 shares and 150,000 shares, respectively. The options
have an expiration date five years from the date of issuance and an exercise price of $0.75 per
share.
In December 2009, we entered into a consulting agreement with one individual and issued the
consultant options to purchase 100,000 shares. The options have an expiration date five years from
the date of issuance and an exercise price of $1.25 per share.
Leases
The Company has entered into a lease for office, warehouse and laboratory facilities in Exton,
Pennsylvania under a third party non-cancelable operating lease through 2013. Future minimum lease
commitments at December 31, 2010 are as follows:
|
|
|
|
|
Year Ending |
|
|
|
|
December 31, |
|
|
|
|
2011 |
|
$ |
1,194,350 |
|
2012 |
|
|
1,194,350 |
|
2013 |
|
|
298,588 |
|
|
|
|
|
Total |
|
$ |
2,687,288 |
|
|
|
|
|
For each of the years ended December 31, 2010 and 2009, rental expense totaled $1.4 million.
In April 2005, the Company entered into a non-cancelable three year operating lease for
approximately 86,500 square feet in Exton, Pennsylvania. This facility houses members of the senior
management team, quality and manufacturing personnel, and the corporate finance department. The
Company began constructing a production line in a portion of this facility in anticipation of
eventual FDA approval. The facility was completed during September 2005. This production line is
expected to be utilized for the production of clinical supplies. During 2007, the Company extended
the lease through March 31, 2013. Lease expense is recognized on a straight-line basis through
March 31, 2013. The Exton, Pennsylvania minimum lease payments are included in the future minimum
lease commitments table above through March 31, 2013.
Note 14Equity
Redeemable Preferred stock
As of December 31, 2010 the number of Redeemable Preferred stock (Preferred) outstanding,
with a par value of $0.001 per share and a stated value of $1,000 per share is as follows:
|
|
|
|
|
Preferred stock Series A |
|
|
2,886 |
|
Preferred stock Series B |
|
|
4,640 |
|
Preferred stock Series D |
|
|
1,645 |
|
|
|
|
|
Total |
|
|
9,171 |
|
|
|
|
|
F34
Terms of Redeemable Preferred stock
Dividends; Rank; Liquidation
Holders of the Preferred stock Series A (Series A Preferred), Preferred stock Series B
(Series B Preferred) and Preferred stock Series D (Series D Preferred) are entitled to receive
cumulative dividends at the rate per share (as a percentage of the stated value per share) of 6%
per annum (subject to increase in certain circumstances), payable quarterly in arrears on January
15, April 15, July 15 and October 15. The dividends are payable in cash, or at our option, in duly
authorized, validly issued, fully paid and non-assessable shares of common stock equal to 110% of
the cash dividend amount payable on the dividend payment date, or a combination thereof; provided
that we may not pay the dividends in shares of common stock unless we meet certain conditions
described in the Certificate of Designation, including that the resale of the shares has been
registered under the Securities Act. If we pay the dividend in shares of common stock, the common
stock will be valued for such purpose at 80% of the average of the volume weighted average price
for the 10 consecutive trading days ending on the trading day that is immediately prior to the
dividend payment date.
The Series A Preferred, Series B Preferred and Series D Preferred ranks senior to all shares
of Company common stock (Common Stock). The Series D Preferred ranks junior to the Companys
Series A Preferred and Series B Preferred.
Upon our liquidation, dissolution or winding-up, whether voluntary or involuntary, the holders
of the Series A Preferred, Series B Preferred and Series D Preferred shall be entitled to receive
out of our assets, whether capital or surplus, an amount equal to the stated value of the common
stock, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then
due and owing thereon under the Certificate of Designation, for each share of Series A Preferred,
Series B Preferred and Series D Preferred before any distribution or payment shall be made to the
holders of any junior securities, and if our assets are insufficient to pay in full such amounts,
then the entire assets to be distributed to the holders of the Series A Preferred, Series B
Preferred and Series D Preferred shall be ratably distributed among the holders in accordance with
the respective amounts that would be payable on such shares if all amounts payable thereon were
paid in full.
Conversion; Conversion Price; Forced Conversion; Optional Redemption
Each share of Series A Preferred, Series B Preferred and Series D Preferred is convertible
into a number of shares of common stock equal to (1) the stated value of the share ($1,000),
divided by (2) $0.50 (as a result of the December 2010 Series D Preferred financing), subject to
adjustment as discussed below. We refer to this price as the Conversion Price.
With certain exceptions, if, at any time while the Series A Preferred, Series B Preferred and
Series D Preferred is outstanding, we sell or grant any option to purchase or sell or grant any
right to reprice, or otherwise dispose of or issue (or announce any sale, grant or any option to
purchase or other disposition), any common stock or common stock equivalents at an effective price
per share that is lower than the then Conversion Price, then the Conversion Price will be reduced
to equal the lower price (down-round provision). The Conversion Price is also subject to
proportional adjustment in the event of any stock split, stock dividend, reclassification or
similar event with respect to the common stock.
