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EX-31.1 - EXHIBIT 31.1 - Intellicell Biosciences, Inc.ex311.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012

o  TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transitional period from ______ to ______

Commission File No000-54729

 
 INTELLICELL BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
91-1966948
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

460 Park Avenue, 17th Floor
New York, New York 10022
(Address of principal executive offices) (zip code)

(646) 576-8700
(Registrant's telephone number)


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       Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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   x       Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.   (Check one):
 
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer  o
 
   
Smaller Reporting Company x
   
 
           Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes  o     No x
 
Number of shares of common stock issued and outstanding as of  November 5, 2012 was 40,972,235.

 
       
INTELLICELL BIOSCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
 
 
 
 
EXPLANATORY NOTE

In filing this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 on November 21, 2012, Intellicell Biosciences, Inc. (the “Company”) is relying on the order issued by the Securities and Exchange Commission (the “Commission”)  (Release No. 68224) providing relief to registrants unable, due to Hurricane Sandy and its aftermath, to meet a filing deadline occurring during the period from and including October 29, 2012 to November 20, 2012, provided that such report, schedule or form is filed on or before November 21, 2012.
 
Pursuant to such order, as stated in the Company’s Form NT 10-Q filed with the Commission on November 19, 2012, the Company hereby informs the Commission that in connection with the recent devastation to the New York metropolitan area from Hurricane Sandy, the Company’s normal process for compilation and review of its financial statements was delayed  since the Company’s personnel and other professional advisors were not able to travel to the Company’s headquarters or access the Company’s accounting records. As a result, the Company was unable to process this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 before its original filing deadline of November 14, 2012.


PART I - FINANCIAL STATEMENTS

Item 1.  Financial Statements
 
Intellicell BioSciences Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
 
 
   
September 30, 2012 (Unaudited)
   
December 31, 2011
(Audited)
 
ASSETS
           
Current assets:
           
Cash
 
$
-
   
$
110,194
 
Accounts Receivable - related party
   
334,000
     
-
 
Total current assets
   
334,000
     
110,194
 
                 
Property & Equipment - net of accumulated depreciation of $151,133 and $15,226 as of September 30, 2012 and December 31, 2011
   
2,881,365
     
556,834
 
Deposit - License Agreement with related party
   
100,000 
     
100,000 
 
Financing Fees, net of accumulated amortization of $74,200 and $0 as of September 30, 2012 and December 31, 2011
   
148,400
     
-
 
Due from related party
   
37,627
      -  
Restricted cash for security deposit
   
650,000
     
650,000
 
   
$
4,151,392
   
$
1,417,028
 
 LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
               
Current liabilities:
               
Bank Overdraft
 
$
45,847
   
$
-
 
Convertible debentures
   
1,360,000
     
1,312,859
 
Convertible promissory note payable
   
500,000
     
-
 
Notes payable and accrued interest
   
649,897
     
1,161,758
 
Accounts payable and accrued expenses
   
1,640,914
     
584,585
 
License fee liability
   
1,222,500
     
-
 
Deferred income
   
-
     
502,500
 
Related party notes payable and advances
   
305,209
     
67,882
 
Accrued liabilities, related party
   
994,647
     
735,932
 
Total current liabilities
   
6,719,014
     
4,365,516
 
                 
                 
Long term liabilities - Derivative liabilities
   
598,283
     
14,791,291
 
                 
Total liabilities
   
7,317,297
     
19,156,807
 
                 
Commitments
               
Stockholders’ deficit:
               
Convertible preferred stock; $0.01 par value, Series B, 21,000 shares authorized, 15,233 and  18,280 issued and outstanding at September 30, 2012 and December 31, 2011, respectively
   
153
     
183
 
Convertible preferred stock; $0.01 par value, Series C, 13,000 shares authorized, 7,250 and  10,823 issued and outstanding at September 30, 2012 and December 31, 2011, respectively
   
72
     
108
 
Convertible preferred stock; $0.01 par value, Series D, 500,000 shares authorized, 56,500 and 42,000 issued and outstanding at September 30, 2012 and December 31, 2011, respectively
   
565
     
420
 
Common stock; $0.001 par value; 500,000,000 shares authorized; 41,136,760 and 21,034,938  shares and issued and outstanding at September 30, 2012 and December 31, 2011, respectively.
   
41,136
     
21,035
 
Additional paid in capital
   
30,613,155
     
15,849,217
 
Accumulated deficit
   
(33,820,986
)
   
(33,610,742
)
                 
Total stockholders’ deficit
   
(3,165,905
)
   
(17,739,779
)
   
$
4,151,392
   
$
1,417,028
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 Intellicell BioSciences Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 
 
   
For The Three Months Ended
September 30,
   
For The Nine Months Ended
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Revenues
 
$
2,073
   
$
22,050
   
$
20,942
   
$
80,550
 
Revenues - related party
   
184,000
     
-
     
334,000
     
-
 
     Total revenue
   
186,073
     
20,050
     
354,942
     
80,550
 
                                 
Cost of Goods Sold
   
137,394
     
2,452
     
314,641
     
48,988
 
Gross Profit
   
48,679
     
19,598
     
40,301
     
31,562
 
                                 
Operating Expenses:
                               
Research and development
   
76,221
     
14,810
     
199,670
     
191,100
 
Sales and marketing
   
2,305
     
294,399
     
275,822
     
437,338
 
General and administrative
   
948,020
     
212,247
     
2,051,147
     
853,234
 
Employee Stock Based Compensation
   
667,265
     
-
     
2,525,724
     
-
 
Non-Employee Stock Based Compensation
   
78,593
     
-
     
8,105,947
     
827,125
 
Total Operating Expense
   
1,772,404
     
521,456
     
13,158,310
     
2,308,797
 
                                 
Loss from operations
   
(1,723,725
)
   
(501,858
)
   
(13,118,009
)
   
(2,277,235
 )
                                 
Other Income (Expenses):
                               
Interest Expense
   
(38,903
)
   
(106,796
)
   
(174,041
)
   
(198,302
)
Financing Costs
   
(55,650
)
   
-
     
(74,200
)
   
-
 
Stock based financing costs
   
(1,037,000)
     
-
     
(1,037,000
)
   
-
 
Other Income
   
-
     
157,500
     
-
     
157,500
 
Change in fair value of derivative liabilities
   
1,112,314
     
(5,740,759
 )
   
14,193,008
     
(17,073,453
 )
                                 
Total Other Income (Expenses)
   
(19,239
   
(5,690,055
   
12,907,767
     
(17,114,255
 )
                                 
Income (Loss) Before Income Taxes
   
(1,742,964
   
(6,191,912
   
(210,242
   
(19,391,490
)
                                 
Provision for Income Taxes
   
-
     
-
     
-
     
-
 
                                 
Net Income (loss) 
 
$
(1,742,964
)  
 
$
(6,191,912
 
$
(210,242
 
$
(19,391,490
 )
                                 
Loss per share:
                               
Basic & diluted
 
$
(0.05
 
$
(0.33
 
$
(0.01
 
$
(1.09
Weighted Average shares outstanding
                               
Basic & diluted
   
32,627,419
     
18,670,289
     
27,748,393
     
17,858,505
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

Intellicell BioSciences Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2012
(Unaudited)
 
 
   
Convertible Series
B Preferred Stock
   
Convertible Series
C Preferred Stock
   
Convertible Series
D Preferred Stock
   
Common Stock
   
Additional Paid In
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
(Deficit)
   
Total
 
                                                                   
Balances, December 31, 2011
   
18,280
   
$
183
     
10,823
   
$
108
     
42,000
   
$
420
     
21,034,938
   
$
21,035
   
$
15,849,217
   
$
(33,610,742
)
 
$
(17,739,779
)
                                                                                         
Proceeds from sales of common stock at $1.00 per share, net of fees
   
-
     
-
     
-
     
-
     
-
     
-
     
2,100,000
     
2,100
     
2,042,150
     
-
     
2,044,250
 
                                                                                         
Conversion of note payable and accrued interest to common stock
   
-
     
-
     
-
     
-
     
-
     
-
     
500,000
     
500
     
527,049
     
-
     
527,549
 
                                                                                         
Stock issued for the conversion of convertible debenture and accrued interest
   
-
     
-
     
-
     
-
     
-
     
-
     
118,794
     
118
     
103,530
     
-
     
103,648
 
                                                                                         
Conversion of Series B Preferred to common stock
   
(3047
)
   
(30
)
   
-
     
-
     
-
     
-
     
3,046,527
     
3,046
     
(3,016
)
   
-
     
-
 
                                                                                         
Conversion of Series C Preferred to common stock
   
-
     
-
     
(3,573
)
   
(36
)
   
-
     
-
     
3,572,500
     
3,573
     
(3,537
)
   
-
     
-
 
                                                                                         
Issuance of Series D Preferred shares, net of fees
   
-
     
-
     
-
     
-
     
14,500
     
145
     
-
     
-
     
229,855
     
-
     
230,000
 
                                                                                         
                                                                                         
Issuance of additional shares for anti-dilution
   
-
     
-
     
-
     
-
     
-
     
-
     
6,100,000
     
6,100
     
1,030,900
     
-
     
1,037,000
 
                                                                                         
Stock issued to employees
   
-
     
-
     
-
     
-
     
-
     
-
     
725,000
     
725
     
115,275
     
-
     
116,000
 
                                                                                         
Stock-based compensation expense related to employee stock options
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
2,409,724
     
-
     
2,409,724
 
                                                                                         
Stock-based compensation expense related to non-employee stock options
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
30,644
     
-
     
30,644
 
                                                                                         
Compensation expense related to the issuance of warrants
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
2,720,764
     
-
     
2,720,764
 
                                                                                         
Stock issued for professional services at fair market value
   
-
     
-
     
-
     
-
     
-
     
-
     
3,939,001
     
3,939
     
5,560,600
     
-
     
5,564,539
 
                                                                                         
Net income for the nine months ended September 30, 2012
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(210,242
)
   
(210,242
                                                                                         
Balances, September 30, 2012
   
15,233
   
$
153
     
7,250
   
$
72
     
56,500
   
$
565
     
41,136,760
   
$
41,136
   
$
30,613,155
   
$
(33,820,984
)
 
$
(3,165,905
)

The accompanying notes are an integral part of these consolidated financial statements.
 
