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-K on 1-Apr-2014All Recent SEC Filings

Show all filings for ADVANCED CELL TECHNOLOGY, INC.

Form 10-K for ADVANCED CELL TECHNOLOGY, INC.


1-Apr-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in this annual report on Form 10-K that are not historical in fact constitute "forward-looking statements." Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors based on the Company's estimates and expectations concerning future events that may cause the actual results of the Company to be materially different from historical results or from any results expressed or implied by such forward-looking statements. These risks and uncertainties, as well as the Company's critical accounting policies, are discussed in more detail under "Management's Discussion and Analysis-Critical Accounting Policies" and in periodic filings with the Securities and Exchange Commission. You should review carefully the factors identified in this report in Item 1A, "Risk Factors". We disclaim any intent to update or announce revisions to any forward-looking statements to reflect actual events or developments, except as required by law. Except as otherwise indicated herein, all dates referred to in this report represent periods or dates fixed with reference to our fiscal year ended December 31.The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

You should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to the audited financial statements included in this annual report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

Restatement

With this Annual Report on Form 10-K, we have restated the following previously filed consolidated financial statements, data, and related disclosures:

(1) Our consolidated balance sheet as of December 31, 2012, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the fiscal years ended December 31, 2011 and 2012 located in Part II, Item 8 of this Annual Report on Form 10-K;

(2) Our selected financial data as of, and for our fiscal years ended December 31, 2009, 2010, 2011, and 2012 located in Part II, Item 6 of this Annual Report on Form 10-K;

(3) Our management's discussion and analysis of financial condition and results of operations as of and for our fiscal years ended December 31, 2011 and 2012, contained herein; and

(4) Our unaudited quarterly financial information for each quarter in our fiscal years ended December 31, 2012 and 2011, and for the quarters ended March 31, 2013, June 30, 2013, and September 30, 2013, in Note 19, "Summarized Quarterly Unaudited Financial Data (Restated)" of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

The restatement results from our review of accounting for a potentially unsettled warrant obligation and stock compensation accounting. See "Explanatory Note Regarding Restatement" immediately preceding Part I, Item 1 and Note 2, "Restatement of Previously Issued Consolidated Financial Statements" of the Notes to Consolidated Financial Statements in Part II, Item 8 for a detailed discussion of the review and effect of the restatement.

The following discussion and analysis of our financial condition and results of operations incorporates the restated amounts. For this reason, the data set forth in this section may not be comparable to discussions and data in our previously filed Annual Reports of Form 10-K.

Overview

We are a biotechnology company focused on developing and commercializing human stem cell technology in the emerging fields of regenerative medicine and stem cell therapy. 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. We are actively conducting clinical trials for treating dry age-related macular degeneration and Stargardt's macular degeneration. Our preclinical programs involve cell therapies for the treatment of other ocular disorders and for diseases outside the field of ophthalmology, including autoimmune, inflammatory and wound healing-related disorders. Our intellectual property portfolio includes pluripotent human embryonic stem cell-induced pluripotent stem cell platforms; and other cell therapy research programs.

Comparison of Years Ended December 31, 2013 and 2012



                                                                                Dollar         Percentage
                                             2013              2012             Change           Change
                                                            As restated
Revenue                                  $     224,985     $     466,487     $   (241,502 )          (51.8 )%
Cost of Revenue                                 82,436           117,436          (35,000 )          (29.8 )%
Gross Profit                                   142,549           349,051         (206,502 )          (59.2 )%
Research and Development expenses:
-R&D expenses, excluding non-cash,          10,171,842        10,366,542         (194,700 )           (1.9 )%
stock option compensation
- Non-cash, stock option compensation        1,392,926         3,792,394       (2,399,468 )          (63.3 )%
Total Research and Development              11,564,768        14,158,936       (2,594,168 )          (18.3 )%
General and administrative expenses
-G&A expenses, excluding non-cash,           9,569,934         7,429,375        2,140,559             28.8 %
stock option compensation
 -Non-cash, stock option compensation        2,487,133         4,003,491       (1,516,358 )          (37.9 )%
Total General and Administrative            12,057,067        11,432,866          624,201              5.5 %
Litigation settlement contingency            6,228,621                 -        6,228,621              100 %
Non-operating expense                       (1,314,341 )      (9,341,364 )      8,027,023             85.9 %
Net Loss                                 $ (31,022,248 )   $ (34,584,115 )   $  3,561,867             10.3 %

