Attached files
| file | filename |
|---|---|
| EX-31.1 - EX-31.1 - Ocata Therapeutics, Inc. | v177442_ex31-1.htm |
| EX-23.1 - EX-23.1 - Ocata Therapeutics, Inc. | v177442_ex23-1.htm |
| EX-32.1 - EX-32.1 - Ocata Therapeutics, Inc. | v177442_ex32-1.htm |
| EX-10.135 - EX-10.135 - Ocata Therapeutics, Inc. | v177442_ex10-135.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31,
2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from _____________ to _____________
Commission
file number 0-50295
ADVANCED
CELL TECHNOLOGY, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
87-0656515
|
|
|
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
|
(I.R.S. EMPLOYER IDENTIFICATION NO.)
|
381
Plantation Street, Worcester, Massachusetts 01605
(508)
756-1212
(Address
and telephone number, including area code, of registrant’s principal executive
offices)
Securities
registered pursuant to Section 12(b) of the Act:
None.
(Title of
Class)
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par
value per share
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No x
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. Yes x 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 (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer ¨
|
Accelerated
filer x
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act.) Yes ¨ No x
The
aggregate market value of the registrant’s Common Stock held by non-affiliates
of the registrant (based upon the closing price of $0.25 for the registrant’s
Common Stock as of June 30, 2009) was approximately $124.0 million (based
on 497,569,398 shares of common stock outstanding and held by non-affiliates on
such date). Shares of the registrant’s Common Stock held by each executive
officer and director and by each entity or person that, to the registrant’s
knowledge, owned 5% or more of the registrant’s outstanding Common Stock as of
June 30, 2009 have been excluded in that such persons may be deemed to be
affiliates of the registrant. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The
number of outstanding shares of the registrant’s Common Stock, $0.01 par
value, was 747,932,679 shares as of March 12, 2010.
ADVANCED
CELL TECHNOLOGY, INC.
2009
ANNUAL REPORT ON FORM 10-K
TABLE
OF CONTENTS
|
PART
I
|
4
|
|
Item
1. Business
|
4
|
|
Item
1A. Risk Factors
|
22
|
|
Item
1B. Unresolved Staff Comments
|
43
|
|
Item
2. Properties
|
43
|
|
Item
3. Legal Proceedings
|
43
|
|
Item
4. [Reserved]
|
44
|
|
PART
II
|
45
|
|
Item
5. Market for the Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
45
|
|
Item
6. Selected Financial Data
|
47
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results
of Operation
|
47
|
|
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
|
58
|
|
Item
8. Financial Statements and Supplementary Data
|
59
|
|
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
96
|
|
Item
9A. Controls and Procedures
|
96
|
|
Item
9B. Other Information
|
97
|
|
PART
III
|
98
|
|
Item
10. Directors, Executive Officers and Corporate Governance
|
98
|
|
Item
11. Executive Compensation
|
104
|
|
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
107
|
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence
|
108
|
|
Item
14. Principal Accounting Fees and Services
|
109
|
|
PART
IV
|
110
|
|
Item
15. Exhibits and Financial Statement Schedules
|
110
|
2
CAUTIONARY
STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K and the information incorporated by reference
includes ‘‘forward-looking statements’’ All statements regarding our expected
financial position and operating results, our business strategy, our financing
plans and the outcome of any contingencies are forward-looking statements. Any
such forward-looking statements are based on current expectations, estimates,
and projections about our industry and our business. Words such as
‘‘anticipates,’’ ‘‘expects,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘seeks,’’
‘‘estimates,’’ or variations of those words and similar expressions are intended
to identify such forward-looking statements. Forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those stated in or implied by any forward-looking
statements.
3
PART
I
Item
1. Business
Overview
Advanced Cell Technology, Inc., a
Delaware corporation (the “Company”, “we”, “us”, or our” is a biotechnology
company focused on developing and commercializing human embryonic and adult stem
cell technology in the emerging field of regenerative medicine.
We were incorporated in Nevada under
the name Two Moon Kachinas Corp. on May 18, 2000. On December 30, 2004, we filed
an amendment to our articles of incorporation to change our corporate name to
A.C.T. Holdings, Inc. On January 31, 2005, we completed the acquisition of
Advanced Cell Technology, Inc., a Delaware corporation (prior to the
Reincorporation (as defined below), “ACT”), pursuant to the terms of an
Agreement and Plan of Merger dated January 3, 2005. As a result of the
transaction, we terminated our kachina doll business and succeeded to the
business operations and research efforts of ACT in the field of biotechnology.
On June 17, 2005, we filed an amendment to our articles of incorporation to
change our corporate name to Advanced Cell Technology, Inc. On November 18,
2005, we consummated a merger with and into our wholly-owned subsidiary ACT (the
“Reincorporation”). As a result of the Reincorporation, we became a
Delaware corporation.
We have acquired, developed and
maintain a portfolio of patents and patent applications that form the
proprietary base for our research and development efforts in the area of
embryonic and adult stem cell research. We believe that our intellectual
property portfolio is one of the strongest in the field. Our team includes some
of the world's leading scientists in the field of stem cell research and
development, and experts in conducting clinical trials. We believe our
technology base, combined with our know-how, provides us with a strong
competitive advantage and will facilitate the successful development and
commercialization of products for use in the treatment of a wide array of
chronic, degenerative diseases and in regenerative repair of a variety of acute
diseases, such as trauma, myocardial infarction and burns.
Our belief that our intellectual
property represents one of the strongest portfolios in the field is supported
by:
• The
early and consistent pace of filing, and the breadth of the large number of
filings in the portfolio.
• The
relative immaturity of this field of study.
• The
limited number of truly competitive portfolios of intellectual
property.
Regenerative medicine is a new and
emerging field of study involving development of medical therapies based on
advances in stem cell and nuclear transfer technology. We have developed and
maintain a broad intellectual property (IP) portfolio, with ownership or
exclusive licensing of over 28 issued patents and over 170 patent applications
in the field of regenerative medicine and related areas. This significant volume
of patents and patent licenses has been developed in the short span of
approximately the past eight to eleven years.
4
Although we have strong competitors in
this field, they are limited in number. We believe our intellectual property
portfolio compares favorably with those of our competition based upon its size,
focus and filing dates. With respect to the focus of our human embryonic stem
cell portfolio, we believe that somatic cell nuclear transfer and chromatin
transfer are, and will prove to be, one of the technological keys to successful
development of stem cell therapies (see "Cellular Reprogramming," below). In
addition, we have succeeded in deriving human embryonic cell lines without
destroying the donor embryo through our proprietary single blastomere derivation
technology. We own or have a license to numerous other technologies for dealing
with transplant rejection, including means of activating oocytes during nuclear
transfer, parthenogenesis, transdifferentiation, and dedifferentiation. Our
intellectual property also includes patent rights and applications for specific
applications of stem cell technology in producing retinal pigment epithelium
(RPE), hemangioblasts, myoblast stem cells and numerous methods and compositions
for the use of these technologies and derived cells in retinal disease, heart
disease, immunodeficiency estates and cancer.
The company has secured Food and Drug
Administration (FDA) clearance to proceed to a Phase II Clinical Trial for its
Myoblast program for the treatment of heart failure, and the trial is
currently being developed. We believe that the company's myoblast
technology has demonstrated that a myoblast transplantation treatment is
feasible and safe in clinical trials conducted to date and that the technology
could address the large market potential presented by heart
failure.
Our research efforts to date in human
embryonic technologies are at the level of clinical trials, pre-clinical
development and basic research. In November of 2009 we filed an Investigational
New Drug (IND) Application with the US Food and Drug
Administration (FDA) to initiate a Phase I/II multicenter study using
embryonic stem cell derived retinal cells to treat patients with Stargardt’s
Macular Dystrophy (SMD), as part of our RPE program. These retinal cells were
developed using our proprietary blastomere derivation techniques.
The
company's Hemangioblast program for the treatment of Diseases and Disorders of
Circulatory and Vascular System is in preclinical
development. These precursor cells derived from human embryonic stem
(ES) cells can be used to achieve vascular repair in animal models of vascular
injury.
We are focused on leveraging our key
assets, including our intellectual property, our scientific team, our facilities
and our capital, to accelerate the advancement of our stem cell technologies. In
addition, we continue to pursue strategic collaborations with members of
academia, industry and foundations to further accelerate the pace of our
research efforts.
The
Field of Regenerative Medicine
The emerging field of treatment called
"regenerative medicine" or "cell therapy" refers to treatments that are founded
on the concept of producing new cells to replace malfunctioning or damaged cells
as a vehicle to treat disease and injury. Our focus is the development of
effective methods to generate replacement cells from both human embryonic and
adult stem cells.
Many
significant and currently untreatable human diseases arise from the loss or
malfunction of specific cell types in the body. This is especially true of
diseases associated with aging such as Alzheimer's disease, Parkinson's disease,
type II diabetes, heart failure, osteoarthritis, macular degeneration, and aging
of the immune system, known as immunosenescence. This is also true for medical
conditions resulting from damage to cells due to acute disease, such as trauma,
infarction and burns. We believe that replacing damaged or malfunctioning cells
with fully functional ones may be a useful therapeutic strategy in treating many
of these diseases and conditions.
5
A stem cell is a cell that has the
ability to branch out and change, or differentiate, into two or more different
cell types. Stem cells are self-renewing primitive cells that have the ability
to develop into functional, differentiated cells. In general, there are two
broad categories of stem cells: adult stem cells and embryonic stem cells. Adult
stem cells are derived from various tissues in the human body. Because they can
branch out into many different cell types, they are referred to as
"multipotent." Multipotent means these cells develop into multiple, but not all,
types of cells in the body.
Embryonic stem cells, referred to as ES
cells, which are derived from pre-implantation embryos, are unique because they
are "pluripotent," which means that they can develop into all cells and tissues
in the body, and they self-renew indefinitely in their undifferentiated state.
The ability of ES cells to divide indefinitely in the undifferentiated state
without losing pluripotency is a unique characteristic that distinguishes them
from all other stem cells discovered to date in humans.
Our business is focused on both the
development and commercialization of adult stem cell transplantation therapies
and ES cell based technologies.
Our adult stem cell-based products are
specifically targeted at therapies for heart and other cardiovascular disease
and are at a more advanced stage of development than our human ES cell based
technologies. Our first human ES cell-based product retinal pigmented epithelial
cells are poised to enter Phase I clinical trials pending clearance by the FDA.
We believe retinal pigmented epithelial cells technologies have potentially
broader and more powerful applications with respect to a wide range of
diseases.
Human
ES Cell Programs
Since the discovery of the human ES
cell, medical researchers worldwide have generally recognized the significance
of this new technology and have begun to focus research on the translation of
this discovery into important new therapies. Specifically, researchers have
focused on several key challenges
including:
•
isolating and purifying cell lines,
• growing
stable cell lines in culture for long periods without mutations,
•
manufacturing cell lines in numbers sufficient for therapy,
•
differentiating ES cells into all of the cell types desired for therapies,
and
• solving
the potential rejection of ES cells used in therapies due to
immuno-incompatibility with the patient.
We believe that solving the potential
rejection of ES cells in patients is the greatest scientific obstacle to
developing successful therapeutics. Our research and technologies are focused on
solving this obstacle by creating stem cell therapeutics with compatible
tissues. Compatible tissues are referred to as being
histocompatible.
We believe the potential markets for
regenerative medicine and stem cell therapy are large. The table below
summarizes the potential United States patient populations which we believe may
be amenable to cell or organ transplantation and represent target markets for
products generated through our regenerative medicine
technology.
6
POTENTIAL
U.S. PATIENT POPULATIONS FOR CELL-BASED THERAPIES
[chart
format]
|
Medical Condition
|
Number of Patients*
|
|
Cardiovascular disease
|
70 million *
|
|
Autoimmune disease
|
50 million *
|
|
Diabetes
|
18 million
|
|
Osteoporosis
|
10 million
|
|
Cancer
|
10 million
|
|
Alzheimer's disease
|
4.5 million
|
|
Parkinson's disease
|
1 million
|
|
Burns (severe)
|
1.1 million
|
|
Spinal-cord injuries
|
0.25 million
|
|
Birth defects
|
0.15 million/year
|
* These
estimates are based on patient estimates published by the following
organizations from April 2005 to the present: the American Heart Association,
the American Autoimmune Related Diseases Association, SEER (Surveillance,
Epidemiology and End Result), American Burn Association, March of Dimes, the
Alzheimer's Association, the Alzheimer's Disease Education & Referral Center
(National Institute on Aging), the National Institutes of Health's National
Institute on Neurological Disorders and Stroke, the Foundation for Spinal Cord
Injury Prevention, Care & Cure, the Centers for Disease Control and
Prevention, the American Association of Diabetes Educators, the Northwest
Parkinson's Foundation and the Parkinson's Action Network.
Our
Human Embryonic Stem Cell Technologies
The ability to produce embryonic stem
cells that are immunologically compatible with the patient is the hallmark and
the strength of our technology platform. We believe our technology platform will
enable the transformation of a patient's cells into an embryonic state where
those cells can be differentiated into specific therapeutically relevant cell
types that are genetically identical to the patient. We believe our technology
may also enable the production of stem cell
lines, from sources external to the patient, that have a sufficiently high level
of histocompatibility to be useful in making cell therapies readily accessible
to a large segment of the patient population, without the need for exact genetic
matching of tissues.
As a result, our technology avoids
reliance on more limited approaches that involve use of cell lines that are not
histocompatible with the recipient, or therapies based upon use of adult stem
cells.
The use
of human embryonic stem cells gives rise to ethical, legal and social issues
previously rooted in the fact that ES-cell derivation deprives
preimplantation embryos of the potential to develop into a human
being. We have developed a method to derive human embryonic stem cell
lines at the blastomere stage that does not result in the destruction of the
preimplantation embryo.
7
In August 2001, then-President George
Bush set guidelines for federal funding of research on embryonic stem cells from
human embryos created by in-vitro fertilization, referred to as IVF, limiting
funding to just 60 lines. IVF-ES cells have the drawback that they are not
genetically matched to the recipient patient. These ES cells are allogeneic. The
word allogeneic literally means "other DNA type." Therapies using allogeneic
cell lines can result in immune system incompatibilities where the host immune
system attacks and rejects the transplanted cells or the transplanted cells
attack the host. These incompatibilities may be partially suppressed with
powerful immunosuppressive drugs, but the side effects can be severe and result
in life-threatening complications. As a result, these incompatibilities have the
potential to generate significant inefficiencies in the application of cell
therapies.
However, in March 2009, President
Barack Obama issued an executive order opening the door to a significant
increase in federal funding for ES cell research. That led to the
National Institutes of Health (NIH) approval of 13 additional stem cell lines
for use in agency-funded research. The NIH is considering whether to
approve an additional 96 lines, including blastomere derived lines we submitted
for consideration.
The strategic focus of our human ES
cell technology is to produce cell lines that are both histocompatible with the
patient and pluripotent. We have numerous proprietary technologies that we
believe will generate histocompatible, pluripotent stem cells for
patient-specific application. These cells maximize the potential for effective
use as transplants to replace diseased or destroyed cells in human patients. If
successfully developed, our cellular reprogramming technologies will make it
possible to produce cells that have the proliferative capacity of young cells,
have specific therapeutic application, and are immunologically compatible with
the patient.
All of our ES cell technologies are at
the level of basic research or in the pre-clinical stage of
development.
Our
ES Cell Research Programs
Our ES
cell research programs are divided into three core categories: cellular
reprogramming, our reduced complexity program, and stem cell differentiation.
Each of these core areas of focus is discussed below.
I.
Cellular Reprogramming
This research program involves
development of therapies based on the use of genetically identical pluripotent
stem cells generated by our cellular reprogramming technologies. These
technologies can be used to generate patient-specific pluripotent cells and
tissues for transplantation. We believe our technology platform will enable the
transformation of a patient's cells into pluripotent ES cells that are
histocompatible with the patient and have the potential to be differentiated
into any of the over 200 different human cell types that may be therapeutically
relevant in treating diseased or destroyed tissues in human patients. We expect
that our cellular reprogramming technologies will offer a new avenue for the
introduction of targeted genetic modifications in cells and for the regeneration
of cell lifespan, thereby making youthful cells available for aging patients.
The combination of these advances, the ability to produce young cells of certain
kinds that are histocompatible with the patient, is a core potential application
of our technology. We believe these cellular reprogramming technologies will be
effective therapies where there is time to prepare customized therapy through
reprogramming of the patient's own cells.
Some of the technologies that support
our cellular reprogramming program are somatic cell nuclear transfer, chromatin
transfer, factor reprogramming, and fusion technologies.
8
Somatic cell nuclear transfer (SCNT)
refers to the process wherein a body cell is transferred to an egg cell from
which the nuclear DNA has been removed. This results in the body cell being
"reprogrammed" by the egg cell. This reprogramming transforms the cell from the
type of cell it was, for instance a skin cell, into an embryonic cell with the
power to become any cell type in the body. A related technology is called
chromatin transfer. Through this technology, the DNA and attached proteins, or
chromatin, of the somatic cell is reprogrammed prior to transfer into an egg
cell. Chromatin transfer has the potential to improve the efficiencies and
therefore reduce the cost of nuclear transfer. We believe that one critical
advantage of our proprietary SCNT and chromatin transfer technologies is that
the cells are "rejuvenated" by returning the cell to a youthful state. This is
important because these youthful cells will have the proliferative capacity of
young cells. These healthy replacement cells, which would be genetically
identical to the patient's own cells, would then be used for cell
transplantation.
Our fusion technologies involve the
fusion of the cytoplasm of one cell into another. In the same manner that the
cytoplasm of an egg cell is capable of transforming any cell back to an
embryonic state, the fusion of the cytoplasm of other cell types, including
differentiated cell types (such as blood cells) is capable of reprogramming
another cell type, such as a skin cell. These technologies have the potential of
transforming a cell from a patient into another medically-useful cell type also
identical to the patient. They also have the potential to fuse the cytoplasm of
undifferentiated cells, such as embryonic stem cells, with somatic cells to
transport the somatic cell DNA back to pluripotency. Alternatively, factors
expressed by embryonic stem cells can be introduced into somatic cells to induce
pluripotency. We believe that the fusion and factor reprogramming technologies
we are developing can be developed into as broad and powerful techniques as
SCNT, producing histocompatible, youthful stem cells that are multi and
potentially even pluripotent. If successfully developed, this technology may
also provide a pathway that does not utilize human egg cells which would reduce
the cost of the procedure and increase the number of patients that could benefit
from its implementation.
II.
Stem Cell Differentiation
Regenerative medicine requires that
stem cells, from whatever source derived, be differentiated, or
re-differentiated, into specific body cell types and then physically
transplanted into a patient. Differentiation into tissues such as cardiac
muscle, blood, and other tissues occurs spontaneously in ES cells being cultured
in a dish. Successful application of stem cell technology will require control
over the specific kinds of cells into which stem cells differentiate. Control of
differentiation and the culture and growth of stem and differentiated cells are
important current areas of research for us. Also, some chemicals, such as
retinoic acid, can be used to trigger differentiation into specific cell types
such as nerve cells. We intend to pursue differentiation approaches both
in-house and through collaborations with other researchers who have particular
interests in, and skills related to, cellular differentiation. These efforts
include using both animal and human stem cell lines. Our research in this area
includes projects focusing on developing many different cell types that may be
used in the future to treat a wide range of diseases. Our researchers
have generated stable retinal pigment epithelium, or RPE, cell lines for use in
our clinical retinal program and are working on projects to generate stable cell
lines with particular focus on blood lineage and vascular epithelial cell lines
from hemangioblast cells.
Retinal Pigment Epithelium Program.
In November, 2006 we published data demonstrating human ES cell-derived
RPE cells were capable of rescuing visual function in Royal College of Surgeon
rats. Following the publication of that data, we entered into a pre-clinical
development collaboration with Casey Eye Institute at Oregon Health &
Science University. The purpose of the collaboration was to conduct dosage and
safety studies in preparation for IND and Phase I human clinical
trials. As mentioned, in November of last year we filed an
Investigational New Drug (IND) Application with the US Food and Drug
Administration (FDA) to initiate a Phase I/II multicenter study using
embryonic stem cell derived retinal cells to treat patients with Stargardt’s
Macular Dystrophy (SMD).
9
Hemangioblast Program.
Hemangioblasts are a newly-characterized stem cell capable of
differentiating into both hematopoietic, meaning blood cell-forming, and
angiogenic, meaning blood vessel endothelium-forming, cells. We believe it will
be possible to utilize hemangioblast cells in engraftment to repair age-related
endothelial dysfunction associated with numerous significant age-related
diseases, including cardiovascular disease, stroke, and perhaps even cancer. In
2006 we successfully derived hemangioblast cells generated from the company's
blastomere-derived human embryonic stem cell lines. In 2007, we published data
reporting that through utilization of hemangioblast based therapy we generated
function in vivo with
respect to the repair of ischemic retinal vasculatures and restoration of blood
flow in ischemic limbs. In addition, we also reported increased survival rates
of animals suffering from myocardial infarction. The hemangioblast
program is currently in preclinical development.
III.
Adult Stem Cell Program
Our adult stem cell-based program is
developing an autologous myoblast transplantation therapy delivered using a
minimally invasive catheter injection system to restore cardiac function in
patients with advanced heart disease. The key target for the therapy will be
heart failure patients with New York Heart Association ("NYHA") scores Class II
to IV. The company's therapy could also benefit patients supported on
ventricular assistance devices and potential additional indications, such as
acute myocardial infarction, peripheral artery disease, and non-cardiac tissue
repair. Currently available treatment options for heart failure patients are
inadequate and can only slow the progression of heart failure; none can halt or
reverse the process. We believe our autologous myoblast transplantation therapy
uses patented myoblast compositions for catheter delivery to the heart offering
repair of the disease in heart failure patients and for those end-stage disease
patients on ventricular assistance device support.
These indications represent a
significant unmet medical need and hold significant potential for clinical
approval.
Our transplantation therapy involves
extraction through simple biopsy from a patient's thigh of myoblasts, which are
non-embryonic, skeletal muscle stem cells, that can be expanded in culture and
injected back into damaged and scarred regions of the heart. This therapy
promotes repair of damaged cardiac tissue by autologous cells, thereby avoiding
immune rejection as each patient receives their own cells. Skeletal muscle,
unlike heart muscle, can repair itself after injury. Skeletal muscle contains
immature myoblasts that can fuse with surrounding myoblasts or with damaged
muscle fibers to regenerate contractile skeletal
muscle. In experimental models, our researchers have demonstrated that skeletal
myoblasts can be transplanted into an infarcted myocardium with the subsequent
development of elongated, striated cells characteristic of both skeletal and
cardiac muscle. Our Phase I clinical studies have demonstrated the efficacy of
this therapy on a preliminary basis.
We have received FDA approval to
proceed with our Phase II clinical trial, to evaluate the applications for
myoblast transplantation in slowing and/or reversing the impact of heart
failure.
10
We perform our myoblast expansion,
packaging, shipment, and quality testing using proprietary procedures that
adhere to GMP regulations for manufacturing clinical trial material. After
expansion, the myoblasts are packaged and delivered to the clinical site for
implantation into the injured heart tissue by a surgeon or interventional
cardiologist. To maximize cell therapy effectiveness, adequate numbers of cells
must be delivered to the site of damage in a repeatable and safe manner. Our
therapy utilizes a minimally invasive catheter-based delivery methodology, which
provides a safe, targeted and high efficiency approach to cell delivery to the
infarct area.
We believe that, unlike currently
available treatment options, myoblast therapy has the ability to repair and
improve the function of a damaged heart.
Our preclinical and Phase I clinical
studies support the conclusion that our therapy presents significant advantages
over currently available treatments, including:
• Ability
to restore cardiac function through new muscle formation
• Ability
to prevent further decline of heart function
• No risk
immunological rejection of myoblasts due to autologous nature of the
therapy
•
Complementary to and capable of improving outcomes of current therapeutic
options for heart disease
•
hematopoietic cells for blood diseases and cancer,
•
myocardial and endothelial vascular tissue for cardiovascular
disease,
•
congestive heart failure, myocardial infarction and other cardiovascular
disease
• skin
cells for dermatological conditions,
• retinal
pigment epithelium cells as treatment for macular degeneration and retinal
pigmentosis,
• neural
cells for spinal cord injury, Parkinson's disease and other neuro-degenerative
diseases,
•
pancreatic islet ß cells for diabetes,
• liver
cells for hepatitis and cirrhosis,
•
cartilage cells for arthritis, and
• lung
cells for a variety of pulmonary diseases.
Potential
Commercial Applications of our ES Cell and Adult Stem Cell
Technologies
We
believe that, if successfully developed, stem cell-based therapy has the
potential to provide treatment for a broad range of acute and chronic
degenerative diseases. We believe the potential applications of cell-based
therapeutics include
While we
expect that any future products will take the form of medical procedures,
tangible therapeutics, or combinations thereof, we currently have no products,
and the identity of our future products, if any, is dependent upon the results
of our ongoing research efforts, and, therefore cannot be determined at this
time.
11
Our
Intellectual Property
Our research and development is
supported by a broad intellectual property portfolio. We currently own or have
exclusive licenses to over 45 patents and have over 170 patent applications
pending worldwide in the field of regenerative medicine and stem cell therapy.
We also have non-exclusive rights to a portfolio of patents and patent
applications that support our core intellectual property.
Our success will likely depend upon our
ability to preserve our proprietary technologies and operate without infringing
the proprietary rights of other parties. However, we may rely on certain
proprietary technologies and know-how that are not patentable. We protect such
proprietary information, in part, by the use of confidentiality agreements with
our employees, consultants and certain of our contractors.
We maintain a disciplined patent policy
and, when appropriate, seek patent protection for inventions in our core
technologies and in ancillary technologies that support our core technologies or
which we otherwise believe will provide us with a competitive advantage. We
pursue this strategy by filing patent applications for discoveries we make,
either alone or in collaboration with scientific collaborators and strategic
partners. Typically, although not always, we file patent applications both in
the United States and in select international markets. In addition, we plan to
obtain licenses or options to acquire licenses to patent filings from other
individuals and organizations that we anticipate could be useful in advancing
our research, development and commercialization initiatives and our strategic
business interests.
The following table identifies the
issued patents we own or license that we believe currently support our
technology platform.
Owned
by Advanced Cell Technology, Inc.
|
Number
Patent
|
Country
|
Filing
Date
|
Issue
Date
|
Expiration
Date*
|
Title
|
|||||
|
6,808,704
|
United
States (US)
|
09/06/2000
|
10/26/2004
|
09/6/2020
|
Method
for Generating Immune-Compatible Cells and Tissues Using Nuclear Transfer
Techniques
|
|||||
|
783162
|
Australia
(AU)
|
09/06/2000
|
01/12/2006
|
09/6/2020
|
Method
for Generating Immune-Compatible Cells and Tissues Using Nuclear Transfer
Techniques
|
|||||
|
265679
|
Mexico
|
09/06/2000
|
04/03/2009
|
09/06/2020
|
Method
for Generating Immune-Compatible Cells and Tissues Using Nuclear Transfer
Techniques
|
|||||
|
536786
|
New
Zealand (NZ)
|
09/06/2000
|
01/11/2007
|
09/6/2020
|
Method
for Generating Immune-Compatible Cells and Tissues Using Nuclear Transfer
Techniques
|
12
|
782385
|
AU
|
10/13/2000
|
11/3/2005
|
10/13/2020
|
Method
of Differentiation of Morula or Inner Cell Mass Cells and Method of Making
Lineage-Defective Embryonic Stem Cells
|
|||||
|
518191
|
NZ
|
10/13/2000
|
05/10/2004
|
10/13/2020
|
Method
of Differentiation of Morula or Inner Cell Mass Cells and Method of Making
Lineage-Defective Embryonic Stem Cells
|
|||||
|
516236
|
NZ
|
06/30/2000
|
08/07/2005
|
06/30/2020
|
Cytoplasmic
Transfer to De-Differentiate Recipient Cells
|
|||||
|
782286
|
AU
|
06/30/2000
|
10/27/2005
|
06/30/2020
|
Cytoplasmic
Transfer to De-Differentiate Recipient Cells
|
|||||
|
531844
|
NZ
|
09/06/2000
|
12/08/05
|
09/06/2020
|
Telomere
Restoration and Extension of Cell Life-Span in Animals Cloned from
Senescent Somatic Cells
|
|||||
|
519347
|
NZ
|
12/20/2000
|
11/11/2004
|
12/20/2020
|
Method
to Produce Cloned Embryos and Adults from Cultured
Cells
|
|||||
|
00818200.0
|
China
(CN)
|
12/20/2000
|
10/18/2006
|
12/20/2020
|
Method
to Produce Cloned Embryos and Adults from Cultured
Cells
|
|||||
|
5,453,366
|
US
|
03/15/1993
|
09/26/1995
|
09/26/2012
|
Method
of Cloning Bovine Embryos
|
|||||
|
6,011,197
|
US
|
01/28/1999
|
01/04/2000
|
03/06/2017
|
Method
of Cloning Bovines Using Reprogrammed Non-Embryonic Bovine
Cells
|
|||||
|
6,395,958
|
US
|
07/15/1999
|
05/28/2002
|
03/06/2017
|
Method
of Producing a Polypeptide in an Ungulate
|
|||||
|
5,496,720
|
US
|
02/10/1993
|
03/05/1996
|
03/05/2013
|
Parthenogenic
Oocyte Activation
|
|||||
|
5,843,754
|
US
|
06/06/1995
|
12/01/1998
|
12/01/2015
|
Parthenogenic
Bovine Oocyte Activation
|
|||||
|
6,194,202
|
US
|
03/04/1996
|
02/27/2001
|
02/10/2013
|
Parthenogenic
Oocyte Activation
|
|||||
|
6,077,710
|
US
|
10/21/1998
|
06/20/2000
|
02/10/2013
|
Parthenogenic
Oocyte Activation
|
|||||
|
5,346,990
|
US
|
03/12/1991
|
09/13/1994
|
09/13/2011
|
Sex-Associated
Membrane Proteins and Methods for Increasing the Probability that
Offspring will be of a Desired
Sex
|
13
Owned
by Advanced Cell Technology, Inc.'s wholly-owned subsidiary
Mytogen, Inc.
|
Number
Patent
|
Country
|
Filing
Date
|
Issue
Date
|
Expiration
Date*
|
Title
|
|||||
|
6,673,604
|
US
|
07/24/2000
|
01/06/2004
|
07/24/2020
|
Muscle
Cells and Their Use in Cardiac Repair**
|
|||||
|
6,432,711
|
US
|
11/01/1994
|
08/13/2002
|
08/13/2019
|
Embryonic
Stem Cells Capable of Differentiating into Desired Cell
Lines
|
|||||
|
2,174,746
|
Canada
(CA)
|
11/02/1994
|
04/24/2007
|
11/02/2014
|
Embryonic
Stem Cells Capable of Differentiating into Desired Cell
Lines
|
University
of Massachusetts Exclusive License to Advanced Cell
Technology, Inc.
|
Number
Patent
|
Country
|
Filing Date
|
Issue Date
|
Expiration
Date*
|
Title
|
|||||
|
518365
|
NZ
|
10/27/2000
|
08/12/2004
|
10/27/2020
|
Gynogenetic
or Androgenetic Production of Pluripotent Cells and Cell Lines, and Use
Thereof to Produce Differentiated Cells and Tissues
|
|||||
|
782846
|
AU
|
10/27/2000
|
12/15/2005
|
10/27/2020
|
Gynogenetic
or Androgenetic Production of Pluripotent Cells and Cell Lines, and Use
Thereof to Produce Differentiated Cells and Tissues
|
|||||
|
5994619
|
US
|
12/16/1996
|
11/30/1999
|
04/01/2016
|
Production
of Chimeric Bovine or Porcine Animals Using Cultured Inner Cell Mass
Cells
|
|||||
|
5905042
|
US
|
04/01/1996
|
05/08/1999
|
04/01/2016
|
Production
of Chimeric Bovine or Porcine Animals Using Cultured Inner Cell Mass
Cells
|
14
*
Actual patent expiration dates may differ from the dates
listed herein including due to patent term adjustments pursuant to 35 U.S.C. §
154(b) and 37 C.F.R. §§ 1.702-1.705.
The
fundamental consequence of patent expiration is that the invention covered by
that patent will enter the public domain. However, the expiration of patent
protection, or anticipated patent protection, for the bulk of our portfolio is
not scheduled to begin for approximately ten to fifteen years. Due to the rapid
pace of technology development in this field, and the volume of intellectual
property we anticipate will be generated over the next decade, it is unlikely
that the expiration of any existing patents or patent rights would have an
adverse affect on our business. Due to our current stage of development, our
existing patent portfolio is not currently supporting a marketed product, so we
will not suffer from any reduction in product revenue from patent expiration.
Any actual products that we develop are expected to be supported by intellectual
property covered by current patent applications that, if granted, would not
expire for 20 years from the date first filed. For example, our patent
rights under the University of Massachusetts license listed in the patent table,
above, do not begin to expire until 2016. Due to the early stage of our
business, we differ from, for example, the pharmaceutical industry where the
loss of a key significant patent can result in contemporaneous loss of products,
programs or revenues. As our table demonstrates, our business is at the front
end of the patent protection spectrum and is not expected to be significantly
impacted by expiration of existing patents or patents issued in response to
existing applications.
Research
and License Agreements
Licenses
of Intellectual Property to Us
The
following summarizes technology licensed to us.
UMass License - On
February 1, 2002 and April 16, 1996, we entered into exclusive license
agreements (indefinite license period) with the University of Massachusetts. The
1996 Agreement has been amended by amendments dated September 1, 1997,
May 31, 2000 and September 19, 2002. Pursuant to these agreements, the
University of Massachusetts, referred to as UMass, exclusively licensed to us
certain biological materials, patent rights and related technology for
commercialization in specified fields. The license agreements require us to use
diligent efforts to develop licensed products and licensed services and require
us to pay certain royalties, minimum annual royalties, milestone payments and
sublicense income to UMass. UMass received 73,263 shares of common stock of ACT
as partial consideration of the license granted. We are currently behind on our
payments of all UMass license fees, since 2008, and as such we are in breach of
the license agreement.
2002 License - Under the 2002
license, UMass licenses to us certain patent rights relating to the cloning of
non-human animals for use in connection with the development, manufacture and
sale of products and services in the field of non-human animals for agriculture,
companion animals, research and diagnostic products, non-human and human
therapeutics, and neutraceuticals, except production of immunoglobulin in the
blood of Bos taurus and
Bos indicus. We are
required to pay royalties to UMass ranging from 1.5% to 2.0% based on the
covered product or service. We agreed to pay minimum royalty payments of $15,000
on the first and second anniversary of the agreement, $20,000 on the third
anniversary, $25,000 on the fourth anniversary, and increasing to $45,000 on the
fifth anniversary and for each year thereafter. We also agreed to make milestone
payments to UMass of up to $1,630,000 upon the achievement of various
development and commercialization milestones. Finally, we have agreed to pay
UMass 18% of all sublicense income.
15
1996 License - The 1996
license covers certain patent rights, biological materials and know-how related
to the cloning of non-human animals and cells for use in cell fields except the
production of immunoglobulin in the blood of Bos taurus and Bos indicus. We are required
to pay royalties ranging from 2.5% to 4.5% on net sales of products and services
covered by the license, and minimum royalty payments in the amount of $15,000
per year (beginning on the later of the fourth year after the effective date of
the agreement or the completion of certain clinical trials) for net sales on
products and services for use in human therapeutics, and $30,000 per year
(beginning in the third year after the effective date of the agreement) for net
sales on products and services for all uses other than in human therapeutics. UMass agreed to waive minimum royalty
payments during any calendar year in which we fund research at UMass in the
aggregate amount of $300,000. There are no milestone payments. We agreed to pay
UMass 18% of all sublicense income except for equity. With respect to equity, we
are required to pay UMass an amount equal to 10% of the total equity we receive
for any transfer of rights under the 1996 license.
Both the 2002 agreement and the 1996
agreement remain in effect until all issued patents within the patent rights
licensed under the agreement have expired, or for a period ten years after the
effective date of the agreement if no patents have issued within that ten-year
period. Each party has the right to terminate the agreement upon the occurrence
of a material uncured breach. We also have the right to terminate at any time
for any reason with ninety days' written notice.
Wake Forest License - On
January 26, 2001, we entered into a materials and research data license
agreement with Wake Forest University (indefinite license period), pursuant to
which WFU granted to us a worldwide, exclusive, royalty-free, perpetual and
irrevocable right and license to use certain data and stem cells and stem cell
cultures created by us from biological materials provided by WFU to us for
specified purposes only. The agreement allows us to utilize certain primate skin
cells and ovary materials produced by WFU and transferred to us pursuant to an
agreement relating to the transfer of biological materials. There are no
milestone payments. There are no royalty requirements unless we desire to
negotiate a commercial license for use of the biological materials provided to
us by WFU. WFU received 60,000 shares of common stock of ACT Group, Inc., a
now dissolved Delaware corporation referred to hereinafter as ACT Group. We have
agreed to provide WFU samples of stem cells for WFU's research, education and
teaching purposes and we have a first option to obtain an exclusive license to
any intellectual property rights claimed by WFU in connection with the use of
such stem cells. The term of the license granted is perpetual and irrevocable
absent a breach by us.
Start Licensing License - On
August 30, 2006, we entered into a Settlement and License Agreement with
UMass and Start Licensing, Inc. (indefinite license period).Pursuant to
this agreement Start Licensing licenses to us, on a nonexclusive, royalty-free
and paid-up basis, certain patent rights for use with non-human animal research
or studies, including preclinical trials, in connection with the research,
development and sale of therapeutic and diagnostic human cell
products.
GenVec Agreement - On
December 28, 2005, Mytogen and GenVec, Inc. entered into a patent
assignment and security agreement (indefinite period). Under the agreement, as
amended on July 31, 2007, GenVec assigned certain agreements and
intellectual property to Mytogen, and retained a royalty-free non-exclusive
license, with the right to grant sublicenses, to practice the intellectual
property in connection with products, processes or services developed or
provided by GenVec other than autologous and allogenic skeletal myoblasts for
cardiac therapy. Under the original agreement, Mytogen granted a security
interest in the assigned intellectual property, but the security interest was
released in the amendment to the agreement. Under the agreement, as amended,
Mytogen must use commercially reasonable efforts to commercialize the assigned
intellectual property, including by spending specified amounts in support of
research and development in support of such commercialization; Mytogen must pay
GenVec one-half of the first milestone payment (anticipated to be two million
U.S. dollars) received by Mytogen under the Terumo Agreement; and Mytogen must
also pay GenVec four percent (4%) of the net sales revenue from sales or other
provision of products, processes or services covered by the
agreement.
16
Exclusive
Licenses of Intellectual Property by Us
The
following summarizes licenses from us to third parties.
Exeter Life Sciences License -
On October 22, 2003, we entered into an exclusive license with
Exeter Life Sciences, Inc. (indefinite license period), pursuant to which
we exclusively licensed to Exeter certain technology and patent rights for use in the fields of agriculture,
endangered species, companion animals and equine animals. The license also
grants Exeter a right of first negotiation to any improvement patents that are
obtained by us that relate to the licensed intellectual property or which are
useful, necessary or required to develop or manufacture certain animals, cells
or tissues within the defined fields of use.
Under the agreement, we license rights
to certain patent rights and technology useful for the fields of use of
non-human animals for agriculture, endangered animals and companion animals;
excluding production of such animals for the primary purpose of producing human
and non-human animal therapeutics and human healthcare products, including
without limitation the production of biopharmaceutical agents in milk, such as
proteins, peptides and polypeptides for pharmaceutical, neutraceutical or other
use, and excluding the production of immunoglobulin in the blood of Bos taurus and Bos indicus. The field
includes:
|
|
·
|
the
cloning, development, manufacture and sale of cloned non-human animals,
including without limitation, bovine, hircine, ovine, porcine, equine
animals and ungulates (as well as any transgenic variance or enhancements
thereto) or products that are composed of, made in or derived, extracted
or isolated from cells or tissues of such animals for the production of
food or fiber, and the rendering of services or uses that relate to the
production of such products;
|
|
|
·
|
the
cloning, development, manufacture and sale of endangered species for
purposes of researching, aiding, reproducing or assisting in the
reproduction of such endangered
species;
|
|
|
·
|
the
cloning, development, and sale of hircine, ovine, feline, canine and
equine animals (as well as any transgenic variance or enhancements
thereto) for personal, business or commercial purposes, specifically
excluding the sale of these animals as scientific research laboratory
subjects; and
|
|
|
·
|
the
cloning, development, manufacture and sale of cloned equine animals (as
well as any transgenic variance or enhancements thereto) or products that
are composed of, made in or derived, extracted or isolated from cells or
tissues of such animals for non-therapeutic purposes, including but not
limited to, for use in agriculture, for use as food, for use as companion,
service, work or recreational animals, or for use as racing or other
equine event animals, and the rendering of services or uses that relate to
the production of such
products.
|
17
In consideration of the rights and
licenses granted to Exeter, Exeter paid to us an initial license fee of
$1,000,000, and has agreed to pay royalties equal to 5% of the net sales of all
products and services covered by the license; provided that, sublicense income
for license products that are the progeny of cloned animals covered by the
license or products obtained from such progeny, the royalty is 3%. Exeter is
required to pay an annual maintenance fee for the license, equal to $100,000 in
2005, increasing annually by $50,000 up to $500,000. Exeter's obligation to pay
the annual maintenance fee was suspended until certain intellectual property
that is the subject of litigation, namely the matter styled University of Massachusetts v. James
M. Robl and Phillipe Collas, Massachusetts Superior Court, Suffolk
County, Docket No. 04-0445-BLS, was settled in dispute.
Negotiations are continuing to amend the license subject to the
outcome of the settlement. The license also provides that we will refund certain
amounts to Exeter if certain conditions concerning the referenced litigation are
not met and that we will extend to Exeter rights associated with "improvement
patents" that are obtained by us or the University in connection with the
referenced litigation or any patent interference or opposition proceedings
involving us that relate to the licensed intellectual property or which are
useful, necessary or required to develop or manufacture cloned and/or transgenic
non-human animals and cloned and/or transgenic cells and tissues from non-human
animals within the field of use. The license grants Exeter a right of first
negotiation to any improvement patents. There are no milestone payments. Exeter
agrees to pay us a total of 25% of all sublicense income under the license.
Either party may terminate the agreement in the event of an uncured breach.
Exeter may terminate without cause on 60 days' prior written notice to us,
or may terminate immediately in the event of a change
in law that materially affects Exeter's ability to commercialize the licensed
intellectual property under the license.
