Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ACTC > SEC Filings for ACTC > Form 10-Q on 8-Nov-2011All Recent SEC Filings

Show all filings for ADVANCED CELL TECHNOLOGY, INC.

Form 10-Q for ADVANCED CELL TECHNOLOGY, INC.


8-Nov-2011

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with the financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We are a biotechnology company focused on developing and commercializing human stem cell technology in the emerging fields of regenerative medicine and stem cell therapy. Principal activities to date have included obtaining financing, securing operating facilities, and conducting research and development. We have no therapeutic products currently available for sale and do not expect to have any therapeutic products commercially available for sale for a period of years, if at all. These factors indicate that our ability to continue research and development activities is dependent upon the ability of management to obtain additional financing as required.

CRITICAL ACCOUNTING POLICIES

Deferred Issuance Cost- Payments, either in cash or share-based payments, made in connection with the sale of debentures are recorded as deferred debt issuance costs and amortized using the effective interest method over the lives of the related debentures. The weighted average amortization period for deferred debt issuance costs is 48 months.

Fair Value Measurements - For certain financial instruments, including accounts receivable, accounts payable, accrued expenses, interest payable and notes payable, the carrying amounts approximate fair value due to their relatively short maturities.

On January 1, 2008, we adopted FASB ASC 820-10, "Fair Value Measurements and Disclosures." FASB ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Management analyzes all financial instruments with features of both liabilities and equity under ASC 480, "Distinguishing Liabilities From Equity" and ASC 815, "Derivatives and Hedging." Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrant and option derivatives are valued using the Black-Scholes model.

Revenue Recognition- Our revenue is generated from license and research agreements with collaborators. Licensing revenue is recognized on a straight-line basis over the shorter of the life of the license or the estimated economic life of the patents related to the license. Deferred revenue represents the portion of the license and other payments received that has not been earned. Costs associated with the license revenue are deferred and recognized over the same term as the revenue. Reimbursements of research expense pursuant to grants are recorded in the period during which collection of the reimbursement becomes assured, because the reimbursements are subject to approval.

Stock Based Compensation- We record stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation." ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee's requisite service period. We recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 2011 and 2010

                                                 Three Months Ended September 30,            Three Months Ended September 30,
                                                               2011                                        2010
                                                                            % of                                        % of
                                                     Amount                Revenue             Amount                 Revenue
Revenue                                        $           132,805             100.0 %   $           205,158                100.0 %
Cost of revenue                                             16,650              12.5 %                66,650                 32.5 %
Gross profit                                               116,155              87.5 %               138,508                 67.5 %
Research and development expenses                        4,035,722            3038.8 %             1,348,503                657.3 %
General and administrative expenses                      2,976,219            2241.0 %             1,094,604                533.5 %
Change in estimate of accrued liabilities                        -               0.0 %               (30,336 )              -14.8 %
Loss on settlement of litigation                                 -               0.0 %             3,132,300               1526.8 %
Non-operating income (expense)                         (45,625,243 )        -34355.1 %             7,342,278               3578.8 %
Net loss                                       $       (52,521,029 )        -39547.5 %   $         1,935,715                943.5 %

Revenue

Revenue for the three months ended September 30, 2011 and 2010 was $132,805 and $205,158, respectively, which represented a decrease of $72,353, or 35%. These amounts relate primarily to license fees and royalties collected that are being amortized over the period of the license granted, and are therefore typically consistent between periods. The decrease in revenue during the three months ended September 30, 2011 was due to licenses being terminated during the fourth quarter 2010.

Research and Development Expenses and Grant Reimbursements

R&D expenses for the three months ended September 30, 2011 and 2010 were $4,035,722 and $1,348,503, respectively, an increase of $2,687,219, or 199%. R&D consists mainly of facility costs, payroll and payroll related expenses, research supplies and costs incurred in connection with specific research grants, and for scientific research. The increase in the R&D primarily consists of an increase in salaries of $1,466,592 and option compensation expenses of $1,093,063.

Our research and development expenses consist primarily of costs associated with basic and pre-clinical research exclusively in the field of human stem cell therapies and regenerative medicine, with focus on development of our technologies in cellular reprogramming, reduced complexity applications, and stem cell differentiation. These expenses represent both pre-clinical development costs and costs associated with non-clinical support activities such as quality control and regulatory processes. The cost of our research and development personnel is the most significant category of expense; however, we also incur expenses with third parties, including license agreements, sponsored research programs and consulting expenses.