Revenue

Revenue relates 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 of 51.8% is related to the termination of our license agreement with International Stem Cell Corporation in early 2013. Deferred revenue of $1,907,574 as of December 31, 2013 will be amortized to revenue over approximately 12 years. We currently have no therapeutic products available for sale and do not expect to have any commercially available for sale for a period of years, if at all.

Research and Development Expenses

Research and development or, R&D expenses, consist mainly of payroll and payroll related expenses for our scientific staff, services we attain in connection with our ongoing clinical trials and pre-clinical programs, our R&D and GMP facility costs and research supplies and materials. R&D expenses, excluding non-cash, stock option compensation expense, decreased from $10,366,542 for the year ended December 31, 2012 to $10,171,842 for the year ended December 31, 2013, for a decrease of $194,700 or 1.9%. In the beginning of 2013, a number of our employees who are located in our Massachusetts R&D and manufacturing facility changed their roles and responsibilities consistent with our scale up of the general and administrative function within the company. This shift in roles and responsibilities in early 2013 resulted in a decrease in R&D payroll related expenses of approximately $1,144,000. Aside from this shift in responsibilities of these employees, and the related shift in their cost allocation, R&D increased from 2012 to 2013. The primary driver of this increased spending was our planned expansion of our clinical trial activities which increased by approximately $639,000 during the year, as we expanded our clinical sites and increased the activities to screen, enroll and treat patients in our AMD and SMD clinical trials, in the US and in the UK. Also contributing to the increase in R&D spending for the year was approximately $557,000 of increased collaboration and licensing costs incurred, in support of our pre-clinical programs and an increase of approximately $317,000 of additional occupancy costs due to the additional lab and manufacturing space rented in our Marlborough facility. Other items of increased spending were recruiting costs of approximately $94,000; and depreciation expenses of approximately $51,000.

Research and development expenses related to non-cash, stock option compensation was $1,392,926 for the year ended December 31, 2013 and $3,792,394, as restated, for the year ended December 31, 2012. This decrease of $2,399,468, or 63.3%, is due to the revaluation of stock option expense, pursuant to the adjustment of the stock option pool from liability to equity classification.

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

We do not segregate R&D 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 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, since the research is conducted on an integrated basis.

We expect R&D expenses will increase in 2014 and beyond as we continue to invest in our clinical and pre-clinical programs. The rate of increase for any given period will be impacted by the timing of enrollment, and treatment of clinical trial patients along with interim results of our many pre-clinical programs. The amount and timing of these fluctuations can be difficult to predict due to the uncertainty inherent in the timing and extent of progress in our research programs, initiation of new clinical trials and rate of progression of existing 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 current and future 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, or G&A costs, consist mainly of payroll and payroll related expenses, legal costs relating to corporate matters and litigation, and fees for consultants, service providers and other administrative costs. G&A expenses, excluding non-cash, stock option compensation increased from $7,429,374 for the year ended December 31, 2012, to $9,569,934 for the year ended December 31, 2013, for an increase of $2,140,559 or 28.8%. The increase in G&A spending primarily related to increases in salaries and wages of approximately $1,347,000. In the beginning of 2013, a number of our employees who are located in our Massachusetts R&D and manufacturing facility changed their roles and responsibilities consistent with our scale up of the general and administrative function within the company. This further emphasis on the G&A function is consistent with our plans to ultimately uplist our stock to a national exchange, and also to relocate the majority of our G&A function to our Massachusetts facility. We also realized an increase in legal expenses of approximately $1,235,000 in 2013, as compared to 2012. These increases were partially offset by a reduction in the amounts incurred for outside services and professional fees of approximately $162,000.