Commencing six months from the date of the agreement pursuant to which we issued the Series A
Preferred, Series B Preferred and Series D Preferred, if the volume weighted average price for each
of any 20 consecutive trading days exceeds 200% of the then effective Conversion Price and various
other equity conditions are satisfied (including that the resale of the shares underlying the
Series A Preferred, Series B Preferred and Series D Preferred, has been registered under the
Securities Act), upon 30 days notice, the Series A Preferred, Series B Preferred and Series D
Preferred plus all accrued and unpaid dividends will automatically convert into shares of common
stock.
F35
Commencing two years from the date of the agreement pursuant to which we issued the Series A
Preferred, Series B Preferred and Series D Preferred, upon 30 days notice and provided various
other equity conditions are satisfied (including that the resale of the shares underlying the
Series A Preferred, Series B Preferred and Series D Preferred has been registered under the
Securities Act), we may redeem some or all of the then outstanding Series A Preferred, Series B
Preferred and Series D Preferred for cash in an amount equal to the 150% of the stated value of the
Series A Preferred, Series B Preferred and Series D Preferred.
Voting
The holders of the Series A Preferred, Series B Preferred and Series D Preferred have no
voting rights except with respect to specified matters affecting the rights of the Series A
Preferred, Series B Preferred and Series D Preferred.
Negative Covenants
As long as any shares of Series A Preferred, Series B Preferred and Series D Preferred are
outstanding, we may not, directly or indirectly: (a) amend our charter documents in any manner that
materially and adversely affects any rights of the holders of the Series A Preferred, Series B
Preferred and Series D Preferred; (b) pay cash dividends or distributions on our junior securities
(including the common stock); or (c) enter into any transaction with any affiliate of ours which
would be required to be disclosed in any public filing, unless such transaction is made on an
arms-length basis and expressly approved by a majority of our disinterested directors.
Triggering Events
In the event of a Triggering Event (as defined in the Certificate of Designation and described
below), any holder of Series A Preferred, Series B Preferred and Series D Preferred may require us
to redeem all of its Series A Preferred, Series B Preferred and Series D Preferred, at a redemption
price equal to the greater of (a) 130% of the stated value and (b) the product of (i) the volume
weighted average price on the trading day immediately preceding the date of the Triggering Event
and (ii) the stated value divided by the then Conversion Price, plus all accrued but unpaid
dividends thereon and all liquidated damages and other costs, expenses or amounts due in respect of
the Series A Preferred, Series B Preferred and Series D Preferred. Triggering Events include, among
other things, bankruptcy related events, change of control transactions (as defined in the
Certificate of Designation), and various types of failures to perform under, and breaches of, the
transaction documents.
Preferred Stock Series A
In October 2009, the Successor Company completed an offering of Series A Preferred, Class A
Warrants and Class B Warrants (the October 2009 Offering). Each of the foregoing securities were
subject to the down-round protection, which provisions require the lowering of the conversion
price or exercise price, as applicable, to the purchase price in the recent December 2010 Series D
Preferred offering, or $0.50, and with respect to the warrants, the number of shares issuable under
the warrants issued in the October 2009 Offering were proportionately increased such that the
aggregate exercise price payable, after taking into consideration the decrease in exercise price,
is now equal to the aggregate exercise price prior to such adjustment. The preferred stock has been
classified within the mezzanine section between liabilities and equity in its consolidated balance
sheets in accordance with ASC 480, Distinguishing Liabilities from Equity (ASC 480) because any
holder of Series A Preferred may require the Successor Company to redeem all of its Series A
Preferred in the event of a triggering event which is outside of the control of the Successor
Company. After giving effect to this anti-dilution provision, as of December 31, 2010, there will
be 5,772,000 shares of Common Stock underlying the Series A Preferred, Class A warrants to purchase
1,624,996 shares of Common Stock at an exercise price of $0.50 per share, Class B warrants to
purchase 1,624,996 shares of Common Stock at an exercise price of $0.50 per share and co-placement
warrants to purchase 650,000 shares of Common Stock at an exercise price of $0.50 per share.
Holders of the Series A Preferred are entitled to receive cumulative dividends at the rate per
share of 6% per annum, payable quarterly in arrears on January 15, April 15, July 15 and October
15, beginning on April 15, 2010. As of December 31, 2010, $92,404 was accrued for dividends
payable.
F36
Preferred Stock Series B
In 2010, the Successor Company completed an offering of Series B Preferred and warrants (the
Warrants). Each of the foregoing securities were subject to the down-round protection, which
provisions require the lowering of the conversion price or exercise price, as applicable, to the
purchase price in the recent December 2010 Series D offering, or $0.50, and with respect to the
warrants, the number of shares issuable under the warrants issued in the 2010 Offerings were
proportionately increased such that the aggregate exercise price payable, after taking into
consideration the decrease in exercise price, is now equal to the aggregate exercise price prior to
such adjustment. The preferred stock has been classified within the mezzanine section between
liabilities and equity in its consolidated balance sheets in accordance with ASC 480,
Distinguishing Liabilities from Equity (ASC 480) because any holder of Series B Preferred may
require the Successor Company to redeem all of its Series B Preferred in the event of a triggering
event which is outside of the control of the Successor Company.
The Successor Company records accrued dividends at a rate of 6% per annum on the Series B
Preferred. The Successor Company records accrued dividends at a rate of 6% per annum on the Series
B Preferred. As of December 31, 2010, $96,581 is accrued for dividends payable.
