U.S. SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-51110

VIACELL, INC.

(617) 914-3400
(Registrant’s 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 Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of May 11, 2005, 37,767,703 shares of the Company’s common stock, $0.01 par value, were outstanding.

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TABLE OF CONTENTS

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ViaCell, Inc.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ViaCell, Inc.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ViaCell, Inc.

Consolidated Statements of Comprehensive Loss

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ViaCell, Inc.

Condensed Consolidated Statements of Cash Flows

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ViaCell, Inc.

Notes to Consolidated Financial Statements

1. Organization and Nature of Business

     ViaCell, Inc. (the “Company”) was incorporated in the State of Delaware on September 2, 1994 as t.Breeders Inc. The Company was in the development stage until April 11, 2000 at which time the Company completed a merger with Viacord, Inc. (“Viacord”), an umbilical cord blood collection, processing and preservation company, and changed its name to ViaCell, Inc.

     The Company is a biotechnology company engaged in sourcing, developing and commercializing cellular therapies to address cancer, cardiac disease, diabetes and infertility. ViaCell’s mission is to enable the widespread application of human cells as medical therapy. ViaCell’s lead stem cell product candidate, CB001, is manufactured using one of the Company’s proprietary technologies, which allows the isolation, purification and significant expansion of populations of stem cells, and enables the production of well defined cellular products in therapeutically useful quantities. The Company is developing CB001 for use in bone marrow and other hematopoietic stem cell transplants. The Company’s current commercialized service is Viacord, a leading brand in the cryopreservation of umbilical cord stem cells, primarily for pediatric bone marrow transplantations. In addition, the Company is developing a product expected to offer women the ability to preserve or extend their fertility through the cryopreservation of their oocytes (eggs).

     The Company restructured its operations in September and December 2004 to reduce operating expenses and concentrate its research and development resources on four key products and product candidates, and related business initiatives (Note 10).

     On January 26, 2005, the Company completed its initial public offering (IPO). The Company issued 8,625,000 shares of its common stock at $7.00 per share resulting in net proceeds to the Company of approximately $53,300,000 after underwriters’ discounts and offering expenses. As a result of the IPO, all outstanding shares of the Company’s preferred stock immediately converted into 25,810,932 shares of common stock. On January 26, 2005, the Company paid in full the related party note of $15,509,760, which included all outstanding principal and interest owed at that date.

2. Summary of Significant Accounting Policies

Basis of Presentation

     The financial information as of March 31, 2005 and for the three months ended March 31, 2005 and 2004, and related notes, are unaudited but in management’s opinion include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for fair statement of the interim periods presented. The Company’s accounting policies are described in the Notes to the Consolidated Financial Statements in our 2004 Annual Report on Form 10-K and updated, as necessary, in this Form 10-Q. Results for the three months ended March 31, 2005 are not necessarily indicative of results for the entire fiscal year or future periods. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Certain reclassifications of prior year amounts have been made to conform to current year presentation.

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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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Redeemable Convertible Preferred Stock

     The carrying value of redeemable convertible preferred stock is increased by periodic accretions, including cumulative dividends, so that the carrying amount will equal the redemption amount at the earliest redemption date. These increases are effected through charges to additional paid-in capital to the extent there are any and, thereafter, to accumulated deficit. All of the Company’s outstanding redeemable convertible preferred shares outstanding automatically converted to the Company’s common stock upon the completion of the initial public offering on January 26, 2005. There were no redeemable convertible preferred shares outstanding as of March 31, 2005.

Stock-Based Compensation

     The Company uses the intrinsic value method of Accounting Principles Board Opinion No. 25 (“APB No. 25”), Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options, and presents disclosure of pro forma information required under SFAS No. 123, and SFAS No. 148, Accounting for Stock-Based Compensation.

     The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, which require that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation may be subject to periodic adjustment as the underlying equity instruments vest.

     During the period ended March 31, 2005, the Company did not issue any options to employees with an exercise price below fair market value. During the periods ended March 31, 2005 and 2004, the Company recorded amortization of deferred compensation of approximately $434,000 and $787,000, respectively. At March 31, 2005 and December 31, 2004 approximately $2,100,000 and $2,500,000, respectively, of deferred stock compensation related to stock options remained unamortized.

     During the period ended March 31, 2005 and 2004, the Company recorded stock-based compensation expense of approximately $2,000 and $77,000, respectively, related to options granted to non-employees.