 
Intellicell BioSciences, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
 
 
   
(Unaudited)
For the nine months ended September 30,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
 Net Income (Loss)
 
$
(210,242
 
$
(19,391,490
)
                 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
               
Stock compensation issued for services in excess of proceeds
   
9,142,947
     
827,125
 
Employee stock compensation
   
2,525,724
     
-
 
Depreciation expense
   
135,907
     
8,624
 
Amortization of financing costs
   
74,200
     
-
 
Interest from original issue discount on convertible debentures
   
72,141
     
144,282
 
Change in fair value of derivative liabilities
   
(14,193,008
   
17,073,453
 
Other income
   
-
     
(157,500
                 
Changes in assets and liabilities:
               
Increase (decrease) in accounts receivable
   
(334,000
   
69,800
 
Increase in prepaid expenses
   
-
     
(111,399
Increase in accounts payable and accrued expenses
   
1,250,664
     
183,032
 
Increase in deferred income
   
720,000
     
312,500
 
Increase in accrued liabilities,related party
   
258,715
     
146,327
 
Net cash used in operating activities
   
(556,952
)
   
(895,246
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of equipment and leasehold improvements
   
(2,460,438
)
   
(86,797
Advances to related party
   
(37,627
)
   
-
 
Increase in restricted cash for security deposit
   
-
     
(650,000
Cash used in investing activities
   
(2,498,065
)
   
(736,797
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from sale of common stock, net of fees
   
2,044,250
     
176,000
 
Proceeds from the sales of Series D Preferred Stock, net of fees
   
230,000
     
-
 
Proceeds from issuance of convertible debenture, net of fees
   
387,400
     
-
 
Proceeds from notes payable, related party
   
200,167
     
-
 
Proceeds of related party advances, net
   
37,159
     
68,000
 
Bank overdraft
   
45,847
     
-
 
Proceeds from sale of convertible debentures
   
-
     
1,385,000
 
Cash provided by financing activities
   
2,944,823
     
1,629,000
 
Net change in cash
   
(110,194
   
(3,043
Cash and cash equivalents at the beginning of period
   
110,194
     
3,179
 
Cash and cash equivalents at the end of the period
 
$
-
   
$
136
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid for interest
 
$
15,000
   
$
-
 
Cash paid for taxes
 
$
-
   
$
-
 
NON CASH INVESTING AND FINANCING ACTIVITIES:
               
Conversion of convertible debenture and accrued interest to common stock
 
$
103,648
   
$
-
 
Shares issued in conjunction with the stock exchange agreement
 
$
1,037,000
   
$
-
 
Conversion of note payable to common stock and warrants
 
$
500,000
   
$
-
 
Original issue discount attributed to detachable 5 year warrants sold in conjunction with Convertible Debentures
 
$
-
   
$
288,563
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.  
Description of Business
 
Formation
 
Intellicell Biosciences Inc., a New York corporation, was formed under the name Regen Biosciences, Inc. on August 13, 2010 as a pioneering regenerative medicine company to develop and commercialize regenerative medical technologies in large markets with unmet clinical needs.  On February 17, 2011, Regen Biosciences, Inc. changed its name to IntelliCell BioSciences Inc. (“IntelliCell”).  To date, IntelliCell has developed proprietary technologies that allow for the efficient and reproducible separation of stromal vascular fraction (branded “IntelliCell™”) containing adipose stem cells that can be performed in tissue processing centers and in doctors’ offices.
 
In conjunction with the formation of IntelliCell (formerly Regen Biosciences, Inc.), a shareholder contributed, as part of his initial capital contribution, one hundred percent (100%) of the outstanding stock of Tech Stem Inc., a New York corporation (“Tech Stem”) originally formed on May 24, 2010.  Tech Stem’s business is the sourcing, sales and distribution of laboratory equipment and supplies utilized in tissue processing related to IntelliCell’s technologies.
 
Reverse Merger
 
On April 27, 2011, Intellicell and Media Exchange Group, Inc. (“MEG”) entered into an Agreement and Plan of Merger which was amended on June 3, 2011 (the “Merger Agreement”).  Under the terms of the Merger Agreement, a subsidiary of MEG (“Merger Sub”) merged into Intellicell.  The Merger Sub ceased to exist as a corporation and Intellicell continued as the surviving corporate entity (the “Merger”).  As a result of the merger, Intellicell’s former shareholders acquired majority of MEG’s outstanding common stock and all of MEG’s Series B preferred stock.  The recapitalized Intellicell Biosciences, Inc. is hereafter referred to as “Intellicell” or the “Company”. As consideration for the Merger, the holders of the an aggregate of 7,975,768 shares of IntelliCell’s common stock exchanged their shares of common stock for an aggregate of 15,476,978 shares of the Company ’s common stock and Dr. Steven Victor, the principal shareholder of IntelliCell, exchanged an aggregate of 10,575,482 shares of IntelliCell’s common stock for an aggregate of 20,521 shares of the Company’s series B preferred stock. Each share of series B preferred stock is convertible into 1,000 shares of the Company’s common stock. In addition, the holders of the series B preferred stock are entitled to notice of stockholders’ meetings and to vote as a single class with the holders of the Common Stock on any matter submitted to the stockholders for a vote, and are entitled to the number of votes equal the product of (a) the number of shares of Common Stock into which the series B preferred stock is convertible into on the record date of the vote multiplied by (b) ten (10). The closing of the Merger took place on June 3, 2011 (the “Closing Date”).
 
In addition to the foregoing, in accordance with the Merger Agreement, all outstanding convertible notes issued by IntelliCell (the “IntelliCell Notes”) and warrants issued by IntelliCell (the “IntelliCell Warrants”) entitle the holder to convert or exercise, as the case may be, into and receive the same number of shares of the Company  common stock as the holder of IntelliCell Notes and Warrants would have been entitled to receive pursuant to the Merger had such holder exercised such Intellicell Notes and Warrants in full immediately prior to the closing of the Merger. Thus, there was an aggregate of $1,385,000 of Intellicell Notes outstanding which are convertible into an aggregate of shares of common stock of the Company  and warrants to purchase an aggregate of 3,071,342 shares of common stock of the Company. Subsequent to the conversion of $25,000 of subordinated convertible debentures in the current period, the remaining $1,360,000 subordinated convertible debentures are convertible into an aggregate of 4,121,212 shares of common stock.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.  
Going Concern
 
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses since inception resulting in an accumulated deficit of $33,820,986 and a working capital deficit of $6,385,014 as of September 30, 2012, respectively. However, if the non-cash expense related to the Company’s change in fair value of derivative liability and stock based compensation is excluded then the accumulated deficit amounted to $3,165,905.  Further losses are anticipated in the continued development of its business, raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and a private placement of common stock or other debt or equity securities. There can be no assurance that we will be able to obtain further financing, do so on reasonable terms, or do so on terms that would not substantially dilute our current stockholders’ equity interests in us. If we are unable to raise additional funds on a timely basis, or at all, we probably will not be able to continue as a going concern.
 
3.  
Summary of Significant Accounting Policies
 
Basis of Presentation
 
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and the rules of the Securities and Exchange Commission.
 
In our opinion, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of IntelliCell and those of Tech Stem Inc., the Company’s wholly owned subsidiary (collectively the “Company”).  All significant inter-company transactions and balances have been eliminated.
 
Management’s Use of Estimates and Assumptions
 
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from these estimates.  Management’s estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the periods they are determined to be necessary.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Fair Value of Financial Instruments
 
GAAP requires certain disclosures regarding the fair value of financial instruments. The fair value of financial instruments is made as of a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.
 
GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
 
GAAP establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the degree of subjectivity that is necessary to estimate the fair value of a financial instrument. GAAP establishes three levels of inputs that may be used to measure fair value:
 
Level 1 – Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
 
Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
 
Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The following table sets forth our estimate of fair value of our financial instruments that are liabilities as of September 30, 2012:
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

   
Quoted Prices
   
Significant
             
   
in Active
   
Other
   
Significant
       
   
Markets for
   
Observable
   
Unobservable
       
   
Identical Assets
   
Inputs
   
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
                         
Derivative Liabilities
 
$
-
   
$
-
   
$
598,283
   
$
598,283
 

The following table sets forth a summary of changes in fair value of our derivative liabilities for the nine months ended September 30, 2012:
 
   
For the Nine Months ended September 30, 2012
 
Beginning balance
 
$
14,791,291
 
Fair value of 2012 warrants at issue date
   
17,152,200
 
Fair value of 2012 embedded conversion feature at issue date
   
2,071,247
 
Change in fair value of embedded warrants included in earnings
   
(27,147,357
Change in fair value of embedded conversion feature included in earnings
   
(6,269,098
Balance at September 30, 2012
 
$
598,283
 
 
The following is a description of the valuation methodologies used for these items:

Derivative liabilities — these liabilities consist of certain instruments issued with warrants and embedded conversion features that contain anti-dilution provisions. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Share Based Expenses
 
GAAP, prescribes that accounting and reporting standards for all stock-based payment awards to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights, may be classified as either equity or liabilities. The Company should determine if a present obligation to settle the share-based payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if:
 
 
a) 
the option to settle by issuing equity instruments lacks commercial substance, or
 
 
b) 
the present obligation is implied because of an entity's past practices or stated policies. If a present obligation exists, the transaction should be recognized as a liability; otherwise, the transaction should be recognized as equity.
     
With respect to stock-based compensation issued to non-employees and consultants GAAP requires that the amount of share-based payment transactions be based on the fair value of whichever is more reliably measurable:
 
 
a) 
the goods or services received or
 
 
b) 
the equity instruments issued.
 
The fair value of the share-based payment transaction should be determined at the earlier of performance commitment date or performance completion date.
 
Revenue Recognition
 
The Company licenses independent third parties to use the Company’s technology in order to enable them to establish tissue processing centers in major metropolitan markets, as well as establishing centers it will operate.  Each center will utilize the Company’s proprietary technology in conjunction with a suite of laboratory equipment selected by the Company that will enable the lab to process adipose tissue into stromal vascular fraction containing adipose stem cells using the Company’s technology and protocols.  In certain centers, the Company will maintain ownership of the laboratory equipment and in other cases the laboratory equipment will be sold to an independent party.  These license fees are payable upon signing of a license agreement and are recognized as revenue ratably over the license. As of September 30, 2012, the Company had executed license agreements and received $1,122,500 in license fees for six centers which had not yet commenced operations. Consequently recognition of such revenue had been deferred pending commencement of operations. Subsequently, the Company has reclassed the $1,222,500 of previously paid license fees to Accrued Licensee Fee Liability upon the Company's cancellation of the license agreements and the determination of the amount of fees to be returned to the former licensees.
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company has also entered into agreements with independent sales representative organizations to market the centers services to physicians in the geographic area.  Fees for tissue processing cases from such physicians will be collected by the Company and recognized upon performance of the laboratory analysis.  Sales of equipment by Tech Stem are recognized when the following fundamental criteria are met:  (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. 
 
Concentrations
 
The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits.  This potentially subjects the Company to a concentration of credit risk; however the Company believes the risk is negligible.  The Company’s carrying amount of deposits in financial institutions did not exceed federally insured limits September 30, 2012.
 
The Company anticipates that it will purchase more than 50% of its lab equipment, for both its own use as well as for resale, from one vendor.
 
Certain Risks and Uncertainties
 
The Company has a limited operating history and its prospects are subject to the risks and uncertainties frequently encountered by companies in the early stages of development and commercialization, especially those companies in rapidly evolving and technologically advanced industries such as the biotech / medical device field.  The future viability of the Company largely depends on its ability to complete development of new products and processes and maintain and/or receive regulatory approval for those products and processes.  No assurance can be given that the Company’s new processes and products will be successfully developed, regulatory approvals will be maintained or granted, or acceptance of these processes and products by the medical and patient communities will be achieved.
 