We do not segregate research and development costs by project because our research is focused exclusively on human stem cell therapies as a unitary field of study. Although we have three principal areas of focus for our research, these areas are completely intertwined and have not yet matured to the point where they are separate and distinct projects. The intellectual property, scientists and other resources dedicated to these efforts are not separately allocated to individual projects, but rather are conducting our research on an integrated basis.


We expect that research and development expenses will increase in the foreseeable future as we add personnel, expand our pre-clinical research, begin clinical trial activities, and increase our regulatory compliance capabilities. The amount of these increases is difficult to predict due to the uncertainty inherent in the timing and extent of progress in our research programs, and initiation of clinical trials. In addition, the results from our basic research and pre-clinical trials, as well as the results of trials of similar therapeutics under development by others, will influence the number, size and duration of planned and unplanned trials. As our research efforts mature, we will continue to review the direction of our research based on an assessment of the value of possible commercial applications emerging from these efforts. Based on this continuing review, we expect to establish discrete research programs and evaluate the cost and potential for cash inflows from commercializing products, partnering with others in the biotechnology or pharmaceutical industry, or licensing the technologies associated with these programs to third parties.

We believe that it is not possible at this stage to provide a meaningful estimate of the total cost to complete our ongoing projects and bring any proposed products to market. The use of human embryonic stem cells as a therapy is an emerging area of medicine, and it is not known what clinical trials will be required by the FDA in order to gain marketing approval. Costs to complete could vary substantially depending upon the projects selected for development, the number of clinical trials required and the number of patients needed for each study. It is possible that the completion of these studies could be delayed for a variety of reasons, including difficulties in enrolling patients, delays in manufacturing, incomplete or inconsistent data from the pre-clinical or clinical trials, and difficulties evaluating the trial results. Any delay in completion of a trial would increase the cost of that trial, which would harm our results of operations. Due to these uncertainties, we cannot reasonably estimate the size, nature nor timing of the costs to complete, or the amount or timing of the net cash inflows from our current activities. Until we obtain further relevant pre-clinical and clinical data, we will not be able to estimate our future expenses related to these programs or when, if ever, and to what extent we will receive cash inflows from resulting products.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2011 and 2010 were $2,976,219 and $1,094,604, respectively, an increase of $1,881,615, or 172%. The increase was because of an increase in salaries of $692,838 and option compensation expense of $750,585.

Non-operating income (expense)

Non-operating income (expense) for the three months ended September 30, 2011 and 2010 was $(45,625,243) and $7,342,278, respectively. The change in non-operating income (expense) during the three months ended September 30, 2011, compared to that of 2010, relates primarily to finance costs offset by the change in fair value of derivatives. During the three months ended September 30, 2011, the Company incurred approximately $11,920,198 in financing costs due to a settlement with Midsummer Investments resulting from ratchet down provisions within their warrant agreement. Additionally the Company accrued a liability for as an estimate for pending litigations on a similar ratchet down warrant contract with Alpha Capital for $2,487,367 and $33,789,564 for potential claims from other investors. During the three months ended September 30, 2011, the fair value of the derivative liabilities increased by $3,661,432 compared to an increase of $9,550,745 for the three months ended September 30, 2010. Interest expense was $275,378 for the three months ended September 30, 2011 compared to $2,382,253 for the three months ended September 30, 2010. The decrease in interest expense is due to the decrease in the overall debt.

Net Income (Loss)

Net income (loss) for the three months ended September 30, 2011 and 2010 was
$(52,521,029) and $1,935,715, respectively. The change in net income (loss) in
each period is primarily related to the changes in the fair value of the
derivative liabilities and finance costs related to the settlement of
litigations.

Comparison of Nine months ended September 30, 2011 and 2010

                                              Nine Months Ended September 30,          Nine Months Ended September 30,
                                                            2011                                     2010
                                                                        % of                                      % of
                                                  Amount               Revenue             Amount               Revenue
Revenue                                     $          440,181             100.0 %   $           615,474            100.0 %
Cost of revenue                                        321,050              72.9 %               199,950             32.5 %
Gross profit                                           119,131              27.1 %               415,524             67.5 %
Research and development expenses                    7,042,766            1600.0 %             6,728,225           1093.2 %
General and administrative expenses                  8,125,473            1845.9 %            13,662,066           2219.8 %
Change in estimate of accrued liabilities                    -               0.0 %            (1,600,302 )         -260.0 %
Loss on settlement of litigation                       294,144              66.8 %             3,132,300            508.9 %
Non-operating income (expense)                     (45,339,963 )        -10300.3 %             8,523,246           1384.8 %
Net loss                                    $      (60,683,215 )        -13786.0 %   $       (12,983,519 )        -2109.5 %


