Attached files
file | filename |
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EX-10.1 - EXHIBIT 10.1 - Fibrocell Science, Inc. | c92967exv10w1.htm |
EX-4.2 - EXHIBIT 4.2 - Fibrocell Science, Inc. | c92967exv4w2.htm |
EX-4.1 - EXHIBIT 4.1 - Fibrocell Science, Inc. | c92967exv4w1.htm |
EX-10.3 - EXHIBIT 10.3 - Fibrocell Science, Inc. | c92967exv10w3.htm |
EX-32.1 - EXHIBIT 32.1 - Fibrocell Science, Inc. | c92967exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - Fibrocell Science, Inc. | c92967exv31w1.htm |
EX-10.2 - EXHIBIT 10.2 - Fibrocell Science, Inc. | c92967exv10w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
OR
o | 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)
Delaware (State or other jurisdiction of incorporation) |
001-31564 (Commission File Number) |
87-0458888 (I.R.S. Employer Identification No.) |
405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of principal executive offices, including zip code)
Exton, Pennsylvania 19341
(Address of principal executive offices, including zip code)
(484) 713-6000
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has 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. þ Yes o No
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 registrant was required to submit and post such files.)
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated
filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Indicate by check mark whether the issuer 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.
þ Yes o No
As of November 20, 2009, issuer had 14,666,666 shares of issued and outstanding common stock, par
value $0.001.
TABLE OF CONTENTS
Page
1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
15 | ||||||||
16 | ||||||||
32 | ||||||||
44 | ||||||||
45 | ||||||||
45 | ||||||||
45 | ||||||||
46 | ||||||||
47 | ||||||||
48 | ||||||||
Exhibit 4.1 | ||||||||
Exhibit 4.2 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 10.3 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 32.1 |
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. | Financial statements. |
Fibrocell Science, Inc.
(A Development Stage Company)
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
Successor | Predecessor | |||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,147,133 | $ | 2,854,300 | ||||
Accounts receivable, net |
230,790 | 338,850 | ||||||
Inventory, net |
239,985 | 467,246 | ||||||
Prepaid expenses |
520,015 | 738,652 | ||||||
Other current assets |
| 624,365 | ||||||
Current assets of discontinued operations, net |
811 | 29,992 | ||||||
Total current assets |
2,138,734 | 5,053,405 | ||||||
Other assets |
250 | | ||||||
Intangible
assets |
6,340,656 | | ||||||
Total assets |
$ | 8,479,640 | $ | 5,053,405 | ||||
Liabilities,
Shareholders Equity/(Deficit) and Noncontrolling Interests |
||||||||
Current liabilities: |
||||||||
Current debt |
$ | | $ | 90,072,286 | ||||
Accounts payable |
141,586 | 415,909 | ||||||
Accrued expenses |
679,624 | 1,647,713 | ||||||
Deferred revenue |
| 7,522 | ||||||
Current liabilities of discontinued operations |
8,183 | 209,458 | ||||||
Total current liabilities |
829,393 | 92,352,888 | ||||||
Long-term debt |
6,000,060 | | ||||||
Deferred tax
liability |
2,500,000 | | ||||||
Other long term liabilities of continuing operations |
397,611 | 1,171,638 | ||||||
Total liabilities |
9,727,064 | 93,524,526 | ||||||
Commitments and contingencies (see Note 11) |
||||||||
Equity |
||||||||
Fibrocell Science, Inc. shareholders equity/(deficit): |
||||||||
Predecessor common stock, $.001 par value; 100,000,000 shares
authorized |
| 41,639 | ||||||
Successor common stock, $.001 par value; 250,000,000 shares authorized |
14,667 | | ||||||
Additional paid-in capital |
314,118 | 131,341,227 | ||||||
Predecessor treasury stock, at cost, 4,000,000 shares |
| (25,974,000 | ) | |||||
Accumulated deficit during development stage |
(1,957,547 | ) | (194,057,337 | ) | ||||
Total Fibrocell Science, Inc. shareholders deficit |
(1,628,762 | ) | (88,648,471 | ) | ||||
Noncontrolling interest |
381,338 | 177,350 | ||||||
Total
deficit and noncontrolling interests |
(1,247,424 | ) | (88,471,121 | ) | ||||
Total
liabilities, shareholders equity/(deficit) and noncontrolling
interests |
$ | 8,479,640 | $ | 5,053,405 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
1
Table of Contents
Fibrocell Science, Inc.
(A Development Stage Company)
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Successor | Predecessor | |||||||||||
One month ended | ||||||||||||
September 30, | Two months ended | Three months ended | ||||||||||
2009 | August 31, 2009 | September 30, 2008 | ||||||||||
Revenue |
||||||||||||
Product sales |
$ | 75,029 | $ | 130,740 | $ | 300,173 | ||||||
License fees |
| | | |||||||||
Total revenue |
75,029 | 130,740 | 300,173 | |||||||||
Cost of sales |
53,323 | 252,420 | 143,611 | |||||||||
Gross profit (loss) |
21,706 | (121,680 | ) | 156,562 | ||||||||
Selling, general and administrative expenses |
1,372,122 | 1,158,959 | 1,837,143 | |||||||||
Research and development expenses |
556,242 | 614,511 | 2,282,218 | |||||||||
Operating loss |
(1,906,658 | ) | (1,895,150 | ) | (3,962,799 | ) | ||||||
Other income (expense) |
||||||||||||
Interest income |
1 | 1 | 31,824 | |||||||||
Reorganization items, net |
| 74,132,188 | | |||||||||
Other income/(expense) |
| (6,243 | ) | | ||||||||
Interest expense |
(58,333 | ) | (290,063 | ) | (974,810 | ) | ||||||
Income/(loss) from continuing operations |
(1,964,990 | ) | 71,940,733 | (4,905,785 | ) | |||||||
Income/(loss) from discontinued operations, net of tax (see Note 8) |
5,799 | 216,203 | (24,027 | ) | ||||||||
Net income/(loss) |
(1,959,191 | ) | 72,156,936 | (4,929,812 | ) | |||||||
Plus/(less): Net loss/(income) attributable to noncontrolling interest |
1,644 | (214,292 | ) | 13,346 | ||||||||
Net income/(loss) attributable to Fibrocell Science, Inc. common shareholders |
$ | (1,957,547 | ) | $ | 71,942,644 | $ | (4,916,466 | ) | ||||
Per share information: |
||||||||||||
Income/(loss) from continuing operationsbasic and diluted |
$ | (0.13 | ) | $ | 1.85 | $ | (0.13 | ) | ||||
Income/(loss) from discontinued operationsbasic and diluted |
| | | |||||||||
Income attributable to noncontrolling interest |
| | | |||||||||
Net income/(loss) per common sharebasic and diluted |
$ | (0.13 | ) | $ | 1.85 | $ | (0.13 | ) | ||||
Weighted average number of basic and diluted common shares outstanding |
14,666,666 | 38,820,380 | 37,639,492 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Table of Contents
Fibrocell Science, Inc.
(A Development Stage Company)
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Successor | Predecessor | Predecessor | Predecessor | |||||||||||||
Cumulative period from | ||||||||||||||||
One month ended | Eight months ended | Nine months ended | December 28, 1995 (date of | |||||||||||||
September 30, 2009 | August 31, 2009 | September 30, 2008 | inception) to August 31, 2009 | |||||||||||||
Revenue |
||||||||||||||||
Product sales |
$ | 75,029 | $ | 538,620 | $ | 789,847 | $ | 4,818,994 | ||||||||
License fees |
| | 260,000 | |||||||||||||
Total revenue |
75,029 | 538,620 | 789,847 | 5,078,994 | ||||||||||||
Cost of sales |
53,323 | 424,139 | 462,373 | 2,279,335 | ||||||||||||
Gross profit |
21,706 | 114,481 | 327,474 | 2,799,659 | ||||||||||||
Selling, general and administrative expenses |
1,372,122 | 3,427,374 | 7,993,543 | 84,805,520 | ||||||||||||
Research and development expenses |
556,242 | 2,107,718 | 8,427,429 | 56,269,869 | ||||||||||||
Operating loss |
(1,906,658 | ) | (5,420,611 | ) | (16,093,498 | ) | (138,275,730 | ) | ||||||||
Other income (expense) |
||||||||||||||||
Interest income |
1 | 248 | 165,342 | 6,989,539 | ||||||||||||
Reorganization items, net |
| 73,538,984 | | 73,538,984 | ||||||||||||
Other income/(expense) |
| (6,243 | ) | | 316,338 | |||||||||||
Interest expense |
(58,333 | ) | (2,232,138 | ) | (2,924,429 | ) | (18,790,218 | ) | ||||||||
Income/(loss) from continuing operations before income taxes |
(1,964,990 | ) | 65,880,240 | (18,852,585 | ) | (76,221,087 | ) | |||||||||
Income tax benefit |
| | | 190,754 | ||||||||||||
Income/(Loss) from continuing operations |
(1,964,990 | ) | 65,880,240 | (18,852,585 | ) | (76,030,333 | ) | |||||||||
Income/(loss) from discontinued operations, net of tax |
5,799 | 46,923 | (4,501,049 | ) | (41,091,311 | ) | ||||||||||
Net (loss)/Income ) |
(1,959,191 | ) | 65,927,163 | (23,353,634 | ) | (117,121,644 | ) | |||||||||
Deemed dividend associated with beneficial conversion |
| | | (11,423,824 | ) | |||||||||||
Preferred stock dividends |
| | | (1,589,861 | ) | |||||||||||
Plus/(less): Net loss/(income) attributable to noncontrolling interest |
1,644 | (205,632 | ) | 73,841 | 1,799,523 | |||||||||||
Net loss attributable to Fibrocell Science, Inc. common shareholders |
$ | (1,957,547 | ) | $ | 65,721,531 | $ | (23,279,793 | ) | $ | (128,335,806 | ) | |||||
Per share information: |
||||||||||||||||
Income/(loss) from continuing operationsbasic and diluted |
$ | (0.13 | ) | $ | 1.72 | $ | (0.50 | ) | $ | (4.30 | ) | |||||
Loss from discontinued operationsbasic and diluted |
| | (0.12 | ) | (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 |
$ | (0.13 | ) | $ | 1.72 | $ | (0.62 | ) | $ | (7.26 | ) | |||||
Weighted average number of basic and diluted common shares outstanding |
14,666,666 | 38,230,886 | 37,639,492 | 17,678,219 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
Fibrocell Science, Inc.