Accounts Receivable
 
 The Company extends credit to customers without requiring collateral. The Company an allowance provides for doubtful accounts based on management’s evaluations of the collectability of accounts receivable. Management’s evaluation is based on the Company’s historical collection experience and a review of past-due amounts. Based on management’s evaluation of collectability, the Company did not require an allowance for doubtful accounts as of September 30, 2012 and December 31, 2011, respectively. The Company determines accounts receivable to be delinquent when collection past due under the agreed upon terms. Accounts receivable are written off when it is determined that amounts are uncollectible.

 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Equipment
 
Equipment is recorded at cost.  Depreciation and amortization are computed for financial reporting purposes utilizing the straight-line method over the estimated useful lives of the related asset or, for leasehold improvements, the shorter of the lease term or estimated useful life.
 
Maintenance and repairs are charged to expense as incurred.  Costs of renewals and betterments are capitalized.
 
Research and Development Costs
 
Research and development (“R&D”) expenses include supplies,  salaries, benefits, and other headcount related costs, clinical trial and related clinical manufacturing costs, contract and other outside service and facilities and overhead costs.  The Company expenses the costs associated with research and development activities when incurred.
 
Income Taxes
 
The Company accounts for income taxes under using the liability method.  The liability method requires recognition of future tax benefits, measured by enacted rates, attributable to deductible temporary differences between financial statement and income tax bases of assets and liabilities to the extent that realization of such benefits is “more likely than not.”  The Company’s temporary differences between financial statement and income tax reporting relate primarily to receivable reserves, depreciation expense, and operating loss carryforwards. This standard also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.
 
GAAP requires that, in applying the liability method, the financial statement effects of an uncertain tax position be recognized based on the outcome that is more likely than not to occur. Under this criterion the most likely resolution of an uncertain tax position should be analyzed based on technical merits and on the outcome that will likely be sustained under examination.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Net Income (Loss) per Share                                 
 
Basic net income (loss) per share is calculated by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period, increased by potentially dilutive common shares ("dilutive securities") that were outstanding during the period. Dilutive securities include stock options and warrants granted and convertible debt.  The Company’s loss attributable to common stockholders, along with the dilutive effect of potentially issuable common stock due to outstanding options warrants and convertible securities cause the normal computation of diluted loss per share to be smaller than the basic loss per share; thereby yielding a result that is counterintuitive. Consequently, the diluted loss per share amount presented does not differ from basic loss per share due to this “anti-dilutive” effect.
 
Reclassifications
 
Certain prior period amounts were reclassified to conform with current period presentation.

4.
PROPERTY AND EQUIPMENT

The Company’s property and equipment at September 30, 2012 and December 31, 2011 consists of the following:

   
9/30/12
   
12/31/11
 
Lab equipment
 
$
203,204
   
$
117,690
 
Construction in progress
   
1,612,483
     
422,000
 
Furniture & Fixtures
   
458,297
     
25,140
 
Computer Equipment
   
758,514
     
7,230
 
     
3,032,498
     
572,060
 
Less accumulated depreciation
   
151,133
     
15,226
 
Property and Equipment, net
 
$
2,881,365
   
$
556,834
 

Depreciation expense for the three and nine months ended September 30, 2012 and 2011 was $125,022 and $135,907 and $3,102 and $8,624, respectively and is included in general and administrative expenses on the Company’s statement of operations.   Construction in progress consists of leasehold improvements for various expansion projects that the Company has undertaken. When these projects are considered complete, functional and meet the Company's standards, the Company will record the leasehold improvements as assets and will begin depreciating the assets.

 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at September 30, 2012 and December 31, 2011 are as follows :

   
9/30/12
   
12/31/11
 
Accounts payable
 
$
731,340
   
$
44,208
 
Accrued expenses and liabilities
   
620,089
     
422,519
 
Accrued payroll
   
210,697
     
72,858
 
Other
   
78,788
     
45,000
 
Total
 
$
1,640,914
   
$
584,585
 

6.  
Notes Payable
 
In conjunction with the Merger, the Company assumed notes payable in the principal amount of $2,463,652 plus accrued interest of $369,898.
 
Following completion of the Merger, the Company entered into an asset purchase agreement (the “Consorteum Purchase Agreement”) with Consorteum Holdings, Inc. (“Consorteum”), an unrelated company, pursuant to which the Company agreed to sell, transfer and assign to Consorteum all of the Company’s rights, title and interests to, and agreements relating to, its digital trading card business and platform in exchange for Consorteum assuming an aggregate principal amount of $1,864,152 of indebtedness of the Company.   Such rights include, but are not limited to, the Company’s name, phone number and listing, reputation, relationships and other intangible assets (including its rights to any intellectual property or proprietary technology), as well as the company’s rights under certain licensing agreements (“Digital Trading Assets”).
 
Also on June 6, 2011, the Company and Consorteum entered into an amendment agreement (the “Amendment Agreement”) to the Consorteum Purchase Agreement pursuant to which the parties agreed, among other things, that the obligations of the Parties to consummate the transactions contemplated by the Purchase Agreement are subject to (i) the approval of the Board of Directors of each of the parties, and (ii) the completion of the assignment of the Assumed Liabilities (including receipt of all the necessary consents of the holders of all outstanding indebtedness of the Buyer).
 
On June 30, 2011, the Company and Consorteum agreed to waive the requirement that the conditions precedent set forth in the Consorteum Purchase Agreement as amended be satisfied on or before closing and each party agreed that as of the date of the Consorteum Purchase Agreement, Consorteum would assume an aggregate of $1,477,052 of principal indebtedness plus accrued interest from the Company totaling $250,695 less unamortized note discounts of $9,890. Upon completion of the requirements of the Consorteum Purchase Agreement and the Amendment Agreement, the note holders who consented to the assumption of their obligations by Consorteum received shares of Consorteum common stock in satisfaction of their notes. Included in the notes assumed by Consorteum were notes payable to former officers and directors of the Company prior to the Merger totaling $450,000 in principal plus accrued interest of $74,935. Notwithstanding the foregoing, Consorteum agreed to provide the Company a guaranty, whereby Consorteum agrees to unconditionally and irrevocably guarantee to the Company the prompt and complete payment, as and when due and payable (whether at stated maturity or by required prepayment, acceleration, demand or otherwise), of any remaining notes payable for which the Company had not received the necessary consent as of the date of the waiver. As a result of the foregoing, the transactions contemplated by the Consorteum Purchase Agreement closed on June 30, 2011.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The Digital Trading Assets acquired at the acquisition date were measured at their fair values as of the Merger date which were determined to be an amount equal to the principal, net of discounts, plus accrued interest of the notes assumed by Consorteum as of the effective date of the sale equal to $1,717,857 therefore no gain or loss was recognized as a result of this sale.
 
The Company has recorded as liabilities the notes payable not yet assumed by Consorteum which total $236,600 in principal plus $34,789 in accrued interest at September 30, 2012. Notwithstanding the guaranty of Consorteum to unconditionally and irrevocably guarantee to the Company the prompt and complete payment, as and when due and payable (whether at stated maturity or by required prepayment, acceleration, demand or otherwise), of any remaining notes payable, the Company will continue to report such liabilities on the Company’s balance sheet until settlement and disposition of these obligations is finalized.
 
In the current period, a $375,000 notes payable and accrued interest of $152,549 was converted to common stock and warrants as part of the February 2012 private placement. The Company’s remaining outstanding notes consist of an aggregate of $375,000 of notes of the Company which have been amended and are convertible into an aggregate of 187,500 shares of common stock of the Company (based upon a fixed conversion price of $2.00 per share).

7.  
Related Party Notes Payable

Frank Loan

On August 26, 2012, the Company entered into a secured promissory note (the “Note”) with Fredrick Frank (the “August 2012 Lender”) pursuant to which the August 2012 Lender loaned the Company $200,000 that is due and payable on October 31, 2012 in accordance with the terms of the Note (the “Maturity Date”). The Note is secured by 500,000 shares of the Company’s Common Stock. On November 6 2012, the Company and August 2012 Lender agreed to extend the Frank Note until November 30, 2012. Fredrick Frank is an advisor of the Company.

LMazur Associates JV Loan

On September 1, 2012, the Company entered into a secured promissory note (the “Note”) with LMazur Associates JV (the “Agent”), as agent for LMazur Associates JV and JJK LLC (collectively, the “Lender”) pursuant to which the Lender loaned the Company $100,000 that was due and payable on October 1, 2012 in accordance with the terms of the Note (the “Maturity Date”). The Note bore interest at a rate of 10% per annum which was payable on the Maturity Date. The Company’s obligations under the Note were guaranteed by Dr. Steven Victor, the Company’s chief executive officer. In addition, the Company, Dr. Victor and the Lender entered into a pledge and security Agreement pursuant to which the Note was secured by all of Dr. Victor’s shares of series B preferred stock of the Company. The Note, and all accrued and unpaid interest thereon, was paid in full on October 1, 2012. LMazur Associates JV is an entity controlled by Leonard Mazur, a director of the Company.
 
7.  
Related Party Transactions
 
Rent
The Company is provided office facilities and related services by a company owned by the Company’s Chief Executive Officer, Dr. Steven Victor. The Company has recorded rent, administrative, and office overhead expenses of $0 and $150,000 and $30,000 and $90,000, respectively, representing the Company’s portion of use for such for three and nine months ended September 30, 2012 and 2011, respectively.

Officer Salary
The Company has recorded a salary expense of $68,750 and $206,250 and $68,750 and $206,250 for the three and nine months ended September 30, 2012 and 2011, respectively, for Dr. Victor as a result of his serving in the capacity of the Company’s Chief Executive Officer. Additionally, a salary expense totaling approximately $45,000 and $115,000 and $43,750 and $99,500 for the three and nine months ended September 30, 2012 and 2011, respectively, recorded for the Company’s Executive Vice President who is a related party, a shareholder and the spouse of the Company's Chief Executive Officer.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Research and Development
Research and Development costs for the three and nine months ended September 30, 2011 was $76,000 and $80,000, respectively, including fees accrued and payable to Dr. Steven Victor for services as the attending physician in thirty-eight (38) patient cases included as part of the Company’s ongoing research of its technologies and processes. No fees were accrued in the nine months ending September 30, 2012. Payment of these fees are contingent upon the Company either generating $2.0 million in revenues or completing an equity offering of the Company’s common stock or other securities equal to or greater than $5.0 million, whichever occurs first. As of September 30, 2012 and 2011, the following amounts were owed to related parties:
 
   
September 30, 2012
   
December 31, 2011
 
Accrued salaries
 
$
633,647
   
$
374,932
 
Accrued research fees
   
361,000
     
361,000
 
   
$
994,647
   
$
735,932
 
 
Officer Advance
From time to time, the Company has received advances from one of its officers to meet short term working capital needs. These advances do not have formal repayment terms or arrangements.