The details of the 2010 Preferred Stock Series B financing are as follows:
|
|
In the third and fourth quarter of 2010, the Company entered into a Securities Purchase
Agreement (the Purchase Agreement) with certain accredited investors (the Purchasers),
pursuant to which the Company agreed to sell to the Purchasers in the aggregate: (i) 4,640
shares of Series B Preferred, with a par value of $0.001 per share and a stated value of
$1,000 per share Series B Preferred, and (ii) the Warrants to purchase 7,733,334 shares of
Common Stock at an exercise price of $0.8054 per share. As of December 31, 2010, the Company
had not received $210,000 in subscription proceeds representing 210 shares Series B Preferred
and Warrants to purchase 350,000 shares. Upon receipt of these subscription proceeds, the
Company will issue the foregoing securities. |
|
|
The aggregate purchase price for the third and fourth quarter 2010 Series B Preferred
financing paid by the Purchasers for the Series B Preferred and the Warrants was $4,430,000
(representing $1,000 for each share of Series B Preferred together with the Warrants and
adjusted for subscription receivable of $210,000). The Company used the proceeds for working
capital purposes. |
|
|
Viriathus Capital LLC and John Carris Investments LLC were co-placement agents for the
Transaction, and received, in the aggregate, cash compensation of $354,400 and warrants to
purchase 590,657 (adjusted for subscription receivable of $210,000) shares of Common Stock at
an exercise price of $0.60 per share. |
|
|
As a result of the December 2010 Series D Preferred Stock transaction the shares and
warrants were repriced to $0.50 per share. After giving effect to this anti-dilution
provision, as of December 31, 2010, there will be 9,280,000 shares of Common Stock underlying
the Series B Preferred, warrants to purchase 12,456,853 shares of Common Stock at an exercise
price of $0.50 per share and co-placement warrants to purchase 708,789 shares of Common Stock
at an exercise price of $0.50 per share. |
Preferred Stock Series D
On December 15, 17 and 27, 2010, the Successor Company completed a private placement of
securities of Series D Preferred and warrants. Each of the foregoing securities were subject to
the down-round protection and if at any time while the Series D Preferred is outstanding, we sell
or grant any option to purchase or sell or grant any right to reprice, or otherwise dispose of or
issue (or announce any sale, grant or any option to purchase or other disposition), any common
stock or common stock equivalents at an effective price per share that is lower than the then
Conversion Price, then the Conversion Price will be reduced to equal the lower price. The
preferred stock has been classified within the mezzanine section between liabilities and equity in
its consolidated balance sheets in accordance with ASC 480, Distinguishing Liabilities from Equity
(ASC 480) because any holder of Series D Preferred may require
the Successor Company to redeem all of its Series D Preferred in the event of a triggering
event which is outside of the control of the Successor Company.
F37
The Successor Company records accrued dividends at a rate of 6% per annum on the Series D
Preferred. The Successor Company records accrued dividends at a rate of 6% per annum on the Series
D Preferred. As of December 31, 2010, $2,432 is accrued for dividends payable.
The details of the 2010 Series D Preferred financing are as follows:
|
|
1,645 shares of Series D Preferred, with a par value of $0.001 per share and a stated
value of $1,000 per share and (ii) warrants to purchase 3,290,000 shares of Common Stock at
an exercise price of $0.50 per share. |
|
|
The aggregate purchase price paid by the Purchasers for the Series D Preferred and the
Warrants was $1,645,000 (representing $1,000 for each share of Series D Preferred together
with Warrants). |
|
|
The placement agents for the Transactions received cash compensation of $131,600 and
warrants to purchase 263,200 shares of Common Stock at an exercise price of $0.50 per share
(assuming all subscription proceeds are received in the Transactions). |
Conversion option of Redeemable Preferred stock
The embedded conversion option for the Series A Preferred, Series B Preferred and Series D
Preferred has been recorded as a derivative liability under ASC 815 in the Successors consolidated
balance sheet as of December 31, 2010 and will be re-measured on the Successor Companys reporting
dates. The fair value of the derivative liability is determined using the Black-Scholes option
pricing model and is affected by changes in inputs to that model including our stock price,
expected stock price volatility, the contractual term, and the risk-free interest rate. The
Successor Company will continue to classify the fair value of the embedded conversion option as a
liability until the preferred stock is converted into common stock.
The embedded conversion option for the Series A Preferred, Series B Preferred and Series D
Preferred was valued at $2,120,360 at December 31, 2010 at fair value using the Black-Scholes
option pricing model. The fair market value of the derivative liability was computed using the
Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
December 31, 2010 |
|
Expected life (years) |
|
1.6 years |
|
Interest rate |
|
|
1.6 |
% |
Dividend yield |
|
|
|
|
Volatility |
|
|
63 |
% |
Common Stock Offering
On March 2, 2010, the Company entered into a Securities Purchase Agreement with certain
accredited investors, pursuant to which the Company sold to the Purchasers in the aggregate
5,076,664 shares of common stock at a purchase price of $0.75 per share. Each Purchaser also
received a warrant to purchase the same number of shares of Common Stock acquired in the offering
at an exercise price of $0.98 per share.