We expect
that the Exeter Life Science License will be amended as a result of the Start
Settlement and the settlement of the University of Massachusetts and
Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron
Corporation and Exeter Life Sciences, Inc., U.S. District Court for
the District of Columbia (Case No. 1:05-cv-00706 RMU), and University of Massachusetts and
Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron
Corporation and Exeter Life Sciences, Inc., U.S. District Court for
the District of Columbia (Case No. 1:05-cv-00353 RMU).
Lifeline License - On
May 14, 2004, we entered into three license agreements (indefinite license
periods) with Lifeline Cell Technology, formerly known as PacGen
Cellco, LLC; the licenses were subsequently amended in August 2005.
Pursuant to the license agreements, as amended, we licensed to Lifeline, on an
exclusive or non-exclusive basis, as applicable, certain know-how and patent
rights for, among other things, the research, development, manufacture and sale
of human cells for cell therapy in the treatment of human diabetes and liver
diseases, and retinal diseases and retinal degenerative diseases. The license
agreements require milestone payments up to $1.75 million in the aggregate.
The agreement requires Lifeline to meet minimum research and development
requirements. The licenses continue until expiration of the last valid claim
within the licensed patent rights. Either party may terminate the agreements for
an uncured breach, and Lifeline may terminate the agreement at any time with
30 days' notice.
Exclusive License Agreement
Number 1, as amended, covers patent rights and technology developed by us
that are relevant to:
|
|
·
|
the
research, development, manufacture and sale of human and non-human animal
cells for commercial research
and
|
18
|
|
·
|
the
manufacture and selling of human cells for therapeutic and diagnostic use
in the treatment of human diabetes and liver diseases, and retinal
diseases and retinal degenerative
diseases.
|
Lifeline has agreed to pay us royalties
ranging from 3% to 10% on net sales of products and services covered by the
license, and a minimum royalty fee of $175,000 in the first year, plus,
commencing 12 months after the effective date of the agreement, additional
minimum royalty fees in the amount of $15,000 at 12 months, $37,500 at
24 months, $60,625 at 36 months, and $75,000 annually thereafter.
Lifeline also agreed to pay a license fee in the amount of $225,000 in the form
of a Convertible Promissory Note, which was repaid in cash in 2007.
We expect that Lifeline Exclusive
License Agreement Number 1, as amended, will be further amended as a result
of the Start Settlement and the settlement of University of Massachusetts and
Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron
Corporation and Exeter Life Sciences, Inc., U.S. District Court for
the District of Columbia (Case No. 1:05-cv-00706 RMU), and University of Massachusetts and
Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron
Corporation and Exeter Life Sciences, Inc., U.S. District Court for
the District of Columbia (Case No. 1:05-cv-00353 RMU).
Exclusive License Agreement
Number 2, as amended, covers patent rights and technology developed by
UMass relevant to:
|
|
·
|
the
research, development, manufacture and sale of human and non-human animal
cells and defined animal cell lines for commercial
research,
|
|
|
·
|
the
manufacture and selling of human cells for therapeutic and diagnostic use
in the treatment of human diabetes and liver diseases and retinal diseases
and retinal degenerative diseases,
and
|
|
|
the
use of defined animal cell lines in the process of manufacturing and
selling human cells for therapeutic and diagnostic use in the treatment of
human diabetes and liver diseases.
|
Lifeline is required to pay us
royalties ranging from 3% to 12% on net sales of products and services covered
by the license, and a minimum royalty fee of $100,000 in the first year, plus,
commencing 12 months after the effective date of the agreement, additional
minimum royalty fees in the amount of $15,000 at 12 months, $30,000 at
24 months, $45,000 at 36 months, and $60,000 annually thereafter.
Lifeline also paid a license fee in the amount of $150,000 on June 1,
2007.
We expect that Lifeline Exclusive
License Agreement Number 2, as amended, will be further amended as a result
of the Start Settlement and the settlement of University of Massachusetts and
Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron
Corporation and Exeter Life Sciences, Inc., U.S. District Court for
the District of Columbia (Case No. 1:05-cv-00706 RMU), and University of Massachusetts and
Advanced Cell Technology, Inc. v. Roslin Institute (Edinburgh), Geron
Corporation and Exeter Life Sciences, Inc., U.S. District Court for
the District of Columbia (Case No. 1:05-cv-00353 RMU).
19
Exclusive License Agreement
Number 3, as amended, covers patent rights and technology developed
by Infigen relevant to the research, development, manufacture and sale of human
cells for cell therapy in the treatment of therapeutic and diagnostic use in the
treatment of human diabetes and liver diseases, and retinal diseases and retinal
degenerative diseases. Lifeline is required to pay us royalties equal to 6% of
net sales of products and services covered by the license, and a minimum royalty
fee of $25,000 in the first year, plus, commencing 12 months after the
effective date of the agreement, additional minimum royalty fees in the amount
of $7,500 at 12 months, $7,500 at 24 months, $6,875 at 36 months,
and $15,000 annually thereafter. Lifeline also paid a license fee in the amount
of $225,000 in cash on June 1, 2007.
We expect that Lifeline Exclusive
License Agreement Number 3, as amended, will be further amended or
terminated, as a result of the dissolution of Infigen and the acquisition by us
of certain of the Infigen patent rights.
Start Licensing License - On
August 30, 2006, we entered into a Settlement and License Agreement with
UMass and Start Licensing, Inc. (indefinite license period). See
description of this agreement above. Pursuant to this agreement, we granted
Start Licensing a worldwide, exclusive, fully paid-up and royalty-free license,
with the right to grant sublicenses, to certain patent rights for use in
connection with all uses and applications in non-human animals. The agreement
was reached in connection with the settlement of the patent interference
actions. The terms of the agreement also includes an initial payment to us,
which has been made, and certain milestone payments. In addition, under the
agreement, Start, Geron Corporation and Roslin Institute ("Roslin") each agree
not to sue us under certain patent applications owned by Roslin.
Terumo Agreement -
Diacrin, Inc. and Terumo Corporation entered into a development and
license agreement on September 4, 2002 (indefinite license period); the
agreement was transferred to Mytogen on December 28, 2005. Under the
agreement, the parties agreed to collaborate to develop and commercialize
products in the field described as autologous skeletal myoblasts for cardiac
therapy (and conditionally allogenic skeletal myoblasts for cardiac therapy) in
Japan and such other Asian countries as the parties may agree. Pursuant to the
agreement, Terumo has an exclusive, royalty-bearing license, with a limited
right to grant sublicenses, under certain technology and patent rights
controlled by Mytogen; and a non-exclusive, non-royalty bearing right and
license to use certain data resulting from clinical trials for products based on
the licensed technology and patent rights for purposes of seeking regulatory
approvals. The agreement specifies the rights and obligations of the parties
with respect to collaboration and development of
products covered by the agreement. The agreement also requires Terumo to make
certain milestone payments, including the following: two million dollars upon
initiation of any clinical trials of any covered product in Japan; two million
dollars upon the first filing for regulatory approval of a covered product in
Japan; one million dollars upon the first filing for regulatory approval of a
covered product in any country other than Japan if the territory is expanded to
include countries other than Japan; two million dollars upon the first
commercial sale of a covered product in Japan; and one million dollars upon the
first commercial sale of a covered product in any country other than Japan if
the territory is expanded to include countries other than Japan. Terumo is also
required under the agreement to pay royalties in an amount equal to ten percent
(10%) of the net sales on covered products. In May 2008, Terumo exercised an
option to extend a milestone for one year for $300,000. The milestone consisted
of a Phase I clinical trial for the Myoblast Program in Japan and was extended
for two years.
Pharming Technologies B.V.
License - On February 26, 2008, we entered into a License Agreement
with Pharming Technologies B.V., referred to as Pharming, pursuant to which
we exclusively licensed to Pharming certain patents including oocyte activation
patents for all uses and applications in or related to non-human animals
(indefinite license period). We retained all use and applications of such
patents in or related to humans.
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Transition Holdings, Inc. -
On December 18, 2008, we entered into a license agreement with an
Ireland-based investor, Transition Holdings Inc. (“Transition”), for certain of
our non-core technology (indefinite license period). Under the agreement,
Transition agreed to acquire a license to the technology for $3.5 million in
cash.
Stem Cell & Regenerative
Medicine International, Inc. - On December 1, 2008, the Company and CHA
Bio & Diostech Co., Ltd. (“CHA”), a leading Korean-based biotechnology
company focused on the development of stem cell technologies, formed an
international joint venture. The new company, Stem Cell & Regenerative
Medicine International, Inc. (“SCRMI”), will develop human blood cells and other
clinical therapies based on our Hemangioblast Program, one of our core
technologies. SCRMI has agreed to pay the Company fee of $500,000 for an
exclusive, worldwide, license to the Hemangioblast Program (indefinite license
period).
CHA – On March 31, 2009, we
entered into a licensing agreement (indefinite license period) under which we
have licensed our retinal pigment epithelium (“RPE”) technology, for the
treatment of diseases of the eye, to CHA for development and commercialization
exclusively in Korea. We are eligible to receive up to $1.9 million in fees
based upon achieving certain milestones, including us making an IND submission
to the US FDA to commence clinical trials in humans using the technology, which
we currently plan to do during the second half of 2009. We received an up-front
fee of $250,000 and additional consideration under the agreement in the amount
of $850,000. Under the terms of the agreement, CHA will incur all of the cost
associated with RPE clinical trials in Korea.
CHA – On May 21, 2009, we
have entered into a licensing agreement (indefinite license period) under which
we will license our proprietary single blastomere technology, which has the
potential to generate stable cell lines, including retinal pigment epithelium
(RPE) cells for the treatment of diseases of the eye, to CHA for development and
commercialization exclusively in Korea. We received a $300,000 up-front license
fee. We believe there are some 200 different retinal diseases that may be
impacted by this stem cell derived therapy including macular degeneration.
Age-related macular degeneration (AMD) affects more than 30 million people
worldwide and is the leading cause of blindness in people over 60 years of age
in the United States (Source: Foundation For Fighting Blindness).
Embroyme Sciences, Inc. – In
2008, we entered into a license agreement (indefinite license period) whereby we
licensed to Embryome Sciences certain cell processing technologies, including
the technology licensed from Kirin Beer.We received an up-front payment of
$470,000 and will receive royalties from future sales of product that utilizes
the technologies from the licenses.
Nonexclusive
Licenses of Intellectual Property by Us
We have entered into numerous
nonexclusive license agreements pursuant to which we have granted non-exclusive
rights to various parties to use certain patent rights in defined fields. These
licenses generally provide for commercialization of our intellectual property
and typically contain minimum royalties, milestones and continuing royalties
based upon percentages of revenue.
Regulations
In addition to safety regulations
enforced by the FDA, we are also subject to regulations under the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act and other present and potential future and federal, state, local,
and foreign regulations.
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Outside the United States, we will be
subject to regulations that govern the import of drug products from the United
States or other manufacturing sites and foreign regulatory requirements
governing human clinical trials and marketing approval for our products. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursements vary widely from country to country.
The United States Congress, several
states and foreign countries have considered legislation banning or restricting
human application of ES cell-based and nuclear transfer based technologies. No
assurance can be given regarding future restrictions or prohibitions that might
affect our technology and business. In addition, we cannot assure you that
future judicial rulings with respect to nuclear transfer technology or human ES
cells will not have the effect of delaying, limiting or preventing the use of
nuclear transfer technology or ES cell-based technology or delaying, limiting or
preventing the sale, manufacture or use of products or services derived from
nuclear transfer technology or ES cell-derived material. Any such legislative or
judicial development would harm our ability to generate revenues and operate
profitably.
For additional information about
governmental regulations that will affect our planned and intended business
operations, see "RISK FACTORS " beginning below.
Employees
As of
March 16, 2010, we had 14 full-time employees, of whom 6 hold Ph.D. or M.D.
degrees. Eleven employees are directly involved in research and development
activities and 3 are engaged in business development and administration. We also
use the services of numerous outside consultants in business and scientific
matters. We believe that we have good relations with our employees and
consultants.
Item
1A. RISK FACTORS
Below
we describe a number of uncertainties and risks which, in addition to
uncertainties and risks presented elsewhere in this annual report, may adversely
affect our business, operating results, financial condition and share price. The
uncertainties and risks enumerated below as well as those presented elsewhere in
this Annual Report should be considered carefully in evaluating our company and
our business and the value of our securities. The following important factors,
among others, could cause our actual business, financial condition and future
results to differ materially from those contained in forward-looking statements
made in this Annual Report or presented elsewhere by management from time to
time.
Risks
Relating to the Company’s Early Stage Development
Our business is at an early stage of
development and we may not develop therapeutic products that can be
commercialized. We do not yet have any product candidates in late-stage
clinical trials or in the marketplace. Our potential therapeutic products will
require extensive preclinical and clinical testing prior to regulatory approval
in the United States and other countries. We may not be able to obtain
regulatory approvals (see REGULATORY RISKS), enter clinical trials for any of
our products, or commercialize any products. Our therapeutic and product
candidates may prove to have undesirable and unintended side effects or other
characteristics adversely affecting their safety, efficacy or cost-effectiveness
that could prevent or limit their use. Any product using any of our technology
may fail to provide the intended therapeutic benefits, or achieve therapeutic
benefits equal to or better than the standard of treatment at the time of
testing or production. In addition, we will need to determine whether any of our
potential products can be manufactured in commercial quantities or at an
acceptable cost. Our efforts may not result in a product that can be or will be
marketed successfully. Physicians may not prescribe our products, and patients
or third party payors may not accept our products. For these reasons we may not
be able to generate revenues from commercial production.
22
We have limited clinical testing,
regulatory, manufacturing, marketing, distribution and sales capabilities which
may limit our ability to generate revenues. Due to the relatively early
stage of our therapeutic products, regenerative medical therapies and stem cell
therapy-based programs, we have not yet invested significantly in regulatory,
manufacturing, marketing, distribution or product sales resources. We
cannot assure you that we will be able to invest or develop any of these
resources successfully or as expediently as necessary. The inability to do so
may inhibit or harm our ability to generate revenues or operate
profitably.
We have limited capital resources and
we may not obtain the significant additional capital required to sustain our
research and development efforts. We will need additional capital to
conduct our operations and develop our products and our ability to obtain the
necessary funding is uncertain. (see FINANCIAL RISKS) We have losses from
operations, negative cash flows from operations and a substantial stockholders’
deficit and we do not believe that our cash from all sources (including cash,
cash equivalents, anticipated revenues from licensing fees and sponsored
research contracts) is sufficient for us to continue operations beyond March 16,
2011.
Management
continues to evaluate alternatives and sources of additional funding. These may
include public and private investors, strategic partners, and grant programs
available through specific states, the federal government, or foundations.
However, there is no assurance that such sources will result in raising
additional capital.
Lack of
necessary funding may require us to delay, scale back or eliminate some or all
of our research and product development programs and/or capital expenditures, to
license our potential products or technologies to third parties, to consider
business combinations related to ongoing business operations, or to shut down
some, or all, of our operations.
Additionally,
our cash requirements may vary materially from our current projections due to
unforeseen and unexpected results in product research and development, or
changes in any of the following: potential relationships with strategic
partners, the focus and direction of our research and development programs, the
competitive landscape, litigation required to protect our technology,
technological advances, the cost of pre-clinical and clinical testing, the
regulatory process of the FDA (and of foreign regulators), among others. Our
current cash reserves are not sufficient to fund our operations through the
commercialization of our first products and/or services.
We have a history of operating losses
and we may not achieve future revenues or operating profits. We have
generated modest revenue to date from our operations. Historically we have had
net operating losses each year since our inception. We have limited
current potential sources of income from licensing fees and the Company does not
generate significant revenue outside of licensing non-core technologies.
Additionally, even if we are able to commercialize our technologies or any
products or services related to our technologies it is not certain that they
will result in revenue or profitability.
23
We are in the Early Stages of a
Strategic Joint Venture which may slow, impede or result in the termination of
potential therapeutic products whose development is now the responsibility of
the partnership and not solely of the Company. In 2008, we
entered into a new partnership (CHA) and as a result, we are subject to 3rd party
interests (see RISKS RELATED TO THIRD PARTY RELIANCE) and control issues, not
the least of which relates to certain of our employees no longer being
exclusively managed by us. We therefore could be at risk for losing key
employees. Additionally substantial operating and working capital will be
required and there is no assurance that CHA Biotech Co. limited, partner in our
joint venture, will be able to fund their requirements.
We have a limited operating history
on which investors may evaluate our operations and prospects for profitable
operations. If we continue to suffer losses as we have in the past,
investors may not receive any return on their investment and may their entire
investment. Our prospects must be considered speculative in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly in light of the uncertainties relating to
the new, competitive and rapidly evolving markets in which we anticipate we will
operate. To attempt to address these risks, we must, among other things, further
develop our technologies, products and services, successfully implement our
research, development, marketing and commercialization strategies, respond to
competitive developments and attract, retain and motivate qualified personnel. A
substantial risk is involved in investing in us because, as an early stage
company we have fewer resources than an established company, our management may
be more likely to make mistakes at such an early stage, and we may be more
vulnerable operationally and financially to any mistakes that may be made, as
well as to external factors beyond our control.
Risks
Relating to Technology
We are
dependent on new and unproven technologies. Our risks as an early stage company
are compounded by our heavy dependence on emerging and sometimes unproven
technologies. If these technologies do not produce satisfactory results, our
business may be harmed. Additionally some of our technologies and significant
potential revenue sources involve ethically sensitive and controversial issues
which could become the subject of legislation or regulations that could
materially restrict our operations and, therefore, harm our financial condition,
operating results and prospects for bringing our investors a return on their
investment.
Over the last two years we have
narrowed our potential product pool to focusing on our Retinal Program as well
as our Hemangioblast and Blastomere programs, which will limit our revenue
sources. Our human embryonic stem cell program is in the IND phase; our
myoblast program has received FDA clearance to proceed to Phase II human
clinical trials; our Hemangioblast program is in the preclinical development
stage, and the Company doesn’t foresee having a commercial product until
clinical trials are completed. We have identified the programs that we are
working to get into the clinical testing phase. We have narrowed the scope of
our developmental focus to our Retinal Program and those related therapies, our
blastomere program and, as part of our recently established partnership with
CHA, developing products in the hemangioblast/immunology arena (see BUSINESS
Section of 10K). As a result of our narrower product focus we have
fewer revenue sources. Our emphasis on fewer programs may hinder our results if
these programs are not successful. Although our adult stem cell
myoblast program has been approved for a Phase II clinical trial, we have
suspended that program indefinitely due to a lack of funding. As a result of our
emphasis on our retinal program, our hemangioblast program and our blastomere
program, our ability to progress as a company is more significantly hinged on
the success of fewer programs and thus, a setback or adverse development
relating to any one of them could potentially have a significant impact on share
price as well as an inhibitory effect on our ability to raise additional
capital. Additionally, we partially rely on nuclear transfer and embryonic stem
cell technologies that we may not be able to successfully develop, which will
prevent us from generating revenues, operating profitably or providing investors
any return on their investment. We cannot guarantee that we will be
able to successfully develop our retinal, hemangioblast, blastomere, nuclear
transfer technology, embryonic stem cell or myoblast technologies or that such
development will result in products or services with any significant commercial
utility. We anticipate that the commercial sale of such products or services,
and royalty/licensing fees related to our technology, would be our primary
sources of revenues. If we are unable to develop our technologies, investors
will likely lose their entire investment in us.
24
We may not be able to commercially
develop our technologies and proposed product lines, which, in turn, would
significantly harm our ability to earn revenues and result in a loss of
investment. Our ability to commercially develop our technologies will be
dictated in large part by forces outside our control which cannot be predicted,
including, but not limited to, general economic conditions, the success of our
research and pre-clinical and field testing, the availability of collaborative
partners to finance our work in pursuing applications of nuclear transfer
technology and technological or other developments in the biomedical field
which, due to efficiencies, technological breakthroughs or greater acceptance in
the biomedical industry, may render one or more areas of commercialization more
attractive, obsolete or competitively unattractive. It is possible that one or
more areas of commercialization will not be pursued at all if a collaborative
partner or entity willing to fund research and development cannot be located.
Our decisions regarding the ultimate products and/or services we pursue could
have a significant adverse affect on our ability to earn revenue if we
misinterpret trends, underestimate development costs and/or pursue wrong
products or services. Any of these factors either alone or in concert could
materially harm our ability to earn revenues or could result in a loss of any
investment in us.
If we are unable to keep up with
rapid technological changes in our field or compete effectively, we will be
unable to operate profitably. We are engaged in activities in the
biotechnology field, which is characterized by extensive research efforts and
rapid technological progress. If we fail to anticipate or respond adequately to
technological developments, our ability to operate profitably could suffer. We
cannot assure you that research and discoveries by other biotechnology,
agricultural, pharmaceutical or other companies will not render our technologies
or potential products or services uneconomical or result in products superior to
those we develop or that any technologies, products or services we develop will
be preferred to any existing or newly-developed technologies, products or
services.
Risks
Related to Intellectual Property
Our business is highly dependent upon
maintaining licenses with respect to key technology. Several of the key
patents we utilize are licensed to us by third parties. These licenses are
subject to termination under certain circumstances (including, for example, our
failure to make minimum royalty payments or to timely achieve development and
commercialization benchmarks). The loss of any of such licenses, or the
conversion of such licenses to non-exclusive licenses, could harm our operations
and/or enhance the prospects of our competitors.
Certain
of these licenses also contain restrictions, such as limitations on our ability
to grant sublicenses that could materially interfere with our ability to
generate revenue through the licensing or sale to third parties of important and
valuable technologies that we have, for strategic reasons, elected not to pursue
directly. The possibility exists that in the future we will require further
licenses to complete and/or commercialize our proposed products. We cannot
assure you that we will be able to acquire any such licenses on a commercially
viable basis.
25
Certain of our technology is not
protectable by patent. Certain parts of our know-how and technology are
not patentable. To protect our proprietary position in such know-how and
technology, we intend to require all employees, consultants, advisors and
collaborators to enter into confidentiality and invention ownership agreements
with us. We cannot assure you, however, that these agreements will provide
meaningful protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure. Further, in the
absence of patent protection, competitors who independently develop
substantially equivalent technology may harm our business.
Patent litigation presents an ongoing
threat to our business with respect to both outcomes and costs. We have
previously been involved in patent interference litigation, and it is possible
that further litigation over patent matters with one or more competitors could
arise. We could incur substantial litigation or interference costs in defending
ourselves against suits brought against us or in suits in which we may assert
our patents against others. If the outcome of any such litigation is
unfavorable, our business could be materially adversely affected. To determine
the priority of inventions, we may also have to participate in interference
proceedings declared by the United States Patent and Trademark Office, which
could result in substantial cost to us. Without additional capital, we may not
have the resources to adequately defend or pursue this litigation.
We may not be able to protect our
proprietary technology, which could harm our ability to operate
profitably. The biotechnology and pharmaceutical
industries place considerable importance on obtaining patent and trade secret
protection for new technologies, products and processes. Our success will
depend, to a substantial degree, on our ability to obtain and enforce patent
protection for our products, preserve any trade secrets and operate without
infringing the proprietary rights of others. We cannot assure you
that:
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we
will succeed in obtaining any patents in a timely manner or at all, or
that the breadth or degree of protection of any such patents will protect
our interests,
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the
use of our technology will not infringe on the proprietary rights of
others,
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patent
applications relating to our potential products or technologies will
result in the issuance of any patents or that, if issued, such patents
will afford adequate protection to us or not be challenged invalidated or
infringed, and
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patents
will not issue to other parties, which may be infringed by our potential
products or technologies.
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we
will continue to have the financial resources necessary to prosecute our
existing patent applications, pay maintenance fees on patents and patent
applications, or file patent applications on new
inventions.
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We
are aware of certain patents that have been granted to others and certain patent
applications that have been filed by others with respect to nuclear transfer
technologies. The fields in which we operate have been characterized by
significant efforts by competitors to establish dominant or blocking patent
rights to gain a competitive advantage, and by considerable differences of
opinion as to the value and legal legitimacy of competitors' purported patent
rights and the technologies they actually utilize in their
businesses.
26
Patents obtained by other persons may
result in infringement claims against us that are costly to defend and which may
limit our ability to use the disputed technologies and prevent us from pursuing
research and development or commercialization of potential products. A
number of other pharmaceutical, biotechnology and other companies, universities
and research institutions have filed patent applications or have been issued
patents relating to cell therapies, stem cells, and other technologies
potentially relevant to or required by our expected products. We cannot predict
which, if any, of such applications will issue as patents or the claims that
might be allowed. We are aware that a number of companies have filed
applications relating to stem cells. We are also aware of a number of patent
applications and patents claiming use of stem cells and other modified cells to
treat disease, disorder or injury.
If third
party patents or patent applications contain claims infringed by either our
licensed technology or other technology required to make and use our potential
products and such claims are ultimately determined to be valid, there can be no
assurance that we would be able to obtain licenses to these patents at a
reasonable cost, if at all, or be able to develop or obtain alternative
technology. If we are unable to obtain such licenses at a reasonable cost, we
may not be able to develop some products commercially. We may be required to
defend ourselves in court against allegations of infringement of third party
patents. Patent litigation is very expensive and could consume substantial
resources and create significant uncertainties. And adverse outcome in such a
suit could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties, or require us to cease using
such technology.
We are not in full compliance with
some of our license agreements. We are not in full compliance
with some of our licenses (see Our Intellectual Property in the BUSINESS section
of this 10k) and due to limited financial resources we cannot guarantee that we
will regain full compliance status. If we are unable to be in compliance with
our license agreements, our business may be harmed.
We may not be able to adequately
defend against piracy of intellectual property in foreign jurisdictions.
Considerable research in the areas of stem cells, cell therapeutics and
regenerative medicine is being performed in countries outside of the United
States, and a number of potential competitors are located in these countries.
The laws protecting intellectual property in some of those countries may not
provide adequate protection to prevent our competitors from misappropriating our
intellectual property. Several of these potential competitors may be further
along in the process of product development and also operate large,
company-funded research and development programs. As a result, our competitors
may develop more competitive or affordable products, or achieve earlier patent
protection or product commercialization than we are able to achieve. Competitive
products may render any products or product candidates that we develop
obsolete.
Regulatory
Risks
We cannot market our product
candidates until we receive regulatory approval. We must comply with
extensive government regulations in order to obtain and maintain marketing
approval for our products in the United States and abroad. The process of
obtaining regulatory approval is lengthy, expensive and uncertain. In the United
States, the FDA imposes substantial requirements on the introduction of
biological products and many medical devices through lengthy and detailed
laboratory and clinical testing procedures, sampling activities and other costly
and time-consuming procedures. Satisfaction of these requirements typically
takes several years and the time required to do so may vary substantially based
upon the type and complexity of the biological product or medical
device.
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In addition, product candidates that we
believe should be classified as medical devices for purposes of the FDA
regulatory pathway may be determined by the FDA to be biologic products subject
to the satisfaction of significantly more stringent requirements for FDA
approval. Any difficulties that we encounter in obtaining regulatory approval
may have a substantial adverse impact on our business and cause our stock price
to significantly decline.
We cannot assure you that we will
obtain FDA or foreign regulatory approval to market any of our product
candidates for any indication in a timely manner or at all. If we fail to
obtain regulatory approval of any of our product candidates for at least one
indication, we will not be permitted to market our product candidates and may be
forced to cease our operations.
Even if some of our product
candidates receive regulatory approval, these approvals may be subject to
conditions, and we and our third party manufacturers will in any event be
subject to significant ongoing regulatory obligations and oversight. Even
if any of our product candidates receives regulatory approval, the
manufacturing, marketing and sale of our product candidates will be subject to
stringent and ongoing government regulation. Conditions of approval, such as
limiting the category of patients who can use the product, may significantly
impact our ability to commercialize the product and may make it difficult or
impossible for us to market a product profitably. Changes we may desire to make
to an approved product, such as cell culturing changes or revised labeling, may
require further regulatory review and approval, which could prevent us from
updating or otherwise changing an approved product. If our product candidates
are approved by the FDA or other regulatory authorities for the treatment of any
indications, regulatory labeling may specify that our product candidates be used
in conjunction with other therapies.
Once obtained, regulatory approvals
may be withdrawn and can be expensive to maintain. Regulatory approval
may be withdrawn for a number of reasons, including the later discovery of
previously unknown problems with the product. Regulatory approval may also
require costly post-marketing follow-up studies, and failure of our product
candidates to demonstrate sufficient efficacy and safety in these studies may
result in either withdrawal of marketing approval or severe limitations on
permitted product usage. In addition, numerous additional regulatory
requirements relating to, among other processes, the labeling, packaging,
adverse event reporting, storage, advertising, promotion and record-keeping will
also apply. Furthermore, regulatory agencies subject a marketed product, its
manufacturer and the manufacturer's facilities to continual review and periodic
inspections. Compliance with these regulatory requirements are time consuming
and require the expenditure of substantial resources.
If any of
our product candidates is approved, we will be required to report certain
adverse events involving our products to the FDA, to provide updated safety and
efficacy information and to comply with requirements concerning the
advertisement and promotional labeling of our products. As a result, even if we
obtain necessary regulatory approvals to market our product candidates for any
indication, any adverse results, circumstances or events that are subsequently
discovered, could require that we cease marketing the product for that
indication or expend money, time and effort to ensure full compliance, which
could have a material adverse effect on our business.
If our products do not comply with
applicable laws and regulations our business will be
harmed. Any failure by us, or by any third parties that may
manufacture or market our products, to comply with the law, including statutes
and regulations administered by the FDA or other U.S. or foreign regulatory
authorities, could result in, among other things, warning letters, fines and
other civil penalties, suspension of regulatory approvals and the resulting
requirement that we suspend sales of our products, refusal to approve pending
applications or supplements to approved applications, export or import
restrictions, interruption of production, operating restrictions, closure of the
facilities used by us or third parties to manufacture our product candidates,
injunctions or criminal prosecution. Any of the foregoing actions could have a
material adverse effect on our business.
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Our products may not be accepted in
the marketplace. If we are successful in obtaining
regulatory approval for any of our product candidates, the degree of market
acceptance of those products will depend on many factors,
including:
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Our
ability to provide acceptable evidence and the perception of patients and
the healthcare community, including third party payors, of the positive
characteristics of our product candidates relative to existing treatment
methods, including their safety, efficacy, cost effectiveness and/or other
potential advantages,
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The
incidence and severity of any adverse side effects of our product
candidates,
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The
availability of alternative
treatments,
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The
labeling requirements imposed by the FDA and foreign regulatory agencies,
including the scope of approved indications and any safety
warnings,
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Our
ability to obtain sufficient third party insurance coverage or
reimbursement for our products
candidates,
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The
inclusion of our products on insurance company coverage
policies,
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The
willingness and ability of patients and the healthcare community to adopt
new technologies,
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The
procedure time associated with the use of our product
candidates,
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Our
ability to manufacture or obtain from third party manufacturers sufficient
quantities of our product candidates with acceptable quality and at an
acceptable cost to meet demand, and
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Marketing
and distribution support for our
products.
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We cannot
predict or guarantee that physicians, patients, healthcare insurers, third party
payors or health maintenance organizations, or the healthcare community in
general, will accept or utilize any of our product
candidates. Failure to achieve market acceptance would limit our
ability to generate revenue and would have a material adverse effect on our
business. In addition, if any of our product candidates achieve market
acceptance, we may not be able to maintain that market acceptance over time if
competing products or technologies are introduced that are received more
favorably or are more cost-effective.
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Risks
Related to Domestic Governmental Regulation
Restrictions on the use of human
embryonic stem cells, and the ethical, legal and social implications of that
research, could prevent us from developing or gaining acceptance for
commercially viable products in these areas. Some of our most important
programs involve the use of stem cells that are derived from human embryos. The
use of human embryonic stem cells gives rise to ethical, legal and social issues
regarding the appropriate use of these cells. In the event that our research
related to human embryonic stem cells becomes the subject of adverse commentary
or publicity, the market price for our common stock could be significantly
harmed. Some political and religious groups have voiced opposition to our
technology and practices. We use stem cells derived from human embryos that have
been created for in vitro fertilization procedures but are no longer desired or
suitable for that use and are donated with appropriate informed consent for
research use. Many research institutions, including some of our scientific
collaborators, have adopted policies regarding the ethical use of human
embryonic tissue. These policies may have the effect of limiting the scope of
research conducted using human embryonic stem cells, thereby impairing our
ability to conduct research in this field.
Despite the rescission of the
President Bush’s Exec order in August 2001 by President Barak Obama in March
2009, and the subsequent renewal in some funding for human embryonic stem cell
lines by the NIH, the overall effect of new laws drafted by the NIH and put into
effect regarding the dropping of restrictions on hES research has yet to be seen
or made clear. While it is unclear whether Federal law continues to
restrict the use of federal funds for human embryonic cell research, commonly
referred to as hES cell research, there can be no assurance that our operations
will not be restricted by any future legislative or administrative efforts by
politicians or groups opposed to the development of hES cell technology or
nuclear transfer technology. Additionally the executive order does not overturn
the Dickey–Wicker Amendment, a 13-year-old ban on federal funding for the actual
creation of new stem cell lines, an act that destroys an embryo. In the United
States these efforts still must be funded privately or by state governments.
Further, there can be no assurance that legislative or administrative
restrictions directly or indirectly delaying, limiting or preventing the use of
hES technology, nuclear transfer technology, IPS technology, the use of human
embryonic material, or the sale, manufacture or use of products or services
derived from nuclear transfer technology or other hES technology will not be
adopted or extended in the future.
Because we or our collaborators must
obtain regulatory approval to market our products in the United States and other
countries, we cannot predict whether or when we will be permitted to
commercialize our products. Federal, state and local
governments in the United States and governments in other countries have
significant regulations in place that govern many of our activities. We are or
may become subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances used in connection
with our research and development work. The preclinical testing and clinical
trials of the products that we or our collaborators develop are subject to
extensive government regulation that may prevent us from creating commercially
viable products from our discoveries. In addition, the sale by us or our
collaborators of any commercially viable product will be subject to government
regulation from several standpoints, including manufacturing, advertising and
promoting, selling and marketing, labeling, and distributing.
If, and
to the extent that, we are unable to comply with these regulations, our ability
to earn revenues will be materially and negatively impacted. The regulatory
process, particularly in the biotechnology field, is uncertain, can take many
years and requires the expenditure of substantial resources. Biological drugs
and non-biological drugs are rigorously regulated. In particular, proposed human
pharmaceutical therapeutic product candidates are subject to rigorous
preclinical and clinical testing and other requirements by the FDA in the United
States and similar health authorities in other countries in order to demonstrate
safety and efficacy. We may never obtain regulatory approval to market our
proposed products. For additional information about governmental regulations
that will affect our planned and intended business operations, see "DESCRIPTION
OF BUSINESS—Government
Regulation" above.
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Our products may not receive FDA
approval, which would prevent us from commercially marketing our products and
producing revenues. The FDA and comparable government agencies in foreign
countries impose substantial regulations on the manufacture and marketing of
pharmaceutical products through lengthy and detailed laboratory, pre-clinical
and clinical testing procedures, sampling activities and other costly and
time-consuming procedures. Satisfaction of these regulations typically takes
several years or more and varies substantially based upon the type, complexity
and novelty of the proposed product. We cannot assure you that FDA approvals for
any products developed by us will be granted on a timely basis, if at all. Any
such delay in obtaining, or failure to obtain, such approvals could have a
material adverse effect on the marketing of our products and our ability to
generate product revenue. For additional information about governmental
regulations that will affect our planned and intended business operations, see
"DESCRIPTION OF BUSINESS—Government Regulation"
above.
For-profit entities may be prohibited
from benefiting from grant funding. There has been much publicity about
grant resources for stem cell research, including Proposition 71 in
California, which is described more fully under the heading "DESCRIPTION OF
BUSINESS—California
Proposition 71" above. While the California Institute CIRM has
provided grant funds to some for-profit entities, there is no guarantee that it
will continue to do so, particularly given the state’s current budgetary
conditions. As a result of these uncertainties regarding Proposition 71, we
cannot assure you that funding, if any, will be available to us.
The government maintains certain
rights in technology that we develop using government grant money and we may
lose the revenues from such technology if we do not commercialize and utilize
the technology pursuant to established government guidelines. Certain of
our and our licensors' research has been or is being funded in part by
government grants. In connection with certain grants, the U.S. government
retains rights in the technology developed with the grant. These rights could
restrict our ability to fully capitalize upon the value of this
research.
Risks
Related to International Regulation
We may not be able to obtain required
approvals in other countries. The requirements governing the
conduct of clinical trials and cell culturing and marketing of our product
candidates outside the United States vary widely from country to country.
Foreign approvals may take longer to obtain than FDA approvals and can require,
among other things, additional testing and different clinical trial designs.
Foreign regulatory approval processes generally include all of the risks
associated with the FDA approval processes. Some foreign regulatory agencies
also must approve prices of the products. Regulatory approval in one country
does not ensure regulatory approval in another, but a failure or delay in
obtaining regulatory approval in one country may negatively impact the
regulatory process in others. We may not be able to file for regulatory
approvals and may not receive necessary approvals to market our product
candidates in any foreign country. If we fail to comply with these regulatory
requirements or fail to obtain and maintain required approvals in any foreign
country, we will not be able to sell our product candidates in that country and
our ability to generate revenue will be adversely affected.
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Financial
Risks
We may not be able to raise the
required capital to conduct our operations and develop and commercialize our
products. We require substantial additional capital resources
in order to conduct our operations and develop and commercialize our products
and run our facilities. We will need significant additional funds or a
collaborative partner, or both, to finance the research and development
activities of our therapies and potential products. Accordingly, we are
continuing to pursue additional sources of financing. Our future
capital requirements will depend upon many factors, including:
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The
continued progress and cost of our research and development
programs,
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The
progress with pre-clinical studies and clinical
trials,
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The
time and costs involved in obtaining regulatory
clearance,
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The
costs in preparing, filing, prosecuting, maintaining and enforcing patent
claims,
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The
costs of developing sales, marketing and distribution channels and our
ability to sell the therapies/products if
developed,
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The
costs involved in establishing manufacturing capabilities for commercial
quantities of our proposed
products,
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Competing
technological and market
developments,
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Market
acceptance of our proposed
products,
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The
costs for recruiting and retaining employees and consultants,
and
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The
costs for educating and training physicians about our proposed
therapies/products.
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Additional
financing through strategic collaborations, public or private equity financings
or other financing sources may not be available on acceptable terms, or at all.
Additional equity financing could result in significant dilution to our
shareholders. Further, if additional funds are obtained through arrangements
with collaborative partners, these arrangements may require us to relinquish
rights to some of our technologies, product candidates or products that we would
otherwise seek to develop and commercialize on our own. If sufficient capital is
not available, we may be required to delay, reduce the scope of or eliminate one
or more of our programs or potential products, any of which could have a
material adverse affect on our financial condition or business
prospects.
Risks
Relating to Our Debt Financings
If we are required for any reason to
repay our outstanding debt financings we would be required to deplete our
working capital, if available, or raise additional funds. Our failure to repay
the convertible debentures, if required, could result in legal action against
us, which could require the sale of substantial assets.
We have outstanding, as of December 31, 2009, $14,014,584 aggregate original
principal amount of debt. We are required to repay on a monthly basis, by
payment, at our option, with cash or with shares of our common
stock.
There are a large number of shares
underlying our debt in full, and warrants that and the Company is liable to
provide. The sale of these shares may depress the market price of our common
stock. As of December 31, 2009, on an aggregated basis our debt and
preferred stock financings may result in being converted into 148,000,000 shares
of our common stock, and warrants and options that may be converted into
approximately 219,000,000 shares of our common stock.
32
Sales of
a substantial number of shares of our common stock in the public market could
adversely affect the market price for our common stock and make it more
difficult for you to sell shares of our common stock at times and prices that
you feel are appropriate.
The issuance of shares upon
conversion of the convertible debentures and exercise of outstanding warrants
will cause immediate and substantial dilution to our existing
stockholders. The issuance of shares upon conversion of the convertible
debentures and exercise of warrants, including the replacement warrants, will
result in substantial dilution to the interests of other stockholders since the
selling security holders may ultimately convert and sell the full amount
issuable on conversion. Although no single selling security holder may convert
its convertible debentures and/or exercise its warrants if such conversion or
exercise would cause it to own more than 4.99% of our outstanding common stock,
this restriction does not prevent each selling security holder from converting
and/or exercising some of its holdings and then converting the rest of its
holdings. In this way, each selling security holder could sell more than this
limit while never holding more than this limit. There is no upper limit on the
number of shares that may be issued which will have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock.
Our
outstanding indebtedness on our Debentures imposes certain restrictions on how
we conduct our business. In addition, all of our assets, including our
intellectual property, are pledged to secure this indebtedness. If we fail to
meet our obligations under the Debentures, our payment obligations may be
accelerated and the collateral securing the debt may be sold to satisfy these
obligations.
The
Debentures and related agreements contain various provisions that restrict our
operating flexibility. Pursuant to the agreement, we may not, among other
things:
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Except
for certain permitted indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any indebtedness for borrowed money of any
kind, including but not limited to, a guarantee, on or with respect to any
of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits
therefrom,
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Except
for certain permitted liens, enter into, create, incur, assume or suffer
to exist any liens of any kind, on or with respect to any of its property
or assets now owned or hereafter acquired or any interest therein or any
income or profits therefrom,
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Amend
our certificate of incorporation, bylaws or other charter documents so as
to materially and adversely affect any rights of holders of the Debentures
and Warrants,
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Repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of our common stock or common stock
equivalents,
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Enter
into any transaction with any of our affiliates, which would be required
to be disclosed in any public filing with the Securities and Exchange
Commission, unless such transaction is made on an arm's-length basis and
expressly approved by a majority of our disinterested directors (even if
less than a quorum otherwise required for board
approval),
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Pay
cash dividends or distributions on any of our equity
securities,
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Grant
certain registration rights,
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Enter
into any agreement with respect to any of the foregoing,
or
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Make
cash expenditures in excess of $1,000,000 per calendar month, subject to
certain specified exceptions.
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These
provisions could have important consequences for us, including (i) making it
more difficult for us to obtain additional debt financing from another lender,
or obtain new debt financing on terms favorable to us, (ii) causing us to use a
portion of our available cash for debt repayment and service rather than other
perceived needs and/or (iii) impacting our ability to take advantage of
significant, perceived business opportunities.
Our obligations under a Securities
Purchase Agreement are secured by substantially all of our assets. Our
obligations under certain security agreements, executed in connection with
certain financings, with the holders of the debentures and warrants are secured
by substantially all of our assets. As a result, if we default under the terms
of the security agreement, such holders could foreclose on their security
interest and liquidate all of our assets. This would cause operations to
cease.