(A Development Stage Company)
(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 |
| $ | | | $ | | 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 |
| $ | | | $ | | 2,636,031 | $ | 2,635 | $ | 279,700 | | $ | | $ | | $ | (323,018 | ) | $ | (40,683 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
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 |
| $ | | | $ | | 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 |
| $ | | | $ | | 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 |
| $ | | | $ | | 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.
5
Table of Contents
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.
6
Table of Contents
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 |
| $ | | | $ | | 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 |
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.
7
Table of Contents
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 |
| $ | | | $ | | 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.
8
Table of Contents
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 |
| $ | | | $ | | 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.
9
Table of Contents
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 |
| $ | | | $ | | 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.
10
Table of Contents
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 |
| $ | | | $ | | 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.
11
Table of Contents
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 directors4th qtr |
| | | | | | 378,827 | | | | | | 378,827 | |||||||||||||||||||||||||||||||||||||||
Compensation expense on restricted stock issued to employees4th qtr |
| | | | | | 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 |
| $ | | | $ | | 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.
12
Table of Contents
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 |
| $ | | | $ | | 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.
13
Table of Contents
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 | |||||||||||||||||||||||||||||||||||||||
Compensation expense on shares issued to management |
| | | | 600,000 | 600 | 149,400 | | | | | | 150,000 | |||||||||||||||||||||||||||||||||||||||
Compensation expense on option awards issued to directors |
| | | | | | 286,622 | | | | | | 286,622 | |||||||||||||||||||||||||||||||||||||||
Compensation expense on option awards issued to non-employees |
| | | | | | 308,994 | | | | | | 308,994 | |||||||||||||||||||||||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | (1,957,547 | ) | (1,644 | ) | (1,959,191 | ) | ||||||||||||||||||||||||||||||||||||
Comprehensive loss |
| | | | | | | | | | | | (1,959,191 | ) | ||||||||||||||||||||||||||||||||||||||
Balance 09/30/09 (Successor) |
| $ | | | $ | | 14,666,666 | $ | 14,667 | $ | 314,118 | | $ | | $ | | $ | (1,957,547 | ) | $ | 381,338 | $ | 1,247,424 | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
Fibrocell Science, Inc.
(A Development Stage Company)
(A Development Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
Successor | Predecessor | Predecessor | ||||||||||||||
Cumulative period | ||||||||||||||||
from December 31, | ||||||||||||||||
One month | Eight months | Nine months | 1995 (date of | |||||||||||||
ended September | ended August | ended September | inception) to August | |||||||||||||
30, 2009 | 31, 2009 | 30, 2008 | 31, 2009 | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net (loss) income |
$ | (1,957,547 | ) | $ | 65,721,531 | $ | (23,279,793 | ) | $ | (115,322,121 | ) | |||||
Adjustments
to reconcile net (loss) income to net cash used in operating activities: |
||||||||||||||||
Reorganization items, net |
| (74,648,976 | ) | | (74,648,976 | ) | ||||||||||
Expense related to equity awards and issuance of stock |
745,616 | 583,453 | 2,053,119 | 10,608,999 | ||||||||||||
Uncompensated contribution of services |
| | | 755,556 | ||||||||||||
Depreciation and amortization |
| | 1,063,728 | 9,091,990 | ||||||||||||
Provision for doubtful accounts |
668 | 501 | 3,165 | 337,810 | ||||||||||||
Provision for excessive and/or obsolete inventory |
5,126 | 169,085 | 59,972 | 259,427 | ||||||||||||
Amortization of debt issue costs |
| 985,237 | 561,929 | 4,107,067 | ||||||||||||
Amortization of debt discounts on investments |
| | | (508,983 | ) | |||||||||||
Loss on disposal or impairment of property and equipment |
| | 6,326,621 | 17,668,477 | ||||||||||||
Foreign exchange loss (gain) on substantial liquidation of foreign entity |
(7,084 | ) | 30,012 | (2,107,509 | ) | (2,256,408 | ) | |||||||||
Net (loss) income attributable to non-controlling interests |
(1,644 | ) | 205,632 | (73,841 | ) | (1,799,523 | ) | |||||||||
Change in operating assets and liabilities, excluding effects of acquisition: |
||||||||||||||||
Decrease in restricted cash |
| | 451,383 | | ||||||||||||
Decrease (increase) in accounts receivable |
15,226 | 91,666 | (9,503 | ) | (91,496 | ) | ||||||||||
Decrease (increase) in other receivables |
4,126 | 23,632 | 45,868 | 218,978 | ||||||||||||
Decrease (increase) in inventory |
23,508 | 29,543 | 100,989 | (455,282 | ) | |||||||||||
Decrease (increase) in prepaid expenses |
(301,488 | ) | 628,197 | 331,509 | 34,341 | |||||||||||
Decrease (increase) in other assets |
4,120 | (112,441 | ) | (7,807 | ) | 71,000 | ||||||||||
Increase (decrease) in accounts payable |
4,184 | (230,592 | ) | (152,104 | ) | 57,648 | ||||||||||
Increase (decrease) in accrued expenses, liabilities subject to compromise and other liabilities |
(192,824 | ) | 1,868,162 | (1,282,061 | ) | 3,311,552 | ||||||||||
Decrease in deferred revenue |
| (7,522 | ) | 8,590 | (50,096 | ) | ||||||||||
Net cash used in operating activities |
(1,658,013 | ) | (4,662,880 | ) | (15,905,745 | ) | (148,610,040 | ) | ||||||||
Cash flows from investing activities: |
||||||||||||||||
Acquisition of Agera, net of cash acquired |
| | (6,679 | ) | (2,016,520 | ) | ||||||||||
Purchase of property and equipment |
| | (33,337 | ) | (25,515,170 | ) | ||||||||||
Proceeds from the sale of property and equipment, net of selling costs |
| | 6,444,386 | 6,542,434 | ||||||||||||
Purchase of investments |
| | | (152,998,313 | ) | |||||||||||
Proceeds from sales and maturities of investments |
| | | 153,507,000 | ||||||||||||
Net cash provided by (used in) investing activities |
| | 6,404,370 | (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 preferred stock, net |
| | | 12,931,800 | ||||||||||||
Proceeds from the issuance of common stock, net |
1,800,000 | | | 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 |
(8,304 | ) | (63,983 | ) | | (79,319 | ) | |||||||||
Cash dividends paid on preferred stock |
| | | (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 |
1,791,696 | 2,825,616 | | 170,137,276 | ||||||||||||
Effect of exchange rate changes on cash balances |
3,174 | (6,760 | ) | (112,417 | ) | (36,391 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents |
136,857 | (1,844,024 | ) | (9,613,792 | ) | 1,010,276 | ||||||||||
Cash and cash equivalents, beginning of period |
1,010,276 | 2,854,300 | 16,590,720 | | ||||||||||||
Cash and cash equivalents, end of period |
$ | 1,147,133 | $ | 1,010,276 | $ | 6,976,928 | $ | 1,010,276 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid for interest |
$ | | $ | | $ | 1,575,000 | $ | 12,715,283 | ||||||||
Non-cash investing and financing activities: |
||||||||||||||||
Deemed dividend associated with beneficial conversion of preferred stock |
$ | | $ | | $ | | $ | 11,423,824 | ||||||||
Preferred stock dividend |
| | | 1,589,861 | ||||||||||||
Uncompensated contribution of services |
| | | 755,556 | ||||||||||||
Common stock issued for intangible assets |
| | | 540,000 | ||||||||||||
Common stock issued in connection with conversion of debt |
| 10,814,000 | | 10,814,000 | ||||||||||||
Equipment acquired through capital lease |
| | | 167,154 | ||||||||||||
Financing of insurance premiums |
| | | 87,623 | ||||||||||||
Issuance of notes payable |
| 6,000,060 | | 6,000,060 | ||||||||||||
Successor common stock issued in connection with reorganization |
| 5,472,000 | | 5,472,000 | ||||||||||||
Intangible
assets |
| 6,340,656 | | 6,340,656 | ||||||||||||
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 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
15
Table of Contents
Fibrocell Science, Inc.
(A Development Stage Company)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1Emergence from Voluntary Reorganization Under Chapter 11 Proceedings and Reorganization
Plan
Background
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.
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.
Our officers and directors as of the effective date were all deemed to have resigned and a new
board of directors was appointed. As of the effective date, our initial board of directors
consisted of: David Pernock, Paul Hopper and Kelvin Moore. Dr. Robert Langer was appointed to the
Board in late September 2009. Declan Daly remained as chief operating officer and chief financial
officer of the reorganized company, and in November 2009, he was appointed to the Board of
Directors. Mr. Daly is also currently acting as interim chief executive officer and received 5% of
the New Common Stock which is subject to a two-year vesting schedule whereby 50% vested on the
Effective Date, 25% shall vest on the first anniversary, and 25% shall vest on the second
anniversary.