The aggregate purchase price paid by the Purchasers for the common stock and the warrants was
$3,807,500. The Company used the proceeds for working capital purposes.
Viriathus Capital LLC and John Carris Investments LLC were co-placement agents for the
transaction, and received cash compensation of $304,600 and warrants to purchase 406,133 shares of
common stock at an exercise price of $0.75 per share upon the closing.
F38
Each of the foregoing securities were subject to the down-round protection and if at any
time while the Common Stock is outstanding, we sell or grant any option to purchase or sell or
grant any right to reprice, or otherwise dispose of or issue (or announce any sale, grant or any
option to purchase or other disposition), any common stock or common stock equivalents at an
effective price per share that is lower than the then Conversion Price, then the Conversion Price
will be reduced to equal the lower price. As of result of the December 2010 Series D Preferred
Stock transaction the Warrants were repriced to $0.50 per share. After giving effect to this
anti-dilution provision, as of December 31, 2010, there will be Warrants to purchase 9,950,261
shares of Common Stock at an exercise price of $0.50 per share and co-placement warrants to
purchase 609,200 shares of Common Stock at an exercise price of $0.50 per share.
Note 15Warrants
Preferred Stock Series A Class A and B Warrants and Placement Agent Warrants
As disclosed above in Note 9, the Successor Company issued Class A warrants, Class B warrants
and placement agent warrants in connection with the October 2009 preferred stock transaction. The
warrants are liability classified since they have down-round price protection and they are
re-measured on the Companys reporting dates. As a result of the December 2010 Series D convertible
preferred stock financing and the down-round provision, the Class A warrants, Class B warrants
and placement agent warrants were reissued to purchase approximately 3.9 million shares of Common
Stock at an exercise price of $0.50 per share.
Preferred Stock Series B Warrants and Co-placement Agent Warrants
In connection with the Series B Convertible Preferred Stock transaction, the Successor Company
issued warrants and co- placement agent warrants. The warrants are liability classified since they
have down-round price protection and they are re-measured on the Companys reporting dates. As a
result of the December 2010 Series D convertible preferred stock financing and the down-round
provision, the Series B warrants and co-placement agent warrants were reissued to purchase
approximately 13.2 million shares of Common Stock at an exercise price of $0.50 per share.
Preferred Stock Series D Warrants and Co-placement Agent Warrants
In connection with the Series D Convertible Preferred Stock transaction, the Successor Company
issued 3,290,000 warrants at an exercise price of $0.50 per share and 263,200 placement agent
warrants at an exercise price of $0.50 per share. The warrants are liability classified since they
have down-round price protection and they are re-measured on the Companys reporting dates. The
weighted average fair market value of the warrants, at the date of issuance, granted to the
accredited investors and co-placement agents, based on the Black-Scholes valuation model, is
estimated to be $0.31 per warrant.
Common Stock Warrants and Co-placement Agent Warrants
In connection with the March 2, 2010 financing, the Successor Company issued 5,076,664
warrants at an exercise price of $0.98 per share to the accredited investors and 406,133 warrants
at an exercise price of $0.75 to the co-placement agents upon closing. The warrants are liability
classified since they have down-round price protection and they are re-measured on the Companys
reporting dates. The warrants were exercisable immediately after grant and expire five years
thereafter. The fair market value of the warrants, at the date of issuance, granted to the
accredited investors and co-placement agents, based on the Black-Scholes valuation model, is
estimated to be $0.52 per warrant and $0.58 per warrant, respectively. As a result of the
Convertible Preferred Stock Series B financing and the down-round provision, the Common Stock
warrants and placement agent warrants were reissued to purchase 10.6 million shares of Common Stock
at an exercise price of $0.50 per share.
F39
The Successor Company recognizes these warrants as a liability at the fair value on each
reporting date due to the down-round price protection provision. The Company measured the fair
value of these warrants as of December 31, 2010, and recorded warrant expense of $2.0 million
resulting from the increase in the liability associated with the fair value of the warrants for the
three months ended December 31, 2010. The Company computed the value of the warrants using the
Black-Scholes method. The fair value of the warrants will continue to be classified as a liability
until such time as the warrants are exercised, expire or an amendment of the warrant agreements
renders these warrants to be no longer classified as a liability. The warrants are exercisable
upon issuance and expire on the fifth anniversary of issuance. There were no warrants exercised in
2010.