Risks
Related to Third Party Reliance
We depend on third parties to assist
us in the conduct of our preclinical studies and clinical trials, and any
failure of those parties to fulfill their obligations could result in costs and
delays and prevent us from obtaining regulatory approval or successfully
commercializing our product candidates on a timely basis, if at all. We
engage consultants and contract research organizations to help design, and to
assist us in conducting, our preclinical studies and clinical trials and to
collect and analyze data from those studies and trials. The consultants and
contract research organizations we engage interact with clinical investigators
to enroll patients in our clinical trials. As a result, we depend on these
consultants and contract research organizations to perform the studies and
trials in accordance with the investigational plan and protocol for each product
candidate and in compliance with regulations and standards, commonly referred to
as "good clinical practice", for conducting, recording and reporting results of
clinical trials to assure that the data and results are credible and accurate
and the trial participants are adequately protected, as required by the FDA and
foreign regulatory agencies. We may face delays in our regulatory approval
process if these parties do not perform their obligations in a timely or
competent fashion or if we are forced to change service providers.
We depend on our collaborators to
help us develop and test our proposed products, and our ability to develop and
commercialize products may be impaired or delayed if collaborations are
unsuccessful. Our strategy for the development, clinical testing and
commercialization of our proposed products requires that we enter into
collaborations with corporate partners, licensors, licensees and others. We are
dependent upon the subsequent success of these other parties in performing their
respective responsibilities and the continued cooperation of our partners. Under
agreements with collaborators, we may rely significantly on such collaborators
to, among other things:
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Design
and conduct advanced clinical trials in the event that we reach clinical
trials;
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Fund
research and development activities with
us;
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Pay
us fees upon the achievement of milestones;
and
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Market
with us any commercial products that result from our
collaborations.
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Our
collaborators may not cooperate with us or perform their obligations under our
agreements with them. We cannot control the amount and timing of our
collaborators’ resources that will be devoted to our research and development
activities related to our collaborative agreements with them. Our collaborators
may choose to pursue existing or alternative technologies in preference to those
being developed in collaboration with us.
The development and commercialization
of potential products will be delayed if collaborators fail to conduct these
activities in a timely manner, or at all. In addition, our collaborators could
terminate their agreements with us and we may not receive any development or
milestone payments. If we do not achieve milestones set forth in the
agreements, or if our collaborators breach or terminate their collaborative
agreements with us, our business may be materially harmed.
We are in a Strategic Joint Venture
which may slow, impede or result in the termination of potential therapeutic
products whose development is now the responsibility of the partnership and not
solely of the Company. In 2008, the Company entered into a new
partnership (CHA) and as a result, we are subject to 3rd party
interests and control issues, not the least of which relates to certain of our
employees no longer being exclusively managed by us. We therefore could be at
risk for losing key employees. Additionally substantial operating and working
capital will be required and there is no assurance that CHA Biotech Co. limited,
partner in our joint venture, will be able to fund their requirements. Any
failure on their part could negatively impact our product development, human
capital and financial resources allocated to other of our programs.
Our reliance on the activities of our
non-employee consultants, research institutions, and scientific contractors,
whose activities are not wholly within our control, may lead to delays in
development of our proposed products. We rely extensively upon and have
relationships with scientific consultants at academic and other institutions,
some of whom conduct research at our request, and other consultants with
expertise in clinical development strategy or other matters. These consultants
are not our employees and may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to us. We have
limited control over the activities of these consultants and, except as
otherwise required by our collaboration and consulting agreements to the extent
they exist, can expect only limited amounts of their time to be dedicated to our
activities. These research facilities may have commitments to other commercial
and non-commercial entities. We have limited control over the operations of
these laboratories and can expect only limited amounts of time to be dedicated
to our research goals.
Preclinical
& Clinical Product Development Risks
Limited experience in conducting and
managing preclinical development activities, clinical trials and the application
process necessary to obtain regulatory approvals. Our limited experience
in conducting and managing preclinical development activities, clinical trials
and the application process necessary to obtain regulatory approvals might
prevent us from successfully designing or implementing a preclinical study or
clinical trial. If we do not succeed in conducting and managing our preclinical
development activities or clinical trials, or in obtaining regulatory approvals,
we might not be able to commercialize our product candidates, or might be
significantly delayed in doing so, which will materially harm our
business.
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Our
ability to generate revenues from any of our product candidates will depend on a
number of factors, including our ability to successfully complete clinical
trials, obtain necessary regulatory approvals and implement our
commercialization strategy. In addition, even if we are successful in obtaining
necessary regulatory approvals and bringing one or more product candidates to
market, we will be subject to the risk that the marketplace will not accept
those products. We may, and anticipate that we will need to, transition from a
company with a research and development focus to a company capable of supporting
commercial activities and we may not succeed in such a transition.
Because of the numerous risks and
uncertainties associated with our product development and commercialization
efforts, we are unable to predict the extent of our future losses or when or if
we will become profitable. Our failure to successfully commercialize our
product candidates or to become and remain profitable could depress the market
price of our common stock and impair our ability to raise capital, expand our
business, diversify our product offerings and continue our
operations.
None of the products that we are
currently developing has been approved by the FDA or any similar regulatory
authority in any foreign country. Our approach of using cell-based therapy for
the treatment of Retinal disease (we are beginning with a treatment for
Startgardt’s disease, for which we filed an IND with the FDA) is risky and
unproven and no products using this approach have received regulatory approval
in the United States or Europe. We believe that no company has yet been
successful in its efforts to obtain regulatory approval in the United States or
Europe of a cell-based therapy product for the treatment of retinal disease or
degeneration in humans. Cell-based therapy products, in general, may be
susceptible to various risks, including undesirable and unintended side effects,
unintended immune system responses, inadequate therapeutic efficacy or other
characteristics that may prevent or limit their approval by regulators or
commercial use. Many companies in the industry have suffered significant
setbacks in advanced clinical trials, despite promising results in earlier
trials. If our clinical trials are unsuccessful or significantly delayed, or if
we do not complete our clinical trials, we will not receive regulatory approval
for or be able to commercialize our product candidates.
Our lead product candidate, our
therapeutic Retinal program for Startgardt’s disease has note yet started Phase
I Clinical Trials and has not yet received approval from the FDA or any similar
foreign regulatory authority for any indication. We cannot market any
product candidate until regulatory agencies grant approval or licensure. In
order to obtain regulatory approval for the sale of any product candidate, we
must, among other requirements, provide the FDA and similar foreign regulatory
authorities with preclinical and clinical data that demonstrate to the
satisfaction of regulatory authorities that our product candidates are safe and
effective for each indication under the applicable standards relating to such
product candidate. The preclinical studies and clinical trials of any product
candidates must comply with the regulations of the FDA and other governmental
authorities in the United States and similar agencies in other countries. Our
therapeutic Retinal program may never receive approval from the FDA or any
similar foreign regulatory authority.
We
may experience numerous unforeseen events during, or as a result of, the
clinical trial process that could delay or prevent regulatory approval and/or
commercialization of our product candidates, including the
following:
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The
FDA or similar foreign regulatory authorities may find that our product
candidates are not sufficiently safe or effective or may find our cell
culturing processes or facilities
unsatisfactory,
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Officials
at the FDA or similar foreign regulatory authorities may interpret data
from preclinical studies and clinical trials differently than we
do,
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Our
clinical trials may produce negative or inconclusive results or may not
meet the level of statistical significance required by the FDA or other
regulatory authorities, and we may decide, or regulators may require us,
to conduct additional preclinical studies and/or clinical trials or to
abandon one or more of our development
programs,
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The
FDA or similar foreign regulatory authorities may change their approval
policies or adopt new regulations,
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There
may be delays or failure in obtaining approval of our clinical trial
protocols from the FDA or other regulatory authorities or obtaining
institutional review board approvals or government approvals to conduct
clinical trials at prospective
sites,
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We,
or regulators, may suspend or terminate our clinical trials because the
participating patients are being exposed to unacceptable health risks or
undesirable side effects,
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We
may experience difficulties in managing multiple clinical
sites,
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Enrollment
in our clinical trials for our product candidates may occur more slowly
than we anticipate, or we may experience high drop-out rates of subjects
in our clinical trials, resulting in significant
delays,
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We
may be unable to manufacture or obtain from third party manufacturers
sufficient quantities of our product candidates for use in clinical
trials, and
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Our
product candidates may be deemed unsafe or ineffective, or may be
perceived as being unsafe or ineffective, by healthcare providers for a
particular indication.
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Any delay
of regulatory approval will harm our business.
Risks
Related to Competition
The market for therapeutic stem cell
products is highly competitive. We expect that our most significant
competitors will be fully integrated pharmaceutical companies and more
established biotechnology companies. These companies are developing stem
cell-based products and they have significantly greater capital resources in
research and development, manufacturing, testing, obtaining regulatory
approvals, and marketing capabilities. Many of these potential competitors are
further along in the process of product development and also operate large,
company-funded research and development programs. As a result, our competitors
may develop more competitive or affordable products, or achieve earlier patent
recognition and filings.
The biotechnology industries are
characterized by rapidly evolving technology and intense competition. Our
competitors include major multinational pharmaceutical companies, specialty
biotechnology companies and chemical and medical products companies operating in
the fields of regenerative medicine, cell therapy, tissue engineering and tissue
regeneration. Many of these companies are well-established and possess
technical, research and development, financial and sales and marketing resources
significantly greater than ours. In addition, certain smaller biotech companies
have formed strategic collaborations, partnerships and other types of joint
ventures with larger, well established industry competitors that afford these
companies' potential research and development and commercialization advantages.
Academic institutions, governmental agencies and other public and private
research organizations are also conducting and financing research activities
which may produce products directly competitive to those we are developing.
Moreover, many of these competitors may be able to obtain patent protection,
obtain FDA and other regulatory approvals and begin commercial sales of their
products before we do.
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In the general area of cell-based
therapies (including both ES cell and autologous cell therapies), we compete
with a variety of companies, most of whom are specialty biotechnology companies,
such as Geron Corporation, Genzyme Corporation, StemCells, Inc., Aastrom
Biosciences, Inc., Viacell, Inc., MG Biotherapeutics, Celgene, BioHeart, Inc.,
Baxter Healthcare, Osiris Therapeutics and Cytori. Each of these
companies are well-established and have substantial technical and financial
resources compared to us. However, as cell-based products are only just emerging
as medical therapies, many of our direct competitors are smaller biotechnology
and specialty medical products companies. These smaller companies may become
significant competitors through rapid evolution of new technologies. Any of
these companies could substantially strengthen their competitive position
through strategic alliances or collaborative arrangements with large
pharmaceutical or biotechnology companies.
The diseases and medical conditions
we are targeting have no effective long-term therapies. Nevertheless, we expect
that our technologies and products will compete with a variety of therapeutic
products and procedures offered by major pharmaceutical companies (in the
Retinal Disease indication one of our primary competitors is Celgene). Many
pharmaceutical and biotechnology companies are investigating new drugs and
therapeutic approaches for the same purposes, which may achieve new efficacy
profiles, extend the therapeutic window for such products, alter the prognosis
of these diseases, or prevent their onset. We believe that our products,
when and if successfully developed, will compete with these products principally
on the basis of improved and extended efficacy and safety and their overall
economic benefit to the health care system.
Competition for any stem cell products
that we may develop may be in the form of existing and new drugs, other forms of
cell transplantation, ablative and simulative procedures, and gene therapy. We
believe that some of our competitors are also trying to develop stem and
progenitor cell-based technologies. We expect that all of these products will
compete with our potential stem cell products based on efficacy, safety, cost
and intellectual property positions. We may also face competition from companies
that have filed patent applications relating to the use of genetically modified
cells to treat disease, disorder or injury. In the event our therapies should
require the use of such genetically modified cells, we may be required to seek
licenses from these competitors in order to commercialize certain of our
proposed products, and such licenses may not be granted.
If we develop products that receive
regulatory approval, they would then have to compete for market acceptance and
market share. For certain of our potential products, an important success factor
will be the timing of market introduction of competitive products. This timing
will be a function of the relative speed with which we and our competitors can
develop products, complete the clinical testing and approval processes, and
supply commercial quantities of a product to market. These competitive products
may also impact the timing of clinical testing and approval processes by
limiting the number of clinical investigators and patients available to test our
potential products.
Our competition includes both public
and private organizations and collaborations among academic institutions and
large pharmaceutical companies, most of which have significantly greater
experience and financial resources than we do. Private and public
academic and research institutions also compete with us in the research and
development of therapeutic products based on human embryonic and adult stem cell
technologies. In the past several years, the pharmaceutical industry has
selectively entered into collaborations with both public and private
organizations to explore the possibilities that stem cell therapies may present
for substantive breakthroughs in the fight against disease.
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The biotechnology and pharmaceutical
industries are characterized by intense competition. We compete against numerous
companies, both domestic and foreign, many of which have substantially greater
experience and financial and other resources than we have. Several such
enterprises have initiated cell therapy research programs and/or efforts to
treat the same diseases targeted by us. Companies such as Geron
Corporation, Genzyme Corporation, StemCells, Inc., Aastrom
Biosciences, Inc. and Viacell, Inc., as well as others, many of which
have substantially greater resources and experience in our fields than we do,
are well situated to effectively compete with us. Any of the world's largest
pharmaceutical companies represents a significant actual or potential competitor
with vastly greater resources than ours. These companies hold licenses to
genetic selection technologies and other technologies that are competitive with
our technologies. These and other competitive enterprises have devoted, and will
continue to devote, substantial resources to the development of technologies and
products in competition with us.
In addition, many of our competitors
have significantly greater experience than we have in the development,
pre-clinical testing and human clinical trials of biotechnology and
pharmaceutical products, in obtaining FDA and other regulatory approvals of such
products and in manufacturing and marketing such products. Accordingly
our competitors may succeed in obtaining FDA approval for products more rapidly
or effectively than we can. Our competitors may also be the first to discover
and obtain a valid patent to a particular stem cell technology which may
effectively block all others from doing so. It will be important for us or our
collaborators to be the first to discover any stem cell technology that we are
seeking to discover. Failure to be the first could prevent us from
commercializing all of our research and development affected by that discovery.
Additionally, if we commence commercial sales of any products, we will also be
competing with respect to manufacturing efficiency and sales and marketing
capabilities, areas in which we have no experience.
General
Risks Relating to Our Business
We are subject to litigation that
will be costly to defend or pursue and uncertain in its outcome. Our
business may bring us into conflict with our licensees, licensors, or others
with whom we have contractual or other business relationships, or with our
competitors or others whose interests differ from ours. If we are unable to
resolve those conflicts on terms that are satisfactory to all parties, we may
become involved in litigation brought by or against us. That litigation is
likely to be expensive and may require a significant amount of management's time
and attention, at the expense of other aspects of our business. The outcome of
litigation is always uncertain, and in some cases could include judgments
against us that require us to pay damages, enjoin us from certain activities, or
otherwise affect our legal or contractual rights, which could have a significant
adverse effect on our business. See "LEGAL PROCEEDINGS" set forth in
Part I, Item 3 of this Annual Report on Form 10-K for a more
complete discussion of currently pending litigation against the
Company.
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We may not be able to obtain
third-party patient reimbursement or favorable product pricing, which would
reduce our ability to operate profitably. Our ability to successfully
commercialize certain of our proposed products in the human therapeutic field
may depend to a significant degree on patient reimbursement of the costs of such
products and related treatments at acceptable levels from government
authorities, private health insurers and other organizations, such as health
maintenance organizations. We cannot assure you that reimbursement in the United
States or foreign countries will be available for any products we may develop
or, if available, will not be decreased in the future, or that reimbursement
amounts will not reduce the demand for, or the price of, our products with a
consequent harm to our business. We cannot predict what additional regulation or
legislation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect such regulation or
legislation may have on our business. If additional regulations are overly
onerous or expensive, or if health care related legislation makes our business
more expensive or burdensome than originally anticipated, we may be forced to
significantly downsize our business plans or completely abandon our business
model.
Our products are likely to be
expensive to manufacture, and they may not be profitable if we are unable to
control the costs to manufacture them. Our products are likely to be
significantly more expensive to manufacture than most other drugs currently on
the market today. Our present manufacturing processes produce modest quantities
of product intended for use in our ongoing research activities, and we have not
developed processes, procedures and capability to produce commercial volumes of
product. We hope to substantially reduce manufacturing costs through process
improvements, development of new science, increases in manufacturing scale and
outsourcing to experienced manufacturers. If we are not able to make these or
other improvements, and depending on the pricing of the product, our profit
margins may be significantly less than that of most drugs on the market today.
In addition, we may not be able to charge a high enough price for any cell
therapy product we develop, even if they are safe and effective, to make a
profit. If we are unable to realize significant profits from our potential
product candidates, our business would be materially harmed.
Our current source of revenues
depends on the stability and performance of our sub-licensees. Our
ability to collect royalties on product sales from our sub-licensees will depend
on the financial and operational success of the companies operating under a
sublicense. Revenues from those licensees will depend upon the financial and
operational success of those third parties. We cannot assure you that these
licensees will be successful in obtaining requisite financing or in developing
and successfully marketing their products. These licensees may experience
unanticipated obstacles including regulatory hurdles, and scientific or
technical challenges, which could have the effect of reducing their ability to
generate revenues and pay us royalties.
We depend on key personnel for our
continued operations and future success, and a loss of certain key personnel
could significantly hinder our ability to move forward with our business
plan. Because of the specialized nature of our business, we are highly
dependent on our ability to identify, hire, train and retain highly qualified
scientific and technical personnel for the research and development activities
we conduct or sponsor. The loss of one or more certain key executive officers,
or scientific officers, would be significantly detrimental to us. In addition,
recruiting and retaining qualified scientific personnel to perform research and
development work is critical to our success. Our anticipated growth and
expansion into areas and activities requiring additional expertise, such as
clinical testing, regulatory compliance, manufacturing and marketing, will
require the addition of new management personnel and the development of
additional expertise by existing management personnel. There is intense
competition for qualified personnel in the areas of our present and planned
activities, and there can be no assurance that we will be able to continue to
attract and retain the qualified personnel necessary for the development of our
business. The failure to attract and retain such personnel or to develop such
expertise would adversely affect our business.
Our credibility as a business
operating in the field of human embryonic stem cells is largely dependent upon
the support of our Ethics Advisory Board. Because the use of human
embryonic stem cells gives rise to ethical, legal and social issues, we have
instituted an Ethics Advisory Board. Our Ethics Advisory Board is made up of
highly qualified individuals with expertise in the field of human embryonic stem
cells. We cannot assure you that these members will continue to serve on our
Ethics Advisory Board, and the loss of any such member may affect the
credibility and effectiveness of the Board. As a result, our business may be
materially harmed in the event of any such loss.
40
Our insurance policies may be
inadequate and potentially expose us to unrecoverable risks. We have
limited director and officer insurance and commercial insurance policies. Any
significant insurance claims would have a material adverse effect on our
business, financial condition and results of operations. Insurance availability,
coverage terms and pricing continue to vary with market conditions. We endeavor
to obtain appropriate insurance coverage for insurable risks that we identify,
however, we may fail to correctly anticipate or quantify insurable risks, we may
not be able to obtain appropriate insurance coverage, and insurers may not
respond as we intend to cover insurable events that may occur. We have observed
rapidly changing conditions in the insurance markets relating to nearly all
areas of traditional corporate insurance. Such conditions have resulted in
higher premium costs, higher policy deductibles, and lower coverage limits. For
some risks, we may not have or maintain insurance coverage because of cost or
availability.
We have no product liability
insurance, which may leave us vulnerable to future claims we will be unable to
satisfy. The testing, manufacturing, marketing and sale of human
therapeutic products entail an inherent risk of product liability claims, and we
cannot assure you that substantial product liability claims will not be asserted
against us. We have no product liability insurance. In the event we are forced
to expend significant funds on defending product liability actions, and in the
event those funds come from operating capital, we will be required to reduce our
business activities, which could lead to significant losses.
We cannot assure you that adequate
insurance coverage will be available in the future on acceptable terms, if at
all, or that, if available, we will be able to maintain any such insurance at
sufficient levels of coverage or that any such insurance will provide adequate
protection against potential liabilities. Whether or not a product liability
insurance policy is obtained or maintained in the future, any product liability
claim could harm our business or financial condition.
We presently have members of
management and other key employees located in various locations throughout the
country which adds complexities to the operation of the business.
Presently, we have members of management and other key employees located
in both California and Massachusetts, which adds complexities to the operation
of our business.
We face risks related to compliance
with corporate governance laws and financial reporting standards. The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations
implemented by the Securities and Exchange Commission and the Public Company
Accounting Oversight Board, require changes in the corporate governance
practices and financial reporting standards for public companies. These new
laws, rules and regulations, including compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 relating to internal control over financial
reporting, referred to as Section 404, have materially increased our legal
and financial compliance costs and made some activities more time-consuming and
more burdensome.
Risks
Relating to Our Common Stock
Stock prices for biotechnology
companies have historically tended to be very
volatile. Stock prices and trading volumes for
many biotechnology companies fluctuate widely for a number of reasons, including
but not limited to the following factors, some of which may be unrelated to
their businesses or results of operations:
41
|
|
-
|
Clinical
trial results,
|
|
|
-
|
The
amount of cash resources and ability to obtain additional
funding,
|
|
|
-
|
Announcements
of research activities, business developments, technological innovations
or new products by companies or their
competitors,
|
|
|
-
|
Entering
into or terminating strategic
relationships,
|
|
|
-
|
Changes
in government regulation,
|
|
|
-
|
Disputes
concerning patents or proprietary
rights,
|
|
|
-
|
Changes
in revenues or expense levels,
|
|
|
-
|
Public
concern regarding the safety, efficacy or other aspects of the products or
methodologies being developed,
|
|
|
-
|
Reports
by securities analysts,
|
|
|
-
|
Activities
of various interest groups or
organizations,
|
|
|
-
|
Media
coverage, and
|
|
|
-
|
Status
of the investment markets.
|
This
market volatility, as well as general domestic or international economic, market
and political conditions, could materially and adversely affect the market price
of our common stock and the return on your investment.
A significant number of shares of our
common stock have become available for sale and their sale could depress the
price of our common stock. In 2008, a significant number of our
outstanding securities that were previously restricted became eligible for sale
under Rule 144 of the Securities Act, and their sale will not be subject to
any volume limitations.
We may
also sell a substantial number of additional shares of our common stock in
connection with a private placement or public offering of shares of our common
stock (or other series or class of capital stock to be designated in the
future). The terms of any such private placement would likely require us to
register the resale of any shares of capital stock issued or issuable in the
transaction. We have also issued common stock to certain parties, such as
vendors and service providers, as payment for products and services. Under these
arrangements, we may agree to register the shares for resale soon after their
issuance. We may also continue to pay for certain goods and services with
equity, which would dilute your interest in the company.
Sales of
a substantial number of shares of our common stock under any of the
circumstances described above could adversely affect the market price for our
common stock and make it more difficult for you to sell shares of our common
stock at times and prices that you feel are appropriate.
42
We do not intend to pay cash
dividends on our common stock in the foreseeable future. Any payment of
cash dividends will depend upon our financial condition, results of operations,
capital requirements and other factors and will be at the discretion of our
board of directors. We do not anticipate paying cash dividends on our common
stock in the foreseeable future. Furthermore, we may incur additional
indebtedness that may severely restrict or prohibit the payment of
dividends.
Our common stock is subject to "penny
stock" regulations and restrictions on initial and secondary broker-dealer
sales. The Securities and Exchange Commission (SEC) has adopted
regulations which generally define "penny stock" to be any listed, trading
equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. Penny stocks
are subject to certain additional oversight and regulatory requirements. Brokers
and dealers affecting transactions in our common stock in many circumstances
must obtain the written consent of a customer prior to purchasing our common
stock, must obtain information from the customer and must provide disclosures to
the customer. These requirements may restrict the ability of broker-dealers to
sell our common stock and may affect your ability to sell your shares of our
common stock in the secondary market.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Our
headquarters are located in Worcester, Massachusetts, where we lease
approximately 14,000 square foot of office and laboratory facilities. The
monthly rent for this property is $20,271. We have the Worcester facility under
an eight year sub-lease which expires on April 30, 2010. We also lease
approximately 700 square feet of corporate office space in Santa Monica, CA. The
lease for our Santa Moncia office terminates on February 28, 2010. The monthly
rent for this space is $2,170.
Item
3. Legal Proceedings
Gary D. Aronson v. Advanced Cell
Technology, Inc., Superior Court of California, County of Alameda, Case No.
RG07348990. John S.
Gorton v. Advanced Cell Technology, Inc, Superior Court of California, County of
Alameda Case No. RG07350437. On October 1, 2007 Gary D. Aronson
brought suit against us with respect to a dispute over the interpretation of the
anti-dilution provisions of our warrants issued to Mr. Aronson on or about
September 14, 2005. John S. Gorton initiated a similar suit on October 10,
2007. The two cases have been consolidated. The plaintiffs allege that we
breached warrants to purchase securities issued by us to these individuals by
not timely issuing stock after the warrants were exercised, failing to issue
additional shares of stock in accordance with the terms of the warrants and
failing to provide proper notice of certain events allegedly triggering
Plaintiffs' purported rights to additional shares. Plaintiffs
assert monetary damages in excess of $14 million. Plaintiffs may
alternatively seek additional shares in the Company with a value potentially in
excess of $14 million, or may seek a combination of monetary damages and shares
in the Company. Plaintiffs also seek prejudgment interest and
attorney fees. Discovery is completed, but no conclusions have been
reached as to the potential exposure to us or whether we have liability. A trial
date has been set for March 22, 2010.
43
Alexandria Real Estate-79/96
Charlestown Navy Yard v.
Advanced Cell Technology, Inc. and Mytogen, Inc. (Suffolk County,
Massachusetts) : The Company and its subsidiary Mytogen, Inc. are
currently defending themselves against a civil action brought in Suffolk
Superior Court, No. 09-442-B, by their former landlord at 79/96 Thirteenth
Street, Charlestown, Massachusetts, a property vacated by us and Mytogen
effective May 31, 2008. In that action, Alexandria Real Estate-79/96 Charlestown
Navy Yard (“ARE”) is alleging that it has been unable to relet the premises and
therefore seeking rent for the vacated premises since September 2008.
Alexandria is also seeking certain clean-up and storage expenses. We are
defending against the suit, claiming that ARE had breached the covenant of quiet
enjoyment as of when Mytogen vacated, and that had ARE used reasonable diligence
in its efforts to secure a new tenant, it would have been more successful.
No trial date has been set.
Bristol Investment Fund, Ltd. as
Collateral Agent for the Holders of Certain Original Issue Discount Senior
Convertible Debentures v. Alexandria Real Estate—79/96 Charlestown Navy Yard,
LLC (Suffolk Superior Court). The Company has been named as a third party
defendant in this action, filed September 16, 2009, in which the plaintiff
alleges that Alexandria Real Estate (“Alexandria”) improperly charged a trustee
holding approximately $146,000 of funds in a Company account that Bristol
claimed as collateral. Alexandria brought a third party complaint against the
Company for indemnification.
Bristol Investment Fund, Ltd. and
Bristol Capital, LLC v. Advanced Cell Technology, Inc. and Mytogen, Inc.
(Supreme Court of the State of New York, County of New York): On March 9,
2009, plaintiffs filed a complaint and summons in the Supreme Court of the State
of New York, County of New York against the Company and its subsidiary Mytogen,
Inc. Plaintiffs’ complaint alleges, among other things, that the Company has
breached the terms of certain contracts with plaintiffs; namely, convertible
debentures and a consulting agreement. Plaintiffs seek preliminary and permanent
injunctive relief directing the Company to deliver to plaintiff Bristol
Investment Fund, Ltd. (“Bristol”) 2.5 million shares of its common stock,
declaring a conversion price of $0.02 for the convertible debentures held by
plaintiffs, and directing the Company to honor plaintiff’s future conversion
requests. Plaintiffs also seek compensatory damages in an amount to be
determined at trial, but alleged in the complaint to exceed $1.5 million. On May
1, 2009, the Company filed an answer to plaintiffs’ complaint. On May 13, 2009,
the Company filed a motion to stay the action and to compel arbitration of all
claims by Bristol. The court has not yet ruled on the Company’s motion to stay
the action and to compel arbitration. On or about September 16, 2009, plaintiffs
filed an order to show cause, seeking the issuance of a preliminary injunction
directing the Company to deliver to Bristol 2.5 shares of its common stock
pursuant to a convertible debenture and 47.4 million shares of its common
stock pursuant to common stock purchase warrants, declaring a
conversion price of $0.02 for the convertible debenture held by plaintiffs, and
enjoining or restraining the Company from issuing shares of its common stock to
any entity other than plaintiffs or the other holders of convertible debentures.
On September 25, 2009, the Company submitted its response in opposition to
plaintiffs’ motion and moved by cross-motion for dismissal of the complaint,
based on the terms of the consent, waiver, amendment and exchange agreement
entered into between the Company and the holders of over 95% of the outstanding
principal amount of the Amended and Restated Debentures. The court has not yet
ruled on the respective motions. The Company intends to continue to contest the
case vigorously.
Item
4. [Reserved]
Not
applicable.
44
PART
II
Item
5. Market for the Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market
Information
Our
common stock is quoted on the OTCBB under the symbol "ACTC.OB." For the periods
indicated, the following table sets forth the high and low bid prices per share
of our common stock. These prices represent inter-dealer quotations without
retail markup, markdown, or commission and may not necessarily represent actual
transactions.
|
High
|
Low
|
|||||||
|
Fiscal Year 2008
|
Bid
|
Bid
|
||||||
|
First
Quarter
|
$ | 0.25 | $ | 0.14 | ||||
|
Second
Quarter
|
$ | 0.13 | $ | 0.06 | ||||
|
Third
Quarter
|
$ | 0.07 | $ | 0.01 | ||||
|
Fourth
Quarter
|
$ | 0.05 | $ | 0.02 | ||||
|
High
|
Low
|
|||||||
|
Fiscal Year 2009
|
Bid
|
Bid
|
||||||
|
First
Quarter
|
$ | 0.29 | $ | 0.04 | ||||
|
Second
Quarter
|
$ | 0.27 | $ | 0.10 | ||||
|
Third
Quarter
|
$ | 0.24 | $ | 0.12 | ||||
|
Fourth
Quarter
|
$ | 0.13 | $ | 0.09 | ||||
Trades of our common stock are subject
to Rule 15g-9 of the Securities and Exchange Commission, known as the Penny
Stock Rule. This rule imposes requirements on broker/dealers who sell securities
subject to the rule to persons other than established customers and accredited
investors. For transactions covered by the rule, brokers/dealers must make a
special suitability determination for purchasers of the securities and receive
the purchaser's written agreement to the transaction prior to sale. The
Securities and Exchange Commission also has rules that regulate broker/dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00, other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in that security is provided by the exchange or system. The
Penny Stock Rules requires a broker/dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker/dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker/dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. These disclosure requirements have the effect
of reducing the level of trading activity in the secondary market for our common
stock. As a result of these rules, investors may find it difficult to sell their
shares.
Holders
As of March 12, 2010, there were
approximately 214 shareholders of record of our common stock.
45
Dividends
We have never paid cash dividends and
have no plans to do so in the foreseeable future. Our future dividend policy
will be determined by our board of directors and will depend upon a number of
factors, including our financial condition and performance, our cash needs and
expansion plans, income tax consequences, and the restrictions that applicable
laws, our current preferred stock instruments, and our future credit
arrangements may then impose.
Currently under Delaware law, unless
further restricted in its certificate of incorporation, a corporation may
declare and pay dividends out of surplus, or if no surplus exists, out of net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year (provided that the amount of capital of the corporation is
not less than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets).
Securities Authorized for
Issuance Under Equity Compensation Plans
The
following table shows information with respect to each equity compensation plan
under which the Company's common stock is authorized for issuance as of the
fiscal year ended December 31, 2009.
EQUITY
COMPENSATION PLAN INFORMATION
|
Plan Category
|
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
|
Number of
securities
remaining
available for
issuance
under equity
complensation
plans
(excluding
securities
reflected in
column (a))
|
|||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Equity
compensation plans approved by security holders
|
28,486,119 | (1) | $ | 0.32 | 119,826,292 | (2) | ||||||
|
Equity
compensation plans not approved by security holders
|
5,930,391 | 0.50 | - | |||||||||
|
Total
|
34,416,510 | 0.35 | 119,826,292 | |||||||||
|
(1)
|
Awards
for 2,492,000 options have been issued under the Advanced Cell Technology,
Inc. 2004 Stock Option Plan I ("2004 Plan 1"), 1,301,161 options have been
issued under the Advanced Cell Technology, Inc. 2004 Stock Option Plan II
("2004 Plan 2" and together with the 2004 Plan I, the "2004 ACT Plans"),
and 26,594,958 options have been issued under the 2005 Stock
Plan.
|
46
|
(2)
|
This
number included 370,000 shares available under the 2004 Plan I, 230,000
shares available under the 2004 Plan II, and 119,226,292 shares
available under the 2005 Stock
Plan.
|
Recent
Sales of Unregistered Securities; Uses of Proceeds From Registered
Securities
Recent
Sales of Unregistered Securities
None.
Use
of Proceeds from Registered Securities
Not
Applicable.
Item
6. Selected Financial Data
|
For
the Year Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(restated)
|
(restated)
|
|||||||||||||||||||
|
Revenue
|
$ | 1,415,979 | $ | 787,106 | $ | 647,349 | $ | 440,842 | $ | 395,007 | ||||||||||
|
Net
loss
|
(36,758,208 | ) | (33,903,513 | ) | (15,898,725 | ) | (16,861,789 | ) | (9,393,778 | ) | ||||||||||
|
Net
loss per common share:
|
||||||||||||||||||||
|
Basic
|
$ | (0.07 | ) | $ | (0.14 | ) | $ | (0.26 | ) | $ | (0.58 | ) | $ | (0.43 | ) | |||||
|
Diluted
|
$ | (0.07 | ) | $ | (0.14 | ) | $ | (0.26 | ) | $ | (0.58 | ) | $ | (0.43 | ) | |||||
|
As
of December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
(restated)
|
(restated)
|
|||||||||||||||||||
|
Total
assets
|
$ | 5,088,008 | $ | 2,577,778 | $ | 8,607,045 | $ | 16,989,718 | $ | 18,074,316 | ||||||||||
|
Long-term
debt:
|
||||||||||||||||||||
|
2005
Convertible debenture and embedded derivatives, net of
discounts
|
$ | - | $ | 85,997 | $ | 1,276,871 | $ | 10,466,735 | $ | 14,148,465 | ||||||||||
|
2006
Convertible debenture and embedded derivative, fair value
|
- | 1,993,354 | 3,047,491 | 13,238,476 | - | |||||||||||||||
|
2007
Convertible debenture and embedded derivatives, fair value
|
- | 7,706,344 | 3,482,542 | - | - | |||||||||||||||
|
2008
Convertible debenture and embedded derivatives, fair value
|
- | 4,066,505 | - | - | - | |||||||||||||||
|
Convertible
promissory notes and embedded derivatives, fair value
|
- | 1,757,470 | - | - | - | |||||||||||||||
|
Amended
and restated convertible debentures, net of discounts
|
7,605,107 | - | - | - | - | |||||||||||||||
|
Convertible
promissory notes, net of discounts
|
744,417 | - | - | - | - | |||||||||||||||
|
2009
Convertible promissory notes, net of discounts
|
281,271 | - | - | - | - | |||||||||||||||
|
Total
Long-term debt
|
$ | 8,630,795 | $ | 15,609,670 | $ | 7,806,904 | $ | 23,705,211 | $ | 14,148,465 | ||||||||||
|
Redeemable
preferred stock
|
$ | 908,195 | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
Cash
dividends delcared per common share
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Certain
statements in this annual report on Form 10-K that are not historical in fact
constitute “forward-looking statements.” Words such as, but not limited to,
“believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors based on the Company’s estimates and expectations concerning
future events that may cause the actual results of the Company to be materially
different from historical results or from any results expressed or implied by
such forward-looking statements. These risks and uncertainties, as well as the
Company’s critical accounting policies, are discussed in more detail under
“Management’s Discussion and Analysis—Critical Accounting Policies” and in
periodic filings with the Securities and Exchange Commission. The Company
undertakes no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or
otherwise.
47
You
should read the following discussion of our financial condition and results of
operations together with the audited financial statements and the notes to the
audited financial statements included in this annual report. This discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results may differ materially from those anticipated in
these forward-looking statements.
Executive
Level Overview
We are a
biotechnology company focused on developing and commercializing human stem cell
technology in the emerging fields of regenerative medicine and stem cell
therapy.
Critical
Accounting Estimates
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of any contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. We regularly review our estimates and assumptions,
which are based upon historical experience, as well as current economic
conditions and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of certain assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates and
assumptions.
We
believe that the following critical accounting policies are affected by
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Fair Value
Measurements — For certain financial instruments, including accounts
receivable, accounts payable, accrued expenses, interest payable, advances
payable and notes payable, the carrying amounts approximate fair value due to
their relatively short maturities.
On
January 1, 2008, we adopted ASC 820-10, “Fair Value Measurements and
Disclosures.” ASC 820-10 defines fair value, and establishes a
three-level valuation hierarchy for disclosures of fair value measurement that
enhances disclosure requirements for fair value measures. The carrying amounts
reported in the consolidated balance sheets for receivables and current
liabilities each qualify as financial instruments and are a reasonable estimate
of their fair values because of the short period of time between the origination
of such instruments and their expected realization and their current market rate
of interest. The three levels of valuation hierarchy are defined as
follows:
|
|
·
|
Level
1 inputs to the valuation methodology are quoted prices for identical
assets or liabilities in active
markets.
|
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
48
We
analyze all financial instruments with features of both liabilities and equity
under ASC 480, “Distinguishing
Liabilities From Equity” and ASC 815, “Derivatives and Hedging.”
Derivative liabilities are adjusted to reflect fair value at each period end,
with any increase or decrease in the fair value being recorded in results of
operations as adjustments to fair value of derivatives. The effects of
interactions between embedded derivatives are calculated and accounted for in
arriving at the overall fair value of the financial instruments. In addition,
the fair values of freestanding derivative instruments such as warrant and
option derivatives are valued using the Black-Scholes model.
We did
not identify any other non-recurring assets and liabilities that are required to
be presented in the consolidated balance sheets at fair value in accordance with
ASC 815.
Revenue
Recognition— Our revenues are generated from license and research
agreements with collaborators. Licensing revenue is recognized on a
straight-line basis over the shorter of the life of the license or the estimated
economic life of the patents related to the license. License fee revenue begins
to be recognized in the first full month following the effective date of the
license agreement. Deferred revenue represents the portion of the license and
other payments received that has not been earned. Costs associated with the
license revenue are deferred and recognized over the same term as the revenue.
Reimbursements of research expense pursuant to grants are recorded in the period
during which collection of the reimbursement becomes assured, because the
reimbursements are subject to approval.
Stock Based
Compensation— We record stock-based compensation in accordance with ASC
718, “Compensation – Stock Compensation.” ASC 718 requires companies
to measure compensation cost for stock-based employee compensation at fair value
at the grant date and recognize the expense over the employee’s requisite
service period. We recognize in the statement of operations the grant-date fair
value of stock options and other equity-based compensation issued to employees
and non-employees.
Recent
Accounting Pronouncements
In
September 2008, the FASB issued new accounting guidance regarding credit
derivatives and certain guarantees. This guidance, found under ASC 815,
Derivatives and Hedging, applies to credit derivatives within the scope of the
guidance, hybrid instruments that have embedded credit derivatives, and
guarantees within the scope of the guidance. This guidance is effective for
reporting periods (annual or interim) ending after November 15, 2008. The impact
of the adoption of this guidance was not significant to our consolidated
financial statements.
In
April 2009, the FASB issued new accounting guidance regarding business
combinations. This guidance, found under ASC 805, Business Combinations, amends
the guidance relating to the initial recognition and measurement, subsequent
measurement and accounting and disclosures of assets and liabilities arising
from contingencies in a business combination. This guidance is effective for
fiscal years beginning after December 15, 2008. We adopted this guidance as
of the beginning of fiscal 2009. We will apply the requirements of this guidance
prospectively to any future acquisitions.
49
On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168, “The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC
registrants, guidance issued by the SEC. The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC. The
Codification is amended to effect non-SEC changes to authoritative
GAAP. Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the consolidated financial
statements.
In August
2009, the FASB issued Accounting Standards Update 2009-05, Fair Value
Measurements and Disclosures (ASC 820) Measuring Liabilities at Fair Value. This
guidance clarifies that in circumstances in which a quoted price in an active
market for an identical liability is not available, a reporting entity is
required to measure fair value of such liability using one or more of the of the
techniques prescribed by the update. This guidance is effective for the first
reporting period beginning after issuance, which is the period ending December
31, 2009. The impact of the adoption of this guidance was not
significant to our consolidated financial statements.
In
October 2009, the FASB issued an Accounting Standards Update
("ASU") regarding accounting for own-share lending arrangements in
contemplation of convertible debt issuance or other financing. This
ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. We are
currently evaluating the impact of this ASU on our consolidated financial
statements.
On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements”. This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting. The adoption of this ASU will not have a material impact
on our consolidated financial statements.
50
Comparison
of the Years Ended December 31, 2009 and 2008
|
2009
|
2008
|
|||||||||||||||
|
%
of
|
%
of
|
|||||||||||||||
|
Amount
|
Revenue
|
Amount
|
Revenue
|
|||||||||||||
|
Revenue
|
$ | 1,415,979 | 100.0 | % | $ | 787,106 | 100.0 | % | ||||||||
|
Cost
of Revenue
|
500,899 | 35.4 | % | 765,769 | 97.3 | % | ||||||||||
|
Gross
profit
|
915,080 | 64.6 | % | 21,337 | 2.7 | % | ||||||||||
|
Research
and development expenses and Grant reimbursements
|
3,394,700 | 239.7 | % | 8,530,408 | 1083.8 | % | ||||||||||
|
General
and administrative expenses
|
3,439,085 | 242.9 | % | 5,009,418 | 636.4 | % | ||||||||||
|
Loss
on settlement of litigation
|
4,903,949 | 346.3 | % | 5,436,137 | 690.6 | % | ||||||||||
|
Non-operating
income (expense):
|
(25,935,554 | ) | -1831.6 | % | (14,948,887 | ) | -1899.2 | % | ||||||||
|
Net
loss
|
$ | (36,758,208 | ) | -2596.0 | % | $ | (33,903,513 | ) | -4307.4 | % | ||||||
Revenues
Revenues
relate to license fees and royalties collected that are being amortized over the
period of the license granted, and are therefore typically consistent between
periods. The increase in revenue during the year ended December 31, 2009, was
due to more new licenses being granted as compared to the year ended December
31, 2008 as well as license agreements that were terminated in 2009 that were
recognized in 2009 revenue. During 2009, we recognized approximately $382,000 in
license fee revenue for licenses that were terminated in 2009. Further, we
received $3,600,000 in license fees in 2009, and of that we recognized an
additional $231,000 in license fee revenues during the year ended December 31,
2009 as compared with 2008. We expect that our collaboration efforts with CHA
Biotech in the SCRMI joint venture will provide us valuable opportunities to
develop and license our technologies.