Revenue

Revenue for the nine months ended September 30, 2011 and 2010 was $440,181 and $615,474, respectively, which represented a decrease of $175,293, or 28%. These amounts relate primarily to license fees and royalties collected that are being amortized over the period of the license granted, and are therefore typically consistent between periods. The decrease in revenue during the nine months ended September 30, 2011 was due to licenses being terminated during the fourth quarter 2010.

Research and Development Expenses and Grant Reimbursements

R&D expenses for the nine months ended September 30, 2011 and 2010 were $7,042,766 and $6,728,225, respectively, an increase of $314,541, or 5%. R&D consists mainly of facility costs, payroll and payroll related expenses, research supplies and costs incurred in connection with specific research grants, and for scientific research. The increase in R&D expenditures during the nine months ended September 30, 2011 as compared to the same period in 2010 is primarily as a result of an increase in option compensations expenses of $1,093,063 offset by a decrease in salaries of $685,059 and.

Our research and development expenses consist primarily of costs associated with basic and pre-clinical research exclusively in the field of human stem cell therapies and regenerative medicine, with focus on development of our technologies in cellular reprogramming, reduced complexity applications, and stem cell differentiation. These expenses represent both pre-clinical development costs and costs associated with non-clinical support activities such as quality control and regulatory processes. The cost of our research and development personnel is the most significant category of expense; however, we also incur expenses with third parties, including license agreements, sponsored research programs and consulting expenses.

We do not segregate research and development costs by project because our research is focused exclusively on human stem cell therapies as a unitary field of study. Although we have three principal areas of focus for our research, these areas are completely intertwined and have not yet matured to the point where they are separate and distinct projects. The intellectual property, scientists and other resources dedicated to these efforts are not separately allocated to individual projects, but rather are conducting our research on an integrated basis.

We expect that research and development expenses will increase in the foreseeable future as we add personnel, expand our pre-clinical research, begin clinical trial activities, and increase our regulatory compliance capabilities. The amount of these increases is difficult to predict due to the uncertainty inherent in the timing and extent of progress in our research programs, and initiation of clinical trials. In addition, the results from our basic research and pre-clinical trials, as well as the results of trials of similar therapeutics under development by others, will influence the number, size and duration of planned and unplanned trials. As our research efforts mature, we will continue to review the direction of our research based on an assessment of the value of possible commercial applications emerging from these efforts. Based on this continuing review, we expect to establish discrete research programs and evaluate the cost and potential for cash inflows from commercializing products, partnering with others in the biotechnology or pharmaceutical industry, or licensing the technologies associated with these programs to third parties.

We believe that it is not possible at this stage to provide a meaningful estimate of the total cost to complete our ongoing projects and bring any proposed products to market. The use of human embryonic stem cells as a therapy is an emerging area of medicine, and it is not known what clinical trials will be required by the FDA in order to gain marketing approval. Costs to complete could vary substantially depending upon the projects selected for development, the number of clinical trials required and the number of patients needed for each study. It is possible that the completion of these studies could be delayed for a variety of reasons, including difficulties in enrolling patients, delays in manufacturing, incomplete or inconsistent data from the pre-clinical or clinical trials, and difficulties evaluating the trial results. Any delay in completion of a trial would increase the cost of that trial, which would harm our results of operations. Due to these uncertainties, we cannot reasonably estimate the size, nature nor timing of the costs to complete, or the amount or timing of the net cash inflows from our current activities. Until we obtain further relevant pre-clinical and clinical data, we will not be able to estimate our future expenses related to these programs or when, if ever, and to what extent we will receive cash inflows from resulting products.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2011 and 2010 were $8,125,473 and $13,662,066, respectively, a decrease of $5,536,593, or 41%. The 2011 decrease was because during the nine months ended September 30, 2010, we expensed approximately $8,000,000 related to 89,280,595 shares of common stock that were issued or expected to be issued to our former chief executive officer per his employment agreement.