Dr. Steven Victor's, cumulative advances amounted to $105,042 and $67,882 to the Company for working capital purposes as of September 30, 2012 and December 31, 2011, respectively. These advances do not have formal repayment terms or arrangements.

Regen Agreement

On April 16, 2012, the Company entered into a technology license and administrative services agreement (the “Agreement”) with Regen Medical P.C., the medical practice which is owned by, and through which, our Chief Executive Officer, Dr. Steven Victor, engages in the practice of Cosmetic Dermatology (“Regen Medical”). Pursuant to the Agreement, the Company, among other things, (i) granted Regen Medical the non-exclusive and non-assignable license to utilize the Company's proprietary process and technology for its patients, (ii) granted Regen Medical a license to use a laboratory which can be used by Regen Medical for use of the Company’s proprietary process and (iii) was appointed as the exclusive manager and administrator of Regen Medical’s operations which relates to the implementation of the Company's proprietary process as well as Regen Medical’s cosmetic dermatology practice, and (iv) was appointed the sole provider of non-medical managerial, administrative and business functions for Regen Medical’s cosmetic dermatology practice.  The Agreement became effective as of April 16, 2012 and shall continue until April 16, 2017.  Thereafter, the Agreement is to be automatically renewed for successive five year periods unless either party notifies the other in writing of its intention not to renew the Agreement. Such a notice is to be given at least 12 months but no more than 15 months prior to the expiration of the then current term.  Either party may terminate the Agreement, for among other things, the failure to cure a material breach of the agreement within 30 days after receipt of written notice or in the event any state or federal laws or regulations, now existing or enacted or promulgated after the effective date, are interpreted in such a manner as to indicate that the structure of the agreement may be in violation of any such laws or regulations.

In consideration for the services to be provided under the Agreement, Regen Medical is to pay the Company (i) an annual administrative fee of $600,000, payable in equal monthly installments during the term of the term of the agreement (subject to an annual increase of up to a maximum of ten percent (10%) beginning on the second anniversary of the effective date), (ii) an annual technology license fee of $120,000, payable in equal monthly installments during the term of the term of the agreement, for the use of our proprietary process (including the laboratory and the laboratory technician) and (iii) a processing fee of $1,000 for each tissue processing case that utilizes our proprietary process.  The Company is also entitled to a an annual performance fee during the term of either (i) $150,000, in the event total income to Regen Medical exceeds $5,500,000 or (ii) $200,000, in the event that total income to Regen Medical exceeds $7,000,000.  In addition, beginning on October 16, 2013 and on each six month anniversary thereafter during the term, the Company is entitled to a share of Regen Medical’s Savings (as defined below), minus its share of any Loss (as defined below”), based upon an agreed upon base burden percentage for Regen Medical (the “Base Burden Percentage”). The Base Burden Percentage is to be calculated by dividing (a) the aggregate actual costs of Regen Medical paid by the Company during the period ending on December 31, 2011 by (b) the aggregate revenue of Regen Medical collected by the Company during the period ending on December 31, 2011; provided , however , that the Base Burden Percentage shall be recalculated on January 1, 2013 and every 12 months thereafter during the term by dividing (i) the aggregate actual costs for the Regen Medical paid by the Company during the preceding three six-month periods by (ii) the aggregate Savings or Loss is to be calculated by subtracting (a) the aggregate actual costs for the Regen Medical paid by the Company during the preceding Period from (b) an amount equal to (I) the Base Burden Percentage multiplied by (ii) the aggregate revenue of the Regen Medical collected by the Company during the preceding Period (the “Burden Amount”). If the Burden Amount exceeds the Period Actual Costs (the “Savings”) or the Period Actual Costs exceed the Burden Amount (the “Loss”), Regen Medical and the Company shall share such Savings or Loss 65% for the account of the Regen Medical and 35% for the account of the Company. The Company incurred revenue of $180,000 and  $334,000 for the three and nine months ended September 30, 2012, respectively, under the agreements. The balance of $334,000 is included in the outstanding accounts receivable as of September 30, 2012. Furthermore, Regen Medical has advances due to the company in the amount of $37,627 as of September 30, 2012. These advances do not have formal repayment terms or arrangements.
 

Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8.  
Convertible Debentures
 
In May 2011, IntelliCell completed a convertible debt offering aggregating $1,385,000. The units offered consist of a $50,000 subordinated convertible debenture payable one year from the date of issue with interest at a rate of 6% and convertible, at the option of the holder, into the Company’s common stock at an initial conversion price of $1.72 per share. Each unit also included a detachable five (5) year warrant to purchase 57,143 shares of IntelliCell’s common stock at an exercise price of $1.72 per share.  The proceeds from the issuance of convertible debt securities with detachable warrants were allocated between the warrants and the debt security. The discount is being amortized over the life of the debt. As of September 30, 2012, the Company recorded an original issue discount of $288,564 related to the value of the warrants that will be amortized as interest expense over the initial one year term of the convertible debentures. During the three and nine months ended September 30, 2012, the Company recognized $0 and $72,141 of interest expense as a result of the amortization.  
 
The Company accounted for the conversion features underlying the convertible debentures issued in accordance with GAAP, as the conversion feature embedded in the convertible debentures could result in the debentures being converted to a variable number of the Company’s common shares. The Company determined the value of the derivate conversion features of these debentures issued at the relevant commitment dates to be $32,209 utilizing a Black-Scholes valuation model. The change in fair value of the liability for the conversion feature resulted in a charge to income of $63,408 and a reduction to charge to income of $4,408,733 during the three and nine months ended September 30, 2012 and $3,387,351 during the three and nine months ended September 30, 2011. The fair value of the derivative conversion features was determined to be $72,608 at September 30, 2012.
 
The Company accounted for the detachable warrants included with the convertible debentures as liabilities in accordance with GAAP, as the warrants are subject to anti-dilution protection and could result in them being converted to a variable number of the Company’s common shares. The Company determined the value of the derivate feature of the warrants issued during at the relevant commitment dates to be $332,401 utilizing a Black-Scholes valuation model. The change in fair value of the liability for the warrants resulted in a reduction to the charge to income of $77,096 and $10,008,017 during the three and nine months ended September 30, 2012 and an increase to the charge to income of $7,929,262 and $7,938,552 during the three and nine months ended September 30, 2011, respectively. The fair value of the derivative conversion features was determined to be $301,933 at September 30, 2012.

As of September 30, 2012, the balance of the remaining convertible debenture amounted to $1,360,000 and was due and payable on September 30, 2012. In the current year, a $25,000 convertible debenture and the related accrued interest of $904 was converted to common stock.
 
On May 17, 2012, the holder of an aggregate of $500,000 principal amount of IntelliCell Notes informed the Company that it is in default and demanded repayment under the IntelliCell Notes. Pursuant to the terms of the IntelliCell Notes, upon the occurrence, after the expiration of a cure period of fifteen (15) days with respect to monetary defaults, following the receipt by the Company of written notice from a holder of a default in the payment of any installment of principal or interest, or any part thereof, when due, a holder, at its election may accelerate the unpaid balance of the principal and all accrued interest due under this Note and declare the same payable at once without further notice or demand. Upon an event of default under the IntelliCell Notes, the holders of the IntelliCell Notes shall be entitled to, among other things (i) the principal amount of the IntelliCell Notes along with any interest accrued but unpaid thereon and (ii) costs and expenses in connection with the collection and enforcement under the IntelliCell Notes, including reasonable attorneys’ fees.  As a result of the notice of default, the IntelliCell Notes in the aggregate principal amount of $1,360,000 are immediately due and payable. The Company is currently working with its investors on making arrangements to honor its obligations under the IntelliCell Notes, however, there can be no assurance that any such arrangements will ever materialize or be permissible or sufficient to cover any or all of the obligations under the IntelliCell Notes. In conjunction with the agreement arrangements with the note holders, $77,744 of accrued interest was converted to 89,358 shares of the Company's common stock in May 2012.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
As discussed, as a result of the Company’s Merger, the subordinated convertible debentures and warrants were assumed by the Company. The remaining subordinated convertible debentures are convertible into an aggregate of 4,121,212 shares of common stock and warrants to purchase an aggregate of 3,071,542 shares of common stock (at an exercise price of $0.33).

9.  
Convertible Notes Payable

Convertible Promissory Note
 
On June 7, 2012, the Company issued the Convertible Note in favor of TCA Global Master Fund, L.P. ("TCA").  The maturity date of the Convertible Note is June 7, 2013, and the Convertible Note bears interest at a rate of twelve percent (12%) per annum.  The Convertible Note is convertible into shares of the Company’s common stock, par value $0.001 per share (the "Common Stock") at a price equal to ninety-five percent (95%) of the average of the lowest daily volume weighted average price of the Common Stock during the five (5) trading days immediately prior to the date of conversion.  The Convertible Note may be prepaid in whole or in part at the Company’s option without penalty.

The Company accounted for the conversion features underlying the convertible note issued in accordance with GAAP, as the conversion feature embedded in the convertible note could result in the note being converted to a variable number of the Company’s common shares. The Company determined the value of the derivate conversion features of these notes issued at the relevant commitment dates to be $187,135 using the Black-Scholes valuation model. The change in fair value of the liability for the conversion feature resulted in a reduction of income of $55,886 and a charge to income of $23,748 during the three and nine months ended September 30, 2012, respectively. The fair value of the derivative conversion features was determined to be $210,882 at September 30, 2012.