Research
and Development Expenses and Grant Reimbursements
Research
and development expenses (“R&D”) consists mainly of facility costs, payroll
and payroll related expenses, research supplies and costs incurred in connection
with specific research grants, and for scientific research. R&D
expenditures declined from $8,635,577 in 2008 to $3,531,540 for
2009. The decline in R&D expenditures during the 2009 as compared
to 2008 is primarily due to the fact that we closed our Charlestown,
Massachusetts and Alameda, California facilities at the end of May 2008 and that
we laid off a majority of our employees.
Our
research and development expenses consist primarily of costs associated with
basic and pre-clinical research exclusively in the field of human stem cell
therapies and regenerative medicine, with focus on development of our
technologies in cellular reprogramming, reduced complexity applications, and
stem cell differentiation. These expenses represent both pre-clinical
development costs and costs associated with non-clinical support activities such
as quality control and regulatory processes. The cost of our research and
development personnel is the most significant category of expense; however, we
also incur expenses with third parties, including license agreements, sponsored
research programs and consulting expenses.
51
We do not
segregate research and development costs by project because our research is
focused exclusively on human stem cell therapies as a unitary field of study.
Although we have three principal areas of focus for our research, these areas
are completely intertwined and have not yet matured to the point where they are
separate and distinct projects. The intellectual property, scientists and other
resources dedicated to these efforts are not separately allocated to individual
projects, but rather are conducting our research on an integrated
basis.
We expect
that research and development expenses will increase in the foreseeable future
as we add personnel, expand our pre-clinical research, begin clinical trial
activities, and increase our regulatory compliance capabilities. The amount of
these increases is difficult to predict due to the uncertainty inherent in the
timing and extent of progress in our research programs, and initiation of
clinical trials. In addition, the results from our basic research and
pre-clinical trials, as well as the results of trials of similar therapeutics
under development by others, will influence the number, size and duration of
planned and unplanned trials. As our research efforts mature, we will continue
to review the direction of our research based on an assessment of the value of
possible commercial applications emerging from these efforts. Based on this
continuing review, we expect to establish discrete research programs and
evaluate the cost and potential for cash inflows from commercializing products,
partnering with others in the biotechnology or pharmaceutical industry, or
licensing the technologies associated with these programs to third
parties.
We
believe that it is not possible at this stage to provide a meaningful estimate
of the total cost to complete our ongoing projects and bring any proposed
products to market. The use of human embryonic stem cells as a therapy is an
emerging area of medicine, and it is not known what clinical trials will be
required by the FDA in order to gain marketing approval. Costs to complete could
vary substantially depending upon the projects selected for development, the
number of clinical trials required and the number of patients needed for each
study. It is possible that the completion of these studies could be delayed for
a variety of reasons, including difficulties in enrolling patients, delays in
manufacturing, incomplete or inconsistent data from the pre-clinical or clinical
trials, and difficulties evaluating the trial results. Any delay in completion
of a trial would increase the cost of that trial, which would harm our results
of operations. Due to these uncertainties, we cannot reasonably estimate the
size, nature nor timing of the costs to complete, or the amount or timing of the
net cash inflows from our current activities. Until we obtain further relevant
pre-clinical and clinical data, we will not be able to estimate our future
expenses related to these programs or when, if ever, and to what extent we will
receive cash inflows from resulting products.
General
and Administrative Expenses
General
and administrative expenses for 2009 compared to 2008 decreased by $1,570,333 to
$3,439,085 in 2009. This expense decrease was primarily a result of management’s
efforts to reduce costs and streamline operations so that we could move closer
to achieving profitability. General and administrative expenses
should continue to slightly decrease over the short term as we continue to
streamline our operations. We expect that with the successful IND submission of
our core technologies and a rebound of the U.S. and world economy there will
come additional opportunities for growth and capital.
Loss
on Settlement of Litigation
In 2008,
we settled $603,474 in accounts payable through the issuance of 220,735,436
shares of our common stock. In 2009, we settled $505,199 in accounts payable
through the issuance of 39,380,847 shares of our common stock. We recorded a
loss on settlement of $4,793,949 and $5,436,137 in our accompanying statements
of operations for the years ended December 31, 2009 and 2008,
respectively.
52
On June
30, 2009, an investor submitted a conversion notice in the principal amount of
$150,000 into 7,500,000 shares of common stock at $0.02 per share. At that time,
we did not have sufficient authorized shares to satisfy this conversion notice.
On July 6, 2009, by means of a settlement between the two parties, we agreed to
deliver the 7,500,000 shares of our common stock no later than September 25,
2009. We delivered the 7,500,000 shares on September 25, 2009.
Further, we agreed to provide the investor with an additional $110,000
principal, which is to be upon the same terms and conditions as the original
2008 debenture. Accordingly, we recognized a loss on settlement in the amount of
$110,000 during the year ended December 31, 2009.
Other
Income (Expense)
Other
income (expense), net, for 2009 and 2008 was ($25,935,554) and ($14,948,887),
respectively. The change of ($10,986,667) is primarily due to the $38,517,692
loss on extinguishment of convertible debentures and note, offset by the
decrease in the adjustments to fair value of derivatives of 23,103,668 also by
interest expense of $10,86,498 as compared to $26,614,761 in 2008.
Interest
expense including late fees was $9,190,807 and $26,614,761, for the years ended
2009 and 2008, respectively. The decrease in interest expense is due
to the additional debt that was issued in 2008 and the late fees incurred as we
did not issue shares to convert the debt to equity and we do not have the cash
to pay down the notes. Further, the interest expense in 2008 was greater than in
2009 because we amortized remaining debt discounts on all outstanding debentures
as a result of our default on August 6, 2008.
The gain
on the fair value of derivatives was $23,103,668 and $13,082,247, for the years
ended 2009 and 2008, respectively. The decline in our share price in
2007 and 2008 contributed most significantly to the gain on the fair value of
derivatives, as well as issuance of new debt and warrants during 2009. In
periods when the share price declines, the derivative securities become less
attractive to exercise or out-of-the-money, and therefore the value of the
derivative liabilities declines.
53
Comparison
of the Years Ended December 31, 2008 and 2007
|
2008
|
2007
|
|||||||||||||||
|
%
of
|
%
of
|
|||||||||||||||
|
Amount
|
Revenue
|
Amount
|
Revenue
|
|||||||||||||
|
Revenue
|
$ | 787,106 | 55.6 | % | $ | 647,349 | 82.2 | % | ||||||||
|
Cost
of Revenue
|
765,769 | 54.1 | % | 428,913 | 54.5 | % | ||||||||||
|
Gross
profit
|
21,337 | 1.5 | % | 218,436 | 27.8 | % | ||||||||||
|
Research
and development expenses and Grant reimbursements
|
8,530,408 | 602.4 | % | 16,772,470 | 2130.9 | % | ||||||||||
|
General
and administrative expenses
|
5,009,418 | 353.8 | % | 6,781,705 | 861.6 | % | ||||||||||
|
(Gain)
loss on settlement of litigation
|
5,436,137 | 383.9 | % | (193,862 | ) | -24.6 | % | |||||||||
|
Non-operating
income (expense):
|
(14,948,887 | ) | -1055.7 | % | 7,243,152 | 920.2 | % | |||||||||
|
Net
loss
|
$ | (33,903,513 | ) | -2394.4 | % | $ | (15,898,725 | ) | -2019.9 | % | ||||||
Revenues
Revenues
relate to license fees and royalties collected that are being amortized over the
period of the license granted, and are therefore typically consistent between
periods. The increase in revenue during the year ended December 31, 2008, was
due to more new licenses being granted as compared to the year ended December
31, 2007. We received approximately $3,500,000 in license fees in 2008, and of
that we recognized just $300,000 in license fee revenues during the year ended
December 31, 2008. We also received an additional $1,500,000 from Transition
Holdings, Inc. as license fee revenue in the first quarter 2009. We expect that
our collaboration efforts with CHA Biotech in the SCRMI joint venture will
provide us valuable opportunities to develop and license our
technologies.
Research
and Development Expenses and Grant Reimbursements
Research
and development expenses (“R&D”) consists mainly of facility costs, payroll
and payroll related expenses, research supplies and costs incurred in connection
with specific research grants, and for scientific research. R&D
expenditures declined from $16,839,649 in 2007 to $8,635,577 for
2008. The decline in R&D expenditures during the 2008 as compared
to 2007 is primarily due to the fact that we closed our Charlestown,
Massachusetts and Alameda, California facilities at the end of May
2008.
Our
research and development expenses consist primarily of costs associated with
basic and pre-clinical research exclusively in the field of human stem cell
therapies and regenerative medicine, with focus on development of our
technologies in cellular reprogramming, reduced complexity applications, and
stem cell differentiation. These expenses represent both pre-clinical
development costs and costs associated with non-clinical support activities such
as quality control and regulatory processes. The cost of our research and
development personnel is the most significant
category of expense; however, we also incur expenses with third parties,
including license agreements, sponsored research programs and consulting
expenses.
54
We do not
segregate research and development costs by project because our research is
focused exclusively on human stem cell therapies as a unitary field of study.
Although we have three principal areas of focus for our research, these areas
are completely intertwined and have not yet matured to the point where they are
separate and distinct projects. The intellectual property, scientists and other
resources dedicated to these efforts are not separately allocated to individual
projects, but rather are conducting our research on an integrated
basis.
We expect
that research and development expenses will increase in the foreseeable future
as we add personnel, expand our pre-clinical research, begin clinical trial
activities, and increase our regulatory compliance capabilities. The amount of
these increases is difficult to predict due to the uncertainty inherent in the
timing and extent of progress in our research programs, and initiation of
clinical trials. In addition, the results from our basic research and
pre-clinical trials, as well as the results of trials of similar therapeutics
under development by others, will influence the number, size and duration of
planned and unplanned trials. As our research efforts mature, we will continue
to review the direction of our research based on an assessment of the value of
possible commercial applications emerging from these efforts. Based on this
continuing review, we expect to establish discrete research programs and
evaluate the cost and potential for cash inflows from commercializing products,
partnering with others in the biotechnology or pharmaceutical industry, or
licensing the technologies associated with these programs to third
parties.
We
believe that it is not possible at this stage to provide a meaningful estimate
of the total cost to complete our ongoing projects and bring any proposed
products to market. The use of human embryonic stem cells as a therapy is an
emerging area of medicine, and it is not known what clinical trials will be
required by the FDA in order to gain marketing approval. Costs to complete could
vary substantially depending upon the projects selected for development, the
number of clinical trials required and the number of patients needed for each
study. It is possible that the completion of these studies could be delayed for
a variety of reasons, including difficulties in enrolling patients, delays in
manufacturing, incomplete or inconsistent data from the pre-clinical or clinical
trials, and difficulties evaluating the trial results. Any delay in completion
of a trial would increase the cost of that trial, which would harm our results
of operations. Due to these uncertainties, we cannot reasonably estimate the
size, nature nor timing of the costs to complete, or the amount or timing of the
net cash inflows from our current activities. Until we obtain further relevant
pre-clinical and clinical data, we will not be able to estimate our future
expenses related to these programs or when, if ever, and to what extent we will
receive cash inflows from resulting products.
General
and Administrative Expenses
General
and administrative expenses for 2008 compared to 2007 decreased by $1,772,287 to
$5,009,418 in 2008. This expense decrease was primarily a result of management’s
efforts to reduce costs and streamline operations so that we could move closer
to achieving profitability. General and administrative expenses
should continue to slightly decrease over the short term as we continue to
streamline our operations and reduce our costs until we are able to
expand.
Loss
on Settlement of Litigation
In 2008,
we settled $603,474 in accounts payable through the issuance of 220,735,436
shares of our common stock. We recorded a loss on settlement of $5,436,137 in
our accompanying statement of operations for the year ended December 31, 2008.
In 2007, we recognized a gain on settlement in the amount of
$193,862.
55
Other
Income (Expense)
Other
income (expense), net, for 2008 and 2007 was ($20,385,024) and $7,437,014,
respectively. The change of ($27,822,038) is primarily due to the increase in
interest expense, the decrease in the adjustments to fair value of derivatives
and the loss on settlement of debt.
The
interest expense including late fees was $26,614,761 and $21,023,663, for the
years ended 2008 and 2007, respectively. The increase in interest
expense is due to the additional debt that was issued and the late fees incurred
as we have not issued shares to convert the debt to equity and we do not have
the cash to pay down the notes. Further, the interest expense in 2008 was
greater than in 2007 because we amortized remaining debt discounts on all
outstanding debentures as a result of our default on August 6,
2008.
The gain
on the fair value of derivatives was $13,082,247 and $32,835,057, for the years
ended 2008 and 2007, respectively. The decline in our share price in
2007 and 2008 contributed most significantly to the gain on the fair value of
derivatives. In periods when the share price declines, the derivative securities
become less attractive to exercise or out-of-the-money, and therefore the value
of the derivative liabilities declines.
During
the year ended 2008, we had a loss of $5,436,137 related to debt settlement
compared to a gain of $193,862 during the year ended 2007. Between
September 29, 2008 and January 20, 2009, the Company settled certain past due
accounts payable by the issuance of shares of its common stock. In aggregate,
the Company settled $1,108,673 in accounts payable through the issuance of
260,116,283 shares of its common stock. A loss of $4,695,289 was recorded
related to the settlement of this debt during the year ended December 31, 2008
related to the settlement of these payable balances.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows
The
following table sets forth a summary of our cash flows for the periods indicated
below:
|
2009
|
2008
|
2007
|
||||||||||
|
Net
cash used in operating activities
|
$ | (5,142,778 | ) | $ | (2,964,820 | ) | $ | (16,031,464 | ) | |||
|
Net
cash used in investing activities
|
(7,538 | ) | (174,514 | ) | (139,873 | ) | ||||||
|
Net
cash provided by financing activities
|
6,872,250 | 2,790,122 | 8,648,117 | |||||||||
|
Net
decrease in cash and cash equivalents
|
1,721,934 | (349,212 | ) | (7,523,220 | ) | |||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 2,538,838 | $ | 816,904 | $ | 1,166,116 | ||||||
Cash used
in operating activities changed from $2,964,820 in 2008 to $5,142,778 in 2009.
The decrease is primarily attributable to the fact that we closed 2 facilities
in May 2008 and have correspondingly reduced our operating costs. Cash used in
operating activities in 2007 was $16,031,464. The primary difference between
2007 and 2008 is cash used to fund operations during 2007.
Cash used
in investing activities was minimal in 2009, 2008 and 2007, and primarily
consisted of purchases of property and equipment.
Cash
generated by financing activities in 2009, 2008 and 2007 arose from proceeds
from new convertible debt and preferred stock that we successfully
raised.
56
We plan
to fund our operations for the next twelve months primarily from the following
financings:
|
|
·
|
During
2009 and the first quarter of 2010, we received $3,120,000 from our
convertible promissory note financings with JMJ Financial. As of December
31, 2009, $2,880,000 remain available to
us.
|
|
|
·
|
During
2009 and the first quarter of 2010, we received $3,483,000 from a
convertible debenture issuance. The convertible debenture contains an
Additional Investment Right that allows the Company to an additional
$3,483,000 in funding.
|
|
|
·
|
During
2009, we received $2,588,000 from the issuance of a Series A-1 convertible
preferred stock credit facility. We received an additional $283,000 in the
first quarter 2010. The facility allows for a maximum placement of
$5,000,000.
|
|
|
·
|
During
2009, we entered into a Series B preferred stock agreement that allows for
an aggregate purchase price of $10,000,000. As of December 31, 2009, we
had not received any proceeds from this
financing.
|
|
|
·
|
We
continue to repay our debt financings in shares of common stock, enabling
us to use our cash resources to fund our
operations.
|
On a
longer term basis, we have no expectation of generating any meaningful revenues
from our product candidates for a substantial period of time and will rely on
raising funds in capital transactions to finance our research and development
programs. Our future cash requirements will depend on many factors,
including the pace and scope of our research and development programs, the costs
involved in filing, prosecuting and enforcing patents, and other costs
associated with commercializing our potential products. We intend to seek
additional funding primarily through public or private financing transactions,
and, to a lesser degree, new licensing or scientific collaborations, grants from
governmental or other institutions, and other related transactions. If we
are unable to raise additional funds, we will be forced to either scale back or
business efforts or curtail our business activities entirely. We
anticipate that our available cash and expected income will be sufficient to
finance most of our current activities for at least four months from the date we
file these financial statements, although certain of these activities and
related personnel may need to be reduced. We cannot assure you that public
or private financing or grants will be available on acceptable terms, if at
all. Several factors will affect our ability to raise additional funding,
including, but not limited to, the volatility of our Common Stock.
Contractual
Obligations
At
December 31, 2009, our significant contractual obligations were as
follows:
|
Payments due by Period
|
||||||||||||||||||||
|
Less
than
|
One
to
|
Three
to
|
More
Than
|
|||||||||||||||||
|
One Year
|
Three Years
|
Five Years
|
Five Years
|
Total
|
||||||||||||||||
|
Operating
lease obligations
|
164,165 | 311,943 | 318,210 | 80,878 | 875,196 | |||||||||||||||
|
Total
|
$ | 164,165 | $ | 311,943 | $ | 318,210 | $ | 80,878 | $ | 875,196 | ||||||||||
Off-Balance
Sheet Arrangements
We do not
maintain any off-balance sheet arrangements, transactions, obligations or other
relationships with unconsolidated entities that would be expected to have a
material current or future effect upon our financial condition or results of
operations.
57
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
Our
exposure to market risk is limited primarily to interest income sensitivity,
which is affected by changes in the general level of U.S. interest rates,
particularly because a significant portion of our investments are in short-term
debt securities issued by the U.S. government and institutional money market
funds. The primary objective of our investment activities is to preserve
principal. Due to the nature of our marketable securities, we believe that we
are not exposed to any material market risk. We do not have any
derivative financial instruments or foreign currency instruments. If interest
rates had varied by 10% in the year ended December 31, 2009, it would not have
had a material effect on our results of operations or cash flows for that
period.
58
Item
8. Financial Statements and Supplementary Data
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Advanced
Cell Technologies, Inc. and subsidiary
We have
audited the accompanying consolidated balance sheets of Advanced Cell
Technologies, Inc. and subsidiary as of December 31, 2009 and 2008, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended December 31,
2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Cell Technologies,
Inc. and subsidiary as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Advanced Cell Technologies, Inc. and
subsidiary’s internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated March 16, 2010 expressed an
unqualified opinion on the effectiveness of Advanced Cell Technologies, Inc. and
subsidiary’s internal control over financial reporting.
/s/
SingerLewak LLP
Los
Angeles, California
March 16,
2010
59
ADVANCED
CELL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2009 AND 2008
|
December
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 2,538,838 | $ | 816,904 | ||||
|
Accounts
receivable
|
- | 261,504 | ||||||
|
Prepaid
expenses
|
9,054 | 32,476 | ||||||
|
Deferred
royalty fees, current portion
|
91,598 | 182,198 | ||||||
|
Total
current assets
|
2,639,490 | 1,293,082 | ||||||
|
Property
and equipment, net
|
113,904 | 400,008 | ||||||
|
Investment
in joint venture
|
- | 225,200 | ||||||
|
Deferred
royalty fees, less current portion
|
386,689 | 659,488 | ||||||
|
Deposits
|
2,170 | - | ||||||
|
Deferred
issuance costs, net of amortization of $3,535,245, $8,666,387 and
$3,874,300
|
1,945,755 | - | ||||||
|
TOTAL
ASSETS
|
$ | 5,088,008 | $ | 2,577,778 | ||||
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable
|
$ | 6,172,881 | $ | 8,287,786 | ||||
|
Accrued
expenses
|
2,031,032 | 2,741,591 | ||||||
|
Accrued
default interest
|
- | 3,717,384 | ||||||
|
Deferred
revenue, current portion
|
805,926 | 834,578 | ||||||
|
Advances
payable, other
|
- | 130,000 | ||||||
|
2005
Convertible debenture and embedded derivatives, net of discounts of $0 and
$0
|
- | 85,997 | ||||||
|
2006
Convertible debenture and embedded derivatives (fair value $0
and $1,993,354 )
|
- | 1,993,354 | ||||||
|
2007
Convertible debenture and embedded derivatives (fair value $0 and
$7,706,344)
|
- | 7,706,344 | ||||||
|
2008
Convertible debenture and embedded derivatives (fair value $0
and $4,066,505)
|
- | 4,066,505 | ||||||
|
Convertible
promissory notes and embedded derivatives (fair value $0
and $1,757,470)
|
- | 1,757,470 | ||||||
|
Amended
and restated convertible debentures, current portion, net of discounts of
$585,088 and $0, respectively
|
7,605,107 | - | ||||||
|
Convertible
promissory notes, current portion, net of discounts of $905,973 and $0,
respectively
|
685,233 | - | ||||||
|
2009
Convertible promissory notes, current portion, net of discounts of
$1,599,073 and $0, respectively
|
246,893 | - | ||||||
|
Embedded
conversion option liabilities, current portion
|
6,772,200 | - | ||||||
|
Deferred
joint venture obligations, current portion
|
56,602 | 167,335 | ||||||
|
Short
term capital leases
|
- | 12,955 | ||||||
|
Notes
payable, other
|
- | 468,425 | ||||||
|
Total
current liabilities
|
24,375,874 | 31,969,724 | ||||||
|
Convertible
promissory notes, less current portion, net of discounts of $1,150,300 and
$0, respectively
|
59,184 | - | ||||||
|
2009
Convertible promissory notes, less current portion, net of disounts of
$222,656 and $0, respectively
|
34,378 | - | ||||||
|
Embedded
conversion option liabilities, less current portion
|
1,837,604 | - | ||||||
|
Warrant
derivative liabilities
|
18,168,597 | 2,655,849 | ||||||
|
Deferred
joint venture obligations, less current portion
|
6,870 | 63,473 | ||||||
|
Deferred
revenue, less current portion
|
5,780,389 | 3,817,716 | ||||||
|
Total
liabilities
|
50,262,896 | 38,506,762 | ||||||
|
|
||||||||
|
Redeemable
preferred stock, $0.001 par value; 50,000,000 shares
authorized,
|
||||||||
|
92
and 0 shares issued and outstanding; aggregate liquidation value, net of
discounts: $1,044,305 and $0, respectively
|
908,195 | - | ||||||
|
Commitments
and contingencies
|
||||||||
|
STOCKHOLDERS'
DEFICIT:
|
||||||||
|
Common
stock, $0.001par value; 1,750,000,000 shares authorized, 663,649,294 and
429,448,381 shares issued and outstanding
|
663,649 | 429,448 | ||||||
|
Additional
paid-in capital
|
79,829,080 | 53,459,172 | ||||||
|
Accumulated
deficit
|
(126,575,812 | ) | (89,817,604 | ) | ||||
|
Total
stockholders' deficit
|
(46,083,083 | ) | (35,928,984 | ) | ||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 5,088,008 | $ | 2,577,778 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
60
ADVANCED
CELL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
2009
|
2008
|
2007
|
||||||||||
|
(Restated)
|
||||||||||||
|
Revenue (License fees
and royalties)
|
$ | 1,415,979 | $ | 787,106 | $ | 647,349 | ||||||
|
Cost
of Revenue
|
500,899 | 765,769 | 428,913 | |||||||||
|
Gross
profit
|
915,080 | 21,337 | 218,436 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
3,531,540 | 8,635,577 | 12,744,913 | |||||||||
|
In-process
R&D expense - Mytogen
|
- | - | 4,094,736 | |||||||||
|
Grant
reimbursements
|
(136,840 | ) | (105,169 | ) | (67,179 | ) | ||||||
|
General
and administrative expenses
|
3,439,085 | 5,009,418 | 6,781,705 | |||||||||
|
(Gain)
loss on settlement of litigation
|
4,903,949 | 5,436,137 | (193,862 | ) | ||||||||
|
Total
operating expenses
|
11,737,734 | 18,975,963 | 23,360,313 | |||||||||
|
Loss
from operations
|
(10,822,654 | ) | (18,954,626 | ) | (23,141,877 | ) | ||||||
|
Non-operating
income (expense):
|
||||||||||||
|
Interest
income
|
4,661 | 7,933 | 162,091 | |||||||||
|
Interest
expense and late fees
|
(9,190,807 | ) | (26,614,761 | ) | (21,023,663 | ) | ||||||
|
Loss
on extinguishment of convertible debentures and note
|
(38,517,692 | ) | - | - | ||||||||
|
Adjustments
to fair value of derivatives
|
23,103,668 | 13,082,247 | 32,835,057 | |||||||||
|
Finance
cost
|
(1,705,691 | ) | (806,079 | ) | (15,400 | ) | ||||||
|
Charges
related to issuance of 2008 convertible debentures
|
- | (1,217,342 | ) | - | ||||||||
|
Charges
related to issuance of 2007 convertible debenture and
warrants
|
- | - | (3,871,656 | ) | ||||||||
|
Charges
related to repricing of 2005 convertible debenture and
warrants
|
- | - | (843,277 | ) | ||||||||
|
Gain
related to repricing of 2006 and 2007 convertible debentures and
warrants
|
- | 847,588 | - | |||||||||
|
Losses
attributable to equity method investment
|
(144,438 | ) | (20,930 | ) | - | |||||||
|
Loss
on disposal of fixed assets
|
- | (227,543 | ) | - | ||||||||
|
Gain
on forgiveness of debt
|
598,425 | - | - | |||||||||
|
Loss
on warrant re-pricing
|
(83,680 | ) | - | - | ||||||||
|
Total
non-operating income (expense)
|
(25,935,554 | ) | (14,948,887 | ) | 7,243,152 | |||||||
|
Loss
before income tax
|
(36,758,208 | ) | (33,903,513 | ) | (15,898,725 | ) | ||||||
|
Income
tax
|
- | - | - | |||||||||
|
Net
loss
|
$ | (36,758,208 | ) | $ | (33,903,513 | ) | $ | (15,898,725 | ) | |||
|
Weighted
average shares outstanding :
|
||||||||||||
|
Basic
|
521,343,094 | 245,279,135 | 61,115,618 | |||||||||
|
Diluted
|
521,343,094 | 245,279,135 | 61,115,618 | |||||||||
|
Loss
per share:
|
||||||||||||
|
Basic
|
$ | (0.07 | ) | $ | (0.14 | ) | $ | (0.26 | ) | |||
|
Diluted
|
$ | (0.07 | ) | $ | (0.14 | ) | $ | (0.26 | ) | |||
The
accompanying notes are an integral part of these consolidated financial
statements.
61
ADVANCED
CELL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
Additional
|
Total
|
|||||||||||||||||||
|
Common
Stock
|
Paid-in
|
Accumulated
|
Stockholders'
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Deficit
|
||||||||||||||||
|
Balance
December 31, 2006 (Restated)
|
39,318,070 | 39,318 | 12,291,873 | (40,015,366 | ) | (27,684,175 | ) | |||||||||||||
|
Convertible
debentures redemptions
|
19,243,386 | 19,243 | 6,879,914 | - | 6,899,157 | |||||||||||||||
|
Convertible
debentures conversions
|
16,625,579 | 16,626 | 11,069,317 | - | 11,085,943 | |||||||||||||||
|
Issuance
of stock in payment of board fees
|
35,909 | 36 | 20,716 | - | 20,752 | |||||||||||||||
|
Option
compensation charges
|
- | - | 531,113 | - | 531,113 | |||||||||||||||
|
Issuance
of stock in payment of license fees
|
800,000 | 800 | 607,200 | - | 608,000 | |||||||||||||||
|
Issuance
of stock in payment of employee bonuses
|
515,000 | 515 | 406,335 | - | 406,850 | |||||||||||||||
|
Issuance
of stock to employees
|
340,000 | 340 | 16,660 | - | 17,000 | |||||||||||||||
|
Issuance
of stock in payment of legal fees
|
85,000 | 85 | 67,915 | - | 68,000 | |||||||||||||||
|
Issuance
of stock in acquisition of Mytogen
|
8,064,517 | 8,064 | 2,411,291 | - | 2,419,355 | |||||||||||||||
|
Net
loss for the year ended December 31, 2007 (Restated)
|
- | - | - | (15,898,725 | ) | (15,898,725 | ) | |||||||||||||
|
Balance
December 31, 2007 (Restated)
|
85,027,461 | $ | 85,027 | $ | 34,302,334 | $ | (55,914,091 | ) | $ | (21,526,730 | ) | |||||||||
|
Convertible
debentures redemptions
|
65,463,111 | 65,463 | 5,390,989 | - | 5,456,452 | |||||||||||||||
|
Convertible
debentures conversions
|
39,741,987 | 39,743 | 6,121,900 | - | 6,161,643 | |||||||||||||||
|
Issuance
of stock for debenture financing costs
|
14,710,329 | 14,710 | 791,369 | - | 806,079 | |||||||||||||||
|
Option
compensation charges
|
- | - | 527,243 | - | 527,243 | |||||||||||||||
|
Adjustment
to fair value of derivatives
|
- | - | 78,367 | - | 78,367 | |||||||||||||||
|
Issuance
in respect of anti-dilution provision of convertible
debenture
|
70,503 | 71 | 15,510 | - | 15,581 | |||||||||||||||
|
Issuance
of stock in payment of professional fees
|
1,002,291 | 1,002 | 212,847 | - | 213,849 | |||||||||||||||
|
Issuance
of stock in settlement of accounts payable
|
220,735,436 | 220,735 | 5,818,877 | - | 6,039,612 | |||||||||||||||
|
Issuance
of stock under stock incentive plan
|
1,497,263 | 1,497 | 140,936 | - | 142,433 | |||||||||||||||
|
Issuance
of stock upon exercise of options
|
1,200,000 | 1,200 | 58,800 | - | 60,000 | |||||||||||||||
|
Net
loss for the year ended December 31, 2008
|
- | - | - | (33,903,513 | ) | (33,903,513 | ) | |||||||||||||
|
Balance
December 31, 2008
|
429,448,381 | $ | 429,448 | $ | 53,459,172 | $ | (89,817,604 | ) | $ | (35,928,984 | ) | |||||||||
|
Convertible
debentures redemptions
|
63,009,884 | 63,010 | 5,965,243 | - | 6,028,253 | |||||||||||||||
|
Debt
and preferred stock conversions
|
104,412,687 | 104,413 | 9,299,147 | - | 9,403,560 | |||||||||||||||
|
Option
compensation charges
|
- | - | 817,444 | - | 817,444 | |||||||||||||||
|
Issuance
of stock in settlement of accounts payable
|
39,380,847 | 39,381 | 5,259,767 | - | 5,299,148 | |||||||||||||||
|
Issuance
of stock in payment of debt issue costs for preferred stock credit
facility
|
24,900,000 | 24,900 | 4,706,100 | - | 4,731,000 | |||||||||||||||
|
Issuance
of common stock for legal services
|
375,000 | 375 | 37,875 | - | 38,250 | |||||||||||||||
|
Issuance
of common stock on cashless warrant exercise
|
2,122,495 | 2,122 | 284,332 | - | 286,454 | |||||||||||||||
|
Net
loss for the year ended December 31, 2009
|
- | - | - | (36,758,208 | ) | (36,758,208 | ) | |||||||||||||
|
Balance
December 31, 2009
|
663,649,294 | $ | 663,649 | $ | 79,829,080 | $ | (126,575,812 | ) | $ | (46,083,083 | ) | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
62
ADVANCED
CELL TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
2009
|
2008
|
2007
|
||||||||||
|
(Restated)
|
||||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (36,758,208 | ) | $ | (33,903,513 | ) | $ | (15,898,725 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
291,472 | 402,867 | 386,643 | |||||||||
|
Write-off
of uncollectible accounts receivable
|
- | 30,782 | - | |||||||||
|
Amortization
of deferred charges
|
363,399 | 702,018 | 407,391 | |||||||||
|
Amortization
of deferred revenue
|
(1,415,979 | ) | (798,310 | ) | (497,349 | ) | ||||||
|
Redeemable
preferred stock dividend accrual
|
123,609 | - | - | |||||||||
|
Stock
based compensation
|
817,444 | 889,269 | 531,113 | |||||||||
|
Amortization
of deferred issuance costs
|
3,535,245 | 4,792,087 | 3,874,300 | |||||||||
|
Amortization
of discounts
|
4,134,693 | 17,871,392 | 17,052,016 | |||||||||
|
(Gain)
loss on extinguishment of debt
|
38,517,692 | - | (193,862 | ) | ||||||||
|
Adjustments
to fair value of derivatives
|
(23,103,668 | ) | (13,082,247 | ) | (32,835,057 | ) | ||||||
|
Charges
related to issuance of 2008 convertible promissory notes
|
- | 685,573 | - | |||||||||
|
Mytogen
acqiusition
|
- | - | 4,094,736 | |||||||||
|
Charges
related to issuance of 2008 convertible debenture
|
- | 531,769 | - | |||||||||
|
Charges
related to issuance of 2007 convertible debentures
|
- | - | 3,871,656 | |||||||||
|
Repricing
of 2005 convertible debentures and warrants
|
- | - | 843,277 | |||||||||
|
Repricing
of 2006 and 2007 convertible debentures and warrants
|
- | (847,588 | ) | - | ||||||||
|
Shares
of common stock issued for services
|
38,250 | 759,496 | 1,307,828 | |||||||||
|
Warrants
issued for consulting services
|
130,663 | 155,281 | - | |||||||||
|
Charges
related to settlement of anti-dilution provision
|
- | 15,581 | - | |||||||||
|
Shares
of common stock issued for board fees
|
- | - | 20,752 | |||||||||
|
Non-cash
financing costs
|
1,704,535 | 806,079 | - | |||||||||
|
Loss
on warrant repricing
|
83,680 | - | - | |||||||||
|
Forfeiture
of rent deposits
|
- | 88,504 | - | |||||||||
|
Loss
on disposal of fixed assets
|
- | 227,543 | - | |||||||||
|
Loss
on settlement of litigation
|
4,903,949 | 5,436,137 | - | |||||||||
|
Gain
on forgiveness of debt
|
(598,425 | ) | - | - | ||||||||
|
Loss
attributable to investment in joint venture
|
144,438 | 20,930 | - | |||||||||
|
Amortization
of deferred joint venture obligations
|
(86,574 | ) | (15,322 | ) | - | |||||||
|
(Increase)
/ decrease in assets:
|
||||||||||||
|
Accounts
receivable
|
261,504 | (265,260 | ) | 39,293 | ||||||||
|
Prepaid
expenses
|
23,422 | 35,940 | 42,812 | |||||||||
|
Deferred
charges
|
- | - | (55,000 | ) | ||||||||
|
Increase
/ (decrease) in current liabilities:
|
||||||||||||
|
Accounts
payable and accrued expenses
|
(2,915,249 | ) | 5,355,229 | 976,712 | ||||||||
|
Accrued
interest
|
1,311,330 | 3,722,198 | - | |||||||||
|
Deferred
revenue
|
3,350,000 | 3,418,745 | - | |||||||||
|
Net
cash used in operating activities
|
(5,142,778 | ) | (2,964,820 | ) | (16,031,464 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Purchases
of property and equipment
|
(5,368 | ) | (174,514 | ) | (158,522 | ) | ||||||
|
(Payment)
return of deposits
|
(2,170 | ) | - | 18,649 | ||||||||
|
Net
cash used in investing activities
|
(7,538 | ) | (174,514 | ) | (139,873 | ) | ||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds
from exercise of stock options
|
- | - | 17,000 | |||||||||
|
Proceeds
from issuance of convertible debentures
|
- | 2,182,432 | 8,848,200 | |||||||||
|
Payments
on convertible debentures
|
- | - | (139,123 | ) | ||||||||
|
Payments
on notes and leases
|
- | (18,650 | ) | (77,960 | ) | |||||||
|
Proceeds
from convertible promissory notes
|
4,284,250 | 630,000 | - | |||||||||
|
Payment
for issuance costs on note payable
|
- | (3,660 | ) | - | ||||||||
|
Proceeds
from issuance of Series A-1 convertible preferred stock
|
2,588,000 | - | - | |||||||||
|
Net
cash provided by financing activities
|
6,872,250 | 2,790,122 | 8,648,117 | |||||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,721,934 | (349,212 | ) | (7,523,220 | ) | |||||||
|
CASH
AND CASH EQUIVALENTS, BEGINNING BALANCE
|
816,904 | 1,166,116 | 8,689,336 | |||||||||
|
CASH
AND CASH EQUIVALENTS, ENDING BALANCE
|
$ | 2,538,838 | $ | 816,904 | $ | 1,166,116 | ||||||
|
CASH
PAID FOR:
|
||||||||||||
|
Interest
|
$ | - | $ | - | $ | 10,016 | ||||||
|
Income
taxes
|
$ | 970 | $ | 1,549 | $ | - | ||||||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
||||||||||||
|
Issuance
of 63,009,884, 65,463,111 and 19,243,386 shares of common stock in
redemption of debt
|
$ | 6,028,253 | $ | 5,456,452 | $ | 7,038,000 | ||||||
|
Issuance
of 87,739,641, 39,741,987 and 16,625,579 shares of common stock in
conversion of debt
|
$ | 7,736,256 | $ | 6,161,643 | $ | 8,391,000 | ||||||
|
Issuance
of 16,673,046 shares of common stock in conversion of preferred
stock
|
$ | 1,667,304 | $ | - | $ | - | ||||||
|
Issuance
of 24,900,000 shares of common stock in payment convertible preferred
stock issuance costs
|
$ | 4,731,000 | $ | - | $ | - | ||||||
|
Issuance
of stock on cashless exercise of warrants
|
$ | 286,454 | $ | - | $ | - | ||||||
|
Issuance
of 39,380,847, 220,735,436 and 0 shares of common stock in settlement of
litigation
|
$ | 5,299,148 | $ | 6,039,612 | $ | - | ||||||
|
Issuance
of 70,503 shares of common stock to settle an anti-dilution provision
feature of convertible debenture
|
$ | - | $ | 15,581 | $ | - | ||||||
|
Issuance
of 1,200,000 shares of common stock upon exercise of employee stock
options
|
$ | - | $ | 60,000 | $ | - | ||||||
|
Issuance
of 35,909 shares of common stock in payment of board fees
|
$ | - | $ | - | $ | 21,000 | ||||||
|
Issuance
of 800,000 shares of common stock in payment of license
fees
|
$ | - | $ | - | $ | 608,000 | ||||||
|
Issuance
of 515,000 shares of common stock in payment of employee
bonuses
|
$ | - | $ | - | $ | 407,000 | ||||||
|
Issuance
of 85,000 shares of common stock in settlement of legal
fees
|
$ | - | $ | - | $ | 68,000 | ||||||
|
Issuance
of 8,064,517 shares of common stock in acquisition of
Mytogen
|
$ | - | $ | - | $ | 2,419,000 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
63
ADVANCED
CELL TECHNOLOGY, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009, 2008 and 2007
|
1.
|
ORGANIZATIONAL
MATTERS
|
Organization
and Nature of Business
Advanced
Cell Technology, Inc. (the “Company”) is a biotechnology company, incorporated
in the state of Delaware, focused on developing and commercializing human
embryonic and adult stem cell technology in the emerging fields of regenerative
medicine. Principal activities to date have included obtaining financing,
securing operating facilities, and conducting research and development. The
Company has no therapeutic products currently available for sale and does not
expect to have any therapeutic products commercially available for sale for a
period of years, if at all. These factors indicate that the Company’s ability to
continue its research and development activities is dependent upon the ability
of management to obtain additional financing as required.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of
Presentation —The Company follows accounting standards set by the
Financial Accounting Standards Board (“FASB”). The accompanying consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). References to GAAP
issued by the FASB in these footnotes are to the FASB Accounting Standards
Codification,™ sometimes referred to as the Codification or ASC.
Principles of
Consolidation — The accounts of the Company and its wholly-owned
subsidiary Mytogen, Inc. (“Mytogen”) are included in the accompanying
consolidated financial statements. All intercompany balances and transactions
were eliminated in consolidation.
Segment Reporting
—ASC 280, “Segment
Reporting” requires use of the “management approach” model for segment
reporting. The management approach model is based on the way a company’s
management organizes segments within the company for making operating decisions
and assessing performance. The Company determined it has one operating segment.
Disaggregation of the Company’s operating results is impracticable, because the
Company’s research and development activities and its assets overlap, and
management reviews its business as a single operating segment. Thus, discrete
financial information is not available by more than one operating
segment.
Use of
Estimates — These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and, accordingly, require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Specifically, the Company’s management has estimated
variables used to calculate the Black-Scholes option pricing model used to value
derivative instruments as discussed below under “Fair Value Measurements”. In
addition, management has estimated the expected economic life and value of the
Company’s licensed technology, the Company’s net operating loss for tax
purposes, share-based payments for compensation to employees, directors,
consultants and investment banks, and the useful lives of the Company’s property
and equipment and its accounts receivable allowance. Actual results could differ
from those estimates.
Reclassifications
— Certain prior year financial statement balances have been reclassified to
conform to the current year presentation. These reclassifications had no effect
on the recorded net loss.
Cash and Cash
Equivalents — Cash equivalents are comprised of certain highly liquid
investments with maturities of three months or less when purchased. The Company
maintains its cash in bank deposit accounts, which at times, may exceed
federally insured limits. The Company has not experienced any losses related to
this concentration of risk. As of December 31, 2009 and December 31, 2008, the
Company had deposits in excess of federally-insured limits totaling $2,028,195
and $655,074, respectively.
64
Accounts
Receivable — The Company periodically assesses its accounts receivable
for collectability on a specific identification basis. Past due status on
accounts receivable is based on contractual terms. If collectability of an
account becomes unlikely, the Company records an allowance for that doubtful
account. Once the Company has exhausted efforts to collect, management writes
off the account receivable against the allowance it has already created. The
Company does not require collateral for its trade accounts
receivable.
Property and
Equipment — The Company records its property and equipment at historical
cost. The Company expenses maintenance and repairs as incurred. Upon disposition
of property and equipment, the gross cost and accumulated depreciation are
written off and the difference between the proceeds and the net book value is
recorded as a gain or loss on sale of assets. In the case of certain assets
acquired under capital leases, the assets are recorded net of imputed interest,
based upon the net present value of future payments. Assets under capital lease
are pledged as collateral for the related lease.