Plan of Reorganization
Pursuant to the Plan, all our equity interests, including without limitation our common stock,
options and warrants outstanding as of the effective date were cancelled. On the effective date, we
completed an exit financing of common stock in the amount of $2 million, after which the equity
holders of our company were:
| 7,320,000 shares, to our pre-bankruptcy lenders and the lenders that provided us our debtor-in-possession facility, collectively; |
| 3,960,000 shares, to the holders of our 3.5% convertible subordinated notes; |
| 600,000 shares, to our management as of the effective date, which was our chief operating officer; |
| 120,000 shares, to the holders of our general unsecured claims; and |
| 2,666,666 shares, to the purchasers of shares in the $2 million exit financing (our pre-bankruptcy lenders, the lenders that provided us our debtor-in-possession facility and the holders of our 3.5% convertible subordinated notes were permitted to participate in our exit financing). |
16
Table of Contents
In the Plan, in addition to the common stock set forth above, each holder of Isolagens 3.5%
convertible subordinated notes, due November 2024, in the approximate non-converted aggregate
principal amount of $81 million, received, in full and final satisfaction, settlement, release and
discharge of and in exchange for any an all claims arising out of the 3.5% convertible subordinated
notes, its pro rata share of an unsecured note in the principal amount of $6 million, or the New
Note. The New Note has the following features:
| 12.5% interest payable quarterly in cash or, at our option, 15% payable in kind by capitalizing such unpaid amount and adding it to the principal as of the date it was due; | |
| matures June 1, 2012; | |
| at any time prior to the maturity date, we 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; provided that we will be obligated to redeem all outstanding New Notes upon the following events: (a) we or our subsidiary, Fibrocell Technologies, Inc. (formerly, Isolagen Technologies, Inc.) successfully complete a capital campaign raising in excess of $10,000,000; or (b) we or our subsidiary, Fibrocell Technologies, Inc., are acquired by, or sell a majority stake to, an outside party; | |
| the New Notes contain customary representations, warranties and covenants, including a covenant that we and our subsidiary, Fibrocell Technologies, Inc., shall be prohibited from the incurrence of additional debt without obtaining the consent of 66 2/3% of the New Note holders. |
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, Business and Organization
Fibrocell Science, Inc., a Delaware corporation, is the parent company of Fibrocell
Technologies, Inc. a Delaware corporation (Fibrocell Technologies) 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.
17
Table of Contents
In October 2006, the Predecessor Company reached an agreement with the U.S. Food and Drug
Administrations (FDA) on the design of a Phase III pivotal study protocol for the treatment of
nasolabial fold 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 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
Biologics License Application (BLA) related to its nasolabial fold 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 our
nasolabial fold 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 fold 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 fold wrinkles product candidate on October 28, 2009, and the FDA is currently evaluating a
proposed brand name, Laviv. The FDA is expected to make a decision whether to approve Fibrocells
BLA for azficel-T by January 4, 2010.
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.
The consolidated financial statements and notes thereto presented herein are unaudited and
have been prepared in accordance with accounting principles generally accepted in the United States
of America and in accordance with Securities and Exchange Commission (SEC) regulations for
interim financial reporting. In the opinion of management, these consolidated financial
statements contain all adjustments of a normal and recurring nature necessary to provide a fair
statement of the financial position, results of operations and cash flows for the periods
presented. Results of interim periods should not be considered indicative of results of a full
year. These financial statements should be read in conjunction with the financial statements that
were included in the Predecessors Companys Annual Report on Form 10-K for the period ended
December 31, 2008 (however, see the discussion below regarding
fresh-start accounting). The Successor Company is in development
stage in accordance with ASC 915, Development Stage Entities. As
such, the one month period ended September 30, 2009 is inception
to date of the Successor Company.
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
Reorganizations.
Overall, ASC 852-10 (previously The American Institute of Certified Public Accountants Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP
90-7) 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.
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As of September 1, 2009, the Successor Company adopted fresh-start accounting in accordance
with SOP 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code. 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 and the
September 30, 2009 one month results equal the cumulative to-date totals.
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 two and eight months ended August 31, 2009, with the results of operations
for the one month ended September 30, 2009. The combined periods have been compared to the three
and nine months ended September 30, 2008. 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 September 30, 2009, we had cash and cash equivalents of $1.1 million and working
capital of $1.3 million. We believe that our existing capital resources are adequate to sustain
our operation through approximately the end of January 2010, under our current, reduced operating
plan. As such, we require additional cash resources prior to or during approximately the end of
January 2010, or we will likely cease operations. The Successor Company will need to access the
capital markets in the 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 our 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 we do raise additional cash resources prior to the end of January 2010, it may be
raised in contemplation of or in connection with bankruptcy. In the event of a 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. As of the date of the filing of this
quarterly report. In October 2009, we raised $3.3 million less fees as a result of the issuance of Series A 6%
Convertible Preferred Stock.
Through September 30, 2009, we have been primarily engaged in developing our initial product
technology. In the course of our development activities, we have sustained losses and expect such
losses to continue through at least 2010. In fiscal 2009 we financed our operations primarily
through our existing cash, but as discussed above we now require additional financing. There is
substantial doubt about our ability to continue as a going concern.
Our 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. Our ability to complete an offering is also dependent on the
status of our FDA regulatory milestones and our clinical trials, and in particular, the status of
our indication for the treatment of nasolabial fold wrinkles and the status of the related BLA,
which cannot be predicted. There is no assurance that capital in any form would be available to us,
and if available, on terms and conditions that are acceptable.
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As a result of the conditions discussed above, and in accordance with generally accepted
accounting principles in the United States, there exists substantial doubt about our ability to
continue as a going concern, and our ability to continue as a going concern is contingent, among
other things, upon our ability to secure additional adequate financing or capital prior to or
during approximately the end of January 2010. If we do not obtain additional funding, or do not
anticipate additional funding, prior to or during approximately the end of January 2010, we will
likely enter into bankruptcy and/or cease operations. Further, if we do raise additional cash
resources prior to the end of January 2010, 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.
Note 4Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. 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.
Under fresh-start accounting, the Successor Companys asset values are remeasured and
allocated in conformity with Accounting Standards Codification (ASC) 805-20,
Business Combinations, Identifiable Assets and Liabilities, and Any
Noncontrolling Interest, Statement of Financial Accounting Standards (SFAS) No. 141 (revised
2007) or Business Combinations (SFAS No. 141R). In
addition, fresh-start accounting also requires that all liabilities, other than deferred taxes and
pension and other postretirement benefit obligations, be reported at fair value or the present
values of the amounts to be paid using appropriate market interest rates.
Estimates of fair value represent the Successor Companys best estimates based on
independent appraisals and valuations and, where the foregoing have not yet been completed or are
not available, industry data and trends and by reference to relevant market rates and transactions.
The estimates and assumptions are inherently subject to significant uncertainties and contingencies
beyond the control of the Successor Company. Accordingly, we cannot provide assurance that the
estimates, assumptions, and values reflected in the valuations will be realized, and actual results
could vary materially. Any adjustments to the recorded fair values of these assets and liabilities
may impact the amount of recorded goodwill.
Concentration of Credit Risk
As of September 30, 2009, the Successor Company maintains the majority of its cash primarily
with one major U.S. domestic bank. The amounts held in this bank exceed the insured limit of
$250,000. 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 $0.2 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 79% and 94% of accounts receivable, net, at
September 30, 2009 and December 31, 2008, 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.
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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 September 30, 2009, Ageras
inventory of $0.2 million consisted of $0.1 million of raw materials and $0.1 million of finished
goods. At December 31, 2008, Ageras inventory of $0.5 million consisted of $0.2 million of raw
materials and $0.3 million of finished goods.
Intangible
assets
Intangible assets
are research and development assets that were 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.
Revenue recognition
The Successor Company recognizes revenue over the period the service is performed in
accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements
and 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.
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.
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.
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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.
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.
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 statement of operations. No such charges have been incurred by the
Company. As of September 30, 2009 and December 31, 2008, the Successor and Predecessor Company had
no accrued interest related to uncertain tax positions.
At September 30, 2009 and December 31, 2008, the Successor and Predecessor 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 2005 through 2008 remain open to examination by the major taxing jurisdictions to which we
are subject. The deferred tax liability at September 30, 2009
related to the intangible assets recognized upon fresh-start
accounting.
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 convertible notes 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 and restricted 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. There were no potentially dilutive securities issued or outstanding for the one month ended
September 30, 2009. There were no potentially dilutive securities for the two months and 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 Statement
of Financial Accounting Standards No. 157 (FAS-157), Fair Value
Measurements.
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New Pronouncements
In August 2009, the FASB issued Accounting Standard Update No. 2009-05, Measuring Liabilities
at Fair Value, or ASU 2009-05. ASU 2009-05 amends ASC 820, Fair Value Measurements. Specifically,
ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active
market for the identical liability is not available, a reporting entity is required to measure fair
value using one or more of the following methods: 1) a valuation technique that uses a) the quoted
market price of the identical liability when trades as an asset or b) quoted prices for similar
liabilities or similar liabilities when trades as assets and/or 2) a valuation technique that is
consistent with the principles of ASC Topic 820. ASU 2009-05 also clarifies that when estimating
the fair value of a liability, a reporting entity is not required to adjust inputs relating to the
existence of transfer restrictions on that liability. The adoption of this standard did not have
an impact on our financial position or results of operations; however, this standard may impact us
in future periods.
In May 2009, the FASB released a new accounting pronouncement which establishes the accounting
for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. This pronouncement requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis for that date, that
is, whether that date represents the date the financial statements were issued or were available to
be issued. See Basis of Presentation for the related disclosures. The adoption this pronouncement
did not have a material impact on our financial statements.
In December 2007, the FASB issued a pronouncement which establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. We adopted the pronouncement on January 1, 2009 with no impact on operating results
or financial position.
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 (previously SOP 90-7). 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 Goodwill in the unaudited consolidated financial statements as of
September 30, 2009, and is not being amortized.
The following fresh-start Consolidated Balance Sheet presents the financial effects on the
Successor Company with the implementation of the Plan and the adoption of fresh-start accounting.
The effect of the consummation of the transactions contemplated in the Plan included the settlement
of liabilities and the issuance of common stock.