The fair market value of the warrants was computed using the Black-Scholes option-pricing
model with the following key weighted average assumptions as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
Expected life (years) |
|
4.7 years |
|
|
4.8 years |
|
Interest rate |
|
|
1.8 |
% |
|
|
2.7 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
Volatility |
|
|
63 |
% |
|
|
66 |
% |
Roll forward of Successor Company warrant liability from December 31, 2009 through December
31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
Additions |
|
|
Revaluation |
|
|
December 31, 2010 |
|
Preferred stock class A warrants |
|
$ |
275,378 |
|
|
$ |
|
|
|
$ |
120,711 |
|
|
$ |
396,089 |
|
Preferred stock class B warrants |
|
|
207,611 |
|
|
|
|
|
|
|
188,478 |
|
|
|
396,089 |
|
Preferred stock co-placement warrants |
|
|
152,287 |
|
|
|
|
|
|
|
6,150 |
|
|
|
158,437 |
|
Common stock warrants |
|
|
|
|
|
|
2,654,752 |
|
|
|
(123,604 |
) |
|
|
2,531,148 |
|
Common stock placement warrants |
|
|
|
|
|
|
235,958 |
|
|
|
(80,990 |
) |
|
|
154,968 |
|
Preferred stock series B warrants |
|
|
|
|
|
|
2,837,394 |
|
|
|
522,678 |
|
|
|
3,360,072 |
|
Preferred stock series B co-placement warrants |
|
|
|
|
|
|
249,778 |
|
|
|
(58,784 |
) |
|
|
190,994 |
|
Preferred stock series D warrants |
|
|
|
|
|
|
1,011,553 |
|
|
|
(100,717 |
) |
|
|
910,836 |
|
Preferred stock series D co-placement warrants |
|
|
|
|
|
|
81,575 |
|
|
|
(8,690 |
) |
|
|
72,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
635,276 |
|
|
$ |
7,071,010 |
|
|
$ |
465,232 |
|
|
$ |
8,171,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability is comprised of the following as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Number of |
|
|
Fair Value of |
|
|
December 31, |
|
|
|
Warrants |
|
|
Warrants |
|
|
2010 |
|
Preferred stock class A warrants |
|
|
1,624,996 |
|
|
$ |
0.24 |
|
|
$ |
396,089 |
|
Preferred stock class B warrants |
|
|
1,624,996 |
|
|
|
0.24 |
|
|
|
396,089 |
|
Preferred stock co-placement warrants |
|
|
650,000 |
|
|
|
0.24 |
|
|
|
158,437 |
|
Common stock warrants |
|
|
9,950,261 |
|
|
|
0.25 |
|
|
|
2,531,148 |
|
Common stock placement warrants |
|
|
609,200 |
|
|
|
0.25 |
|
|
|
154,968 |
|
Preferred stock series B warrants |
|
|
12,456,853 |
|
|
|
0.27 |
|
|
|
3,360,072 |
|
Preferred stock series B
co-placement warrants |
|
|
708,789 |
|
|
|
0.27 |
|
|
|
190,994 |
|
Preferred stock series D warrants |
|
|
3,290,000 |
|
|
|
0.28 |
|
|
|
910,836 |
|
Preferred stock series D
co-placement warrants |
|
|
263,200 |
|
|
|
0.28 |
|
|
|
72,885 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
31,178,295 |
|
|
$ |
0.26 |
|
|
$ |
8,171,518 |
|
|
|
|
|
|
|
|
|
|
|
Warrant liability is comprised of the following as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
Number of |
|
|
Fair Value of |
|
|
Balance as of |
|
|
|
Warrants |
|
|
Warrants |
|
|
December 31, 2009 |
|
Preferred stock class A warrants |
|
|
501,543 |
|
|
$ |
0.55 |
|
|
$ |
275,378 |
|
Preferred stock class B warrants |
|
|
416,667 |
|
|
|
0.50 |
|
|
|
207,611 |
|
Preferred stock co-placement warrants |
|
|
250,000 |
|
|
|
0.61 |
|
|
|
152,287 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,168,210 |
|
|
|
|
|
|
$ |
635,276 |
|
|
|
|
|
|
|
|
|
|
|
|
F40
Note 16Equity-based Compensation
Total stock-based compensation expense recognized using the straight-line attribution method
in the consolidated statement of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Twelve months |
|
|
Four months |
|
|
|
Eight months |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
2009 |
|
Stock option compensation expense for employees
and directors |
|
$ |
833,713 |
|
|
$ |
326,838 |
|
|
|
$ |
581,707 |
|
Restricted stock expense |
|
|
72,000 |
|
|
|
168,000 |
|
|
|
|
|
|
Equity awards for nonemployees issued for services |
|
|
86,828 |
|
|
|
386,380 |
|
|
|
|
1,746 |
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
992,541 |
|
|
$ |
881,218 |
|
|
|
$ |
583,453 |
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
Our board of directors adopted the 2009 Equity Incentive Plan (the Plan) effective September
3, 2009. The Plan is intended to further align the interests of the Successor Company and its
stockholders with its employees, including its officers, non-employee directors, consultants and
advisors by providing incentives for such persons to exert maximum efforts for the success of the
Successor Company. The Plan allows for the issuance of up to 4,000,000 shares of the Successor
Companys common stock. Subsequent to December 31, 2010, the board of directors of the Company
amended the 2009 Equity Incentive Plan to increase the number of shares available for issuance
under the Plan to 15,000,000 shares of common stock. The types of awards that may be granted under
the Plan include options (both nonqualified stock options and incentive stock options), stock
appreciation rights, stock awards, stock units, and other stock-based awards. Notwithstanding the
foregoing, to the extent the Successor Company is unable to obtain shareholder approval of the Plan
within one year of the effective date, any incentive stock options issued pursuant to the Plan
shall automatically be considered nonqualified stock options, and to the extent a holder of an
incentive stock option exercises his or her incentive stock option prior to such shareholder
approval date, such exercised option shall automatically be considered to have been a nonqualified
stock option. The term of each award is determined by the Board at the time each award is granted,
provided that the terms of options may not exceed ten years.