The
Company provides for depreciation over the assets’ estimated useful lives as
follows:
|
Machinery
& equipment
|
4
years
|
|
Computer
equipment
|
3
years
|
|
Office
furniture
|
4
years
|
|
Leasehold
improvements
|
Lesser
of lease life or economic life
|
|
Capital
leases
|
Lesser
of lease life or economic
life
|
Equity Method
Investment — The Company follows ASC 323 “Investments-Equity Method and Joint
Ventures” in accounting for its investment in the joint venture. In the
event the Company’s share of the joint venture’s net losses reduces the
Company’s investment to zero, the Company will discontinue applying the equity
method and will not provide for additional losses unless the Company has
guaranteed obligations of the joint venture or is otherwise committed to provide
further financial support for the joint venture. If the joint venture
subsequently reports net income, the Company will resume applying the equity
method only after its share of that net income equals the share of net losses
not recognized during the period the equity method was suspended.
Deferred Issuance
Costs — Payments, either in cash or share-based payments, made in
connection with the sale of debentures are recorded as deferred debt issuance
costs and amortized using the effective interest method over the lives of the
related debentures. The weighted average amortization period for deferred debt
issuance costs is 48 months.
Intangible and
Long-Lived Assets— The Company follows ASC 360-10, “Property, Plant, and Equipment,”
which established a “primary asset” approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. Long-lived assets to
be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell.
Through December 31, 2009, the Company had not experienced impairment losses on
its long-lived assets.
Fair Value
Measurements — For certain financial instruments, including accounts
receivable, accounts payable, accrued expenses, interest payable, advances
payable and notes payable, the carrying amounts approximate fair value due to
their relatively short maturities.
65
On
January 1, 2008, the Company adopted ASC 820-10, “Fair Value Measurements and
Disclosures.” ASC 820-10 defines fair value, and establishes a
three-level valuation hierarchy for disclosures of fair value measurement that
enhances disclosure requirements for fair value measures. The carrying amounts
reported in the consolidated balance sheets for receivables and current
liabilities each qualify as financial instruments and are a reasonable estimate
of their fair values because of the short period of time between the origination
of such instruments and their expected realization and their current market rate
of interest. The three levels of valuation hierarchy are defined as
follows:
|
|
·
|
Level
1 inputs to the valuation methodology are quoted prices for identical
assets or liabilities in active
markets.
|
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC 480, “Distinguishing Liabilities From
Equity” and ASC 815, “Derivatives and Hedging.”
Derivative liabilities are adjusted to reflect fair value at each period end,
with any increase or decrease in the fair value being recorded in results of
operations as adjustments to fair value of derivatives. The effects of
interactions between embedded derivatives are calculated and accounted for in
arriving at the overall fair value of the financial instruments. In addition,
the fair values of freestanding derivative instruments such as warrant and
option derivatives are valued using the Black-Scholes model.
The
Company’s warrant and non-employee option derivative liabilities are carried at
fair value totaling $18,168,597 and $2,655,849, as of December 31, 2009 and
December 31, 2008, respectively. The Company’s embedded conversion
option liabilities are carried at fair value totaling $8,609,804 and $1,842,976
as of December 31, 2009 and December 31, 2008, respectively. The
Company used Level 2 inputs for its valuation methodology for the warrant
derivative liabilities and embedded conversion option liabilities as their fair
values were determined by using the Black-Scholes option pricing model based on
various assumptions. The Company’s derivative liabilities are adjusted to
reflect fair value at each period end, with any increase or decrease in the fair
value being recorded in results of operations as adjustments to fair value of
derivatives.
At
December 31, 2009, the Company identified the following assets and liabilities
that are required to be presented on the balance sheet at fair
value:
|
Fair
Value Measurements at
|
||||||||||||||||
|
Fair
Value
|
December
31, 2009
|
|||||||||||||||
|
As
of
|
Using Fair Value Hierarchy
|
|||||||||||||||
|
Derivative Liabilities
|
December 31, 2009
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Warrant
derivative liabilities
|
$ | 18,168,597 | $ | - | 18,168,597 | - | ||||||||||
|
Embedded
conversion option liabilities
|
8,609,804 | - | 8,609,804 | - | ||||||||||||
| $ | 26,778,401 | $ | - | 26,778,401 | - | |||||||||||
For the
years ended December 31, 2009, 2008 and 2007, the Company recognized a gain of
$23,103,668, $13,082,247, and $32,835,057, respectively, for the changes in the
valuation of derivative liabilities.
The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented in the consolidated balance sheets at fair value in
accordance with ASC 815.
66
Revenue
Recognition — The Company’s revenues are generated from license and
research agreements with collaborators. Licensing revenue is recognized on a
straight-line basis over the shorter of the life of the license or the estimated
economic life of the patents related to the license. License fee revenue begins
to be recognized in the first full month following the effective date of the
license agreement. Deferred revenue represents the portion of the license and
other payments received that has not been earned. Costs associated with the
license revenue are deferred and recognized over the same term as the revenue.
Reimbursements of research expense pursuant to grants are recorded in the period
during which collection of the reimbursement becomes assured, because the
reimbursements are subject to approval.
Research and
Development Costs — Research and development costs consist of
expenditures for the research and development of patents and technology, which
cannot be capitalized. The Company’s research and development costs consist
mainly of payroll and payroll related expenses, research supplies and research
grants. Reimbursements of research expense pursuant to grants are recorded in
the period during which collection of the reimbursement becomes assured, because
the reimbursements are subject to approval. Research and development costs are
expensed as incurred.
Share-Based
Compensation
— The Company records
stock-based compensation in accordance with ASC 718, “Compensation – Stock
Compensation.” ASC 718 requires companies to measure compensation
cost for stock-based employee compensation at fair value at the grant date and
recognize the expense over the employee’s requisite service period. The Company
recognizes in the statement of operations the grant-date fair value of stock
options and other equity-based compensation issued to employees and
non-employees. There were 28,486,119 options outstanding as of December 31,
2009.
Income
Taxes — Deferred income taxes are provided using the liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards, and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of the changes in tax laws and rates of
the date of enactment.
When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon examination.
Applicable
interest and penalties associated with unrecognized tax benefits are classified
as additional income taxes in the statements of operations.
Net
Loss Per Share
— Earnings per share
is calculated in accordance with the ASC 260-10, “Earnings Per
Share.” Basic earnings per
share is based upon the weighted average number of common shares outstanding.
Diluted earnings per share is based on the assumption that all dilutive
convertible shares and stock options were converted or exercised. Dilution is
computed by applying the treasury stock method. Under this method, options and
warrants are assumed to be exercised at the beginning of the period (or at the
time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the
period.
67
At
December 31, 2009, 2008 and 2007, approximately 395,549,000, 270,206,000 and
67,000,000 potentially dilutive shares, respectively, were excluded from the
shares used to calculate diluted earnings per share as their inclusion would be
anti-dilutive.
Concentrations
and Other Risks — Currently, the Company’s revenues and accounts
receivable are concentrated on a small number of customers. The following table
shows the Company’s concentrations of its revenue for those customers comprising
greater than 10% of total license revenue for the years ended December 31, 2009,
2008 and 2007.
|
2009
|
2008
|
2007
|
||||||||||
|
Genzyme
Transgenics Corporation
|
28 | % | 17 | % | 20 | % | ||||||
|
Exeter
Life Sciences, Inc.
|
* | 16 | % | 19 | % | |||||||
|
START
Licensing, Inc.
|
* | 13 | % | 15 | % | |||||||
|
Terumo
Corporation
|
* | 25 | % | * | ||||||||
|
International
Stem Cell Corporation
|
10 | % | 11 | % | * | |||||||
|
Transition
Holdings, Inc.
|
14 | % | * | * | ||||||||
*License
revenue earned during the period was less than 10% of total license
revenue.
Other
risks include the uncertainty of the regulatory environment and the effect of
future regulations on the Company’s business activities. As the Company is a
biotechnology research and development company, there is also the attendant risk
that someone could commence legal proceedings over the Company’s discoveries.
Acts of God could also adversely affect the Company’s business.
Recent
Accounting Pronouncements
In
September 2008, the FASB issued new accounting guidance regarding credit
derivatives and certain guarantees. This guidance, found under ASC 815,
Derivatives and Hedging, applies to credit derivatives within the scope of the
guidance, hybrid instruments that have embedded credit derivatives, and
guarantees within the scope of the guidance. This guidance is effective for
reporting periods (annual or interim) ending after November 15, 2008. The impact
of the adoption of this guidance was not significant to the Company’s
consolidated financial statements.
In
April 2009, the FASB issued new accounting guidance regarding business
combinations. This guidance, found under ASC 805, Business Combinations, amends
the guidance relating to the initial recognition and measurement, subsequent
measurement and accounting and disclosures of assets and liabilities arising
from contingencies in a business combination. This guidance is effective for
fiscal years beginning after December 15, 2008. The Company adopted this
guidance as of the beginning of fiscal 2009. The Company will apply the
requirements of this guidance prospectively to any future
acquisitions.
On July
1, 2009, the Company adopted Accounting Standards Update (“ASU”) No.
2009-01, “Topic 105 - Generally Accepted Accounting Principles - amendments
based on Statement of Financial Accounting Standards No. 168, “The FASB
Accounting Standards Codification™ and the Hierarchy of Generally Accepted
Accounting Principles” (“ASU No. 2009-01”). ASU No. 2009-01
re-defines authoritative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards Codification™ (“Codification”) and, for SEC
registrants, guidance issued by the SEC. The Codification is a
reorganization and compilation of all then-existing authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC. The
Codification is amended to effect non-SEC changes to authoritative
GAAP. Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes to the consolidated financial
statements.
In August
2009, the FASB issued Accounting Standards Update 2009-05, Fair Value
Measurements and Disclosures (ASC 820) Measuring Liabilities at Fair Value. This
guidance clarifies that in circumstances in which a quoted price in an active
market for an identical liability is not available, a reporting entity is
required to measure fair value of such liability using one or more of the of the
techniques prescribed by the update. This guidance is effective for the first
reporting period beginning after issuance, which is the period ending December
31, 2009. The impact of the adoption of this guidance was not
significant to the Company’s consolidated financial statements.
68
In
October 2009, the FASB issued an Accounting Standards Update
("ASU") regarding accounting for own-share lending arrangements in
contemplation of convertible debt issuance or other financing. This
ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The Company
is currently evaluating the impact of this ASU on its consolidated financial
statements.
On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements”. This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting. The adoption of this ASU will not have a material impact
on the Company’s consolidated financial statements.
|
3.
|
RESTATEMENT
|
The
Company has issued a series of complex convertible debentures over the past
several years. The convertible debentures are issued for less than face
value, thus generating significant original issue discounts. In
conjunction with the instruments, the Company has issued substantial numbers of
warrants, and the value of these warrants as of the issue date is treated in the
same manner as an original issue discount. These discounts are amortized
into interest expense over the life of the debenture, which is a complex
calculation due to the planned monthly redemptions after a certain point
included in the debenture agreements. Further, the debentures are
converted into shares at the holder’s option, the timing of which depends on the
price of the Company’s stock. The Company also gives brokers and other
intermediaries considerable value via cash and warrants in order to assist in
selling the debentures. The costs associated with issuing the debt are
capitalized and amortized over the life of the debt.
On
September 6, 2006, the Company entered into a securities purchase agreement
in which the purchasers purchased from the Company convertible debentures and
warrants to purchase shares of the Company’s common stock. In connection with
that transaction, and for each quarter thereafter, the Company performed a
valuation of the debentures and warrants.
On
March 24, 2008, the Company discovered that it had been using an incorrect
number of warrants in calculating the appropriate fair value. The Company had
been using 4,541,672 warrants instead of the correct number of
19,064,670 warrants. Upon learning of the error, the Company recalculated
the correct fair value and noted that this change in warrant valuation had no
impact on the value of the related convertible debentures and all the related
embedded derivatives.
In
mid-May 2008, the Company discovered that the deferred issuance costs and
discounts had been amortized over a period longer than the weighted average life
of the instruments, with the result that the discounts and debt issuance costs
should have been charged to interest expense on a faster basis than had been the
case. Upon learning of the error the Company has recalculated the amortization
and resulting interest expense. The Company also discovered that its
calculation of the weighted average shares used in calculating basic and diluted
earnings per share for the year ended December 31, 2007 was in error. The actual
basic and diluted weighted average shares outstanding for the year ended
December 31, 2007 was approximately 20,238,000 shares higher than
reported.
69
In
accordance with ASC 250, the Company has determined that these were errors, and
has therefore restated the accompanying statements of operations, and cash flows
for the year ended December 31, 2007 and the balance sheet as of December 31,
2007.
|
As Originally
Reported
|
Restated
|
Difference
|
||||||||||
|
December 31, 2007
|
||||||||||||
|
Balance
Sheet
|
||||||||||||
|
Deferred
issuance costs
|
$
|
5,107,599
|
$
|
4,772,087
|
$
|
(335,512
|
)
|
|||||
|
2005
Convertible debenture and embedded derivatives – current
portion
|
$
|
1,040,156
|
$
|
1,276,871
|
$
|
236,715
|
||||||
|
2006
Convertible debenture and embedded derivatives – current
portion
|
$
|
906,860
|
$
|
1,625,327
|
$
|
718,467
|
||||||
|
2007
Convertible debenture and embedded derivatives – current
portion
|
$
|
363,805
|
$
|
1,160,847
|
$
|
797,042
|
||||||
|
2006
Convertible debenture and embedded derivatives, less current
portion
|
$
|
793,504
|
$
|
1,422,164
|
$
|
628,660
|
||||||
|
2007
Convertible debenture and embedded derivatives, less current
portion
|
$
|
2,364,731
|
$
|
2,321,695
|
$
|
(43,036
|
)
|
|||||
|
Accumulated
deficit
|
$
|
(53,240,732
|
)
|
$
|
(55,914,091
|
)
|
$
|
(2,673,359
|
)
|
|||
|
Total
stockholders’ deficit at December 31, 2007
|
$
|
(18,853,371
|
)
|
$
|
(21,526,730
|
)
|
$
|
(2,673,359
|
)
|
|||
|
4.
|
LICENSE
REVENUE
|
On April
30, 2008 the Company received a one-time payment of $300,000 from Terumo
International which extended their ability to commence a Phase I Clinical Trial
in Japan by one year. All other terms and conditions for the license
agreement between Terumo and the Company remain the same.
On May
23, 2008 and June 17, 2009, the Company received $150,000 and $150,000,
respectively, from International Stem Cells, Inc. as a continuing annual payment
to renew its license fee for use of certain of the Company’s
technologies.
On July
10, 2008, the Company granted an exclusive license to Embryome Sciences, Inc., a
wholly owned subsidiary of BioTime, Inc., to use its “ACTCellerate” embryonic
stem cell technology and a bank of over 140 diverse progenitor cell lines
derived using that technology. Under the agreement, the Company received an
up-front payment of $470,000, and is eligible to receive an 8% royalty on sales
of products, services, and processes that utilize the licensed technology.
However, in connection with the rent judgment discussed in Note 15, in
connection with unpaid rents owed with its landlord, the Company has assigned
the landlord rights and interest to 62.5% of all royalties on this contract, and
65% of all other consideration payable under this license agreement until such
time that the Company has repaid amounts owed to the landlord that total
$475,000. The Company is recognizing revenue from this agreement over its
17-year patent useful life.
In
connection with the joint venture agreement discussed in Note 5, on December 1,
2008, the Company entered into a license agreement with CHA for the exclusive,
worldwide license to the Hemangioblast Program. Under the agreement, CHA agreed
to acquire the Company’s core technology for $500,000 in cash. During the year
ended December 31, 2008, the Company received $250,000. The Company received the
remaining $250,000 in January 2009. Accordingly, the Company recorded $250,000
in accounts receivable in its consolidated balance sheets at December 31, 2008.
The Company is recognizing revenue from this agreement over its 17-year patent
useful life.
70
On
December 18, 2008, the Company entered into a license agreement with Transition
Holdings, Inc. for certain of the Company’s non-core technology. Under the
agreement, Transition agreed to acquire a license to the technology for a total
of $3.5 million in cash. During the year ended December 31, 2008, the Company
received $2,000,000, less wire fees, in cash under this agreement. The Company
received the remaining $1,500,000 in 2009. The Company expects to apply the
proceeds towards its retinal epithelium (“RPE”) cells program. The Company is
recognizing revenue from this agreement over its 17-year patent useful
life.
On March
30, 2009, the Company entered into a second license agreement with CHA under
which the Company will license its RPE technology, for the treatment of diseases
of the eye, to CHA for development and commercialization exclusively in Korea.
The Company is eligible to receive up to a total of $1.9 million in fees based
upon the parties achieving certain milestones, including the Company making an
IND submission to the US FDA to commence clinical trials in humans using the
technology. The Company received an up-front fee under the license in the amount
of $1,100,000 during the second quarter of 2009, and another $300,000 progress
payment on December 3, 2009. Under the agreement, CHA will incur all of the
costs associated with the RPA clinical trials in Korea. The Company is
recognizing revenue from this agreement over its 17-year patent useful
life.
On May
13, 2009, the Company entered into a third license agreement with CHA under
which the Company will license its proprietary “single blastomere technology,”
which has the potential to generate stable cell lines, including RPE for the
treatment of diseases of the eye, for development and commercialization
exclusively in Korea. The Company received an upfront license fee of $300,000 on
May 8, 2009. The Company is recognizing revenue from this agreement over its
17-year patent useful life.
In
connection with the above license agreements, the Company has recorded $553,448
and $302,239 in license fee revenue for the years ended December 31, 2009 and
2008, respectively, in its accompanying consolidated statements of operations,
and the remainder of the license fee has been accrued in deferred revenue at
December 31, 2009 and 2008, respectively.
|
5.
|
INVESTMENT
IN JOINT VENTURE
|
On
December 1, 2008, the Company and CHA Bio & Diostech Co., Ltd. formed an
international joint venture. The new company, Stem Cell & Regenerative
Medicine International, Inc. (“SCRMI”), will develop human blood cells and other
clinical therapies based on the Company’s hemangioblast program, one of the
Company’s core technologies. Under the terms of the agreement, the Company
purchased upfront a 33% interest in the joint venture, and will receive another
7% interest upon fulfilling certain obligations under the agreement over a
period of 3 years. The Company’s contribution includes (a) the uninterrupted use
of a portion of its leased facility at the Company’s expense, (b) the
uninterrupted use of certain equipment in the leased facility, and (c) the
release of certain of the Company’s research and science personnel to be
employed by the joint venture. In return, for a 67% interest, CHA has agreed to
contribute $150,000 cash and to fund all operational costs in order to conduct
the hemangioblast program.
The
Company has agreed to collaborate with the joint venture in securing grants to
further research and development of its technology. Additionally, SCRMI has
agreed to pay the Company a fee of $500,000 for an exclusive, worldwide license
to the Hemangioblast Program. The Company recorded $29,412 and $2,450 in license
fee revenue for the years ended December 31, 2009 and 2008, respectively, in its
accompanying consolidated statements of operations, and the balance of
unamortized license fee of $469,363 and $497,550 was accrued in deferred revenue
in the accompanying consolidated balance sheets at December 31, 2009 and 2008,
respectively.
ASC 323
“Investments-Equity Method and
Joint Ventures” requires that the difference between the cost of an
investment and the amount of underlying equity in net assets of an investee
should be accounted for as if the investee were a consolidated subsidiary. The
Company has calculated the difference between the cost of the investment and the
amount of underlying equity in net assets of the joint venture to be $196,130,
based on the Company’s initial cost basis in the investment of $246,130, less
its 33.3% of the initial equity in net assets of the joint venture of
$50,000. The Company will amortize the $196,130 over the term of the
shorter of the equipment usage or lease term (through April 2010, or 17 months
from December 1, 2008). The amortization will be applied against the value of
the Company’s investment. Amortization expense for the years ended December 31,
2009 and 2008 was $80,762 and $11,537, respectively.
71
The
following table is a summary of key financial data for the joint venture as of
and for the year ended December 31, 2009:
|
Current
assets
|
$ | 737,760 | ||
|
Noncurrent
assets
|
$ | 501,744 | ||
|
Current
liabilities
|
$ | 863,436 | ||
|
Noncurrent
liabilities
|
$ | 488,297 | ||
|
Net
revenue
|
$ | 26,775 | ||
|
Net
loss
|
$ | (1,526,851 | ) |
The
following table is a summary of the activity from December 31, 2008 to December
31, 2009 in the Company’s investment in the joint venture:
|
Balance,
December 31, 2008
|
$ | 225,200 | ||
|
Losses
attributable to investment
|
(144,438 | ) | ||
|
Amortization
of premium
|
(80,762 | ) | ||
|
Balance,
December 31, 2009
|
$ | - |
|
6.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consisted of the following at December 31, 2009 and
2008:
|
2009
|
2008
|
|||||||
|
Machinery
& equipment
|
$ | 1,470,306 | $ | 1,470,141 | ||||
|
Computer
equipment
|
441,744 | 436,541 | ||||||
|
Office
furniture
|
76,201 | 76,201 | ||||||
|
Leasehold
improvements
|
127,197 | 127,197 | ||||||
|
Capital
leases
|
51,235 | 51,235 | ||||||
|
Accumulated
depreciation
|
(2,052,779 | ) | (1,761,307 | ) | ||||
|
Property
and equipment, net
|
$ | 113,904 | $ | 400,008 | ||||
Depreciation
expense for the years ended December 31, 2009, 2008 and 2007 amounted to
$291,472, $402,867 and $386,643, respectively.
|
7.
|
AMENDED
AND RESTATED CONVERTIBLE DEBENTURES
|
On July
29, 2009, the Company entered into a consent, amendment and exchange agreement
(the “Consent and Amendment”) with holders (the “Holders”) of the Company’s
outstanding convertible debentures and warrants to purchase shares of the
Company’s common stock (the “Warrants”), which were issued in private placements
to the 2005, 2006, 2007 and 2008 debentures.
72
Amendment
and Forbearance to 2005, 2006, 2007 and 2008 Debentures
Pursuant
to the Consent and Amendment, the Company agreed to issue to each Holder in
exchange for such Holder’s Debenture an amended and restated Debenture (the
“Amended and Restated Debentures”) in a principal amount equal to the principal
amount of such Holder’s Debenture times 1.35 minus any interest paid thereon.
The conversion price under the Amended and Restated Debentures was reduced to
$0.10, subject to further adjustment as provided therein (including for stock
splits, stock dividends, and certain subsequent equity sales). The maturity date
under the Amended and Restated Debentures was extended until December 31, 2010.
The Amended and Restated Debentures bear interest at the rate of 12% per annum,
which shall accrete to, and increase the principal amount payable upon maturity.
The Amended and Restated Debentures amortize beginning on September 25, 2009 and
then the first day of each month thereafter until maturity at a rate of 6.25% of
the outstanding principal amount per month, valued at the lesser of the then
conversion price and 90% of the average volume weighted average price for the
ten prior trading days. The Company agreed to issue to each holder in exchange
for the holder’s amended and restated warrants (the “Amended and Restated
Warrants”), as well as additional warrants exercisable into 79,076,873 shares of
the Company’s common stock for a total of warrants exercisable into 192,172,519
shares of common stock, both warrants containing a reduced exercise price of
$0.10, subject to certain customary anti-dilution adjustments (including for
stock splits, stock dividends, and certain subsequent equity sales). The
termination date under the Amended and Restated Warrants was extended until June
30, 2014. The Company agreed to amend its articles of incorporation to increase
the number of authorized shares of Common Stock (the “Amendment”). The Company
agreed to increase the number of shares available for issuance under the
Company’s 2005 Stock Incentive Plan to 129,000,000 shares. The Holders agreed to
waive any event of default under the Debentures resulting solely from (i) any
adjustment to the conversion price of the Debenture and exercise price of the
Warrants that would result from the reduction of the conversion price of certain
securities of the Company pursuant to the Stipulation of Settlement, dated March
11, 2009, between the Company and one of its Debenture holders, and (ii) any
failure by the Company to reserve such number of authorized but unissued shares
of common stock issuable upon conversion of the Debentures and exercise of the
Warrants.
Simultaneously
with the execution of Consent and Amendment, and as a condition of the Consent
and Amendment, the Company and the Holders entered into a Standstill and
Forbearance Agreement (the “Forbearance Agreement”). Pursuant to the Forbearance
Agreement, the Company acknowledged certain defaults that have occurred under
the Debentures and documents executed in connection therewith (the “Transaction
Documents”). The Holders agreed to forbear from exercising their rights and
remedies under the Debentures and the Transaction Documents, and the Company
provided a general release in favor of the Holders. The obligation of the
Holders to forbear from exercising their rights and remedies under the
Debentures and the Transaction Documents will terminate on the earliest of (i)
the date, if any, on which a petition for relief under the date, if any, on
which a petition for relief under the United States Bankruptcy Code or any
similar state or Canadian law is filed by or against the Company or any of its
subsidiaries or (ii) the date the Forbearance Agreement is otherwise terminated
or expires, it being understood that the Holders holding 67% of the then
outstanding principal amount of the Debentures have the right to terminate the
Forbearance Agreement on 3 business days’ prior notice to the
Company.
Other
than as amended in the Transaction Documents, the rights and obligations of the
holders and the Company with respect to the amended and restated debentures are
identical in all respects to the rights and obligations of the holders and the
Company with respect to the debentures and the underlying shares issued and
issuable pursuant to each purchase agreement.
The
original 2005, 2006, 2007 and 2008 debenture agreements entered into provides
that the Company will pay certain cash amounts as liquidated damages in the
event that the Company does not maintain an effective registration statement, or
if the Company fails to timely execute stock trading activity. Additionally,
penalties will be incurred by the Company in the event of certain default
conditions.
As long
as any portion of the amended and restated debentures remain outstanding, unless
the holders of at least 67% in principal amount of the then outstanding
debentures otherwise give prior written consent, the Company is not permitted to
(a) guarantee or borrow any indebtedness, (b) enter into any liens, (c) amend
its charter documents in any manner that materially and adversely affects any
rights of the holders, (d) acquire more than a de minimis number of shares of
its common stock equivalents other than as to conversion shares of warrant
shares as permitted or required and repurchases of common stock or common stock
equivalents of departing officers and directors of the Company, provided that
such purchases do not exceed certain specified amounts, (e) repay any
indebtedness, other than the debentures already issued on a pro-rata basis,
other than regularly scheduled principal payments as such terms are in effect
under this debenture, (f) pay cash dividends or distributions on any equity
securities of the Company, (g) enter into any material transaction with any
affiliate of the Company, unless such transaction is made on an arm’s-length
basis, or (h) enter into any agreement with respect to any of the
above.
73
The
Company has considered the impact of ASC 470-50 “Debt-Modifications and
Extinguishments” on the accounting treatment of the change in conversion
price of the 2005, 2006, 2007 and 2008 convertible debentures. ASC 470-50 states
that a transaction resulting in a significant change in the nature of a debt
instrument should be accounted for as an extinguishment of debt. The difference
between the reacquisition price and the net carrying amount of the extinguished
debt should be recognized currently in income of the period of extinguishment.
The Company has concluded that the issuance of the amended and restated
debentures constitutes a substantial modification. During the year ended
December 31, 2009, the Company recognized a loss on extinguishment of
convertible debentures of $34,679,545 representing the difference between the
fair value of the amended and restated convertible debentures and the carrying
value of the original 2005, 2006, 2007 and 2008 convertible debentures. The fair
value of the amended and restated convertible debentures at July 29, 2009 was
$18,192,813, net of debt discounts of $2,011,065 that will be amortized over the
remaining life of the amended and restated convertible debentures. The following
table summarizes the convertible debentures:
|
December 31, 2008
|
||||
|
2005
Convertible debenture and embedded derivatives, net of discounts of
$0
|
$ | 85,997 | ||
|
2006
Convertible debenture and embedded derivatives, fair value
|
1,993,354 | |||
|
2007
Convertible debenture and embedded derivatives, fair value
|
7,706,344 | |||
|
April
2008 Convertible debenture and embedded derivatives
|
4,066,505 | |||
|
Fair
value 2005, 2006, 2007 and 2008 convertible debentures
|
$ | 13,852,200 | ||
|
|
||||
|
Year ended December 31,
2009
|
||||
|
Convertible
debenture conversions
|
$ | (12,495,486 | ) | |
|
Change
in fair value of embedded derivatives through July 29,
2009
|
6,823,641 | |||
|
Adjustment
to bifurcate embedded derivatives upon adoption of ASC 815 on July 29,
2009
|
(7,629,147 | ) | ||
|
Addition
to principal to Debenture Holder
|
110,000 | |||
|
Accrued
default interest on 2005, 2006, 2007 and 2008 convertible debentures,
December 31, 2008
|
3,522,964 | |||
|
Additional
accrual of default interest through July 29, 2009
|
1,227,181 | |||
|
Loss
on extinguishment on July 29, 2009
|
767,778 | |||
|
Amortization
of debt discounts
|
1,425,976 | |||
|
December
31, 2009 Balance, Amended and restated convertible
debentures
|
$ | 7,605,107 | ||
|
Less:
current portion
|
(7,605,107 | ) | ||
|
Non-current
portion
|
$ | - | ||
Interest
expense from amortization of debt discounts for the years ended December 31,
2009, 2008 and 2007 was $2,917,266, $22,542,636 and $7,036,397, respectively.
Default interest expense recognized for the years ended December 31, 2009, 2008
and 2007 was $1,227,180 and $3,522,964, and $0, respectively.
74
In
connection with the amended and restated convertible debentures, the Company
issued an additional 79,076,873 warrants to all holders. The warrants are in
addition to the 113,095,646 warrants held by the holders just before the
issuance of the amended and restated convertible debentures, for a total of
192,172,519 issued to the holders of the amended and restated convertible
debentures. The terms of the amended and restated warrants include a reduced
exercise price of $0.10, subject to certain customary anti-dilution adjustments.
The termination date under the amended and restated warrants was extended until
June 30, 2014. The fair value of the 113,095,646 warrants immediately prior to
the July 29, 2009 modification was estimated at $14,396,487 representing a
decrease in the fair value of the liability of $9,521,469 through the date of
modification, which was recorded through the results of operations as an
adjustment to fair value of derivatives. The assumptions used in the
Black-Scholes option pricing model at July 29, 2009 are as follows: (1) dividend
yield of 0%; (2) expected volatility of 190%, (3) risk-free interest rate of
0.50% - 1.72%, and (4) expected life of 1.09 – 3.68 years. The July 29, 2009
fair value of the 192,172,519 warrants was estimated at $29,956,246 using the
Black-Scholes pricing model. The warrants were again valued at $16,072,842 at
December 31, 2009 at fair value using the Black-Scholes model. The total
decrease in the fair value of this warrant liability was $5,195,108 during the
year ended December 31, 2009, which was recorded through the results of
operations as an adjustment to fair value of derivatives. The assumptions used
in the Black-Scholes option pricing model at December 31, 2009 are as follows:
(1) dividend yield of 0%; (2) expected volatility of 180%, (3) risk-free
interest rate of 2.69%, and (4) expected life of 4.5 years.
The
Company has complied with the provisions of ASC 815 “Derivatives and Hedging”,
and recorded the fair value of the embedded conversion option liability
associated with the amended and restated convertible debentures. The fair value
of the embedded conversion option was valued using the Black-Scholes model,
resulting in a fair value of $7,629,146 immediately prior to the July 29, 2009
modification. As of July 29, 2009, the convertible debentures were convertible
at the option of the holders into a total of 101,213,921 shares, subject to
anti-dilution and other customary adjustments. The decrease in fair value of
$8,550,020 was recorded through the results of operations as an adjustment to
fair value of derivatives during the year ended December 31, 2009. The
assumptions used in the Black-Scholes option pricing model at July 29, 2009 are
as follows: (1) dividend yield of 0%; (2) expected volatility of 190%, (3)
risk-free interest rate of 0.14% – 0.50%, and (4) expected life of 0.01 – 1.09
years. As of December 31, 2009, the convertible debentures were convertible at
the option of the holders into a total of 81,901,980 shares, subject to
anti-dilution and other customary adjustments. The fair value of the embedded
conversion option was $4,519,815 at December 31, 2009, representing a decrease
in the fair value of the liability of $17,644,086 during the year ended December
31, 2009. The assumptions used in the Black-Scholes option pricing model at
December 31, 2009 are as follows: (1) dividend yield of 0%; (2) expected
volatility of 180%, (3) risk-free interest rate of 0.47%, and (4) expected life
of 1.0 years. Additionally, $1,796,368 was recorded in loss on extinguishment of
the 2008 convertible debenture during the year ended December 31, 2009, prior to
the July 29, 2009 modification, as a result of a settlement with a debenture
holder in February 2009. See Note 13. The change in fair value of derivative
liabilities related to the 2005-2007 debentures and warrants for the year ended
December 31, 2007 was $23,211,679.
|
8.
|
AMENDED
CONVERTIBLE PROMISSORY NOTES
|
On August
25, 2009, the Company entered into an amendment to its convertible promissory
notes with JMJ Financial, originally executed on February 14, 2008. The note has
been amended as follows:
|
|
·
|
Note A: The
original issue discount has been increased by 10%, or $60,000, such that
the new principal amount is
$660,000.
|
|
|
·
|
Note B: The
original issue discount has been increased by 10%, or $120,000, such that
the new principal amount is
$1,320,000.
|
All other
terms and conditions of the original convertible promissory note remain in full
force and effect.
Terms
of the Original Notes
The
Company issued and sold a $600,000 unsecured convertible note dated as of
February 15, 2008 (“Note A”) to JMJ Financial, for a net purchase price of
$500,000 (reflecting a 16.66% original issue discount) in a private placement.
Note A bears interest at the rate of 12% per annum, and is due by February 15,
2010. At any time after the 180th day following the effective date of Note A,
the holder may at its election convert all or part of Note A plus accrued
interest into shares of the Company's common stock at the conversion rate of the
lesser of: (a) $0.38 per share, or (b) 80% of the average of the three lowest
trade prices in the 20 trading days prior to the conversion. Pursuant to the Use
of Proceeds Agreement entered into in connection with the issuance of Note A,
the Company is required to use the proceeds from Note A solely for research and
development dedicated to adult stem cell research.
75
Effective
February 15, 2008, in exchange for $1,000,000 in the form of a Secured &
Collateralized Promissory Note (the “JMJ Note”) issued by JMJ Financial to the
Company, the Company issued and sold an unsecured convertible note (“Note B”) to
JMJ Financial in the aggregate principal amount of $1,200,000 or so much as may
be paid towards the balance of the JMJ Note. Note B bears interest at the rate
of 10% per annum, and is due by February 15, 2010. At any time following the
effective date of Note B, the holder may at its election convert all or part of
Note B plus accrued interest into shares of the Company’s common stock at the
conversion rate of the lesser of: (a) $0.38 per share, or (b) 80% of the average
of the three lowest trade prices in the 20 trading days prior to the conversion.
In connection with the issuance of Note B, the Company entered into a Collateral
and Security Agreement dated as of February 15, 2008 with JMJ Financial pursuant
to which the Company granted JMJ Financial a security interest in certain of its
assets securing the JMJ Note. As of December 31, 2009, the Company had drawn
down and received the following amounts under Note B:
· On March 17, 2008 —
$60,000 for a net purchase price of $50,000 (reflecting a 16.66% original issue
discount).
· On June 17, 2008 —
$60,000 for a net purchase price of $50,000 (reflecting a 16.66% original issue
discount).
· On September 8,
2009 — $316,964 for a net purchase price of $250,000 (reflecting a 21.13%
original issue discount).
· On September 30,
2009 — $976,250 for a net purchase price of $770,000 (reflecting a 21.13%
original issue discount).
As long
as any portion of this Notes remain outstanding, unless the holders of at least
67% in principal amount of the then outstanding debentures otherwise give prior
written consent, the Company is not permitted to (a) guarantee or borrow any
indebtedness, (b) enter into any liens, (c) amend its charter documents in any
manner that materially and adversely affects any rights of the holders, (d)
acquire more than a de minimis number of shares of its common stock equivalents
other than as to conversion shares of warrant shares as permitted or required
and repurchases of common stock or common stock equivalents of departing
officers and directors of the Company, provided that such purchases do not
exceed certain specified amounts, (e) repay any indebtedness, other than the
debentures already issued on a pro-rata basis, other than regularly scheduled
principal payments as such terms are in effect under this debenture, (f) pay
cash dividends or distributions on any equity securities of the Company, (g)
enter into any material transaction with any affiliate of the Company, unless
such transaction is made on an arm’s-length basis, or (h) enter into any
agreement with respect to any of the above.
The Note agreement does not limit the number of shares that the Company could be required to issue. The convertible debenture is convertible at the option of the holders into a total of 12,707,990 shares of common stock as of December 31, 2009, subject to anti-dilution and other customary adjustments.
Impact
of Modification
The
Company has considered the impact of ASC 470-50 “Debt-Modifications and
Extinguishments” on the accounting treatment of the change in conversion
price of the Notes. ASC 470-50 states that a transaction resulting in a
significant change in the nature of a debt instrument should be accounted for as
an extinguishment of debt. The difference between the reacquisition price and
the net carrying amount of the extinguished debt should be recognized currently
in income of the period of extinguishment. The Company has concluded that the
issuance of the amendment to the February 15, 2008 convertible promissory notes
constitutes a substantial modification. During the year ended December 31, 2009,
the Company recognized a gain on extinguishment of convertible debentures of
$199,418 representing the difference between the fair value of the amended and
restated convertible promissory notes and the carrying value of the original
convertible promissory notes. The fair value of the amended convertible
debentures at August 25, 2009 was $828,818, net of debt discounts of $29,968
that will be amortized over the remaining life of the amended and restated
convertible debentures. The following table summarizes the convertible
promissory notes:
76
|
December 31, 2008
|
||||
|
Fair
value convertible promissory notes, December 31, 2008
|
$ | 1,757,470 | ||
|
Year ended December 31,
2009
|
||||
|
Convertible
promissory note conversions
|
$ | (1,269,026 | ) | |
|
Additional
procceds from convertible promissory notes
|
2,620,000 | |||
|
Change
in fair value of embedded derivatives through August 15,
2009
|
(478,521 | ) | ||
|
Adjustment
to bifurcate embedded derivatives upon adoption of ASC 815
|
||||
|
on
August 15, 2009
|
(558,949 | ) | ||
|
Accrued
default interest on convertible promissory notes, December 31,
2008
|
194,420 | |||
|
Additional
accrual of default interest through August 15, 2009
|
84,151 | |||
|
Accrued
convertible promissory note interest through August 15,
2009
|
79,720 | |||
|
Gain
on extinguishment on August 15, 2009
|
(249,473 | ) | ||
|
Debt
discounts
|
(2,409,199 | ) | ||
|
Amortization
of debt discounts
|
973,824 | |||
|
December
31, 2009 Balance, Amended convertible promissory notes
|
$ | 744,417 | ||
|
Less:
current portion
|
(685,233 | ) | ||
|
Non-current
portion
|
$ | 59,184 | ||
Interest
expense from amortization of debt discounts for the years ended December 31,
2009 and 2008 was $1,220,220 and $157,235, respectively. Default interest
expense recognized for the years ended December 31, 2009 and 2008 was $84,151
and $194,420,
respectively.
The
Company has complied with the provisions of ASC 815 “Derivatives and Hedging”,
and recorded the fair value of the embedded conversion option liability
associated with the amended convertible promissory notes. The fair value of the
embedded conversion option was valued using the Black-Scholes model, resulting
in a fair value of $558,949 immediately prior to the August 15, 2009
modification. As of August 15, 2009, the convertible promissory notes were
convertible at the option of the holders into a total of 7,934,211 shares just
prior to modification and into a total of 8,644,737 shares just after the
modification, subject to anti-dilution and other customary adjustments. The
decrease in fair value of $496,955 was recorded through the results of
operations as an adjustment to fair value of derivatives during the year ended
December 31, 2009. The assumptions used in the Black-Scholes option pricing
model at August 15, 2009 are as follows: (1) dividend yield of 0%; (2) expected
volatility of 185%, (3) risk-free interest rate of 0.26%, and (4) expected life
of 0.48 years. As of December 31, 2009, the convertible promissory notes were
convertible at the option of the holders into a total of 12,707,990 shares,
subject to anti-dilution and other customary adjustments. The fair value of the
embedded conversion option was $387,391 at December 31, 2009, representing a
decrease in the fair value of the liability of $603,062 during the years ended
December 31, 2009. The assumptions used in the Black-Scholes option pricing
model at December 31, 2009 are as follows: (1) dividend yield of 0%; (2)
expected volatility of 180%, (3) risk-free interest rate of 0.06%, and (4)
expected life of 0.13 years.
During
the year ended December 31, 2009, the Company converted the entire $732,000 of
Note A into 8,061,264 shares of its common stock, and $505,025 of Note B into
6,106,698 shares of its common stock.
Amendment
to Convertible Promissory Notes with JMJ Financial
On
October 1, 2009, October 29, 2009, October 29, 2009 and October 30, 2009, the
Company entered into Addendums (“Notes B1-B4”) to Note B convertible promissory
note, under the same terms and conditions as Note B. The following table
summarizes the key terms of Notes B1-B4:
77
|
Principal
|
||||||||||||||||||||
|
Outstanding
|
||||||||||||||||||||
|
Note
B
|
Effective
|
Maturity
|
Available
|
Principal
|
Interest
|
December
31,
|
||||||||||||||
|
Addendum
|
Date
|
Date
|
Consideration
|
Sum
|
Rate
|
2009
|
||||||||||||||
|
Note
B1
|
10/1/2009
|
10/1/2012
|
$ | 1,120,000 | $ | 1,320,000 | 18 | % | $ | 1,320,000 | ||||||||||
|
Note
B2
|
10/29/2009
|
10/29/2012
|
1,120,000 | 1,320,000 | 18 | % | 330,000 | |||||||||||||
|
Note
B3
|
10/29/2009
|
10/29/2012
|
1,120,000 | 1,320,000 | 18 | % | 117,857 | |||||||||||||
|
Note
B4
|
10/30/2009
|
1/19/2013
|
1,120,000 | 1,320,000 | 18 | % | 117,857 | |||||||||||||
| $ | 4,480,000 | $ | 5,280,000 | $ | 1,885,714 | |||||||||||||||
The
conversion rate of Notes B1-B2 is the lesser of (a) $0.38, or (b) 80% of the
average of the three lowest trade prices in the 20 trading days prior to the
conversion. The conversion rate of Notes B3-B4 is the lesser of (a) $0.25, or
(b) 80% of the average of the three lowest trade prices in the 20 trading days
prior to the conversion.