Loss on settlement of litigation

Loss on settlement of litigation for the nine months ended September 30, 2011 and 2010 were $294,144 and $3,132,300, respectively, a decrease of $2,838,156 or 91%. The decrease was due to the settlement with Transition Holdings, Inc. We had accrued $3,205,856 as of December 31, 2010 and then expensed the remaining $294,144 settlement amount during the nine months ended September 30, 2011.

Non-operating income (expense)

Non-operating income (expense) for the nine months ended September 30, 2011 and 2010 was $(45,339,963) and $8,523,246, respectively. The change in non-operating income (expense) during the nine months ended September 30, 2011, compared to that of 2010, relates primarily to finance costs offset by the change in fair value of derivatives. During the nine months ended September 30, 2011, the fair value of the derivative liabilities increased by $7,749,653 compared to an increase of $18,077,454 for the nine months ended September 30, 2010. During the nine months ended September 30, 2011, the Company incurred approximately $2,400,000 in financing costs associated with the Gemini Master Fund warrant settlement. During the nine months ended September 30, 2011, the Company incurred approximately $11,920,198 in financing costs due to a settlement with Midsummer Investments resulting from ratchet down provisions within their warrant agreement. Additionally the Company accrued a liability for as an estimate for pending litigations on a similar ratchet down warrant contract with Alpha Capital for $2,487,367 and $33,789,564 for potential claims from other investors. Interest expense was $1,229,259 for the nine months ended September 30, 2011 compared to $8,164,546 for the nine months ended September 30, 2010. The decrease in interest expense is due to the decrease in the overall debt.

Net Income (Loss)

Net loss for the nine months ended September 30, 2011 and 2010 was $60,683,215 and $12,983,519, respectively. The change in net loss in each period is primarily related to the Midsummer Investment warrant settlement and other liabilities arising from pending claims.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following table sets forth a summary of our cash flows for the periods
indicated below:

                                                                 Nine Months Ended September 30,
                                                                     2011                  2010
Net cash used in operating activities                          $     (10,828,173 )     $ (7,298,540 )
Net cash used in investing activities                                    (36,830 )         (199,045 )
Net cash provided by financing activities                              8,877,715          7,153,865
Net increase (decrease) in cash and cash equivalents                  (1,987,288 )         (343,720 )
Cash and cash equivalents at the end of the period             $      13,902,121       $  2,195,118

Operating Activities

Our net cash used in operating activities during the nine months ended September 30, 2011 and 2010 was $10,828,173 and $7,298,540, respectively. Cash used in operating activities increased during the current period primarily due to an increase in operating expenditures.

Cash Flows from Investing

Cash used in investing activities during the nine months ended September 30, 2011 and 2010 was $36,830 and $199,045, respectively. Our cash used in investing activities during the nine months ended September 30, 2011 was attributed to the purchase of fixed assets for approximately $37,000.

Cash Flows from Financing Activities

Cash flows provided by financing activities during the nine months ended September 30, 2011 and 2010 was $8,877,715 and $7,153,865, respectively. During the nine months ended September 30, 2011, we received $5,500,000 from the issuance of 550 shares of Series C Preferred stock and $3,377,715 from the exercise of warrants.

We plan to fund our operations for the foreseeable future from the following sources:

As of September 30, 2011, we have approximately $13,900,000 in cash.

As of September 30, 2011, approximately $1,580,000 is available to us upon the sale of our Series A-1 preferred stock for a maximum placement commitment of $5 million.


As of September 30, 2011, $15,500,000 is available to us upon the sale of our Series C preferred stock for a maximum placement commitment of $25,000,000.

We continue to repay our debt financings in shares of common stock, enabling us to use our cash resources to fund our operations.

On a long term basis, we have no expectation of generating any meaningful revenues from our product candidates for a substantial period of time and will rely on raising funds in capital transactions to finance our research and development programs. Our future cash requirements will depend on many factors, including the pace and scope of our research and development programs, the costs involved in filing, prosecuting and enforcing patents, and other costs associated with commercializing our potential products. We intend to seek additional funding primarily through public or private financing transactions, and, to a lesser degree, new licensing or scientific collaborations, grants from governmental or other institutions, and other related transactions. If we are unable to raise additional funds, we will be forced to either scale back our business efforts or curtail our business activities entirely. We anticipate that our available cash and expected income will be sufficient to finance most of our current activities for the foreseeable future. We cannot assure you that public or private financing or grants will be available on acceptable terms, if at all. Several factors will affect our ability to raise additional funding, including, but not limited to, the volatility of our common stock.

  Add ACTC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ACTC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.