On February 23, 2010, modifications were made to all fiscal year 2009 grants for directors and
employees. The modifications provided for all options granted under the 2009 Plan in fiscal year
2009 to extend to a ten year term and allowed Directors to extend the exercise period after
departure to one year. As a result of the modifications, the Successor Company recognized
incremental compensation cost of approximately $149,000 in the first quarter of 2010.
F41
During the year ended December 31, 2010, the weighted average fair market value using the
Black-Scholes option-pricing model of the options granted was $0.53 for this period. During the
period September 2009 through December 2009, the weighted average fair market value using the
Black-Scholes option-pricing model of the options granted was $0.33 for this period. The fair
market value of the stock options at the date of grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Four Months |
|
|
|
Year Ended |
|
|
Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Expected life |
|
5.1 years |
|
|
2.7 years |
|
Interest rate |
|
2.0 |
% |
|
1.4 |
% |
Di Dividend yield |
|
|
|
|
|
|
Volatility |
|
64% |
|
|
67% |
|
There were no stock options exercised during the year ended December 31, 2010 and the period
September 2009 through December 2009.
A summary of option activity for the year ended December 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
Options |
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2010 |
|
|
2,807,000 |
|
|
$ |
0.77 |
|
|
|
7.35 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,870,000 |
|
|
|
0.95 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
5,677,000 |
|
|
$ |
0.86 |
|
|
|
7.46 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010 |
|
|
3,627,384 |
|
|
$ |
0.84 |
|
|
|
7.16 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Successor Companys non-vested stock options:
|
|
|
|
|
|
|
|
|
|
|
Non-vested Options |
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
Average Fair |
|
|
|
Shares |
|
|
Value |
|
Non-vested at January 1, 2010 |
|
|
677,000 |
|
|
$ |
0.36 |
|
Granted |
|
|
2,870,000 |
|
|
|
0.53 |
|
Vested |
|
|
(1,497,384 |
) |
|
|
0.49 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2010 |
|
|
2,049,616 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
The total fair value of shares vested during the twelve months ended December 31, 2010
was $0.8 million. As of December 31, 2010, there was $0.7 million of total unrecognized
compensation cost, related to non-vested stock options which vest over time. That cost is expected
to be recognized over a weighted-average period of two years. As of December 31, 2010, there was
$0.3 million of total unrecognized compensation expense related to performance-based, non-vested
employee and consultant stock options. That cost will be recognized when the performance criteria
within the respective performance-based option grants become probable of achievement.
F42
Restricted stock
The following table summarizes the Successors restricted stock activity for the year ended
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Non-vested Options |
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
Average Fair |
|
|
|
Shares |
|
|
Value |
|
Non-vested at January 1, 2010 |
|
|
300,000 |
|
|
$ |
0.48 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(150,000 |
) |
|
|
0.48 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2010 |
|
|
150,000 |
|
|
$ |
0.48 |
|
|
|
|
|
|
|
|
As of December 31, 2010, there was less than $0.1 million of total unrecognized
compensation cost related to non-vested restricted stock that is expected to be recognized over a
weighted-average period less than 1 year.
Predecessor Company
Prior to September 3, 2009, the Effective Date, the Predecessor Company maintained stock-based
incentive compensation plans for employees and directors of the Company. On the Effective Date, the
following stock option plans were terminated (and any and all awards granted under such plans were
terminated and will no longer be of any force or effect): (1) the 2001 Stock Option and
Appreciation Rights Plan, (2) the 2003 Stock Option and Appreciation Rights Plan, (3) the 2005
Stock Option and Appreciation Rights Plan. As a result of the cancellation of the stock options,
the Predecessor Company recorded additional stock compensation expense of $0.3 million for the
unrecognized stock compensation expense.
Note 17Segment Information and Geographical information
The Successor Company has two reportable segments: Fibrocell Therapy and Agera. The Fibrocell
Therapy segment specializes in the development and commercialization of autologous cellular
therapies for soft tissue regeneration. The Agera segment maintains proprietary rights to a
scientifically-based advanced line of skincare products. There is no intersegment revenue. The
following table provides operating financial information for the continuing operations of the
Successor Companys two reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
Successor |
|
|
|
|
|
|
Successor |
|
Year Ended December 31, 2010 |
|
Fibrocell Therapy |
|
|
Agera |
|
|
Consolidated |
|
Total operating revenue |
|
$ |
|
|
|
$ |
936,369 |
|
|
$ |
936,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from continuing
operations |
|
$ |
(12,840,598 |
) |
|
$ |
9,770 |
|
|
$ |
(12,830,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information related to
continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
$ |
8,085 |
|
|
$ |
|
|
|
$ |
8,085 |
|
Total assets, including assets from
discontinued operations as of December
31, 2010 |
|
|
7,681,502 |
|
|
|
596,643 |
|
|
|
8,278,145 |
|
Property and equipment, net |
|
|
21,589 |
|
|
|
|
|
|
|
21,589 |
|
Intangible assets, net |
|
|
6,340,656 |
|
|
|
|
|
|
|
6,340,656 |
|
An intercompany receivable as of December 31, 2010, of $0.9 million, due from the Agera
segment to the Fibrocell Therapy segment, is eliminated in consolidation. This intercompany
receivable is primarily due to the intercompany management fee charge to Agera by Fibrocell
Technologies, Inc., as well as Agera working capital needs provided by Fibrocell Technologies,
Inc., and has been excluded from total assets of the Fibrocell Therapy segment in the above table.