The
following table summarizes the JMJ Financial convertible promissory notes
outstanding at December 31, 2009:
|
Convertible
promissory notes, principal
|
$ | 2,800,690 | ||
|
Debt
discounts
|
(2,056,273 | ) | ||
|
Net
convertible promissory notes
|
$ | 744,417 | ||
|
Less
current portion
|
(685,233 | ) | ||
|
Convertible
promissory notes, long term
|
$ | 59,184 |
The
Company has complied with the provisions of ASC 815 “Derivatives and Hedging”,
and recorded the fair value of the embedded conversion option liability
associated with the Note B Addendums. The initial fair value of the embedded
conversion option was valued using the Black-Scholes model, resulting in a fair
value of $2,065,370 between October 9 and December 16, 2009 on the various dates
that the money was drawn. The fair value of the embedded conversion option was
again valued using the Black-Scholes model at December 31, 2009, resulting in a
fair value of $2,084,336 as of December 31, 2009. The increase in fair value of
$18,966 was recorded through the results of operations as an adjustment to fair
value of derivatives during the year ended December 31, 2009. The assumptions
used in the Black-Scholes option pricing model between October 9 and December
16, 2009 are as follows: (1) dividend yield of 0%; (2) expected volatility of
180 - 185%, (3) risk-free interest rate of 1.27 - 1.52%, and (4) expected life
of 2.79 - 3.22 years. As of December 31, 2009, the Note B Addendums were
convertible at the option of the holders into a total of 26,190,476 shares,
subject to anti-dilution and other customary adjustments. The assumptions used
in the Black-Scholes option pricing model at December 31, 2009 are as follows:
(1) dividend yield of 0%; (2) expected volatility of 180%, (3) risk-free
interest rate of 1.7%, and (4) expected life of 2.75 – 3.05 years.
The
Company recorded finance costs in the amount of $465,370 in its accompanying
consolidated statement of operations for the year ended December 31, 2009,
representing the excess of the fair value of the conversion option feature over
the face value of Notes B2-B4. Interest expense from amortization of debt
discounts on Notes B1-B4 for the years ended December 31, 2009 and 2008 was
$92,306 and $0, respectively.
78
|
9.
|
2009
CONVERTIBLE PROMISSORY NOTES
|
On
November 12, 2009, the Company entered into a subscription agreement (the
“Subscription Agreement”) with certain subscribers (the “Subscribers”). Pursuant
to the Subscription Agreement, the Company agreed to sell, and the Subscribers
agreed to purchase, subject to the terms and conditions therein, original issue
discount promissory notes in the principal amount of a minimum of $2,400,000,
for a purchase price of a minimum of $2,000,000 (the “Notes”), representing a
16.67% original issue discount. The Notes will be convertible into shares of the
Company’s common stock at a conversion price of $0.10. Pursuant to the
Subscription Agreement, the Company also agreed to issue (i) one-and-one third
Class A warrants (“Class A Warrants”) for each two shares of common stock
underlying the Notes, to purchase shares of the Company’s common stock with a
term of five years and an exercise price of $0.108, (ii) additional investment
rights, exercisable until 9 months after the initial closing date of the
Subscription Agreement (“Additional Investment Rights”), to purchase (a)
original issue discount promissory notes (“AIR Notes”), with the same terms as
the Notes, in the principal amount of up to the principal amount of the Notes to
be purchased by the Subscribers, for a purchase price of up to the purchase
price paid by the Subscribers for the Notes, with a conversion price of $0.10,
and (b) one-and-one third Class B warrants (“Class B Warrants”) for each two
shares of common stock underlying the AIR Notes, to purchase shares of the
Company’s common stock with a term of five years and an exercise price of
$0.108.
The
Company will be required to redeem the Notes monthly commencing in May 2010, in
the amount of 14.28% of the initial principal amount of the Notes, in cash or
common stock at the Company’s option (subject to the conditions set forth in the
Notes), until the Notes are paid in full. The maturity date of the 2009
convertible promissory notes is November 12, 2010.
The
initial closing under the Subscription Agreement occurred on November 12, 2009,
pursuant to which, the Company sold Notes in the principal amount of $1,662,000
for a purchase price of $1,385,000. In addition, on November 13, 2009, the
Company sold Notes in the principal amount of $441,000 for a purchase price of
$367,500 (including $67,500 previously owed to a subscriber for legal services).
The closing that occurred on November 13, 2009 was deemed part of the initial
closing, such that, pursuant to the initial closing under the Subscription
Agreement, the Company sold Notes in the aggregate principal amount of
$2,103,000 for an aggregate purchase price of $1,752,500. Pursuant to the
initial closing under the Subscription Agreement, the Company also issued an
aggregate of (i) 13,984,950 Class A Warrants, and (ii) Additional Investment
Rights for the purchase of up to (a) $4,206,000 principal amount of AIR Notes
for a purchase price of up to $3,505,000 and (b) 28,040,000 Class B
Warrants.
The term
of the warrants is five years and is subject to anti-dilution and other
customary adjustments. The initial fair value of the warrants was estimated at
$1,345,539 using the Black-Scholes pricing model. The warrants were again valued
at $1,200,151 at December 31, 2009 at fair value using the Black-Scholes model,
representing a decrease in the fair value of the liability of $145,388 from the
inception date, which was recorded through the results of operations as an
adjustment to fair value of derivatives. The assumptions used in the
Black-Scholes option pricing model at November 12 and 13, 2009 for all warrants
issued in connection with these promissory notes are as follows: (1) dividend
yield of 0%; (2) expected volatility of 185%, (3) risk-free interest rate of
2.28%, and (4) expected life of 5.0 years. The assumptions used in the
Black-Scholes option pricing model at December 31, 2009 for all warrants issued
in connection with these promissory notes are as follows: (1) dividend yield of
0%; (2) expected volatility of 180%, (3) risk-free interest rate of 2.69%, and
(4) expected life of 4.87 years.
The
Company has complied with the provisions of ASC 815 “Derivatives and Hedging”,
and recorded the fair value of the embedded conversion option liability
associated with the convertible promissory notes. The fair value of the embedded
conversion option liability was valued using the Black-Scholes model, resulting
in an initial fair value of $1,357,408 at November 12 and 13, 2009. The
convertible debenture is convertible at the option of the holders into a total
of 21,030,000 shares of common stock at a conversion price of $0.10 per share,
subject to anti-dilution and other customary adjustments. The assumptions used
in the Black-Scholes option pricing model at November 12 and 13, 2009 are as
follows: (1) dividend yield of 0%; (2) expected volatility of 185%, (3)
risk-free interest rate of 0.32%, and (4) expected life of 1.0 years. The fair
value of the embedded conversion option liability was $1,092,273 at December 31,
2009. The assumptions used in the Black-Scholes option pricing model at December
31, 2009 are as follows: (1) dividend yield of 0%; (2) expected volatility of
180%, (3) risk-free interest rate of 0.47%, and (4) expected life of 0.87 years.
The change in fair value of the embedded conversion option of $265,135 was
recorded through the results of operations as an adjustment to the fair value of
derivatives for the year ended December 31, 2009.
79
Interest
expense for the year ended December 31, 2009 was $281,272. The Company recorded
finance costs in the amount of $950,448 in its accompanying consolidated
statement of operations for the year ended December 31, 2009, representing the
excess of the fair value of the conversion option feature over the face value of
the convertible promissory notes.
The
following table summarizes the 2009 convertible promissory notes outstanding at
December 31, 2009:
|
Convertible
promissory notes, principal
|
$ | 2,103,000 | ||
|
Debt
discounts
|
(1,821,729 | ) | ||
|
Net
convertible promissory notes
|
$ | 281,271 | ||
|
Less
current portion
|
(246,893 | ) | ||
|
Convertible
promissory notes, long term
|
$ | 34,378 |
10. SERIES
A-1 REDEEMABLE CONVERTIBLE PREFERRED STOCK
Effective
March 3, 2009, the Company entered into a $5 million credit facility
(“Facility”) with a life sciences fund. Under the terms of the agreement, the
Company may draw down funds, as needed, from the investor through the issuance
of Series A-1 redeemable convertible preferred stock, par value $.001, at a
basis of 1 share of Series A-1 redeemable convertible preferred stock for every
$10,000 invested.
Conversion
Rights
Any
shares of Series A-1 redeemable convertible preferred stock may, at the option
of the holder, be converted at any time into shares of common stock. The
conversion price for the preferred stock is equal to $0.75 per share of common
stock. The Company must keep available out of its authorized but unissued shares
of common stock, such number of shares sufficient to effect a conversion of all
then outstanding shares of the Series A-1 redeemable convertible preferred
stock. If at any time the number of authorized but unissued shares of common
stock is not sufficient to effect a conversion of all then outstanding shares of
the Series A-1 redeemable convertible preferred stock, the Company must take
necessary action to increase its authorized but unissued shares of common stock
to such number of shares as is sufficient for conversion.
Dividends
The
preferred stock pays dividends, in kind of preferred stock, at an annual rate of
10%, matures in four years from the initial drawdown date, and is convertible
into common stock at $0.75 per share.
Redemption
Rights
Upon the
earlier of (i) the fourth anniversary of the issuance date, and (ii) the
occurrence of a major transaction, each holder shall have the right, at such
holder’s option, to require the Company to redeem all or a portion of such
holder’s share of Series A-1 preferred stock, at a price per share equal to the
Series A-1 liquidation value. The Company has the option to pay the redemption
price in cash or in shares of its common stock. The Company shall have the
right, at its own option, to redeem all or a portion of the shares of Series A-1
redeemable preferred stock, at any time at a price per share of Series A-1
redeemable preferred stock equal to 100% of the Series A-1 liquidation value. In
the event the closing price of the our common stock during the 5 trading days
following the put notice falls below 75% of the average of the closing bid price
in the 5 trading days prior to the put closing date, the investor may, at its
option, and without penalty, decline to purchase the applicable put shares on
the put closing date.
80
Termination
and Liquidation Rights
The
Company may terminate this agreement and its right to initiate future draw-downs
by providing 30 days advanced written notice to the investor. Upon any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, after payment or provision for payment of debts and other
liabilities of the Corporation, before any distribution or payment shall be made
to the holders of any other equity securities of the Company by reason of their
ownership thereof, the holders of the Series A-1 redeemable convertible
preferred stock shall first be entitled to be paid out of the assets of the
Company available for distribution to its stockholders an amount with respect to
each share of Series A-1 redeemable convertible preferred stock equal to
$10,000, plus any accrued by unpaid dividends. If, upon dissolution or winding
up of the Company, the assets of the Company shall be insufficient to make
payment in full to all holders, then such assets shall be distributed among the
holders at the time outstanding, ratably in proportion to the full amounts to
which they would otherwise be respectively entitled. During the year ended
December 31, 2009, the Company drew down $2,588,000 on this credit
facility.
Because
this instrument is redeemable, the Company determined that the Series A-1
redeemable preferred stock has been classified within the mezzanine section
between liabilities and equity in its consolidated balance sheets. The embedded
conversion option has been recorded as a derivative liability in the Company’s
consolidated balance sheets, and changes in the fair value each reporting period
will be reported in adjustments to fair value of derivatives in the consolidated
statements of operations.
The
outstanding balance at December 31, 2009 of $920,696 is convertible into
6,606,958 shares of the Company’s common stock. The Company values the
conversion option initially when each draw takes place. The assumptions used in
the Black-Scholes model to value the embedded conversion option at each draw
date were as follows: (1) dividend yield of 0%; (2) expected
volatility of 180 - 190%, (3) risk-free interest rate of 1.70 - 2.86%, and
(4) expected life of 3.27 - 4.00 years.
The
embedded conversion option was again valued at $525,986 at December 31, 2009 at
fair value using the Black-Scholes model. The decrease in the fair value of the
embedded conversion option liability of $2,094,924 for the year ended December
31, 2009 was recorded through the results of operations as an adjustment to fair
value of derivatives. The assumptions used in the Black-Scholes model to value
the embedded conversion option at December 31, 2009 were as follows:
(1) dividend yield of 0%; (2) expected volatility of 180%,
(3) risk-free interest rate of 1.70%, and (4) expected life of
3.27 years.
The
following table summarizes the Series A-1 redeemable convertible preferred stock
and embedded derivative outstanding at December 31, 2009:
|
December 31,
|
||||
|
2009
|
||||
|
Principal
due
|
$ | 920,696 | ||
|
Accrued
dividend
|
123,609 | |||
|
Debt
discount
|
(136,110 | ) | ||
| 908,195 | ||||
|
Less
current portion
|
- | |||
|
Non-current
portion
|
$ | 908,195 | ||
|
Aggregate
liquidation value*
|
1,044,305 | |||
* Represents the sum of
principal due and accrued dividends.
The
dividends are accrued at a rate of 10% per annum, and the Company records the
accrual as interest expense in its consolidated statements of operations in the
period incurred. The Company recorded accrued dividends on the Series A-1
redeemable convertible preferred stock of $123,609 for the year ended December
31, 2009.
81
For
providing investor relations services in connection with the Series A-1
redeemable convertible preferred stock credit facility, the Company issued a
consultant 24,900,000 shares of its common stock on February 9, 2009. The
Company valued the issuance of these shares at $4,731,000 based on a closing
price of $0.19 on February 9, 2009 and recorded the value of the shares as
deferred financing costs associated with the financing on the date they were
issued. Beginning on the date of the first draw-down on April 6, 2009 (the loan
maturity date is 4 years after the initial draw-down), each quarter the Company
will amortize the deferred issuance costs ratably over the term of the Series
A-1 redeemable convertible preferred stock facility.
The
Company also incurred a non-refundable commitment fee to the holder of this
convertible preferred stock facility in the amount of $250,000. The fee is
payable by the Company in either (a) cash, or (b) common stock. If paid in
common stock, the Company will issue a number of shares valued at 97% of the
volume-weighted average price of its common stock for the five trading days
immediately preceding the effective date of the facility, or March 3, 2009.
Based on this, the Company would be required to issue approximately 2,152,000
shares of the Company’s common stock. Beginning on the date of the first
draw-down on April 6, 2009 (the loan maturity date is 4 years after the initial
draw-down), each quarter the Company amortizes the deferred issuance costs
ratably over the term of the Series A-1 redeemable convertible preferred stock
facility.
Interest
expense from amortization of the debt discount and deferred issuance costs for
the year ended December 31, 2009 was $3,778,850.
Modification
of Series 1-A Convertible Redeemable Preferred Stock
On October
19, 2009, the Company entered into two letter agreements with Volation, pursuant
to which (i) the Company reduced the conversion price of its outstanding Series
A-1 convertible preferred stock issued to Volation to $.10 per share resulting
in 22,880,000 shares of Common Stock upon conversion, (ii) the Company is to
issue Volation 2,500,000 shares of its Common Stock at $0.10 per share in
payment of an outstanding commitment fee, and (iii) Volation waived the
delinquency in non-payment of the $250,000 commitment fee required
pursuant to the preferred stock purchase agreement between the Company and
Volation. The Company has considered the impact of ASC 470-50 “Debt-Modifications and
Extinguishments” on the accounting treatment of the change in conversion
price of the preferred stock. The Company calculated the fair value of the
conversion option for the preferred stock immediately prior to and after the
change in the conversion price, and evaluated the impact of the change in
conversion price. The Company has concluded that the change in conversion price
for this investor constitutes a substantial modification in the terms of the
preferred stock agreement. The change in fair value of the conversion option on
the preferred stock was $2,241,197, or a 98% change relative to the face value
of the preferred stock. The Company recorded a loss on extinguishment of
debentures in the amount of $2,241,197 during the year ended December 31, 2009
as a result of this modification, representing the difference between the fair
value of the new preferred stock instrument and the carrying value of the
original instrument.
11. SERIES
B REDEEMABLE PREFERRED STOCK
On
November 2, 2009 (“Effective Date”), the Company entered into a preferred stock
purchase agreement with Optimus Life Sciences Capital Partners, LLC
(“Investor”). Pursuant to the purchase agreement, the Company agreed to sell,
and the Investor agreed to purchase, in one or more purchases from time to
time in the Company’s sole discretion, (i) up to 1,000 shares of
Series B preferred stock at a purchase price of $10,000 per share, for an
aggregate purchase price of up to $10,000,000, and (ii) five-year warrants to
purchase shares of the Company’s common stock with an aggregate
exercise price equal to 135% of the purchase price paid by the Investor, at an
exercise price per share equal to the closing bid price of the Company’s common
stock on the date the Company provides notice of such tranche. The Warrants will
be issued in replacement of a five-year warrant to purchase 119,469,027 shares
of common stock with an exercise price per share of $0.113 the Company issued on
the Effective Date.
82
The
Company agreed to pay to the Investor a commitment fee of $500,000, at the
earlier of the closing of the first Tranche or the six month anniversary of the
effective date, payable at the Company’s election in cash or common stock valued
at 90% of the volume weighted average price of the Company’s common stock on the
five trading days preceding the payment date. The $500,000 commitment fee
remained outstanding and has been recorded in accrued expenses in the Company’s
consolidated balance sheet at December 31, 2009. The commitment fee will
amortize beginning from the initial issuance date (determined as the first date
upon which shares of the Series B preferred stock are issued) and will amortize
over the four-year term.
On
November 3, 2009, the Company filed a certificate of designations for the Series
B preferred stock (the “Certificate of Designations”). Pursuant to the
Certificate of Designations, the preferred shares shall, with respect to
dividend, rights upon liquidation, winding-up or dissolution, rank: (i)
senior to the Company’s common stock, and any other class or series of preferred
stock of the Company, except Series A-1 Convertible Preferred Stock which shall
rank senior in right of liquidation and pari passu with respect to
dividends; and (ii) junior to all existing and future indebtedness of the
Company.
Dividends
Commencing
on the date of the issuance of any shares of Series B preferred stock, Holders
of Series B preferred stock will be entitled to receive dividends on each
outstanding share of Series B preferred stock, which will accrue in shares of
Series B preferred stock at a rate equal to 10% per annum from the issuance
date. Accrued dividends will be payable upon redemption of the Series B
preferred stock.
Redemption
Rights
Upon or
after the fourth anniversary of the initial issuance date, the Company will have
the right, at the Company’s option, to redeem all or a portion of the shares of
the Series B preferred stock, at a price per shares equal to 100% of the Series
B liquidation value. The preferred stock may be redeemed at the Company’s
option, commencing 4 years from the issuance date at a price per share of
(a) $10,000 per share plus accrued but unpaid dividends (the “Series
B Liquidation Value”), or, at a price per share of : (x) 127% of the Series B
Liquidation Value if redeemed on or after the first anniversary but prior to the
second anniversary of the initial issuance date, (y) 118% of the Series B
Liquidation Value if redeemed on or after the second anniversary but prior to
the third anniversary of the initial issuance date, and (z) 109% of the Series B
Liquidation Value if redeemed on or after the third anniversary but prior to the
fourth anniversary of the initial issuance date.
Termination
and Liquidation Rights
If the
Company determines to liquidate, dissolve or wind-up its business, it must
redeem the Series B preferred stock at the prices set forth above. Upon any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, after payment of provision for payment of debts and other
liabilities of the Company, before any distribution payment shall be made to the
holders of any Junior Securities, the Holders of Series B preferred stock shall
be first entitled to be paid out of the assets of the Company available for
distribution to its stockholders an amount with respect to each share of Series
B preferred stock equal to $10,000, plus any accrued and unpaid dividends. If,
upon dissolution or winding up of the Company, the assets of the Company shall
be insufficient to make payment in full to all holders, then such assets shall
be distributed among the holders at the time outstanding, ratably in proportion
to the full amounts to which they would otherwise be respectively
entitled.
Because
this instrument is redeemable, the Company determined that the Series B
redeemable preferred stock should be classified within the mezzanine section
between liabilities and equity in its consolidated balance sheets.
As of
December 31, 2009, zero shares of Series B preferred stock were
outstanding.
83
12. WARRANT
SUMMARY
Warrant
Activity
A summary
of warrant activity for the years ended December 31, 2009, 2008 and 2007 is
presented below:
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Weighted Average Remaining
Contractual
Life (in years)
|
Aggregate
Intrinsic
Value
(000)
|
|||||||||||||
|
Outstanding,
January 1, 2007
|
102,375,522
|
$ | 0.29 | 4.50 | $ | 105 | ||||||||||
|
Granted
|
2,325,000
|
- | ||||||||||||||
|
Exercised
|
-
|
- | ||||||||||||||
|
Forfeited/Canceled
|
-
|
- | ||||||||||||||
|
Outstanding,
December 31, 2007
|
104,700,522
|
$ | 0.29 | 3.55 | $ | 495 | ||||||||||
|
Granted
|
31,870,465
|
0.15 | ||||||||||||||
|
Exercised
|
-
|
- | - | |||||||||||||
|
Forfeited/Canceled
|
(7,173,036
|
) | 0.25 | |||||||||||||
|
Outstanding,
December 31, 2008
|
129,397,951 | $ | 0.26 | 3 .23 | $ | - | ||||||||||
|
Granted
|
95,620,697 | 0.10 | ||||||||||||||
|
Exercised
|
( 3,019,527 | ) | 0.10 | |||||||||||||
|
Forfeited/Canceled
|
( 3,373,333 | ) | $ | 1.47 | ||||||||||||
|
Outstanding,
December 31, 2009
|
218,625,788 | $ | 0.13 | 4 .35 | 49 | |||||||||||
|
|
||||||||||||||||
| Vested and expected to vest at December 31, 2009 | 218,625,788 | $ | 0.13 | 4 .35 | 49 | |||||||||||
|
Exercisable,
December 31, 2009
|
218,625,788 | $ | 0.13 | 4 .35 | 49 | |||||||||||
The
aggregate intrinsic value in the table above is before applicable income taxes
and is calculated based on the difference between the exercise price of the
warrants and the quoted price of the Company’s common stock as of the reporting
date.
The
following table summarizes information about warrants outstanding and
exercisable at December 31, 2009:
|
Warrants
Outstanding
|
Warrants
Exercisable
|
|||||||||||||||||||
|
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Remaining
Life (Years)
|
Weighted
Average
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||||||
|
$
0.05
|
1,226,000 | 2.68 | $ | 0.05 | 1,226,000 | $ | 0.05 | |||||||||||||
|
0.10
- 0.11
|
205,974,261 | 4.50 | 0.10 | 205,974,261 | 0.10 | |||||||||||||||
|
0.34
|
3,720,588 | 0.76 | 0.34 | 3,720,588 | 0.34 | |||||||||||||||
|
0.38
- 0.40
|
3,080,636 | 3.94 | 0.39 | 3,080,636 | 0.39 | |||||||||||||||
|
0.85
- 0.96
|
4,231,386 | 1.05 | 0.95 | 4,231,386 | 0.95 | |||||||||||||||
|
2.20
|
72,917 | 1.63 | 2.20 | 72,917 | 2.20 | |||||||||||||||
|
2.48
- 2.54
|
320,000 | 1.30 | 2.54 | 320,000 | 2.54 | |||||||||||||||
| 218,625,788 | 218,625,788 | |||||||||||||||||||
The
Company recorded finance costs in the amount of $288,717 in its accompanying
consolidated statement of operations for the year ended December 31, 2009,
representing the value of warrants re-granted that had previously
expired.
84
13.
STOCKHOLDERS’
EQUITY TRANSACTIONS
In
January 2007, the Company issued 300,000 warrants to purchase common stock at
$0.96 per share in connection with consulting services provided during the
quarter. The warrants were valued at approximately $225,000 using the Black
Scholes pricing model with the following assumptions: (1) dividend yield of
0%; (2) expected volatility of 165%, (3) risk-free interest rate of
4.90%, and (4) expected life of 4.0 years. This warrant is classified
as a warrant derivative.
In
January 2007, the Company issued 35,909 fully vested shares of Common Stock as
consideration for service on the Company's Board of Directors and Audit
Committee. These shares are valued at market price on date of
grant.
In
January 2007, the Company issued 515,000 share of Common Stock, valued at
$407,000, to employees. These shares are fully vested at issuance and are valued
at fair market proce on date of grant.
In
February 2007, the Company issued 800,00 shares of Common Stock, valued at
$608,000 based upon the closing price per share on the date of issuance, to
Infigen, Inc. in connection with the execution of a Patent Assignment
Agreement. The Company recorded the $608,000 as deferred royalty fees and will
amortize over an estimated useful life of 10 years.
In April
2007, the Company issued 85,000 shares of common stock in settlement of legal
fees of approximately $68,000. The shares were valued at the closing price per
share on the date of issuance.
In
September 2007, the Company issued 8,064,507 shares of common stock with a value
of approximately $2,419,000 for the acquisition of Mytogen. The shares were
valued at the closing price per share on the date of issuance.
In
September 2007, the Company issued 650,000 warrants to purchase common stock at
$0.38 per share in connection with consulting services provided during the
quarter. The warrants were valued at approximately $176,000 using the Black
Scholes pricing model with the following assumptions: (1) dividend yield of
0%; (2) expected volatility of 151%, (3) risk-free interest rate of
4.25%, and (4) expected life of 5.0 years. This warrant is classified
as a warrant derivative.
In
October 2007, the Company issued 1,250,000 warrants to purchase common stock at
$0.40 per share in connection with consulting services provided during the
quarter. The warrants were valued at approximately $337,000 using the Black
Scholes pricing model with the following assumptions: (1) dividend yield of
0%; (2) expected volatility of 148%, (3) risk-free interest rate of
4.22%, and (4) expected life of 5.0 years. This warrant is classified
as a warrant derivative.
In
December 2007, the Company issued 500,000 warrants to purchase common stock at
$0.40 per share in connection with consulting services provided during the
quarter. The warrants were valued at approximately $19,000 using the Black
Scholes pricing model with the following assumptions: (1) dividend yield of
0%; (2) expected volatility of 145%, (3) risk-free interest rate of
4.51%, and (4) expected life of 5.0 years. This warrant is classified
as a warrant derivative.
The
Company is authorized to issue two classes of capital stock, to be designated,
respectively, preferred stock and common stock. The total number of shares of
preferred stock the Company is authorized to issue is 50,000,000, par value
$0.001 per share. On September 10, 2009, upon approval by a vote of the
Company’s stockholders, the Company increased its authorized shares of common
stock, par value $0.001 from 500,000,000 to 1,750,000,000 shares, effective
immediately. The total number of shares of common stock the Company is
authorized to issue is 1,750,000,000, par value $0.001 per share. The Company
had 92 shares of Series A-1 preferred Stock outstanding and zero shares of
Series B preferred stock outstanding as of December 31, 2009. The Company had
663,649,294 shares of common stock outstanding as of December 31,
2009.
85
Effective
as of April 1, 2008, Jonathan F. Atzen, the Company’s Senior Vice President,
General Counsel and Secretary, resigned from his positions with the Company and
terminated his employment arrangement with the Company. Pursuant to the terms of
an agreement between the Company and Mr. Atzen effective April 1,
2008, the Company agreed to (i) pay Mr. Atzen $48,333.33 in cash as a
severance payment, (ii) issue a fully vested option to purchase an
aggregate of 400,000 shares of common stock pursuant to the Company’s 2005 Stock
Incentive Plan, as amended (the “2005 Plan”), (iii) issue an aggregate of
936,692 shares of the common stock pursuant to the 2005 Plan, (iv) provide
for the vesting of all outstanding stock options held by Mr. Atzen and
(v) provide Mr. Atzen and his family with full healthcare and dental
coverage for a period of 6 months as was provided to Mr. Atzen during
his employment.
Effective
as of March 17, 2008, Ivan Wolkind, the Company's Senior Vice
President—Finance, Administration & Chief Accounting Officer, resigned
from all positions with the Company and voluntarily terminated his employment
arrangement with the Company for personal reasons. On April 2, 2008, the
Company entered into a Consulting Agreement with Mr. Wolkind. Pursuant to
the Consulting Agreement, Mr. Wolkind agreed for a period of 90 days
to provide up to 20 hours per week of financial consulting services to the
Company including but not limited to (i) assisting with general accounting
and investor diligence, (ii) commenting on the structure of proposed
financial transactions, (iii) responding to queries regarding ACT's
corporate structure, and (iv) reviewing strategic and financial documents
as appropriate. As consideration for the services to be provided, the Company
agreed to pay Mr. Wolkind an aggregate of $45,834 of which was paid on
April 2, 2008. As additional consideration for the services to be provided,
the Company agreed to issue to Mr. Wolkind 238,719 shares of common stock
pursuant to the 2005 Plan. On May 2, 2008, the consulting contract was
terminated with no future payments due.
Between
September 29, 2008 and January 20, 2009, the Company was ordered by the Circuit
Court of the Twelfth Judicial District Court for Sarasosa County, Florida to
settle certain past due accounts payable, for previous professional services and
other operating expenses incurred, by the issuance of shares of its common
stock. In aggregate, as of January 30, 2009, the Company settled $1,108,673 in
accounts payable through the issuance of 260,116,283 shares of its common stock.
In 2008, the Company settled $603,474 in accounts payable through the issuance
of 220,735,436 shares of its common stock. In 2009, the Company settled $505,199
in accounts payable through the issuance of 39,380,847 shares of its common
stock. The Company recorded a loss on settlement of $4,793,949 and $5,436,137 in
its accompanying statements of operations for the years ended December 31, 2009
and 2008, respectively. The losses were calculated as the difference between the
amount of accounts payable relieved and the value of the shares (based on the
closing share price on the settlement date) that were issued to repay the
accounts payable.
On March
5, 2009, the Company settled a lawsuit originally brought by an investor in
January 2009, who is an investor in the 2007 and 2008 debentures, and associated
with the default on August 6, 2008 on all debentures. As a result of the
lawsuit, the Company was required by court order to reduce the conversion price
on convertible debentures held by this investor to $0.02 per share, effective
immediately, so long as the Company has a sufficient number of authorized shares
to honor the request for conversion. During the year ended December 31, 2009,
the Company issued 4,847,050 shares of its common stock to this investor in
conversion of approximately $97,000 of its 2006 debenture at $0.02 per share,
and 1,252,950 shares of its common stock to this investor in conversion of
approximately $25,000 of its 2007 debenture at $0.02 per share. The Company has
considered the impact of ASC 470-50 “Debt-Modifications and
Extinguishments” on the accounting treatment of the change in conversion
price of the 2007 and 2008 convertible debentures. ASC 470-50 states that a
transaction resulting in a significant change in the nature of a debt instrument
should be accounted for as an extinguishment of debt. The difference between the
reacquisition price and the net carrying amount of the extinguished debt should
be recognized currently in income of the period of extinguishment. The Company
calculated the fair value of the conversion option for the 2007 and April 2008
debentures immediately prior to and after the change in the conversion price,
and evaluated the impact of the change in conversion price. The Company has
concluded that the change in conversion price for this investor constitutes a
substantial modification in the terms of the 2007 and 2008 debenture agreements.
Based on the Company’s evaluation, the below table summarizes the impact
relative to the debentures’ face value on March 5, 2009.
86
|
Debenture
|
||||||||||||
|
Impact on Debentures
|
Change
|
Face Value
|
% Change
|
|||||||||
|
2007
Debenture
|
$ | 1,319,354 | $ | 6,739,214 | 20 | % | ||||||
|
April
2008 Debenture
|
$ | 477,014 | $ | 4,038,880 | 12 | % | ||||||
| $ | 1,796,368 | $ | 10,778,094 | |||||||||
The
Company recorded a loss on extinguishment of debentures in the amount of
$1,796,368 during the year ended December 31, 2009 as a result of this
modification, representing the difference between the fair value of the new debt
and the carrying value of the original debt.
On June
30, 2009, an investor submitted a conversion notice in the principal amount of
$150,000 into 7,500,000 shares of common stock at $0.02 per share. At that time,
the Company did not have sufficient authorized shares to satisfy this conversion
notice. On July 6, 2009, by means of a settlement between the two parties, the
Company agreed to deliver the 7,500,000 shares of its common stock no later than
September 25, 2009. The Company delivered the 7,500,000 shares on
September 25, 2009. Further, the Company agreed to provide the investor with an
additional $110,000 principal, which is to be upon the same terms and conditions
as the original 2008 debenture. Accordingly, the Company recognized a loss on
settlement in the amount of $110,000 during the year ended December 31, 2009 for
the amount of principal that was added to the 2008 convertible debenture.
Additionally, the Company recognized interest expense in the amount of
$1,210,021, representing the fair value of the conversion option of the $110,000
on July 6, 2009. The full amount of $1,210,021 was recognized in interest
expense in the accompanying consolidation statements of operations for the year
ended December 31, 2009 as a result of the debenture’s default at the
time.
During
the year ended December 31, 2009, the Company issued 375,000 shares of its
common stock in payment for legal services provided. The Company recorded
professional fees in its accompanying statements of operations in the amount of
$38,250 during the year ended December 31, 2009.
During
the year ended December 31, 2009, the Company issued 2,122,495 shares of its
common stock in a cashless exercise of warrants.
14. STOCK-BASED
COMPENSATION
Stock
Plans
The
following table summarizes the Company's stock incentive plans as of December
31, 2009:
|
Options/Shares
|
||||||||||||
|
Options/Shares
|
Options
|
Available
|
||||||||||
|
Stock Plan
|
Issued
|
Outstanding
|
For Grant
|
|||||||||
|
2004
Stock Plan
|
2,492,000 | 820,000 | 370,000 | |||||||||
|
2004
Stock Plan II
|
1,301,161 | 1,071,161 | 230,000 | |||||||||
|
2005
Plan
|
29,605,484 | 26,594,958 | 117,729,029 | |||||||||
| 33,398,645 | 28,486,119 | 118,329,029 | ||||||||||
On
September 10, 2009, upon approval by a vote of the Company’s stockholders, the
Company increased the number of shares of common stock issuable under the 2005
Plan to a total of 145,837,250 shares, issuable as options or shares of common
stock.
Stock
Option Activity
A summary
of option activity for the years ended December 31, 2009, 2008 and 2007 is
presented below:
87
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
Aggregate
|
||||||||||||||
|
Average
|
Remaining
|
Intrinsic
|
||||||||||||||
|
Number of
|
Exercise
|
Contractual
|
Value
|
|||||||||||||
|
Options
|
Price
|
Life (in years)
|
(000)
|
|||||||||||||
|
Outstanding,
January 1, 2007
|
12,874,163 | $ | 0.71 | 8.20 | $ | 1,771 | ||||||||||
|
Granted
|
1,300,000 | 0.75 | ||||||||||||||
|
Exercised
|
(340,000 | ) | 0.05 | |||||||||||||
|
Forfeited/canceled
|
(2,213,192 | ) | 0.83 | |||||||||||||
|
Outstanding,
December 31, 2007
|
11,620,971 | $ | 0.78 | 7.16 | $ | 255 | ||||||||||
|
Granted
|
11,875,734 | 0.21 | ||||||||||||||
|
Exercised
|
(1,200,000 | ) | 0.05 | |||||||||||||
|
Forfeited/canceled
|
(8,169,015 | ) | 0.53 | |||||||||||||
|
Outstanding,
December 31, 2008
|
14,485,580 | $ | 0.51 | 7.71 | $ | - | ||||||||||
|
Granted
|
14,501,273 | - | ||||||||||||||
|
Exercised
|
- | - | ||||||||||||||
|
Forfeited/canceled
|
(500,734 | ) | - | |||||||||||||
|
Outstanding,
December 31, 2009
|
28,486,119 | $ | 0.32 | 8.09 | $ | 33 | ||||||||||
|
Vested
and expected to vest
|
||||||||||||||||
|
at
December 31, 2009
|
27,152,520 | 0.33 | 8.03 | 33 | ||||||||||||
|
Exercisable,
December 31, 2009
|
18,227,664 | 0.43 | 7.37 | 33 | ||||||||||||
The
aggregate intrinsic value in the table above is before applicable income taxes
and is calculated based on the difference between the exercise price of the
options and the quoted price of the Company’s common stock as of the reporting
date.
A summary
of the status of unvested employee stock options as of December 31, 2009 and
changes during the periods ended December 31, 2009, 2008 and 2007, is presented
below:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant Date
|
||||||||
|
Fair Value
|
||||||||
|
Shares
|
Per Share
|
|||||||
|
Unvested
at January 1, 2007
|
3,812,762 | $ | 0.22 | |||||
|
Granted
|
1,300,000 | 0.69 | ||||||
|
Vested
|
(2,115,756 | ) | 0.27 | |||||
|
Forfeited
|
(2,213,192 | ) | 0.36 | |||||
|
Unvested
at December 31, 2007
|
783,814 | $ | 0.46 | |||||
|
Granted
|
10,735,621 | 0.21 | ||||||
|
Vested
|
(2,372,518 | ) | 0.39 | |||||
|
Forfeited
|
(4,377,758 | ) | 0.26 | |||||
|
Unvested
at December 31, 2008
|
4,769,159 | $ | 0.23 | |||||
|
Granted
|
14,501,273 | 0.10 | ||||||
|
Vested
|
(9,011,977 | ) | 0.13 | |||||
|
Forfeited
|
- | - | ||||||
|
Unvested
at December 31, 2009
|
10,258,455 | $ | 0.13 | |||||
88
As of
December 31, 2009, total unrecognized stock-based compensation expense related
to nonvested stock options was approximately $1,006,000, which is expected to be
recognized over a weighted average period of approximately
9.38 years.
The
following table summarizes information about stock options outstanding and
exercisable at December 31, 2009.
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||
|
Average
|
Average
|
Average
|
|||||||||||||||||||
|
Exercise
|
Number
|
Remaining
|
Exercise
|
Number
|
Exercise
|
||||||||||||||||
|
Price
|
of Shares
|
Life (Years)
|
Price
|
of Shares
|
Price
|
||||||||||||||||
| $ |
0.05
|
820,000 | 4.62 | $ | 0.05 | 820,000 | $ | 0.05 | |||||||||||||
|
0.10
|
|
14,501,273 | 9.87 | 0.10 | 7,114,024 | 0.10 | |||||||||||||||
|
0.21
|
5,811,669 | 7.86 | 0.21 | 2,940,462 | 0.21 | ||||||||||||||||
|
0.25 - 0.76
|
1,071,161 | 5.00 | 0.25 | 1,071,161 | 0.25 | ||||||||||||||||
|
0.85
|
5,604,099 | 5.09 | 0.85 | 5,604,100 | 0.85 | ||||||||||||||||
|
1.35 - 2.48
|
677,917 | 5.86 | 2.04 | 677,917 | 2.04 | ||||||||||||||||
| 28,486,119 | 18,227,664 | ||||||||||||||||||||
The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model for options granted during the years ended
December 31, 2009, 2008 and 2007 are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Risk-free
interest rate
|
2.3 – 3.4 | % | 2.5 | % | 4.7 | % | ||||||
|
Expected
life of the options
|
5 -
10 years
|
4
years
|
4
years
|
|||||||||
|
Expected
volatility
|
180-185 | % | 148 | % | 163 | % | ||||||
|
Expected
dividend yield
|
0 | % | 0 | % | 0 | % | ||||||
| Forfeiture rate | 13 | % | 13 | % | 13 | % | ||||||
|
15.
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
The
Company entered into a lease for office and laboratory space in Worcester,
Massachusetts commencing December 2004 and expiring March 31, 2010. On January
29, 2010, the Company signed a new lease to move from its Worcester facility to
a new 10,607 square-foot facility in Marlboro, Massachusetts. The lease term is
from April 1, 2010 through June 30, 2015. Monthly base rent in 2010 will be
$12,596. The Company also entered into a lease for office space in Los Angeles,
California commencing November 2005 and expiring May 2008. The Company’s rent at
its Los Angeles, California site was on a month-to-month basis after May 2008.
On March 1, 2009, the Company vacated its site in Los Angeles, California and
moved to another site in Los Angeles. The term on this new lease is through
February 28, 2011. Monthly base rent is $2,170. Annual minimum lease payments
are as follows:
|
Year
1
|
$ | 164,165 | ||
|
Year
2
|
156,816 | |||
|
Year
3
|
155,127 | |||
|
Year
4
|
157,779 | |||
|
Year
5
|
160,431 | |||
|
Thereafter
|
80,878 | |||
| $ | 875,196 |
89
Rent
expense recorded in the financial statements for the years ended December 31,
2009, 2008 and 2007 was approximately $134,000, $2,183,000 and $1,485,218,
respectively.
Effective
as of April 1, 2008, Jonathan F. Atzen, the Company’s Senior Vice President,
General Counsel and Secretary, resigned from his positions with the Company and
terminated his employment arrangement with the Company. Mr. Atzen had no
disagreements with the Company, its Board of Directors or its management in any
matter relating to the Company’s operations, policies or practices.
Effective
as of March 17, 2008, Ivan Wolkind, the Company's Senior Vice President—Finance,
Administration & Chief Accounting Officer, resigned from all positions with
the Company and voluntarily terminated his employment arrangement with the
Company for personal reasons. Mr. Wolkind had no disagreements with the Company,
its Board of Directors or its management in any matter relating to the Company’s
operations, policies or practices.
On May
26, 2008, Alan G. Walton, Ph., D.Sc. announced his resignation from the Board of
Directors of the Company, effective immediately. Dr. Walton had no disagreements
with the Company, its Board of Directors or its management in any matter
relating to the Company’s operations, policies or practices.
|
|
·
|
Robert
P. Lanza will continue to serve as the Company’s chief scientific officer,
for a term of two years commencing on the Effective Date, subject to
earlier termination as provided in the agreement. The term under the
employment agreement may be extended by mutual written
agreement.
|
|
|
·
|
The
Company will pay Mr. Lanza a base salary of $375,000 per annum, which may
be increased during the term at the sole discretion of the Company’s board
of directors. The Company may also pay Mr. Lanza annual bonuses in the
Company’s sole discretion.
|
|
|
·
|
The
Company will issue to Mr. Lanza 30,270,203 shares of free trading common
stock from the Company’s 2005 Employee Incentive Plan (approved by the
Board of Directors in January
2010).
|
|
|
·
|
If
Mr. Lanza’s employment under the Agreement is terminated by the Company
without cause (as defined therein), the Company will pay Mr. Lanza
severance of one year’s base
salary.
|
On May
31, 2008, the Company settled a dispute as a subtenant to its Alameda,
California office for nonpayment of rent to its sublandlord. The sublease
expired on May 31, 2008. As of that date, $445,000 of base rent, additional
rent, and equipment payments, plus late fees and costs due under the sublease
for a grand total of approximately $475,000 remained unpaid during the period
from January 1, 2008 through May 31, 2008. On the date of the lease expiration,
the Company vacated the premises but failed to remove the equipment that
belonged to the Company. Consequently, the Company has agreed to assign all
rights to the equipment to the sublandlord in partial settlement of amounts
owed. Further, the Company has agreed to assign the sublandlord 62.5% of the
Company’s right, title, and interest in all royalties and 65% of subtenant’s
right, title, and interest in all other consideration payable to the Company
under a license agreement with Embryome Sciences, Inc., dated July 10, 2008,
until such time as the sublandlord has received royalty and other payments equal
to $475,000, including the value of the equipment assigned to the sublandlord.
No further amounts were owed by the Company under the judgment as of December
31, 2009 and 2008, respectively.