10.  
Derivative Liabilities
 
GAAP provides guidance on determining what types of financial instruments or embedded features in a financial instrument would cause a financial instrument to be considered as indexed to a company’s own stock for the purpose of evaluating the accounting for derivatives. These requirements can affect the accounting for warrants issued by the Company. Under the evaluation criteria, the Company concluded that the instruments issued are not indexed to the Company's stock and therefore are to be treated as derivative liabilities.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 Convertible Promissory Note - Derivative Liabilities
 
The derivative liabilities related to the embedded conversion feature were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:
 
   
September 30, 2012
 
   
Embedded Conversion Feature
 
Risk free interest rate
   
3.00
%
Expected volatility (peer group)
   
105.09
%
Expected life (in years)
   
1.00
 
Expected dividend yield
   
-
 
Number outstanding
   
2,425,168
 
Fair value at issue date
 
$
187,135
 
Change in derivative liability for the period *
 
$
23,748
 
Fair value -derivative liability
 
$
210,882
 

Convertible Debentures - Derivative Liabilities
 
The derivative liabilities related to the embedded conversion feature and the outstanding warrants were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:
 
   
September 30, 2012
 
   
Embedded Detachable Warrants
   
Embedded Conversion Feature
 
Risk free interest rate
   
3.00
%
   
3.00
%
Expected volatility (peer group)
   
105.09
%
   
105.09
%
Expected life (in years)
   
3.50
     
.50
 
Expected dividend yield
   
-
     
-
 
Number outstanding
   
3,071,542
     
4,121,212
 
Fair value at issue date
 
$
38,710
   
$
25,418
 
Change in derivative liability for the period *
 
$
(10,008,017
 
$
(4,408,733
Fair value -derivative liability
 
$
301,933
   
$
72,608
 
 
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Common Stock Offering - Derivative Liabilities
 
The derivative liabilities related to the embedded conversion feature and the outstanding warrants were valued using the Black-Scholes option valuation model and the following assumptions on the following dates:
 
   
September 30, 2012
 
   
Embedded Detachable Warrants
   
Embedded Conversion Feature
 
Risk free interest rate
   
3.00
%
   
3.00
%
Expected volatility (peer group)
   
105.09
%
   
105.09
%
Expected life (in years)
   
4.50
     
.-
 
Expected dividend yield
   
-
     
-
 
Number outstanding
   
10,400,000
     
2,600,000
 
Fair value at issue date
 
$
17,152,200
   
$
1,884,112
 
Change in derivative liability for the period (since issue date) *
 
$
(17,139,140
 
$
(1,884,112
Fair value -derivative liability
 
$
12,860
   
$
-
 

The risk free interest rate was based on the yields of US Treasury securities having a similar life. The expected volatility was based on the historical volatility of the share prices of a peer group of the Company  as quoted on major US stock exchanges over a two year period, selected based upon similar industry category, market capitalization and total asset values. The expected dividend rate was based on the fact that the Company has not historically paid dividends on common stock and does not expect to pay dividends on common stock in the future. The valuation of the embedded conversion feature at September 30, 2012 was deemed immaterial.
 
* the principal reason for the changes in the derivative liabilities for the period is due to the volatility fluctuation of the Company's common stock as it is indexed for the purpose of evaluating the accounting for derivatives and/or the decrease in life as the instruments reach expiration.
   
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11.  
Capital Stock

As of September 30, 2012 and December 31, 2011, the Company has designated 21,000 shares of preferred stock as Series B preferred stock, with a par value of $.01 per share, of which 15,233 and 18,280 shares of preferred stock are issued and outstanding, respectively. As of September 30, 2012 and December 31, 2011, the Company has designated 13,000 shares of preferred stock as Series C preferred stock, with a par value of $.01 per share, of which 7,250 and 10,823 shares of preferred stock are issued and outstanding, respectively. As of September 30, 2012 and December 31, 2011, the Company has designated 500,000 shares of preferred stock as Series D preferred stock, with a par value of $.01 per share, of which 56,500 and 42,000 shares of preferred stock are issued and outstanding, respectively. The Company has authorized 500,000,000 shares of common stock, with a par value of $.001 per share. As of September 30, 2012 and December 31, 2011, the Company had 41,136,760 and 21,034,938, respectively, of shares of common stock issued and outstanding.

Series B Preferred Stock

Pursuant to the Merger Agreement, at closing, we issued 20,521 shares of the series B preferred stock to Dr. Steven Victor, the principal shareholder of Intellicell, in exchange for an aggregate of 10,575,482 shares of IntelliCell’s common stock. Each share of series B preferred stock shall be convertible into 1,000 shares of the Company’s common stock.

To date, the holder of Series B Preferred Stock elected to convert 5,288 shares of Series B Preferred Stock into 5,287,116 shares into our common stock including 3,047 shares of Series B Preferred into 3,046,527 shares into our common stock in the current period.  As a result, there are presently 15,233 shares of Series B Preferred Stock issued and outstanding.

Series C Preferred Stock

Prior to the consummation of the Merger, the Company entered into agreements with the holders of an aggregate of $1,693,472 of indebtedness to the Company, comprised of accrued compensation in the amount of $1,201,551, promissory notes in the principal amount of $263,707 and accrued expenses totaling $228,414 (the “Series C Debt”), which included $1,566,644 of accrued compensation, notes and/or advances held or made by affiliates of the Company, pursuant to which such persons agreed to settle and compromise such Series C Debt in exchange for the issuance of an aggregate of 12,123 shares of Series C preferred stock. Each share of Series C preferred stock shall be convertible into 1,000 shares of the Company’s common stock. Certain holders of the Company’s Series C preferred stock have contractually agreed to restrict their ability to convert the Series C preferred stock such that the number of shares of the Company common stock held by each of holder and its affiliates after such conversion shall not exceed 4.99% of the Company’s then issued and outstanding shares of common stock.
 
To date, certain holders of Series C Preferred Stock elected to convert 4,873 shares of Series C Preferred Stock into 4,873,000 shares into our common stock including 3,573 shares of Series C Preferred into 3,572,500 shares into our common stock in the current period.  As a result, there are presently 7,250 shares of Series C Preferred Stock issued and outstanding.

Series D Preferred Stock

The Company entered into a securities purchase agreements with purchasers that qualified as an accredited investors, as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company sold an aggregate of 56,500 shares of our series D convertible preferred stock and warrants to purchase 565,000 of the Company’s common stock, for aggregate gross proceeds of $1,130,000.  Each share of series D convertible preferred stock has a stated value equal to $20.00 per share and is initially convertible at any time into shares of common stock at a conversion price equal to $2.00 per share, subject to adjustment under certain circumstances.  As long as the series D preferred stock is outstanding, the conversion price of the series D convertible preferred stock in effect shall be reduced by $0.05 for every 180 day period a share of series D preferred stock is held by the investor.  The series D convertible preferred stock automatically converts into shares of the Company’s common stock after three years.  The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $2.00, subject to adjustment under certain circumstances.  The exercise price of the warrants and the conversion price of the series D convertible preferred stock are subject to full ratchet and anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like. However, no adjustment made shall cause the exercise price of the series D convertible preferred stock and  warrants to be less than $1.00.

To date, the Company has sold its series D convertible preferred stock and warrants for aggregate gross proceeds of $1,130,000 including 14,500 shares of Series D convertible preferred stock in the current period for net proceeds of $230,000.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

On January 27, 2012, the Company sold an aggregate of 12,500 shares of our series D convertible preferred stock and a warrant to purchase 125,000 of the Company’s common stock, for aggregate gross proceeds of $250,000.

On January 30, 2012, the Company sold an aggregate of 2,000 shares of our series D convertible preferred stock and warrants to purchase an aggregate of 20,000 of the Company’s common stock, for aggregate gross proceeds of $40,000.

In connection with the series D convertible preferred stock offering, we paid professional fees of $60,000 and issued a placement agent 15,000 warrants to purchase shares of common stock. The warrants issued to the placement agent may be exercised on a cashless basis.

February 2012 Private Placement- Common Stock and Warrant Issuances

In February 2012, the Company entered into securities purchase agreements with accredited investors, as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company sold (i) an aggregate of 2,600,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), (ii) class A warrants to purchase an aggregate of 5,200,000 shares of Common Stock (the “Class A Warrants”), and (iii) class B warrants to purchase an aggregate of 5,200,000 shares of Common Stock (the “Class B Warrants” and together with the Class A Warrants, the “Warrants”), for aggregate gross cash proceeds of $2,627,649, which consisted of $2,100,000 of cash and the exchange and cancelation of a promissory note (bearing principal and interest totaling $527,549) and a warrant ("Exchange Agreement").  In connection with the private placement, we paid placement agent fees and professional fees of $55,750 and issued the placement agent 27,500 warrants to purchase shares of common stock. The warrants issued to the placement agent may be exercised on a cashless basis.

The Class A Warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $2.00, subject to adjustment. The Class B Warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $3.75, subject to adjustment. The exercise price of the Warrants are subject to anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like. The investors may exercise the Warrants on a cashless basis anytime after the six month anniversary of the initial exercise date of the Warrants if the shares of common stock underlying the Warrants are not then registered pursuant to an effective registration statement. In the event the investors exercise the Warrants on a cashless basis, we will not receive any proceeds.

Common Stock Issuances

As discussed above, the Company issued 2,600,000 shares of its common stock for the February 2012 Private Placement which includes 2,100,000 shares for the private placement and 500,000 shares for the exchange and cancelation of a promissory note.

On January 9, 2012, The Company issued 29,436 shares of its common stock in exchange for the conversions of a $25,000 convertible debenture and accrued interest of $904. In addition, on May 22, 2012, the Company issued 89,358 shares of its common stock in exchange for the conversion of accrued interest of $77,744.
   
In February 2012, the Company issued 360,001 shares of its common stock for advisory services.  The Company recognized the fair market value of $1,083,170 as an expense as of the date of issue.

In March 2012, the Company issued 200,000 shares of its common stock in exchange for outstanding fees due and payable .  The Company recognized the fair market value net of $100,000 as a reduction to accrued expenses as of the date of issue.

On February 20, 2012 , the Company issued 500,000 of additional shares of its common stock to a former noteholder for services in conjunction with the Exchange Agreement.  The Company recognized the fair market value net of $1,250,000 as an expense as of the date of issue.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In May 2012, the Company issued 100,000 shares of common stock in conjunction with the Australian license agreement dated December 2011.

In May 2012, the Company issued 1,100,000 shares of its common stock for advisory services. The Company recognized the fair market value of $2,635,500 as an expense.
 
In June 2012, the Company issued 1,000,000 shares of its common stock in exchange for outstanding fees due and payable .  The Company recognized the fair market value net of $77,687 as a reduction to accrued expenses as of the date of issue.

In June 2012, the Company issued 14,000 shares of its common stock for advisory services. The Company recognized the fair market value of $5,180 as an expense.

In August 2012, the Company issued 330,000 shares of its common stock for advisory services. The Company recognized the fair market value of $52,800 as an expense.

In September  2012, the Company issued 60,000 shares of its common stock for advisory services. The Company recognized the fair market value of $10,200 as an expense.

Between September 5, 2012 and October 11, 2012, the February 2012 investors (including the investor that exchanged and cancelled his outstanding promissory note) agreed to certain amendments to their securities purchase agreement and exchange their respective Warrants for (i) an aggregate of 6,100,000 shares of the Company’s Common Stock  (ii) a new series A warrant to purchase an aggregate of 6,100,000 shares of Common Stock at an exercise price of seventy-five cents ($0.75) per share and (iii) a new series B warrant to purchase an aggregate of 6,100,000 shares of Common Stock at an exercise price of seventy-five cents ($0.75) per share.

Committed Equity Facility Agreement

On June 7, 2012, the Company entered into the Equity Agreement with TCA Global Master Fund, L.P. ("TCA"). Pursuant to the terms of the Equity Agreement, for a period of twenty-four months commencing on the effective date of the Registration Statement (as defined herein), TCA is to commit to purchase up to $2,000,000 of the Company’s common stock, par value $0.001 per share (the “Shares”), pursuant to Advances, covering the Registrable Securities.  The purchase price of the Shares under the Equity Agreement is equal to ninety-five percent (95%) of the lowest daily volume weighted average price of the Company’s common stock during the five (5) consecutive trading days after the Company delivers to TCA an Advance notice in writing requiring TCA to advance funds (an “Advance”) to the Company, subject to the terms of the Equity Agreement.