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The effects of the Plan and fresh-start reporting on the Successor Companys Consolidated
Balance Sheet are as follows:
Predecessor | Reclassifications | Fresh Start | Successor | |||||||||||||||||
August 31, | And Plan of | Accounting | September 1, | |||||||||||||||||
2009 | Reorganization | Adjustments | 2009 | |||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 1,010,277 | | | $ | 1,010,277 | ||||||||||||||
Accounts receivable, net |
246,684 | | | 246,684 | ||||||||||||||||
Inventory, net |
268,619 | | | 268,619 | ||||||||||||||||
Prepaid expenses |
221,225 | | | 221,225 | ||||||||||||||||
Other current assets |
4,140 | | | 4,140 | ||||||||||||||||
Current assets of discontinued operations, net |
785 | | | 785 | ||||||||||||||||
Total current assets |
1,751,730 | | | 1,751,730 | ||||||||||||||||
Intangible
assets |
| | $ | 6,340,656 | 6,340,656 | |||||||||||||||
Other assets |
1,671 | | | 1,671 | ||||||||||||||||
Total assets |
$ | 1,753,401 | | 6,340,656 | $ | 8,094,057 | ||||||||||||||
Liabilities,
Shareholders Equity/(Deficit) and Noncontrolling Interests |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Current debt |
$ | 8,304 | | | $ | 8,304 | ||||||||||||||
Accounts payable |
137,401 | | | 137,401 | ||||||||||||||||
Accrued expenses |
849,395 | | | 849,395 | ||||||||||||||||
Liabilities subject to compromise |
82,181,741 | (82,181,741 | ) | (a) | | | ||||||||||||||
Prepetition secured loan, subject to compromise |
500,471 | (500,471 | ) | (b) | | | ||||||||||||||
Debtor-in-possession loan |
2,750,000 | (2,750,000 | ) | (b) | | | ||||||||||||||
Current liabilities of discontinued operations |
25,668 | | | 25,668 | ||||||||||||||||
Total current liabilities |
86,452,980 | (85,432,212 | ) | | 1,020,768 | |||||||||||||||
Other long term liabilities of continuing
operations |
407,078 | | | 407,078 | ||||||||||||||||
Notes Payable |
| 6,000,060 | (a) | | 6,000,060 | |||||||||||||||
Deferred tax
liability |
| | 2,500,000 | 2,500,000 | ||||||||||||||||
Total liabilities |
86,860,058 | (79,432,152 | ) | | 9,927,906 | |||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Shareholders Equity (Deficit): |
||||||||||||||||||||
Predecessor common stock |
42,821 | (42,821 | ) | (c) | | | ||||||||||||||
Predecessor additional paid-in capital |
142,737,499 | (25,931,179 | ) | (c) | (116,806,320 | ) | | |||||||||||||
Predecessor treasury stock |
(25,974,000 | ) | 25,974,000 | (c) | | | ||||||||||||||
Successor common stock |
| 11,400 | (a) (b) | | 11,400 | |||||||||||||||
Successor additional paid-in capital |
| 5,460,600 | (a) (b) | (7,688,831 | ) | (2,228,231 | ) | |||||||||||||
Accumulated deficit during development stage |
(202,295,959 | ) | 73,960,152 | (a) (b) (c) (d) | 128,335,807 | | ||||||||||||||
Total shareholders equity (deficit) |
(85,489,639 | ) | 79,432,152 | 3,840,656 | (2,216,831 | ) | ||||||||||||||
Noncontrolling interest |
382,982 | | | 382,982 | ||||||||||||||||
Total
equity/(deficit) and noncontrolling interests |
(85,106,657 | ) | 79,432,152 | 3,840,656 | (1,833,849 | ) | ||||||||||||||
Total
liabilities, shareholders equity/(deficit) and noncontrolling
interests |
$ | 1,753,401 | | $ | 3,840,656 | $ | 8,094,057 |
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Notes to Plan of Reorganization and fresh-start accounting adjustments
(a)- This adjustment reflects the discharge of liabilities subject to compromise in accordance with
the Plan of Reorganization and the issuance of $6 million in Notes payable and the issuance of
4,080,000 shares of Successor Company common stock in satisfaction of such claims.
(b) This adjustment reflects the discharge of prepetition loan and debtor in-possession loan in
accordance with the Plan of Reorganization and the issuance of 7,320,000 shares of the Successor
Company common stock in satisfaction of such claims.
(c) This adjustment reflects the cancellation of the Predecessor Companys common stock, additional
paid-in capital and treasury stock.
(d) To reset accumulated deficit to zero for the consolidated subsidiaries included in the Plan of
Reorganization.
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 September 30, 2009, 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 nine months ended September 30, 2009, the following have been incurred:
Successor | Predecessor | |||||||||||
One month ended | Two months ended | Eight months ended | ||||||||||
September 30, 2009 | August 31, 2009 | August 31, 2009 | ||||||||||
Professional fees (expense) |
$ | | $ | (334,738 | ) | $ | (533,271 | ) | ||||
Debt issuance costs related to
DIP facility |
| (182,050 | ) | (295,757 | ) | |||||||
Other debt issuance costs |
| | (280,964 | ) | ||||||||
Gain on discharge of
liabilities subject to compromise |
| 74,648,976 | 74,648,976 | |||||||||
Total reorganization items, net |
$ | | $ | 74,132,188 | $ | 73,538,984 | ||||||
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, 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 three and nine months ended September 30, 2009
was $0.4 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 sheet since the date of the acquisition.
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Note 8 Discontinued Operations and Exit Costs
In 2007, the Predecessor Company completed the closure of its United Kingdom operation. As a
result of the closure of the United Kingdom operation, the operations that the Predecessor Company
previously conducted in Switzerland and Australia, which when closed had been absorbed into the
United Kingdom operation, were also classified as discontinued operations in 2007. All assets,
liabilities and results of operations of the United Kingdom, Switzerland and Australian operations
are reflected as discontinued operations in the accompanying consolidated financial statements. All
prior period information has been restated to reflect the presentation of discontinued operations.
The balance sheet components of discontinued operations as of September 30, 2009 and December
31, 2008 are comprised of less than $0.1 million and $0.2 million, respectively, of accrued
expenses and other current liabilities.
The following sets forth the results of operations of discontinued operations for the one
month ended September 30, 2009, two months ended August 31, 2009 and the three months ended
September 30, 2008:
Successor | Predecessor | Predecessor | ||||||||||
One month | Two months | Three months | ||||||||||
September 30, | August 31, | September 30, | ||||||||||
(in millions) | 2009 | 2009 | 2008 | |||||||||
Net revenue |
$ | | $ | | $ | | ||||||
Gross loss |
| | | |||||||||
Loss on sale of Swiss campus, before foreign currency gain |
| | | |||||||||
Operating loss |
| | | |||||||||
Foreign exchange gain on substantial liquidation of
foreign entity |
| | | |||||||||
Other income |
| 0.2 | | |||||||||
Gain (loss) from discontinued operations |
$ | | $ | 0.2 | $ | | ||||||
The following sets forth the results of operations of discontinued operations for the one
month ended September 30, 2009, eight months ended August 31, 2009 and the nine months ended
September 30, 2008:
Successor | Predecessor | Predecessor | ||||||||||
One month | Eight months | Nine months | ||||||||||
September 30, | August 31, | September 30, | ||||||||||
(in millions) | 2009 | 2009 | 2008 | |||||||||
Net revenue |
$ | | $ | | $ | | ||||||
Gross loss |
| | | |||||||||
Loss on sale of Swiss campus,
before foreign currency gain |
| | (6.3 | ) | ||||||||
Operating loss |
| | (6.7 | ) | ||||||||
Foreign exchange gain on
substantial liquidation of
foreign entity |
| | 2.1 | |||||||||
Other income |
| (0.1 | ) | 0.1 | ||||||||
Loss from discontinued operations |
$ | | $ | (0.1 | ) | $ | (4.5 | ) | ||||
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Note 9Accrued Expenses
Accrued expenses are comprised of the following:
Successor | Predecessor | |||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Accrued professional fees |
$ | 433,506 | $ | 479,943 | ||||
Accrued settlement fees |
| 325,000 | ||||||
Accrued compensation |
28,469 | 17,570 | ||||||
Accrued interest |
58,334 | 525,000 | ||||||
Accrued other |
159,315 | 300,200 | ||||||
Accrued expenses |
$ | 679,624 | $ | 1,647,713 | ||||
Note 10Debt
As part of the Plan of Reorganization, the Successor Company was discharged of the
Pre-petition Secured Loan, Debtor-in-Possession Credit Facility, related accrued interest and
converted the 3.5% Convertible Subordinated Notes into new 12% Promissory notes as defined below.
The Successor Company recorded a $74,648,976 gain relating to the extinguishment of debt as a result of this
Plan of Reorganization.
The Successor Companys outstanding long-term debt at September 30, 2009 consists of $6
million of 12.5% Unsecured Promissory Notes (New Notes). 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.
Total debt is comprised of the following:
Successor | Predecessor | |||||||
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Convertible Subordinated Notes |
$ | | $ | 90,072,286 | ||||
Total Current Debt |
$ | | $ | 90,072,286 | ||||
Promissory Note |
$ | 6,000,060 | | |||||
Total debt |
$ | 6,000,060 | $ | 90,072,286 | ||||
Note 11Commitments and Contingencies
Legal Proceedings
In connection with certain federal securities and derivative litigations of Isolagen previously described in the
Predecessor Companys public reports, Mr. Jeffrey Tomz, who formerly served as Isolagens Chief Financial Officer,
demanded reimbursement of his costs of defense, and reimbursement for the costs of responding to a Securities and
Exchange Commission investigation of his alleged insider trading in Isolagen stock. In connection with the reorganized
companys exit from bankruptcy, Mr. Tomz claim was treated as a general unsecured claim and was awarded its pro rata
share of the common stock issued to the general unsecured creditors.
Employment Agreement
Mr. Daly is entitled to receive an annual bonus, payable each year subsequent to the issuance of final audited
financial statements, but in no case later than 120 days after the end of our most recently completed fiscal year. The
final determination on the amount of the annual bonus will be made by the Compensation Committee of the Board of
Directors, based primarily on criteria mutually agreed upon with Mr. Daly. The targeted amount of the annual bonus
shall be 50% of Mr. Dalys base salary. The actual annual bonus for any given period may be higher or lower than 50%.