On
September 19, 2008, the Company was delivered judgment with respect to the
landlord of its Charlestown, Massachusetts site over unpaid lease amounts. The
Company failed to make its monthly lease payments after December 2007, which
constituted an event of default under the lease agreement. Accordingly, the
Company settled with the landlord in total of $1,751,543 for unpaid rent
expenses, attorney fees, interest and damages for unpaid rent incurred through
September 9, 2008. The Company abandoned its fixed assets at this site upon
vacating the space, and recorded a loss on disposal of fixed assets amounting to
$227,543 in its accompanying consolidated statement of operations during the
year ended December 31, 2008. The Company accrued the remaining balance for the
portion of damages incurred from January 1, 2008 through September 30, 2008 in
accrued expenses its accompanying balance sheet at December 31, 2008, net of one
payment of approximately $147,000. As of December 31, 2009, the Company had paid
the entire amount under the judgment, plus approximately $104,000 in interest,
and no longer has any obligations with respect to this judgment.
90
Between
April 1, 2008 and December 31, 2008, ACT issued 6,619,072 shares of common stock
to several Holders of the 2005, 2006, 2007 and 2008 Debentures primarily for two
reasons: (a) duplicate pre-redemption shares at the time of true-up and (b)
negotiated shares with investors in settlement of various complaints from
Debenture holders. The Company’s policy is to expense the value of these shares
to financing costs in the period the shares were issued or the costs were
otherwise incurred. In 2008, the Company recorded $482,430 as financing costs
associated with the issuance of these shares. At this time, the Company cannot
determine potential legal ramifications arising from the issuance of these
shares, and the Company has concluded that the likelihood of unfavorable
ramifications from the issuance of these shares is remote and not
estimable.
On
October 1, 2007 Gary D. Aronson brought suit against the Company with respect to
a dispute over the interpretation of the anti-dilution provisions of our
warrants issued to Mr. Aronson on or about September 14, 2005. John S. Gorton
initiated a similar suit on October 10, 2007. The two cases have been
consolidated. The plaintiffs allege that we breached warrants to purchase
securities issued by us to these individuals by not timely issuing stock after
the warrants were exercised, failing to issue additional shares of stock in
accordance with the terms of the warrants and failing to provide proper notice
of certain events allegedly triggering Plaintiffs' purported rights to
additional shares. Plaintiffs assert monetary damages in excess of
$14 million. Plaintiffs may alternatively seek additional shares in the
Company with a value potentially in excess of $14 million, or may seek a
combination of monetary damages and shares in the Company. Plaintiffs
also seek prejudgment interest and attorney fees. Discovery is completed,
but no conclusions have been reached as to the potential exposure to us or
whether we have liability. A trial date has been set for March 22, 2010.
The
Company and its subsidiary Mytogen, Inc. are currently defending themselves
against a civil action brought in Suffolk Superior Court, No. 09-442-B, by their
former landlord at 79/96 Thirteenth Street, Charlestown, Massachusetts, a
property vacated by us and Mytogen effective May 31, 2008. In that action,
Alexandria Real Estate-79/96 Charlestown Navy Yard (“ARE”) is alleging that it
has been unable to relet the premises and therefore seeking rent for the vacated
premises since September 2008. Alexandria is also seeking certain clean-up
and storage expenses. The Company is defending against the suit, claiming
that ARE had breached the covenant of quiet enjoyment as of when Mytogen
vacated, and that had ARE used reasonable diligence in its efforts to secure a
new tenant, it would have been more successful. No trial date has been
set. No conclusions have been reached as to the potential exposure to the
Company or whether the Company has a liability.
The
Company has been named as a third party defendant in this action, filed
September 16, 2009, in which the plaintiff alleges that Alexandria Real Estate
(“Alexandria”) improperly charged a trustee holding approximately $146,000 of
funds in a Company account that Bristol claimed as collateral. Alexandria
brought a third party complaint against the Company for indemnification. No
conclusions have been reached as to the potential exposure to the Company or
whether the Company has a liability.
91
On March
9, 2009, plaintiffs filed a complaint and summons in the Supreme Court of the
State of New York, County of New York against the Company and its subsidiary
Mytogen, Inc. Plaintiffs’ complaint alleges, among other things, that the
Company has breached the terms of certain contracts with plaintiffs; namely,
convertible debentures and a consulting agreement. Plaintiffs seek preliminary
and permanent injunctive relief directing the Company to deliver to plaintiff
Bristol Investment Fund, Ltd. (“Bristol”) 2.5 million shares of its common
stock, declaring a conversion price of $0.02 for the convertible debentures held
by plaintiffs, and directing the Company to honor plaintiff’s future conversion
requests. Plaintiffs also seek compensatory damages in an amount to be
determined at trial, but alleged in the complaint to exceed $1.5 million. On May
1, 2009, the Company filed an answer to plaintiffs’ complaint. On May 13, 2009,
the Company filed a motion to stay the action and to compel arbitration of all
claims by Bristol. The court has not yet ruled on the Company’s motion to stay
the action and to compel arbitration. On or about September 16, 2009, plaintiffs
filed an order to show cause, seeking the issuance of a preliminary injunction
directing the Company to deliver to Bristol 2.5 million shares of its
common stock pursuant to a convertible debenture and 47.4 million shares of its
common stock pursuant to common stock purchase warrants, declaring a
conversion price of $0.02 for the convertible debenture held by plaintiffs, and
enjoining or restraining the Company from issuing shares of its common stock to
any entity other than plaintiffs or the other holders of convertible debentures.
On September 25, 2009, the Company submitted its response in opposition to
plaintiffs’ motion and moved by cross-motion for dismissal of the complaint,
based on the terms of the consent, waiver, amendment and exchange agreement
entered into between the Company and the holders of over 95% of the outstanding
principal amount of the Amended and Restated Debentures. The court has not yet
ruled on the respective motions. The Company intends to continue to contest the
case vigorously. Management believes the Company will prevail, and accordingly,
the Company did not recognize a liability in its accompanying consolidated
balance sheet at December 31, 2009.
The
Company has entered into employment contracts with certain executives and
research personnel. The contracts provide for salaries, bonuses and stock option
grants, along with other employee benefits. The employment contracts generally
have no set term and can be terminated by either party. There is a provision for
payments of three months to one year of annual salary as severance if we
terminate a contract without cause, along with the acceleration of certain
unvested stock option grants.
16. INCOME
TAXES
The items
accounting for the difference between income taxes computed at the federal
statutory rate and the provision for income taxes were as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Statutory
federal income tax rate
|
(34 | ) % | (34 | ) % | (34 | ) % | ||||||
|
State
income taxes, net of federal taxes
|
(6 | ) % | (6 | ) % | (6 | ) % | ||||||
|
Non-includable
items
|
(25 | ) % | 8 | % | (19 | ) % | ||||||
|
Increase
in valuation allowance
|
65 | % | 32 | % | 59 | % | ||||||
|
Effective
income tax rate
|
- | - | - | |||||||||
Significant
components of deferred tax assets and (liabilities) are as follows:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$ | 28,666,867 | $ | 39,265,458 | ||||
|
Depreciation
|
84,159 | - | ||||||
|
Capitalized
R&D expenses
|
175,309 | 441,000 | ||||||
|
Deferred
revenue
|
1,826,336 | 1,250,210 | ||||||
|
Losses
from joint venture
|
133,414 | - | ||||||
|
Shares
issued in settlement of accounts payable
|
4,102,264 | - | ||||||
|
Professional
fees paid in stock
|
575,524 | - | ||||||
|
Deferred
interest and finance charges
|
- | 43,000 | ||||||
|
Stock-based
compensation
|
1,341,125 | 1,008,424 | ||||||
|
Reversal
of unpaid liabilities
|
1,582,754 | - | ||||||
|
Valuation
allowance
|
(38,487,752 | ) | (42,008,092 | ) | ||||
|
Net
deferred tax asset
|
$ | - | $ | - | ||||
The
Company files income tax returns in the U.S. federal jurisdiction, and various
state jurisdictions. With few exceptions, the Company is no longer subject to
U.S. federal, state and local income tax examinations by tax authorities for
years before 2002.
92
At
December 31, 2009, the Company had federal and state net operating loss carry
forwards available to offset future taxable income of approximately
$73 million and $64 million respectively. These carry forwards will
begin to expire in the years ending December 31, 2024 and December 31,
2014, respectively. These net operating losses are subject to various
limitations on utilization based on ownership changes in the prior years under
Internal Revenue Code Section 382. The Company is in the process of
analyzing the impact of the ownership changes but management does not believe
they will have a material impact on the Company’s ability to utilize the net
operating losses in the future.
The
Company periodically evaluates the likelihood of the realization of deferred tax
assets, and adjusts the carrying amount of the deferred tax assets by the
valuation allowance to the extent the future realization of the deferred tax
assets is not judged to be more likely than not. The Company considers many
factors when assessing the likelihood of future realization of its deferred tax
assets, including its recent cumulative earnings experience by taxing
jurisdiction, expectations of future taxable income or loss, the carryforward
periods available to the Company for tax reporting purposes, and other relevant
factors.
At
December 31, 2009, based on the weight of available evidence, including
cumulative losses in recent years and expectations of future taxable income, the
Company determined that it was more likely than not that its deferred tax assets
would not be realized and have a $38.0 million valuation allowance
associated with its deferred tax assets.
The
Company adopted the provisions of ASC 740. ASC 740 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. ASC
740 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition.
As a
result of the implementation of ASC 740, the Company reduced its net operating
loss carryforward by $1,550,000. This reduction of the net operating loss
carryforward translated into a reduction of the gross deferred tax asset of
$658,500, with a corresponding reduction of the valuation allowance against that
deferred tax asset. Due to the offsetting effect of the reduction of the
valuation allowance, the adoption of FIN 48 had no impact on the Company's
balance sheets or statements of operations.
The
following table summarizes the activity related to its unrecognized tax
benefits:
|
Total
|
||||
|
Balance
at January 1, 2009
|
$ | 658,500 | ||
|
Increase
related to prior period tax positions
|
- | |||
|
Increase
related to current year tax positions
|
- | |||
|
Expiration
of the statute of limitations for the assessment of taxes
|
- | |||
|
Other
|
- | |||
|
Balance
at December 31, 2009
|
$ | 658,500 | ||
93
The
components of income tax expense are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Current
federal income tax
|
$ | - | $ | - | $ | - | ||||||
|
Current
state income tax
|
- | - | - | |||||||||
|
Deferred
taxes
|
(3,520,340 | ) | 15,414,416 | 9,192,476 | ||||||||
|
Valuation
allowance
|
3,520,340 | (15,414,416 | ) | (9,192,476 | ) | |||||||
| $ | - | $ | - | $ | - | |||||||
Future
changes in the unrecognized tax benefit will have no impact on the effective tax
rate due to the existence of the valuation allowance. The Company estimates that
the unrecognized tax benefit will not change significantly within the next
twelve months. The Company will continue to classify income tax penalties and
interest as part of general and administrative expense in its consolidated
statements of operations. There were no interest or penalties accrued as of
December 31, 2009, 2008 or 2007.
The
following table summarizes the open tax years for each major
jurisdiction:
|
Open Tax
|
|||
|
Jurisdiction
|
Years
|
||
|
Federal
|
2007 - 2009
|
||
|
States
|
2006 - 2009
|
17. RELATED
PARTY TRANSACTIONS
Dr.
Shapiro, one of the Company’s directors, may be deemed the beneficial owner of
the securities owned by The Shapiro Family Trust. Refinanced bridge debt
consisted of $70,000 in unsecured convertible notes previously issued and sold
to The Shapiro Family Trust on March 21, 2008. The net outstanding amount of
principal plus interest of the Notes was converted into the debt within the 2008
debenture on a dollar-for-dollar basis.
Gary
Rabin, a member of the Board of Directors may be deemed the beneficial owner of
the securities owned by PDPI, LLC, in which he holds a partnership interest.
Refinanced debt consisted of $60,000 in an unsecured note previously issued and
sold to PDPI, LLC, and another $61,000 assumed by PDPI, LLC, and consisted of
amounts owed by a third party which were rolled over into the 2008
Debenture.
18. SELECTED
QUARTERLY DATA (UNAUDITED)
|
Quarterly
Periods Ended
|
||||||||||||||||
|
March
31,
|
June
30,
|
September
30,
|
December
31,
|
|||||||||||||
|
2009
|
2009
|
2009
|
2009
|
|||||||||||||
|
Revenue
|
$ | 293,976 | $ | 242,995 | $ | 248,141 | $ | 630,867 | ||||||||
|
Gross
profit
|
$ | 155,224 | $ | 165,648 | $ | 140,092 | $ | 454,116 | ||||||||
|
Loss
from operations
|
$ | (5,685,570 | ) | $ | (1,733,166 | ) | $ | (1,124,287 | ) | $ | (2,279,631 | ) | ||||
|
Other
income (expense)
|
$ | (13,314,306 | ) | $ | (27,703,638 | ) | $ | (79,987 | ) | $ | 15,162,377 | |||||
|
Net
income (loss)
|
$ | (18,999,876 | ) | $ | (29,436,804 | ) | $ | (1,204,274 | ) | $ | 12,882,746 | |||||
|
Earnings
(loss) per share
|
$ | (0.04 | ) | $ | (0.06 | ) | $ | (0.00 | ) | $ | 0.02 | |||||
|
Quarterly
Periods Ended
|
||||||||||||||||
|
March
31,
|
June
30,
|
September
30,
|
December
31,
|
|||||||||||||
|
2008
|
2008
|
2008
|
2008
|
|||||||||||||
|
Revenue
|
$ | 124,343 | $ | 174,388 | $ | 242,195 | $ | 246,180 | ||||||||
|
Gross
profit (loss)
|
$ | (66,385 | ) | $ | 54,202 | $ | 147,015 | $ | (113,495 | ) | ||||||
|
Loss
from operations
|
$ | (5,654,590 | ) | $ | (4,572,784 | ) | $ | (2,623,393 | ) | $ | (6,103,859 | ) | ||||
|
Other
income (expense)
|
$ | (3,865,069 | ) | $ | (1,016,633 | ) | $ | (9,978,249 | ) | $ | (88,936 | ) | ||||
|
Net
loss
|
$ | (9,519,659 | ) | $ | (5,589,417 | ) | $ | (12,601,642 | ) | $ | (6,192,795 | ) | ||||
|
Loss
per share
|
$ | (0.10 | ) | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.02 | ) | ||||
19.
SUBSEQUENT EVENTS
Subsequent events have been evaluated through March 16, 2010, which
is the date the financial statements were issued.
Lease
On
January 29, 2010, the Company signed a new lease to move from its Worcester
facility to a new 10,607 square-foot facility in Marlboro, Massachusetts. The
lease term is from April 1, 2010 through June 30, 2015. Monthly base rent in
2010 will be $12,596.
2009
Convertible Promissory Note
On
February 16, 2010, pursuant to the 2009 convertible promissory notes described
in Note 9, the Company completed the second closing, issuing additional Notes in
the principal amount of up to $2,076,451 for a purchase price of $1,730,376
(including $45,376 previously owed to a subscriber for legal services), in a
closing that was to occur within 90 days of the initial closing. Pursuant to the
initial closing under the Subscription Agreement, the Company also issued an
aggregate of (i) 13,808,400 Class A Warrants.
94
JMJ
Financing
On March
2, 2010, the Company received from JMJ Financial Note B2 a total of $500,000,
which equates to a principal amount of $589,286, including an $89,286 original
issue discount.
Series
A-1 Convertible Preferred Stock
On March
1, 2010, the Company issued 28 shares of its Series A-1 convertible preferred
stock upon receipt of $283,224 under the financing.
Employment
Agreement with Chief Executive Officer
On
February 22, 2010, the Company entered into an employment agreement with William
M. Caldwell, IV, who has been the Company’s chief executive officer and chairman
since January 2005. Pursuant to the Employment Agreement, the parties agreed as
follows:
|
|
·
|
Mr.
Caldwell will continue to serve as the Company’s chief executive officer,
for a term of two and 1/3 years commencing on October 1, 2009, subject to
earlier termination as provided therein. The term under the Employment
Agreement will renew automatically for additional one year terms unless
either party provides written notice of intent not to renew the employment
agreement at least 90 days prior to such automatic
renewal.
|
|
|
·
|
The
Company will pay Mr. Caldwell an initial base salary of $480,000 per
annum, which base salary will increase annually by not less than the
annual increase in the consumer price index, and may be increased during
the term by a greater amount at the sole discretion of the Company’s board
of directors.
|
|
|
·
|
Within
10 days of execution of the employment agreement, Mr. Caldwell received a
retention bonus of $100,000.
|
|
|
·
|
Commencing
in the 2010 calendar year, the Company will pay Mr. Caldwell an annual
bonus based on the performance of the Company’s common stock. The Company
may also pay Mr. Caldwell additional bonuses in the Company’s sole
discretion.
|
|
|
·
|
The
Company will recommend to the Company’s board of directors that the
Company issue to Mr. Caldwell restricted common stock in an amount equal
to the greater of (a) 70,000,000 shares or (b) 7% of the Company’s fully
diluted shares of issued and outstanding common
stock.
|
|
|
·
|
If
Mr. Caldwell’s employment under the Employment Agreement is terminated by
the Company without cause, or by Mr. Caldwell for good reason, the Company
will pay Mr. Caldwell severance of two years’ base
salary.
|
Shares
of Common Stock Issued to Board of Directors
On March
10, 2010, the Company issued 5,000,000 shares of its restricted common stock to
each of its directors in connection with their services on the board of
directors.
On March
2, 2010, the Company delivered its first tranche notice to Optimus Life Sciences
Capital Partners, LLC under the Series B redeemable preferred stock (see Note
11) for funding in the amount of $1,500,000. On March 8, 2010, in connection
with the funding, the Company issued 19,285,714 shares of its common stock upon
exercise of the same number of warrants, which were granted simultaneously with
the Company’s tranche notice. The Company received a secured promissory note in
the amount of $2,025,000 to settle the warrant exercise. Under the terms of the
agreement, the Investor is required to provide funding on the preferred stock
facility on or within 10 trading days from the Company’s tranche notice
date.
95
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Our Chief
Executive Officer and Chief Financial Officer has evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of December 31, 2009. Based upon such
evaluation, the Chief Executive Officer and Chief Financial Officer has
concluded that, as of December 31, 2009, these disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in the reports that we file or submit under the Act is recorded, processed,
summarized and reported within the time periods specified in the Commission’s
rules and forms and is accumulated and communicated to our management, including
the Chief Executive Officer, as appropriate to allow timely decisions regarding
required disclosure.
Management's
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Rules 13a-15(f) and
15d-15(f) promulgated under the Exchange Act. Internal control over
financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, and effected by
the board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States (“US GAAP”), including those
policies and procedures that:
|
•
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
|
•
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with US GAAP and that
receipts and expenditures are being made only in accordance with
authorizations of management and directors of the company;
and
|
|
•
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with policies and procedures may deteriorate.
Our
management has assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, our
management used the criteria described in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment and those criteria, our
management concluded that our internal control over financial reporting as of
December 31, 2009 was effective.
96
Our
internal control over financial reporting as of December 31, 2009 has been
audited by SingerLewak LLP, an independent registered public accounting firm, as
stated in their report that is included in Item 8 of this report and is
incorporated by reference herein.
There were no significant changes in
our internal controls over financial reporting (as such term is defined in
Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the
three months ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Report
of Independent Registered Public Accounting Firm
We have
audited Advanced Cell Technology, Inc. and subsidiary’s internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Advanced Cell Technology, Inc. and subsidiary’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company's internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(a) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (b) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (c)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Advanced Cell Technology, Inc. and subsidiary maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of December
31, 2009 and 2008 and the related consolidated statements of operations,
stockholders’ deficit, and cash flows for each of the three years in the period
ended December 31, 2009 of Advanced Cell Technology, Inc. and subsidiary and our
report dated March 16, 2010 expressed an unqualified opinion.
/s/
SingerLewak LLP
Los
Angeles, California
March 16,
2010
Item
9B. Other Information
None.
97
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our
executive officers, key employees and directors are described below. There are
no family relationships among our executive officers or directors.
|
Name
|
Age
|
Position
|
||
|
William
M. Caldwell, IV
|
62
|
Chief
Executive Officer and Chairman
|
||
|
of
the Board of Directors
|
||||
|
Robert
P. Lanza M.D.
|
53
|
Chief
Scientific Officer
|
||
|
Alan
C. Shapiro, Ph.D.
|
64
|
Member
of the Board of Directors
|
||
|
Erkki
Ruoslahti, M.D., Ph.D.
|
69
|
Member
of the Board of Directors
|
||
|
Gary
Rabin
|
44
|
Member
of the Board of Directors
|
William M. Caldwell, IV has
been our Chief Executive Officer and Chairman of the Board of Directors since
January 2005. He has a 30-year management career working with emerging
technologies and restructuring distressed corporate environments. During his
career he has served in senior executive positions both in marketing and
finance. He has worked with Booz Allen and Hamilton; the Flying Tiger
Line Inc.; Van Vorst Industries; and Kidder Peabody. He started a firm
specializing in strategy and financial planning which was instrumental in
restructuring over $1.0 billion of debt for over twenty companies and
partnerships. He was a pioneer in the satellite radio auctions as President of
Digital Satellite Broadcasting Corporation; assisted in the financing and became
President and ultimately CEO in the restructuring of CAIS Internet, and has
advised corporations, both public and private, in technology,
telecommunications, retailing, real estate, hospitality, publishing, and
transportation. He received his B.A. degree from the University of Southern
California and was a Multinational Enterprise Fellow at the Wharton School of
Finance. He serves as a director of Lee Pharmaceuticals and King Koil
Franchising Corp. Mr. Caldwell is not an officer or director of any other
reporting company. Mr. Caldwell's long career as a CEO and board member with
companies in diverse industries qualifies him to be a board member of Advanced
Cell Technology, Inc.
Robert P. Lanza, M.D. is our
Chief Scientific Officer. Dr. Lanza has over 20 years of research and
industrial experience in the areas of tissue engineering and transplantation
medicine. Before joining us in 1998, from 1990 to 1998, Dr. Lanza was
Director of Transplantation Biology at BioHybrid Technologies, Inc., where
he oversaw that company's xenotransplantation and bioartificial pancreas
programs. He has edited or authored sixteen books, including Principles of
Tissue Engineering (2d ed. co-edited with R. Langer and J. Vacante), Yearbook of
Cell and Tissue Transplantation, One World The Health & Survival of the
Human Species in the Twenty-First Century, and Xeno: The Promise of
Transplanting Animal Organs into Humans (co-authored with D.K.C. Cooper).
Dr. Lanza received his B.A. and M.D. Degrees from
the University of Pennsylvania, where he was both a University Scholar and
Benjamin Franklin Scholar. Dr. Lanza is not an officer or director of any
other reporting company.
98
Alan C. Shapiro, Ph.D. has
served as director since 2005. He adds more than 30 years' experience in
corporate and international financial management to Advanced Cell Technology.
Dr. Shapiro is currently the Ivadelle and Theodore Johnson Professor of
Banking and Finance at the Marshall School of Business, University of Southern
California, where he previously served as the Chairman of the Department of
Finance and Business Economics, Marshall School of Business. Prior to joining
the University of Southern California, Dr. Shapiro taught as an Assistant
Professor at the University of Pennsylvania, Wharton School of Business, and has
been a visiting professor at Yale University, UCLA, the Stockholm School of
Economics, University of British Columbia, and the U.S. Naval Academy.
Dr. Shapiro has published over 50 articles in such academic and
professional journals as the Journal of Finance, Harvard Business Review, and
the Journal of Business, among many others. He frequently serves as an expert
witness in cases involving valuation, economic damages, international finance,
takeovers, and transfer financing through Trident Consulting Group LLC. He
received his B.A. in Mathematics from Rice University, and a Ph.D. in Economics
from Carnegie Mellon University. Dr. Shapiro is a trustee of Pacific
Corporate Group's Private Equity Fund. Dr. Shapiro’s board experience on
multiple public company boards, his recognized expertise as a highly sought
after financial advisor and his career as a professor and Chair in the field of
Finance and Administration qualifies him as a valued member of Advanced Cell
Technology’s Board of Directors.
Erkki Ruoslahti, M.D., Ph.D.
has served as a director since November 2005. Dr. Ruoslahti joined The
Burnham Institute in 1979 and served as its President from 1989 to 2002.
Dr. Ruoslahti is the recipient of the 2005 Japan Prize for his work in cell
biology. Dr. Ruoslahti's other honors include the Gairdner Prize, and
membership in the U.S. National Academy of Sciences, Institute of Medicine, and
American Academy of Arts and Sciences. He is a Knight of the Order of the White
Rose of Finland. Dr. Ruoslahti earned his M.D. and Ph.D. from the
University of Helsinki in Finland. After postdoctoral training at the California
Institute of Technology, he held various academic appointments in Finland and at
City of Hope National Medical Center in Duarte, California. Dr. Ruoslahti's
research has been the basis of several drugs currently on the market or in
clinical trials. He has been a founder and director of several biotechnology
companies. Dr. Ruoslahti is not an officer or director of any other
reporting company. Based upon his scientific background and years as a senior
operations manager in the scientific research and development community, Dr.
Ruoslahti is uniquely qualified to be a member of Advanced Cell Technology’s
Board of Directors.
99
CORPORATE
GOVERNANCE
General
We believe that good corporate
governance is important to ensure that the Company is managed for the long-term
benefit of our stockholders. This section describes key corporate governance
practices that we have adopted.
Board
of Directors Meetings and Attendance
The Board of Directors has
responsibility for establishing broad corporate policies and reviewing our
overall performance rather than day-to-day operations. The primary
responsibility of our Board of Directors is to oversee the management of our
company and, in doing so, serve the best interests of the company and our
stockholders. The Board of Directors selects, evaluates and provides for the
succession of executive officers and, subject to stockholder election,
directors. It reviews and approves corporate objectives and strategies, and
evaluates significant policies and proposed major commitments of corporate
resources. Our Board of Directors also participates in decisions that have a
potential major economic impact on our company. Management keeps the directors
informed of company activity through regular communication, including written
reports and presentations at Board of Directors and committee
meetings.
We have no formal policy regarding
director attendance at the annual meeting of stockholders. The Board of
Directors held one meeting in 2009. All five board members were present at the
meeting.
Our Board of Directors has established
an Audit Committee, a Compensation Committee and a Nominating and Corporate
Governance Committee. The members of each committee are appointed by our Board
of Directors, upon recommendation of the Nominating Committee, and serve
one-year terms. Each of these committees operates under a charter that has been
approved by the Board of Directors. The charter for each committee is available
on our website. The Audit Committee met six times during 2009. The Compensation
Committee met twice during 2009. The Nominating Committee did not meet during
2009.
Audit
Committee
The Audit
Committee's responsibilities include:
|
|
·
|
Monitoring
the integrity of the Company's financial reporting process and systems of
internal controls regarding finance, accounting and legal
compliance.
|
|
|
·
|
Monitoring
the independence and performance of the Company's internal and independent
auditors.
|
|
|
·
|
Monitoring
compliance by the Company with legal and regulatory
requirements.
|
100
|
|
·
|
Facilitating
open communication among the Company's independent auditors, internal
auditors, employees, management, and the
Board.
|
Dr. Shapiro, Dr. Ruoslahti
and Mr. Rabin serve on our Audit Committee. Dr. Shapiro serves as
chair of the Audit Committee. The Board of Directors has determined that
Dr. Shapiro is an "audit committee financial expert" as defined in
Item 401(e) of Regulation S-B. The Board has determined that
Dr. Shapiro meets the additional independence requirements of
Rule 10A-3 under the Securities Exchange Act of 1934.
Compensation
Committee
The
Compensation Committee's responsibilities include:
|
|
·
|
Reviewing
and recommending approval of the compensation of our executive
officers,
|
|
|
·
|
Overseeing
the evaluation of our senior
executives,
|
|
|
·
|
Reviewing
and making recommendations to the Board of Directors regarding incentive
compensation and equity-based
plans,
|
|
|
·
|
Administering
our stock incentive plans, and
|
|
|
·
|
Reviewing
and making recommendations to the Board of Directors regarding director
compensation.
|
The members of the Compensation
Committee are Dr. Shapiro, Dr. Ruoslahti, Mr. Rabin and
Mr. Caldwell.
Nominating
Committee
The
Nominating Committee's responsibilities include:
|
|
·
|
Identifying
individuals qualified to become board
members;
|
|
|
·
|
Recommending
to the Board the persons to be nominated for election as directors and to
each of the board's committees;
|
|
|
Reviewing
and making recommendations to the Board with respect to senior management
succession planning; and
|
|
|
·
|
Overseeing
an annual evaluation of the Board.
|
The
members of the Nominating Committee are Dr. Shapiro, Dr. Ruoslahti and
Mr. Rabin.
Changes
in Nominating Procedures
None.
101
Director
Candidates
The
process followed by the Nominating Committee to identify and evaluate director
candidates includes requests to board members and others for recommendations,
meetings from time to time to evaluate biographical information and background
material relating to potential candidates and interviews of selected candidates
by members of the Nominating Committee and the Board.
In considering whether to recommend any
particular candidate for inclusion in the Board's slate of recommended director
nominees, the Nominating Committee applies certain criteria,
including
|
|
·
|
The
candidate's honesty, integrity and commitment to high ethical
standards,
|
|
|
·
|
Demonstrated
financial and business expertise and
experience,
|
|
|
·
|
Understanding
of our company, its business and its
industry,
|
|
|
·
|
Actual
or potential conflicts of interest,
and
|
|
|
·
|
The
ability to act in the interests of all
stockholders.
|
The Nominating Committee does not
assign specific weights to particular criteria and no particular criterion is a
prerequisite for each prospective nominee. We believe that the backgrounds and
qualifications of our directors, considered as a group, should provide a
significant breadth of experience, knowledge and abilities that will allow our
Board to fulfill its responsibilities.
The Nominating Committee will consider
director candidates recommended by stockholders or groups of stockholders who
have owned more than 5% of our common stock for at least a year as of the date
the recommendation is made. Stockholders may recommend individuals to the
Nominating Committee for consideration as potential director candidates by
submitting their names, together with appropriate biographical information and
background materials and a statement as to whether the stockholder or group of
stockholders making the recommendation has beneficially owned more than 5% of
our common stock for at least a year as of the date such recommendation is made,
to the Nominating Committee, c/o Corporate Secretary, Advanced Cell
Technology, Inc., 381 Plantation Street, Worcester, Massachusetts.
Assuming that appropriate biographical and background material have been
provided on a timely basis, the Committee will evaluate stockholder-recommended
candidates by following substantially the same process, and applying
substantially the same criteria, as it follows for candidates submitted by
others.
Communicating
with the Directors
The Board will give appropriate
attention to written communications that are submitted by stockholders, and will
respond if and as appropriate. The chair of the Audit Committee is primarily
responsible for monitoring communications from stockholders and for providing
copies or summaries to the other directors as he considers
appropriate.
Communications are forwarded to all
directors if they relate to important substantive matters and include
suggestions or comments that the chair of the Audit Committee considers to be
important for the directors to know. In general, communications relating to
corporate governance and corporate strategy are more likely to be forwarded than
communications relating to ordinary business affairs, personal grievances and matters as to which we tend to
receive repetitive or duplicative communications.
102
Stockholders
who wish to send communications on any topic to the Board should address such
communications to the Board of Directors, c/o Corporate Secretary, Advanced Cell
Technology, Inc., 381 Plantation Street, Worcester, Massachusetts,
01605. You should indicate on your correspondence that you are an Advanced Cell
Technology, Inc. stockholder.
Anyone may express concerns regarding
questionable accounting or auditing matters or complaints regarding accounting,
internal accounting controls or auditing matters to the Audit Committee by
calling (508) 756-1212. Messages to the Audit Committee will be received by
the chair of the Audit Committee and our Corporate Secretary. You may report
your concern anonymously or confidentially.
Board
Leadership Structure and Role in Risk Oversight
Although we have not adopted a formal
policy on whether the Chairman and Chief Executive Officer positions should be
separate or combined, we have traditionally determined that it is in the best
interests of the Company and its shareholders to combine these
roles. Mr. Caldwell has served as our Chairman since January
2005. Due to the small size and early stage of the Company, we
believe it is currently most effective to have the Chairman and Chief Executive
Officer positions combined.
Our Audit Committee is primarily
responsible for overseeing our risk management processes on behalf of our board
of directors. The Audit Committee receives and reviews periodic
reports from management, auditors, legal counsel, and others, as considered
appropriate regarding our company’s assessment of risks. In addition, the Audit
Committee reports regularly to the full Board of Directors, which also considers
our risk profile. The Audit Committee and the full Board of Directors focus on
the most significant risks facing our company and our company’s general risk
management strategy, and also ensure that risks undertaken by our Company are
consistent with the Board’s appetite for risk. While the Board oversees our
company’s risk management, management is responsible for day-to-day risk
management processes. We believe this division of responsibilities is the most
effective approach for addressing the risks facing our company and that our
Board leadership structure supports this approach.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act
requires the Company's directors, executive officers and persons who own more
than 10% of the Company's stock (collectively, "Reporting Persons") to file with
the SEC initial reports of ownership and changes in ownership of the Company's
common stock. Reporting Persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file. To the
Company's knowledge, based solely on its review of the copies of such reports
received or written representations from certain Reporting Persons that no other
reports were required, the Company believes that during its fiscal year ended
December 31, 2008, all Reporting Persons timely complied with all
applicable filing requirements.
103
Code
of Ethics
We have adopted a code of business
conduct and ethics that applies to our directors, officers (including our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions) as well as our
employees. A copy of our code of business conduct and ethics is available on our
website at www.advancedcell.com under
"Investors—Corporate Governance." We intend to post on our website all
disclosures that are required by applicable law, the rules of the Securities and
Exchange Commission or OTCBB listing standards concerning any amendment to, or
waiver from, our code of business conduct and ethics.
The following table summarizes the
annual compensation paid to our named executive officers for the two years ended
December 31, 2008 and 2007:
Summary
Compensation Table
The
following table summarizes the annual compensation paid to our named executive
officers for the two years ended December 31, 2009, 2008 and
2007:
|
Stock
|
Option
|
All
Other
|
||||||||||||||||||||
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Total
|
|||||||||||||||||
|
Name
and Principal Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|||||||||||||||
|
William
M. Caldwell, IV
|
2009
|
417,500 | 140,000 | - | 131,826 | 1,879 | (1) | 691,205 | ||||||||||||||
|
Chief
Executive Officer,
|
2008
|
350,000 | - | - | - | 995 | (1) | 350,995 | ||||||||||||||
|
Principle
Financial Officer, and
|
2007
|
348,374 | 150,000 | - | - | 2,376 | (1) | 500,750 | ||||||||||||||
|
Chairman
of the Board of Directors
|
||||||||||||||||||||||
|
Robert
P. Lanza, M.D.,
|
2009
|
311,250 | 81,250 | - | 320,515 | 1,524 | (1) | 714,539 | ||||||||||||||
|
Chief
Scientific Officer
|
2008
|
290,000 | 35,000 | - | 168,237 | 636 | (1) | 493,873 | ||||||||||||||
|
2007
|
342,805 | 50,000 | - | 28,910 | 483 | (1) | 422,198 | |||||||||||||||
|
Jonathan
F. Atzen
|
2008
|
78,077 | - | 93,669 | 1,598 | 3,001 | (2) | 176,345 | ||||||||||||||
|
Sr.
Vice President, General Counsel
|
2007
|
338,537 | 60,000 | - | 6,391 | 12,360 | (2) | 417,288 | ||||||||||||||
|
and
Secretary (2)
|
||||||||||||||||||||||
Please
see the assumptions relating to the valuation of our stock option awards which
are contained in Notes to audited Financial Statements included in this
10K.
(1) This
amount represents a life insurance premium paid by the Company for the named
executive officer.
(2)
Effective as of March 7, 2008, Mr. Atzen resigned from his positions
at the Company and terminated his employment arrangement with the Company. This
amount in 2008 represents $2,670 in payments made to Mr. Atzen as part of
his $1,000 monthly car allowance through his termination date and $331 in
life insurance premiums paid by the Company for Mr. Atzen. This amount in
2007 represents $12,000 in payments made to Mr. Atzen as part of his
$1,000 monthly car allowance and $360 in life insurance premiums paid by
the Company for Mr. Atzen.
Employment Agreement with William M.
Caldwell, IV On February 22, 2010, we entered into an employment
agreement with William M. Caldwell, IV, who has been our chief executive officer
and chairman since January 2005. Pursuant to the Employment Agreement, the
parties agreed as follows:
|
|
·
|
Mr.
Caldwell will continue to serve as our chief executive officer, for a term
of two and 1/3 years commencing on October 1, 2009, subject to earlier
termination as provided therein. The term under the Employment Agreement
will renew automatically for additional one year terms unless either party
provides written notice of intent not to renew the employment agreement at
least 90 days prior to such automatic
renewal.
|
104
|
|
·
|
We
will pay Mr. Caldwell an initial base salary of $480,000 per annum, which
base salary will increase annually by not less than the annual increase in
the consumer price index, and may be increased during the term by a
greater amount at the sole discretion of the Company’s board of
directors.
|
|
|
·
|
Within
10 days of execution of the employment agreement, Mr. Caldwell received a
retention bonus of $100,000.
|
|
|
·
|
Commencing
in the 2010 calendar year, we will pay Mr. Caldwell an annual bonus based
on the performance of our common stock. We may also pay Mr. Caldwell
additional bonuses in the Company’s sole
discretion.
|
|
|
·
|
We
will recommend to the Company’s board of directors that the Company issue
to Mr. Caldwell restricted common stock in an amount equal to the greater
of (a) 70,000,000 shares or (b) 7% of the Company’s fully diluted shares
of issued and outstanding common
stock.
|
|
|
·
|
If
Mr. Caldwell’s employment under the Employment Agreement is terminated by
the Company without cause, or by Mr. Caldwell for good reason, we will pay
Mr. Caldwell severance of two years’ base
salary.
|
Employment Agreement with Robert P.
Lanza, M.D. On October 1, 2009, the Company
entered into an employment agreement (the “Agreement”) with Robert P. Lanza, the
Company’s chief scientific officer since October 2007. Pursuant to the
Agreement, the parties agreed as follows:
|
·
|
Robert
P. Lanza will continue to serve as the Company’s chief scientific officer,
for a term of two years commencing on October 1, 2009, subject to earlier
termination as provided therein. The term under the Agreement may be
extended by mutual written
agreement.
|
|
·
|
The
Company will pay Mr. Lanza a base salary of $375,000 per annum, which may
be increased during the term at the sole discretion of the Company’s board
of directors. The Company may also pay Mr. Lanza annual bonuses in the
Company’s sole discretion.
|
|
·
|
The
Company will issue to Mr. Lanza 30,270,203 shares of free trading common
stock from the Company’s 2005 Employee Incentive
Plan.
|
|
·
|
If
Mr. Lanza’s employment under the Agreement is terminated by the Company
without cause, the Company will pay Mr. Lanza severance of one year’s base
salary.
|
105
Outstanding
Equity Awards at Fiscal Year-End
|
Number
of
|
Number
of
|
||||||||||||
|
Securities
|
Securities
|
||||||||||||
|
Underlying
|
Underlying
|
Option
|
Option
|
||||||||||
|
Unexercised
|
Unexercised
|
Exercise
|
Expiration
|
||||||||||
|
Options
(#)
|
Options
(#)
|
Price
|
Date
|
||||||||||
|
Name
|
Exercisable
|
Unexercisable
|
($)
|
($)
|
|||||||||
|
William
M. Caldwell, IV
|
651,161 | (1) | - | 0.25 |
12/31/2014
|
||||||||
|
Chief
Executive Officer and
|
1,903,112 | (1) | - | 0.85 |
1/31/2015
|
||||||||
|
Chairman
of the Board of Directors
|
1,383,565 | (2) | 1,170,708 | 0.098 |
11/13/2019
|
||||||||
|
Robert
P. Lanza, M.D.,
|
750,000 | (3) | - | 0.05 |
8/12/2014
|
||||||||
|
Chief
Scientific Officer
|
500,000 | (4) | - | 0.85 |
1/31/2015
|
||||||||
| 250,000 | (3) | - | 2.20 |
9/15/2015
|
|||||||||
| 1,896,552 | (5) | 2,103,448 | 0.21 |
2/17/2018
|
|||||||||
| 2,897,917 | (6) | 2,452,083 | 0.098 |
11/13/2019
|
|||||||||
(1) These
options held by Mr. Caldwell vested in full as of December 31,
2008.
(2) These
options held by Mr. Caldwell vest as follows: 50% of the shares vest
immediately with the remaining vesting at 1/12 per month.
|
(3)
|
These
options held by Dr. Lanza vested in full as of December 31,
2006.
|
|
(4)
|
These
options held by Dr. Lanza vested in full as of January 31,
2009.
|
|
(5)
|
These
options held by Dr. Lanza vest in equal monthly installments over
48 months.
|
|
(6)
|
These
options held by Dr. Lanza vest as follows: 50% of the shares vest
immediately with the remaining vesting at 1/12 per
month.
|
|
Fees
Earned
|
Stock
|
Option
|
All
Other
|
|||||||||||||||||||
|
or
Paid in Cash
|
Awards
|
Awards
|
Compensation
|
Total
|
||||||||||||||||||
|
Name and Principal Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
||||||||||||||||
|
Alan
C. Shapiro, Ph.D.
|
2009
|
72,188 | - | - | - | 72,188 | ||||||||||||||||
|
Erkki
Ruoslahti, M.D., Ph.D.
|
2009
|
15,850 | - | - | - | 15,850 | ||||||||||||||||
|
Gary
Rabin
|
2009
|
141,250 | - | - | - | 141,250 | ||||||||||||||||
Director
Compensation Arrangements
Non-executive
members of the Company's Board of Directors receive (1) an initial grant of
100,000 shares of common stock, (2) an annual grant of 100,000 shares of
common stock (this number has been increased to 200,000 for 2008), (3) an
annual retainer of $40,000 (payable quarterly) and (4) a cash payment for
attendance at each board meeting in the amount of $1,500 for in-person meetings
and $1,000 for telephonic meetings. Regarding members of the Company's Audit
Committee, the Chair receives a payment of $1,500 per meeting and the regular
members receive $1,000 per meeting. With respect to the Company's Compensation
Committee and the Company's Nominating and Corporate Governance Committee, the
Chair receives a payment of $1,125 per meeting and the regular members receive
$750 per meeting. Each director is entitled to receive payment of the directors'
fees in the form of shares of the Company's Common Stock valued at 150% of the
actual directors' fees due and payable. The fee structure for the directors was
established and approved by the Compensation Committee and ratified by the full
Board of Directors.
106
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Beneficial
Ownership of Directors, Officers and 5% Stockholders
The following table sets forth certain
information regarding the beneficial ownership of our Common Stock as of March
12, 2010. On such date, 747,932,679 shares of Common Stock were outstanding.