As further consideration for TCA entering into and structuring the Equity Facility, the Company must pay TCA a fee by issuing 275,000 shares of its common stock that equal to $110,000.

Registration Rights Agreement

On June 7, 2012 (the "Closing Date"), the Company entered into the Registration Rights Agreement with TCA.  Pursuant to the terms of the Registration Rights Agreement, the Company will use its commercially receivable best efforts to file a registration statement (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “SEC’) to cover the Registrable Securities no later than 45 days from the Closing Date (the "Filing Date").  The Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC no later than 90 days following the Closing Date. In the event that the Registration Statement is not declared effective within a 150 days of the Filing Date, the Company will be subject to certain penalties.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Unaudited)
 
12.  
Stock Options and Warrants

Employee and Non-Employee Stock Options

The following table summarizes the changes in the options outstanding at September 30, 2012, and the related prices for the shares of the Company’s common stock issued to employees of the Company under a non-qualified employee stock option plan.

Range of
Exercise
Prices
   
Number
Outstanding
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life
   
Number
Exercisable
   
Weighted
Average
Exercise
Price
 
                                 
$
0.01 - 0.16
     
1,400,000
   
$
0..14
     
9.71
     
500,000
   
$
0.12
 
 
4.00
     
2,519,802
   
$
4.00
     
9.25
     
1,769,797
   
$
4.00
 
                                             
         
3,919,802
             
9.41
     
2,269,797
         

A summary of the Company’s stock awards for options as of September 30, 2012 and changes for the nine months ended September 30, 2012 is presented below:

   
Stock
Options
   
Weighted
Average
Exercise
Price
 
Outstanding, December 31, 2011
   
3,150,016
   
$
4.00
 
Granted
   
1,743,750
     
0.90
 
Exercised
   
(973,964
   
4.00
 
Expired/Cancelled
   
     
 
Outstanding, September 30, 2012
   
3,919,802
     
2.62
 
Exercisable, September 30, 2012
   
2,269,797
     
2.54
 
 
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The weighted-average fair value of stock options granted to employees during the nine months ended September 30, 2012 and 2011, respectively, and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes-Merton (“Black-Scholes”) option pricing model are as follows:

   
September 30, 2012
   
December 31, 2011
 
Significant assumptions (weighted-average):
           
Risk-free interest rate at grant date
   
0.35% to 1.61%
     
0 .85
%
Expected stock price volatility
   
105%
     
105
%
Expected dividend payout
   
-
     
-
 
Expected option life (in years)
   
3.0 to 10.0
     
10.0
 
Expected forfeiture rate
   
-
     
0
%
Fair value per share of options granted
 
$
0.24
   
$
3.65
 

The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company has no historical experience with which to establish a basis for determining an expected life of these awards. Therefore, the Company only gave consideration to the contractual terms and did not consider the vesting schedules, exercise patterns and pre-vesting and post-vesting forfeitures significant to the expected life of the option award.

We estimate the volatility of our common stock based on the calculated historical volatility of similar entities in industry, in size and in financial leverage whose share prices are publicly available. We base the risk-free interest rate used in the Black-Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. We have not paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes-Merton option valuation model.

There were no options exercised during the nine months ended September 30, 2012 and 2011, respectively.

Total stock-based compensation expense in connection with options granted to employees recognized in the consolidated statement of operations for the three and nine months ended September 30, 2012 was $551,265 and $2,409,724, respectively, net of tax effect. Total stock-based compensation expense in connection with options granted to non-employees recognized in the consolidated statement of operations for the three and nine months ended September 30, 2012 was $15,593 and $30,646, respectively, net of tax effect. There were no stock options issued in the three and nine months ended September 30, 2011. Additionally, none of the options outstanding and unvested as of September 30, 2012 had any intrinsic value.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Warrants

The following table summarizes the changes in the warrants outstanding at September 30, 2012, and the related prices for the shares of the Company’s common stock issued to non-employees of the Company.  These warrants were issued in lieu of cash compensation for services performed or financing expenses and in connection with the private placements and merger.

Range of
Exercise
Prices
   
Number
Outstanding
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life
   
Number
Exercisable
   
Weighted
Average
Exercise
Price
 
                                 
$
0.33
     
3,071,542
   
$
0.33
     
3.61
     
3,071,542
   
$
0.33
 
$
0.75 - 0.86
     
11,580,000
   
$
0.75
     
4.35
     
11,580,000
   
$
0.75
 
$
1.00
     
42,500
   
$
1.00
     
4.23
     
42,500
   
$
1.00
 
$
1.58
     
45,000
   
$
1.58
     
9.50
     
45,000
   
$
1.58
 
$
2.00
     
2,929,200
   
$
2.00
     
4.14
     
2,929,200
   
$
2.00
 
$
2.45 - 2.60
     
800,000
   
$
2.51
     
4.26
     
800,000
   
$
2.51
 
$
3.00
     
750,000
   
$
3.00
     
4.21
     
750,000
   
$
3.00
 
$
3.20
     
350,000
   
$
3.20
     
4.18
     
350,000
   
$
3.20
 
$
3.75
     
100,000
   
$
3.75
     
4.39
     
100,000
   
$
3.75
 
                                             
         
19,668,242
             
4.08
     
19,668,242
         
 
A summary of the Company’s stock awards for warrants as of September 30, 2012 and changes for the nine months ended September 30, 2012 is presented below:

   
Options 
and Warrants
   
Weighted
Average
Exercise
Price
 
Outstanding, December 31, 2011
   
6,931,542
   
$
1.62
 
Granted
   
12,736,700
     
0.99
 
Exercised
   
     
 
Expired/Cancelled
   
     
 
Outstanding, September 30, 2012
   
19,668,242
     
1.09
 
Exercisable, September 30, 2012
   
19,668,242
     
1.09
 
 
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
February 2012 Private Placement

In February 2012, the Company entered into securities purchase agreements with accredited investors, as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company sold (i) an aggregate of 2,600,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), (ii) class A warrants to purchase an aggregate of 5,200,000 shares of Common Stock (the “Class A Warrants”), and (iii) class B warrants to purchase an aggregate of 5,200,000 shares of Common Stock (the “Class B Warrants” and together with the Class A Warrants, the “Warrants”). (See note 10)

The Class A Warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $2.00, subject to adjustment. The Class B Warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $3.75, subject to adjustment. The exercise price of the Warrants are subject to anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like. The investors may exercise the Warrants on a cashless basis anytime after the six month anniversary of the initial exercise date of the Warrants if the shares of common stock underlying the Warrants are not then registered pursuant to an effective registration statement. In the event the investors exercise the Warrants on a cashless basis, the Company will not receive any proceeds.
 
Between September 5, 2012 and October 11, 2012, the February 2012 investors (including the investor that exchanged and cancelled his outstanding promissory note) agreed to certain amendments to their securities purchase agreement and exchange their respective Warrants for (i) an aggregate of 6,100,000 shares of the Company’s Common Stock  (ii) a new series A warrant to purchase an aggregate of 6,100,000 shares of Common Stock at an exercise price of seventy-five cents ($0.75) per share and (iii) a new series B warrant to purchase an aggregate of 6,100,000 shares of Common Stock at an exercise price of seventy-five cents ($0.75) per share.

Series D Preferred Stock
 
The Company sold an additional 14,500 shares of our series D convertible preferred stock and warrants to purchase 145,000 of the Company’s common stock, for aggregate net proceeds of $230,000 (See Note 11).   The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $2.00, subject to adjustment under certain circumstances. The exercise price of the warrants and the conversion price of the series D convertible preferred stock are subject to anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.  However, no adjustment made shall cause the exercise price of the series D convertible preferred stock and warrants to be less than $1.00. In conjunction with the February 2012 Private Placement, the Series D holders were allocated an additional 565,000 warrants to purchase the Company's common stock and the exercise price of the Series D warrants was reduced to $1.00 as an anti-dilution adjustment.

The Company issued 1,584,200 compensatory warrants to non-employees during the three and nine months ended September 30, 2012. The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for the grants, respectively; dividend yield of zero percent for all periods; expected volatility is 105%; risk-free interest rate from a range of  .12%  to 2.08%; expected lives ranging from one years to ten years.  Total non-employee stock-based compensation expense in connection with warrants recognized in the consolidated statement of operations for the three and nine months ended September 30, 2012 was $0 and $2,720,764, respectively, net of tax effect. There were no compensatory warrants issued in the three and nine months ended September 30, 2011.
 
Series D Preferred Stock Financing Amendment

Between October 2, 2012 and October 11, 2012, the Company entered into an amendment agreement (collectively, the “Series D Amendment Agreement”), with investors who participated in the Company’s series D preferred stock private placement (the “Series D Investors”) pursuant to which the Series D Investors holding (i) an aggregate of 40,500 shares of series D preferred stock (the “Series D Preferred Stock”) and (ii) warrants to purchase an aggregate of 405,000 shares of Common Stock (the “Series D Warrants’), agreed to certain amendments to their securities purchase agreement and their Series D Warrants to, among other things, remove all anti-dilution price protection that the Feb 2012 Investors received in connection with the transaction, allow the Company to create a new series of preferred stock that ranks pari passu as to dividends, redemption or distribution of assets upon liquidation with the Series D Preferred Stock in exchange for reducing (i) the conversion price of the Series D Preferred Stock to $0.33 and (ii) the exercise price of the Series D Warrants to $0.75.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13.  
Loss per Share

The following table presents the computations of basic and dilutive loss per share:

   
For the three months ended September 30, 2012
   
For the nine months ended September 30, 2012
 
Net Loss
 
$
1,742,964
   
$
210,242
 
                 
Net income (loss) per share:
               
Net income (loss) per share – basic & diluted
 
$
(.05
 
$
(.01
                 
Weighted average common shares outstanding – basic & diluted
   
32,627,419
     
27,748,393
 

For the three and nine months ended September 30, 2012 common stock equivalents totaling 40,537,511 and 42,651,555, respectively, related to warrants, convertible debt and preferred stock were excluded from the calculation of the diluted net loss per share as their effect would have been antidilutive.

   
For the three months ended September 30, 2011
   
For the nine months ended September 30, 2011
 
Net Income (Loss)
 
$
(6,191,912
)
 
$
(19,391,490
)
                 
Net income (loss) per share:
               
Net income (loss) per share – basic & diluted
 
$
(0.33
)
 
$
(1.09
)
                 
Weighted average common shares outstanding – basic & diluted
   
18,670,289
     
17,858,505
 

For the three and nine months ended September 30, 2011 common stock equivalents totaling 35,246,597 and 35,017,915, respectively, related to warrants, convertible debt and preferred stock were excluded from the calculation of the diluted net loss per share as their effect would have been antidilutive.
 