For any fiscal year in which Mr. Daly is employed for less than the full year (other than for 2009), he shall receive a
bonus which is prorated based on the number of full months in the year which are worked. Mr. Daly is entitled to a
bonus of $50,000 if we are able to complete a capital raise or series of capital raises in excess of $6.0 million,
provided Mr. Daly is our chief operating officer at such time. Mr. Daly is entitled to a bonus of $50,000 if our BLA is
approved by the FDA, provided Mr. Daly is our chief operating officer at such time.
Consulting Agreement
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 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.
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Note 12Equity-based Compensation
Total stock-based compensation expense recognized using the straight-line attribution method
in the consolidated statement of operations is as follows:
Successor | Predecessor | Predecessor | ||||||||||
One month | Eight months | Nine months | ||||||||||
September 30, | August 31, | September 30, | ||||||||||
2009 | 2009 | 2008 | ||||||||||
Stock option compensation expense for
employees and directors |
$ | 286,622 | $ | 581,707 | $ | 1,778,886 | ||||||
Restricted stock expense |
150,000 | | | |||||||||
Equity awards for nonemployees issued for services |
308,994 | 1,746 | 274,233 | |||||||||
Total stock-based compensation expense |
$ | 745,616 | $ | 583,453 | $ | 2,053,119 | ||||||
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. 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.
As part of the part of the emergence from Chapter 11, the Successor Company granted stock
options to directors and non-employees for services in September 2009. In addition, restricted
stock was issued to the chief executive officer which is subject to a two-year vesting schedule
whereby 50% vested immediately on September 3, 2009, 25% shall vest on the first anniversary, and
25% shall vest on the second anniversary.
There were stock options granted for the month of September 2009 and the weighted average fair
market value using the Black-Scholes option-pricing model of the options granted was $0.32 for the
month of September 2009. 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:
One Month Ended | ||||
September 30, | ||||
2009 | ||||
Expected life (years) |
2.6 years | |||
Interest rate |
1.3 | % | ||
Dividend yield |
| |||
Volatility |
67 | % |
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There were no stock options exercised during the month of September 2009. A summary of
option activity for the one month ended September 30, 2009 is as follows:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Options | Shares | Price | Term | Value | ||||||||||||
Outstanding at September 1, 2009 |
| $ | 0.00 | |||||||||||||
One month ended September 30, 2009: |
||||||||||||||||
Granted |
2,050,000 | 0.75 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Outstanding at September 30, 2009 |
2,050,000 | $ | 0.75 | 4.97 | $ | | ||||||||||
Options exercisable at September 30, 2009 |
1,900,000 | $ | 0.75 | 4.92 | $ | | ||||||||||
The following table summarizes the status of the Companys non-vested stock options since
September 1, 2009:
Non-vested Options | ||||||||
Weighted- | ||||||||
Number of | Average Fair | |||||||
Shares | Value | |||||||
Non-vested at September 1, 2009 |
| | ||||||
Granted |
2,050,000 | | ||||||
Vested |
(1,900,000 | ) | | |||||
Forfeited |
| | ||||||
Non-vested at September 30, 2009 |
150,000 | $ | 0.34 | |||||
The total fair value of shares vested during the month of September 2009 was $0.6 million. As
of September 30, 2009, there was less than $0.1 million of total unrecognized compensation cost, related to
non-vested director stock options which vest over time. That cost is expected to be recognized over
a weighted-average period of 1.3 years.
Restricted stock
The following table summarizes the Successors restricted stock activity for the one month
ended September 30, 2009:
Non-vested Options | ||||||||
Weighted- | ||||||||
Number of | Average Fair | |||||||
Shares | Value | |||||||
Non-vested at September 1, 2009 |
| $ | | |||||
Granted |
600,000 | 0.48 | ||||||
Vested |
(300,000 | ) | 0.48 | |||||
Forfeited |
| | ||||||
Non-vested at September 30, 2009 |
300,000 | $ | 0.48 | |||||
As of September 30, 2009, there was $138,000 of total unrecognized compensation cost related
to nonvested restricted stock that is expected to be recognized over a weighted-average period of
1.92 years.
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Predecessor Company
Prior to 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 $294,912 for the
unrecognized stock compensation expense.
Note 13Segment 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 | |||||||||||
One Month Ended September 30, 2009 | Fibrocell Therapy | Agera | Consolidated | |||||||||
Total operating revenue |
$ | | $ | 75,029 | $ | 75,029 | ||||||
Segment loss from continuing
operations |
$ | (1,953,067 | ) | $ | (11,923 | ) | $ | (1,964,990 | ) | |||
Segment | ||||||||||||
Predecessor | Predecessor | |||||||||||
Two Months Ended August 31, 2009 | Isolagen Therapy | Agera | Consolidated | |||||||||
Total operating revenue |
$ | | $ | 130,740 | $ | 130,740 | ||||||
Segment
income from continuing
operations |
$ | 71,465,993 | $ | 474,740 | $ | 71,940,733 | ||||||
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 September 30, 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 September 30,
2009 are approximately $8.5 million, which includes assets of discontinued operations of less than
$0.1 million.
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Segment | ||||||||||||
Predecessor | Predecessor | |||||||||||
Three Months Ended September 30, 2008 | Isolagen Therapy | Agera | Consolidated | |||||||||
Total operating revenue |
$ | | $ | 300,173 | $ | 300,173 | ||||||
Segment loss from continuing operations |
$ | (4,819,095 | ) | $ | (86,690 | ) | $ | (4,905,785 | ) | |||
Segment | ||||||||||||
Predecessor | Predecessor | |||||||||||
Nine Months Ended September 30, 2008 | Isolagen Therapy | Agera | Consolidated | |||||||||
Total operating revenue |
$ | | $ | 789,847 | $ | 789,847 | ||||||
Segment loss from continuing operations |
$ | (18,466,702 | ) | $ | (385,883 | ) | $ | (18,852,585 | ) | |||
An intercompany receivable of $1.0 million, due from the Agera segment to the Isolagen Therapy
segment as of September 30, 2008, is eliminated in consolidation. This intercompany receivable is
primarily due to the intercompany management fee charge to Agera by Isolagen, as well as Agera
working capital needs provided by Isolagen, and has been excluded from total assets of the Isolagen
Therapy segment in the above table. Total assets on the consolidated balance sheet at September 30,
2008 are approximately $16.1 million, which includes assets of continuing operations of $16.1
million and assets of discontinued operations of less than $0.1 million.
Geographical information concerning the Successor Companys operations and assets is as
follows:
Revenue | Revenue | |||||||||||
Successor | Predecessor | |||||||||||
One month ended | Two months ended | Three months ended | ||||||||||
September 30, 2009 | August 31, 2009 | September 31, 2008 | ||||||||||
United States |
$ | 16,259 | $ | 40,656 | $ | 74,953 | ||||||
United Kingdom |
58,567 | 84,134 | 217,097 | |||||||||
Other |
203 | 5,950 | 8,123 | |||||||||
$ | 75,029 | $ | 130,740 | $ | 300,173 | |||||||
Revenue | Revenue | |||||||||||
Successor | Predecessor | |||||||||||
One month ended | Eight months ended | Nine months ended | ||||||||||
September 30, 2009 | August 31, 2009 | September 31, 2008 | ||||||||||
United States |
$ | 16,259 | $ | 187,289 | $ | 254,558 | ||||||
United Kingdom |
58,567 | 308,244 | 488,417 | |||||||||
Other |
203 | 43,087 | 46,872 | |||||||||
$ | 75,029 | $ | 538,620 | $ | 789,847 | |||||||
During the one month ended September 30, 2009, revenue from one foreign customer and one
domestic customer represented 78% and 17% of consolidated revenue, respectively. During the two
months ended August 31, 2009 revenue from one foreign customer and one domestic customer
represented 64% and 20% of consolidated revenue, respectively. During the three months ended
September 30, 2008, revenue from one foreign customer and one domestic customer represented 72% and
18% of consolidated revenue, respectively.
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During the one month ended September 30, 2009, revenue from one foreign customer and one
domestic customer represented 78% and 17% 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. During the nine months ended
September 30, 2008 revenue from one foreign customer and one domestic customer represented 62% and
23% of consolidated revenue, respectively.
As of September 30, 2009 and December 31, 2008, one foreign customer represented 79% and 94%,
respectively, of accounts receivable, net.
Note 14Subsequent Events
Subsequent events have been evaluated by the Successor Company through November 23, 2009,
which is the date the financial statements were available to be issued.
On October 9, 2009 the FDA Cellular, Tissue and Gene Therapies Advisory Committee reviewed our
nasolabial fold 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 fold 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. The FDA is expected to make a decision whether to approve Fibrocells BLA for azficel-T by
January 4, 2010.
On October 13, 2009, the Successor Company entered into a Securities Purchase Agreement (the
Purchase Agreement) with certain accredited investors (the Purchasers), pursuant to which the
Successor Company agreed to sell to the Purchasers in the aggregate: (i) 3,250 shares of Series A
Convertible Preferred Stock, with a par value of $0.001 per share and a stated value of $1,000 per
share (Series A Preferred), (ii) Class A warrants to purchase 501,543 shares of Successor Company
common stock (Common Stock) at an exercise price of $1.62 per share (the Class A Warrants); and
(iii) Class B warrants to purchase 416,667 shares of Successor Company common stock at an exercise
price of $1.95 per share (the Class B Warrants) (the Class A Warrants and Class B Warrants, the
Warrants). The closing of the Series A Preferred and the Warrants to the Purchasers (the
Transaction) will be consummated as soon as practicable.