Beneficial ownership is determined in accordance with the applicable rules of
the Securities and Exchange Commission and includes voting or investment power
with respect to shares of our Common Stock. The information set forth below is
not necessarily indicative of beneficial ownership for any other purpose, and
the inclusion of any shares deemed beneficially owned in this table does not
constitute an admission of beneficial ownership of those shares. Unless
otherwise indicated, to our knowledge, all persons named in the table have sole
voting and investment power with respect to their shares of Common Stock,
except, where applicable, to the extent authority is shared by spouses under
applicable state community property laws.
|
|
·
|
Each
person, or group of affiliated persons, known to us to be the beneficial
owner of more than 5% of the outstanding shares of our Common
Stock,
|
|
|
·
|
Each
of our directors and named executive officers,
and
|
|
|
·
|
All
of our directors and executive officers as a
group.
|
|
Number
of
|
||||||||
|
Shares
|
||||||||
|
Beneficially
|
||||||||
|
Name and Address (1) of Beneficial Owner
|
Owned
|
Percentage
|
||||||
|
5%
or Greater Stockholders
|
||||||||
|
None
|
||||||||
|
Directors
and Named Executive Officers
|
||||||||
|
William
M. Caldwell, IV
|
5,210,586 | (2) | * | |||||
|
Robert
P. Lanza, M.D.
|
6,594,469 | (3) | * | |||||
|
Alan
C. Shapiro
|
15,901,144 | (4) | 2.11 | % | ||||
|
Erkki
Ruoslahti
|
5,120,086 | (5) | * | |||||
|
Gary
Rabin
|
7,037,430 | (6) | * | |||||
|
Directors
and Executive Officers as a Group ( 5 Persons)
|
39,863,715 | 5.19 | % | |||||
107
* Less than 1%
(1)
Unless otherwise indicated, the address of the beneficial owner is 381
Plantation Street, Worcester, Massachusetts 01605.
|
(2)
|
Includes
3,937,838 shares subject to stock options that are currently exercisable
or exercisable within 60 days of December 31, 2009 that are held
directly by Mr. Caldwell. Also includes 1,026,000 shares issuable
upon exercise of certain warrants help by Andwell, LLC, which is 100%
owned by Mr. Caldwell.
|
|
(3)
|
Includes
6,294,469 shares subject to stock options that are currently exercisable
or exercisable within 60 days of December 31,
2009.
|
|
(4)
|
Includes
(i) indirect ownership of 3,794,883 shares and 4,215,020 shares
subject to convertible debentures held by The Shapiro Family Trust and of
which Dr. Shapiro may be deemed the beneficial owner,
(ii) 2,704,178 shares subject to warrants held by The Shapiro Family
Trust and of which Dr. Shapiro may be deemed the beneficial owner,
and (iii) 100,000 shares subject to stock options that are currently
exercisable or exercisable within 60 days of December 31,
2009.
|
|
(5)
|
Includes
100,000 shares subject to stock options that are currently exercisable or
exercisable within 60 days of December 31,
2009.
|
|
(6)
|
Includes
indirect ownership of 2,037,430 shares issuable upon exercise of certain
warrants held by PDP I, LLC, which such number of shares represents
Mr. Rabin's proportional interest in the total number of shares held
by PDPI, LLC, based on his 33.33% equity interest in the
entity.
|
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
None of
the following parties has, during the year ended December 31, 2009, had any
material interest, direct or indirect, in any transaction with us or in any
presently proposed transaction that has or will materially affect us, other than
as noted in this section:
|
|
·
|
Any
of our directors or officers,
|
|
|
·
|
Any
person proposed as a nominee for election as a
director,
|
|
|
·
|
Any
person who beneficially owns, directly or indirectly, shares carrying more
than 5% of the voting rights attached to our outstanding shares of common
stock,
|
|
|
·
|
Any
of our promoters, and
|
|
|
·
|
Any
relative or spouse of any of the foregoing persons who has the same house
as such person.
|
All references to share numbers in this
section are on a pre-reverse split basis.
108
Board
Determination of Independence
The
Company complies with the standards of "independence" prescribed by rules set
forth by the National Association of Securities Dealers ("NASD"). Accordingly, a
director will only qualify as an "independent director" if, in the opinion of
our Board of Directors, that person does not have a material relationship with
our company which would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. A director who is, or at any
time during the past three years, was employed by the Company or by any parent
or subsidiary of the Company, shall not be considered independent. Accordingly,
Dr. Alan Shapiro, Dr. Erkki Ruoslahti and Mr. Gary Rabin meet the
definition of "independent director" under Rule 4200(A)(15) of the NASD Manual;
Mr. Caldwell does not.
Item
14. Principal Accounting Fees and Services
The
following table summarizes the fees of our current independent registered public
accounting firm, SingerLewak LLP, billed to us for
each of the last two fiscal years for audit services and billed to us in each of
the last two years for other services:
|
Fee Category
|
2009
|
2008
|
2007
|
|||||||||
|
Audit
Fees
|
$ | 213,859 | $ | 212,838 | $ | 254,046 | ||||||
|
Audit
Related Fees
|
$ | 12,000 | $ | 46,222 | $ | 35,853 | ||||||
|
Tax
Fees
|
$ | - | $ | - | $ | - | ||||||
|
All
Other Fees
|
$ | - | $ | - | $ | - | ||||||
Audit
fees consist of aggregate fees billed for professional services rendered for the
audit of the Company's annual financial statements and review of the interim
financial statements included in quarterly reports or services that are normally
provided by the independent auditor in connection with statutory and regulatory
filings or engagements for the fiscal years ended December 31, 2009, 2008
and 2007.
Audit related fees consist of aggregate
fees billed for assurance and related services that are reasonably related to
the performance of the audit or review of the Company's financial statements and
are not reported under "Audit Fees." These fees include review of registration
statements and participation at meetings of the audit committee.
Tax fees
consist of aggregate fees billed for professional services for tax compliance,
tax advice and tax planning.
All other
fees consist of aggregate fees billed for products and services provided by the
independent auditor, other than those disclosed above. These fees include
services related to certain accounting research and assistance with a regulatory
matter.
The Company's policy is to pre-approve
all audit and permissible non-audit services provided by the independent
auditors. These services may include audit services, audit-related services, tax
services and other services. Pre-approval is generally provided for up to one
year and any pre-approval is detailed as to the particular service or category
of services and is generally subject to a specific budget. The independent
auditors and management are required to periodically report to the audit
committee regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. To the extent that additional services are necessary beyond those
specifically budgeted for, the audit committee and management pre-approve such
services on a case-by-case basis. All services provided by the independent
auditors were approved by the Audit Committee.
109
PART
IV
Item
15. Exhibits and Financial Statement Schedules
(a)(1)
Financial Statements
The
following is a list of the Financial Statements included in Item 8 of Part II of
this Report.
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Balance
Sheets as of December 31, 2009 and December 31, 2008
|
F-2
|
|
Statements
of Operations for the Years Ended December 31, 2009, 2008 and
2007
|
F-3
|
|
Statements
of Stockholders’ Equity for the Years Ended December 31, 2009,
2008 and 2007
|
F-4
|
|
Statements
of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
|
F-5
|
|
F-6
|
(a)(2)
Financial Statement Schedules
Schedules
not included herein are omitted because they are inapplicable or not required or
because the required information is given in the financial statements and notes
thereto.
(b)
The
exhibits required by this item and included in this report or incorporated
herein by reference are as follows:
|
Exhibit
Number
|
Description
|
|
|
2.1
|
Agreement
and Plan of Merger between the Compny, A.C.T. Acquisition Corp. and ACT,
dated as of January 3, 2005 (previously filed as Exhibit 10.1 to
the Registrant's Current Report on Form 8-K filed on January 4,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
2.2
|
Agreement
and Plan of Merger between Advanced Cell Technology, Inc., a Nevada
corporation, and Advanced Cell Technology, Inc., a Delaware
corporation, dated as of November 18, 2005 (previously filed as
Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed
on November 21, 2005 (File No. 000-50295) and incorporated by
reference herein).
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|
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2.2
|
Agreement
and Plan of Merger between Advanced Cell Technology, Inc., a Delaware
corporation, and ACT, dated as of November 18, 2005 (previously filed
as Exhibit 2.2 to the Registrant's Current Report on Form 8-K
filed on November 21, 2005 (File No. 000-50295) and incorporated
by reference herein).
|
|
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3.1
|
Certificate
of Incorporation of the Company (previously filed as Exhibit 3.1 to
the Registrant's Current Report on Form 8-K filed on
November 21, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
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3.1.1
|
Certificate
of Amendment to Articles of Incorporation dated April 1, 2004
(previously filed as Exhibit 3.1.1 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
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3.1.2
|
Certificate
of Amendment to Articles of Incorporation dated December 30, 2004
(previously filed as Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed on January 4, 2005 (File No. 000-50295)
and incorporated by reference
herein).
|
|
3.1.3
|
Certificate
of Amendment to Articles of Incorporation dated June 23, 2005
(previously filed as Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed on June 22, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
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3.1.4
|
Certificate
of Amendment to Articles of Incorporation dated July 6, 2005
(previously filed as Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed on July 7, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
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3.15
|
Certificate
of Amendment to Certificate of Incorporation dated September 15, 2009
(previously filed)
|
|
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3.16
|
Certificate
of Designation of Series B Preferred Stock 2005 (previously filed as
Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed
on November 12, 2009 (File No. 000-50295) and incorporated by
reference herein).
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|
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3.2
|
Bylaws
of the Company (previously filed as Exhibit 3.2 to the Registrant's
Current Report on Form 8-K filed on November 21, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
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3.2.1
|
Amendment
to Bylaws of the Company (previously filed as Exhibit 3.1 to the
Registrant's Current Report on Form 8-K filed on December 29,
2004 (File No. 000-50295) and incorporated by reference
herein).
|
|
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4.1
|
Specimen
Stock Certificate (previously filed as Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed on November 21,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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4.2
|
Form
of $0.05 Warrant to Purchase Common Stock of ACT. ACT issued warrants in
this form for the purchase of an aggregate of 900,000 shares, including a
warrant to purchase 250,000 shares of ACT common stock to
Andwell, LLC, an entity affiliated with William Caldwell, IV,
the Chief Executive Officer and a director of the Company (previously
filed as Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
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4.3
|
Form
of $0.25 Warrant to Purchase Common Stock of ACT. ACT issued warrants in
this form for the purchase of an aggregate of 1,954,000 shares, including
(i) a warrant to purchase 236,000 shares of ACT common stock to
Andwell, LLC, an entity affiliated with William Caldwell, IV, the
Chief Executive Officer and a director of the Company, (ii) a warrant
to purchase 75,000 shares of ACT common stock to Rocket Ventures, an
entity affiliated with Jonathan Atzen, a Senior Vice President and the
General Counsel of the Company (previously filed as Exhibit 4.3 to
the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
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|
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4.4
|
$0.25
Warrant to Purchase Common Stock of the Company issued to Gunnar Engstrom
(previously filed as Exhibit 4.4 to the Registrant's Quarterly Report
on Form 10-QSB filed on May 23, 2005 (File No. 000-50295)
and incorporated by reference herein).
|
|
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4.5
|
Form
of $0.85 Warrant to Purchase Common Stock of ACT (previously filed as
Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 23, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
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4.6
|
Form
of $1.27 Warrant to Purchase Common Stock of ACT (previously filed as
Exhibit 4.6 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 23, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
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4.7
|
Form
of $2.00 Warrant to Purchase Common Stock of ACT (previously filed as
Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 23, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
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4.8
|
Form
of Subscription Agreement to Purchase Series A Convertible Preferred
Units of ACT (previously filed as Exhibit 4.8 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
111
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4.9
|
Form
of Share Purchase Agreement to purchase common stock of Two Moons Kachinas
Corp. ("TMOO"), the predecessor to the Company (previously filed as
Exhibit 4.9 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 23, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
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4.10
|
Form
of Lock-Up Agreement entered into by certain sellers of TMOO common stock
(previously filed as Exhibit 4.10 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
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4.11
|
Form
of Lock-Up Agreement entered into by certain buyers of TMOO common stock
(previously filed as Exhibit 4.11 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
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4.12
|
Investor's
Rights Agreement between ACT and Avian Farms, Inc. dated
December 31, 1998 (previously filed as Exhibit 4.12 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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9.1
|
Form
of Voting Agreement for shares of common stock of ACT held by certain
parties effective as of January 31, 2005 (previously filed as
Exhibit 9.1 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 23, 2005 (File No. 000- 50295) and incorporated by
reference herein).
|
|
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10.1
|
Exclusive
Development and License Agreement between GTC Biotherapeutics (f/k/a as
Genzyme Transgenics Corporation) and ACT dated June 8, 1999
(previously filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File No. 000-
50295) and incorporated by reference herein).
|
|
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10.2
|
Exclusive
License Agreement dated April 16, 1996 between the University of
Massachusetts and ACT as amended on September 1, 1997, May 31,
2000 and September 19, 2002 (previously filed as Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.3
|
Materials
and Research Data License Agreement dated January 26, 2001 between
Wake Forest University and ACT (previously filed as Exhibit 10.3 to
the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.3.1
|
July 1,
2002 Assignment to Wake Forest University Health Sciences (previously
filed as Exhibit 10.3.1 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
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10.4
|
Exclusive
License Agreement dated February 1, 2002 between the University of
Massachusetts and ACT (previously filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.5
|
Non-Exclusive
Sublicense Agreement between ACT and Infigen, Inc. dated
August 1, 2003 (previously filed as Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.6
|
Non-Exclusive
License Agreements, dated January 1, 2001 between ACT and PPL
Therapeutics (Scotland) Limited (previously filed as Exhibit 10.6 to
the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.7
|
Nonexclusive
License Agreement dated May 1, 2001 between ACT and Immerge
BioTherapeutics, Inc. (previously filed as Exhibit 10.7 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.8
|
Nonexclusive
License and Sponsored Research Agreement dated June 29, 2001 between
ACT and Charles River Laboratories, Inc. (previously filed as
Exhibit 10.8 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 23, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
112
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10.9
|
Non-Exclusive
Sublicense Agreement between Cyagra, Inc., ACT, ACT Group and
Goyaike, S.A. dated November 20, 2001 (previously filed as
Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 23, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
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10.10
|
Exclusive
Sublicense Agreement between ACT, ACT Group and Cyagra, Inc. dated
June 28, 2002 (previously filed as Exhibit 10.10 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.11
|
Non-Exclusive
License Agreement dated November 8, 2002 between ACT and Merial
Limited (previously filed as Exhibit 10.11 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.12
|
Non-Exclusive
Sublicense Agreement between ACT and Infigen, Inc. dated
August 1, 2003 (previously filed as Exhibit 10.12 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.13
|
Exclusive
License Agreement dated October 22, 2003 between ACT and Exeter Life
Sciences, Inc. (previously filed as Exhibit 10.13 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.13.1
|
Letter
of Intent between ELS and ACT dated March 16, 2003 (previously filed
as Exhibit 10.13.1 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
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10.13.2
|
Sponsored
Research Agreement (previously filed as Exhibit 10.13.2 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.14
|
Non-Exclusive
License Agreement dated January 4, 2002 between ACT and Genetic
Savings & Clone (previously filed as Exhibit 10.14 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.15
|
Non-Exclusive
License Agreement dated February 3, 2004 between ACT and Pureline
Genetics (previously filed as Exhibit 10.15 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.16
|
Non-Exclusive
License Agreement dated February 3, 2004 between ACT and First Degree
Genetics (previously filed as Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.17
|
Non-Exclusive
License Agreement dated February 3, 2004 between ACT and One Degree
Genetics (previously filed as Exhibit 10.17 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.18
|
Option
to License Intellectual Property dated December 31, 2003 between ACT
and PacGen Cellco, LLC (previously filed as Exhibit 10.18 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.18.1
|
First
Amendment to Option to License Intellectual Property dated
February 13, 2004 (previously filed as Exhibit 10.18.1 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.19
|
Exclusive
License Agreement (Infigen IP) dated May 14, 2004 between ACT and
PacGen Cellco, LLC (previously filed as Exhibit 10.19 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.19.1
|
First
Amendment to Exclusive License Agreement (Infigen IP) dated
August 25, 2005.
|
|
|
10.20
|
Exclusive
License Agreement (UMass IP) dated May 14, 2004 between ACT and
PacGen Cellco, LLC (previously filed as Exhibit 10.20 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
113
|
10.20.1
|
First
Amendment to Exclusive License Agreement (UMass IP) dated August 25,
2005, previously filed and incorporated by reference
herein.
|
|
|
10.21
|
Exclusive
License Agreement (ACT IP) dated May 14, 2004 between ACT and PacGen
Cellco, LLC (previously filed as Exhibit 10.21 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.21.1
|
First
Amendment to Exclusive License Agreement (ACT IP) dated August 25,
2005, previously filed and incorporated by reference
herein.
|
|
|
10.22
|
Agreement
to Amend ACT/CELLCO License Agreements dated September 7, 2004 ACT
and PacGen Cellco, LLC (previously filed as Exhibit 10.22 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.23
|
Indemnification
Agreement of David Merrell to certain buyers of TMOO common stock dated
December 31, 2004 (previously filed as Exhibit 10.23 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
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10.24
|
Convertible
Promissory Note to ACT Group, Inc. dated July 12, 2002 in the
amount of $1,000,000 (previously filed as Exhibit 10.24 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.25
|
Promissory
Note issued by ACT to Pierce Atwood LLP dated January 2005 in the
amount of $150,000 (previously filed as Exhibit 10.25 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.26
|
Promissory
Note issued by ACT to Pierce Atwood dated July 1, 2003 in the amount
of $339,000 (previously filed as Exhibit 10.26 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.27
|
Promissory
Note issued by ACT to Rothwell, Figg, Ernst & Manbeck, P.C. dated
July 8, 2003 in the amount of $272,108 (previously filed as
Exhibit 10.27 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.28
|
Forbearance
and Stock Purchase Agreement Among Avian Farms, Inc., ACT
Group, Inc., ACT and Cima Biotechnology, Inc., dated
July 16, 1999, as amended December 23, 1999 (previously filed as
Exhibit 10.28 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.29
|
Securityholders'
Agreement among ACT, ACT Group, Cyagra, Inc. and Goyaike S.A.
dated November 20, 2001 (previously filed as Exhibit 10.29 to
the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.30.1
|
Securityholders'
Agreement among ACT, ACT Group, Cyagra, Inc. and Goyaike S.A.
dated July 1, 2002 (previously filed as Exhibit 10.30.1 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.30.2
|
Collaboration
Agreement and Technology License (previously filed as Exhibit 10.30.2
to the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.30.3
|
Separation
Agreement among ACT, ACT Group, Cyagra, Inc. and Goyaike S.A.
(previously filed as Exhibit 10.30.3 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.31
|
Membership
Interest Exchange and Asset Sale Agreement dated May 31, 2000, by and
among ACT and Hematech, LLC, et al. (previously filed as
Exhibit 10.31 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.31.1
|
Buyout
Option Agreement dated May 31, 2000 between Hematech, LLC and
ACT (previously filed as Exhibit 10.31.1 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
114
|
10.32
|
Space
Sublease Agreement dated November, 2004, between BioReliance and ACT, for
381 Plantation Street, Worcester, MA 01605 (previously filed as
Exhibit 10.32 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.33
|
Advanced
Cell Technology, Inc. 2004 Stock Option Plan. Pursuant to this option
plan, ACT issued options to purchase an aggregate 2,604,000 shares,
including (i) options to purchase 1,500,000 shares of ACT common
stock to Michael West, the Chairman of the Board of Directors and the
Chief Scientific Officer of the Company, and (ii) options to purchase
750,000 shares of ACT common stock to Robert Lanza, the Vice President of
Medical and Scientific Development of the Company (previously filed as
Exhibit 10.33 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000- 50295) and
incorporated by reference herein).
|
|
|
10.34
|
Advanced
Cell Technology, Inc. 2004 Stock Option Plan II. Pursuant to this
option plan, ACT issued options to purchase an aggregate 1,301,161 shares,
including (i) options to purchase 651,161 shares of ACT common stock
to William Caldwell, IV, the Chief Executive Officer and a director of the
Company, and (ii) options to purchase 240,000 shares of ACT common
stock to Robert Peabody, a director of the Company (previously filed as
Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-
QSB filed on May 23, 2005 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.35
|
A.C.T.
Holdings, Inc. 2005 Stock Option Plan (previously filed as
Appendix A to the Registrant's preliminary proxy statement on Form
PRE-14A filed on May 10, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.36
|
Form
of Incentive Stock Option Agreement (previously filed as
Exhibit 10.36 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.37
|
Form
of Nonqualified Stock Option Agreement (previously filed as
Exhibit 10.37 to the Registrant's Quarterly Report on Form 10-
QSB filed on May 23, 2005 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.38
|
Employment
Agreement between ACT and William M. Caldwell, IV dated December 31,
2004 (previously filed as Exhibit 10.38 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.39
|
Employment
Agreement between ACT and Michael D. West dated December 31, 2004
(previously filed as Exhibit 10.39 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.39.1
|
Amendment
No. 1 to Employment Agreement between ACT and Michael D. West dated
August 1, 2005 (previously filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on August 5, 2005
(File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.40
|
Employment
Agreement between ACT and Robert Lanza dated February 1, 2005
(previously filed as Exhibit 10.40 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.41
|
Employment
Agreement between the Registrant, ACT and James G. Stewart dated
March 13, 2005 (previously filed as Exhibit 10.41 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.41.1
|
Amendment
to Employment Agreement between the Registrant and James G. Stewart dated
September 16, 2005 (previously filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on September 22,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.42
|
Employment
Agreement between ACT and Robert Peabody dated February 9, 2005
(previously filed as Exhibit 10.42 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
115
|
10.43
|
Employment
Agreement between ACT and Jonathan Atzen dated April 1, 2005
(previously filed as Exhibit 10.43 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.44
|
Employment
Agreement between ACT and Irina Klimanskaya dated October 1, 2003
(previously filed as Exhibit 10.44 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.45
|
Employment
Agreement between ACT and Sadhana Agarwal dated April 1, 2004
(previously filed as Exhibit 10.45 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.46
|
Employment
Agreement between ACT and James Murai dated February 17, 2005
(previously filed as Exhibit 10.46 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.47
|
Employment
Agreement between ACT and David Larocca dated February 9, 2005
(previously filed as Exhibit 10.47 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.48
|
Consulting
Agreement between ACT and William M. Caldwell, IV dated October 1,
2004 (previously filed as Exhibit 10.48 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.49
|
Consulting
Agreement between ACT and Jonathan Atzen dated January 14, 2005
(previously filed as Exhibit 10.49 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.50
|
Consulting
Agreement between ACT and Stephen Price dated December 31, 2004
(previously filed as Exhibit 10.50 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.50.1
|
Consulting
Agreement between ACT and Stephen Price dated April 28, 2005
(previously filed as Exhibit 10.50.1 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.51
|
Consulting
Agreement between ACT and Chad Griffin dated April 1, 2005
(previously filed as Exhibit 10.51 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.52
|
Consulting
Agreement between ACT and James Stewart dated January 14, 2005
(previously filed as Exhibit 10.52 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.53
|
Settlement
Agreement between ACT and Gunnar Engstrom dated January 28, 2005
(previously filed as Exhibit 10.53 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.54
|
Confidentiality
and Nondisclosure Agreement dated February 3, 1999 between ACT and
Robert Lanza, M.D. (previously filed as Exhibit 10.54 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.55
|
Consulting
Agreement dated September 29, 1997 between ACT and Dr. James
Robl (previously filed as Exhibit 10.55 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.56
|
Consulting
Agreement dated January 23, 1998 between ACT and Dr. James Robl
(previously filed as Exhibit 10.56 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
116
|
10.57
|
Final
Settlement Agreement dated August 6, 1999 between Infigen, Inc.,
ACT and Steven Stice (previously filed as Exhibit 10.57 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.58
|
Letter
Agreement dated April 20, 2000 between ACT and Dr. Steven L.
Stice (previously filed as Exhibit 10.58 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.59
|
Master
Laboratory Services Agreement dated as of January 4, 2001 between
White Eagle Laboratories, Inc. and ACT (previously filed as
Exhibit 10.59 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.60
|
Master
Study Agreement dated as of December 4, 2000 between Biomedical
Research Models, Inc. and ACT (previously filed as Exhibit 10.60
to the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.61
|
Agreement
Relating to the Transfer of Biological Materials dated as of
February 3, 2000 between Wake Forest University and ACT (previously
filed as Exhibit 10.61 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.62
|
Materials
Transfer Agreement dated February 16, 2000 between ACT, B.C. Cancer
Agency and Dr. Peter Lansdorp (previously filed as Exhibit 10.62
to the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.63
|
Materials
Transfer Agreement dated January 19, 2000 between ACT, IPK and Anna
Wobus (previously filed as Exhibit 10.63 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.64
|
Materials
Transfer Agreement dated February 23, 2000 between ACT, Philip
Damiani and Carlos T. Moraes (previously filed as Exhibit 10.64 to
the Registrant's Quarterly Report on Form 10-QSB filed on
May 23, 2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.65
|
Material
Transfer Agreement dated January 6, 1997 between ACT, University of
Massachusetts, University of Colorado and Curtis R. Freed (previously
filed as Exhibit 10.65 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File
No. 000- 50295) and incorporated by reference
herein).
|
|
|
10.66
|
Material
Transfer Agreement dated March 20, 2000 between ACT, Charlotte Farin
and Peter Farin (previously filed as Exhibit 10.66 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.67
|
Sponsored
Research Agreement dated as of May 15, 2000 between Carl H. Lindner,
Jr. Family Center for Research of Endangered Wildlife (CREW) and ACT
(previously filed as Exhibit 10.67 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.68
|
Sponsored
Research Agreement dated as of August 9, 2000 between Cornell
University and ACT (previously filed as Exhibit 10.68 to the
Registrant's Quarterly Report on Form 10-QSB filed on May 23,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.69
|
Sponsored
Research Agreement dated as of December 1, 1999 between ACT and the
University of Massachusetts Amherst (previously filed as
Exhibit 10.69 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.69.1
|
Amendment
No. 1 to Agreement dated December 1, 1999 (previously filed as
Exhibit 10.69.1 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.70
|
Sponsored
Research Agreement dated August 1, 1999 between ACT and UMass (D.
Good) (previously filed as Exhibit 10.70 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
117
|
10.71
|
Term
Sheet for Non-Exclusive License Agreement dated as of December 23,
2000 between Immerge BioTherapeutics, Inc. and ACT, as amended by
First Amendment to Term Sheet dated March 14, 2001 (previously filed
as Exhibit 10.71 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.72
|
Withdrawal,
Termination, Assignment and Assumption Agreement dated March 14, 2001
by and among ACT, BioTransplant, Inc., Immerge
BioTherapeutics, Inc. and Infigen, Inc. (previously filed as
Exhibit 10.72 to the Registrant's Quarterly Report on
Form 10-QSB filed on May 23, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.73
|
Consulting
Agreement between ACT and Karen Chapman dated January 15, 2005
(previously filed as Exhibit 10.73 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 23, 2005 (File
No. 000-50295) and incorporated by reference
herein).
|
|
|
10.74
|
Research
Collaboration Agreement between ACT and The Burnham Institute dated
May 23, 2005 (previously filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-QSB filed on August 15,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.75
|
Securities
Purchase Agreement dated September 15, 2005 (previously filed as
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on September 19, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.76
|
Registration
Rights Agreement dated September 15, 2005 (previously filed as
Exhibit 10.2 to the Registrant's Current Report on Form 8-K
filed on September 19, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.77
|
Form
of Common Stock Purchase Warrant (previously filed as Exhibit 10.3 to
the Registrant's Current Report on Form 8-K filed on
September 19, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.78
|
Form
of Amortizing Convertible Debenture (previously filed as Exhibit 10.4
to the Registrant's Current Report on Form 8-K filed on
September 19, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.79
|
Form
of Lock-up Agreement (previously filed as Exhibit 10.5 to the
Registrant's Current Report on Form 8-K filed on September 19,
2005 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.80
|
Settlement
Agreement dated September 14, 2005 (previously filed as
Exhibit 10.6 to the Registrant's Current Report on Form 8-K
filed on September 19, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.81
|
Form
of Convertible Promissory Note (Unsecured) (previously filed as
Exhibit 10.7 to the Registrant's Current Report on Form 8- K
filed on September 19, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.82
|
Form
of Warrant to Purchase Securities (previously filed as Exhibit 10.8
to the Registrant's Current Report on Form 8-K filed on
September 19, 2005 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.83
|
Agreement
between Advanced Cell Technology, Inc., Advanced Cell, Inc. and
A.C.T. Group, Inc. dated September 15, 2005 (previously filed as
Exhibit 10.9 to the Registrant's Current Report on Form 8-K
filed on September 19, 2005 (File No. 000-50295) and
incorporated by reference herein).
|
|
|
10.84
|
Agreement
between Capital Financial Media, LLC and Advanced Cell
Technology, Inc., dated February 9, 2006 (previously filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 15, 2006 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.85
|
Sublease
Agreement between Avigen, Inc. and Advanced Cell
Technology, Inc., dated November 29, 2005. (previously filed as
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 15, 2006 (File No. 000-50295) and incorporated by
reference herein).
|
118
|
10.86
|
Exclusive
Sublicense Agreement between Advanced Cell Technology, Inc. and
TranXenoGen, Inc., dated March 29, 2006 (previously filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-QSB
filed on May 15, 2006 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.87
|
Non-Exclusive
License Agreement between Kirin Beer Kabushiki Kaisha, Aurox, LLC,
Hematech, LLC, and Kirin SD, Inc., and Advanced Cell
Technology, Inc., dated May 9, 2006 (previously filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-QSB
filed on August 11, 2006 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.88
|
Exclusive
License Agreement between Kirin Beer Kabushiki Kaisha, Aurox, LLC,
Hematech, LLC, and Kirin SD, Inc., and Advanced Cell
Technology, Inc., dated May 9, 2006 (previously filed as
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-QSB
filed on August 11, 2006 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.89
|
Purchase
Agreement between Kirin SD, Inc. and Advanced Cell
Technology, Inc., dated May 9, 2006(previously filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-QSB
filed on August 11, 2006 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.90
|
Consulting
Agreement between Advanced Cell Technology, Inc. and James G.
Stewart, dated August 17, 2006 (previously filed as Exhibit 10.1
to the Registrant's Current Report on Form 8-K filed on
August 18, 2006 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.91
|
Securities
Purchase Agreement dated August 30, 2006 (previously filed as
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on September 8, 2006 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.92
|
Registration
Rights Agreement dated September 15, 2005 (previously filed as
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on September 8, 2006 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.93
|
Form
of Common Stock Purchase Warrant (previously filed as Exhibit 10.1 to
the Registrant's Current Report on Form 8-K filed on
September 8, 2006 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.94
|
Form
of Amortizing Convertible Debenture (previously filed as Exhibit 10.4
to the Registrant's Current Report on Form 8-K filed on
September 8, 2006 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.95
|
Form
of Lock-up Agreement (previously filed as Exhibit 10.5 to the
Registrant's Current Report on Form 8-K filed on September 8,
2006 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.96
|
Amendment
No. 1, dated as of January 11, 2007, to the Securities Purchase
Agreement, dated August 30, 2006, the Amortizing Convertible
Debenture, dated September 6, 2006, and the Registration Rights
Agreement, dated August 30, 2006 (previously filed as
Exhibit 10.97 to the Registrant's Registration Statement on
Form SB-2 filed on January 26, 2007 (File No. 333-140265)
and incorporated by reference herein).
|
|
|
10.97
|
Amendment
No. 1, dated as of January 11, 2007, to the Securities Purchase
Agreement, the Amortizing Convertible Debenture, and the Registration
Rights Agreement, each dated August 30, 2006 (previously filed as
Exhibit 10.97 to the Registrant's Registration Statement on
Form SB-2 filed on January 26, 2007 (File No. 333-140265)
and incorporated by reference herein).
|
|
|
10.98
|
Patent
Assignment Agreement between Advanced Cell Technology, Inc. and
Infigen, Inc., dated February 5, 2007 (previously filed as
Exhibit 10.98 to the Registrant's Post-Effective Amendment No. 3
to its Registration Statement on Form SB-2 filed on March 28,
2007 and incorporated by reference herein).
|
|
|
10.99
|
Employment
Agreement between Advanced Cell Technology, Inc. and Pedro Huertas,
M.D., Ph.D., dated February 5, 2007 (previously filed as
Exhibit 10.99 to the Registrant's Post-Effective Amendment No. 3
to its Registration Statement on Form SB-2 filed on March 28,
2007 and incorporated by reference
herein).
|
119
|
10.100
|
Research
Services Agreement between Advanced Cell Technology, Inc. and Oregon
Health & Science University, dated February 5, 2007
(previously filed as Exhibit 10.100 to the Registrant's
Post-Effective Amendment No. 3 to its Registration Statement on
Form SB-2 filed on March 28, 2007 and incorporated by reference
herein).
|
|
|
10.101
|
Agreement
and Plan of Merger by and among Advanced Cell technology, Inc., ACT
Acquisition Sub, Inc., Mytogen, Inc. and certain shareholders of
Mytogen, Inc., dated as of July 31, 2007 (previously filed as
exhibit 10.101 to the Amendment No. 1 to the Registrant’s 10-KSB for the
year ended December 31, 2007 filed with the SEC on June 30, 2008 and
incorporated by reference herein).
|
|
|
10.102
|
Escrow
Agreement by and among Advanced Cell Technology, Inc. and certain
former shareholders of Mytogen, Inc., dated as of September 20,
2007 (previously filed as exhibit 10.102 to the Amendment No. 1 to the
Registrant’s 10-KSB for the year ended December 31, 2007 filed with the
SEC on June 30, 2008 and incorporated by reference
herein)
|
|
|
10.103
|
Securities
Purchase Agreement dated August 31, 2007 (previously filed as
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on September 7, 2007 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.104
|
Registration
Rights Agreement dated August 31, 2007 (previously filed as
Exhibit 10.2 to the Registrant's Current Report on Form 8-K
filed on September 7, 2007 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.105
|
Form
of Common Stock Purchase Warrant (previously filed as Exhibit 10.3 to
the Registrant's Current Report on Form 8-K filed on
September 7, 2007 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.106
|
Form
of Amortizing Convertible Debenture (previously filed as Exhibit 10.4
to the Registrant's Current Report on Form 8-K filed on
September 7, 2007 (File No. 000-50295) and incorporated by
reference herein).
|
|
|
10.107
|
Form
of Security Agreement dated August 31, 2007 (previously filed as
Exhibit 10.5 to the Registrant's Current Report on Form 8-K
filed on September 7, 2007 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.108
|
Form
of Subsidiary Guaranty dated August 31, 2007 (previously filed as
Exhibit 10.6 to the Registrant's Current Report on Form 8-K
filed on September 7, 2007 (File No. 000-50295) and incorporated
by reference herein).
|
|
|
10.109
|
Form
of Lock-up Agreement (previously filed as Exhibit 10.7 to the
Registrant's Current Report on Form 8-K filed on September 7,
2007 (File No. 000-50295) and incorporated by reference
herein).
|
|
|
10.110
|
Amended
and Restated Consulting Agreement, dated as of September 19, 2007 by
and between Advanced Cell Technology, Inc., through its wholly owned
subsidiary Mytogen, Inc., and Dib, LLC. (previously filed as
Exhibit 10.110 to the Registrant's Registration Statement on
Form SB-2 filed on October 1, 2007 and incorporated by reference
herein).
|
|
|
10.111
|
Employment
Agreement, dated as of September 20, 2007, by and between Advanced
Cell technology, Inc., and Jonathan Dinsmore. (previously filed as
Exhibit 10.111 to the Registrant's Registration Statement on
Form SB-2 filed on October 1, 2007 and incorporated by reference
herein).
|
|
|
10.112
|
Nomination
Agreement, dated September 20, 2007, by and between Advanced Cell
Technology, Inc. and Anthem Ventures Fund, LP. (previously filed
as Exhibit 10.112 to the Registrant's Registration Statement on
Form SB-2 filed on October 1, 2007 and incorporated by reference
herein).
|
|
|
10.113
|
Securities
Purchase Agreement dated March 31, 2008, by and among the Company and
the investors party thereto (previously filed as Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q filed on July 15, 2008 and
incorporated herein by
reference).
|
120
|
10.114
|
Security
Agreement dated March 31, 2008, by and among the Company and the
investors party thereto (previously filed as Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q filed on July 15, 2008 and
incorporated herein by reference).
|
|
|
10.115
|
Form of
Common Stock Purchase Warrant issued in connection with March 31,
2008 Securities Purchase Agreement (previously filed as Exhibit 10.3 to
the Registrant’s Quarterly Report on Form 10-Q filed on July 15, 2008 and
incorporated herein by reference).
|
|
|
10.116
|
Form of
Amortizing Convertible Debenture issued in connection with March 31,
2008 Securities Purchase Agreement (previously filed as Exhibit 10.4 to
the Registrant’s Quarterly Report on Form
10-Q
filed on July 15, 2008 and incorporated herein by
reference).
|
|
|
10.117
|
Subsidiary
Guarantee dated March 31, 2008 (previously filed as Exhibit 10.5 to
the Registrant’s Quarterly Report on Form 10-Q filed on July 15, 2008 and
incorporated herein by reference).
|
|
|
10.118
|
Convertible
Note, dated as of March 17, 2008, issued by the Company to PDPI LLC
(previously filed as Exhibit 10.6 to the Registrant’s Quarterly Report on
Form 10-Q filed on July 15, 2008 and incorporated herein by
reference).
|
|
|
10.119
|
Bridge
Note, dated as of March 17, 2008, issued by the Company to The
Shapiro Family Trust Dated September 25, 1989 (previously filed as
Exhibit 10.7 to the Registrant’s Quarterly Report on Form
10-Q
filed on July 15, 2008 and incorporated herein by
reference).
|
|
|
10.120
|
License
Agreement, dated as of February 25, 2008, by and between the Company
and Pharming Technologies B.V (previously filed as Exhibit 10.8 to the
Registrant’s Quarterly Report on Form
10-Q
filed on July 15, 2008 and incorporated herein by
reference).
|
|
|
10.121
|
Convertible
Promissory Note A, dated as of February 15, 2008, issued by the
Company to JMJ Financial (previously filed as Exhibit 10.9 to the
Registrant’s Quarterly Report on Form
10-Q
filed on July 15, 2008 and incorporated herein by
reference).
|
|
|
10.122
|
Convertible
Promissory Note B , dated as of February 15, 2008, issued by the Company
to JMJ Financial, and Amendment to Convertible Promissory Note B, dated as
of March 17, 2008 (previously filed as Exhibit 10.10 to the Registrant’s
Quarterly Report on Form 10-Q filed on July 15, 2008 and incorporated
herein by reference).
|
|
|
10.123
|
Secured
& Collateralized Promissory Note, dated as of February 15, 2008,
issued by JMJ Financial to the Company (previously filed as Exhibit 10.11
to the Registrant’s Quarterly Report on Form
10-Q
filed on July 15, 2008 and incorporated herein by
reference).
|
|
|
10.124
|
Collateral
& Security Agreement, dated as of February 15, 2008, by and between
the Company and JMJ Financial (previously filed as Exhibit 10.12 to the
Registrant’s Quarterly Report on Form
10-Q
filed on July 15, 2008 and incorporated herein by
reference).
|
|
|
10.125
|
Consent,
Amendment and Exchange Agreement, dated as of July 29, 2009, by and
between the Company and the holders named on the signature pages thereto
(previously filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on August 4, 2009 and incorporated herein by
reference).
|
|
|
10.126
|
Consent,
Amendment and Exchange Agreement, dated as of July 29, 2009, by and
between the Company and the senior noteholders named on the signature
pages thereto (previously filed as Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K filed on August 4, 2009 and incorporated herein
by reference).
|
|
|
10.127
|
Preferred
Stock Purchase Agreement, dated November 2, 2009, between Advanced Cell
Technology, Inc, and Optimus Capital Partners, LLC, dba Optimus Life
Sciences Capital Partners, LLC (previously filed as exhibit to the
Registrant’s S-1 filed on November 18, 2009 and incorporated herein by
reference)
|
|
|
10.128
|
Warrant,
dated November 2, 2009 (previously filed as exhibit to the
Registrant’s S-1 filed on November 18, 2009 and incorporated herein by
reference)
|
121
|
10.129
|
Subscription
Agreement, dated November 12, 2009 (previously filed as exhibit to the
Registrant’s S-1 filed on November 18, 2009 and incorporated herein by
reference)
|
|
|
10.130
|
Form
of Class A Warrant (previously filed as exhibit to the Registrant’s S-1
filed on November 18, 2009 and incorporated herein by
reference)
|
|
|
10.131
|
Form
of Class B Warrant (previously filed as exhibit to the Registrant’s S-1
filed on November 18, 2009 and incorporated herein by
reference)
|
|
|
10.132
|
Form
of Additional Investment Right (previously filed as exhibit to the
Registrant’s S-1 filed on November 18, 2009 and incorporated herein by
reference)
|
|
|
10.133
|
Employment
Agreement, dated October 1, 2009, between the Company and Robert P. Lanza
(previously filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on November 17, 2009 and incorporated herein by
reference).
|
|
|
10.134
|
Form
of Note (previously filed as exhibit to the Registrant’s S-1 filed on
November 18, 2009 and incorporated herein by
reference)
|
|
|
10.135
|
Employment
Agreement, dated February 18, 2010, between the Company and William
Caldwell
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
32.1
|
Certification
of the Principal Executive Officer and Principal Financial Officer
Pursuant to Rule 13a-14 of the Securities Exchange Act of
1934
|
|
|
32.2
|
Certification
of Principal Executive Officer and Principal Financial Officer Pursuant to
Section 1350
|
122
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ADVANCED
CELL TECHNOLOGY, INC.
|
||
| Dated: March 16, 2010 |
By
|
/s/ William M. Caldwell, IV |
| William M. Caldwell, IV | ||
| Chief Executive Officer (Principal | ||
| Executive Officer, Principle | ||
| Financial Officer and Principal Accounting | ||
| Officer) | ||
123
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report on
Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
/s/ William M. Caldwell, IV
|
March
16, 2010
|
|
|
William
M. Caldwell, IV
|
||
|
Chief
Executive Officer
|
||
|
Chairman
of the Board of Directors
|
||
|
(Principal
Executive Officer, Principal
|
||
|
Financial
Officer and Principal Accounting Officer
|
||
|
/s/ Erkki Ruoslahti, M.D.,
Ph.D.
|
March
16, 2010
|
|
|
Erkki
Ruoslahti, M.D., Ph.D.
|
||
|
/s/ Gary Rabin
|
March
16, 2010
|
|
|
Gary
Rabin
|
||
|
/s/ Alan Shapiro
|
March
16, 2010
|
|
|
Alan
Shapiro
|
124