There is no intersegment revenue. Total assets on the consolidated balance sheet at December 31,
2010 are approximately $8.3 million, which includes assets of discontinued operations of less than
$0.1 million.
F43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
Successor |
|
|
|
|
|
|
Successor |
|
Four Months Ended December 31, 2009 |
|
Fibrocell Therapy |
|
|
Agera |
|
|
Consolidated |
|
Total operating revenue |
|
$ |
|
|
|
$ |
329,941 |
|
|
$ |
329,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from continuing
operations |
|
$ |
(5,026,024 |
) |
|
$ |
3,631 |
|
|
$ |
(5,022,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information related to
continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total assets, including assets from
discontinued operations as of December
31, 2009 |
|
|
8,092,816 |
|
|
|
631,393 |
|
|
|
8,724,209 |
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
6,340,656 |
|
|
|
|
|
|
|
6,340,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
Predecessor |
|
|
|
|
|
|
Predecessor |
|
Eight Months Ended August 31, 2009 |
|
Isolagen Therapy |
|
|
Agera |
|
|
Consolidated |
|
Total operating revenue |
|
$ |
|
|
|
$ |
538,620 |
|
|
$ |
538,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income from continuing
operations |
|
$ |
65,498,934 |
|
|
$ |
381,306 |
|
|
$ |
65,880,240 |
|
|
|
|
|
|
|
|
|
|
|
An intercompany receivable as of December 31, 2009, of $1.0 million, due from the Agera
segment to the Fibrocell Therapy segment, is eliminated in consolidation. This intercompany
receivable is primarily due to the intercompany management fee charge to Agera by Fibrocell
Technologies, Inc., as well as Agera working capital needs provided by Fibrocell Technologies,
Inc., and has been excluded from total assets of the Fibrocell Therapy segment in the above table.
There is no intersegment revenue. Total assets on the consolidated balance sheet at December 31,
2009 are approximately $8.7 million, which includes assets of discontinued operations of less than
$0.1 million.
Geographical information concerning the Companys revenue is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Successor |
|
|
|
Predecessor |
|
|
|
Year ended December 31, |
|
|
Four months ended |
|
|
|
Eight months ended |
|
|
|
2010 |
|
|
December 31, 2009 |
|
|
|
August 31, 2009 |
|
United States |
|
$ |
237,286 |
|
|
$ |
68,526 |
|
|
|
$ |
187,289 |
|
United Kingdom |
|
|
669,921 |
|
|
|
251,615 |
|
|
|
|
308,244 |
|
Other |
|
|
29,162 |
|
|
|
9,800 |
|
|
|
|
43,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
936,369 |
|
|
$ |
329,941 |
|
|
|
$ |
538,620 |
|
|
|
|
|
|
|
|
|
|
|
|
During 2010, revenue from one foreign customer and one domestic customer represented 72% and
17% of consolidated revenue, respectively. During the four months ended December 31, 2009, revenue
from one foreign customer and one domestic customer represented 79% and 15% of consolidated
revenue, respectively. During the eight months ended August 31, 2009, revenue from one foreign
customer and one domestic customer represented 57% and 23% of consolidated revenue, respectively.
As of December 31, 2010 and December 31, 2009, one foreign customer represented 88% and 87%,
respectively, of accounts receivable, net.
F44
Note 18Subsequent Events
On January 14, 2011, the board of directors of the Company amended the 2009 Equity Incentive
Plan (the Plan) to increase the number of shares available for issuance under the Plan to
15,000,000 shares of common stock.
On January 14, 2011, the board of directors agreed to provide: (i) Mr. David Pernock, Chief
Executive Officer and President, with an option to purchase 2,100,000 shares of Company common
stock; (ii) Mr. Declan Daly, Chief Financial Officer, with an option to purchase 1,065,000 shares
of Company common stock; and (iii) Messrs. Kelvin Moore, Robert Langer, Marc Mazur, and George
Korkos, each a director of the Company, with an option to purchase 200,000 shares of Company common
stock. Each of the foregoing options has: (i) a ten-year term, (ii) an exercise price equal to the
closing price of the Companys common stock on the date of grant, and (iii) vests 50% on the date
of grant; 25% on the one-year anniversary of the date of grant; and 25% on the two-year anniversary
of the date of grant; provided in each case that the grantee is providing service to the Company on
the vesting date.
On January 21, 2011, the Company completed a private placement of securities in which the
Company sold to certain accredited investors in the aggregate: (i) 1,234 shares of Series D
Convertible Preferred Stock, with a par value of $0.001 per share and a stated value of $1,000 per
share (Series D Preferred), and (ii) warrants to purchase 2,468,000 shares of Company common
stock (Common Stock) at an exercise price of $0.50 per share.