The aggregate purchase price paid by the Purchasers for the Series A Preferred and the
Warrants was $3,250,000 (representing $1,000 for each share of Series A Preferred together with a
Class A Warrant and Class B Warrant). The Successor Company intends to use 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 $325,000 and warrants to purchase 250,000 shares of
Common Stock at an exercise price of $1.30 per share.
Refer
to Note 1 and Part II, Item 1A. Risk Factors, for a discussion of the risks related to
successfully emerging from Chapter 11.
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion and analysis should be read in conjunction with our consolidated
financial statements, including the notes thereto.
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Forward-Looking Information
This report 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:
| our ability to finance our business and continue in operations; |
| 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; |
| 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; |
| 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; 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; |
| 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; |
| our ability to reduce our need for fetal bovine calf serum by improved use of less expensive media combinations and different media alternatives; |
| continued availability of supplies at satisfactory prices; |
| new entrance of competitive products or further penetration of existing products in our markets; |
| the effect on us from adverse publicity related to our products or the Successor Company itself; |
| any adverse claims relating to our intellectual property; |
| the adoption of new, or changes in, accounting principles; |
| our issuance of certain rights to our shareholders that may have anti-takeover effects; |
| our dependence on physicians to correctly follow our established protocols for the safe administration of our Fibrocell Therapy; and |
| other risks referenced from time to time elsewhere in this report and in our filings with the SEC, including, without limitation, the risks and uncertainties described in Item 1A of our Form 10-K for the year ended December 31, 2008, as well as Part II, Item 1A of this Form 10-Q. |
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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.
Overview
We are an aesthetic and therapeutic development stage 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
fold wrinkles, which completed Phase III clinical studies and the related Biologics License
Application (BLA) was been 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 fold 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 fold 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. The FDA is expected to make a decision whether
to approve Fibrocells BLA for azficel-T by January 4, 2010.
During 2009 we completed one of two Phase II/III studies 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.
Our officers and directors as of the effective date were all deemed to have resigned and a new
board of directors was appointed. As of the effective date, our initial board of directors
consisted of: David Pernock, Paul Hopper and Kelvin Moore. Dr. Robert Langer was appointed to the
Board in late September 2009. Declan Daly remained as chief operating officer and chief financial
officer of the reorganized company, and in November 2009, he was appointed to the Board of
Directors. Mr. Daly is also currently acting as interim chief executive officer.
Pursuant to the Plan, all our equity interests, including without limitation our common stock,
options and warrants outstanding as of the effective date were cancelled. On the effective date, we
completed an exit financing of common stock in the amount of $2 million, after which the equity
holders of our Successor Company were:
| 7,320,000 shares, to our pre-bankruptcy lenders and the lenders that provided us our debtor-in-possession facility, collectively; | ||
| 3,960,000 shares, to the holders of our 3.5% convertible subordinated notes; | ||
| 600,000 shares, to our management as of the effective date, which was our chief operating officer; |
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| 120,000 shares, to the holders of our general unsecured claims; and | ||
| 2,666,666 shares, to the purchasers of shares in the $2 million exit financing (our pre-bankruptcy lenders, the lenders that provided us our debtor-in-possession facility and the holders of our 3.5% convertible subordinated notes were permitted to participate in our exit financing). |
In the Plan, in addition to the common stock set forth above, each holder of Isolagens 3.5%
convertible subordinated notes, due November 2024, in the approximate non-converted aggregate
principal amount of $81 million, received, in full and final satisfaction, settlement, release and
discharge of and in exchange for any an all claims arising out of the 3.5% convertible subordinated
notes, its pro rata share of an unsecured note in the principal amount of $6 million, or the New
Note. The New Note has the following features:
| 12.5% interest payable quarterly in cash or, at our option, 15% payable in kind by capitalizing such unpaid amount and adding it to the principal as of the date it was due; | ||
| matures June 1, 2012; | ||
| at any time prior to the maturity date, we 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; provided that we will be obligated to redeem all outstanding New Notes upon the following events: (a) we or our subsidiary, Fibrocell Technologies, Inc. (formerly, Isolagen Technologies, Inc.) successfully complete a capital campaign raising in excess of $10,000,000; or (b) we or our subsidiary, Fibrocell Technologies, Inc., are acquired by, or sell a majority stake to, an outside party; | ||
| the New Notes contain customary representations, warranties and covenants, including a covenant that we and our subsidiary, Fibrocell Technologies, Inc., shall be prohibited from the incurrence of additional debt without obtaining the consent of 66 2/3% of the New Note holders. |
Going Concern
The Successor Company emerged from Bankruptcy in September 2009 and continues to operate as a
going-concern. At September 30, 2009, we had cash and cash equivalents of $1.1 million and working
capital of $1.3 million. We believe that our existing capital resources are adequate to sustain
our operation through approximately the end of January 2010, under our current, reduced operating
plan. As such, we require additional cash resources prior to or during approximately the end of
January 2010, or we will likely cease operations. The Successor Company will need to access the
capital markets in the future in order to fund future operations. There is no guarantee that any
such required financing will available on terms satisfactory to the Successor Company or available
at all. These matters create uncertainty relating to our 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 we do raise additional cash resources prior to the end of January 2010, it may be
raised in contemplation of or in connection with bankruptcy. In the event of a 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. As of the date of the filing of this
quarterly report, we raised $3.3 million less fees as a result of the issuance of Series A 6%
Convertible Preferred Stock.
Through September 30, 2009, we have been primarily engaged in developing our initial product
technology. In the course of our development activities, we have sustained losses and expect such
losses to continue through at least 2010. In fiscal 2009 we financed our operations primarily
through our existing
cash, but as discussed above we now require additional financing. There is substantial doubt
about our ability to continue as a going concern.
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Our 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. Our ability to complete an offering is also dependent on the
status of our FDA regulatory milestones and our clinical trials, and in particular, the status of
our indication for the treatment of nasolabial fold wrinkles and the status of the related BLA,
which cannot be predicted. There is no assurance that capital in any form would be available to us,
and if available, on terms and conditions that are acceptable.
As a result of the conditions discussed above, and in accordance with generally accepted
accounting principles in the United States, there exists substantial doubt about our ability to
continue as a going concern, and our ability to continue as a going concern is contingent, among
other things, upon our ability to secure additional adequate financing or capital prior to or
during approximately the end of January 2010. If we do not obtain additional funding, or do not
anticipate additional funding, prior to or during approximately the end of January 2010, we will
likely enter into bankruptcy and/or cease operations. Further, if we do raise additional cash
resources prior to the end of January 2010, 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.
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 Successor 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.
Currently, we have suspended activity on all of our trials, although we have continued our efforts
related to obtaining FDA approval for our lead product candidate, azficel-T, for the treatment of
nasolabial fold wrinkles.
Our aesthetics development programs include product candidates to treat targeted areas or
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 ending December 31, 2008 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.
Aesthetic Development Programs
Nasolabial Fold 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
fold 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
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efficacy and safety of 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 fold 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. 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, on October
28, 2009, and the FDA is currently evaluating a proposed brand name, Laviv. The FDA is expected
to make a decision whether to approve Fibrocells BLA for azficel-T by January 4, 2010.
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 our Fibrocell Therapy 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 Fibrocell Therapy were
identified during our review of this data.
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 Fibrocell Therapy to correct or improve the
appearance of acne scars. Each subject served as their own control, receiving Fibrocell Therapy 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 expects to
initiate a subsequent, additional Phase III trial, subject to obtaining sufficient financial
resources. The Successor Company believes that the two trials may have the potential to form the
basis of a licensure submission to the FDA.
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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 Fibrocell Therapy for restrictive burn
scar patients. This Phase II trial would evaluate the use of Fibrocell Therapy 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.
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 Fibrocell Therapy and subsequently
announced that investigator and subject visual analog scale assessments demonstrated that the
Fibrocell Therapy was statistically superior to placebo at four months after treatment. Although
results of the investigator and subject assessment demonstrated that the Fibrocell Therapy 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.
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
primarily in the United States and Europe (primarily the United Kingdom).
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.
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.
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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 1 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.
For discussions on the results of operations, the Successor Company has combined the results
of operations for the two and eight months ended August 31, 2009, with the results of operations
for the one month ended September 30, 2009. The combined periods have been compared to the three
and nine months ended September 30, 2008. 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 Operations
Three months ended September 30, 2009 and 2008
Revenue
Revenue decreased approximately $0.1 million to $0.2 million for the three months ended
September 30, 2009 as compared to $0.3 million for the three months ended September 30, 2008. For
the three months ended September 30, 2009 and 2008, 69% and 72%, respectively, of Ageras revenue
were to
one foreign customer. As such, total revenue is subject to fluctuation depending primarily on
the orders received and orders fulfilled with respect to this large customer.
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Costs of sales
Costs of sales were $0.3 million for the three months ended September 30, 2009, as compared to
$0.1 million for the three months ended September 30, 2008. The $0.2 million increase is due to a
write off of slow moving and obsolete inventory. Our cost of sales relates to the operation of
Agera. As a percentage of revenue, Agera cost of sales were approximately 144% for the three months
ended September 30, 2009 and 48% for the three months ended September 30, 2008.
Selling, general and administrative expenses
Selling, general and administrative expenses increased approximately $0.7 million to $2.5
million for the three months ended September 30, 2009, as compared to $1.8 million for the three
months ended September 30, 2008. The increase in selling, general and administrative expense is
primarily due to the following:
a) Employee compensation, bonuses and payroll taxes increased by approximately $0.8
million to $1.6 million for the three months ended September 30, 2009, as compared to $0.8
million for the three months ended September 30, 2008, due primarily to the recognition of the
balance of the cancelled stock options and the recording of stock option expense for new stock
options granted to the new directors and management, offset by a decrease in salaries and
bonuses.
b) Other general and administrative operating costs decreased by approximately $0.1
million to $0.7 million for the three months ended September 30, 2009, as compared to $0.8
million for the three months ended September 30, 2008 due primarily to reduced depreciation
and amortization expense of $0.1 million due to the impairment of fixed assets and intangible
assets during 2008.