 
 

Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Unaudited)
 
 
 
14.  
Commitments
 
On June 1, 2011, a company owned by Dr. Steven Victor, the Company’s chief executive officer, entered into a 13 year lease for new office space, for which the Company unconditionally guaranteed any and all obligations owed under the lease to the landlord. In connection with the execution of the lease, the Company established a restricted cash account in the amount of approximately $650,000 to secure a line of credit to be used as a security deposit under the lease as well as paying the initial two months’ rent totaling $53,839. Once the build out of the office space is complete, the Company will pay $25,000 per month to sublease office space from the company owned by Dr. Victor. The Company occupied this new facility in April 2012. The Company paid Dr. Victor $25,000 per month in rent through the period ending June 30, 2012.
 
 15.  
Subsequent Events
 
The Company has evaluated its subsequent events from the balance sheet date through the date the accompanying consolidated financial statements became available to be issued. There were no significant subsequent events.
 
 Series E Preferred Stock Financing
 
Between October 1 2012 and October 31, 2012, the Company entered into a securities purchase agreement with two accredited investors (the “Series E Preferred Stock Investors”) pursuant to which the Company sold the investors an aggregate of one hundred twenty-five (125) shares of its series E convertible preferred stock (the “Series E Preferred Stock”) for aggregate gross proceeds of $125,000.

Between November 5, 2012 and November 6, 2012, the Company entered into an exchange agreement, with the Series E Preferred Stock Investors  pursuant to which the Series E Preferred Investors holding an aggregate of 125 shares of the Company’s Series E Preferred Stock agreed to exchange their Series E Preferred Stock for (i) an aggregate of 833,334 shares of the Company’s Common Stock and (ii) a five-year warrant to purchase an aggregate of 416,667 shares of Common Stock at an exercise price of $0.45 per share. The Series E Preferred Stock Investors also provided their consent to allow the Company to take all actions necessary to cancel the Series E Preferred Stock which will include the filing of a Withdrawal of Designation with the Secretary of State of Nevada. As of the date of this Quarterly Report on Form 10-Q, the Company has not filed any documents with the Nevada Secretary of State.

A FINRA registered broker-dealer was engaged as placement agent in connection with the Series E Preferred Stock private placement. We paid the placement agent a cash fee in the amount of $17,500 (representing a 10% sales commission of $12,500 and reimbursement for legal fees incurred) and will issue the placement agent a warrant to purchase shares of common stock.
 
 
Intellicell BioSciences Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Unaudited)
 
Thailand License Agreement
 
 On October 23, 2012, the Company sent a letter to StemCells 21 Co. Ltd. (the “Thailand Licensee”) pursuant to which the Company notified the Thailand Licensee that it intends to terminate the Laboratory Services License Agreement, dated April 7, 2012 by and between the Company and Thailand Licensee (the “Thailand Agreement”), effective immediately. The Company is terminating the Thailand Agreement, for, among other things, Thailand Licensee’s (i) attempt to determine the Technology (as defined in the Thailand Agreement) for Tissue Processing (as defined in the Thailand Agreement), (ii) failure to provide monthly reports summarizing Thailand Licensee’s efforts to utilize and commercially exploit the Patents (as defined in the Thailand Agreement) and Technology, (iii) operation of the Technology without using the name “Intellicell Thailand”, (iv) operation of the Technology in ways that fall outside the scope of the Thailand Agreement and (v) failure to notify the Company of infringing uses of the Technology. Pursuant to the terms of the Thailand Agreement, the Thailand Licensee has ten (10) business days to cure an event of default under the Thailand Agreement (except for termination of the Thailand Agreement as set forth in subsection (i) above which allows the Company to terminate the Thailand Agreement immediately). The Company has accrued $150,000 in the License Fee Liability upon the determination of amount of the fees, if any, to be returned to the former Thailand Licensee.
 
 Australia License Agreement
 
On December 16, 2011, the Company entered into an exclusive lab services agreement (the “Australian Agreement”) with Cell-Innovations Pty Ltd. (“Australian Licensee”) pursuant to which the Company granted Australian Licensee the exclusive right and license to the Company’s technology and trademarks so that the Australian Licensee can utilize the Company’s technology and trademarks to provide tissue processing services for humans in Australia and New Zealand.  As of the date of this Current Report on Form 8-K, the Company and Australian Licensee are in a dispute over the some of the terms of the Australian Agreement, including, but not limited to, compliance by Australian Licensee with ICB Protocols (as defined in the Australian Agreement).  While the Company has commenced discussions with the Australian Licensee concerning the disputes that have arisen under the terms of the Australian Agreement, there can be no assurance that the Company and the Australian Licensee will come to any mutual understanding with respect to any of the issues in question. As of the date of this Current Report on Form 8-K, the Company is continuing to evaluate what further action(s), if any, it make take in response to the dispute with the Australian Licensee, which action(s) may include, but not be limited to, terminating the Australian Agreement. The Company has accrued $700,000 in the License Fee Liability upon the determination of amount of the fees, if any, to be returned to the former Australian Licensee.

Unit Offering

 On November 13, 2012, the Company entered into a securities purchase agreement with an accredited investor pursuant to which the Company sold the investor 833,333 units, each unit consisting of two (2) shares of the Company’s common stock and a warrant to purchase a share of common stock, for aggregate gross proceeds of $250,000. The warrant is exercisable for a period of five years from the date of issuance at an initial exercise price of $0.45, subject to adjustment.  The exercise price of the warrant is subject to customary adjustments for stock splits, stock dividends, recapitalizations and the like. 
 
 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Statement of Forward Looking Information

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the Consolidated Financial Statements and notes related thereto included in this Quarterly Report on Form 10-Q. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for materials, and competition.
 
In this quarterly report on form 10-Q, references to “we” “our,” or the "Company" refer collectively to IntelliCell Biosciences, Inc. and its subsidiaries which include our wholly owned subsidiary, IntelliCell Biosciences, Inc., a New York corporation.
 
History
 
We were incorporated in Nevada under the name AVL Systems International, Inc. on March 8, 1999. On March 9, 2000, we filed an amendment to our articles of incorporation to change our corporate name to I-Track, Inc. On March 21, 2003, we filed Articles of Exchange pursuant to which we acquired Strategic Communication Partners, Inc., and we filed an amendment to our articles of incorporation to change our corporate name to China Wireless Communications, Inc. On May 17, 2010, we filed an amendment to our articles of incorporation to change our corporate name to Media Exchange Group, Inc.  On June 3, 2011, we completed the acquisition of Intellicell Biosciences, Inc., a New York corporation, pursuant to the terms of an Agreement and Plan of Merger dated April 27, 2011. Thereafter, on June 30, 2011, we completed the sale of all of our rights, title and interests to, and agreements relating to, our digital trading card business and platform as well as all other intangible assets of the business, pursuant to an asset purchase agreement with Consorteum Holdings, Inc. As a result of the transactions with Intellicell and Consorteum, we terminated our digital trading card business and platform and succeeded to the business operations and research efforts of Intellicell in the field of Regenerative medicine. On June 27, 2011, we filed articles of merger to change our corporate name to Intellicell Biosciences, Inc.
 
Merger with Intellicell Biosciences, Inc.

On April 27, 2011, we entered into an Agreement and Plan of Merger with Intellicell which was amended on June 3, 2011 (the “Merger Agreement”).  Under the terms of the Merger Agreement, our wholly-owned subsidiary (“Merger Sub”) merged into Intellicell.  The Merger Sub ceased to exist as a corporation and Intellicell continued as the surviving corporate entity.  As a result of the merger, Intellicell shareholders acquired majority of our outstanding common stock and all of our Series B preferred stock.  The recapitalized Intellicell Biosciences, Inc. is hereafter referred to as “Intellicell” or the “Company”. As consideration for the Merger, the holders of the an aggregate of 7,975,768 shares of IntelliCell’s common stock exchanged their shares of common stock for an aggregate of 15,476,978 shares of the Company’s common stock and Dr. Steven Victor, the principal shareholder of IntelliCell, exchanged an aggregate of 10,575,482 shares of IntelliCell’s common stock for an aggregate of 20,521 shares of the Company ’s series B preferred stock. Each share of series B preferred stock is convertible into 1,000 shares of the Company’s common stock. In addition, the holders of the series B preferred stock are entitled to notice of stockholders’ meetings and to vote as a single class with the holders of the Common Stock on any matter submitted to the stockholders for a vote, and are entitled to the number of votes equal the product of (a) the number of shares of Common Stock into which the series B preferred stock is convertible into on the record date of the vote multiplied by (b) ten (10). The closing of the Merger took place on June 3, 2011 (the “Closing Date”).
 
In addition to the foregoing, in accordance with the Merger Agreement, all outstanding convertible notes issued by IntelliCell (the “IntelliCell Notes”) and warrants issued by IntelliCell (the “IntelliCell Warrants”) entitle the holder to convert or exercise, as the case may be, into and receive the same number of shares of the Company  common stock as the holder of IntelliCell Notes and Warrants would have been entitled to receive pursuant to the Merger had such holder exercised such Intellicell Notes and Warrants in full immediately prior to the closing of the Merger. Thus, remaining are an aggregate of $1,360,000 of Intellicell Notes outstanding which are convertible into an aggregate of 1,533,258 shares of common stock of the Company  and warrants to purchase an aggregate of 3,071,342 shares of common stock of the Company.  In the current period, holders of Intellicell Notes in the principal amount of $25,000 have converted their Intellicell Notes into shares of our common stock. We have not repaid any of the principal or accrued but unpaid interest that has become due and payable under the remaining Intellicell Notes.  The Company is currently working on making arrangements to honor its remaining obligations under the Intellicell Notes, however, there can be no assurance that any such arrangements will ever materialize or be permissible or sufficient to cover any or all of the obligations under the Intellicell Notes.
 
As a result of the Merger, IntelliCell became our wholly-owned subsidiary, with Intellicell’s former shareholders acquiring a majority of the outstanding shares of our common stock, as well as all of the shares of our series B preferred stock.
 
 
License Agreements
 
We have entered into domestic licensing agreements covering the areas of Philadelphia, Pennsylvania, Dallas/Ft. Worth, Texas, Palm Beach, Florida, Metaire, Louisiana, Lake Mary, Florida, Denver, Colorado, Sugarland, Texas and Baton Rouge, Louisiana as well as international licensing agreements covering the territories of Canada, Australia, New Zealand, and Thailand. As of the date hereof, we believe that the licensees in Philadelphia, Pennsylvania, Dallas/Ft. Worth, Texas, Palm Beach, Florida, Metaire, Louisiana, and Lake Mary, Florida are either in default and/or non-compliance with the duties, obligation or responsibility imposed upon them by the agreement and we intend to pursue our remedies accordingly. In addition, we have received notification of termination from the licensees in Denver, Colorado, Baton Rouge, Louisiana and Lake Mary, Florida which notifications include demand for payments. We believe that such parties were also in default and/or non-compliance with the duties, obligation or responsibility imposed upon them by the agreement, and we intend to pursue our remedies and/or vigorously defend ourselves against any claims made by such parties.  In addition, during the course of the establishment of the laboratory in Thailand, we became concerned over the ability of the licensee to make certain payments to us as well as the licensee’s ongoing ability to meet the duties, obligations and/or responsibility imposed upon them by the license agreement.  As a result, we are considering terminating the agreement and returning all or a portion of the fees paid to date, if appropriate, however, there can be no assurance that any such arrangement will ever materialize.