The aggregate purchase price paid by the Purchasers for the Series D Preferred and the
Warrants was $1,234,000 (representing $1,000 for each share of Series D Preferred together with
warrants). The Company intends to use the proceeds for working capital purposes.
The placement agents for the offering received cash compensation of $98,720 and warrants to
purchase 197,440 shares of Common Stock at an exercise price of $0.50 per share.
On January 28, 2011, the Company completed a private placement of securities in which the
Company sold to certain accredited investors in the aggregate: (i) 1,414 shares of Series D at a
stated value of $1,000 per share, and (ii) warrants to purchase 2,828,000 shares of Common Stock at
an exercise price of $0.50 per share.
The aggregate purchase price paid by the Purchasers for the Series D Preferred and the
warrants was $1,414,000 (representing $1,000 for each share of Series D Preferred together with
warrants). The Company intends to use the proceeds for working capital purposes.
The placement agents for the offering received cash compensation of $113,120 and warrants to
purchase 226,240 shares of Common Stock at an exercise price of $0.50 per share.
On February 9, 2011, the Company completed a private placement of securities in which the
Company sold to certain accredited investors in the aggregate: (i) 3,436 shares of Series D at a
stated value of $1,000 per share, and (ii) warrants to purchase 6,872,000 shares of Common Stock at
an exercise price of $0.50 per share.
The aggregate purchase price paid by the Purchasers for the Series D Preferred and the
warrants was $3,436,000 (representing $1,000 for each share of Series D Preferred together with
warrants). The Company intends to use the proceeds for working capital purposes.
The placement agents for the offering received cash compensation of $274,880 and warrants to
purchase 549,760 shares of Common Stock at an exercise price of $0.50 per share.
F45
On March 1, 2011, the Company completed a private placement of securities in which the Company
sold to certain accredited investors in the aggregate: (i) 50 shares of Series D at a stated value
of $1,000 per share, and (ii) warrants to purchase 100,000 shares of Common Stock at an exercise
price of $0.50 per share.
The aggregate purchase price paid by the Purchasers for the Series D Preferred and the
warrants was $50,000 (representing $1,000 for each share of Series D Preferred together with
warrants). The Company intends to use the proceeds for working capital purposes.
The placement agents for the offering received cash compensation of $4,000 and warrants to
purchase 8,000 shares of Common Stock at an exercise price of $0.50 per share.
As of March 24, 2011, investors in the Series B preferred stock had converted 1,902 preferred
shares into 3,804,000 common shares.
F46
Exhibit 23.1
Consent of Independent Registered
Public Accounting Firm
We hereby consent to the
incorporation by reference in the Registration Statement on Form S-8 (File
No. 333-172776) of Fibrocell Science, Inc.(formerly known as Isolagen,
Inc.) of our report dated March 30, 2011, relating to the consolidated
financial statements appearing in the Company’s Annual Report on Form
10-K for the year ended December 31, 2010. Our report contains an
explanatory paragraph regarding the Company’s ability to continue as a
going concern.
/s/ BDO USA, LLP
Houston, Texas
March 30, 2011
Exhibit 31.1
OFFICERS CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David Pernock, Chief Executive Officer of Fibrocell Science, Inc., certify that:
1. I have reviewed this Annual Report on Form 10-K of Fibrocell Science, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles; |
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Dated: March 30, 2011
|
|
|
|
|
By:
|
|
/s/ David Pernock
David Pernock, Chief Executive Officer
|
|
|
Exhibit 31.2
OFFICERS CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Declan Daly, Chief Financial Officer of Fibrocell Science, Inc., certify that:
1. I have reviewed this Annual Report on Form 10-K of Fibrocell Science, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles; |
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Dated: March 30, 2011
|
|
|
|
|
By:
|
|
/s/ Declan Daly
Declan Daly, Chief Financial Officer
|
|
|
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 1350 OF
CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, the undersigned, David Pernock, Chief Executive Officer of Fibrocell Science, Inc.
(the Company), hereby certifies that:
|
i. |
|
the Annual Report on Form 10-K of the Company for the year ended
December 31, 2010, as filed with the Securities and Exchange Commission on the
date hereof (the Report) fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Commission Act of 1934; and |
|
ii. |
|
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company. |
Dated: March 30, 2011
|
|
|
|
|
By:
|
|
/s/ David Pernock
David Pernock
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
Fibrocell Science, Inc. |
|
|
A signed original of this written statement required by Section 906 has been provided to Fibrocell
Science, Inc. and will be retained by Fibrocell Science, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 1350 OF
CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, the undersigned, Declan Daly, Chief Financial Officer of Fibrocell Science, Inc. (the
Company), hereby certifies that:
|
i. |
|
the Annual Report on Form 10-K of the Company for the year ended
December 31, 2010, as filed with the Securities and Exchange Commission on the
date hereof (the Report) fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Commission Act of 1934; and |
|
ii. |
|
the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company. |
Dated: March 30, 2011
|
|
|
|
|
By:
|
|
/s/ Declan Daly
Declan Daly
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
Fibrocell Science, Inc. |
|
|
A signed original of this written statement required by Section 906 has been provided to Fibrocell
Science, Inc. and will be retained by Fibrocell Science, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.