Research and development expenses
Research and development expenses decreased by approximately $1.1 million for the three months
ended September 30, 2009 to $1.2 million, as compared to $2.3 million for the three months ended
September 30, 2008. The decrease of $1.1 million is primarily due to reduced consulting costs and
trial costs, as injections related to our Phase II/III Acne Scar trial were completed during late
2008. There was minimal clinical trial and laboratory activity performed during the three months
ended September 30, 2009, resulting in a significant decrease in research and development expense
as compared to the three months ended September 30, 2008.
Income/(Loss) from Discontinued Operations
The income from discontinued operations for the three months ended September 30, 2009 was
approximately $0.2 million as compared to a loss of less than $0.1 for the three months ended
September 30, 2008.
Interest Income
Due to the cash position of the Successor Company, no interest income was earned for the three
months ended September 30, 2009 as compared to less than $0.1 million for the three months ended
September 30, 2008. The decrease in interest income resulted principally from a decrease in the
amount of cash and cash equivalents, as a result of our normal operating activities primarily
related to our efforts to gain FDA approval for our Fibrocell Therapy.
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 $74.1
million was recorded for the three months ended September 30, 2009, which were comprised primarily
of legal fees and the unamortized debt acquisition costs, gain on
discharge of debt,
(refer to Note 6 of Notes to the Unaudited Consolidated Financial Statement for further
discussion).
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Interest Expense
Interest expense decreased $0.6 million to $0.3 million for the three months ended September
30, 2009, as compared to $0.9 for the three months ended September 30, 2008. Our interest expense
was primarily related to our 3.5% convertible subordinated notes, which with the emergence out of
bankruptcy was exchanged for $6.0 million of debt and 3,960,000 shares of new common stock. As of
September 30, 2009, $6.0 million of debt was outstanding. There was no amortization of debt
issuance costs for the three months ended September 30, 2009 because of the bankruptcy. There was
an expense of $0.2 million of debt issuance costs related to the DIP financing. There was
amortization of deferred debt issuance costs of $0.2 million for the three months ended September
30, 2008.
Nine months ended September 30, 2009 and 2008
Revenue
Revenue decreased approximately $0.2 million to $0.6 million for the nine months ended
September 30, 2009 as compared to $0.8 million for the nine months ended September 30, 2008. For
the nine months ended September 30, 2009 and 2008, 60% and 62%, respectively, of Ageras revenue
were to one foreign customer. As such, total revenue is subject to fluctuation depending primarily
on the orders received and orders fulfilled with respect to this large customer.
Costs of sales
Costs of sales remained constant at $0.5 million for the nine months ended September 30, 2009
and September 30, 2008. Our cost of sales relates to the operation of Agera. As a percentage of
revenue, Agera cost of sales were approximately 78% for the nine months ended September 30, 2009
and 59% for the nine months ended September 30, 2008. Cost of sales as a percentage of revenue has
increased primarily due to a reserve recorded during the three months ended September 30, 2009 of
approximately $0.2 million, as compared to a reserve of less than $0.1 million recorded for slow
moving and/or obsolete inventory recorded during the three months ended September 30, 2008, and
changes in Ageras product mix.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased approximately $3.2 million, or 40%, to
$4.8 million for the nine months ended September 30, 2009, as compared to $8.0 million for the nine
months ended September 30, 2008. The decrease in selling, general and administrative expense is
primarily due to the following:
a) Employee compensation, bonuses and payroll taxes decreased by approximately $1.0
million to $2.6 million for the nine months ended September 30, 2009, as compared to $3.6
million for the nine months ended September 30, 2008, due primarily to the $1.3 million stock
option modification charge related to our former CEO recorded during the nine months ended
September 30, 2008. The remaining decrease relates to significantly reduced average headcount
and reduced bonus expense recorded during the nine months ended September 30, 2009 as compared
to the nine months ended September 30, 2008.
b) Other general and administrative operating costs decreased by approximately $1.2
million to $2.0 million for the nine months ended September 30, 2009, as compared to $3.2
million for the
nine months ended September 30, 2008 due to a reduced depreciation and amortization
expense of $0.4 million due to the impairment of fixed assets and intangible assets during
2008, the successful appeal of state franchise tax during the three months ended June 30,
2009, resulting in a reduction of such tax in the amount of $0.1 million, reduced costs
related to our previous Houston, Texas facility lease and consulting expenses of $0.2 million,
reduced insurance premiums of $0.2 million, and an overall reduction of various other
operating costs, such as accounting expense and general corporate expenses due to further
increased focus on cash conservation.
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c) Legal expenses decreased by approximately $0.9 million to less than $0.1 million
for the nine months ended September 30, 2009, as compared to $0.9 million for the nine months
ended September 30, 2008. For the nine months ended September 30, 2009, we received a $0.3
million reimbursement from our insurance carrier as reimbursement for defense costs related to
our class action and derivative matters. If we had not received this $0.3 million
reimbursement, our legal expenses would have been approximately $0.3 million for the nine
months ended September 30, 2009. For the nine months ended September 30, 2008, we received a
$0.5 million reimbursement from our insurance carrier as reimbursement for defense costs
related to our class action and derivative matters. If we had not received this $0.5 million
reimbursement, our legal expenses would have been approximately $1.4 million for the nine
months ended September 30, 2008. As a result of the class action and derivative action
settlements which occurred in late 2008, our legal expenses have decreased during the nine
months ended September 30, 2009 as compared to the nine months ended September 30, 2008.
d) Travel expense decreased $0.1 million to less than $0.1 million for the nine months
ended September 30, 2009, as compared to $0.2 million for the nine months ended September 30,
2008 due to the decrease in the number of our employees, primarily at the executive management
level, and our increased focus on cash conservation.
Research and development expenses
Research and development expenses decreased by approximately $5.7 million for the nine months
ended September 30, 2009 to $2.7 million, as compared to $8.4 million for the nine months ended
September 30, 2008. The decrease of $5.7 million is primarily due to reduced consulting costs and
trial costs, as injections related to our Phase II/III Acne Scar trial were completed during late
2008. There was minimal clinical trial and laboratory activity performed during the nine months
ended September 30, 2009, resulting in a significant decrease in research and development expense
as compared to the nine months ended September 30, 2008.
Our historical research and development costs have been 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.
Also, research and development expense includes costs to develop manufacturing, cell collection and
logistical process improvements.
Income/(Loss) from Discontinued Operations
The income from discontinued operations increased by approximately $4.6 million for the nine
months ended September 30, 2009 to less than $0.1 million net income, as compared to a $4.5 million
net loss for the nine months ended September 30, 2008.
The $4.5 million loss from discontinued operations for the nine months ended September 30,
2008 primarily related to the sale of our Swiss campus in March 2008. In connection with this sale,
we recorded a loss on sale of $6.3 million, offset by a foreign currency exchange gain of $2.1
million upon the substantial liquidation of the Swiss subsidiary. The foreign exchange gain
recorded during the nine months ended September 30, 2008 results from removing from the accumulated
foreign currency translation adjustment account in stockholders equity a credit balance which
related to the translation into U.S. dollars of our Swiss franc assets and liabilities. The credit
balance which had accumulated, and the resulting gain
recorded upon the substantial liquidation of our Swiss franc assets, reflected the increase in
the value of the Swiss franc relative to the U.S. dollar over the period that we had operated in
Switzerland.
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Interest Income
Interest income decreased approximately $0.2 million to nearly $0 for the nine months ended
September 30, 2009, as compared to $0.2 million for the nine months ended September 30, 2008. The
decrease in interest income of $0.2 million resulted principally from a decrease in the amount of
cash and cash equivalents as a result of our normal operating activities primarily related to our
efforts to gain FDA approval for our Fibrocell Therapy, as well as decreases in the average
interest rate.
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 $73.5
million was recorded for the nine months ended September 30, 2009, which were comprised primarily
of legal fees and the unamortized debt acquisition costs, and gain of
discharge of liabilities, (refer to Note 6 of Notes to the Unaudited Consolidated Financial Statement for further
discussion).
Interest Expense
Interest expense decreased approximately $0.6 million to $2.3 million for the nine months
ended September 30, 2009, as compared to $2.9 million for the nine months ended September 30, 2008.
Our interest expense was primarily related to our 3.5% convertible subordinated notes, which with
the emergence out of bankruptcy was exchanged for $6.0 million of debt and 3,960,000 shares of the
new common stock. There was related amortization of debt issuance costs of $1.0 million and $0.6
million, for the nine months ended September 30, 2009 and 2008, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating, investing and financing activities for the nine
months ended September 30, 2009 and 2008, respectively, were as follows:
Nine Months Ended September 30, | ||||||||
2009 | 2008 | |||||||
(in millions) | ||||||||
Cash flows from operating activities |
$ | (6.3 | ) | $ | (15.9 | ) | ||
Cash flows from investing activities |
| 6.4 | ||||||
Cash flows from financing activities |
4.6 | |
Operating Activities
Cash used in operating activities during the nine months ended September 30, 2009 amounted to
$6.3 million, as compared to the $15.9 million of cash used in operating activities during the nine
months ended September 30, 2008.
The decrease in the cash used in operations of approximately $9.6 million is primarily due to
our $87.0 million decrease in net loss, adjusted for the change in the level of non-cash items and
changes in operating assets and liabilities of approximately $77.5 million. Our net loss, adjusted
for noncash items, decreased from $15.4 million during the nine months ended September 30, 2008 to
approximately $8.2 million during the nine months ended September 30, 2009, reflecting the decrease
in our net loss of $87.0 million offset by a change in non-cash items included in the net loss for
the nine months ended September 30, 2008 and nine months ended September 30, 2009 of $79.8 million.
Also, during the nine months ended September 30, 2009, our changes in net operating assets and
liabilities resulted in a cash inflow of $1.8
million, as compared to a cash outflow of $0.5 million during the nine months ended September
30, 2008, which resulted in a positive impact to cash flows of $2.3 million.