Regen Agreement

On April 16, 2012, the Company entered into a technology license and administrative services agreement (the “Agreement”) with Regen Medical P.C., the medical practice which is owned by, and through which, our Chief Executive Officer, Dr. Steven Victor, engages in the practice of Cosmetic Dermatology (“Regen Medical”). Pursuant to the Agreement, the Company, among other things, (i) granted Regen Medical the non-exclusive and non-assignable license to utilize the Company's proprietary process and technology for its patients, (ii) granted Regen Medical a license to use a laboratory which can be used by Regen Medical for use of the Company’s proprietary process and (iii) was appointed as the exclusive manager and administrator of Regen Medical’s operations which relates to the implementation of the Company's proprietary process as well as Regen Medical’s cosmetic dermatology practice, and (iv) was appointed the sole provider of non-medical managerial, administrative and business functions for Regen Medical’s cosmetic dermatology practice.  The Agreement became effective as of April 16, 2012 and shall continue until April 16, 2017.  Thereafter, the Agreement is to be automatically renewed for successive five year periods unless either party notifies the other in writing of its intention not to renew the Agreement. Such a notice is to be given at least 12 months but no more than 15 months prior to the expiration of the then current term.  Either party may terminate the Agreement, for among other things, the failure to cure a material breach of the agreement within 30 days after receipt of written notice or in the event any state or federal laws or regulations, now existing or enacted or promulgated after the effective date, are interpreted in such a manner as to indicate that the structure of the agreement may be in violation of any such laws or regulations.

In consideration for the services to be provided under the Agreement, Regen Medical is to pay the Company (i) an annual administrative fee of $600,000, payable in equal monthly installments during the term of the term of the agreement (subject to an annual increase of up to a maximum of ten percent (10%) beginning on the second anniversary of the effective date), (ii) an annual technology license fee of $120,000, payable in equal monthly installments during the term of the term of the agreement, for the use of our proprietary process (including the laboratory and the laboratory technician) and (iii) a processing fee of $1,000 for each tissue processing case that utilizes our proprietary process.  The Company is also entitled to a an annual performance fee during the term of either (i) $150,000, in the event total income to Regen Medical exceeds $5,500,000 or (ii) $200,000, in the event that total income to Regen Medical exceeds $7,000,000.  In addition, beginning on October 16, 2013 and on each six month anniversary thereafter during the term, the Company is entitled to a share of Regen Medical’s Savings (as defined below), minus its share of any Loss (as defined below”), based upon an agreed upon base burden percentage for Regen Medical (the “Base Burden Percentage”). The Base Burden Percentage is to be calculated by dividing (a) the aggregate actual costs of Regen Medical paid by the Company during the period ending on December 31, 2011 by (b) the aggregate revenue of Regen Medical collected by the Company during the period ending on December 31, 2011; provided , however , that the Base Burden Percentage shall be recalculated on January 1, 2013 and every 12 months thereafter during the term by dividing (i) the aggregate actual costs for the Regen Medical paid by the Company during the preceding three six-month periods by (ii) the aggregate Savings or Loss is to be calculated by subtracting (a) the aggregate actual costs for the Regen Medical paid by the Company during the preceding Period from (b) an amount equal to (I) the Base Burden Percentage multiplied by (ii) the aggregate revenue of the Regen Medical collected by the Company during the preceding Period (the “Burden Amount”). If the Burden Amount exceeds the Period Actual Costs (the “Savings”) or the Period Actual Costs exceed the Burden Amount (the “Loss”), Regen Medical and the Company shall share such Savings or Loss 65% for the account of the Regen Medical and 35% for the account of the Company.
 

Recent Developments

FDA Validation

On November 8, 2012, the Company was notified according to the Federal Drug Administration (“FDA”) validation registration number 3009842420, that its new facility located at 460 Park Avenue, New York, NY 10022 is now registered to recover, process, package, store, and label human cells and tissue products (HCT/P’s) such as the IntelliCell autologous stromal vascular fraction cellular product.  In the registration notification, FDA acknowledged that the IntelliCell process is to be covered under regulations for tissue products.  The HCT/P regulations are described in 21 CFR section 1271.10.  The registration does not represent FDA approval of IntelliCell's processes.

Lasersculpt IP License Agreement

On July 20, 2012, the Company entered into an intellectual property license agreement (the “License Agreement”) with Lasersculpt, Inc., a corporation controlled by Dr. Steven Victor, the Company’s chief executive officer (“Lasersculpt”), pursuant to which Lasersculpt licensed to the Company, among other things, the right to (i) use, market, broadcast and otherwise exploit a 30 minute infomercial, 30 and 60 second commercials and other produced content regarding the Lasersculpt method and procedure (the “Shows”) (ii) product and commercially exploit new versions of the Shows, as well as any sequels, prequels and other productions based on the Shows or the IP Rights (as defined in the License Agreement), and (iii) use and exploit the IP Rights (as defined in the License Agreement) in any manner the Company, in its sole discretion, deems necessary or advisable.  The License Agreement shall have an initial term of ten (10) years from the date of the License Agreement, unless terminated sooner in accordance with the License Agreement (the “Term”).  In consideration for the rights granted under the License Agreement, the Company agreed to (i) issue 430,000 shares of Common Stock to Lasersculpt (which shares were transferred by Dr. Victor out of his personal holdings in the Company directly to Lasersculpt) and (ii) pay Lasersculpt royalties in an amount equal to 5% of Net Revenue (as defined in the License Agreement) received by the Company during the Term (which royalties Dr. Victor and his affilates have agreed to not receive).

 Series E Preferred Stock Financing
 
Between October 1 2012 and October 31, 2012, the Company entered into a securities purchase agreement with two accredited investors (the “Series E Preferred Stock Investors”) pursuant to which the Company sold the investors an aggregate of one hundred twenty-five (125) shares of its series E convertible preferred stock (the “Series E Preferred Stock”) for aggregate gross proceeds of $125,000.

Between November 5, 2012 and November 6, 2012, the Company entered into an exchange agreement, with the Series E Preferred Stock Investors  pursuant to which the Series E Preferred Investors holding an aggregate of 125 shares of the Company’s Series E Preferred Stock agreed to exchange their Series E Preferred Stock for (i) an aggregate of 833,334 shares of the Company’s Common Stock and (ii) a five-year warrant to purchase an aggregate of 416,667 shares of Common Stock at an exercise price of $0.45 per share. The Series E Preferred Stock Investors also provided their consent to allow the Company to take all actions necessary to cancel the Series E Preferred Stock which will include the filing of a Withdrawal of Designation with the Secretary of State of Nevada. As of the date of this Quarterly Report on Form 10-Q, the Company has not filed any documents with the Nevada Secretary of State.

A FINRA registered broker-dealer was engaged as placement agent in connection with the Series E Preferred Stock private placement. We paid the placement agent a cash fee in the amount of $17,500 (representing a 10% sales commission of $12,500 and reimbursement for legal fees incurred) and will issue the placement agent a warrant to purchase shares of common stock.

Thailand License Agreement

 On October 23, 2012, the Company sent a letter to StemCells 21 Co. Ltd. (the “Thailand Licensee”) pursuant to which the Company notified the Thailand Licensee that it intends to terminate the Laboratory Services License Agreement, dated April 7, 2012 by and between the Company and Thailand Licensee (the “Thailand Agreement”), effective immediately. The Company is terminating the Thailand Agreement, for, among other things, Thailand Licensee’s (i) attempt to determine the Technology (as defined in the Thailand Agreement) for Tissue Processing (as defined in the Thailand Agreement), (ii) failure to provide monthly reports summarizing Thailand Licensee’s efforts to utilize and commercially exploit the Patents (as defined in the Thailand Agreement) and Technology, (iii) operation of the Technology without using the name “Intellicell Thailand”, (iv) operation of the Technology in ways that fall outside the scope of the Thailand Agreement and (v) failure to notify the Company of infringing uses of the Technology. Pursuant to the terms of the Thailand Agreement, the Thailand Licensee has ten (10) business days to cure an event of default under the Thailand Agreement (except for termination of the Thailand Agreement as set forth in subsection (i) above which allows the Company to terminate the Thailand Agreement immediately). The Company has accrued $150,000 in the License Fee Liability upon the determination of amount of the fees, if any, to be returned to the former Thailand Licensee.
 
 
 Australia License Agreement

On December 16, 2011, the Company entered into an exclusive lab services agreement (the “Australian Agreement”) with Cell-Innovations Pty Ltd. (“Australian Licensee”) pursuant to which the Company granted Australian Licensee the exclusive right and license to the Company’s technology and trademarks so that the Australian Licensee can utilize the Company’s technology and trademarks to provide tissue processing services for humans in Australia and New Zealand.  As of the date of this Current Report on Form 8-K, the Company and Australian Licensee are in a dispute over the some of the terms of the Australian Agreement, including, but not limited to, compliance by Australian Licensee with ICB Protocols (as defined in the Australian Agreement).  While the Company has commenced discussions with the Australian Licensee concerning the disputes that have arisen under the terms of the Australian Agreement, there can be no assurance that the Company and the Australian Licensee will come to any mutual understanding with respect to any of the issues in question. As of the date of this Current Report on Form 8-K, the Company is continuing to evaluate what further action(s), if any, it make take in response to the dispute with the Australian Licensee, which action(s) may include, but not be limited to, terminating the Australian Agreement. The Company has accrued $700,000 in the License Fee Liability upon the determination of amount of the fees, if any, to be returned to the former Australian Licensee.

 Unit Offering

 On November 13, 2012, the Company entered into a securities purchase agreement with an accredited investor pursuant to which the Company sold the investor 833,333 units, each unit consisting of two (2) shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) and a warrant to purchase a share of common stock (collectively, the “Warrant”), for aggregate gross proceeds of $250,000. The Warrant is exercisable for a period of five years from the date of issuance at an initial exercise price of $0.45, subject to adjustment.  The exercise price of the Warrant is subject to customary adjustments for stock splits, stock dividends, recapitalizations and the like.

Corporate Structure
 
As a result of the foregoing transactions, we currently have a wholly-owned subsidiary, Intellicell Biosciences, Inc., a New York corporation, through which we engage in our principal business. We have also recently formed another wholly-owned subsidiary, ICBS Research, Inc., a New York corporation, for the purpose of engaging in clinical studies at prominent medical centers to obtain FDA approval for major clinical indications. In addition, our wholly-owned subsidiary, Intellicell Biosciences, Inc., a New York corporation, owns one hundred percent (100%) of the outstanding stock of Tech Stem Inc., a New York corporation.

Results of Operations - Three Months and Nine Months ended September 30, 2012 compared to the Three and Nin