     Had all employee stock-based compensation expense been determined using the fair value method and amortized on a straight-line basis over the vesting period of the related options consistent with SFAS No. 123, the pro forma net loss per share would have been as follows (table in thousands, except per share data):

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     The Company has computed the pro forma disclosures required under SFAS No. 123 for all stock options granted to employees and directors of the Company as of March 31, 2005 and 2004 using the Black-Scholes option pricing model prescribed by SFAS No. 123.

     The weighted average assumptions used for the three months ended March 31 are as follows:

Segment Information

     The Company’s management currently uses consolidated financial information in determining how to allocate resources and assess performance. The Company may organize its business into more discrete business units when and if it generates significant revenue from the sale of stem cell therapies. For these reasons, the Company has determined that it conducts operations in one business segment.

     The following table presents total long-lived tangible assets by geographic areas as of March 31, 2005 and December 31, 2004, respectively (table in thousands):

     The following table presents revenues by geographic area for the three months ended March 31, 2005 and 2004, respectively (table in thousands):

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Net Loss Per Common Share

     Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants and the conversion of convertible preferred stock (using the if-converted method). Potentially dilutive common shares are excluded from the calculation if their effect is anti-dilutive.

     The following sets forth the computation of basic and diluted net loss per share (table in thousands, except per share data);

     The following potentially dilutive securities were excluded because their effect was antidilutive:

Recent Accounting Pronouncements

     On December 16, 2004, the FASB released SFAS No. 123(R). This new accounting standard requires all forms of stock compensation, including stock options, to be reflected as an expense in the Company’s financial statements. Public companies must adopt the standard by their first annual fiscal period beginning after June 15, 2005. The Company intends to apply the revised standard beginning with the quarter ending March 31, 2006. Although the Company has not finalized its analysis, it expects that the adoption of the revised standard will result in higher operating expenses and loss per share. Note 2 to the consolidated financial statements shows the pro-forma impact on net loss and net loss per common share as if the Company had historically applied the fair value recognition provisions of SFAS No. 123 to stock based employee awards.

     In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”). FIN 47 clarifies the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, referring to a legal obligation to perform an asset retirement activity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The provisions of FIN 47 are effective no later than the end of fiscal years ending after December 15, 2005. The Company will adopt this standard for asset retirement activity in the event that these types of transactions are entered into by the Company in future periods.

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3. Property and Equipment

     Property and equipment consisted of (table in thousands):

     At March 31, 2005 and December 31, 2004, equipment held under capital leases totaled approximately $475,000, and accumulated depreciation related to this leased equipment totaled approximately $270,000 and $251,000, respectively.

     Depreciation and amortization expense on property and equipment totaled approximately $464,000 and $575,000 for the three months ended March 31, 2005 and 2004, respectively.

4. Intangible Assets and Goodwill

     Intangible assets consist of a trademark and goodwill. Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, was amortized on a straight-line basis over its useful life of ten years prior to January 1, 2002.

     Amortization of intangible assets was approximately $50,000 and $74,000 for the three months ended March 31, 2005 and 2004, respectively.

     At March 31, 2005 and December 31, 2004, ViaCell’s intangible assets consisted of the following (table in thousands);

     The Company expects amortization of these intangible assets to be approximately $202,000 annually through 2019, at which point they will be fully amortized.

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5. Accrued Expenses

     At March 31, 2005 and December 31, 2004, accrued expenses consisted of the following (table in thousands):

6. Long-Term Obligations

     The Company had the following long-term debt outstanding as of March 31, 2005 and December 31, 2004 (table in thousands):

Note Payable to Related Party

     A portion of the consideration paid by the Company in its acquisition of Kourion Therapeutics consisted of promissory notes in an aggregate principal amount of $14.0 million. The notes were held by several funds that are also stockholders of the Company and that are affiliated with MPM Asset Management LLC, the manager of which serves on the Company’s board of directors. The notes bore interest at a rate of 8% per annum, compounded annually, and were to mature on September 30, 2007. They were subject to mandatory prepayment upon the earlier of an initial public offering of the Company’s common stock or a sale of the Company. The total outstanding principal and unpaid accrued interest on the notes as of December 31, 2004 was $15,422,000. On January 26, 2005, following the completion of its initial public offering, the Company paid off these related party notes totaling of $15,510,000, which included all outstanding principal and interest owed at that date.

7. Commitments and Contingencies

Leases

     The Company conducts its operations in leased facilities under non-cancelable operating leases expiring through 2014.

     Future minimum rental payments under the operating leases are approximately as follows (table in thousands):

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