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Investing Activities
Cash provided by investing activities during the nine months ended September 30, 2008 amounted
to approximately $6.4 million as compared to no cash provided by or used in investing activities
during the nine months ended September 30, 2009. Investing activities during the nine months ended
September 30, 2008 related primarily to the sale of our Swiss campus in March 2008 for
approximately $6.4 million, net of selling costs.
Financing Activities
Cash provided by financing activities during the nine months ended September 30,
2009 amounted to approximately $4.6 million as compared to no cash provided by or used in investing
activities during the nine months ended September 30, 2008. During the nine months ended September
30, 2009, we borrowed approximately $3.3 million less fees, under a Pre-petition Secured Loan and a
Debtor-in-Possession Credit Facility, and raised $2.0 million less fees, in additional capital
financing. There were no borrowings during the nine months ended September 30, 2008, or other
proceeds from financing activities.
Working Capital
At September 30, 2009, we had cash and cash equivalents of $1.1 million and working capital of
$1.3 million. We believe that our existing available capital resources are adequate to sustain our
operation through approximately January 2010, under our current, reduced operating plan.
Other
As a result of the conditions discussed above, and in accordance with generally accepted
accounting principles in the United States, there exists substantial doubt about our ability to
continue as a going concern, and our ability to continue as a going concern is contingent, among
other things, upon our ability to secure additional adequate financing prior to approximately the
end of January 2010. If we do not obtain additional funding, or do not anticipate additional
funding, prior to approximately the end of January 2010, we may cease operations.
Factors Affecting Our Capital Resources
Inflation did not have a significant impact on the Companys results during the nine months
ended September 30, 2009.
Off-Balance Sheet Transactions
We do not engage in material off-balance sheet transactions.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices,
such as foreign currency exchange rates or interest rates.
Foreign Exchange Rate Risk
We do not believe that we have significant foreign exchange rate risk at September 30, 2009.
We do not enter into derivatives or other financial instruments for trading or speculative
purposes.
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ITEM 4. CONTROLS AND PROCEDURES
(a) | Disclosure Controls and Procedures. The Successor Companys management, with the participation of the Successor Companys Chief Executive Officer and Chief Financial Officer (the Certifying Officer), has evaluated the effectiveness of the Successor Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, the Certifying Officer has concluded that the Successor Companys disclosure controls and procedures were effective for the purpose of ensuring that material information required to be in this quarterly report is made known to them by others on a timely basis and that information required to be disclosed by the Successor Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Successor Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. |
(b) | Changes in Internal Controls. There has been no change in the Successor Companys internal control over financial reporting that occurred during the Successor Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Successor Companys internal control over financial reporting. |
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to Note 11 of Notes to the Consolidated Financial Statements, within Part I of this Form
10-Q, for a discussion of legal proceedings.
In connection with certain federal securities and derivative litigations of Isolagen
previously described in the Predecessor Companys public reports, Mr. Jeffrey Tomz, who formerly
served as Isolagens Chief Financial Officer, demanded reimbursement of his costs of defense, and
reimbursement for the costs of responding to a Securities and Exchange Commission investigation of
his alleged insider trading in Isolagen stock. In connection with the reorganized companys exit
from bankruptcy, Mr. Tomz claim was treated as a general unsecured claim and was awarded its pro
rata share of the common stock issued to the general unsecured creditors.
ITEM 1A. RISK FACTORS
In addition to the Risk Factors disclosed in our December 31, 2008 Form 10-K, investors should
consider the following risks and uncertainties, or updates to such risks and uncertainties, prior
to making an investment decision with respect to our securities.
Because the Successor Companys consolidated financial statements 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
the Successor Companys current and future financial statements will not be comparable
to our financial information from prior periods.
In connection with its emergence from bankruptcy, the Successor Company adopted fresh-start
accounting as of September 1, 2009 in accordance with ASC 852-10. The adoption of fresh-start
accounting resulted in the Successor Company becoming a new entity for financial reporting
purposes. As required by fresh-start accounting, the Successor Companys assets and liabilities
have been preliminarily adjusted to fair value, and certain assets and liabilities not previously
recognized in the Companys financial statements have been recognized. In addition to fresh-start
accounting, the Successor Companys 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 the
control of the Successor Company. Accordingly, the Successor Company 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 under Item 1 of
Part I of the Successor Companys Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2009 for further details.
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The FDA Cellular, Tissue and Gene Therapies Advisory Committee recently reviewed our nasolabial
fold wrinkles product candidate, and the results of the Advisory Committee panel may adversely
affect our BLA application.
In October 2009, the FDA Cellular, Tissue and Gene Therapies Advisory Committee reviewed our
nasolabial fold 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 fold 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As discussed in Item 2. Managements Discussion And Analysis Of Financial Condition And
Results Of Operations, on August 27, 2009, the United States Bankruptcy Court for the District of
Delaware in Wilmington entered an 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.
Pursuant to the Plan, all our equity interests, including without limitation our common stock,
options and warrants outstanding as of the effective date were cancelled. On the effective date, we
completed an exit financing of common stock in the amount of $2 million, after which the equity
holders of our company were:
| 7,320,000 shares, to our pre-bankruptcy lenders and the lenders that provided us our debtor-in-possession facility, collectively; | ||
| 3,960,000 shares, to the holders of our 3.5% convertible subordinated notes; | ||
| 600,000 shares, to our management as of the effective date, which was our chief operating officer; | ||
| 120,000 shares, to the holders of our general unsecured claims; and | ||
| 2,666,666 shares, to the purchasers of shares in the $2 million exit financing (our pre-bankruptcy lenders, the lenders that provided us our debtor-in-possession facility and the holders of our 3.5% convertible subordinated notes were permitted to participate in our exit financing). |
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The common stock issued pursuant to the Plan was issued pursuant to Section 1145 of the United
States Bankruptcy Code, which exempts the issuance of securities from the registration requirements
of the Securities Act of 1933, as amended.
A condition precedent to our exit from bankruptcy was that we execute an investment banking
agreement with John Carris Investments LLC and Viriathus Capital LLC. In connection with this
agreement, we were required to pay a retainer, which consisted in part of the issuance of options
to purchase an aggregate of 1,000,000 shares of common stock at $0.75 per share. These securities
were issued pursuant to the exemption from registration permitted under Section 4(2) of the
Securities Act.
ITEM 5. OTHER INFORMATION
On November 20, 2009, Declan Daly accepted the appointment by the Successor Companys board of
directors to the Successor Companys board of directors. The board of directors has not yet
determined the composition of its board committees.
Effective upon our exit from bankruptcy on September 3, 2009, we entered into an employment
agreement, pursuant to which Mr. Daly agreed to serve as our chief operating officer until December
31, 2011, subject to the automatic renewal of the agreement for an additional one-year term unless
we notify Mr. Daly prior to the expiration of the agreement of our intention not to renew the
agreement. Notwithstanding the foregoing, if a change of control occurs during the term of the
agreement, we may not terminate the agreement for a period of two years after such change of
control. The agreement provides Mr. Daly with an annual base salary of $300,000, which will be
periodically reviewed and may be increased at the Boards discretion. Mr. Daly received a one-time
signing bonus payment in the amount of $100,000. Mr. Daly is entitled to receive an annual bonus,
payable each year subsequent to the issuance of final audited financial statements, but in no case
later than 120 days after the end of our most recently completed fiscal year. The final
determination on the amount of the annual bonus will be made by the Compensation Committee of the
Board of Directors, based primarily on criteria mutually agreed upon with Mr. Daly. The targeted
amount of the annual bonus shall be 50% of Mr. Dalys base salary. The actual annual bonus for any
given period may be higher or lower than 50%. For any fiscal year in which Mr. Daly is employed for
less than the full year (other than for 2009), he shall receive a bonus which is prorated based on
the number of full months in the year which are worked. Mr. Daly is entitled to a bonus of $50,000
if we are able to complete a capital raise or series of capital raises in excess of $6.0 million,
provided Mr. Daly is our chief operating officer at such time. Mr. Daly is entitled to a bonus of
$50,000 if our BLA is approved by the FDA, provided Mr. Daly is our chief operating officer at such
time.
If we terminate the employment agreement without cause or if Mr. Daly dies or become disabled,
we will continue to pay Mr. Daly (or his heirs) his base salary at such time for the longer of the
remainder of the term of the employment agreement or 12 months from the date of termination. If we
terminate the employment agreement without cause following a change of control or if Mr. Daly
terminates the employment agreement for good reason, we must pay Mr. Daly, within 30 days of
termination, a cash payment equal to the amounts payable for the greater of the remainder of the
term of the employment agreement or 12 months from the date of termination.
Pursuant to the employment agreement and as provided in our bankruptcy reorganization plan,
Mr. Daly received a grant of 600,000 shares of common stock, of which 300,000 shares vested
immediately and 150,000 shares vest on each successive one-year anniversary; provided that if we do
not renew the employment agreement at the end of the term or in the event of a change of control,
any unvested shares will automatically vest. We have agreed to make a tax gross-up payment with
respect to the equity grant.
Mr. Daly has agreed that during his employment and for a period of 12 months after termination
or expiration of his employment agreement he will not compete with us, solicit our employees, or
attempt to divert or take away our customers and clients.
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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 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.
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. 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. The foregoing description of the Plan is qualified in its
entirety by reference to the complete text of the Plan, and the form of option agreements, which
are attached as an exhibit to this report.
ITEM 6. EXHIBITS
(a) Exhibits
EXHIBIT NO. | IDENTIFICATION OF EXHIBIT | |||
4.1 | Specimen of stock certificate |
|||
4.2 | Warrants |
|||
10.1 | Declan Dalys employment contract |
|||
10.2 | Dr. Robert Langer, PhD consulting agreement |
|||
10.3 | Equity incentive plan |
|||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Fibrocell Science, Inc. |
||||
Date: November 23, 2009 | By: | /s/ Declan Daly | ||
Declan Daly | ||||
(Principal Executive Officer and Principle Financial Officer) |
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