General and administrative expenses related to non-cash, stock option compensation was $2,487,133 for the year ended December 31, 2013, and $4,003,491, as restated, for the year ended December 31, 2012, for a decrease of $1,516,358 or 37.9%. This decrease is due to the revaluation of stock option expense, pursuant to the adjustment of the stock option pool from liability to equity classification.

We expect G&A expenses to remain relatively flat for the foreseeable future. Factors that could change this expectation are unexpected costs from additional or prolonged non-routine legal matters.

Other Income (Expense)



Other, non-operating income (expense) consisted of the following:



                                             2013             2012           $ Change        % Change
                                                          As restated
Interest income                          $    165,918     $     15,581     $    150,337          964.9 %
Interest expense                           (1,437,584 )     (1,104,602 )       (332,982 )        (30.1 )%
Finance gain (loss)                            95,162       (7,015,470 )      7,110,632          101.4 %
Adjustments to fair value of unsettled       (107,438 )      1,390,382       (1,497,820 )       (107.7 )%
warrant obligation (expense)
Loss on disposal of fixed assets                    -          (17,138 )         17,138            100 %
Gain on the extinguishment of debt            438,587                -          438,587            100 %
Fines and penalties                          (962,227 )     (3,500,000 )      2,537,773           72.5 %
Adjustments to fair value of                  493,241          889,883         (396,642 )        (44.6 )%
derivatives
Total non-operating expense              $ (1,314,341 )   $ (9,341,364 )   $  8,027,023           85.9 %

Interest expense for the year ended December 31, 2013 compared to the year ended December 31, 2012 increased by $332,982, or 30.1%. The increase is due to interest on the CAMOFI notes which were effective in December 2012 as part of a settlement agreement. The principal amount of the CAMOFI debentures at issuance was $6,000,000 and the debentures accrue interest at a rate of 8%. This interest expense increase was partially offset by the discontinuation of interest from the JMJ Financial and Volation debt. Convertible promissory notes originally issued to JMJ Financial in 2010 were retired in May 2013, when the Company entered into a Mutual Release and Waiver Agreement with JMJ Financial. In 2009, the Company entered into a purchase agreement with Volation and issued Series A-1 redeemable convertible preferred stock which paid dividends at a rate of 10% and was recorded as interest expense. In April 2013, the Company entered into an exchange agreement whereby the Series A-1 preferred stock was exchanged for shares of common stock of the Company.

Finance gain (loss) for the year ended December 31, 2013, changed by $7,110,632, from a loss of $7,015,470 in 2012 to a gain of $95,162 in 2013. The finance charges for the year ended December 31, 2012 consist of $3,586,000 related to the final settlement with Alpha Capital concerning a dispute over convertible notes and warrants they held plus an additional $2,887,000 related to the final settlement with CAMOFI and an increase in the estimate of various additional potential settlement claims of $542,470.

Adjustments to fair value of unsettled warrant obligation for the year ended December 31, 2013 was a loss of $107,438 compared to a gain of $1,390,382 for the year ended December 31, 2012. The fair value account adjusts the 63.2 million shares which are contractually obligated by the change in the stock price for each period. In 2013 the stock price was relatively flat and on average increased slightly, leading to expense for the year. In 2012 the stock price dropped from approximately $0.09 to $0.06, leading to a gain for the year.

The gain on the extinguishment of debt for the year ended December 31, 2013 relates to the settlement with JMJ Financial.

Fines and penalties for the year ended December 31, 2013 were $962,227. Approximately $587,000 of the balance was due to us being named as a defendant in a civil action brought by the SEC, alleging that we violated the Securities Act because certain sales of shares to outside organizations completed in 2008 and 2009 were neither registered under the Securities act nor subject to an exemption from registration. This amount was in addition to the $3,500,000 we expensed in 2012. The SEC civil suit was settled in December 2013, for approximately $4,087,000, which includes the $3,500,000 and approximately $587,000 of pre-judgment interest. The remaining balance in 2013 of approximately $375,000 relates to an SEC investigation of our previous CEO's failure to report transactions for shares of common stock sold between February 7, 2011 and January 10, 2013. The amount charged is based on discussions with SEC in resolving the issue from a Company perspective.

The adjustment to fair value of derivatives changed to a gain of $493,241 during the year ended December 31, 2013, from a gain of $889,883 during the year ended December 31, 2012. The decrease in gain of $396,642 is due to the revaluation of the embedded derivative related to the CAMOFI debentures and lower expected volatility relating to the decreased time to maturity offset by a slightly higher stock price at December 31, 2013, $0.0617, than at December 31, 2012, $0.0557.

Comparison of Years Ended December 31, 2012 and 2011



                                                                                Dollar         Percentage
                                             2012              2011             Change           Change
                                          As restated       As restated
Revenue                                  $     466,487     $     506,419     $    (39,932 )           (7.9 )%
Cost of Revenue                                117,436           343,950         (226,514 )          (65.9 )%
Gross Profit                                   349,051           162,469          186,582            114.8 %
Research and Development expenses:
-R&D expenses, excluding non-cash,          10,366,542         9,953,224          413,318              4.2 %
stock option compensation
- Non-cash, stock option compensation        3,792,394          (199,465 )      3,991,859           2001.3 %
Total Research and Development              14,158,936         9,753,759        4,405,177             45.2 %
General and administrative expenses:
-G&A expenses, excluding non-cash,           7,429,375         7,168,957          260,418              3.6 %
stock option compensation
- Non-cash, stock option compensation        4,003,491           266,752        3,736,739           1400.8 %
Total General and Administrative            11,432,866         7,435,709        3,997,157             53.8 %
Loss on settlement of litigation                     -           294,144          294,144              100 %
Non-operating expense                       (9,341,364 )     (37,871,660 )     28,530,296             75.3 %
Net Loss                                 $ (34,584,115 )   $ (55,192,803 )   $ 20,608,688             37.3 %

Revenue

Revenue relates to license fees and royalties collected that are being amortized over the period of the license granted, and are therefore typically consistent between periods. Revenue was $466,487 for the year ended December 31, 2012, which was a decrease of $39,932 or 7.9% compared to the year ended December 31, 2011. The decrease is due to license agreements that were terminated in 2011.

Research and Development Expenses

Our R&D expenses consist mainly of payroll and payroll related expenses for our scientific staff, services we attain in connection with our ongoing clinical trials and pre-clinical programs, our R&D and GMP facility costs and research supplies and materials. R&D expenditures, excluding non-cash, stock option compensation expense, for the year ended December 31, 2012 increased from $9,953,224 in 2011 to $10,366,542 in 2012 for an increase of $413,318 or 4.2%. The increase in R&D expenditures during 2012 as compared to 2011 was primarily due to an increase in clinical trial expenses of approximately $1,367,000, R&D lab supplies of approximately $522,000 and legal costs related to intellectual property of approximately $485,000, offset by a decrease in salaries and wage related costs of approximately $1,365,000 and consultant fees of approximately $302,000. Grants, which offset research and development expense, also increased by approximately $251,000 in 2012 as compared to 2011.

Research and development expenses related to non-cash, stock option compensation expense, as restated, was $3,792,394 for the year ended December 31, 2012 and $(199,465), as restated, for the year ended December 31, 2011. This increase of $3,991,859 is due to the revaluation, pursuant to the adjustment of the stock option pool from liability to equity classification.

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

We do not segregate R&D 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 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, since the research is conducted on an integrated basis.

We expect R&D expenses to increase modestly for the foreseeable future. The rate of increase for any given period will be impacted by the timing of enrollment, and treatment of clinical trial patients along with interim results of our many pre-clinical programs. The amount and timing of these fluctuations can be difficult to predict due to the uncertainty inherent in the timing and extent of progress in our research programs, initiation of new clinical trials and rate of progression of existing 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 current and future 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

Our G&A costs consist mainly of payroll and payroll related expenses for employees, legal costs relating to corporate matters and litigation, and fees for consultants, service providers and other administrative costs. G&A expenses, excluding non-cash, stock option compensation expense, for the year ended December 31, 2012 compared to the year ended December 31, 2011 increased from $7,168,957 in 2011 to $7,429,375 in 2012 for an increase of $260,418, or 3.6%. This increase was primarily a result of an increase in corporate legal fees of . . .

  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.